Partisan governments, the international economy, and macroeconomic politics in advanced nations, 1960-93

World Politics

Volumn 53, Issue 1, 2000, Pages 38-73

  Boix, Carles ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

FISCAL POLICY; GOVERNANCE APPROACH; HISTORICAL PERSPECTIVE; MACROECONOMICS; MONETARY POLICY; POLITICAL ECONOMY;

EID: 0033786721     PISSN: 00438871     EISSN: None     Source Type: Journal    
DOI: 10.1017/s0043887100009370     Document Type: Article

References (71)

1. Douglas A. Hibbs, "Political Parties and Macroeconomic Policy," American Political Science Review 71 (December 1977); idem, The American Political Economy: Macroeconomics and Electoral Politics (Cambridge: Harvard University Press, 1987).
2. Douglas A. Hibbs, "Political Parties and Macroeconomic Policy," American Political Science Review 71 (December 1977); idem, The American Political Economy: Macroeconomics and Electoral Politics (Cambridge: Harvard University Press, 1987).
3. Alberto Alesina, "Politics and Business Cycles in Industrial Democracies," Economic Policy 8 (April 1989); Alberto Alesina and Howard Rosenthal, Partisan Politics, Divided Governments, and the Economy (New York: Cambridge University Press, 1995).
4. Alberto Alesina, "Politics and Business Cycles in Industrial Democracies," Economic Policy 8 (April 1989); Alberto Alesina and Howard Rosenthal, Partisan Politics, Divided Governments, and the Economy (New York: Cambridge University Press, 1995).
5. Inflation, however, is likely to remain above its preelection level under a left-wing government, because the latter's natural preference for expansionary policies erodes its anti-inflationary credibility.
6. Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982); John Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984); Lars Calmfors and John Driffill, "Bargaining Structure, Corporatism and Macroeconomic Performance," Economic Policy 6 (April 1988).
7. Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982); John Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984); Lars Calmfors and John Driffill, "Bargaining Structure, Corporatism and Macroeconomic Performance," Economic Policy 6 (April 1988).
8. Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982); John Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984); Lars Calmfors and John Driffill, "Bargaining Structure, Corporatism and Macroeconomic Performance," Economic Policy 6 (April 1988).
9. Fritz W. Scharpf, "A Game-Theoretical Interpretation of Inflation and Unemployment in Western Europe," Journal of Public Policy 7 (July-September 1987); idem, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell University Press, 1991).
10. Fritz W. Scharpf, "A Game-Theoretical Interpretation of Inflation and Unemployment in Western Europe," Journal of Public Policy 7 (July-September 1987); idem, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell University Press, 1991).
11. Alberto Alesina and Lawrence Summers, "Central Bank Independence and Macroeconomic Performance," Journal of Money, Credit and Banking 25 (May 1993).
12. For a review of open economy models of policy-making, see Robert O. Keohane and Helen V. Milner, eds., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996). A good review of the growing internationalization of capital markets can be found in Beth Simmons, "The Internationalization of Capital," in Herbert Kitschelt et al., eds. Continuity and Change in Contemporary Capitalism (New York: Cambridge University Press, 1999).
13. For a review of open economy models of policy-making, see Robert O. Keohane and Helen V. Milner, eds., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996). A good review of the growing internationalization of capital markets can be found in Beth Simmons, "The Internationalization of Capital," in Herbert Kitschelt et al., eds. Continuity and Change in Contemporary Capitalism (New York: Cambridge University Press, 1999).
14. See, for example, Herbert Kitschelt, The Transformation of European Social Democracy (New York: Cambridge University Press, 1994).
15. Hibbs (fn. 1, 1977).
16. Adam Przeworski and Michael Wallerstein, "Democratic Capitalism at the Crossroads," in Przeworski, Capitalism and Social Democracy (New York: Cambridge University Press, 1985).
17. Alberto Alesina and Nouriel Roubini with Gerald Cohen, Political Cycles and the Macroeconomy (Cambridge: MIT Press, 1997).
