Lecture 19: The Politics of Comparative Capitalism (3)

Introduction 

The socio-economic structure, and underlying political coalitions, that defined the growth of the social state in the 1970’s, has profoundly changed.

But the predictive power of occupational class on voter choice remains strong.

The post-industrial coalition is predominantly anchored in the middle class, which tends to prefer social investment policies over traditional social protection policies

This has had an important impact on the trajectory of the welfare state.

Remember the importance of “interests, institutions and ideas” in shaping the politics of advanced capitalism today.

Whilst political coalitions shape public policy choices, these choices become institutionalised over time.

Institutions 

These institutionalised policy choices evolve into distinct “national models of capitalism”, or “worlds of welfare”.

Institutions reflect the dominant political interests that shaped the origins of the institutions.

Over time, these become “sticky” and “path dependent”, and shape the politics of adjustment, when countries are confronted with the need to reform.

Liberal market economies

Different countries tend to cluster together in terms of their labour market, social policies and capital markets institutions. This gives rise to “ideal types”.

LME’s “typically” have the following characteristics:

  • Deregulated financial-capital markets (venture capital)
  • Flexible and decentralised labour markets (high/low wages)
  • High levels of income inequality (weak trade unions)
  • Means tested and minimalist welfare state (lower taxes and small public sector)
  • Competitive market institutions (high tech exports and global firms)

Countries that fall into this cluster: UK, USA, Australia, New Zealand, Ireland.

Coordinated market economies

CME’s “typically” have the following characteristics:

  • Bank based capital-markets (patient capital)
  • Coordinated and sectoral-based labour markets (dualised protection)
  • Medium levels of income inequality (sectoral based trade unions)
  • Social insurance based welfare states (Bismarckian employer oriented)
  • Coordinated market institutions (medium tech exports and sectoral specialists)

Countries that fall into this cluster: Germany, Japan, Austria, (France, Italy and Spain in some models. But these are also distinct), Belgium.

Social market economies

SME’s “typically” have the following characteristics:

  • Deregulated capital and financial markets (small open economies)
  • Flexicurity based labour markets (secure the person, not the job)
  • Low levels of income inequality (encompassing trade unions)
  • Universal based welfare states (high taxes and large public sector)
  • Competitive market institutions (high-tech exports)

Countries that fall into this cluster: Nordic countries in Scandinavia, particularly Denmark and Sweden, but also Switzerland and the Netherlands

Power resource theory

What gave rise to these national models of capitalism?

The most influential theory is the “power resource” theory. This gives priority to the extent and type of “working class” organisation in the 20th century.

In countries where Social Democratic political parties prevailed, and where trade unions were encompassing, SMEs tended to get institutionalised.

In countries where Christian Democratic political parties prevailed, and where trade unions were sectorally specific, CMEs tended to get institutionalised.

But what about LMEs? What explains the USA and the UK development?

Convergence/divergence

Are all national models of capitalism converging on the LME model?

Most research would suggest that what we are observing are different trajectories of liberalisation. Countries adjust and liberalise in different ways.

Explaining these paths of adjustment is central to the study of comparative political science research.

The path of adjustment is shaped by electoral politics and domestic institutions.

It’s not easy for an LME to become an SME. Path dependence matters.

Conclusion 

Globalisation has fundamentally re-shaped the socio-structural landscape of advanced market economies.

This can be directly observed in the changing occupational structure of jobs, and rising wealth and income inequality.

These changes, in turn, have impacted the socio-economic and socio-cultural preference of workers and voters, in different ways.

But the path of adjustment varies according to national models of capitalism, which are built around qualitatively distinct political and economic institutions.

Change is constant, but it is not the same anywhere.

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