How to Make a Market: Reflections on the European Union's Single

How to Make a Market: Reflections on the Attempt to Create a Single Market in the European Union Author(s): Neil Fligstein and Iona Mara-Drita Source: American Journal of Sociology, Vol. 102, No. 1 (Jul., 1996), pp. 1-33 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/2782186 . Accessed: 23/09/2011 12:54

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http://www.jstor.org How to Make a Market: Reflections on the Attempt to Create a Single Market in the European Union1

Neil Fligsteinand Iona Mara-Drita Universityof California,Berkeley

Theoriesabout institution-buildingepisodes emphasize either rational or social and culturalelements. Our researchon the Single Market Program(SMP) of the European Union (EU) shows that both elementsare part of the process. When the EU was caught in a stalemate,the European Commissiondevised the SMP. The commissionworked within the constraintsof existinginstitutional arrangements,provided a "culturalframe," and helped create an elite social movement.This examinationof the SMP legislation, usingan institutionalapproach to the sociologyof markets,shows how the commissionwas able to do thisby tradingoff the interests of importantstate and corporateactors.

INTRODUCTION Sociologistshave recentlybeen exploringthe historicaland comparative structuringof contemporarycapitalisms (Nee 1993; Stark 1992; Fligstein 1990; Hamilton and Biggart 1988; Gerlach 1992; Burawoy and Krotov 1992; Campbell, Hollingsworth,and Lindberg 1991). One important themein thisliterature is how economybuilding in capitalistsocieties is part and parcel of state building(Dobbin 1994). Capitalist economies need rules made and enforcedby states in order for marketsto work (Steinmo,Thelen, and Longstreth1992; Hall 1986; March and Olsen

1 An earlierversion of this articlewas preparedfor the meetingof the European CommunityStudies Association in Washington,D.C., May 1993.We have benefited fromcomments given at a presentationat theCenter for Western European Studies at StanfordUniversity. We wouldalso liketo thankRichard Lempert, Doug McAdam, AndrewMoravcsik, and RichardSwedberg for comments. We have also beenhelped by commentsfrom the AJS reviewers.The firstauthor partially prepared this article whilehe was a fellowat theCenter for Advanced Studies in theBehavioral Sciences, supportedby National ScienceFoundation grant SBR-9022192. Direct correspon- denceto Neil Fligstein,Department of Sociology,University of California,Berkeley, California94720. ? 1996by The Universityof Chicago.All rightsreserved. 0002-9602/97/10201-0001$01.50

AJS Volume 102 Number 1 (July1996): 1-33 AmericanJournal of Sociology

1989). These rules are the outcomeof complexpolitical processes that produce shared agreementsthat allow economicexchange to occur and produceregulatory capacity for states. Questionsabout the emergenceof politicaland economicinstitutions have reappearedacross the social sciences(Meyer and Rowan 1978; Pow- ell and DiMaggio 1991; Scottand Meyer 1994; Hall 1986, 1989; Skocpol 1985; March and Olsen 1989; North 1990; Williamson 1985; Krasner 1988; Shepsle 1990). In sociology,the most prominent part of this revival is in the fieldof organizationaltheory (see the essays in Powell and Di- Maggio [1991]). Here, scholarsare concernedwith the origin,spread, and stabilityof new organizationalforms. The sociologicaltheories view the processof institutionalizationas the spread and maintenanceof sets of meanings. One major problemwith the sociologicalapproaches is theirlack of a theoryof agencyand politics.DiMaggio (1989) has triedto rectifythis by arguingthat new institutionsrequire institutional entrepreneurs. Insti- tutionaltheory in politicalscience and economics,on the otherhand, is almost entirelyfocused on the problemof agency. Economic theories, used in botheconomics and politicalscience, are based on rationalactor modelsimplying that actors collectively produce institutions by pursuing their own interests.Within political science, there are disagreements about the adequacy of rationalactor models to explain these processes (Krasner 1988, 1991; Hall 1986; Steinmoet al. 1992; March and Olsen 1989). Scholarsin thistradition explore the role of preexisting institutions in the creationof new institutionalarrangements. The purposeof thisarticle is to use some of the themesinherent in the extantversions of institutionaltheory and apply them to the problem of the constructionof marketinstitutions. In orderto do this,one must use theoreticalelements from two literatures:one is concernedwith the problemof institutionbuilding in politicsand the otherwith a sociological approach thatidentifies what kind of rules are necessaryto produce markets.These theoreticalperspectives are used to examine the buildingof the Single Market Program(SMP) of the European Union (EU).2 During the 1980s, the EU engaged in three large-scaleinstitution- buildingprojects: the SMP ("Europe 1992"), the Single European Act, and the Treaty on European Union (the so-called Maastrichttreaty). These projectsrepresent an importantcontext in which to understand the complexdynamics of institutionand marketbuilding.

2 The EuropeanCommunity changed its name to theEuropean Union following the signingof theTreaty on EuropeanUnion (the Maastricht treaty).

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In thisarticle, we focuson thefirst of theseprojects, the SMP, because this projecttook the EU froman organizationin crisisto one that was able to attain some remarkableagreements. Our approach provides a frameworkfor understanding the conditionsunder which the SMP was generated,where the idea forthe SMP came from,and how institutional entrepreneurswithin the EU used the culturalframe of the SMP to build supportfor it. We argue that the idea of completingthe single market precededthe designof the directives(the EU's equivalentof laws) that make up the SMP. We use a sociologicalapproach to marketinstitutions to understandhow politicaland economicactors constrained the ultimate shape of the SMP. We examinethe directivesand show that theywere put togetherin such a way as to producethe broadestpossible political coalition,while carefullyavoiding issues thatmight potentially raise opposition. Our resultsimply that a numberof theoretical perspectives offer insight into the processof institutionand marketbuilding. Institution-building momentsoccur when a social, economic,or politicalcrisis undermines thecurrent institutional arrangements. Under these conditions, collective strategicactors may act like institutionalentrepreneurs and tryto forge agreements.The most powerfulexisting organized actors must be con- vinced that the new arrangementsare in theirinterest, even if those interestsbecome definedor redefinedin the processof negotiation.This requiresa "culturalframe" that convinces actors about the generalcon- toursof new arrangements.We argue that institution-buildingprojects can resemblesocial movements(albeit, elite social movements)in that actors sign on to an institutionalproject under a new culturalframe (Snow et al. 1986; Tarrow 1994). In the contextof marketbuilding, we show the usefulnessof thinkingabdut the problemfrom a sociological perspectivethat emphasizes social institutionsand the relationsbetween statesand theirorganized economic elites. We beginour discussionby consideringrelevant approaches to institutional change. These theoriescause us to focuson certainkey elements (i.e., preexistinginstitutions, the constitutionof powerfulactors with differentinterests, and the role of institutionalentrepreneurs). We then considerthe events that led to theEU's SMP. We make argumentsabout how theseevents can be framedby thelogic of the models of institutional change. Next, we propose an approach fromthe sociologyof markets that considerswhat marketinstitutions exist and how theirnegotiation reflectsthe differinginterests of actorsin firmsand states. Finally, we examinehow the directivesthat make up the SMP reflectthe theoretical problemposed by the sociologyof marketsand the politicalprocess in- formedby the institutionalanalysis.

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THE CREATION OF INSTITUTIONS In this section,we highlightsome of the theoreticaldiscussions about institutionsand how theyapply to the emergenceof economicinstitutions.It is usefulto beginwith the factors that institutional theories either explicitlyor implicitlyrely on to explainepisodes of institutionbuilding and to comparecultural and rationalchoice theories. Commonto all institutionaltheories is a relianceon some formof crisis or exogenousshock as the impetusfor an institution-buildingepisode (see, e.g., Skowrenek1982; Fligstein1990; Sandholtzand Zysman 1989; Campbell et al. 1991). In an institutionalizedarena, action will proceed by a givenset of rulesand understandings(indeed, this is what is meant by an institution).Even in a "crisis,"actors will continueto engage in action orientedby currentunderstandings and distributionsof power. These understandingsonly become undermined in a crisiswhen the dom- inantactors in an arena beginto fail,either because ofinvasion by groups fromother fields or organizationalfailure within the field. Episodes of institutionbuilding are framedby actors' perceptionsof the crisis and theirreaction to thatcrisis. Another context in whichinstitution building occursis whererelationships are beingforged in a new, undefined,social space. There, actors proceed withoutestablished rules and attemptto stabilizetheir interactions by producingsuch rules (Stinchcombe1965). The real differencebetween rational choice and what we call "cultural frame"institutionalist arguments concerns how an institution-building episode proceeds.3For rationalchoice theorists,an institution-building episode is a bargaininggame (Tsebelis 1990; Shepsle 1990; Keohane 1984). Actorswith fixed preferences enter into bargainsover issues that fostercooperation. Crisis conditionsfor rational choice theoristssuggest thatthe currentarrangements are suboptimalfor actors, and actorshave a collectiveinterest in findingmore optimal solutions.The abilityto reach agreementincreases when actorshave completeinformation about the preferencesof others,when the likelihoodof repeatedinteraction is high, and when there are a small numberof players (Axelrod 1984). Abilityto reach an agreementis by no means given and will requirea joint "choice set" where the preferencesof all partiesto the agreement can be attained(Scharpf 1988). Cultural frameinstitutionalists in politicalscience and sociologyem- phasize a numberof factorsin the productionof new institutions.They

3 Nonrationalchoice institutionalism is called "historical" institutionalism by Skocpol (1985)and Thelenand Steinmo(1992). We use theterm "cultural frame" because we thinkthat authors in thistradition stress the role of existingcultural understandings as one importantfeature of institution building. We thinkit would also be appropriate to call thisperspective "organizational" institutionalism.

