Review: Ideas, Interests and Institutions in the Comparative Political Economy of Great

Transformations
Author(s): Colin Hay
Source: Review of International Political Economy, Vol. 11, No. 1 (Feb., 2004), pp. 204-226
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 R}outledge
PoliticalEconomy11:1February2004:204-226
Reviewof International TayloreFrancisGroup

Ideas, interests and institutions in

the comparative political economy of
great transformations1
Colin Hay
Departmentof Political Science and InternationalStudies,
University of Birmingham

Mark Blyth (2002) Great Transformations:Economic Ideas and Institutional

Change in the TwentiethCentury,Cambridge: Cambridge University Press.

Ton Notermans (2000) Money, Markets and the State: Social Democratic
Policies Since 1918, Cambridge: Cambridge University Press.

Peter A. Swenson (2002) CapitalistsAgainst Markets:The Making of Labour

Markets and Welfare States in the United States and Sweden, New York:
Oxford University Press.

I. INTRODUCTION
Having contented itself for far too long with essentially static depictions
of 'traditions' or 'models' of capitalist accumulation endlessly repro-
ducing themselves over time, the comparative political economy of the
advanced liberal democracies is now animated by questions of timing,
sequence and the determinants of seismic institutional change. Each of the
volumes under review positions itself within such debates; each makes
strides in furthering our understanding of the mechanisms and processes
of institutional change in systems characterized by complexity and inter-
dependence. Yet three more different treatments of essentially similar
issues could scarcely be imagined - an indication, perhaps, of the strength
in diversity of comparative political economy today and a signal as to the
intensity of the theoretical rivalries it is capable of generating. If we are
prepared to accept, at least for now, the conventional three-fold classifica-
tion of independent variables as relating either to ideas, interests or
institutions, then it is tempting to see Blyth as stressing the explanatory
Reviewof International
PoliticalEconomy
ISSN 0969-2290 print/ISSN 1466-4526 online C 2004 Taylor & Francis Ltd
http: / /www.tandf.co.uk
DOI: 10.1080/0969229042000179811
 HAY: IDEAS, INTERESTSAND INSTITUTIONS

role of ideas and Swenson the role of interests.2 Notermans, as we shall

see, is more difficult to position, though he certainly gives fairly short
shrift to ideational and interest-based explanations of social democracy's
waxing and waning fortunes. As this already suggests, despite similarities
in their subject matter and, to some extent, in the questions they pose of
it, Blyth, Notermans and Swenson advance radically different and incom-
mensurate views of the determinants of advanced capitalist regime
change. Yet, given these differences it is remarkable what these three
volumes share, especially in the way of unstated assumptions - an indi-
cation, perhaps, of the hold that the new institutionalism has established
over a new generation of comparative European political economists,
especially in the US.
Particularly notable is that each volume seems to take for granted a
highly particular and, until recently, somewhat heretical, conception of the
temporality of institutional change. In the now conventional terms, insti-
tutional change proceeds by way of a series of 'punctuated equilibria', as
relatively lengthy periods of institutional stasis are punctured periodically
by intense and cathartic bouts of crisis (Krasner, 1984). There is nothing
inherently wrong with such a conception of institutional time - indeed, it
is precisely the assumption of such a non-linear temporality that opens up
the questions of timing and sequence with which each volume is
concerned. Yet, its uncritical (and seemingly un-self-conscious) adoption
as an initial premise is problematic and has a series of consequences. First,
it means that a punctuated conception of institutional change is never
defended against the more traditionally evolutionary alternative (for a
defence of which, see Kerr, 2002). Second, and relatedly, while the condi-
tions of existence of specific moments of punctuation are considered -
often in considerable detail - the conditions of existence of such a punc-
tuated temporality itself are never considered. This is something of a
missed opportunity, as there are good reasons for thinking that certain
political systems (those that are centralized, adversarial, first-past-the-
post and/or two-party, for instance) are more prone to crisis-engendered
institutional change than others (which may well be characterized more
by incremental reformism).3 Finally, such analytical presumptions are also
reflected in a temporally condensed empirical focus, which lavishes
attention on identified moments of punctuation and regime change at the
expense of a sustained consideration of the often cumulative conse-
quences of incremental change between such punctuating moments. This
is reflected, in the work of Notermans, in a certain tendency towards
comparative statics, in which stable and monetarily expansionary social
democratic regimes are counterposed to stable and monetarily defla-
tionary liberal or neoliberal regimes. The danger in this is a proliferation
of dualisms. In Money, Markets and the State, for instance, there are only
two basic regime types which alternate - liberal and social democratic -
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and these exist in one of two states - stasis or crisis. Arguably this gives
insufficient analytical purchase on the complexities of the developmental
trajectories of the five cases considered.
A second shared theme is the appeal (more or less explicit) to Polanyi's
concept of the 'double movement'. Blyth is the most up-front about the
Polanyian inspiration for his study, inviting direct comparisons with
Polanyi's own The GreatTransformation(1944) by confidently entitling his
own work Great Transformations.Swenson, too, is quite explicit about the
Polanyian undertones to his analysis, citing Polanyi first and last (2002: v,
320-3). Yet it is Notermans, despite referring only once and in passing to
Polanyi (2000: 35), who nonetheless seems to draw most direct inspiration
from the former's seminal text. Though, given the focus on a punctuated
conception of institutional change, this common Polanyian theme is
perhaps unremarkable, it is not entirely unproblematic. In Notermans'
text, in particular, it seems either to motivate or to legitimate a rather
necessitarian and deterministic logic. This tends to present moments of
'switching' between policy regimes as simple and largely apolitical
products of harsh economic logics of compulsion - as cumulatively defla-
tionary or inflationary dynamics give way to crisis and the functionally
appropriate response. The result, often despite the author's best inten-
tions, is a rather agentless, even functionalist, account, in which the history
of the advanced capitalist economies is reduced to a simple switching
between social democratic expansion and liberal contraction. Conse-
quently, the often highly contingent processes unleashed by identified
economic crisis are scarcely considered. The mechanisms involved in
regime-shaping institutional change remain largely unexplored.
The problem with Blyth's Great Transformationsis altogether different,
relating less to the content of Blyth's argument than with its degree of fit
with Polanyi. For, arguably Polanyi's The Great Transformation,at least in
its now conventional reading, is a very poor template for Blyth's more
ideationally sensitive institutionalism. Thus, in marked contrast to
Notermans, Blyth sheds considerable light on the complex and highly
contingent processes involved in the identification and narration of
moments of crisis, emphasizing in a perceptive and convincing manner
the constitutive role of crisis narratives in determining the trajectory of
institutional change. As he notes, 'once a given equilibrium has become
unstable, there is no a priori way of predicting the new equilibrium by
reference to its collapse' and, moreover, 'the precise form that institutions
take is not a derivative function of a self-apparent crisis' (2002: 8 n. 14,
253). There is, in short, no necessitarian logic at work here - and, in this
respect, the Polanyian lineage Blyth claims may be both misleading and
unfortunate.4 Yet, this is perhaps to do some injustice to Polanyi. For,
though he is now conventionally read as providing precisely the kind of
necessitarian logic that Notermans essentially extends and updates, this
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 HAY: IDEAS, INTERESTSAND INSTITUTIONS

