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 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to American Journal of Sociology. 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 ratio- nal 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). 2 Single Market 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 op- position. 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. 3 AmericanJournal of Sociology 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

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