4 SingleMarket argue that preexistinginstitutions and organizationswill constrainand enable actorsto engagein cooperativebehavior (March and Olsen 1989) and that culturalpractices, rather than consciouslycalculated interests, dictate agreements.These practicesstructure what is possible in any givensituation by eliminatingcertain possibilities and constrainingwhat actions are "reasonable"(Dobbin 1994). The actual contoursof institutions and organizationsspecify which actorscan propose and negotiate agreementsand how such negotiationsare to proceed(Skocpol 1985). This givesinstitution building a kindof path dependencewhere previ- ous arrangementsset the parametersfor new negotiationsand arrangements.So, forinstance, in the case of the EU, the Treatyof Rome and the organizationsit created formthe backdrop for negotiations.They also create the social contextwhere discussionsoccur about what new arrangementsare possible. Culturalframe theories also argue that actors' interestsare not fixed and that in fluidsocial situations,it is possiblefor a new conceptionof intereststo emerge (Steinmo et al. 1992; Padgett and Ansell 1992; Fligstein1996). In these situations,institutional entrepreneurs can ma- nipulatecultural symbols to producenew sets of interestsfor actors (Di- Maggio 1987; Padgettand Ansell 1992). Institution-buildingprojects can emergefrom either organized politics or social movements.When they arise fromorganized politics, they still also resemblesocial movements in that the resourcesand interestsof groupsare not fixedand the rules governinginteraction are in flux.In such situations,institutional entre- preneurscan tryand forgecoalitions around new identitiesthat define new role structures. Rationalchoice and culturalframe theories are notnecessarily in opposition.A politicalopportunity to createinstitutions may resultin three outcomes: no new institutions,rationally bargained outcomes (see Scharpf1988), or the creationof a new culturalframe under which roles and rules are redefined.Even when agreementsare reached through rationalbargaining, such bargainingis done in a social contextof existing rules,distributions of power, and organizedactors. As a result,even in pure bargainingsituations, cultural frame theorists have much to add to studiesof bargaining. Where a new culturalframe is successfullynegotiated, the partiesto thebargain think that their general interests are beingtaken into account. What is new about the new culturalframe is thatit producesan identity with which actors are comfortableso that they may tell themselvesa storyabout how that frameis in theirinterest (White 1992). They may experiencea reorganizationof theirpreferences (in thelanguage of rational choice), but theywill not thinkthat theyhave lost by agreeingto a new way of doing things.

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In the case of the formationof capitalistmarkets, the impetustoward tryingto make societal agreementscomes fromthe emergenceof new capitalist economic relations or the breakdown of existingrelations (Fligstein1990). Transitionsto capitalismin each modernsociety have takendifferent trajectories because the problemspresented by the emergenceof capitalisteconomies have been metby differentpolitical, social, and culturalconditions (Fligstein and Freeland 1995;Dobbin 1994). Once in place, rules come to reflectthe interestsof importantstate and firm actors. We have seen a growthin thesekinds of institutionalprojects within societies(the reorganizationof the formersocialist societies) and across societies(North American Free Trade Agreement[NAFTA], the General Agreementon Trade and Tariff[GATT],) and the EU's SMP). The formerare caused by the attemptto transformalready existing socialist societiesinto some formof capitalistsociety (Burawoy and Krotov 1992; Stark 1992, 1996). The latterreflect the increasinginterdependence of both industrializedand industrializingsocieties. The goal of this articleis to considerhow the culturalapproach just describedhelps make sense of the eVentsin the EU in the 1980s. While the politicalprocess follows this theoreticaloutline, the problemof ex- actlywhat the SMP would consistof had to be negotiatedas well. The EU had to finda way to specifythe contentof the SMP in such a way as to mobilizestates and organizedcapitalist groups in a social-movement fashion.These groupshad to be convincedthat some conceptionof their interestswas being served. In this way, the SMP of the EU is both a culturalframe and a set of specificmeasures that serve a broad variety of interests. In the politicalscience literature, there have been two perspectiveson the mid-1980srejuvenation of the EU. The neofunctionalistor integra- tionist argument(Haas 1958; Lindberg and Scheingold 1970, 1971; Schmitter1992) is that supranationalorganizations, created by nation- states,cooperate on keyissues. Over time,the existence of these organizations results in the formationof groups with transnationalinterests. These includethe bureaucrats who runthese organizations and thetrans- national constituenciesthey build, such as businesspeople, labor, and academics. These groupsput morepressure on theirnation-states to ex- pand agreements,thereby increasing the power of the supranational organization.This processis called "spillover"(Haas 1958). This perspective suggeststhat the interestsof stateswill changeby the existenceof these groupsand cooperationwill move in new directions.From this view, the impetusfor the 1992 SMP came fromEU bureaucrats,economists, and business representativesof multinationalcorporations (Ludlow 1988; Calingeart1988).

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In contrast,the neorealistor intergovernmentalapproach argues that internaleconomic goals and the politicsof the governingparty in each societydetermine national interests, and this, in turn,determines how extensivecooperation among nation-states will be. This view is a version of rationalchoice theories of institutions. Cooperation among nations can occur only when interestscoincide or when states can trade offin a series of agreements.Nation-states will jealously guard theirnational sovereigntyand will only undertakemeasures that will preservetheir power. From the neorealistperspective, Germany, France, and Great Britainwere persuadedthat the advantagesof removingtrade barriers of the varietyinvolved in the SMP outweighedthe potentialdisadvan- tages and thatgave impetusto the SMP (Moravcsik 1991). There is evidence to support both the neofunctionalistand the neorealist accounts of the origins of the 1992 SMP. Transnational organizations,particularly business, and organizedgroups in the Euro- pean Commissionand European Parliamentdid put pressureon states to supportthe SMP (Ludlow 1988; Calingeart 1988). States did ulti- mately have to agree to the SMP and decide it was sufficientlyin theirinterest (Moravcsik 1992). Both theories,however, miss the elementsprovided by the cultural frameinstitutional theory. Neorealist theory generally views institution- buildingepisodes as responsesto problemsassociated with market failure (Keohane 1984). But it is silenton whereproposed responses come from and how theycome to be recognizedas appropriate.Put anotherway, why was the SMP the institution-buildingproject that producedagree- mentand wheredid theidea come from?Neofunctionalist theories imply that institutionbuilding is a continuousprocess; they do not specifythe conditionsfor an episode of institutionbuilding, that is, the conditions forspillover. Neitherthe neorealistnor the neofunctionalistaccounts can theorize about how actorsfind collective solutions in bargainingsituations marked by differingand incompatibleinterests. Both theoriesare limitedby the presuppositionthat actorsknow theirinterests and bargain forinstitu- tionsin line withthese interests. We arguethat the EU in theearly 1980s was stymiedbecause of irreconcilabledifferences in preferences. It is difficultto explain,from either the neofunctionalistor neorealist perspectives,how the SMP emergedfrom this sort of situation.The culturalframe perspective points out that,under the conditions of institutional crisis, one looks to existingorganizational actors to devise and promoteinstitutional projects to break throughbargaining dilemmas. We suggestthat the European Commissiongenerated the alternative institutionalprojects and was able to get stateactors to sign onto them. It is usefulto considerthe eventsin moredetail.