dominant reading of his work is both partial and distorted, focused solely
on The Great Transformation.5Ironically perhaps, Polanyi's more general
opus might provide the basis for an economic anthropology of interest-
formation that, as I shall later argue, is the missing element in both Blyth
and Swenson's comparative political economy (see, for instance, Polanyi,
1957; and, for commentaries, Inayatollah and Blaney, 1999; Moloney,
2002). To his considerable credit, it is precisely to the possibility of such a
richer and more rounded reading of Polanyi that Swenson alludes in the
concluding remarks of CapitalistsAgainst Markets (2002: 320-3).

II. IDEAS ...

EconomicIdeasandInstitutionalChange
MarkBlyth's GreatTransformations:
in the TwentiethCentury is a most eloquent and theoretically sophisticated
statement of an increasingly influential constructivist variant of the new
institutionalism. It will, no doubt, serve to consolidate its author's already
enviable reputation as a - possibly the - most powerful and convincing
exponent and advocate of ideational explanation in comparative political
economy (see also Blyth, 1997a, 1997b).
Blyth's ambitious study, which draws in detail on the US and Swedish
cases, seeks to demonstrate the causal and constitutive role of ideas in
shaping the developmental trajectories of advanced capitalist economies
throughout the twentieth century. True to his prior commitment to a
punctuated conception of political time, the analytical focus of his
attentions is the moment of crisis itself, in which one policy paradigm is
replaced by another. Crises, he suggests, can be viewed as moments of
'Knightian uncertainty' in which actors' perceptions of their own self-
interest become problematized. Consequently, and by extension, the reso-
lution of a crisis entails the restoration of a more 'normal' condition of
'Knightian certaintly' - in which actors' interests are once again made clear
and transparent to them. As nature abhors a vacuum, so, it seems, political
systems abhor uncertainty. Crises, thus unleash short bouts of intense
ideational (in Blyth's terms, 'ideological') contestation in which agents
struggle to provide compelling and convincing diagnoses of the patholo-
gies afflicting the old regime/policy paradigm and the reforms appro-
priate to the resolution of the crisis. Moreover, and crucially for his
analysis, such crisis theories, arising as they do in moments of uncertainty,
are generative rather than correspondence theories which play a genuinely
constructive role in establishing a new trajectory of institutional evolution.
The implications of this are clear - if we are to understand path-shaping
institutional change we must acknowledge the independent causal and
constitutive role of ideas, since the developmental trajectory of a given
regime or policy paradigm cannot be derived from the exhibited or latent
contradictions of the old regime or policy paradigm. It is, instead,
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contingent upon the ideational contestation unleashed in the moment of

crisis itself. Though this is not an inference that Blyth himself draws, there
is, then, no hope of a predictive science of crisis-resolution, capable of
pointing prior to the onset of crisis to the path of institutional change - for
the causal chain is incomplete until such time as the crisis has been
successfully narrated.
This is a highly original, subtle and extremely perceptive reflection on
the conditions of existence of seismic institutional and policy change in
response to crisis - and it provides a series of correspondingly significant
insights into the developmental trajectories of Swedish and US capitalism
in the twentieth century. In particular, it draws attention to the role of
business in proselytising and sponsoring new and/or alternative
economic theories and in setting the discursive parameters within which
influential crisis narratives are likely to be framed, and to the crucial
relationship between business, think tanks and professional economists.
It also reminds us, usefully, that in order to prove influential (economic)
ideas need not bear much relationship to the reality they purportedly
represent, and that, if believed and acted upon, economic ideas have
something of a tendency to become self-fulfilling prophecies.
In the context of such major contributions, it may seem somewhat
churlish to point to the limitations of Blyth's theoretically informed
account of 'great transformational' change in the US and Sweden.
However, as with all potentially discipline-shaping interventions, Blyth's
text raises just as many theoretical, methodological and, indeed, empirical
questions as it answers. This should be seen as a strength not a weakness.
Moreover, the text itself is characterized by a series of internal tensions,
contradictions and, indeed, some significant silences. Though none of
these is in any sense an insurmountable impediment to the development
of a more consistently ideational institutionalism, there is a danger that
they might be taken as such by those less sympathetic than myself to this
ambitious theoretical project. Hopefully this provides some justification
for the following extremely sympathetic critique, written, as much as
anything else, out of a desire to establish as clearly as possible the
profound challenge that a constructivist institutionalism, such as Blyth's,
poses to more conventional approaches to comparative political economy.
My remarks concentrate, specifically, on the relationship between interests
and ideas, that between description and explanation and the related
question of the (epistemological) status of Blyth's preferred constructivist
institutionalism. I consider each in turn.

Are interests social constructions?

