Handbook of Business Interest Associations, Firm Size and Governance

A Comparative Analytical Approach

Franz Traxler, Gerhard Huemer

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9780415424660
• eBook ISBN: 9781134096008
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This Handbook presents a theory of Business Interest Associations and fifteen empirical country by country case studies in the EU.

The book is organized into three main parts. Part I develops a theory of business associations which centres on firm size as the key explanatory variable. Part II consists of country studies covering the EU-15, which are written along strictly comparable lines of analysis. Part III contains the cross-nationally comparative analysis.

The book will make essential reading for researchers working in organization studies, industrial relations, industrial sociology and political science, as well as practioners in related fields.

Part I

1 Introduction

Franz Traxler

Since internationalization and deregulation of markets have gathered momentum from the early 1980s onwards, business interests have gained ever-growing importance as a key factor of the economic and political development of capitalist societies. Despite this general trend towards market liberalization there is overwhelming evidence from comparative studies that differences in the institutional set-up of countries still prevail and also have a significant impact on the direction of a country's development and its performance (e.g. Crouch and Streeck 1997; Hollingsworth et al. 1994; Kitschelt et al. 1999; Traxler et al. 2001). Reflecting the growing relevance of business, recent work on comparative political economy has adopted a firm-centred approach that intends to explain the impact of institutions by reference to their potential to help firms develop and exploit core competences in several fields of operation (Hall and Soskice 2001). In line with this, the special role of business associations in supporting and guiding the operations of firms has been highlighted, as far as the governance of ‘coordinated market economies’ is concerned (Hall and Soskice 2001:4). In this respect, the approach devotes attention primarily to the functional requirements that combine with this role, rather than to the actual capacity of business associations to assume it.¹ However, functional requirements do not explain their fulfilment (Elster 1982). Therefore it is important to find out what induces and enables business associations to assume public-policy tasks and thus to participate in socioeconomic governance. There is good reason to believe that the general trend towards market liberalization thwarts rather than promotes any such participation. This is mainly because the market is the focal place in which businesses pursue their interests. The power to control investment equips business with a strategic advantage in relation to other actors, when it comes to allocating and distributing resources through the market. As the importance of the market has increased in comparison to political and negotiated modes of governance, business may see less need to realize its interests via associations.² In particular, it is the internationalization of markets that threatens to devalue the benefits of associations whose scope of activities is still limited to the nation state. Tendencies of market liberalization are likely to erode the willingness of businesses to associate, but also their ability to do so. Market liberalization magnifies the well-known problems of collective action that burden interest associations, because market-led competition for the sake of self-interest is at odds with the principles of solidarity and cooperation on which associations must rest. Similar effects emanate from changes within the company itself, namely from recent developments of finance and corporate governance, such as the tendency towards the principles of shareholder value: They include the rise of short-termism, declining investment in training, and the challenge to multi-employer bargaining and other forms of employer cooperation (e.g. Gospel and Pendleton 2003). In addition, they are likely to put strain also on the relationship between the companies and their interest associations.

If the willingness and ability of companies to band together in business associations declines, the latter's capacity for assuming governance tasks decreases, all the more since such tasks go far beyond organizing and representing interests. Such tasks require associations to establish themselves as ‘private interest governments’ (Streeck and Schmitter 1985) which are capable of pursuing long-term goals, moulding the interests of their members, as well as monitoring and even sanctioning their behaviour (Hall and Soskice 2001).

