Small states in world markets

Save for Japan, this statement is not an arguable one — by every relevant economic and social criteria, the West European nations are the most prosperous and politically stable in the world. But it is the smaller nations of this group which should be of particular interest to Caribbean countries, since there may be economic and political lessons to be learnt from how Sweden, Norway, Denmark, the Netherlands, Belgium and Austria have survived and prospered in the midst of the larger nations of the world.

“The small democracies of Western Europe pose an interesting puzzle to the social sciences,”

Katzenstein writes. “Political scientists return from their travels recording the stability that these states have discovered in their corporatist arrangements. Yet economists typically view the same countries as models of economic flexibility and market competition.”

Katzenstein, who is a political scientist, spent five years studying the political structures and economic policies of these countries. He argues that they have all created a social structure he calls “democratic corporatism” which has three traits: an ideology of social partnership expressed at the national level; a relatively centralised and concentrated system of interest groups; and voluntary and informal coordination of conflicting objectives through continuous political bargaining between interest groups, state bureaucracies, and political parties.

“The small European states frame political choices in a distinctive way,” says Katzenstein. “Their choices are conditioned by two sets of forces: historically shaped domestic structures and the pressures of the world economy.”

In respect to the former, he argues that internal revolutions and the two world wars forced home the point that the various interest groups in these countries had a lot to lose. “The important social actors are systematically included in the policy network, thus acquiring a stake in the continued operation of the network even if they are dissatisfied with particular policy outcomes,” he writes. Thus, business owners and trade unions, as well as opposing political parties on the Left and Right, Government and Opposition, all work with the underlying principle of compromise never forgotten.

“Democratic corporatism has been able to tolerate contradictions because of its accommodation rather than resistance to market competition and because of its inclusion of all significant actors in the decision-making process,” Katzenstein concludes.

Indeed, the political ideologies, being essentially pragmatic, do not lead to the economic policies that change according to whether a left-wing or right-wing party holds office.

“For the small European states, economic change is a fact of life. These states, because of their small size, are very dependent on world markets, and protectionism is therefore not a viable option for them…They live with change by compensating for it,” Katzenstein writes, adding, “the production of goods for profitable niches in international markets has long been an economic reality for the small European states.”

So Switzerland, for example, has concentrated on luxury consumer goods, investment goods, artisanal production (watches, embroidery), and technical expertise.

Since it is history which accounts for their politics, it seems unlikely that we can follow the European states’ example here. But, until the different interest groups learn to do so, our economy will remain an essentially one-string fiddle.