Content uploaded by Torben Iversen
Author content
All content in this area was uploaded by Torben Iversen on Jun 28, 2017
Content may be subject to copyright.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
part ix
..............................................................
DEMOCRACY
AND CAPITALISM
..............................................................
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
chapter 33
..............................................................
CAPITALISM AND
DEMOCRACY
..............................................................
torben iversen
1Introduction
.............................................................................
Aquestion permeates much comparative political economy from the classics to
contemporary scholarship: how it is possible to combine capitalism with democracy?
The former produces stark inequalities in the distribution of property and income,
while the latter divides power in a manner that is in principle egalitarian (one person,
one vote). So why don’t the poor soak the rich? And if they do, how can capitalism be
a viable as an economic system?
The answer to the first question depends a great deal on how economic interests
are aggregated into public policies. We know from Arrow’s impossibility theorem that
getting a well-behaved ‘social welfare function’ when there are multiple dimensions
and no dictator is, well, impossible (Arrow 1951). In the case of distributive politics
the policy space is inherently multidimensional since there are as many dimensions as
there are agents fighting for a piece of the pie. Distributive politics under democratic
rules—who gets how much, including whether the poor soak the rich—is therefore
anything but straightforward. Like the proverbial elephant in the corner of the room
that everyone ignores, most of the existing political economy literature on democracy
has skirted the issue. But it cannot be ignored. It is fundamental to how we under-
stand distributive politics under democracy.
Answering the second question requires an understanding of how economic agents
respond to the democratic pressures for redistribution. If the state undermines the
market, as commonly assumed, how can we explain the economic success of countries
that spend well over half their gross domestic products on social protection and redis-
tribution? If the welfare state is built on the shoulders of an unwilling capitalist class,
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
602 overv iew:capitalism and democracy
should we not expect capitalists to shun productive investment, stage coups, or move
their money abroad? Yet the welfare state has not collapsed, democracy is spreading,
and globalization has not resulted in convergence around laissez-faire capitalism. If
we want to understand how democracy and capitalism coexist, therefore, we need a
model of capitalism that goes beyond a simple dichotomy between state and market.
This essay discusses three different approaches to the study of democratic redistri-
bution, and then considers the recent literature on capitalism as an economic system
and how economic and democratic institutions may relate to each other. The first
approach assumes that democratic politics is structured around a single left–right
redistributive dimension. The central issue in this literature is how democratic poli-
tics affects who sets public policies, and much of the debate centers on the question
of partisanship: Does ‘Who Governs’ matter, and if so, in what ways? This is a key
question for political economy because it goes to the heart of whether democratic
politics makes a difference: Do the poor ever get a chance to try to soak the rich, and
how successful are they when they do? In section 3I discuss some plausible answers.
The main weakness of this approach is that it largely ignores the question of what
happens when several political agents compete in a multidimensional distributive
space (the elephant in the corner). It is hard to understand why politicians should
limit themselves to pursuing redistribution in a single predetermined policy dimen-
sion, and when they do not, opportunities to form distributive coalitions abound.
The work that puts coalitional politics at the center of the analysis, which I discuss in
section 4, paints a richer and more realistic picture of the politics of redistribution.
But the cost may be theoretical intractability, and much of the coalitional literature
falls into the trap of post hoc description. Description, no matter how accurate, will
not produce explanation. At the end of the section I discuss two recent attempts to
move beyond such description.
The third approach explains distributive politics as a function of the specific design
of democratic institutions—including electoral rules and federalism. The strategy
here is to replace ad hoc model assumptions, such as unidimensionality, with ones
that are rooted in careful observation of actual institutional designs. This approach
moves beyond the partisan literature by explicitly considering how economic pref-
erences are aggregated into policies, at the same time as it avoids the chaotic world
of unconstrained coalitional politics. As I argue in section 5, this combination has
produced a vibrant research program that helps answer key questions such as when
the poor are more likely to soak the rich.
The modern study of capitalism as an economic system has also taken an insti-
tutionalist turn, building on transaction costs economics rather than neoclassical
models. The ‘varieties of capitalism’ approach, in particular, illuminates the rela-
tionship between redistributive politics and economic performance and helps ex-
plain why there is no necessary contradiction between state and market. The work
also helps make sense of the observed institutional diversity of modern capitalism,
and why such diversity persists in the face of global market integration. But the
tradition has thus far produced few insights into the relationship between eco-
nomic and political institutions, and it has little to say about the political origins of
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 603
economic institutions—focusing instead on economic-organizational efficiency as a
cause.
The lack of a theory of institutional origins also haunts the literature on political
institutions. As Riker (1980) argued many years ago, institutions are ‘congealed tastes’
which themselves have to be explained. Some of the latest literature on democracy and
capitalism seeks to endogenize institutions, including the institution of democracy
itself, by modeling these as a function of class interests. This brings us right back
to the elephant in the corner because without institutional constraints, the issues of
multidimensionality and preference aggregation re-emerge. In the concluding section
I suggest that there is a new structuralist turn in political economy, where the para-
meters for our models of institutional design are derived from the specific historical
conditions that shaped capitalism in different parts of the world. But I start with
a brief discussion of some of the most important precursors for the contemporary
literature.
2Precursors for the Contemporary
Literature
.............................................................................
In a seminal article, Przeworski and Wallerstein (1982) give a simple answer to the
question of why the poor don’t soak the rich. Any attempt at radical redistribution, or
socialism, they argue, would be met by massive disinvestment and possibly violence
by the upper classes. So even if the poor would ultimately be better offin a system
where private property rights were suspended (itself a big if, of course), the ‘valley of
transition’ would dissuade any rational government with a limited time horizon from
attempting it. Conversely, the rich might consent to democracy and redistribution
because the costs of repression or the threat of revolution would otherwise be too
high. ‘Class compromise,’ in other words, could be an equilibrium. This model wiped
out the notion in the Marxist literature that capitalism could only survive if the lower
classes were repressed or misinformed.
Class compromise has survived as a central concept (e.g. Swenson 1991;Garrett
1998; Acemoglu and Robinson 2005), but conceptualizing capitalist democracy as a
class compromise does not itself take us very far in explaining the variance in policies
and outcomes across countries. Although it is easy to think that democracy—as a
particular form of government—and capitalism—as a particular type of economic
system—would produce similar policies and outcomes, one of the most striking facts
about capitalist democracies is the enormous cross-national variance in inequality,
social spending, redistribution, and the structure of social protection. A full-time
Norwegian worker in the top decile of the income distribution, for example, earns
about twice as much as someone in the bottom decile, whereas in the United States
thisratioiswelloverfour(basedon2000 data from the OECD). The extent to which
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
604 overview:capitalism and democracy
democratic governments redistribute also varies to a surprising degree. According to
data from the Luxembourg Income Study the reduction in the poverty rate in the
United States as a result of taxation and transfers was 13 per cent in 1994 whereas the
comparable figure for Sweden was 82 per cent.
There are two standard approaches to explaining this variance, which frame much
of the current debate (even as the literature has moved beyond the original formula-
tions). One is Meltzer and Richard’s (1981) model of redistribution, which has been
the workhorse in the political economy for two decades (see also Romer 1975). The
model is built on the intuitively simple idea that since the median voter tends to have
below-average income (assuming a typical right-skewed distribution of income) he or
she has an interest in redistribution. With a proportional tax and flat rate benefit, and
assuming that there are efficiency costs of taxation, Downs’s median voter theorem
can be applied to predict the extent of redistribution. The equilibrium is reached
when the benefit to the median voter of additional spending is exactly outweighed
by the efficiency costs of such spending. This implies two key comparative statics:
spending is higher (a) the greater the skew in the distribution of income, and (b)the
greater the number of poor people who vote.