18. Douglas A. Hibbs, "Partisan Theory after Fifteen Years," European Journal of Political Economy 8 (1992).
19. Notice, also, that if economic actors are capable of either writing contracts that overcome the uncertainty of future electoral outcomes or renegotiating them immediately after elections, parties will not affect the business cycle at all.
20. R. Michael Alvarez, Geoffrey Garrett, and Peter Lange, "Government Partisanship, Labor Organization and Macroeconomic Performance, 1967-1984," American Political Science Review 85 (June 1991); Nathaniel Beck et al., "Government Partisanship, Labor Organization, and Macroeconomic Performance: A Corrigendum," American Political Science Review 87 (December 1993).
21. R. Michael Alvarez, Geoffrey Garrett, and Peter Lange, "Government Partisanship, Labor Organization and Macroeconomic Performance, 1967-1984," American Political Science Review 85 (June 1991); Nathaniel Beck et al., "Government Partisanship, Labor Organization, and Macroeconomic Performance: A Corrigendum," American Political Science Review 87 (December 1993).
22. Alesina and Summers (fn. 6).
23. The impact of electoral cycles on macroeconomic policies has been examined extensively, however. Alesina and Roubini with Cohen (fn. 11) do so in the context of a closed economy model. More recently, in examining how the international economy affects the existence of an electoral business cycle, opportunistic policies have been shown to be less likely in the presence of a fixed-exchange-rate regime and high levels of capital mobility. See William R. Clark and Usha N. Reichert with Sandra L. Lomas and Kevin L. Parker, "International and Domestic Constraints on Political Business Cycles in OECD Economies" International Organization 52 (Winter 1998).
24. Andrew Martin, "The Dynamics of Change in a Keynesian Political Economy," in Colin Crouch, ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979); Fritz W Scharpf (fn. 5); Jeffrey Sachs and Charles Wyplosz, "The Economic Consequences of President Mitterrand," Economic Policy 2 (April 1986); Peter A. Hall, Governing the Economy: The Politics of State Intervention in Britain and France (Oxford: Oxford University Press, 1986).
25. Andrew Martin, "The Dynamics of Change in a Keynesian Political Economy," in Colin Crouch, ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979); Fritz W Scharpf (fn. 5); Jeffrey Sachs and Charles Wyplosz, "The Economic Consequences of President Mitterrand," Economic Policy 2 (April 1986); Peter A. Hall, Governing the Economy: The Politics of State Intervention in Britain and France (Oxford: Oxford University Press, 1986).
26. Andrew Martin, "The Dynamics of Change in a Keynesian Political Economy," in Colin Crouch, ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979); Fritz W Scharpf (fn. 5); Jeffrey Sachs and Charles Wyplosz, "The Economic Consequences of President Mitterrand," Economic Policy 2 (April 1986); Peter A. Hall, Governing the Economy: The Politics of State Intervention in Britain and France (Oxford: Oxford University Press, 1986).
27. Andrew Martin, "The Dynamics of Change in a Keynesian Political Economy," in Colin Crouch, ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979); Fritz W Scharpf (fn. 5); Jeffrey Sachs and Charles Wyplosz, "The Economic Consequences of President Mitterrand," Economic Policy 2 (April 1986); Peter A. Hall, Governing the Economy: The Politics of State Intervention in Britain and France (Oxford: Oxford University Press, 1986).
28. Geoffrey Garrett and Peter Lange, "Political Responses to Interdependence: What's 'Left' for the Left?" International Organization 45 (Autumn 1991). For a recent analysis of the interaction of partisan politics and central banks, see Christopher Way, "Central Banks, Partisan Politics, and Macroeconomic Outcomes," Comparative Political Studies 33 (March 2000).
29. Geoffrey Garrett and Peter Lange, "Political Responses to Interdependence: What's 'Left' for the Left?" International Organization 45 (Autumn 1991). For a recent analysis of the interaction of partisan politics and central banks, see Christopher Way, "Central Banks, Partisan Politics, and Macroeconomic Outcomes," Comparative Political Studies 33 (March 2000).
