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Part I
Theory and measurement
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1 Introduction
Varieties of capitalism, types of democracy, and globalization
Helen Callaghan and Masanobu Ido
How do types of democracy relate to varieties of capitalism? And how does their relationship mediate the political and economic pressures that arise from globalization? By addressing these questions, the present volume bridges a gap between comparative politics and political economy that had grown wider over time.
The relationship between democracy and capitalism has drawn scholarly attention ever since both systems first emerged, with few possible connections left unexplored. On the pessimistic side, some, following Marx, claim that capitalism subverts democracy, by producing an unequal distribution of wealth that distorts political competition. Others, following Friedman and Schumpeter, retort that democracy subverts capitalism, by empowering political majorities to take market-distorting actions. On the optimistic side, some argue that democracy supports capitalism, by necessitating the welfare adaptations that allow the market economy to survive without a larger and more costly repressive apparatus. Others claim that capitalism supports democracy by raising the standard of living to a level that allows citizens to engage in politics.
As democracy and capitalism evolved over time and spread around the globe, scholars began to discern varieties of capitalism and types of democracy. The ensuing research led to increasing sub-disciplinary specialization. Studies of capitalist diversity, including Hall and Soskice (2001), Amable (2003), Hollingsworth et al. (1994), Crouch and Streeck (1996) and Whitley (1999) mainly explore how institutional arrangements and governance mechanisms in the economic realm (e.g., worker participation rules, skill formation systems, employment protection, corporate finance, etc.; market-based versus network-based or hierarchical coordination) affect economic performance, measured in terms of economic growth, competitiveness, employment rates, etc. Studies of democratic diversity, including Lijphart (1999), Sartori (1994) and Held (2006), mainly explore how institutional arrangements in the political realm (e.g., voting rules, concentration of executive power, executive-legislative relations, division of power, etc.) affect various aspects of democratic policy-making, including political equality, voter participation, party competition, state capacity, accountability, corruption, etc.
For the past two decades, the impact of “globalization” has been a major theme in political economy as well as in comparative politics, without, however, there being much dialogue across sub-disciplinary boundaries. The Varieties of Capitalism (VoC) debate on whether globalization would cause models of capitalism to converge long focused on the economic pressures associated with intensified competition on capital and product markets. Believers in a unique most competitive set of institutional arrangements argued that diversity would end once market pressures were strong enough to ensure that only the fittest companies survive (e.g., Hansmann and Kraakman 2001). Believers in multiple roads to competitiveness questioned the inevitability of market-driven convergence. Assuming that different models equip firms to perform better at some activities and worse at others, they argued that growing international trade might even increase diversity by encouraging a global division of labor (e.g., Porter 1990; Hall and Soskice 2001). VoC scholars have only recently come to recognize that the battle of the systems is fought in the political as well as in the economic realm, over distributional as well as efficiency matters (e.g., Hancké et al. 2007; Callaghan 2010).
Conversely, Types of Democracy (ToD) research on whether globalization would cause party systems to transform has emphasized political reasons for persistent divergence without exploring the mediating role of economic structures. Azmanova (2004) and Kriesi et al. (2008) argue that globalization transforms the political space in West European countries by generating new conflicts between winners and losers that cross-cut traditional structural and political cleavages. To explain why the impact of globalization on party systems varies across countries, Kriesi et al. (2008: 10) point to cross-national differences in the political and institutional context in which parties are embedded. They view globalization as creating political potential which is then translated into political programs, strategies and votes according to the local political context. Relevant variables include the size of the niche for new parties (determined, among other factors, by strength of traditional political divisions and the polarization of the party system), institutional entry barriers for new parties (including those posed by the electoral system), strategic choices made by incumbent parties (to ignore, accommodate or fight new demands) and the country’s cultural heritage regarding issues such as the conceptualization of nationhood and citizenship. The economic context is discussed mainly to highlight similarities across the six West European countries included in their sample: as highly advanced industrial economies, all are assumed to develop similar cleavages dividing the winners and losers from globalization. Kriesi et al. do not discuss the possibility that the identity and number of winners and losers from globalization may differ across varieties of capitalism.
The present volume connects these two literatures by exploring the following questions: first, how do varieties of capitalism relate to types of democracy? Second, how, if at all, do the consequences of globalization for democracy differ across varieties of capitalism? Third, how, if at all, do the consequences of globalization for capitalism differ across types of democracy?
How do varieties of capitalism relate to types of democracy?