The latter suggests that an expansion of the franchise to the poor, or higher voter
turnout among the poor, will shift the decisive voter to the left and therefore raise
support for redistribution. Assuming that the median voter’s policy preference is
implemented, democratization will therefore lead to redistribution. There is some
support for this proposition (see Rodrik 1999 on democracy and Franzese 2002,ch.2
on turnout), although the evidence is contested (see Ross 2005).
The first implication—that inegalitarian societies redistribute more than egalitar-
ian ones—has been soundly rejected by the data (see Bénabou 1996;Perotti1996;
Lindert 1996; Alesina and Glaeser 2004; Moene and Wallerstein 2001). Indeed, the
pattern among democracies appears to be precisely the opposite. As noted in the
example above, a country with a flat income structure such as Sweden redistributes
much more than a country like the USA with a very inegalitarian distribution of
income. Sometimes referred to as the ‘Robin Hood paradox,’ this is a puzzle that
informs much contemporary scholarship.
The other main approach to the study of capitalism and democracy focuses on the
role of political power, especially the organizational and political strength of labor. If
capitalism is about class conflict, then the organization and relative political strength
of classes should affect policies and economic outcomes. There are two variants of the
approach. Power resources theory focuses on the size and structure of the welfare state,
explaining it as a function of the historical strength of the political left, mediated by
alliances with the middle classes (Korpi 1983,1989; Esping-Andersen 1990;Huberand
Stephens 2001). Neo-corporatist theory focuses on the organization of labor and its
relationship to the state—especially the degree of centralization of unions and their
incorporation into public decision-making processes (Schmitter 1979; Goldthorpe
1984; Katzenstein 1985).
Both variants have come under attack for not paying sufficient attention to the role
of employers. Research by Swenson (2002)andMares(2003), for example, suggests
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 605
that employers did not simply oppose social policies, but in fact played a proactive
role in the early formation of such policies. Also, if the welfare state is built on the
shoulders of employers, we should expect investment and economic performance to
suffer. But the remarkable fact is that there is no observed relationship between gov-
ernment spending, investment, and national income across advanced democracies
(Lindert 1996). Or if there is one, it is so weak that it does not appear to have imposed
much of a constraint on governments’ ability to spend and regulate labor markets.
The neo-corporatist variant is more satisfactory in this respect because it suggests
how encompassing unions may choose wage restraint, which leads to higher profits
and investment. But this cannot be the whole story since corporatist arrangements
were dismantled in the 1980s, often led by export-oriented employers who presum-
ably care deeply about wage restraint (Pontusson and Swenson 1996;Iversen1996).
A more fundamental question is why conflict should be organized around class
and not, say, around sector or occupational group. When people make investments
in specific assets, which may be physical or human capital, their interests will be
tied up with those investments rather than the collective interest broader class to
which they belong (Frieden 1991;Iversen2005). There is also no systematic account
of how distributive conflict between different groups of wage earners gets worked out
politically. Dividing a pie invites the formation of redistributive coalitions, and such
coalitions cannot be modeled as simply a function of interests. This is clearly also
a problem for the Meltzer–Richard model where the median voter is assumed to be
king.
3Democracy and Partisanship
.............................................................................
Median voter models are very simple to use, but as the Robin Hood paradox sug-
gests, they do not provide much leverage on explaining the observed variance in
redistributive politics. Power resources theory points to one potential source of such
variation that has been subject to much research: government partisanship. If center-
left governments simultaneously promote pre-fisc income equality and redistribution,
partisanship may not only explain distributive outcomes but solve the Robin Hood
paradox.1If partisanship is important in explaining distributive outcomes, we would
expect equality and redistribution to go hand in hand.
Partisanship may also explain why corporatist institutions are not always con-
ducive to good economic performance. In Lange and Garrett’s (1985)well-known
model of economic growth, ‘encompassing’ unions that organize all or most workers
are not likely to restrain wages if right partisan governments are in power that are not
¹ Governments may affect the primary distribution of income through public education (Boix 1998),
through the facilitation corporatist bargains that promote wage equality (Cameron 1984; Katzenstein
1985;Garrett1998), or through minimum wage legislation.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
606 ov erview:capitalism and democracy
attentive to the long-term interests of labor. As I discuss in section 5,thisideaof‘con-
gruence’ between policies and institutions is an important topic for contemporary
models of capitalist institutions.
For partisanship to matter, the median voter theorem must be systematically vi-
olated, so there must be some explanation for why this should be the case. It is by
no means obvious. Although Downs only applied his argument to majoritarian two-
party systems, the median voter theorem also applies to multi-party systems where
the median legislator can make take-it-or-leave-it proposals. Since no majority can
be formed without the support of the median legislator, those proposals will become
the government policy. In simple unidimensional models of government formation
the government always includes the party with the median legislator and does not
even need a majority to govern since no viable alternatives can be formed (Laver
and Schofield 1990). Yet, the comparative evidence seems to imply that partisanship
matters (see, for example, Hicks and Swank 1992;Iversen1998; Huber and Stephens
2001; Cusack 1997; Allan and Scruggs 2004;Kelly2005; Kwon and Pontusson 2005).
One explanation is suggested by Wittman’s (1973) model of probabilistic voting.2
If two parties represent constituencies with distinct interests on any set of issues, and
if they face uncertainty about the election outcome, the platforms that maximize the
implementation of the parties’ preferred policies will be away from the median. Since
their expected utility is the product of the probability of winning times the proximity
of policies to parties’ ideal point, parties trade offa lower probability of winning
for a policy that is closer to their preference. The Wittman model has found wide
application in the study of two-party systems, where one of its attractive features is
that it can handle multidimensional spaces (more on this below).
Another explanation for partisanship is that political parties, to be electorally
successful, have to appeal to core constituents who provide the money and activists
required to run effective electoral campaigns (Hibbs 1977; Schlesinger 1984; Kitschelt
1994;Aldrich1993,1995). Aldrich (1983) has formalized this idea in a Downsian model
with party activists in which party leaders exchange policy influence to relatively
extreme core constituents for unpaid work during campaigns.3The logic is illustrated
by the American primary system where successful presidential candidates first have to
win the support of the parties’ core constituents before they can contest the general
election. In the general election they have an incentive to moderate their image to
appeal to the median voter, but since they were chosen as candidates on different
platforms, the perception among voters of real policy differences is accurate.
Aldrich’s amended Downsian model raises a critical issue of commitment in
politics—an issue that is also important for understanding partisanship. If the win-
ning electoral platform in an election is the median voter preference, but candidates
² For a more exhaustive discussion of the different possibilities in two-party systems, see Grofman
2004.
³ An interesting model along these lines has been developed by McGann 2002. In the McGann model
voters sort themselves into parties based on their platforms, and the platforms of parties are determined
by their members (the median members to be precise). Needless to say, this set-up produces policy
divergence.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 607
represent partisan constituencies, how can their commitment to the median voter
be credible? Downs largely skirted this issue by assuming that party platforms had
to be consistent over time, but it is now standard to assume that such commitments
cannot be credible (Persson and Tabellini 1999,2000). In modern political macro-
economics, for example, governments have a short-term incentive before elections to
make the economy look better by using inflationary policies, even as such policies are
unsustainable and have adverse economic effects (Alesina, Cohen, and Roubini 1992;
Franzese 2002; Adolph 2005;Clark2003).4This creates room for partisan politics.5
‘Citizen-candidates’ models takes this idea to its logical conclusion by assuming
that candidates cannot commit to anything other than their own preferred policies
(Osborne and Slivinski 1996;BesleyandCoate1997). With two candidates and costs
of running, the equilibrium is away from the median voter because otherwise one
citizen would not find it worthwhile to enter the race (why run if someone is already
representing you?). With strategic voting this divergence can be quite large because
voters may not want to switch froman existing candidate to a more moderate entrant
in the fear that this may cause the least preferred candidate to win.