Analyses of the organizational capabilities of interest associations and their incorporation into public policy have two, partly interrelated, sources. One source may broadly be described as the (economic) theory of collective action and interest groups whose foundations were laid down by Olson (1965, 1982). His reasoning has made two essential contributions to the debate. On the one hand, it shows that common interests do not necessarily result in collective action, since it is precisely the commonality of interests that provokes ‘free riding’, with the consequence that efforts to associate may fail at worst. On the other hand, the argument is that the goals of interest associations and their performance effects systematically vary with their domain demarcation. Accordingly, narrow associations concentrate on performance-inhibiting re-distributional politics, since they can easily externalize the negative consequences of their politics (e.g. high inflation) due to their narrow membership domain. In contrast to this, encompassing associations must adopt a ‘responsible’ line of interest representation, because their domain covers so many groups that they cannot pass the costs of their action on to third parties. The second source from which studies of associations draw is the debate on neo-corporatism (e.g. Schmitter and Lehmbruch 1979; Lehmbruch and Schmitter 1982). The essence of this debate points to the key role the state has in establishing the structural and functional preconditions for neo-corporatist governance (e.g. Offe 1981; Streeck and Schmitter 1985). In functional terms, corporatism is commonly characterized by interest associations taking responsibility for public policy on the basis of political exchange, in the course of which they receive certain rewards (e.g. benefits for their members, organizational privileges) from the state for their cooperation. The viability of such governance is seen as contingent upon encompassing, centralized and state-licensed structures of interest intermediation. Although this literature placed special emphasis on the labour unions and their integration into public policy, it nevertheless pioneered research in organized business. It is no exaggeration to say that most empirical studies of business associations originate in and draw from a comparative project on ‘The organization of business interests’ (Schmitter and Streeck 1981).

The analytical perspectives developed by these lines of reasoning continue to be relevant to any study of business associations. Regardless of this, there is also a need to go beyond them in theoretical as well as empirical respects. This is mainly because important premises of this work are geared to the socioeconomic profile of the Keynesian policy regime that prevailed throughout the 1960s and 1970s. According to Olson (1982) a fully competitive market free from any intervention by organized interests would be economically superior to encompassing associations which thus offer merely the second-best solution. However, Keynesianism worked in a direction opposite to unleashing market forces. As Schmitter and Streeck (1981: 16) emphasized, one could observe an ‘increasingly systematic intervention of the state into the economy’ which gave rise to ‘trends toward corporatist intermediation’ (Schmitter and Lehmbruch 1979) in all developed countries. In a situation of growing regulatory importance of the state, corporatist arrangements attracted the state as well as organized interests. Seen from the perspective of the state, the devolution of public tasks to the associations offered an opportunity to relieve itself from problems of legitimation and control in a context of increasing regulatory load. Conversely, it was reasonable for the associations to enter corporatist arrangements, since state intervention affected their interests in any case. Moreover, there was a special incentive for business associations to embark on corporatism, because pure state regulation in tandem with full employment and strong trade unions were suspected of producing less favourable policy outcomes than a negotiated, corporatist arrangement. This general trend towards corporatism was expected to transform the relationship between the association and their members, shifting the associations from instruments to advance member interests to quasi-authorities capable of binding the members for the sake of regulatory goals. In line with this, Schmitter and Streeck assumed an ‘inherent tendency for successful interest associations to become regulatory agencies for their constituent interests’ (1981: 29) and to strive to increase their autonomy from any kind of environment, including their members (1981: 129).

With the policy shift from the demand side to the supply side and growing recourse to deregulation policies, important conditions conducive to corporatism have faded away (Streeck 1991). However, this has not led to a general decay of corporatism. Current developments match neither the neo-corporatist version of convergence thesis nor the inverse reading of this thesis: that is the proposition of a convergence of countries towards ‘disorganization’ (e.g. Lash and Urry 1987). In contrast to this, there has been a sharp polarization between uncoordinated economies which dismantled these institutions, and coordinated economies which renewed them (Traxler et al. 2001).

The paradox is that even the route taken by the coordinated economies runs counter to conventional wisdom of a nexus between corporatist associational structures and corporatist (i.e. negotiated) policy-making. Since the early 1980s corporatist macro pacts have been struck mainly in countries (e.g. Ireland, Italy and Portugal) where the structures of interest intermediation differ from the classical pattern of a few monopoly-like, encompassing associations. For instance, the negotiations on the Irish Partnership Agreements traditionally involve a wide range of interest groups including labour, farmers, the community and voluntary sector as well as business which is represented by eight distinct organizations. Italy counts no less than 12 cross-sectoral business associations which were all signatory parties to the pacts concluded between 1992 and 2002. There is a similar ambiguity concerning the governance role of business associations and their relations to their constituency. On the one hand, the pressures of their members have prompted the business associations in almost all countries to enforce a decentralization of collective bargaining, something which has certainly curtailed their regulatory role. On the other hand, they have tended to intensify coordinating activities in industrial relations within a framework of organized decentralization.