30. Geoffrey Garrett, Partisan Politics in the Global Economy (New York: Cambridge University Press, 1998).
31. Dennis Quinn, "The Correlates of Change in International Financial Regulation," American Political Science Review 91 (September 1997).
32. Data on partisan control of office are taken from Lane, McKay, and Newton for the period 1960-88 and, using their criteria, my own calculations based on the data published in the Keesing's Contemporary Archives for 1989-93. Jan-Erik Lane, David McKay, and Kenneth Newton, Political Data Handbook: OECD Countries (New York: Oxford University Press, 1991).
33. Data on partisan control of office are taken from Lane, McKay, and Newton for the period 1960-88 and, using their criteria, my own calculations based on the data published in the Keesing's Contemporary Archives for 1989-93. Jan-Erik Lane, David McKay, and Kenneth Newton, Political Data Handbook: OECD Countries (New York: Oxford University Press, 1991).
34. Alex Cukierman, Central Bank Strategy, Credibility and Independence (Cambridge: MIT Press, 1992).
35. David Cameron, "Social Democracy, Corporatism, Labor Quiescence and the Representation of Economic Interest in Advanced Capitalist Society," in Goldthorpe (fn. 4).
36. Cameron (fn. 26); Miriam Golden and Michael Wallerstein, "Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations" (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Peter Lange, Michael Wallerstein, and Miriam Golden, "The End of Corporatism? Wage Setting in the Nordic and Germanic Countries," in Sanford M. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995); OECD Employment Perspectives 1993 (Paris: OECD 1993); Franz Traxler, The Level and Coverage of Collective Bargaining: A Cross-National Study of Patterns and Trends (Paris: OECD, 1994).
37. Cameron (fn. 26); Miriam Golden and Michael Wallerstein, "Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations" (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Peter Lange, Michael Wallerstein, and Miriam Golden, "The End of Corporatism? Wage Setting in the Nordic and Germanic Countries," in Sanford M. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995); OECD Employment Perspectives 1993 (Paris: OECD 1993); Franz Traxler, The Level and Coverage of Collective Bargaining: A Cross-National Study of Patterns and Trends (Paris: OECD, 1994).
38. Cameron (fn. 26); Miriam Golden and Michael Wallerstein, "Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations" (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Peter Lange, Michael Wallerstein, and Miriam Golden, "The End of Corporatism? Wage Setting in the Nordic and Germanic Countries," in Sanford M. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995); OECD Employment Perspectives 1993 (Paris: OECD 1993); Franz Traxler, The Level and Coverage of Collective Bargaining: A Cross-National Study of Patterns and Trends (Paris: OECD, 1994).
39. Cameron (fn. 26); Miriam Golden and Michael Wallerstein, "Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations" (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Peter Lange, Michael Wallerstein, and Miriam Golden, "The End of Corporatism? Wage Setting in the Nordic and Germanic Countries," in Sanford M. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995); OECD Employment Perspectives 1993 (Paris: OECD 1993); Franz Traxler, The Level and Coverage of Collective Bargaining: A Cross-National Study of Patterns and Trends (Paris: OECD, 1994).
40. Cameron (fn. 26); Miriam Golden and Michael Wallerstein, "Trade Union Organization and Industrial Relations in the Postwar Era in Sixteen Nations" (Paper presented at the annual meeting of the American Political Science Association, New York, 1994); Peter Lange, Michael Wallerstein, and Miriam Golden, "The End of Corporatism? Wage Setting in the Nordic and Germanic Countries," in Sanford M. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (Oxford: Oxford University Press, 1995); OECD Employment Perspectives 1993 (Paris: OECD 1993); Franz Traxler, The Level and Coverage of Collective Bargaining: A Cross-National Study of Patterns and Trends (Paris: OECD, 1994).