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THE STRUCTURE OF THE EU AND THE SMP The EU has fourmajor organizations:the European Council of Minis- ters,the European Commission,the European Court ofJustice, and the European Parliament(Bulmer and Wessels 1987; Noel 1985; European Community1981; Thorn 1981; Groeben 1985). The European Council, made up ofministers from each country,votes on new rulesfor the whole of Europe. Before1987, mostmatters decided by the European Council requiredunanimous votes (European Community1987; Garrett1992). This made attainingagreements very difficult and leftindividual Euro- pean Council memberswith important veto power. Once the European Council agreesto a new directive,each nation-stateis obligatedto make its own laws consistentwith it. The permanentrepresentatives of the states are in contactcontinuously in Brussels and heads of states meet semiannuallyto considerrecent initiatives and the overall directionof the EU. The European Commissionproduces legislationfor the European Council to consider,either at its own initiativeor upon requestof the European Council. The European Commissionwas createdto help states solve theirbargaining problems. It does thisby doingstudies, proposing new rules,and negotiatingthose rules before they come to the European Council forthe final vote. New ruleswill not be consideredby the Euro- pean Council unlessextensive negotiations have alreadytaken place. The European Commissionis divided into directorates,each in charge of some featureof the EU. There are always a greatnumber of proposals, largeand small,floating around the commission and muchpolitical activ- ity among directorateheads, lobbyinggroups (Mazey and Richardson 1993), and the European Commissionpresident. The politicalgame is the attemptto build coalitionsin supportof divergentagendas (Peters 1992). The European Court of Justiceenforces directives by adjudicating suits broughtby private organizations,individuals, and states. These decisionsare bindingon all partiesinvolved, including nation-states (see Weiler [1991] for a discussionof the linkagesbetween national courts and the European Courtof Justice). The European Parliamentis directly elected.It sets the budgetand advises the European Commission.In the contextof the 1992 SMP, a complex procedureexisted that gave the European Parliamentthe ability to commenton all directives.The Euro- pean Parliament'sability to generatelegislation is limitedmainly to in- fluence. This complexmix of sovereignties can be confusingto participantsand analysts.States maintain power by controllingthe European Counciland having the ultimatevote on all importantissues. They also maintain

8 SingleMarket controlover the enforcementof rules. But, with qualifiedmajority voting, theycan findthemselves having to accept legislationabout which theymay disagree.They also abdicate executivepower to the European Commissionand acceptthe possibility that the European Courtof Justice mightrule againstthem.4 There are widelydivergent interpretations over what the EU is and can be. Some stakeholdersview it as a mere "freetrade arena," while others envision a "United States of Europe" (for debate about these competingvisions, see Gatsios and Seabright[1989], Hurwitz [1983], Winters[1988], Pelkmansand Robson [1987], and Taylor [1983]). The EU is a relativelysmall organization employing 14,000 persons to govern a marketof 340 millionpeople. It lacks both police power and a large regulatoryapparatus, althoughit does have a court. Given its size and scope, the EU is not much of a state, and this is intentionalin the organizationaldesign. It has a federalstructure of sorts,and thismeans that states give up partialsovereignty because theydesire political and economiccoordination at thesupranational level. One way to understand thisis thatthe EU functionsas a politicalarena in whichagreements are producedand statesenforce these collectively bargained rules (Keohane and Hoffman1991). In line with our theorizingabout institutionbuilding, there can be threeoutcomes to politicalprocesses within the EU: no new rules,rules that fit everybody'sinterests from a bargainingperspective, and new rules that redefineinterests. Most of the normal activityof the EU is caughtup in the firsttwo categories.It is onlyunder rare circumstances thatnew institutionalprojects come to the foreand get considered. In 1985, the EU decided to completethe unificationof the common marketby 1992 (European Community1985). Practically,this meant passing 281 or so directives.5The generalgoals of the reformswere to promotetrade, increase competition, and promoteEuropean-wide economies of scale and scope by eliminatingnontariff trade barriers,such as differencesin taxes, regulations,and health and safetystandards. The directivesare relativelyheterogeneous in theircontent, scope, and impor- tance. For instance,one directivethat passed called forthe elimination

4 One couldargue that the real losers in thisprocess are the parliaments of the individual states.It has been estimatedthat 40% of thelaws passed acrossparliaments in WesternEurope are directivesfrom the EU (Schmitter1992). 5 Countingthe number of directives is somewhatproblematic. There were 2 79 proposals on theoriginal white paper, but two were subsequently added, bringing the total to 281. Someof the proposals have turned into multiple directives, and thereforethere is nota one-to-onecorrespondence tothe original proposals. Some of the other proposals have been droppedand stillothers have been added. In the end, 264 proposals werepassed.

9 AmericanJournal of Sociology of a tax collectedat nationalborders on thefuel in trucks.The argument forthe tax was thattruckers might have filledtheir tanks when leaving a low-tax countryto enter a high-taxcountry, thereby depriving the high-taxcountry of revenue. This is a relativelyminor agreement. On the otherhand, one of the bankingdirectives allows any bank to set up operationin anothercountry and leaves the regulationof that bank to its home country.This agreementhas the effectof opening financial serviceindustries across WesternEurope to competitionfrom banks in all countries.

CRISIS AND THE ORIGINS OF THE SMP All observersof the EU agree that the organizationwas in crisisin the early1980s (Cameron 1992; Weiler 1991; Moravcsik 1992; Fligstein1994; Sandholtz and Zysman 1989), which is consistentwith our theorizing about institutionalepisodes. Indeed, therewas not a singlecrisis but a set ofcrises. The Europeaneconomies were growing more interdependent as trade between them increasedover the decade of the 1970s. This occurredduring a periodof slow economicgrowth and highand persis- tentunemployment.6 The abilityof the statesto use fiscalor monetarypolicy independent of one anotherwas circumscribed(Cameron 1992). State actorswere no longerable to engage in independenteconomic action to promotetheir economiesand were experiencinga diminutionof sovereignty.Business and politicalleaders across WesternEurope were of the opinionthat the Japaneseand, to a lesserdegree, American corporations were moreeffi- cientand were likelyto take moremarket share across industries(Sand- holtz and Zysman 1989). There was a generalsense that the European economieswere experiencingwhat was termed"Eurosclerosis." There wereserious disagreements over the direction of the EU. Gaston Thorn became presidentof the European Commissionin 1980. His cen- tralpolitical project was to pushforward reforms that would have altered the votingrules of the European Council and given morepower to the European Commissionand theEuropean Parliament.Unanimous voting proceduresmade agreementon anyissue difficult.These discussionswere

6 One could arguethat the stateswere already losing sovereignty as a resultof this growinginterdependence. From thisperspective, the creationof the SMP was an attemptto preservewhat sovereignty was left. 7 A pivotalevent was thedecision of the French government to helpend thepolitical crisisof the EU and back the SMP. Observershave attributedthis change to the realizationby theMitterand government that traditional methods of stimulatingthe Frencheconomy (increase state spending, nationalize industry, and putup tradebarri- ers)failed in therecession of theearly 1980s (Frieden 1994; Fligstein 1993).

10 SingleMarket thefocus of European Councilmeetings in theearly 1980s (Ludlow 1989). The Britishwere also threateningto leave the EU because theyfelt that theywere contributingtoo muchto the budgetand not receivingenough benefits.They threatenedto block any discussionof reformsuntil this issue was resolved. Many of the governmentswere not convincedthat an expansion of EU powersmade any sense. Besides institutionalreform, there was also a proposal to create a European monetarysystem. But neitherof these proposalshad sufficientbacking (Moravcsik 1992). In December 1983, at the European Council meetingin Athens,the whole fabricof the EU threatenedto come apart. Gaston Thorndeclared that the crisiswas the mostsevere since 1966,and therewas discussionthat the entire European Commissionleadership might resign because of the impasse (Fligstein 1994). A politicaland economiccrisis existed, and leadersof statesseemed to be caughtin a classic bargainingtrap: therewere no obvious programs that everyonecould agree to, and, therefore,some fractionof the states were blockingevery potential initiative. Any observer of the EU in 1983 would have had a hard time discerningwhat project would produce agreement.A neorealistwould have been forcedto concludethat there were no bargainsto be struck,while a neofunctionalistwould have to observethat the actorswith transnationalinterests could not affectthe preferencesof the states. Stateswere losingtheir ability to controltheir political economies, but theycould not figureout any collectivesolutions to theseproblems. Yet, thepolitical and economiccrises across Western Europe provideda political opportunityfor an active politicalentrepreneur to create a new set of institutions.The problemwas twofold:to findan institutionalproject and to promotethe project in order to break throughthe bargaining problem. Wheredid the plan forthe SMP come from?It is herethat the Euro- pean Commissionplayed a pivotalrole as a collectiveinstitutional entre- preneur.The EU had originallybeen foundedto createa commonmar- ket. The biggestproblem of thisidea was to definewhat a singlemarket meant. The SMP initiativebegan as a modestproject proposed by Karl Heinz Narjes, one of the European Commissioners(Directorate General III-Internal Market)in 1981. He viewed a singlemarket as one where therewere no barriersto the exchangeof goods, services,and labor. His firstproposal was relativelymodest: he wantedto removecustoms booths across Europe, level value-added taxes, and expeditethe movementof goods (Fligstein1994). This project expanded to include 30 directivesthat reflectedhis attemptto broaden the appeal of the proposal and bring other groups