All these ambiguities put business associations again on the agenda of empirical research in comparative political economy. Moreover, the crucial influence of business associations on the viability of negotiated forms of governance brings them to the forefront of research. Generally speaking, when an actor has a stronger power in systems of (negotiated) governance, the higher is its disagreement utility. In the case of business, slack labour markets, deregulation and market internationalization have increased the disagreement utility to an extent that exit has become a feasible option. Business associations may have a preference for opting out, when expecting that replacing negotiated governance with a free-market solution will suit their members' interests better as a result of their strategic advantages in market relations. This contrasts with the situation of the labour unions for which participation in public policy remains as one of the few available means of retaining political influence.

Whether this expectation may become predominant, does not simply depend on member interests as such, but rather results from the configuration of intra-associational power relations which make certain interests prevail. In this respect, our approach to the analysis of business associations offers a new theoretical perspective insofar as its guiding assumption is that the formation, internal politics and activities of business associations cannot be understood without directing special attention to the differences of their potential members in firm size. The importance of firm size to the action of business and its interaction with business associations has been a rather neglected issue in the literature. This is surprising because there is no other interest group which compares with business in terms of heterogeneity as a result of its high variance in size. What is commonly subsumed under the notion of business ranges from self-employed persons to big multinational enterprises which employ several hundred thousands of employees. There is good reason to believe that this heterogeneity has a substantial impact on business associations when it comes to recruiting members, processing their interests and participating in governance.

Overall, these considerations result in three principal subjects, which this book will address and which tend to crosscut the research interests of several disciplines such as institutional economics, business studies, political science and organizational sociology. These subjects refer to associability and collective action; interest representation and participation in public policy; and the governance capacity of the associations. They can be specified as follows:

• What makes businesses still associate with others, although the trends towards market liberalization have tended to weaken their willingness and ability to do so? Seen from the angle of the associations, what means of attracting and integrating members are available? How does firm size interact with associability? Is there still a prospect for encompassing associations even though heterogeneity of business has been increasing on grounds that the risks and opportunities of economic internationalization and deregulation are asymmetrically distributed among small and large companies?

• What are the factors that determine the range of activities performed by business associations, and how do they interact with firm size? This question is central to explaining continued participation of organized business in public policy, which one can observe in coordinated market economies. As argued above, the participation of organized business is more uncertain than that of any other interest group, since business enjoys a credible exit option. Business associations may nevertheless hesitate to opt out for several reasons referring to their survival goals as organizations, the opportunity to exploit their superior power position in the course of negotiations, or feared discomfort in macroeconomic terms caused by the break from governance (Crouch 1995b). If such considerations prevail, the question is whether the associations can keep their members in line with the requirements for continued participation. This brings us to the third topic.

• Heterogeneity of their constituency becomes important to the action of associations in terms of diverse interests which correlate with notable power differentials according to firm size. Representing interests presupposes unifying these interests and transforming them into common goals. If associations take on responsibility for governance tasks, they must also be able to ensure member compliance with the governance goals. This depends on whether associations dispose of governing capacities vis-à-vis their members. In this respect, one essential question is whether business associations can actually develop and maintain such capacities in relation to members of any size, or whether associational actions are notoriously bound to dependence on and dominance of large firms. As noted above, corporatist theories imply an inherent tendency towards growing governance capacities: the associations strive to enhance them as a means of self-consolidation, and they can find state assistance in such efforts so as to be able to participate in governance. The problem is that exogenous conditions have changed in a way that threatens to undermine such capacities. Alternatively, they — once established during the heydays of corporatism — may cause a ratchet effect that contributes to the continuity of negotiated governance even under unfavourable conditions.

This research agenda has several conceptual and methodological implications. First, we will concentrate on the cross-sectoral peak associations of business. Since they claim to organize and represent business as a whole, they should face more problems with recruiting and governing distinct member groups than narrower associa...

Table of contents

• Cover
• Half Title
• Full Title
• Copyright
• Contents
• List of illustrations
• List of contributors
• Acknowledgements
• List of abbreviations
• PART I
• PART II
• PART III
• Appendix: variable definitions
• References
• Index