In the context of North American debates on the comparative political
economy of twentieth-century Europe, it is Blyth's comments on the
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relationship between ideas and interests that are likely to prove most
controversial. His core claim is, in essence, that actors' conduct is not a
(direct) reflection of their material interests but, rather, a reflection of
particular perceptions of their material interests. Our material circum-
stances do not directly determine our behaviour, though our perceptions
of such circumstances (and, indeed, of our stake in various conceivable
outcomes), may.6 In his own terms, it is ideas that render interests 'action-
able' (2002: 39).
However intuitively plausible or obvious this may seem, it is important
to note that few comparative political economists seem to accept - or, more
significantly, to be capable of reflecting theoretically - the ideational
preconditions of instrumental or strategic action. Conventionally, then, it
is actors' material interests rather than their perceptions of those interests
that are assumed the key determinants of their behaviour. Though conven-
ient and parsimonious, this is unrealistic - and this is Blyth's point. In
problematizing such a default materialism, Blyth performs an important
service to comparative political economy, adding his voice to a growing
chorus (for a review of the relevant literature, see Hay 2002: 205-15). Yet,
there is some ambiguity and inconsistency in the manner in which he
operationalizes this important insight. For, on occasions, Blyth refers to
interests as 'social constructs that are open to redefinition through ideo-
logical contestation' (2002: 271). All trace of a materialist conception of
interest is eliminated at a stroke. At other points in the text, however,
interests are treated as materially given and as clearly separate from
perceptions of interests, as for instance when he counterposes the 'ideas
held by agents' and 'their structurally derived interests' (2002: 33-4).
Obviously it makes no sense to view the latter as social constructs. To be
clear, though these two formulations are mutually exclusive (interests are
either social constructs or given by material circumstances, they cannot be
both), neither is incompatible with Blyth's core claim (that in order to be
actionable, interests have to be capable of being articulated). They are
merely different ways of operationalizing that core assumption. It is surely
tempting, then, to excuse this unresolved tension in the text as a minor
aberration of no great consequence. Yet it does serve to hide a potentially
more fundamental lacuna.
This only becomes fully apparent when Blyth's second core premise is
recalled: crises are situations of Knightian uncertainly in which actors'
interests (presumably here conceptualised as social constructs rather than
material givens) become blurred. In itself this is far from self-evident and,
given the centrality of the claim to the overall argument he presents, it is
perhaps surprising that Blyth chooses not to defend the claim.7 Playing
devil's advocate for now, it is not clear that moments of crisis do indeed
lead to uncertainty about actors' interests. Indeed, while crises might
plausibly be seen to provide focal points around which competing
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political narratives might serve to reorient actors' sense of their own self-
interest, in the first instance are they not more likely to result in the
vehement reassertion, expression and articulation of prior conceptions of
self-interest - often in the intensity of political conflict? Is it not somewhat
perverse, for instance, to suggest that during the infamous Winter of
Discontent of 1978-9 (as clear an instance of crisis as one might imagine),
Britain's striking public sector workers were unclear about their interests
in resisting enforced wage moderation? Or to see the Callaghan Govern-
ment as unclear about its interests in bringing such industrial militancy to
an end?
Yet this is not the key point at issue here. For it is only once we accept
as self-evident the claim that moments of crisis problematize pre-existing
conceptions of self-interest that the difficulties really start. If crises are
moments of radical indeterminacy in which actors an incapable of articu-
lating and hence rendering 'actionable' their interests, then how is it that
such situation are ever resolved? Blyth, it would seem, must rely upon
certain actors - notably influential opinion-formers with access to signifi-
cant resources for the promotion and dissemination of crisis narratives -
to be rather clearer about their own interests. For the resolution of the
crisis requires, in Blyth's terms, that such actors prove themselves
capable of providing an ideational focus for the reconstitution of the
perceived self-interests of the population at large. Whose self-interests
does such a new paradigm advance? And in a situation of Knightain
uncertainty, how is it that such actors are capable of rendering actionable
their own interests? In short, where do such ideas come from and who, in
a moment of crisis, is capable of perceiving that they have a clearly
identified self-interest to be served by the promotion of such ideas? If, as
Blyth consistently seems to suggest, it is organized interests with access
to significant material resources (such as business) that come to seize the
opportunity presented by a moment of crisis, then the role of ideas in
determining outcomes would seem to have been significantly attenuated.
To play devils' advocate once more, if access to material resources is a
condition of successful crisis-narration, if only organized business has
access to such resources, and if neoliberalism is held to reflect the (actual
or perceived) self-interest of business, then won't a materialist explana-
tion of the rise of neoliberalism in the US in the 1970s or Sweden in the
1980s suffice? To prevent this slippage towards a residual materialism,
Blyth and other exponents of ideational explanation, need to be able to
tell us rather more about the determinants (material and ideational),
internal dynamics and narration of the crisis itself. The overly parsi-
monious conception of crises as moments of Knightian uncertainty may,
in the end, obscure more than it reveals, turning the moment of crisis into
something of a black box from which, in due course, the deus ex machina
will be summoned.
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Description or explanation?