Turning from party competition to government formation, new bargaining models
also do not bear out the idea that the median legislator can dictate policy. If there
is real bargaining taking place, Rubinstein bargaining theory essentially implies that
parties will split their policy differences. The threat to break offnegotiations and
initiate bargaining with another party cannot be used by the median party to get
its way. If there are any costs of switching (which may simply be the cost of a delay),
the new bargaining partner has no incentive to offer a bargain that is better than
the original minus the cost of switching.6As long as parties have different policy
preferences, as in the citizen-candidate model, governments will therefore be away
from the median.
But while there are compelling reasons why partisanship matters, a critical is-
sue that has largely been skirted is why some countries are dominated by center-
left governments and others by center-right, governments. In the absence of such
dominance we may get partisan political business cycles, as argued by Alesina and
others (Alesina, Cohen, and Roubini 1992), but partisanship could no longer explain
persistent cross-national differences in policies and outcomes. Nor could partisanship
serve as a credible commitment mechanism as it does in the Lange–Garrett model. In
fact, government partisanship does vary significantly across democracies (see Powell
2002;IversenandSoskice2002), and much of the evidence for the importance of
partisanship is cross-national.7
⁴Stokes 1999 offers an interesting alternative in which parties appeal to the short-term interests of
voters in the election only to pursue longer-term group interests after the election.
⁵There is a very large literature on the political economy of macroeconomics that is not discussed
here. Much of this literature originates with Hibbs’s seminal 1977 article and is discussed by Hibbs in his
contribution to this volume.
⁶This can be inferred from the ‘outside option principle’ in bargaining theory (Osborne and
Rubinstein 1994,128), although the only proof I am aware of is in Iversen and Soskice 2005.
⁷Power resource theory implies that this is due to differences in the strength of the labor movement.
But unionization, or the size of the industrial working class, are poor predictors of partisanship.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
608 ov erview:capitalism and democracy
Rather surprisingly, most of the literature also fails to distinguish between the
preferences of parties and the preferences of voters. Observed policy differences
between left and right governments could be due to either. There are methodological
fixes to this problem—such as comparing the ideological composition of the gov-
ernment to that of the legislature, or focusing on ‘natural experiments’ where the
outcome approximates a random assignment of the partisan ‘treatment’ (say, in very
close elections)—but we also need a theory of voter preferences. Since voters have
an incentive to be ‘rationally ignorant,’ as argued by Downs many years ago, it is
not really satisfactory to assume that parties simply reflect the interests of citizens.
Partisan models must also explain how interests are defined and become common
knowledge.
4Multiple Dimensions and Coalitional
Politics
.............................................................................
As noted in the introduction, distributive politics is inherently multidimensional
because a pie can be divided along as many dimensions as there are political agents
vying for a piece. It is therefore hard to understand why politicians should constrain
themselves to contest a single policy instrument such as the proportional tax/flat rate
benefit in the Meltzer–Richard model. And when alternative tax-benefit schedules
are considered the results change. In Snyder and Kramer (1988), for example, the
choice is over different—linear and non-linear—tax schedules, and the majority
choice is no longer redistribution that benefits the poor. The Snyder–Kramer model
is itself restricted to one dimension (because it limits the choice to single-parameter
schedules subject to an exogenously given revenue target), but it demonstrates the
sensitivity of models to the tax-benefit assumptions they make.8
One of the first to recognize the importance of multidimensional distributive
politics was Esping-Andersen (1990). He distinguishes three different ‘worlds’ of
welfare capitalism—each associated with a distinct tax-benefit structure. In the most
redistributive (social democratic) type, progressive taxation is coupled with flat rate
benefits; in the ‘liberal’ type means-tested benefits are targeted to the poor; while in
the ‘conservative’ type benefits are tied to income and occupation. Esping-Andersen
makes a plausible (and interesting) argument that the structure of benefits is asso-
ciated with, and perhaps causes, different social divisions and political patterns: the
poor against the middle class in the means tested, insiders versus outsiders in the
conservative, and public against private sector in the social democratic. To explain
redistributive politics, political economy therefore has to endogenize the structure of
benefits.
⁸The winner in the Snyder–Kramer model is the middle class—a result that is echoed in some
multidimensional models discussed below.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 609
Clearly this task can be accomplished neither with a median voter model, nor with
a simple left–right partisan model. Building on the majestic work of Moore (1971),
Esping-Andersen instead suggests that the answer lies in historically unique class
coalitions. Red-green coalitions in Scandinavia forced socialist parties (which lacked
stable majorities) to accept universalism. State-corporatist coalitions in continental
Europe were forged by autocrats like Bismarck to stem the rise of the labor movement.
In countries such as Britain and the USA, where the state and the left were both
relatively weak, social issues were essentially dealt with through an extension of the
old poor laws, allying the middle class with higher income groups.
Echoing the recent literature on path dependence (Pierson 2000), Esping-
Andersen then suggests that the structure of the benefit system re-produces the
political support for each type. But neither the origins of the three worlds, nor their
stability, can be said to be explained since there is no argument to preclude alternative
outcomes. For example, why would it not be possible for liberal welfare states to
expand redistribution towards the middle class? Or why does the middle class not
try to exclude the poor from sharing in the generous benefits of the social democratic
model? Or why can outsiders not offer a deal to a subset of insiders in the conservative
model that would cause it to break up? Without any explicit theory, much of Esping-
Andersen’s analysis comes across as post hoc description.
One could make a similar charge against Lowi’s (1964) account of public policy-
making. Like Esping-Andersen’s work, however, it provides a convincing account
of the numerous forms that distributive politics can take. Specifically, Lowi dis-
tinguishes between distributive, regulatory, and redistributive politics. Distributive
politics refers to a situation where narrowly defined groups or constituencies, such
as congressional districts, seek to maximize their share of appropriations. Since most
of the cost can be externalized, everyone pushes for more spending and no one has
asufficiently strong incentive to prevent others from doing the same: ‘I agree to
spend on your project if you agree to spend on mine.’ The result is what Olson terms
‘distributive coalitions,’ characterized by excessive and wasteful spending.
Unlike the quiet, behind the scenes logrolling of distributive politics, regulatory
politics pits losers against winners as some are advantaged and others disadvantaged
by public policies (public procurement decisions, licensing, and other regulatory
decisions). Redistributive politics of the Meltzer–Richard variety is also contentious,
but the divisions are across class instead of sector. In a sense, therefore, the nature
of public policy (distributive, regulatory, or redistributive) can be predicted by the
policy area. Yet, it is hard to see how ‘policy area’ can be treated as a truly exogenous
variable any more than the benefit structure in Esping-Andersen’s story can. Sure, we
know that the New Deal involved class politics and major redistribution, and it clearly
contrasts to Lowi’s other types, but to move beyond post hoc description needs a
theory of why distributive politics takes on particular forms at particular times.
Dixit and Londregan’s (1996,1998) model of transfer spending takes us one step
in this direction. Assuming probabilistic voting, if two parties do not know individ-
ual voter preferences but do know the distribution of such preferences by groups,
and if loyalty to different parties varies across groups, vote-maximizing parties will
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
610 ov erview:capitalism and democracy
concentrate transfers on the groups with the most ‘swing’ voters. The principle is to
distribute transfers so that the marginal vote gain for each dollar spent is exactly the
same across all groups. Not surprisingly, groups that have a lot of swing votes will
be advantaged because the returns (in terms of votes) of investing in these groups
are higher than in other groups. With the additional assumption that loyalists are
concentrated among the rich and the poor (those with ‘extreme’ preferences), the
implication is that middle class will receive most of the transfers 9—a result that is
known as ‘Director’s Law’.
