Page 207 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
believed that the process of economic convergence and reliance on
multilateral negotiations to overcome problems of policy, structural,
and behavioral differences work much too slowly. Many reason that
the United States and its more open and competitive economy suffer
from efforts to pursue goals in this fashion. Thus, Americans have
supported a policy of enforced harmonization, and where this tactic
has failed, of protectionism. As has already been mentioned, the most
notable or infamous example of this approach was the prolonged and
acrimonious Structural Impediments Initiative (SII) negotiations be-
tween Japan and the United States. These negotiations, in which the
United States sought to transform important aspects of the Japanese
economy, achieved little and left a bitter residue in Japan.

Mutual Recognition
The most simple approach to the problem of national differences is
mutual recognition. According to this principle, every nation should
accept the legitimacy of the rules by which other nations manage their
economies. For example, a multinational firm establishing a subsid-
iary in another economy should be free to behave as it does in its
own economy. This approach has been adopted by the European
Union. Except in a few basic areas such as health and national stan-
dards, the members of the Union have agreed to permit businesses to
operate throughout Western Europe in accordance with the laws and
regulations of their home country. Thus, the subsidiary of a German
corporation doing business in France would be governed principally
by German law; nevertheless, more and more business regulations are
being formulated in Brussels.
The fundamental question, of course, is whether or not the princi-
ple of mutual recognition is applicable to other parts of the world.
The principle is particularly well suited to Western Europe for a num-
ber of reasons. Continental Europe inherited the Roman and Napole-
onic legal and administrative traditions, and, as Peter Katzenstein has
pointed out, the nations of continental Europe share a concept of the
limited state; that is, the state is regarded as an impartial and indepen-
dent entity separate from society but responsible for creating a favor-
able and impartial environment for private business. Economic and
cultural differences among the European nations are minor when
compared to those in any other regions of the globe. Also, during the
postwar era the processes of deregulation, privatization, and liberal-
ization have reduced the role of the state in the economy and harmo-
nized to a considerable degree the economic structures and business
practices across the Continent. Both the historic traditions and other
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