A second set of concerns relates to the theoretical status of the account he

offers. For although constructed as a work of explanatory/causal com-
parative political economy, it is not always clear that Blyth does
adequately explain the outcomes whose origins he details. Indeed, as with
the other two books under review here, it would seem as though
abstracted re-description and explanation are frequently conflated. In
other words, an abstract and stylized sequence consistent with the empiri-
cal evidence is presented as an explanation of specific outcomes in the
context being considered. To be fair, this might be defended as explana-
tion, but it is not defended as such in the volumes under review. The
problem, if problem it is, seems to follow from Blyth's identification of five
central 'hypotheses', which together comprise a 'sequential model of ideas
and institutional change' (2002: 35). These hypotheses - that ideas reduce
uncertainty in moments of crisis, that ideas enable collective action, that
ideas are weapons in the struggle over institutional change, that new ideas
may serve as institutional blueprints, and that ideas make institutional
stability possible - are not hypotheses in any conventional sense. Indeed,
they might more accurately be referred to as analytical premises, that in
turn reflect the author's ontological preferences and assumptions. None
of these hypotheses is tested and it is, in fact, difficult to think how one
might go about testing any of them. They are, instead, the basis from
which a theoretically informed account of institutional change in twentieth-
century Sweden and the US is developed. Collectively, as Blyth himself
notes, they map out a sequentially unfolding process, a process whose
contours Blyth seeks to chart in two extensive and detailed case studies.
Yet, taken either individually or collectively, their status is not clear - are
they extrapolations from exhibited regularities (from these and, presum-
ably, other cases) or are they deductively inferred propositions (the
product of reflecting upon the conditions of existence of significant insti-
tutional change in and through moments of crisis)? In all likelihood they
are some combination of the two. Either way, it is not entirely clear how -
or, indeed, if - these hypotheses explain rather than merely re-describe the
sequence of events characterising institutional change in the two country
cases over the time frame considered. Blyth certainly presents an eloquent
and convincing case for choosing assumptions such as these to inform an
account of institutional change in advanced capitalist societies, but I
struggle to put my finger on a specific outcome which might be said to
have been explained by any of these hypotheses or their sequential
combination.
This raises a second, and closely related issue - the epistemological
status of the claims Blyth makes about the US and Swedish cases and
about institutional change more generally. Understandably, he is keen to
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stress that his chosen more constructivist brand of institutionalism

provides us with a 'better understanding of political change' than more
conventional materialist modes of political analysis (2002: ix). I am
inclined to agree, but again it is not clear from the text why sceptics should
accept such a view - largely because no sustained consideration is given
to how one might adjudicate preferences between contending accounts.
Blyth is not even very clear as to what precisely it is that makes his account
'better' in his own terms - far less why those previously wedded to the
positions he critiques should abandon their rump materialism in favour
of a more constructivist alternative. Presumably, 'better' here means more
complex, more nuanced and more able to capture the rich texture of social,
political and economic interaction - in short, the standard that Blyth seems
to construct is one of correspondence to an external reality. This is all very
well, but external realities, as he would presumably be the first to concede,
can be viewed differently. Moreover, and more to the point, whilst
complexity and correspondence can plausibly be defended as providing
the standards by which competing theories should be adjudicated, parsi-
mony, analytical purchase and predictive capacity have arguably just as
much claim to provide such a standard.... And, it need hardly be pointed
out that, by such a standard, Blyth's constructivist institutionalism is likely
to be found wanting.
Again, this is less a critique than a call for greater reflexivity and clarity
of purpose. Ideational analysis, of the type Blyth engages in here, has
much to contribute to contemporary comparative political economy and
it is likely to have considerable appeal to those who do not believe that a
predictive science of politics is possible. Yet I remain unconvinced that its
clear superiority to other contending positions has already been, or is ever
likely to be, established. This makes me somewhat uneasy about Blyth's
concluding remarks. The purpose of his book, he suggests, is 'to demon-
strate that large-scale institutional change cannot be understood from
class alignments, materially given coalitions, or other structural prerequi-
sites ... [I]nstitutional change only makes sense by reference to the ideas
that inform agents' responses to moments of uncertainty and crisis' (2002:
251). This is a bold and almost certainly overstated claim. Indeed, if this
is indeed the overriding aim of Great Transformations,then it cannot be
judged a complete success. For, rather than demonstrating that structural
prerequisites cannot inform a credible account of institutional change, it
merely demonstrates that an alternative and compelling account can be
constructed that does not restrict itself to such material factors. The
hypotheses Blyth considers are not, in fact, particularly discriminating
between these two contending alternatives. Consequently, sceptics will
surely argue that the explanatory role of class alignments, materially given
coalitions and so forth has simply not been tested. Moreover, Blyth here
seems to drive something of a wedge between the consideration of
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 HAY: IDEAS, INTERESTS AND INSTITUTIONS

ideational and material factors in causal analysis. This is unfortunate,

because as he at times seems quite happy to concede, there are almost
certainly (some) material conditions of existence of ascendant crisis narra-
tives and crises themselves would seem to have both material and idea-
tional determinants. Ideational factors certainly need to be given greater
attention, but not at the expense of more traditional structural variables.

III. INTERESTS ...

Peter A. Swenson's CapitalistsAgainst Markets:The Making of Labour
Marketsand the WelfareStatesin the UnitedStatesandSwedenis an exhaus-
tively detailed, yet theoretically ambitious and highly impressive volume
that is sure to become something of a classic text for comparative political
economists. Drawing upon and extending Swenson's earlier work on the
invariably overlooked role of capital (in fact, business) in shaping the
trajectory of welfare state and labour-market reform (see, inter alia,
Swenson, 1991, 1997), it represents the culmination of over a decade of
detailed research and scholarship. Despite the burgeoning literature in this
area (see, for instance, Gordon, 1994; Jacoby, 1997; Martin, 2000; Vogel,
1989), it is surely destined to become the key focus for all subsequent
discussions of the role of business in the comparative political economy
of welfare state expansion and contraction.
The text itself provides a powerful corrective to much of the existing
orthodoxy on capitalist development in Sweden and the US. Swenson's
central thesis is boldly stated, carefully developed and exhaustively
defended through the exceptionally detailed presentation of often original
archival material from key episodes in the development of the welfare
state in Sweden and the US. Swenson rejects the dominant depiction of
capitalists as conservatives, opposed at each and every step to welfare
state expansion. Instead, he constructs a powerful theoretical case,
drawing on efficiency wage theory and backed by detailed empirical
evidence, to demonstrate that capital's interests are often intimately
connected with trajectories of welfare and labour market reform. The
ostensible focus of his attention is the strategies that employers pursue in
the labour marker to further their own interests. Here he draws an impor-
tant differentiation between cartelism,segmentalismand solidarism.
Under cartelism, employers are keen to construct barriers to market-
entry, often working with unions to impose a floor under wages. Segmen-
talized sectors of the labour market are characterized by decentralization.
In such arrangements, employers tend to reach generous 'welfare capi-
talist' bargains with their employees, encouraging cooperative workplace
practices but at the cost of 'supracompetitive wages'. Cartelists and
segmentalists, Swenson argues are likely to prove 'foul weather friends of
the welfare state' (2002: 40), since they are especially prone to competitive
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under-cutting in a recessionary environment. In contrast, solidarists prove