An assumption that is not explained is why parties cannot compete for the loyalty
of ideologically committed voters. For example, if African-Americans are loyal to the
Democrats because of the party’s position on affirmative action (or for any other
reason for that matter), then there is no reason Republicans cannot appeal to these
voters by adopting a more pro-affirmative action platform. Yet, if loyalty is endoge-
nous to party strategies we are right back into strange world of multidimensional
politics without a core. The same is true if we drop the two-party assumption since
the ‘divide the pie’ game then does not predict any stable coalition. What is lost
by adopting restrictive model assumptions is therefore the ability to consider more
complex patterns of coalition formation, and that limits the usefulness of the model
for comparative purposes.
Modeling multidimensional coalitional politics is at the center of several new
attempts to understand distribution in democracies. In Roemer’s (1997,2001)model,
people have intrinsic preferences on some ascriptive dimension such as race or reli-
gion, in addition to preferences over redistribution. If the redistributive dimension
was the only one that mattered, the analysis would essentially collapse to a Meltzer–
Richard model. When a second dimension is introduced, however, the right party
can appeal to poor religious or racist voters, and the left party is forced to respond
by attracting more wealthy anticlerical or anti-racist voters. As this ‘exchange’ of
voters takes place, the two constituencies will tend to become more similar in terms
of income. The original pro-welfare coalition is thus broken apart by appeals to
commonalities on another, non-economic, dimension. As Riker (1986)recognized
informally many years ago, the (re-)bundling of issues is a critical component of
coalitional politics, and it helps explain why the poor don’t soak the rich.10
Alesina and Glaeser (2004) make a related argument for why racial politics may
undermine redistribution. If people feel altruistic only towards people of their own
race, they will not redistribute to a minority that constitutes a disproportionate share
of the poor. Of course, if solidarity with the poor is a ‘taste’ then we need a theory of
why people acquire this taste, and Alesina and Glaeser go on to argue that elites that
⁹Not necessarily all because if utility is declining in income, and hence transfers, marginal vote gain
of giving to groups with many swing voters will also be declining.
¹⁰The model is in fact more complicated because, once again, there is no equilibrium with majority
voting in a multidimensional space. Roemer solves this problem in two alternative ways. In the first
formulation one party gets to select its platform before the other party, producing a Stackelberg
equilibrium. In another, different factions of both parties must all agree to the policy platform, and this
reduces the feasible policy space to a single point.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 611
oppose redistribution can use the race card to undermine support for redistribution.
This is similar to the logic in Roemer’s model.
Austen-Smith and Wallerstein (2003) provide a quite different story about the
importance of race. In their model people have ‘race-blind’ preferences and are simply
trying to maximize their net income. Yet the mere existence of a second dimension
(here affirmative action) can cause a legislative coalition in favor of redistribution to
break up. The reason (loosely speaking) is that the rich in the majority can offer a
bargain to the minority that strengthens affirmative action but reduces redistribution
to the poor. Of course, other coalitions are also feasible, but none that generate as
much redistribution as bargaining over a single redistributive policy.
The Roemer and Austen-Smith models are both very complex, but they suggest
that countries with a higher dimensionality of the policy space also tend to have
less redistribution. Przeworski and Sprague (1986) proposed a similar idea when
they argued that left policies would become less prominent as party competition
became more influenced by non-economic issues. Yet, to my knowledge no systematic
comparative test of the effect of multidimensionality on redistribution has been
carried out. Alesina and Glaeser present cross-national correlations between spending
and racial, ethnic, and religious heterogeneity, but this is an area ripe for empirical
research.
5Democratic Institutions
.............................................................................
As we have seen, some of the literature has dealt with the complexity of democratic
politics by using highly simplifying model assumptions. The Meltzer–Richard model
is a prominent example. Such simplifications lead to clear and deductively valid
inferences, but they often come at a considerable cost in terms of realism. Those
who believe that this cost is too great have turned to history and ‘thick description.’
Much of this work, such as Esping-Andersen’s influential book on welfare capi-
talism, underscores the importance of coalitional politics and leads to compelling
accounts of cross-national differences in policy regimes. Yet, post hoc description is
not explanation and the few attempts to model the complexity of coalitional politics,
while promising, are themselves complex and have so far produced little comparative
research.
In the view of many scholars, focusing on the role of institutions strikes an
attractive middle ground. Instead of ad hoc model assumptions, the constraints on
political behavior are derived from observed characteristics of political and economic
institutions, and instead of post hoc descriptions of behavior, outcomes are pre-
dicted from the interaction of purposeful behavior and institutional constraints.11
The approach has been highly successful in explaining cross-national differences in
economic policies and outcomes.
¹¹ ‘Institutions’ defined broadly as the ‘rules of the game’ (North 1990).
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
612 ov erview:capitalism and democracy
Other contributions to this volume go into considerable detail on the role of
particular institutions. Here I pick some prominent examples that focus on either
democratic institutions (this section) or economic institutions (the next section).12
These examples are meant to be illustrative of the institutionalist approach, not an
exhaustive discussion of the literature. I begin with a discussion of the role of the
electoral system because it is a feature of democracies that varies a great deal and
covaries with government spending, redistribution, and income equality (Persson
and Tabellini 2005). This covariation has become the focus of intense scrutiny in
recent work in comparative political economy.
In a path-breaking article, Carey and Shugart (1995) propose one way to under-
stand the effects of electoral rules. They argue that the electoral system shapes the
incentives of politicians either to toe the party line or to use their influence over
public policies to cultivate a personal following. Confirming a long-standing intu-
ition among students of political parties, the incentives for politicians to campaign
on a broad party platform depends on the ability of parties to control politicians’
re-election chances. The best-known means to accomplish such control is a closed
party list system where a candidate’s rank on the list determines that candidate’s
likelihood of re-election. By contrast, in systems where candidates are chosen through
primaries, such as elections to the US Congress, political parties cannot directly
control who gets on the ballot and politicians have a stronger incentive to pursue
their own agendas or location-specific interests.
Carey and Shugart do not fully spell out the implications of their argument for
economic policy, but an obvious hypothesis is that systems that encourage politicians
to cultivate a personal following will lead to a targeting of public money to local
projects and narrowly defined groups. An example is the pre-1994 Japanese system
where candidates from the same party competed against each other for a single
non-transferable vote, and therefore produced strong incentives for politicians to
spend on their districts while ignoring the public interest. The consequence was a
highly fragmented fiscal policy (Cox and Thies 1998; Rosenbluth and Thies 2001).
This resonates with Lowi’s notion of distributive politics, but in the Carey–Shugart
framework the nature of the policy-making process is a function of the political
system, which varies across time and space. Put another way, Carey and Shugart
help explain differences in countries with respect to their use of policies across Lowi’s
categories.
In Persson and Tabellini’s (1999,2000) account, the critical institutional feature is
the electoral formula. In majoritarian systems, they argue, if middle-class swing voters
are concentrated in particular districts, parties have an incentive to completely ignore
other districts that are leaning one way or the other ideologically. These districts are
‘safe’ and therefore not worth fighting over. Similarly to Dixit and Londregan’s model,
money therefore flows to swing votes in middle-class districts. In single-district PR
systems, by contrast, there are no safe districts so politicians cannot ignore the loss
of support among other groups if all transfers are concentrated on the middle class.