11 AmericanJournal of Sociology along. The European Parliamentwent on recordas favoringthe Narjes proposalin the fallof 1982. At theCopenhagen meeting of the European Council in December 1982, Narjes proposedto place the directiveson a "fasttrack" and considerthem as partof a biggerproject. This proposal met oppositionfrom the Frenchgovernment (Fligstein 1994). In spiteof this,the initiativebegan to attractattention from business groupsand otherorganizations within the EU (Ludlow 1989; Streeckand Schmitter1991). This resembledan elitesocial movement with representativesof various groups joining the bandwagon for the single market initiative. By 1984, the European Councilhad agreedin principleto complete thesingle market (Cameron 1992). The "completionof the single market" functionedas a culturalframe in thesense that its content was leftunspeci- fiedand actorscould read anythinginto it. Only 15 ofthe 30 originaldirec- tiveshad beenpassed. Narjes beganworking on a plan thatwas evenmore ambitious.He wantedto include150 directivesthat would aim to have the singlemarket completed by 1987 (Fligstein1994). This plan was a dress rehearsalfor what would ultimatelybecome the SMP. In 1984, the SMP seemed to be a plan forinstitutional change that manyof the statesfound attractive precisely because it was an overarch- ing idea thatcontained few specifics and could be read as broadlyconsis- tentwith everyone's interest. It had garneredsupport from the European Commission, European Parliament, and importantbusiness groups around Europe. It was sold as one solutionto the problemof Europe's lack of competitiveness.It was a deregulatoryproject that appealed to supportersof Thatcheriteand Reaganiteeconomics. Businessmen liked the idea of removingrules hindering trade. States liked the idea that no supranationalagency would be createdto enforcenew rules. It was also an initiativethat did not cost any money.From the pointof view of the European Commissionand European Parliament,it was a way to renew discussionsover the futureof the EU. In sum, the idea of completing the singlemarket was provocativeand its virtuewas self-evident. The SMP was a projecton the politicalagenda of the EU. But, the states had to agree to its provisions.Jacques Delors was the finance ministerof France when he was asked to considerbeing the presidentof the European Commissionin 1984. He tookthe job onlyon thecondition that a large-scaleproject be undertakento reinvigoratethe EU. He of- feredthe heads of states threechoices: institutionalreform, monetary union, or the singlemarket. His preferredproject was monetaryunion. The single marketwas the only choice that was agreeable (Moravcsik 1991).8 8 Delors,a formerfinance minister, preferred the optionof movingforward on the monetaryunion, but he acceptedthe SMP as a placeto beginmoving the EU forward (Ross 1995).

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The SMP was an ill-formedproject at thismoment. The details were forthcomingin a documentprepared by Narjes's successor,a British commissionernamed Lord Cockfield.His plan called for279 directives to be passed by 1992. The white paper that outlinedthe SMP was a shrewddocument. It made argumentsthat completing the singlemarket was likelyto resultin great efficienciesacross Europe. The directives proposedby theSMP wereheterogeneous. Half ofthem had been floating aroundthe EU fora numberof years but were opposed by one or another of the states (Colchesterand Buchan 1990; Calingeart1988). The proposed SMP tried to insure that the largestpossible coalitioncould be built. The projectwas called the "Completionof the Single Market- Europe 1992" (see Cockfield[1994] forhis versionof the events). This processshows how elementsof rationalchoice and culturalframe models informthe SMP. The organizationsand institutionsof the EU were set up to resolvethe bargainingproblems of the EU. iThepolitical and economiccrisis of the early 1980s gave impetusto the productionof new agreements.The SMP startedout as a modestinitiative and gathered politicalmomentum, becoming a projectthat could be supportedby all of the states. Proposals that stateshad been resistingfor years became attractivewhen packaged into the SMP. The European Commission startedthe project,built up supportfor the project,and, once on the agenda, Jacques Delors and Lord Cockfieldskillfully guided the project to completion.Part of the appeal of the projectwas its centralslogans: "Completion of the Single Market" and "Europe 1992" (Cockfield 1994). Delors's intentionwas to use cooperationon the SMP to build momentum towardmore agreementsand expansionof the EU (Ross 1994). He was able to parlay the SMP into two additional projects, the Single European Act (a versionof institutionalreform) and theTreaty on Euro- pean Union (moreinstitutional reform and monetaryunion). These two projects embodied the elementsthat the states had explicitlyrejected earlierin the decade. The SingleEuropean Act alteredthe votingproce- dures of the European Council fromunanimous voting to qualifiedma- jorityvoting for matters pertaining to theSMP. In thisway, Delors acted strategicallyto link institutionalreform to the SMP (Ross 1995). The Treatyon European Union pushedthis momentum forward by continu- ing to alter the votingrules, adding additionalarenas to EU purview, and givingthe European Parliamentmore power. It also proposedmone- tary union that was thoughtnecessary to completethe single market. Delors used the culturalframe of the SMP to convinceleaders of the statesthat these projects followed logically. For instance,the Single Eu- ropeanAct was deemednecessary to insurethat the SMP legislationdid not getbogged down (Ross 1995). Delors and theEuropean Commission,

13 AmericanJournal of Sociology along withFrancois Mitterand and HelmutKohl, were able to convince the principalstate actors to realigntheir preferences and agreethat more marketand politicalintegration was betterthan less.

THE INSTITUTIONAL TERRAIN OF THE SMP The discussionso farhas focusedon thepolitics of the EU. It is important to understandthe specificelements of the SMP that made it attractive to the statesand allowed the commissionto build it up as the projectto push the EU forward.One of themain purposesof theEU was to create a singlemarket across WesternEurope. The questionof what exactlya singlemarket is presentsboth a theoreticaland politicalproblem. In orderto considerwhat kind of marketwas constructed,it is necessaryto considera sociologyof marketinstitutions. The sociologicalview of marketspresented here is developed in greaterdetail in Fligstein (1996). A marketcan be definedas a social situationwhere trade in an itemoccurs and a pricemechanism that determines the value of the item exists. The price mechanismimplies the existenceof "money"and the quantityof "money"that one mightpay foran item.It does not specify how the arena fortrade or the pricemechanisms themselves operate nor does it suggesta structurefor the social relationsthat will come to exist among suppliers,producers, consumers, and the state. In orderfor markets to exist,elaborate social relationsmust appear to structurethe arena of trade. At a minimum,these relationsconsist of propertyrights, governance structures, and rulesof exchange.9Property rightsconcern legal definitionsof ownership.Traditionally, property rightsconcerned control over objects,particularly land (Friedman1973) but as capitalismdeveloped, the concept has come to include control over ideas, processes,and skills. Legal formsdefine the abilityto own and dispose of propertyand include sole proprietorships,partnerships, and joint stockcorporations. Patents and skillcertification are also propertyrights because theirholders are grantedexclusive rights to practice and gain fromthe designations. The constitutionof propertyrights is a contestedpolitical process where states, employees,local communities,suppliers, and customers can affecthow owners can dispose of property.For instance,workers

9 Differenttheories of marketsmake differentdistinctions between these elements. For instance,agency theory tends to collapsegovernance structures into property rights(Fama and Jensen1983a, 1983b).Williamson focuses on the governanceof economictransactions of firms and markets,thereby making governance the core issue (1985).Campbell and Lindberg(1990) tend to equateproperty rights with governance structures,although in theirbook (Campbellet al. 1991),they view all threeinstitu- tionsas relevant.