to be 'fair weather friends of the welfare state' (2002: 40). Under soli-
darism, wage bargaining is highly centralized. This tends to result in
lower wages than in the more decentralised efficiency wage model, with
correspondingly higher levels of employment. The problem in such a
regime, however, is the tendency towards labour scarcity which may
encourage unscrupulous employers to poach skilled workers by offering
efficiency wages or compensation in kind. Solidarism thus generates
internal pressures for both welfare state expansion (thereby removing the
temptation of employers to provide benefits directly for their employees)
and tight regulation of the labour market (to police instances of any failure
to resist such temptations). This provides the theoretical basis of
Swenson's contribution. Empirically, he charts the development of
cartelism and segmentalism in the US and solidarism in Sweden, using
this to inform an account of the changing material interests of capital over
time - interests that he suggests were closely reflected in the develop-
mental trajectories of the US and Swedish welfare states over the time-
frame considered. This allows him to conclude that capitalists have played
an active and creative role in the passage of egalitarian and progressive
social reform in both Sweden and the US.
Swenson presents a neat, eloquent and compelling case which serves
both to restore capitalists to their rightful place as active and engaged
participants in the political economy of the welfare state and to remind us
of the considerable stake they often have in welfare and labour-market
reform. Yet the case he presents is at times overstated and a series of
theoretical, methodological and, in the end, empirical problems can be
identified. Again, however, these should not be seen to detract from the
overall stature and significance of Swenson's magnus opus, nor should they
be seen as presenting insurmountable impediments to the development of
a political economy of the welfare state in which the agency of capitalists
plays a central role. They relate, specifically, to Swenson's unapologeti-
cally materialist conception of interests, his exclusive reliance on efficiency
wage theory to map the material interests of capital, disparities between
the theoretical claims he seeks to test and the empirical evidence used to
substantiate such claims and, in Jacob S. Hacker and Paul Pierson's terms,
the dangers of 'imputing causality from observed ex post associations
between policy outcomes and employer interests' (2002: 278). Each is
considered in turn.

Efficiency wage theory as the key to capitalists' interests

The contrast between Blyth's ideational conception of interests and
Swenson's insistence on interests as real, transparent, non-negotiable and
as directly actionable could scarcely be greater. And if Blyth's idealism

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creates problems for his operationalisation of the concept of interests, the

same is no less true of Swenson's materialism. For in directly attributing
exhibited behaviour to material interests, Swenson is forced to make a
series of dubious assumptions:
1. that capital is blessed with perfect information as to its interests and is
capable of conceiving of them in as clear and unambiguous a way as
Swenson (who has the benefit both of hindsight and efficiency wage
theory);
2. that there is no disparity between capital's material interest and its
perception of that material interest;
3. that all of capital's material interests are actionable; and
4. that the (post-hoc) identification of a material interest by the analyst
(here, Swenson) is sufficient to indicate that such an interest was both
identified and acted upon by capital at the time.
Convenient though these assumptions are, none is realistic. Moreover,
alter any one of these assumption and Swenson's evidence of capital's
ability to promote its own self-interest through welfare and labour-market
reform is significantly compromised. For if it is conceded that capital does
not possess complete information of its own self-interest, then demon-
strating that capital's interests were served by welfare reform is hardly
sufficient to demonstrate that capital's agency was responsible for such a
fortuitous outcome. Indeed, the conundrum this raises is rather reminis-
cent of earlier, neo-Marxist explorations of role of the state in acting,
effectively, as a custodian of the general interest of capital. Block (1987), in
particular, pointed to the inability of capital to identify, let alone to secure,
its own material interest, and the extent to which, as a consequence, capital
was itself dependent upon the state's ability to act as its guardian (often
in the face of direct opposition from capital itself).8 Block's assumptions
about the state may well be no less problematic than Swenson's assump-
tions about capital (see, for instance, Hay, 1999: 167-9), but the former does
at least acknowledge that capital is quite capable of both misperceiving
and acting directly contrary to its own long-term collective interest. This
Swenson conveniently overlooks.
As already alluded to, the solution to this problem may, ironically, lie in
the work of Karl Polanyi - though not in The Great Transformation.For
elsewhere in his work (esp. 1957), he lays the basis for an economic
anthropology of capitalist interest-formation and articulation, such as
might eliminate the need for such generalised assumptions about capi-
talist preferences.9
There is one further problem with Swenson's conception of capital's
material interests - that is the use of efficiency wage theory. In fact, two
points might here be noted. First, the use of efficiency wage theory to model
capital's interests reveals Swenson's rather limited conception of capital.
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For, at the risk of stating the obvious, efficiency wage theory is only capable
of capturing the interests of those sections of capital reliant upon the labour
market - namely, business. The interests of (generally, organized) business
with respect to the labour market are treated by Swenson as synonymous
with the interests of capital in general. This is clearly problematic, effec-
tively precluding any consideration of the interests of, say, finance capital
with respect to the creation and expansion of the welfare state.
Yet, worrying though this might be, this is not the principal objection to
the use of efficiency wage theory as a shortcut to capital's material inter-
ests. The problem is this. If Swenson needs efficiency wage theory in order
to construct a model of capital's interests that is sufficiently complex and
differentiated to be able to explain (or describe) capital's stake in welfare
and labour-market reform, how did capital come to construct its interest
at the time? Indeed, did capital make use either of efficiency wage theory
itself or of some equivalent? If not, then how is it that it was able, absent
such a theory, to identify its interests in nearly identical terms? And if it
did, then how do we know that its behaviour was informed by its genuine
material interests and not simply by the representation of such interests in
the theory?

