When Small States Make Big Leaps: Institutional Innovation and High-Tech Competition in Western Europe

1. The Paradox of High-Tech Corporatism

7 1 THE PARADOX OF HIGH-TECH CORPORATISM Traditionally, many western European economies relied on institutionalized cooperation among state actors and encompassing producer associations (industry and labor) to manage economic adjustment. This “neo-corporatist” approach to governance differs from the decentralized competition among individual firms and employees that prevails in liberal market economies such as Australia , Britain, Canada, the United States, and New Zealand and the hierarchical command-and-control structure that characterizes statist economies such as France. Neo-corporatist economies are instead characterized by voluntary cooperation rather than hierarchical state control, as policymakers actively consult and share responsibility with societal actors. Societal actors are organized into producer associations that transcend individual firms or employees such as employer confederations, industry associations, and trade unions.1 Finally, cooperation among producer associations or “stakeholders” is institutionalized in routinized patterns of policymaking and production. Stakeholders, for example, are embedded in long-term relationships rather than temporary joint ventures or ad hoc lobbying networks. The specific labels used to characterize “institutionalized cooperation among state actors and encompassing producer associations” have varied with time. Early literature on “neo-corporatism” (Schmitter 1974) bifurcated into two 1. Like the authors of earlier literature on neo-corporatism (Pempel and Tsunekawa 1979; Schmitter 1974), I argue that either labor or industry associations can be encompassing and engaged in institutionalized cooperation. 8 WHEN SMALL STATES MAKE BIG LEAPS strands. The literature on concertation focuses on institutionalized cooperation in national-level policy formulation and implementation (Lehmbruch and Schmitter 1982). The literature on coordination addresses peak- and lowerlevel processes of institutionalized cooperation in production (Soskice 1990).2 While this distinction has introduced greater precision into neo-corporatist studies, it has also obscured the ways in which peak-level policy concertation impacts coordination in production at lower levels. In this book I retain the term “neo-corporatism” to recapture the interplay between policy concertation and economic coordination. At the same time, I build on earlier literature by distinguishing between policy concertation and coordination in production. Initially conceptualized as a system of interest intermediation (Schmitter 1974),neo-corporatism was soon perceived as an excellent or even“superior”way to regulate conflicting societal demands over output during the economic shocks of the 1970s (Goldethorpe 1984; Pekkarinen, Pohjola, and Rowthorn 1992). Most commonly applied to the labor market, encompassing neo-corporatist trade unions were hypothesized to internalize the impact of their wage demands on inflation and unemployment, moderating their claims, and securing superior or comparable economic outcomes relative to their liberal peers (Calmfors and Driffill 1988). In practice, wage moderation was achieved through “political exchange,” in which trade unions (and employers) received significant policy concessions, including institutionalized influence over policy formulation and implementation (Pizzorno 1978). Neo-corporatist bargaining facilitated political exchange by enabling state actors, trade unions, and employers to identify common objectives such as industrial peace, making credible commitments to refrain from industrial action, and coordinating across different domains such as wages and social policy. This shift from wage bargaining to political exchange is a key point of departure for this book, which is less about wage restraint and industrial peace, a common objective across neo-corporatist countries, subtypes and scholarship (Goldethorpe 1984; Hassel 2007), than about the bargains that are struck to achieve it, which vary considerably. In early postwar Denmark, Norway, and Sweden—paradigmatic examples of neo-corporatism—state actors, trade unions, and employer associations traded wage moderation and industrial peace for more generous social benefits, expansionary fiscal policies, and other redistributive measures (Scharpf 1984). Later 2. Additional labels include “social partnership” (O’Donnell 2001) and “social pacting” (Hassel 2009), related to concertation, and “negotiated” (Zysman 1983) and “organized” capitalism (Vogel 2003), related to coordination. THE PARADOX OF HIGH-TECH CORPORATISM 9 literature broadened the focus from labor market bargaining to other institutional domains, including finance and industrial policy (Landesmann 1992). This work revealed that central European economies relied on functionally equivalent institutions at the meso level to compensate organized societal actors during troubled economic times. For example, Swiss banks channeled patient capital to troubled firms and Austrian policymakers used state aid to modernize vulnerable sectors (Katzenstein 1984). Classical neo-corporatism in Scandinavia and functional equivalents in central Europe were thus perceived to make market adjustment possible by delaying the pace of economic change. Literature on the “varieties of capitalism” has shifted attention to collaboration in production or “coordination,” demonstrating how institutionalized cooperation among organized industry and labor associations at the...