14 SingleMarket in some societieshave votes on corporateboards on issues regarding investment.In all societies,local communitiescan confiscateproperty and preventproperty owners from doing what theylike withtheir property(i.e., environmentalregulation and zoninglaws). Professionalswho injuretheir clients can be sanctionedby havingtheir property rights (i.e., theirlicense to practice)taken from them. Governancestructures refer to laws and informalpractices that set the legal boundariesof competitionand cooperation.Every advanced industrialsociety has laws that are referredto as antitrust,competition policy, and rules over what are legal and illegal formsof cooperation such as cartels,joint ventures,and mergersto controlcompetition.10 These rules have been translatedinto understandingsthat at any given timeconstitute what are legal and illegalforms of cooperation and compe- titionbetween firms. Withina market,firms try to createstable social relationsamong them- selvesin orderto avoid directcompetition. These social relationsproduce "local knowledge"(Geertz 1980), or what has been called a "conception of control"(Fligstein 1990), which allows actorsto interpretthe behavior of othersin a market.A stable marketrefers to a small set of firms that share such a conceptionof control.This mutualityallows firmsto anticipate,interpret, and respondto one another'sactions in a way that promotestheir own existencewithout compromising the other's,that is, in a way that avoids direct competition.Finally, competitioncan be legallycontrolled by stateintervention and regulation.States must explicitlyor implicitlyratify the local conceptionof control. Rules of exchangefacilitate trade by establishingthe rules under which transactionsare undertaken.They definewho can tradewith whom and guaranteethat goods will be deliveredin workingorder and will be paid for.Thus theypromote the movement of goods by makingrules simpler, clearer,and less costly.Rules of exchangeestablish project definitions and productsafety. Like the social relationswe call propertyrights and governancestructures, rules of exchangehave legal backing since they providemechanisms by whichfirms can get reliefif conditionsof trade are not met. The importanceof rules of exchangerelating to shipping, billing,insurance, and the exchange of money are even more salient when trade is occurringacross nationalborders or whole societies. These conceptualcategories are linkedin a numberof ways. For in-

10 It is thecase thatmerger laws also concernproperty rights because they define how propertycan be disposed.We arguethat insofar as themerger laws concerncompeti- tionwithin an industrythey are about governanceissues. Generalrules of merger includingthe reorganizationof assetsfrom, say, joint stockcorporations to holding companiesmight be usefullyclassified as issuesof propertyrights.

15 AmericanJournal of Sociology stance,forbidding foreign firms to own local firmsmight be construedas usingproperty rights to controlcompetition (i.e., governancestructures). Similarly,banning products because theywere thoughtto be unhealthy would be a way to controlcompetition as well. We nonethelessseparate these categoriesanalytically because doing so gives us a language to understandhow rulesfor markets are created.1" From thissociological perspective, states are implicatedin all features of marketsbecause statesclaim to set the rulesfor all economicactivity in their geographicboundaries. While sovereigntyusually refersto a generalability to make and enforcerules in a territory,states actually varyappreciably in theirability to intervenein theireconomies and civil societiesmore generally(Krasner 1988). Sovereigntyvaries in termsof the numberof arenas in which statesintervene, and in the amount of discretionstates actuallyhave in each arena. Thus sovereigntyis both multidimensionaland quantitativein nature.Organized groups can con- testthe extensionof statepower and structurethese arenas. Sovereignty is a claim thatis contested,not an absolutegiven attribute of states. There are at least threedimensions to this claim in the contextof markets.First, regulating property rights and competitionis morecentral to states'claim on sovereigntythan rules of exchange.These definethe relationof statesto theirown economicelites. The eliteswho own and manage firmshave createdstable worlds in theirmarkets, worlds dependent on currentproperty rights and conceptionsof control.Disrupting thesearrangements means thatstates face oppositionof theirbest politi- cally organizedfirms. Second, stateshave symbolicstakes in makingtheir own rules. Since part of the claim of a modernstate is to be a nationand to representits people, states have an interestin activelyorganizing life withintheir nationalborders. In negotiationswith other states, states will prefertheir own rulesalthough the distinctions among choices may at timesbe mate- riallyinconsequential. States will resistanother state's standards or rules, particularlyin thesensitive areas ofproperty rights and governancestructures.Rules ofexchange are less symbolicallycharged because theyfacili- tatetrade with others and do notundermine claims to make rulesgovern- ing the organizationof property. Finally,states have a greatdeal of interestin maintainingtheir regula- torycapacities. The abilityto take action and use legal sanctionsis at the core of what sovereigntymeans, and statesare loathe to relinquish

" This problemhas imnplicationsforour coding of directives into these categories. We tryto judge whetherthe intention of thedirective is to makeexchange easier (rules of exchange),prevent nations from using rules to keep out competition(governance structures),or clarifywho can own property(property rights).

16 SingleMarket this formof control.Bureaucracies, police forces,and armies are the organizationsthat represent the abilityof stateactors to act. Sovereignty is clearlydiminished if thesecapacities are impaired. Theoretically,a singlemarket implies rules that (1) produce a well- definedsystem of propertyrights, (2) sanctioncertain forms of competitionand cooperation,and, (3) minimizethe cost of transactionsbetween economicunits. Some scholarsmight add that a singlemarket also implies a singlecurrency and a singleregulatory structure. The problemsof creatinga singlemarket within a single countryis formidable.The United States, for instance,contains many different laws and jurisdictionsfor property rights. These problemsare even more complex across countriesprecisely because states and their economic elites will prefertheir own rules. In the EU, the stateshave theirown rules around propertyrights, governance structures, and rules of exchange. These rulesinvolve long traditions of law. Moreover,these rules definethe currentrelations between political and economicelites in each society.The legitimacyand sovereigntyof nationalbureaucratic appara- tuses are dependenton these traditionsand keepingthe allegiance of elites. There was natural resistancefrom many quartersincluding the states and firmstoward the disruptionof these social relations.Given that the EU had unanimousdecision-making rules, it is amazing that negotiationsfor any kind of singlemarket were underway. The sociologyof marketsjust presentedcan be used to considerhow the SMP was negotiated.The basic problemwas that the European Commissionwould have to mobilize existingcenters of power in the European economyand statesand work to preventthe mobilizationof the opposition.The European Commission'sability to createa political coalitiongiven the existingdistribution of actorsand institutionsmeant that the SMP had to cut cunninglyacross lines that had previously seemedunresolvable because of unanimousvoting procedures. So, what kind of singlemarket did the Europe 1992 projectcreate? The shortanswer is that it made exchangeeasier for firmsthat were alreadyexporting, and it preservedthe power of states to controlproperty rightsand governanceas one mightexpect fromthe theoryof market institutionsjust proposed.The SMP did not createnew European-wide regulatorycapacity, and it opened marketsonly in industriesthat could be arguedto be connectedto the completionof a singlemarket: transportation,financial services, and professionaland businessservices. It is usefulto considerwhich ownersand managersof firmscame to supportthe SMP. Surveydata showedthat managers of firmswho were alreadyinvolved in exportingwere the mostfavorable toward the SMP (Fligsteinand Brantley1995). These managersfelt that theircosts of productionwould be less, theirmarkets larger, and thereforethat their

17 AmericanJournal of Sociology firmand countrywould fare betterunder the SMP. Managers in firms in industrieswith a highdegree of governmentownership were less positive about the effectsof the SMP. This argumentcan be buttressedby examiningtwo otherfeatures of the EU. First,the organizationsthat most frequently complained to the EU were large multinationalcorporations since theywere mostlikely to have problemsin interstatetrade (Fligstein 1994; Streeckand Schmitter 1991; Mazey and Richardson1993). Second, the groupsthat joined the pro-SMP coalitionwere representatives of thelargest corporations (Cam- eron 1992; Sandholtzand Zysman 1989; Ludlow 1989). The practicalpolitical implication is thatvery few managers or owners of exportingfirms were interestedin reforminggovernance structures or propertyrights and indeed, some (e.g., managersof state-ownedfirms) would be hostileto thesereforms. On the otherhand, managersof firms involvedin exportingwere very interested in reducingrestrictions around problemsof trade,what we have termedrules of exchange.States would also be reticentto reorganizetheir property rights and governancestructures because theydid not want to lose that power and because they fearedalienating powerful economic elites. Taken together,this implies the followinghypothesis. HYPOTHESIS 1.-Rules regardingproperty rights and governance structurewere not thefocus of the SMP. Most of the directiveswere orientedtoward rules of exchange. One of the criticalproblems of negotiatingthe SMP was findinga strategyby which negotiationscould proceed. A single marketcould implythat one set of rules would be applied to everyactor: each state would have to conformto the same standard.Since each statein general prefersto preserveits sovereigntyand, in particular,has more or less alreadydeveloped standards they are reluctantto abandon, negotiations can be difficulteven wherestates agree that using a singleset of standards makes sense. Beforethe 1980s,negotiations over market openings were tedious processes. Agreementswere extremely detailed and requiredyears of negotiation over productdefinitions and standards.This changedin the 1980s with the courtdecision in the Casis de Dijon case (Von Sydow 1988). The European Courtof Justice decided that it was unnecessaryfor coun- triesto movetoward single standards for products. All goodsand services lawfullyproduced in one memberstate should be acceptedby all member states. This strategy,which is called "mutual recognition,"has the re- markablefeature of simultaneouslyallowing countries to open trade for some good or servicewithout yielding their own distinctdefinitions. The European Commissiondecided to use mutualrecognition as a principle in market-openingnegotiations (Von Sydow 1988).

