The Political Economy of Institutional Change in European Varieties of Capitalism
The Rise and Fall of Irish Social Partnership
The financial crisis has called into question the capacity of national sovereign democratic states to reconcile the distributional tensions that emerge from capitalist market expansion. This problem has become particularly acute for countries of the Eurozone (De Grauwe, 2011). They cannot devalue their currencies and must adjust their economies through IMF-ECB induced structural reforms in labour, wage and fiscal policy. The problem of coordinating wage, fiscal and monetary policy in the interest of employment and economic performance, or capital accumulation, is not new. It was central to the construction of different variants of national incomes policies in European political economies during the neo-corporatist Keynesian era.
But how did domestic political actors respond to the adjustment constraints of globalised variants of capitalism during the neoliberal era, and what has been the trajectory of institutional change in European industrial relations? This question guides the theoretical dimension of my PhD, which is grounded on an argument that the politics of democratic capitalist change can be traced to the disorganisation and flexibilisation of institutions that enable labour to constrain capital. The decline in trade union strength and an increase in business power underpins the public policy paradigm shift from Keynesianism to neoliberalism across Europe. The role of the state in conditioning this pattern, and the diverse trajectory of change it invoked, is central to the study of comparative political economy. National labour market regulations have been flexibilised and the problem of employment resolved either through supply side reforms aimed at activation or low wage employment (Hall, 2010).
The political shift was a response to the adjustment constraints of globalisation, liberalisation, capital mobility and financialisation in general and the European Economic Monetary Union (EMU), in particular. The diverse mechanisms through which the adjustment played out, however, are endogenous to historically evolved national institutional politics. This interplay between exogenous constraints and endogenous politics explains the process, form and variation of change in a given capitalist institutional regime. Or, more precisely, in Streeck (2009) and Polanyian (1944) terms, the attempt to resolve the tension between capitalist market expansion and national democratic stability explains the trajectory of institutional change in the study of comparative political economy. What is most interesting about the shift in European varieties of capitalism, and the decline in the instituionalised power resources of trade unions, is that it was compensated by new forms of state led social pacts and tri-partite dialogue in European industrial relations (Baccaro & Howell, 2011). Ireland stands out in this literature as a particularly challenging case given the liberal market orientation of its production regime.
The analytic approach adopted in this thesis is premised on a variant of actor centred institutionalism (Scharpf 1997, Jackson, 2010), in the study of comparative capitalism, which appreciates the historically evolved, structural and context specific constraints in shaping domestic actor strategies and preferences. But unlike most theories of purposive action in comparative political economy, it is constructed around a power distributional (Thelen & Mahoney, 2010) rather than a rational choice, historical institutional framework. The latter, most associated with the varieties of capitalism game theoretic school of analysis (Hall & Soskice, 2002), explains institutional diversity on the basis of two path dependent equilibrium strategies of rational firms in high end production. A power distributional approach does not assume efficiency seeking actors, nor the functional design of capitalist institutions. It conceptualizes the latter as a political process of compliance, compromise and non-compliance between organised interests with unequal power resources that change over time. Thus, it takes history, politics and the transformation of capitalism seriously.
This has significant implications for how we explain the trajectory of institutional change and variation in the domestic governance of European industrial relations, in liberal market and coordinated market type economies, as will be shown in chapters 1 and 2. In these chapters we set up a debate between functional economistic and historical political modes of inquiry in the study of comparative political economy. We conclude that variation in European industrial relations can be traced to institutionalised power resources. The importance of which can only be observed by adopting a transformation rather than a varieties of capitalism perspective. New variants of contemporary corporatism and centralised wage bargaining in Europe will be presented as different modes of economic governance (Traxler, 2010), in various democratic state traditions, to ensure social order, settle class conflict and embed democratic stability (Streeck, 1999). The economic performance effects, whilst important, are secondary to this political function of resolving distributive conflict.
To illustrate this we adopt a comparative historical analysis that traces the institutional origins, development and collapse of centralised wage bargaining in the Irish case. We conclude that the capacity and willingness of the state to engage in a market conforming political exchange with organised economic interests, in the interest of political stability, is central to explaining the formation of social partnership in this neoliberal oriented political economy. The outcome was a distinct trajectory of liberalisation premised a historically specific national political coalition; the Irish third way, that exhausted itself over time.