41. All panel regressions have been run with and without fixed effects. Fixed effects imply introducing n - 1 country dummies. In the regressions on monetary policy (Tables 1 and 2), the inclusion of country dummies (to allow for variation across countries' intercepts) does not change the coefficients of the independent variables. Except for the last model (in Table 2), the country dummies are not statistically significant (even in a joint F-test). In the regressions on fiscal policy (Tables 3 and 4) the inclusion of country dummies partially alters model 5 in Table 3 - in fact intensifying the direction of the partisan and labor-market effects found in the non-fixed-effects model. Tables 1, 2, 3, and 4 (those displaying panel regression results) report the results obtained without fixed effects both because of the general lack of statistical significance of fixed effects and for theoretical reasons (the introduction of country dummies simply controls for unexplained factors; see Adam Przeworski and Henry Teune, The Logic of Comparative Social Inquiry [New York: Wiley, 1970]). Results with fixed effects can be obtained from the author.
42. Results do not vary when the last year of the "stagflation" period is modified, that is, when the historical periods are 1973-79 and 1980-93. The closer the divide is to 1982, the less significant in statistical and substantive terms the effect of socialist cabinets in the 1980s.
43. For the simulation I have set all the variables at their mean levels, with the exception of partisanship and the interactive term "partisanship*organizational power of labor." The annual change of interest rates that results from the regression is added to the world real interest rates at time t-1 to calculate the level of interest rates at time t (which is the result represented in the simulations). The world interest rate is the weighted average (by size of GDP) of the interest rates of the seven largest economies - Canada, France, Germany, Italy, Japan, the U.K., and the U.S.
44. Results not reported here show that central bank independence is an important factor in the management of monetary policy. When socialist control of government (without adjusting for the level of central bank independence) is regressed on interest rates, the size of the coefficient is smaller. For example, socialist control of the government in the 1970s reduces interest rates by 0.99 points (versus 1.65 in Table 1, model 3).
45. The variable of social democratic corporatism (alone or controlled by partisanship and organization of the labor market) is not statistically significant. Results are not reported here.
46. Corporatist countries are those that score more than 0.5 in the standardized index of the organizational power of labor (Austria, Belgium, Denmark, Finland, Norway, and Sweden). The noncorporatist countries are those that score less than 0.3 in the standardized index (Australia before 1980, Canada, France, Greece, Ireland, Italy, Japan, Portugal, Spain, Switzerland, the U.K. after 1980, and the U.S.).
47. John B. Goodman and Louis W. Pauly, "The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets," World Politics 46 (October 1993); Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton: Princeton University Press, 1996).
48. John B. Goodman and Louis W. Pauly, "The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets," World Politics 46 (October 1993); Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton: Princeton University Press, 1996).
49. Nouriel Roubini and Jeffrey D. Sachs, "Political and Economic Determinants of Budget Deficits in the Industrial Democracies," European Economic Review 33 (May 1989); Alesina and Roubini with Cohen (fn. 11).
50. Nouriel Roubini and Jeffrey D. Sachs, "Political and Economic Determinants of Budget Deficits in the Industrial Democracies," European Economic Review 33 (May 1989); Alesina and Roubini with Cohen (fn. 11).
51. Data are from Roubini and Sachs (fn. 37) and are completed with material from OECD, Economic Outlook (various years), appendix.
52. From OECD, Economic Outlook (various years).
53. Accordingly, as pointed out in Roubini and Sachs (fn. 37), the specification of the structural model is consistent with both Barro's "tax smoothing" model and the traditional Keynesian approach to using fiscal deficits to smooth the business cycle. In both theories fiscal deficits are countercyclical. Robert J. Barro, "U.S. Deficits since World War I," Scandinavian Journal of Economics 88, no. 1 (1986).
54. The sample employed is based on Roubini and Sachs (fn. 37), extended with new OECD data when available. The countries (and sample periods) included are Australia (1967-88), Austria (1972-93), Belgium (1962-90), Canada (1962-93), Denmark (1971-93), Finland (1977-93), France (1970-92), Germany (1962-93), Greece (1984-90), Ireland (1962-93), Italy (1966-93), Japan (1971-93), the Netherlands (1972-93), Norway (1972-91), Sweden (1972-93), Spain (1985-93), Switzerland (1972-93), the United Kingdom (1962-93), and the United States (1962-93).