18 SingleMarket

The Casis de Dijon decisiondid allow states to preventproducts or servicesin theircountries if theyfelt that health and safetystandards were at stake. The European Commissionrealized that market opening would mainly have to be centeredon harmonizinghealth and safety standardsacross societies.This conception,what Von Sydow(1988) calls the "new harmonization,"is the attemptto set collectivestandards for health,safety, or commontechnical standards for all nations. This impliesthat in the negotiationsover the SMP, the commission could invokethe new harmonizationor mutualrecognition. If thesetac- tics failed,then agreements might preserve the statusquo. It is usefulto view thesestrategies of harmonizationas a dependentvariable and consider the conditionsunder which differenttypes of harmonizationwere applied. HYPOTHESIS 2.-When the countriesattempt to harmonizeproperty rightsor governancestructures, they will tendto use mutualrecognition, but when theynegotiate rules of exchange,they will tend toward the "new harmonization." When statesconsider negotiating property rights and governancestructures,issues of nationalsovereignty and therights and privilegesof elites cometo thefore. In orderto maintaincontrol over their national markets, statesresisted conforming to a singlestandard and insteadopted out for mutual recognition.Since changingrules of exchangewill presumably aid largeexporters, states were more willing to negotiateand createcon- ditionsthat simplify the problemsassociated with interstate trade. Anothersovereignty issue concernsthe enforcementmechanism for enactedlegislation. Enforcement- was leftlargely to the nation-statesas a sign thatultimate sovereignty remains with them. HYPOTHESIS 3. -Directives willpreserve national sovereignty by making theirenforcement dependent upon each nation-stateand not a supranational organization.We do expectthis to varyby forms of harmonization or thenature of the rule (i.e., propertyrights, governance structure, or rule of exchange). We argue that those withthe mostto gain fromthe SMP were those alreadyinvolved in exportactivities. As we notedearlier, exporters are concentratedunevenly across industrialsectors. We thinkthat the food, drug,chemical, machines, and transportationequipment industries will have the most directiveswritten directly for them.12 Rules of exchange may operateas barriersto tradeby makingit moredifficult or expensive to enterinto othernation's markets. Nation-states will tryto continue protectingexisting state-owned firms or firmsin industriesthat states

12 Abouthalf of the directivesconcerned agriculture. This reflectsthe factthat the CommonAgricultural Policy is thelargest program in theEU.

19 AmericanJournal of Sociology deem important(steel, defense, telecommunications), and we would not expectthese industries to have market-openingdirectives. HYPOTHESIS 4.-Rules of exchangewill be highlyconcentrated in export-orientedindustries, such asfood, chemicals,drugs, machines, and transportationvehicles and will not be writtenfor industrieslike telecommunications,steel, or defensewhere national interestsare at stake. HYPOTHESIS 5.-Rules ofexchange will tendto use thenew harmonization as theprinciple by whichthey are negotiated. One ofthe chief problems exporters faced was thatnational differences in productdefinition and safetystandards either effectively closed some marketsor made it necessaryto make productsfor specific markets. The creationof rules of exchangewith the new harmonizationwould elimi- nate thisproblem by creatingone set of standards. HYPOTHESIS 6. -Directives concerningproperty rights and governance structureswill be concentratedin afew industries:transportation, professions, services,and thefinancialsector. Wherewill new singlemarkets actually be createdby the SMP? All of thesectors where new exportmarkets might emerge are in arenasdeemed necessaryto the functioningof a singlemarket (European Community 1985). The transportationsector is highlyorganized by the nation-states. In orderfor interstate trucking, shipping, and air travelto be expanded, new EU-wide directiveswere written. These werefocused on governance and propertyrights issues. Liberalizationof the financialservices indus- trysupports increased transactions across societies.The mutualrecogni- tionof diplomasacross professional groups would facilitatethe exchange of high-rankingpersonnel with specialty occupations such as accounting, engineering,and medicine. HYPOTHESIS7.-In thesesectors, we expectthat mutualrecognition will dominatethe directivesover harmonization and thatregulation will still be leftto the states. Nation-statesare equivocal about openingup industries,even those directlyconcerned with creating a singlemarket. Hence, theywill maintain some controlover those industriesby keepingregulation to them- selvesand preferringmutual recognition over harmonization as a strategy to openingthe markets.This means that theirsystem of credentialing and controllingtheir national firms is not goingto change.

ANALYSIS The hypotheseswe suggestedimply three distinctive features of the SMP. First,they direct us to considerhow legislationto create the SMP can be examinedin termsof two features:whether or not directiveschange propertyrights, governance structures, or rules of exchange and how

20 SingleMarket

TABLE 1

FREQUENCY DISTRIBUTIONS OF VARIABLES*

No. of Variable Cases % Directivetype: Rules of exchange ...... 190 73.1 Governancestructure ...... 44 16.9 Propertyrights ...... 26 10.0 Form of harmonization:t Harmonize ...... 185 79.1 Mutual recognition...... 37 15.8 Not harmonized ...... 12 5.1 Bodies thatresolve disputes:t Neither...... 120 58.9 Memberstates ...... 65 27.0 Commission...... 30 12.4 Memberstates then commission ...... 26 10.8

* See textfor variable definitions. t The variable "harmonizationnot addressed"is not included(n = 26). t The variable"recommendations and decisionsthat have no enforce- mentpotential" is not included(n = 22). tnesechanges are achieved:through harmonization, mutual recognition, or failureto reach agreement.Then we explorethe issue of how enforcement will proceed. Finally, we will explorewhich industriesare being transformedand how theybreak down along thesedimensions. The contentcoding of the directives is describedin theappendix. There are two caveats to the codingprocedure. First, we are treatingeach of the directivesas equal in importanceto each of the other directives. Some of the directiveswill have a much greaterimpact than others, and thereforeour weightingof the cases is arbitrary.Second, we coded directivesinto the categoriesof propertyrights, governance structure, and rules of exchangebased on our readingof what the directivewas tryingto do.13It is possibleto interpretsome of the rulesof exchangeas rules about controllingcompetition, and our resultsmighttoverstate the prevalenceof rules of exchange. We discussthis problem in theappendix. Table 1 presentsthe distribution of directives among rules of exchange, governancestructures, and propertyrights. Among the directives, 73.1% were about rules of exchangewhile 16.9% concernedgovernance struc- turesand only 10.0% were about propertyrights. This confirmsour first

13 A listingof the directives and howthey are coded as propertyrights and governance structuresis available,upon request, from the first author.

21 AmericanJournal of Sociology

TABLE 2

CROSS-TABULATION OF TYPE OF DIRECTIVE BY FORM OF HARMONIZATION

TYPE OF DIRECTIVE

Rulesof Governance Property Exchange Structure Rights FORMOF HARMONIZATION (%) (%) (%) Harmonize...... 150 22 13 (85.7) (64.7) (56.5) Mutual recognition...... 16 11 8 (9.1) (32.4) (34.8) Not harmonized...... 9 1 2 (5.1) (2.9) (8.7) No. of cases ...... 175 34 23

NOTE.-X2 = 20.9; df = 4; P = .000. hypothesisthat the SMP was mostlyabout makingtrade easier. Table 1 also shows that 79.1% of the directivesused the new harmonization principle,14.7% used mutual recognition,and 5.1% were not harmonized. Table 2 teststhe second hypothesis.There is a statisticallysignificant relationbetween the type of directiveand the formof harmonization that is consistentwith the hypothesis(X2 = 20.9; df = 4). The column percentagesreveal that 85.7% of the rules of exchangedirectives were harmonized.It is importantto note that 64.7% of the governance- structuredirectives and 56.5% of the property-rightsdirectives used the new harmonization.These figuresare remarkablyhigh. We conclude thatthe SMP was primarilyabout makingexchange easier across nation- states. This process clearlybenefits those who are already involved in exportingacross the EU. There is evidence that directivesconcerning propertyrights and governancestructures tended to use mutualrecogni- tionmore than directives concerning rules of exchangethereby reflecting the preferencesof statesto preservetheir own rules. Only fourdirectives out of 247 (1.6%) mentionthe creationof a new EU agencyto deal with SMP issues. Table 1 shows that 58.9% of the directivesdo not mentionenforcement procedures at all, 27% leave dis- pute resolutionto the nations,and 10.8% -specifythat state decisions can be appealed to the EU. Only 12.4% of the directivesspecify the EU as the main body to resolvedisputes. This is consistentwith hypothesis 3. The cross-tabulationin table 3 shows that governance-structureand property-rightsdirectives are morelikely to be mediatedat the national level (X2 = 13.74; df = 6; P = .03), therebyreinforcing state sover-