¹² For a comprehensive review of the ‘new’ institutionalist literature see Hall and Taylor 1996.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 613
The result is greater dispersion of spending across classes (or more spending on broad
public goods).
PR systems, however, tend to spend more on both transfers and public goods. To
explain this Persson and Tabellini point to a ‘second-order effect’ of PR, namely that
PR systems tend to have more parties and be ruled by multi-party governments (see
Ordeshook and Shvetsova 1994;andNetoandCox1997 for the evidence). If each party
wants to spend on its own group (so that the space is multidimensional) this can lead
to a common-pool problem with excessive spending as a result (see also Bawn and
Rosenbluth 2002;Crepaz1998). Again, Lowi’s distributive politics has been linked to
an institutional feature that varies across countries.
Electoral systems also appear to be systematically related to class politics. Iversen
and Soskice (2002) argue that when parties representing different classes have to
form coalitions to govern, as is typically the case under PR, the center and left
have an incentive to get together to soak the rich. This is not true in two-party
majoritarian systems where parties are coalitions of classes. In this situation, middle-
class voters can be soaked by the poor if the center-left party deviates from a median
voter platform. Assuming that the right cannot engage in regressive redistribution,
incomplete platform commitment therefore puts the median voter at risk and the
center-left at an electoral disadvantage. The implication is that partisanship and
redistribution, class politics in Lowi’s scheme, systematically covary with electoral
system.
Another democratic institution that has generated intense scholarly scrutiny is
federalism. Much of the research in this area originates with Brennan and Buchanan’s
(1980) argument that competition between local governments for mobile sources
of revenue undermines the ability of predatory governments to impose excessive
taxation. Coupled with the potential ability of states to secede, which restricts the
ability of central governments to exploit member states, federalism may also consti-
tute a credible commitment to property rights—what Weingast (1995) calls ‘market-
preserving federalism.’ Viewed from the left, this logic suggests that federalism may
undermine the welfare state and lead to under-provision of social welfare or a ‘race to
the bottom’ (Pierson 1995).
A related argument is that federalism makes it harder to pass new legislation
because it has to be ratified in two legislative assemblies. The implication is a status
quo bias, which is sometimes argued to have slowed down the expansion of the
welfare state (Huber, Ragin, and Stephens 1993). But while federalism does appear
to be associated with smaller governments, there is in fact a striking amount of
variance across federalist states (Obinger, Leibfried, and Castles 2005). Swiss and US
federalism seems to be linked to low spending, but this is not true of German or
Austrian federalism.
To account for this variation, Rodden (2003) has proposed to distinguish between
federalist systems with different fiscal institutions. If local spending is locally financed,
tax competition puts a damper on spending, but if local spending is financed through
central or intergovernmental grants local politicians have little incentive to contain
spending. This argument applies more generally to political systems where there is
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
614 ov erview:capitalism and democracy
a division of labor between local governments and the center (a unitary system like
Sweden, for example, exhibits a lot of local policy autonomy).
Revenue-sharing may be seen as a source of common-pool problems (or Lowi’s
distributive politics), or it may be seen as a method to reduce the power of those with
mobile assets and empowering governments to pursue redistribution. Whatever the
normative perspective, if there are two different types of federalism, one with a ‘soft’
and one with a ‘hard’ budget constraint, then a key issue is why some governments
have adopted hard budget constraints while others have not (Wibbels 2003; Wildasin,
this volume). Alternatively, there is a wealth of interesting variation in revenue-
sharing between local governments and states that seem critical to fiscal policy, yet
is not treated as an object of explanation. There is a literature on fiscal discipline and
its consequences (see von Hagen and Harden 1995 and the von Hagen chapter in this
volume), but budgetary rules are for the most part treated as exogenous.
By anchoring model assumptions in the rich details of actual political institutions,
the new institutionalist literature enables the coupling of formal reasoning with the
realism of inductive research. It reduces the indeterminism of democratic policy-
making and suggests promising ways to endogenize partisanship, coalition formation,
and styles of policy-making. Our understanding of fiscal policies and distributive
outcomes has been greatly advanced in the process. But by highlighting the critical
importance of institutional detail, one cannot help but wonder if the real task is not
the explanation of the institutions themselves. I return to this question below. But
first I turn to another successful branch of institutionalism that focuses on modern
capitalism as an economic system.
6Varieties of Capitalism
.............................................................................
It is common to portray democratic capitalism as a system where markets allocate
income according to efficiency while governments redistribute income according to
political demand. This suggests a convenient intellectual division of labor between
economists and political scientists, but it is based on a neoclassical view of the econ-
omy that few today believe. Instead, the dominant approach to the study of capitalism
as an economic system builds on new institutional economics and is known as the
‘varieties of capitalism’ (or VoC) approach (Hall and Soskice 2001). Just as democracy
has been shown to divide into institutional subspecies, so has capitalism. As I discuss
at the end of this section, there is in fact a close empirical association between political
and economic institutions, although the reasons for this association are not well
understood.
The VoC approach assumes that economic institutions are designed to help firms
and other economic agents make the best use of their productive assets (Hall and
Soskice 2001). As argued by Williamson (1985), North (1990), and others, when an
economy is characterized by heavy investment in co-specific assets, economic agents
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 615
are exposed to risks that make market exchange problematic.13 A precondition for
such an economy to work efficiently is therefore a dense network of institutions
that provide information, offer insurance against risk, and permit continuous and
impartial enforcement of complex contracts. In the absence of such institutions,
exchange is possible only at a small scale in local trading communities where repeated
face-to-face interactions enable reputational enforcement of contracts. At a larger
scale, or with a greater division of labor, markets that are left to their own devices
will either be accompanied by costly and continuous haggling, or be restricted to
exchanges of very homogeneous goods.
Another central feature of the VoC approach is the idea that an institution has to
be understood in relation to other institutions. Institutional complementarity means
that the effectiveness of one institution depends on the design of another. A precursor
for this idea is Lange and Garrett’s (1985) congruence model that I discussed above.
The VoC approach takes the idea much further and argues that all major institutions
of capitalism are complementary to each other: the industrial relations system, the
financial and corporate governance system, the training system, and the innovation
system. For example, if firms make investments in their workers’ skills, unions gain
hold-up power that can be levied against the firms. This necessitates an industrial
relations system where such hold-up power can be managed. Conversely, workers
will be reluctant to acquire firm-specific skills unless firms can make credible long-
term commitments, which require a financial system that provide access to ‘patient’
capital, and a corporate governance system where workers are given influence,
and so on.
Because of these institutional complementarities, one is not likely to find every
logically conceivable combination of institutions in the real world. In fact, Soskice
(1999) makes the claim that there are only two dominant types: one called liberal mar-
ket economies (LMEs) and another called coordinated market economies (CMEs).
Each is characterized by the extent to which institutions protect and encourage
investment in assets that assist firms in pursuing particular product market strategies.
In CMEs where firms and workers have invested heavily in assets that are specific to
particular companies, industries, or jobs, institutions are designed to protect those
investments.14 In LMEs where such institutional protection is missing or weak, mar-
ket competition encourages economic agents to make investments in general assets
since, in the absence of protection, mobility is the best insurance against risks. This
does not eliminate specific assets, but it will reduce their relative importance.
The VoC argument suggests a very different explanation for the welfare state than
power resources theory. Mares (2003), for example, argues that companies and indus-
tries that are highly exposed to risk will favor a social insurance system where cost and
¹³ Polanyi 1944 is an important precursor for many of these arguments.
