|Small states are economically more vulnerable than large nations. They are forced to adapt flexibly to developments on the world market since they dependent strongly on international trade and capital and they are too small to have a major direct impact on economic changes beyond their national borders. These adaptations to changing world markets need to be based on adequate domestic political processes. A major precondition for smooth domestic adaptation is social partnership or corporatism. Corporatism is connected to a system of domestic compensation, which compensates the losers of economic openness and flexibility. This is the core of Peter Katzenstein’s path breaking book about ‘Small States in World Markets’, which is based on the experiences of seven small countries in the period until the early 1980s. In this article I demonstrate that this argument applies also to present conditions and to a larger set of small and democratic states. However, three amendments have to be made: (1) Only a limited number of small countries develop an effective corporatism. (2) There is a variation both of types of corporatism and also of types of domestic compensations. Both variations are much stronger than suggested by Katzenstein’s work. (3) At the present time small and large states are economically vulnerable because all dependent on world markets. But the preconditions for the introduction and maintenance of an effective social partnership are under threat.
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