When Small States Make Big Leaps

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

Darius Ornston
Copyright Date: 2012
Edition: 1
Published by: Cornell University Press
Pages: 240
https://www.jstor.org/stable/10.7591/j.cttq42n1
  • Cite this Item
  • Book Info
    When Small States Make Big Leaps
    Book Description:

    At the close of the twentieth century, Denmark, Finland, and Ireland emerged as unlikely centers for high-tech competition. In When Small States Make Big Leaps, Darius Ornston reveals how these historically low-tech countries managed to assume leading positions in new industries such as biotechnology, software, and telecommunications equipment. In each case, countries used institutions that are commonly perceived to delay restructuring to accelerate the redistribution of resources to emerging enterprises and industries.

    Ornston draws on interviews with hundreds of politicians, policymakers, and industry representatives to identify two different patterns of institutional innovation and economic restructuring. Irish policymakers worked with industry and labor representatives to contain costs and expand market competition. Denmark and Finland adopted a different strategy, converting an established tradition of private-public and industry-labor cooperation to invest in high-quality inputs such as human capital and research. Both strategies facilitated movement into new high-tech industries but with distinctive political and economic consequences. In explaining how previously slow-moving states entered dynamic new industries, Ornston identifies a broader range of strategies by which countries can respond to disruptive challenges such as economic internationalization, rapid technological innovation, and the shift to services.

    eISBN: 978-0-8014-6596-3
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. INTRODUCTION: Recasting Corporatism
    (pp. 1-6)

    This book was inspired by the puzzling ability of several western European states to compete in rapidly evolving high-tech markets. We would not expect continental European economies to succeed in such markets. European capitalism is more commonly associated with sluggish growth and mounting unemployment. Skeptics argue that cozy deals among trade unions, employer associations, and state agencies inhibit the redistribution of resources to new actors and activities. Even those who admire these cooperative economic arrangements suggest that neo-corporatist institutions are most effective in modernizing century-old low- and medium-tech industries such as food processing or forestry. European economies look as though...

  5. 1 THE PARADOX OF HIGH-TECH CORPORATISM
    (pp. 7-27)

    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...

  6. 2 THE CRISIS OF LOW-TECH PRODUCTION IN DENMARK, FINLAND, AND IRELAND
    (pp. 28-54)

    To the extent that Denmark, Finland, and Ireland relied on neo-corporatism before 1980 it was conservative in nature. In financial markets, banks issued large long-term loans to firms in exchange for ownership stakes and used their institutionalized influence to support interfirm cooperation within production cartels and marketing consortia. In industrial policy, policymakers relied on state aid or competitive devaluations to protect and upgrade established industries during economic downturns. And, in labor markets, stakeholders relied on centralized collective wage bargaining, generous social benefits, and employment protections to protect investments in specialized skills, and workers more generally.

    Of course, the level and...

  7. 3 FROM PRICE-FIXING CARTELS TO RESEARCH CONSORTIA: Rapid Restructuring in Finland
    (pp. 55-91)

    In the 1970s, Finland was one of Europe’s least innovative countries. By the end of the 1990s, it was a high-tech leader. What caused this transformation? Increasing dependence on the Soviet Union, an acute economic crisis, and external EU-imposed constraints discredited established stakeholders and traditional policy routines. In this environment, policymakers threatened to promote restructuring by dismantling hitherto core instruments such as the universal bank, the state-owned enterprise and credit rationing. At the same time, unilateral liberal reform was politically costly, precipitating fierce resistance by societal actors, most notably trade unions. Policymakers thus sought to promote economic adjustment by very...

  8. 4 FROM SOCIAL PROTECTION TO SKILL FORMATION: DIVERSIFIED HIGH-TECH PRODUCTION IN DENMARK
    (pp. 92-125)

    Finland was not the only neo-corporatist country to enter new high-tech markets during the 1990s. Denmark defied its common characterization as a low- and medium-tech economy by entering a diverse array of industries including telecommunication equipment, software, and biotechnology. The Danish case is in some respects even more impressive than the Finnish one, because the country could not rely on large multinational corporations such as Nokia. Performance in each of the high-tech industries was based mainly on new growth-oriented enterprises established after 1975. The Danish and Finnish stories are similar, however, in that these firms relied on risk capital, new...

  9. 5 A LOW-END PRODUCER IN HIGH-TECH MARKETS: ECONOMIC ADJUSTMENT IN IRELAND
    (pp. 126-164)

    Ireland also relied on neo-corporatist bargaining to facilitate entry into new high-tech industries. Like Denmark and Finland, policymakers struck bargains with vulnerable stakeholders to facilitate restructuring, in some cases actively replicating creative corporatist strategies. In contrast to Denmark and Finland, however, Ireland was a historically liberal economy with little tradition of industry-labor or interfirm coordination in production. Policymakers thus struggled to engage stakeholders, most notably firms, in the construction of supply-side resources. Neo-corporatist bargaining, to the extent that it occurred, linked wage restraint to fiscal retrenchment and tax cuts.

    These competitive corporatist bargains had distinctive implications for economic adjustment. Ireland...

  10. 6 COMPARING CORPORATISMS
    (pp. 165-187)

    The Danish, Finnish, and Irish cases challenge popular narratives about the causes and consequences of rapid technological change. During the 1990s, scholars predicted convergence on a liberal economic model, as arm’s-length financial arrangements, flexible labor markets, and limited state intervention facilitated the redistribution of resources to disruptive new information technologies (Friedman 1999; Ohmae 1990; Streeck 1997). This liberal economic model, most closely associated with Reaganite and Thatcherite reform in 1980s Britain and the United States (Levy, Kagan, and Zysman 1997), has been replicated by other postindustrial democracies such as New Zealand (Schwartz 1994), developing countries such as Chile (Piñera 1995),...

  11. CONCLUSION: Explaining Institutional Innovation
    (pp. 188-204)

    Economic globalization and technological change has clearly failed to induce convergence on a liberal economic model in which policymakers unilaterally implement sweeping pro-market reforms. How do we explain this variation? When do countries defend conservative corporatist institutions, and under what circumstances do they abandon them? And when do countries adapt neo-corporatist institutions to achieve competitive or creative objectives? The expanded universe of cases described in this book provides an ideal foundation for explaining variation in contemporary political economy and, in so doing, contributes to our understanding of how institutions change (and persist) over time. Stated most concisely, I identify a...

  12. References
    (pp. 205-226)
  13. Index
    (pp. 227-234)