¹⁴For example, unionized workers with specific skills possess very considerable potential hold-up
power over firms, and firms will be unlikely to rely on workers with specific skills unless individual
unions are constrained through an inter-firm collective bargaining system. In turn there is strong
evidence that such collective bargaining systems lead to a compression of wages (Rueda and Pontusson
2000; Wallerstein 1999).
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
616 ov erview:capitalism and democracy
risk are shared, leading employers to push universalistic unemployment and accident
insurance. Although low-risk firms will oppose such spending, it is remarkable that
universalism has been promoted by groups of employers since the literature associates
it so closely with policies imposed on employers by unions and left governments.
Estevez-Abe, Iversen, and Soskice (2001) and Iversen (2005)furtherarguethatsocial
protection (including job protection, unemployment benefits, income protection,
and a host of related policies such as public retraining programs and industry subsi-
dies) encourages workers to acquire specific skills, which in turn enhances the ability
of firms to compete in certain international market segments.15 The welfare state is
thus linked to the economy in a manner that creates beneficial complementaries. This
may help explain the lack of evidence for the deleterious effects of social spending on
growth, and why globalization has not spelled the end to the welfare state.
A mostly unexplored topic in the VoC literature is the relationship between
economic and political institutions. It is striking, for example, that the distinction
between LMEs and CMEs is almost perfectly collinear with the distinction between
PR and majoritarian electoral systems. One possible explanation, which goes back to
Katzenstein’s (1985) work on corporatism, is that PR promotes the representation of
specialized interests in the legislature and its committees. At least this would be true if
parties have incentives to accommodate each other’s specific interests.16 Majoritarian
systems, by contrast, encourage parties to elect strong leaders in order to convince the
median voter that they are not beholden to special interests. Such ‘leadership parties’
are consequently not conducive to the protection of specialized interests and therefore
encourage economic agents to make investments in more portable assets (say, college
degrees as opposed to extensive vocational training).
Another reason for the coupling of electoral and economic systems may be that
PR serves as a credible commitment to social protection because of its effect on class
coalitions and redistribution. A high level of insurance will encourage investment in
risky assets and hence support a particular type of firm.17 This is merely a conjecture
that awaits careful empirical corroboration. In particular, it will need to be shown that
the correlation between electoral systems and production regimes is not a historical
accident, but the result of a deliberate design of political institutions by representa-
tives of particular economic interests.
¹⁵The skill argument may also account for some of the variation in labor market segregation
between the sexes. Women appear to find it much harder than men to enter into specific skills jobs, and
this may have to do with the differential ability of men and women to commit to uninterrupted careers
(Estevez-Abe 1999; Iversen and Rosenbluth 2005).
¹⁶This logic may build on Laver and Shesple’s (1996) model of government formation, since policies
of multiparty governments in their theory reflect the distinct interests of the participating parties. Parties
representing agriculture dominate the agricultural ministry, parties representing industry the industrial
ministry, etc. It does require, however, that parties representing significant specific interests are not
permanently excluded from policy influence.
¹⁷Although redistribution and insurance are analytically distinct, in practice they are closely related.
The unemployed, the sick, the old, and those with low pre-fisc income more generally, will support
redistribution and benefit from it. But for those who are currently employed, healthy, young, and
enjoying a high income such redistribution is insurance against many of the vagaries of the capitalist
economy.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 617
The question of institutional origins, of course, is a matter that concerns the
entire institutionalist approach to political economy. The more successful political
economy is in explaining economic policies and outcomes with reference to the
institutional design, the more pressing it is to explain why one design was chosen
rather than another (Thelen 1999;Pierson2000). But the question then is how we can
approach this task without being overwhelmed by the complexity of institution-free
politics. In the concluding section I ask whether the answer may lie in a structuralist
approach.
7Conclusion:Towards a New
Structuralism?
.............................................................................
A decade ago nearly all comparative political economists would have called them-
selves institutionalists. Today an increasing number of scholars are convinced that
only way forward is by going back—back to the origins of institutions and the condi-
tions that gave rise to them. The questions that are being asked by these scholars are
fundamental: under which structural-economic conditions do autocracies move to
democracy (Acemoglu and Robinson 2005;Boix2003)? How do institutions emerge
that will protect property right and produce prosperity (North and Weingast 1989).
What are the origins of modern skill systems (Thelen 2004)? What accounts for
differences in the structure of social programs (Mares 2003; Swenson 2002). What are
the origins of federalism (Wibbels 2003) and electoral institutions (Boix 1999; Cusack,
Iversen, and Soskice 2004)?
In a recent paper, Rogowski and MacRay (2003) conjecture that many of the
institutional effects that have been documented in painstaking detail by decades of
institutional research are in fact epiphenomenal to the structural conditions and
interests that gave rise to them. If this is true, it puts a premium on understanding
the ‘pre-strategic’ policy preferences of agents and the circumstances that determine
them. But if we make this move we need to understand that this could bring us head
to head with the elephant in the corner: the chaos of institution-free politics. If we
take this path, is there a way to avoid post hoc description or ad hoc modeling?
Take the example of Acemoglu and Robinson’s (2005)theoryofdemocratic
transitions. This is one of the most sophisticated attempts to model democracy,
yet it relies heavily on the simplifying assumptions of the Meltzer–Richard model.
Understandably, Acemoglu and Robinson replace the lack of well-defined institu-
tional constraints with the safe familiarity of a model that is easy to understand, but
may not be entirely appropriate for the task at hand.
There is however the outline of an alternative in Acemoglu and Robinson’s book
that I will loosely refer to as ‘new structuralism’ (to distinguish it from Marxist
structuralism, structural functionalism, and other previous uses of the term). In their
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
618 ov erview:capitalism and democracy
model, inequality and the size of the middle class powerfully shape the incentives
that political agents have to compromise. A sizeable middle class essentially serves as
abuffer against radical demands for redistribution under democracy. Or to put the
matter in more general terms: the structure of the pre-democratic economy places
constraints on political agents that may help to explain their behavior.
This idea of rooting actors in the structure of the capitalist economy can clearly
be taken further. Rogowski (1989), who has made one of the most influential struc-
tural arguments to date, focuses on variation in trade exposure and relative factor
endowments. Others imply that political interests are defined not only by factor
endowments, but by the specificity of these factors (e.g. Frieden 1991;Altetal.1996;
Iversen and Soskice 2001). In a different context, Mares (2003) emphasizes the size
of firms and their exposure to risk when explaining preferences over social policy.
Swenson (2002) similarly traces employer-driven social policy initiatives to product
market conditions. In explaining modern skill and production systems, Thelen (2004)
argues that the strength of the guild system at the dawn of the industrial revolution
powerfully shaped subsequent developments.
These examples do not add up to a single coherent approach to the study of
institutional design. The point is simply that as we move ‘behind’ the institutions
to explain their genesis, an important task will be to identify the key structural
attributes of capitalist economies, and the agents that populate them, so that they
can serve as parameters in our models of institutional design and change. Similarly
to the institutionalist project, the success of the new structuralism will depend on
combining carefully identified historical constraints with rigorous theorizing. If this
can be done, we may be able to leave the elephant in peace for a while longer.
References
Acemoglu,D., andRobinson,J.2005.Political Origins of Dictatorship and Democracy.
Cambridge: Cambridge University Press.
Adolph,C.2005. The dilemma of discretion: career ambitions and the politics of central
banking. Ph.D. dissertation, Department of Government, Harvard University.
Aldrich,J.H.1983. A downsian spatial model with party activism. American Political Science
Review,77:974–90.
1993. Rational choice and turnout. American Journal of Political Science,37:246–78.
1995.Why Parties? The Origins and Transformation of Party Politics in America.Chicago:
University of Chicago Press.