22 SingleMarket

TABLE 3

CROSS-TABULATION OF ENFORCEMENT BODIES BY TYPE OF DIRECTIVE

TYPE OF DIRECTIVE Rulesof Governance Property Exchange Structure Rights ENFORCEMENT (%) (%) (%) No body ...... 103 22 16 (54.2) (50.0) (61.5) Member state ...... 39 16 9 (20.5) (36.4) (34.6) Commission ...... 23 5 1 (12.1) (11.4) (3.8) Memberstate then commission ...... 25 1 0 (13.2) (2.3) (0) No. of cases ...... 190 44 26

NOTE.-X2 = 13.74; df = 6; P = .03.

eigntyover theseissues. The formsof harmonization(table 4) were not significantlyrelated to differencesin enforcementpatterns (X2 = 10.8; df = 6; P = .09), althoughdirectives using mutual recognitionwere morelikely to be resolvedat thestate level and thosewith harmonization were more likelyto be resolvedat the EU. This offerspartial support forthe hypothesisthat preserving nation-state regulatory capability was a concernof the SMP. It is usefulto considermore closelythe industriesmost affectedby

TABLE 4

CROSS-TABULATION OF ENFORCEMENT BODIES BY FORM OF HARMONIZATION

FORM OF HARMONIZATION Mutual Not Harmonize Recognition Harmonized ENFORCEMENT (%) (%) (%)

No enforcement...... 99 18 8 (53.5) (48.6) (66.7) Memberstate ...... 42 16 3 (22.7) (43.2) (25.0) Commission...... 21 2 1 (11.4) (5.4) (8.3) Memberstate then commission ...... 23 1 0 (12.4) (2.7) (0) No. of cases ...... 185 37 12

NOTE.-X2 = 10.80; df = 6; P = .09.

23 AmericanJournal of Sociology

TABLE 5

FREQUENCY DISTRIBUTION OF DIRECTIVES BY INDUSTRY

No. of Industry Directives % Food, beverages,and tobacco ...... 95 36.8 Chemicals...... 11 4.3 Drugs ...... 21 8.1 Machines...... 11 4.3 Finance...... 29 11.2 Transportation...... 16 6.2 Transportationvehicles ...... 10 3.9 Professionsand services ...... 16 6.2 Telecommunications...... 5 1.9 Other ...... 17 6.6 No singleindustry ...... 27 10.5

the SMP. Table 5 containsthe marginaldistribution of directivesby identifiableindustries. Ninety-five directives (36.8%) dealt with food, beverages,and tobacco. This reflectsthe fact that the activitymost regu- lated by the EU is the agriculturalsector. Only one otherindustry, the financialsector, had even 10% of the directives.The large exportindus- triesof drugs,chemicals, machines, and transportationequipment had a largenumber of directives as did thereorganized transportation, professions and services,and financialsectors. This confirmshypothesis 5. The findingsin table 6 assess hypotheses6 and 7. These hypotheses suggestedthat the high-exportindustries would have a greaterfraction of rules of exchangewhile the industriesthat servicethe singlemarket would have a higherfraction of directivesconcerning governance struc- turesand propertyrights. There is a statisticallysignificant relation be- tweenthese variables, and the percentageacross the industriesconfirms the directionof the hypotheses(X2 = 147.1; df = 20; P = .0000). The SMP was mostlyconcerned with simplifyingtrade in industriesalready markedby a greatdeal of trade.The onlyindustries that appear to have attainedmarket opening were thoseconnected to the SMP (i.e., finance, transportation,and some services). The last hypothesiswas that,in the nonexportindustries with reorga- nized propertyrights and governancestructures, mutual recognition would be favoredover harmonization.Indeed, table 7 shows that the negotiationswere more likelyto produce mutual recognitionstrategies forthe transportation, professions and services,and financialsectors than was the case forthe food,drug, or transportationequipment sectors. The SMP was mostlyconcerned with making trade easier in industries

24 SingleMarket

TABLE 6

CROSS-TABULATION OF INDUSTRY BY DIRECTIVE TYPE

FORM OF DIRECTIVE

Rulesof Governance Property Exchange Structure Rights INDUSTRY (%) (%) (%) Food ...... 88 3 3 (46.8) (7.3) (11.5) Chemicals ...... 11 0 0 (5.9) (0) (0) Drugs ...... 19 0 2 (10. 1) (0) (7.7) Machines...... 10 0 1 (5.3) (0) (3.8) Finance ...... 1 18 9 (.5) (43.9) (34.6) Transportation...... 7 8 1 (3.7) (19.5) (3.8) Transportationvehicles ...... 10 0 0 (5.3) (0) (0) Professionsand services ...... 3 5 7 (2.1) (12.2) (26.9) Telecommunications...... 3 1 0 (1.6) (2.4) (0) Other ...... 15 1 1 (8.0) (2.4) (3.8) No singleindustry ...... 20 5 2 (10.6) (12.2) (7.7) No. of cases ...... 188 41 26

NOTE.-X2 = 147.1; df = 20; P = .00. where exportswere high. New marketswill be opened in only three industries:financial services, transportation, and professionaland business services.Nation-states will regulatewithin their national borders. They have been carefulto help someorganized national elites (exporters) while preservingregulatory power.

CONCLUSIONS Markets are social constructionsthat reflectthe unique interactionsof theirfirms and nations. The shape of the SMP verymuch reflectsthe concernsof the major organizedgroups across Western Europe. The Eu- ropeanCommission developed the SMP and playeda pivotalrole selling the generalcultural frame of "Europe 1992." The institutionalmapping

25 AmericanJournal of Sociology

TABLE 7

CROSS-TABULATION OF INDUSTRY BY FORM OF HARMONIZATION

FORMS OF HARMONIZATION Mutual No Harmonization Recognition Harmony INDUSTRY (%) (%) (%)

Food ...... 74 6 2 (40.4) (16.2) (18.2) Chemicals ...... 9 1 1 (4.9) (2.7) (9-1) Drugs ...... 15 1 5 (8.2) (2.7) (45.5) Machines ...... 9 2 0 (4.9) (5.4) (0) Finance ...... 14 15 0 (7.7) (40.5) (0) Transportation...... 9 0 1 (4.9) (0) (9-1) Transportationvehicles ...... 9 0 1 (4.9) (0) (9-1) Professionsand services ...... 8 5 0 (4.4) (13.5) (0) Telecommunications...... 4 1 0 (2.2) (2.7) (0) Other ...... 12 3 1 (6.6) (8.1) (9-1) No singleindustry ...... 20 3 0 (10.9) (8.1) (0) No. of cases ...... 183 37 11

NOTE.-X2 = 64.93; df = 20; P = .00. of the SMP showshow politicalcompromises were undertaken under the banner of a "singlemarket." While this would appear to be a modest accomplishment,it mustbe rememberedthat this project was undertaken at a time when the issue of whetheror not the EU would survivewas at stake. In addition,at least half of the directivesthat comprisedthe SMP were alreadywritten but werelanguishing. The SMP broughtnew lifeto the EU and made possiblesubsequent institutional projects. It is usefulto exploreour resultsin termssupplied by otherswho are tryingto map out the trajectoryof the EU. Keohane and Hoffmann (1991) have describedthe EU as an outcomeof a setof intergovernmental bargainsthat have produceda poolingof sovereignty.States continue to dominatedecision making and do not give up sovereigntyto a central regime.Instead, they create a kind of federationthat centralizesbar- gaining,while decentralizingenforcement.