Methodological limitations
In addition to these theoretical problems, a series of methodological and
empirical anomalies, inconsistencies and slippages plague the text - and,
indeed, the broader literature which seeks to establish the role of business
interests in the creation and expansion of the welfare state.10
First, while Swenson sets out extremely clearly in the introduction to his
study his aim to demonstrate the active role of capital/business in 'the
passage of egalitarian and progressive social reform' (2002: vii), by the
time we get to the more empirical sections of the book, the burden of proof
seems to have been lessened somewhat. Thus, as the text proceeds,
Swenson seems to content himself with demonstrating:
1. that capital was tacitly cooperative, especially where it could blame
others for the direct content of the legislation passed (13);
2. that, where there was notable opposition, those sections of capital
which did support the trajectory of reform were able to exert some
influence over its content (192-4); and
3. that where capital clearly opposed a particular reform trajectory, those
responsible for its passage had good reason for thinking that capitalist
interests were not being subverted and that capital might come round
to this way of viewing things at a later stage (213, 218, 223-4).
Evidence consistent with any or indeed all of these secondary proposi-
tions provides no direct support for the book's central claim. Similarly,
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 HAY: IDEAS, INTERESTSAND INSTITUTIONS

on a number of occasions, the absence of clear evidence of capital's

support for reforms which were - in efficiency wage theoretical terms -
'in its interests' is explained away in terms of capital's need to 'conceal'
its 'true interests' or its 'strategic' decision 'not to verbalise its interest' in
the specific legislation (122, 125, 127). With every such caveat, the
empirical case for seeing capitalists as agents of welfare state expansion
is weakened. Moreover, is it not at least equally plausible that capital
had something of a vested interest in being seen publicly to align itself
with the passage of legislation that it felt it had no change of resisting
effectively?
The more general dangers in drawing the correct inferences from ex post
associations between policy outcomes and employer interests are expertly
dissected by Jacob S. Hacker and Paul Pierson (2002). They have a direct
bearing on the analysis of the empirical evidence presented by Swenson
in CapitalistsAgainst Markets. Space prevents a detailed exposition, but a
few simple points perhaps serve to indicate some of the difficulties of the
text itself.

1. Swenson is too hasty in attributing outcomes consistent with the

expressed preferences of capital/business to the latter's direct influ-
ence. Expressed preferences may well merely reveal 'strategic calcula-
tions of what is the best that can be accomplished given existing
circumstances'. Consequently, 'an actor's capacity to achieve its
induced preferences should not necessarily be construed as a sign of
great influence' (Hacker and Pierson, 2002: 283).
2. While, understandably perhaps, Swenson's empirical evidence relates
most directly to instances of decision making (relating to the substan-
tive content and drafting of specific legislation), it is the demonstrable
ability to establish and re-define both agendas and the preferences of
policy makers that is the key to identifying genuine influence. Evidence
of capital's role in this is limited.
3. If the influence of capital is to be demonstrated, it is insufficient to point
merely to the congruence with the expressed preferences of capital at
the time, for, 'if policy outcomes and the preferences of political actors
coincide, it remains an open question whether the preferences
produced the outcomes or the outcomes [or even the anticipated
outcomes] induced the preferences' (Hacker and Pierson, 2002: 286).

IV. ... AND INSTITUTIONS?

If Blyth stresses the explanatory role of ideas in institutional analysis and
Swenson that of (selected) material interests, then it is certainly tempting
to see Notermans as completing the trinity - highlighting the explanatory
role of institutional factors in the comparative political economy of the
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twentieth century. Yet as already noted, Notermans' book is more difficult

to position in terms of such a three-fold categorization of independent
variables. This is partly because, unlike the others, he does not feel the
need to situate his contribution principally with respect to contemporary
currents in (US) institutionalism. And this may be no bad thing. It is also
partly due to a certain ambiguity in the text itself as to the nature of the
theoretical position he does seek to defend. This is more problematic. Yet,
if there is a consistent theoretical aim animating his study it is surely to
discern the degree to which institutional variables delimit the space for
social democratic alternatives. The question is posed within a more tradi-
tional (Polanyian) political economy.
Notermans' Money, Marketsand the State is a bold statement, and at an
times, eloquent defence, of a highly distinctive position on the determi-
nants of social democratic performance since 1918. Yet of the three works
considered here it is, in my opinion, the most disappointing - especially
when set against the penetrating nature of many of the author's earlier
interventions in the debates to which he now returns (see, for instance,
1993, 1997). The thesis he presents is clearly stated and, in the context of
an increasingly extensive literature, extremely distinctive. The empirical
scope of the project is also deeply impressive, with five cases considered
and a temporal span which runs from 1918 to the present day. In the
end, however, the theoretical framework within which this extensive
empirical evidence is presented is insufficiently flexible to do justice
either to the complexity and contingency of the issues with which he
deals or to the variance in the dependent variables - over time or
between cases. In short, Notermans seeks to fit a variety of angular pegs
of different sizes and shapes into a common round hole. Moreover, and
of perhaps even greater consequence, a series of tensions and contradic-
tions litter the text, compromising significantly its ability to realise the
author's stated aims.
Those principal objectives are three-fold. They are to establish:
1. that 'the fate of social democratic economic policy hinges on the
political and institutional success of maintaining price stability, and not
on structural economic factors' (cover);
2. that, relatedly, 'domestic political processes, rather than international
economic pressures, were and are the decisive factors of economic
policy making' (xv); and
3. more prescriptively, that 'successful policies for social democratic
growth and full employment remain possible even under the present
conditions of an increasingly globalised economy' (cover).
Each warrants closer inspection.

