Economic Adjustment and Political Transformation in Small States

Abstract

The small advanced industrial states of Western Europe have been regarded as a model for political and economic success because they are both stable and prosperous. The formula for that success combines a ready embrace of globalization (including European integration) with strong institutions for domestic redistribution - democratic corporatism and the welfare state. This book asks whether that formula is stable over time. By examining the cases of Belgium and the Netherlands, it shows how the political basis for consensus (consociational democracy) can break down, how the break down of consensus can undermine democratic corporatism while bringing the welfare state into conflict, and how economic performance in world markets can suffer as a result. Belgium and the Netherlands did not become poorer as a result of their political transformation, but they did become less flexible and therefore less able to make adjustments in response to external shocks. Moreover, they cannot easily recapture the formula for their past success.