Flexibility Revisited: International Markets and the Small States of East-Central Europe

Abstract

This paper builds on the literature on small states in the international political economy. It argues that many small states do have unusual adaptive capacities, but also that some face deeper political economic vulnerabilities than have been acknowledged in previous literature. We thus argue that the literature could do much more to appreciate the variety of small state strategies. Moreover, this variety in broad political-economic strategies of small states helps us further explain the striking variation in the meaning of “flexibility.” We argue that flexibility — a concept central to the now-20 year old discussion about small states — has very different meanings for differently situated small states. Small states are often held to be especially capable of coordinating domestic actors and especially incapable of subsidizing these actors. In the ideal scenario, coordination allows private sector actors to adapt to economic change without resort to rent-seeking that would disadvantage consumers or strain the public purse. We illustrate these themes with case studies of European economies during the recent economic crisis. The Baltic states have essentially eschewed such coordination efforts. In so doing, they suffer the costs of smallness but without exploiting (or even trying to exploit) one of its key benefits. The Visegrad states, by contrast, do try to exploit those benefits, though it is arguable whether they have the resources to really shape the choices of their own domestic firms, as opposed to merely exercising a kind of secondary steering function that takes a backseat to the primary function exercised by transnational capitalism headquartered in Germany and elsewhere.

Keywords: Europe. economic crisis, Baltic states, Visegrad states