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 HAY: IDEAS, INTERESTSAND INSTITUTIONS

From economic determinism to ... economic determinism

By stressing the importance of political and institutional factors in
contrast to the more conventional emphasis upon structural economic
factors, Notermans invites a reading of Money, Markets and the State as a
powerful corrective to economic determinism and the invariably casual
appeal to logics of external economic compulsion. Yet while he does
present (or, more actually, restate) an important critique of the globaliza-
tion orthodoxy (to which we return), arguably he merely replaces it with
his own logic of more domestically engendered economic necessity.
The problems stem directly from the rather limited repertoire of concep-
tual resources to which Notermans chooses to restrict himself. Theoreti-
cally, it seems, he thinks in dualisms - making it extremely difficult to
capture the internal dynamics of complex political and economic systems.
Macroeconomic regimes, which he effectively reduces to a set of monetary
policy preferences, come in one of two varieties - liberal or social demo-
cratic (11); and in one of two states - stasis or crisis (14). Social democratic
regimes are monetarily expansionary and are characterized by their
attempt to promote growth and full employment (11, 14). They are inher-
ently predisposed to unleash inflationary dynamics (11, 32). Liberal
regimes are, by contrast, monetarily restrictive and are characterized by
their attempt to promote price stability (11, 14). They are inherently predis-
posed to unleash deflationary dynamics (11, 32). Moreover, price-level
trends (inflationary and deflationary tendencies) are cumulative and self-
reinforcing (11). Hence, inflation leads inexorably to hyper-inflation, defla-
tion to depression (32, 38). Over any prolonged period both undermine
the price mechanism and with it the 'conditions under which a market can
function properly' (11, 32). Consequently, they cannot and will not be
tolerated. Deflation and hyper-inflation precipitate crisis; crisis precipi-
tates regime change.
The rest follows. For, given this collection of premises, assertions and
assumptions - the majority undefended either theoretically or empirically
- a simple sequence of capitalist development can be directly inferred.
Social democracy leads to inflation, inflation tends to hyper-inflation,
hyper-inflation (or the anticipation of hyper-inflation) to crisis. Capi-
talism, as we know, abhors crises and there is only one alternative macro-
economic regime. Consequently, social democratic crisis leads to a regime
change to liberalism. A similar process is now unleashed. Though the
liberal regime initially restores price stability it leads inevitably to defla-
tion, deflation to depression, depression to crisis, and crisis, in turn, to a
social democratic regime change. The cycle is complete.
This is crude and deterministic and stands in some considerable tension
to Notermans' central contention that 'the fate of social democratic
economic policy hinges on the political and institutional success of

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maintaining price stability, and not on structural economic factors' (cover).

Indeed, it directly contradicts this statement - for although the timing of
the regime change is not determined, the fate of social democracy (to give
way, in crisis, to liberalism) is. In sum, the sequence of events is fixed, it is
only the timing that is contingent upon Notermans' much heralded
political and institutional factors.
The argument here is relatively simple and, effectively, an extension of
the corporatist literature of the 1980s (for instance, Calmfors and Driffill,
1988; Cameron, 1978; Goldthorpe, 1984).11The longevity of social demo-
cratic regimes (though not their ultimate fate) rests on their ability to
suppress the wage-inflationary pressures they otherwise inject into the
labour market through an accommodating monetary policy stance. In his
own terms:
a policy regime that successfully promotes growth and full employ-
ment by macroeconomic means has to rely on the ability of labour-
market institutions to contain inflation by not employing their
market power to the full ... inflation can only be contained if unions
and employers can be brought to exercise moderation in wage and
price setting.
(11, also 32)
Here, finally, we find a role for both social democratic politics (in the
maintenance of solidarism and incomes policies through persuasion and
negotiation) and labour-market institutions (in facilitating the centralized
wage-bargaining on which price stability under social democracy rests).
The account is familiar and conventional.
Whatever the specific details, however, the key point is that political and
institutional factors, as Notermans makes very clear, are only capable of
delaying the inevitable. As he notes, reflecting on the 18-year gap between
the most recent regime change in Germany and that in Sweden:
the differences in policy preferences and institutional setup only
accounted for differences in timing ... [they] did not allow for the
durable coexistence of different regimes ... eventually Scandinavian
social democrats, too, had to discover that ... it is not possible to give
policy priority to full employment instead of price stability.
(p. 169)
Many points might usefully be made here. I will confine myself merely
to two. First, there is very little contingency here and, consequently very
little solace for beleaguered social democrats. Politics appears as little
more than a set of crisis-management techniques, capable only of delaying
the inevitable and only in certain institutional environments. True, Noter-
mans offers a glimmer of optimism to social democrats by suggesting that
globalization is not the agent of neoliberalization that it is invariably
220
 HAY: IDEAS, INTERESTS AND INSTITUTIONS

assumed to be - serving, if anything, as a convenient post hoc rationalisa-

tion and a politically expedient logic of external constraint. Yet the current
ascendancy of neoliberalism was nonetheless guaranteed - if not by the
globalization of capitalist social and economic relations then by the
internal architecture of capitalism itself. And presumably this is a rather
more exacting, structural and non-negotiable constraint than globalization
- which can, of course, be resisted and even reversed. Presented as a
corrective to economic determinism, Notermans' thesis merely
compounds it. Thatcher and Reagan, it seems, were right - at least in their
choice of monetary policy preferences.
This brings us neatly to a final point. Notermans' own preferred logic
of (sequential) inevitability, as I have already suggested, is itself ultimately
determined by his choice of initial premises - as, indeed, it is, by his
definition of liberalism and social democracy as monetary policy prefer-
ences. These owe much, arguably far too much, to neoclassical economics.
Two premises in particular warrant further attention. They are: (1) that
price stability not only shouldbe, but is and must in practice be, the primary
objective of monetary policy - where it clashes with other monetary policy
objectives (such as growth and full employment) its ascendancy is guar-
anteed; and (2) that price-level trends (whether inflationary or defla-
tionary) are cumulative.
The first of these claims (in fact a claim and a normative judgement) is
merely asserted. The claim itself is an empirical proposition which should
be defended evidentially and is certainly open to challenge. Yet it is the
second claim that is the more significant and problematic. It is the key to
Notermans' determinism, as the following passage makes very clear:
because of the possibility of cumulative processes in decentralised
monetary economies, price stability is a policy priority that no
government can avoid pursuing in the long run ... a historical
analysis of economic policy making will eventually have to distance
itself from the assumption that regime changes can be interpreted in
terms of a process of political competition ...
(p. 32)
Similarly, 'the cumulative nature of the inflationary and deflationary
constellations that gave rise to regime changes implied that the basic
character of the new economic policies was predetermined' (38). Two
more deterministic passages would be difficult to find in contemporary
comparative political economy. Yet, remove the assumption and the deter-
minism evaporates.
To his credit, Notermans does offer an albeit highly stylised and abstract
defence of the self-sustaining nature of inflationary or deflationary
tendencies. Yet, the existing literature simply does not support Notermans
theoretical case for seeing inflation, for instance, an inexorably leading to
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hyper-inflation (Blyth, 2002: 148-50; Kirschner, 1999: 613; Swank, 2002).