Alesina,A.,Cohen,G., andRoubini,N.1992. Macroeconomic policy and elections in OECD
democracies. Economics and Politics,4:1–30.
and Glaeser,E.2001.Fighting Poverty in the US and Europe: A World of Difference.
Oxford: Oxford University Press.
2004.FightingPovertyintheUSandErope:AWorldofDifference. Oxford: Oxford
University Press.
Rosenthal,H.2000. Polarized platforms and moderate policies with checks and bal-
ances. Journal of Public Economics,75:1–20.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 619
Allan,J., andScruggs,L.2004. Political partisanship and welfare state reform in advanced
industrial societies. American Journal of Political Science,48:493–512.
Alt,J.,Frieden,J.,Gilligan,M.J.,Rodrik,D., andRogowski,R.1996. The political
economy of international trade: enduring puzzles and an agenda for inquiry. Comparative
Political Studies,29:689–717.
Arrow,K.1951.Social Choice and Individual Values. New York: John Wiley (2nd edn. 1963).
Austen-Smith,D., andWallerstein,M.2003. Redistribution in a divided society. Unpub-
lished paper.
Bawn,K., andRosenbluth,F.2002. Coalition Parties versus coalitions of parties: how
electoral agency shapes the political logic of costs and benefits. PIEP Working Paper Series,
WCFIA, Harvard University.
Bénabou,R.1996. Inequality and growth. Pp. 11–74 in National Bureau of Economic Research
Macro Annual,11 ed. B. S. Bernanke and J. J. Rotemberg.
Besley,T., andCoate,S.1997. An economic model of representative democracy. Quarterly
Journal of Economics,112:85–114.
Boix,C.1998.Political Parties, Growth and Equality. New York: Cambridge University Press.
1999. Setting the rules of the game: the choice of electoral systems in advanced democra-
cies. American Political Science Review,93:609–24.
2003.Democracy and Redistribtuion. Cambridge: Cambridge University Press.
Brennan,G., andBuchanan,J.1980.The Power to Tax: Analytical Foundations of a Fiscal
Constitution. New York: Cambridge University Press.
Cameron,D.1984. Social democracy, corporatism, labor quiescence, and the representation
of economic interest in advanced capitalist society. Pp. 143–78 in Order and Conflict in
Contemporary Capitalism, ed. J. Goldthorpe. Oxford: Clarendon Press.
Carey,J.M., andShugart,M.S.1995. Incentives to cultivate a personal vote: a rank ordering
of electoral formulas. Electoral Studies,14:417–39.
Clark,W.R.2003.Capitalism, Not Globalism: Capital Mobility, Central Bank Independence,
andthePoliticalControloftheEconomy. Ann Arbor: University of Michigan Press.
Cox,G.1990. Centripetal and centrifugal incentives in electoral systems. American Journal of
Political Science,34:903–35.
and Thies,M.F.1998. The cost of intraparty competition: the single, non-transferable
vote and money politics in Japan. Comparative Political Studies,31:267–91.
Crepaz,M.M.L.1998. Inclusion versus exclusion: political institutions and welfare expendi-
tures. Comparative Politics,31:61–80.
Cusack,T.1997. Partisan politics and public finance: changes in public spending in the
industrialized Democracies, 1955–1989.Public Choice,91:375–95.
Iversen,T., andSoskice,D.2004. Specific interests and the origins of electoral systems
(with Tom Cusack and David Soskice). Paper prepared for presentation at the American
Political Science Associations Meetings, Chicago, Aug.
Dixit,A., andLondregan,J.1996. The determinants of success of special interests in redis-
tributive politics. Journal of Politics,58:1132–55.
1998. Ideology, tactics, and efficiency in redistributive politics. Quarterly Journal of
Economics,113:497–529.
Esping-Andersen,G.1990.The Three Worlds of Welfare Capitalism. Princeton, NJ: Princeton
University Press.
Estevez-Abe,M.1999. Comparative political economy of female labor participation. Paper
prepared for presentation at the annual meetings of the American Political Science Associa-
tion, Atlanta, 2–5Sept.
Iversen,T., andSoskice,D.2001. Social protection and the formation of skills: a
reinterpretation of the welfare state. Pp. 145–83 in Varieties of Capitalism: The Institutional
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
620 overvie w:capitalism and democracy
Foundations of Comparative Advantage, ed. Peter A. Hall and David Soskice. Oxford: Oxford
University Press.
Franzese,R.2002.Macroeconomics of Developed Democracies. Cambridge Studies in Compar-
ative Politics. Cambridge: Cambridge University Press.
Frieden,J.1991. Invested intersts: the politics of national economc policies in a world of global
finance. International Organization,45:425–51.
Garrett,G.1998.Partisan Politics in the Global Economy. Cambridge: Cambridge University
Press.
Goldthorpe,J.(ed.).1984.Order and Conflict in Contemporary Capitalism. Oxford: Claren-
don Press.
Grofman,B.2004. Downs and two-party convergence. Annual Review of Political Science,7:
25–46.
Hall,P.A., andSoskice,D.2001. An introduction to varieties of capitalism. Ch. 1in Varieties
of Capitalism: The Institutional Foundations of Comparative Advantage, ed. P. A. Hall and D.
Soskice. Oxford: Oxford University Press.
and Tayl or ,R.1996. Political science and the three new institutionalisms. Political
Studies,44:936–57.
Hibbs,D.1977. Political parties and macroeconomic policy. American Political Science Review,
71:1467–87.
Hicks,A., andSwan k,D.1992. Politics, institutions, and welfare spending in industrialized
democracies, 1960–82.American Political Science Review,86:649–74.
Huber,E.,Ragin,C., andStephens,J.1993. Social democracy, christian democracy, consti-
tutional structure and the welfare state. American Journal of Sociology,99:711–49.
and Stephens,J.D.2001.Development and Crisis of the Welfare State: Parties and Policies
in Global Markets. Chicago: University of Chicago Press.
Iversen,T.1996. Power, flexibility and the breakdown of centralized wage bargaining: the cases
of Denmark and Sweden in comparative perspective. Comparative Politics,28:399–436.
1998. Equality, employment, and budgetary restraint: the trilemma of the service econ-
omy. World Politics,50:507–46.
2005.Capitalism, Democracy and Welfare. Cambridge: Cambridge University Press.
and Rosenbluth,F.2005. The political economy of gender: explaining cross-national
variation in the gender division of labor and the gender voting gap. American Journal of
Political Science.
and Soskice,D.2001. An asset theory of social policy preferences. American Political
Science Review,95:875–93.
2002. Electoral institutions, parties, and the politics of class: why some democracies
redistribute more than others. Paper presented at the Annual Meeting of the American
Political Science Association.
2005. Why governments diverge from the preferences of the median legislator.
Typescript, Dept. of Government, Harvard University.
Katzenste in ,P.1985.Small States in World Markets. Ithaca, NY: Cornell University Press.
Kelly,N.J.2005. Political choice, public policy, and distributional outcomes. American Journal
of Political Science,49:865–80.
Kitschelt,H.1994.The Transformation of European Social Democracy. Cambridge: Cam-
bridge University Press.
Korpi,W.1983.The Democratic Class Struggle. London: Routledge & Kegan Paul.
1989. Power, politics, and state autonomy in the development of social citizenship: social
rights during sickness in 18 OECD countries since 1930.American Sociological Review,54:
309–28.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 621
Kwon,H.Y., andPontusson,J.2005.Thezoneofpartisanship:parties,unionsandwelfare
spending in OECD countries, 1962–99. Unpublished manuscript, Dept. of Political Science,
Cornell University.