55. Roubini and Sachs (fn. 37). This difference may be related to the sample employed here, which is two times the size of the Roubini and Sachs sample and which corrects for the bias in the latter's study due to its exclusion of several OECD countries.
56. The presence of capital controls was initially negatively correlated to the independence of the central bank. This result confirms the findings of Alberto Alesina, Vittorio Grilli, and Gian-Maria Milesi-Ferretti, "The Political Economy of Capital Controls," in Leonardo Leiderman and Assaf Razin, eds., Capital Mobility: The Impact on Consumption, Investment and Growth (New York: Cambridge University Press, 1994). The degree of financial restrictions and of central bank independence in 1970 shows a Pearson's coefficient of -0.53. For 1993 this coefficient falls to -0.05.
57. Goodman and Pauly (fn. 34); Eichengreen (fn. 34).
58. Simmons (fn. 7).
59. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
60. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
61. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
62. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
63. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
64. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
65. This interpretation borrows heavily from Gruber's concept of "go-it-alone power" to explain the formation of international institutions. In Gruber's account international institutions need not be the result of straightforward Pareto-improving cooperative agreements among equal partners. Instead, they may emerge as a set of core countries that establish agreements or embark on strategies that, modifying the status quo, force the remaining countries to join the same institution or engage in the same pattern of behavior to minimize the losses that may occur from not doing so. The process of capital deregulation (and, in particular, its institutionalization in continental Europe through the European Union project) fits this explanation particularly well. See Lloyd Gruber, "Rationalist Approaches to International Cooperation: A Call for Theoretical Reorientation," Working Paper Series 14 (Irving B. Harris Graduate School of Public Policy Studies, August 1999); idem, "Interstate Cooperation and the Hidden Face of Power: The Case of European Money," Working Paper Series 16 (Irving B. Harris Graduate School of Public Policy Studies, September 1999). Notice then that this account differs equally from two other interpretations. First, it differs from those that directly link the process of deregulation to changes in international financial markets. See Richard B. McKenzie and Dwight R. Lee, Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World (New York: Free Press, 1991); Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter, 1992); and Goodman and Pauly (fn. 34). Second, it is also distinct from those that attribute the decision to liberalize to purely domestic conditions, such as the hegemony of center-to-right governments in Ton Notermans, "The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor," Politics and Society 21 (June 1993); or such as the internal balance of power among sectoral interests in Jeffry A. Frieden, "Invested Interested: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991).
66. For a discussion of how several European socialist governments perceived (and justified) the deregulation of financial markets as the only possible response to a change in the external environment brought about by the policies of other (key) countries, see Carles Boix, Political Parties, Growth and Equality: Conservative and Social Democratic Economic Strategies in the World Economy (New York: Cambridge University Press, 1999).
67. This combination of loose fiscal policies and tight monetary policies was not coincidental. It was related to the structure of electoral incentives confronted by socialist parties in rather different political and institutional environments. Socialist governments in noncorporatist countries could not count on organized labor movements to achieve wage moderation and also carry over broad electoral coalitions. Without a labor movement holding blue-collar workers together and delivering their votes to the Socialist Party, social democratic governments could hardly attract simultaneously both pro-high-spending left-wing voters and moderate middle-class voters concerned with taxes. A natural (and in the short term politically not costly) way to reconcile their competing claims involved running a higher budget deficit. In countries where unions are strong and parties are well-organized political machines, those political dilemmas were less pressing. For a historical account of the Spanish case, see Boix (fn. 51), 105-55.
68. For an analysis of the impact of ideas, see Peter A. Hall, "Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain," Comparative Politics 25 (April 1993).
69. Robert J. Franzese,"Monetary Policy and Wage/Price Bargaining: Macro-Institutional Interactions in the Traded, Public, and Sheltered Sectors," in Peter Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (forthcoming).
70. Scharpf (fn. 5, 1987 and 1991).
71. Martin (fn. 17)