26 SingleMarket

Our resultsreinforce this view. The SMP is not a directassault upon national sovereignty.It does not create centralizingregulatory mecha- nismsnor does it forceharmonization of differentnational traditions in theorganization of capital. Yet, it does bond the nationscloser together. It allows forthe freerflow of goods, services,and labor across national bordersand facilitatescurrent exporting industries. It also sets up the possibilityfor new institutionalarrangements (the Single European Act and theTreaty on European Union).The neteffect of these arrangements is to producemore cooperation at the European level. Our resultshave implicationsfor the theories of the creationof institutions,both in sociologyand politicalscience. Instead of viewinginstitu- tionbuilding as eithera bargainingprocess of actorswith fixed interests, on the one hand, or a functionof existingorganizations and institutions, on the other,it is importantto have a more fullyelaborated view of how institutionsget builtthat takes into accountthe causal role of both phenomena. Institutionbuilding requires a perceptionof crisisby organizedactors and, often,a recognitionof theirinterdependence. Actors may be able to resolvetheir problems by directnegotiation thereby giving impetus to the power of bargainingtheories. But, it is oftenthe case that part of the crisisis the inabilityof organizedactors to findsuch a solutionto theirdilemmas. In theseconditions, social gridlockcan occur,but these conditionscan presenta politicalopportunity for institutional entrepreneurs. Sociologicalversions of institutionaltheory have tendedto emphasize how institutionalprojects are oftenpromulgated by stateactors and pro- fessionals(Powell and DiMaggio 1991;Scott and Meyer1994). Successful institutionalprojects are viewed as exemplarsor templatesavailable to otheractors in otherorganizations. One of the most powerfulparts of thistheory is its abilityto explainhow the processof institutionalization and mimicrywork after rules are produced.Another powerful part is its insistencethat rules-both formalrules and meaningsthat are takenfor granted-structurewhat kind of agreementsare possible. The politicalprocesses that have been describedhere are less theorized by institutionaltheory in sociology.We thinkthat our discussionof how theseprojects proceed provides some conceptualleverage on whereinsti- tutionalprojects come fromin the firstplace, therebyfilling in a missing gap in sociologicaltheories of institutions.Sociological theories should pay moreattention to preexistinginstitutional conditions, what the alternative institutionalprojects are in a given situation,and the political processby whichprojects win out. This also impliesthat the rational-choiceand cultural-frameinstitutional theoriesare not necessarilyinconsistent in aiding our understand-

27 AmericanJournal of Sociology

ing of institutionbuilding and theirspread. Insteadthey offer alternative ways in whichorganized groups can producecollective action. Organized actorswith fixed preferences, given a set of institutionsand an existing crisis,might be able to bargain new rules. However, theymay not be able to do so, and thisopens opportunitiesfor institutional entrepreneurs to constructnew projects. These projectsare built by actors who use existingrules and meaningsto reorganizeexisting concepts of interest. Our resultsalso have implicationsfor how to analyzethe many market- buildingprojects going on in the world today: the NAFTA treaty,the recentlycompleted GATT treaty,and the reorganizationsof marketsin Latin America,Asia, and thecountries in EasternEurope. These projects are not being producedin a vacuum but withthe help and cooperation of organizedgroups with different interests in and outsideof states.The productionof marketinstitutions (i.e., particularproperty rights, governance structures,rules of exchange,and conceptionsof control)will re- flectthese existingcenters of power and the intereststhey represent. Some of thesebargains will be struckalong explicablelines where actors withthe greatestamount of resourceswill decide how to organizerules. Some ofthe solutions, however, will reflectthe creation of new cultural forms.We argue that studyingthe creationof the rules of the economy will give us a greatdeal of insightinto how thesestate-building projects are going,where they are going,and in whose intereststhey are proceed- ing. We proposethat those who studythese phenomena begin by trying to understandwhat the possibleinstitutional projects are, who theirpro- ponentsare, and how elitesocial movementsare beingproduced to push them. This will give analystsleverage on what the possible outcomes mightbe.

APPENDIX The data forthis project are the directivesthat constitute the SMP. The European Council passed 264 directives(about 95% of the original279 proposals).The proposalsthat were not passed dealt mainlywith issues of propertyrights, taxation, and the freemovement of people. About 75% of the directiveshad been translatedinto nationallaw by January 1993 (European Community1993). Gettingcopies of all of the directives has provedto be a tedioustask. Usingan electronicdatabase (Euroscope) that is updated weekly, we have found only 247 (about 94%) of the directives.Many are incompleteand requireone to go to the Official Journalof theEuropean Communityto obtainthe whole text. In orderto testthe hypotheseswe have proposed,it was necessaryto contentcode the directives.The directivesare writtenin a dense, some- timesopaque bureaucraticlanguage. As a result,it was sometimesdiffi-

28 Single Market cult to code the directivesinto even the simplestcategories. We had spiriteddiscussions about a small subsetof the directiveswhere multiple codingsseemed appropriate. The most importantconcepts to operationalizeincluded whether the regulationpertains to propertyrights, governance structures, or transactions;whether the regulationproposes a singlestandard for all member states or uses mutual recognitionof standardsallowed to differ;if the regulationpertains to a particularindustry or industriesin general;and, what sortof enforcementmechanisms are specified. The coding of propertyrights, governance structures, and rules of exchangerequired relatively precise definitions of these concepts.Since all of the directiveswere supposed to increasecompetition generally by decreasingtrade barriers, statements to thateffect would have classified all directivesas governancestructures. Decisions to categorizethe directives into these categorieshad to be made on more relevanttheoretical criteria.A breakdownof the directives by thethree categories is available fromthe firstauthor upon request. Propertyrights imply any issuesthat pertain to issuesof ownership and control.Most directivesconcerned with the recognitionof professional credentials,the transferor regulationof propertyrights, and the protec- tion of trademarksor professionswere consideredto be about property rights. Governancestructures refer to effortsto regulatecompetitive or coop- erativerelations between firms. To code a directiveinto this category, we requiredthat it explicitlybe concernedwith conditions of competition in generalor in a particularindustry. Directives taken to be about governance structureswere often industry specific. They regulatedthe compet- itiveand cooperativearrangements in the food,insurance, air transport, trucking,and banking industriesby specifyingpricing arrangements, marketsharing, and freemarket access. Governancestructure cases also includedthose directivesthat soughtto open governmentprocurement to competitionfrom out-of-state firms. This is because these directives reflectattempts to changethe rulesof competitionthat have historically favoredlocal firms. Rules of exchange referto effortsto controlthe flow of goods and servicesacross national boundaries.A large numberof directivesthat establishedor refinedhealth standards for the productionand shipment of meat and otherfood products were coded as rulesof exchangebecause theyexplicitly dealt with standardsthat enabled productexport. A second importantclass of measuresconcerned removing customs barriers of various kinds and are rulesof exchangebecause theygovern the movementof goods acrossnational boundaries. A thirdlarge class ofdirectives specifiedsafety rules forvarious productssuch as machines,medicines,

29 AmericanJournal of Sociology and vehicles. Finally, the directivesdealing with the harmonizationof value-addedtaxes on manyproducts were placed in thiscategory. We categorizedthe typesof harmonizationinto the followingcatego- ries:(1) harmonizestandards, (2) mutualrecognition, (3) no mutualrecog- nitionbut reinforcementof nationalstandards, (4) inapplicable.Coding into these categoriesdepended on the types of agreementsthat were reached.If a singlestandard applied to all countries,this was considered harmonization.If countrieskept theirstandards but agreed to accept othercountries' products, this was consideredmutual recognition.Fi- nally,if no agreementwas reachedor the directivedid not concernhar- monization,these were coded as separatecategories. The issue of how to code the way in which the directivesdealt with enforcementand regulationwas somewhattricky. The tactic we chose was to code the way in which directivesspecified how disputes over directivescould be resolved.We coded fourcategories: (1) no resolution mechanism,(2) resolutionmechanism through individual states, (3) resolution throughtaking disputes directlyto the EU, and (4) resolution throughtaking disputes first to the statesand thento the EU. Industriesare coded as follows: (1) food, beverage, and tobacco, (2) chemicals,(3) drugs,(4) machinesand instruments,(5) telecommunications, (6) finance,(7) transportationequipment, (8) transportation, (9) professionsand services,(10) otherindustries, (11) not industryspe- cific.We have moredetailed industry information, but small numbersof cases make thiscollapse of industry categories attractive. This categoriza- tionreflects our hypotheses.It offersconfirmation of thosehypotheses by showingthat directiveswere writtenfor a verysmall numberof industries. The "otherindustry" category generally showed less harmonization and moreconcern with property rights and competitionissues than the exportindustries. This suggeststhat industries in thiscategory were fightingto protecttheir existing state definitions. Exemptions, both general and country-specific,were coded in orderto captureequivocations in directivesthat may have otherwiseharmonized standards. We specified whetherthese exemptions were temporary or permanentsince temporary exemptionstended to reflectthe EU's effortsto allow particularcountries or businessestime to catch up to the level of the restof the community, while permanentexemptions may reflecta more complicatedpolitical process.

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