Lange,P., andGarrett,G.1985. The politics of growth: strategic interaction and economic
performance, 1974–1980.Journal of Politics,47:792–827.
Laver ,M., andSchofield,N.1990.Multiparty Government: The Politics of Coalition in
Western Europe. Oxford: Oxford University Press.
and Shepsle,K.1996.Making and Breaking Governments: Cabinets and Legislatures in
Parliamentary Democracies. Cambridge: Cambridge University Press.
Lindert,P.H.1996. What limits social spending? Explorations in Economic History,33:1–34.
Lowi,T.1964. American business, public policy, case studies, and political theory. World
Politics,16:677–715.
McGann,A.J.2002. The advantages of ideological cohesion: a model of constituency rep-
resentation and electoral competition in multiparty democracies. Journal of Theoretical
Politics,14:37–70.
Mares,I.2003.The Politics of Social Risk: Business and Welfare State Development.Cambridge:
Cambridge University Press.
Meltzer,A.H., andRichard,S.F.1981. A rational theory of the size of government. Journal
of Political Economy,89:914–27.
Moene,K.O., andWallerstein,M.2001. Inequality, social insurance and redistribution.
American Political Science Review,95:859–74 .
Moore,B.1971.Social Origins of Democracy and Dictatorship: Lord and Peasant in the Making
oftheModernWorld. Boston: Beacon Press.
Neto,O.A., andCox,G.W.1997. Electoral institutions, cleavage structures, and the number
of parties. American Journal of Political Science,41:149–74.
North,D.1990.Institutions, Institutional Change and Economic Performance.Cambridge:
Cambridge University Press.
and Weingast,B.R.1989. Constitutions and commitment: the evolution of institutions
governingpublicchoiceinthe17th-century England. Journal of Economic History,49:
803–32.
Obinger,H.,Leibfried,S., andCastles,F.G.(eds.). 2005.Federalism and the Welfare State:
New World and European Experiences. Cambridge: Cambridge University Press.
Ordeshook,P., andShvetsova,O.1994. Ethnic heterogeneity, district magnitude, and the
number of parties. American Journal of Political Science,38:100–23.
Osborne,M.J., andRubinsten,A.1994.ACourseinGameTheory. Cambridge, Mass.: MIT
Press.
and Slivinski,A.1996. A model of political competition with citizen-candidates. Quar-
terly Journal of Economics,111:65–96.
Perotti,R.1996. Growth, income distribution and democracy: what the data say. Journal of
Economic Growth,1:149–87.
Persson,T., andTabellini,G.1999. The size and scope of government: comparative politics
with rational politicians. European Economic Review,43:699–735.
2000.Political Economics: Explaining Economic Policy. Cambridge, Mass.: MIT
Press.
2005.The Economic Effects of Constitutions. Cambridge, Mass.: MIT Press.
Pierson,P.1995. Fragmented welfare states: federal institutions and the development of social
policy. Governance,8:449–78.
2000. Path dependence, increasing returns, and the study of politics. American Political
Science Review,94:251–67.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
622 overvie w:capitalism and democracy
Polanyi,K.1944.The Great Transformation. New York: Rinehart & Co.
Pontusson,J., andSwenson,P.1996. Labor markets, production strategies, and wage bar-
gaining institutions: the Swedish employer offensive in comparative perspective. Compara-
tive Political Studies,29:223–50.
Powell,B.2002. PR, the median voter, and economic policy: an exploration. Paper presented
at the 2002 Meetings of the American Political Science Association, Boston.
Przeworski,A., andSprague,J.1986.Paper Stones: A History of Electoral Socialism.Chicago:
University of Chicago Press.
and Wallerstein,M.1982. Structural dependence of the state on capital. American
Political Science Review,82:11–29.
Riker,W.H.1980. Implications for the disequilibrium of majority rule for the study of
institutions. American Political Science Review,74:432–46.
1986.The Art of Political Manipulation. New Haven, Conn.: Yale University Press.
Rodden,J.2003. Reviving Leviathan: fiscal federalism and the growth of government. Inter-
national Organization,57:695–729.
Rodrik,D.1999. Democracies pay higher wages. Quarterly Journal of Economics,114:707–38.
Roemer,J.E.1997. The democratic political economy of progressive taxation. Econometrica,
67:1–19.
2001.Political Competition: Theory and Applications. Cambridge, Mass.: Harvard Univer-
sity Press.
Rogowski,R.1989.Commerce and Coalitions: How Trade Affects Domestic Political Alignments.
Princeton, NJ: Princeton University Press.
and MacRay,D.2003. Does inequality determine institutions? What history and (some)
data tell us. Paper presented in the Political Institutions and Inequality Study Group, Center
for European Studies, Harvard University, Oct.
Romer,T.1975. Individual welfare, majority voting, and the properties of a linear income tax.
Journal of Public Economics,14:163–85.
Rosenbluth,F.M., andThies,M.F.2001. The electoral foundations of Japan’s financial
politics: the case of Jusen.Policy Studies Journal,29:23–37.
Ross,M.2005. Is democracy good for the poor. Unpublished manuscript, UCLA Dept. of
Political Science.
Rueda,D., andPontusson,J.2000. Wage inequality and varieties of capitalism. World
Politics,52:350–83.
Schlesinger,J.1984. On the theory of party organization. Journal of Politics,46:369–400.
Schmitter,P.1979. Modes of interest intermediation and models of societal change. Pp. 43–
94 in Trends toward Corporatist Intermediation, ed. P. Schmitter and G. Lehmbruch. Beverly
Hills, Calif.: Sage.
Snyder,J.M., andKramer,G.H.1988. Fairness, self-interest, and the politics of the progres-
sive income tax. Journal of Public Economics,36:197–230.
Soskice,D.1999. Divergent production regimes: coordinated and uncoordinated market
economies in the 1980sand1990s. Pp. 101–34 in Continuity and Change in Contemporary
Capitalism, ed. H. Kitschelt, P. Lange, G. Marks, and J. D. Stephens. Cambridge: Cambridge
University Press.
Stokes,S.1999. Political parties and democracy. Annual Review of Political Science,2:243–67.
Swenson,P.1991. Bringing capital back in, or social democracy reconsidered: employer power,
cross-class alliances, and centralization of industrial relations in Denmark and Sweden.
World Politics,43:513–44.
2002.Employers against Markets Cambridge: Cambridge University Press.
weingast-chap33 oup — Handbook of Political Science (Typeset by spi publisher services, Delhi) March 20,2006 18:13
torben iversen 623
Thelen,K.1999. Historical institutionalism in comparative politics. Annual Review of Political
Science,2:369–404.
2004.How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the
United States and Japan. Cambridge: Cambridge University Press.
von Hagen,J., andHarden,I.1995. National budget processes and commitment to fiscal
discipline. European Economic Review,771–9.
Wallerstein,M.1999. Wage-setting institutions and pay inequality in advanced industrial
societies, American Journal of Political Science,43:649–80.
Weingast,B.R.1995. The economic role of political institutions: market-preserving federal-
ism and economic development. Journal of Law, Economics, and Organization,1:1–31.
and Marshall,W.J.1988. The industrial organization of Congress: or, why legislatures,
like firms, are not organized as markets.JournalofPoliticalEconomy,96:132–63.
Wibbels,E.2003. Bailouts, budget constraints, and Leviathans: comparative federalism and
lessons from the early United States. Comparative Political Studies,36:475–508.
Williamson,O.E.1985.The Economic Institutions of Capitalism: Firms, Markets, Relational
Contracting. New York: Free Press.
Wittman,D.1973. Parties as utility maximizers. American Political Science Review,67:490–8.