To examine the relationship between VoC and ToD, the volume proceeds in two steps. First, we propose new ways of systematically measuring and documenting the elective affinities between varieties of capitalism and types of democracy. Second, we present case studies of countries hitherto neglected by the mainstream literature on VoC and ToD that draw on a range of quantitative and qualitative techniques to highlight various aspects of the complex causal relationship between VoC and ToD.
Step 1: measurement
Most previous efforts to uncover elective affinities fail to provide a comprehensive picture because they narrowly focus on specific components of VoC and ToD. Index measures of shareholder orientation and of electoral proportionality or left-party dominance are especially widely used. Pagano and Volpin (2005) examine the relationship between the electoral system (majoritarian or proportional representation (PR)) and shareholder protection as well as employment protection, finding that PR is negatively correlated with the former and positively correlated with the latter. Roe (2003: 50–60) examines the relationship between “strength of social democracy” and diffusion of share ownership, finding that countries with stronger social democratic values tend to have more concentrated share ownership. Gourevitch and Shinn (2005: 72–75) examine the relationship between ToD (consensus or majoritarian, classified by measuring “political cohesion”) and diffusion of share ownership as well as minority shareholder protections, finding that consensus democracies are associated with more concentrated ownership and weaker shareholder protections. Callaghan and Höpner (2005) study a roll call vote in the European Parliament to examine the relationship between left/right party affiliation and political support for liberal takeover legislation. They find that MEPs from non-liberal market economies were more likely to reject liberal EU takeover legislation, regardless of their party affiliation.
Amable (2003: 181–197) goes further by correlating a wide range of indicators distinguishing ToD and VoC. Among other things, he finds that the political systems associated with market-based and social democratic varieties of capitalism differ with regard to the degree of concentration of political parties, constitutional rigidity, number of veto players, degree of interest group pluralism, proportionality of the electoral system, and the number of seats in the lower chamber obtained by parties on the left.1
Schmitter and Todor’s contribution to this volume (Chapter 2) complements Amable’s inductive approach by deductively deriving generic dimensions (namely stateness, decision-making, territory and function) that potentially fit both VoC and ToD, and by visualizing the degree of overlap between the corresponding institutional arrangements in the political and economic realm by means of an innovative spiderweb technique.
Step 2: explanations
Previous attempts to explain observed elective affinities between specific elements of VoC and ToD fail to provide a comprehensive picture because they typically consider only specific elements in the complex web of causal relationships, because empirical evidence is mostly drawn from a narrow set of Western advanced industrialized democracies, and because they neglect the impact of globalization
The effect of ToD (more specifically: electoral systems) on VoC is the focus of studies by Gourevitch and Shinn (2005), Pagano and Volpin (2005), Iversen (2005), Iversen and Soskice (2006) and others. Three causal mechanisms are identified. First, voting rules affect policy output – and hence the legal and regulatory framework of VoC – by determining the weight attached to the preferences of different subgroups among the electorate. Majoritarian systems force politicians to woo the median voter, while proportional representation gives voice to a wider range of constituents. Second, voting rules influence preferences, by determining the credibility of long-term political commitments. Majoritarian systems, like that of Britain, are more prone to radical policy swings than PR systems, and rational voters anticipating such swings should be less willing to support policy measures or enter political bargains with pay-offs premised on long-term continuity. Third, voting rules directly influence elements integral to the VoC, such as interest group association. Martin (2006) claims that gaps in party representation caused by the majoritarian electoral system were filled by highly politicized business organizations that were unable to cooperate with other class factions, reducing the capacity of US employers to create coordinating institutions and to express collective interests in economic developmental and social policies.
A smaller subset of studies on the effect of ToD on VoC focuses on party competition (specifically: strength of the left) instead of electoral rules. In Mark Roe’s (2003) influential argument, “social democracy” – through its presumed negative effect on shareholder rights – is the main determinant of cross-national differences in ownership dispersion. Roe assumes that minority shareholders in countries where social democratic values prevail have more reason to fear that their interests will be trampled on, inducing owners to hold larger blocks of shares. The power resource literature on welfare state development identifies the historical strength of the left as a key explanatory variable for the size and structure of welfare states (e.g., Esping-Andersen 1990). Iversen and Stephens (2008) build on this work in their study of partisan influences on skills regimes.
The reverse effect – of VoC on ToD – is explored by Cusack et al. (2007), Callaghan (2009) and Perotti and von Thadden (2006), among other. Causally, VoC are said to affect actors’ preferences via their material interests, and these preferences in turn are thought to shape aspects of ToD. Cusack et al. (2007) argue that preferences shaped by VoC affect t...