Moreover, the normative case for price stability, in the absence of any
inevitability about the cumulative nature of price-level trends, is difficult
to sustain. As Robert J. Barro, self-styled libertarian and no great
enthusiast for accommodating monetary policy is forced to concede, 'the
inverse relation between growth and inflation is statistically significant for
cases of average inflation between 15 and 40 per cent and for those in
excess of 40 per cent, but it is not significant for values up to 15 per cent'
(1996: 66-7). Perhaps the final word here should go to Jonathan Kirschner:
if monetary policy is too tight, then output and employment will
suffer. If it is too loose, inflation will rise. The puzzle is that the costs
of macroeconomic policies that are a little too tight are unambiguous,
while the costs of policies that are a little too loose are unclear.
(1999: 616)
As this perhaps suggests the normative and empirical basis of Noter-
mans' central assumptions are, at best, contestable.

V. REPOLITICIZING POLANYI
This brings me, by way of conclusion, to Notermans' final contention, that
'successful policies for social democratic growth and full employment
remain possible even under the present conditions of an increasingly
globalised economy' (xv). Of the three authors considered here, it is only
Notermans, to his considerable credit, who has anything of substance to
say about present context and the possibilities inherent within it for social
democratic revival. Arguably this is something of a shame, since Noter-
mans' determinism strips him of the theoretical resources to reveal the
factors on which the future fate of social democracy will ultimately rest.
Strangely perhaps, given the comments of the previous section, a future
for social democratic policies is quite consistent with Notermans' stylized
and deterministic account of social democracy's variable fortunes. Indeed,
one might even see the resurgence of social democracy as 'predetermined'
(38). Notermans' claim rests on an important and telling observation - that
the deflationary monetary policy regime institutionalized throughout the
Eurozone (and, consequently, in only three of his five country cases) was
designed for an inflationary political economic environment which no
longer exists. Yet the problem, for Notermans, is what to make of this. Is
regime change inevitable, even predetermined, as the model would
perhaps suggest, or has the social democratic opportunity to be seized, the
crisis, in Blyth's terms, manufactured? In other words, is it merely the
sequence that is determined - a sequence, of course, guaranteed to deliver
the return of social democracy at some point in the future? If so, they what
might be done to accelerate the temporality of the process? It is here that
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Notermans' determinism begins to falter - as he posits, for instance, the

possibility of a rightist and reactionary alternative to a putative crisis of
the liberal regime. Yet the crucial point is surely that Notermans' theoret-
ical schema is inadequate to the task of identifying the mechanisms of
social democratic revival. Like all determinism, it effectively invites a
degree of political fatalism against which Notermans stuggles in his final
chapter.
It is here that Blyth and Swenson might help. For Swenson restores
agents to the process of great transformational change and Blyth gives us
a series of crucial insights into the manufactured nature of crises them-
selves. In so doing they offer the potential to contribute in a very signifi-
cant way to re-politicizing great transformational change. Yet arguably
even Blyth and Swenson together leave us with two essential missing
ingredients whose significance I have sought to emphasize in this review
- an economic anthropology of interest identification, definition and re-
definition and an analysis of the material and ideational determinants of
moments of crisis and the conditions of successful crisis narration. Those
ingredients would allow us, once and for all, to replace the deterministic
logic often attributed to the 'double movement' with a rather more
complex and contingent account of the making of regimes and of regime
change in moments of identified crisis.

NOTES
1 I am indebted to ChrisHowell, Magnus Rynerand MatthewWatsonfor their
helpful comments on an earlier draft of this review article. The usual
disclaimers,of course, apply.
2 It is, of course,to do some considerableviolence to the complexityof the issues
involved to allow this simple three-foldclassificationof variablesto remain
unchallenged.Forany ideationallysensitive approachto institutionalanalysis
must surely problematizethe ease with which we might clearly differentiate
between ideational, interest-based and institutional factors, pointing, for
instance,to the ideationalpreconditionsof interest-identificationand articula-
tion (and perhaps to the inherentlyideationalnatureof intereststhemselves)
and to the extent to which institutions are themselves ideas embodied in
practice.It might also be noted that most conventionaldefinitionsof institu-
tions - as, say, rules, norms and conventions - are themselves inherently(if
perhapsun-self-consciously)ideational(see, for instance,Hall, 1986:19;North,
1990:3).
3 For an elaborationof such a view, see Hay, 2002:150-67.
4 As, at times, Blyth seems to concede. See, for instance,Blyth,2002:7-8.
5 At this point it is perhaps also worth noting that the necessitarianlogic
invariablyheld to underpinPolanyi's'double movement'is in fact difficultto
reconcilewith any close analysis of TheGreatTransformation (see, for instance,
Moloney,2002).
6 The parenthesesare importanthere. Thereis something of a tendency in the
existing literature,a tendency reflectedby Blyth,to treatthe issue of interest-
formation and representationas a question solely of the accuracy of the
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information actors have about their external environment. If there is a

disparity between an actor's perceived interests and those we might attribute
to her given an exhaustive analysis of her material circumstances, this is
assumed to be a function solely of the incompleteness of the actor's informa-
tion. Arguably this is itself a gross simplification. Interests are not merely a
reflection of perceived material circumstance, but relate, crucially, to the
normative orientation of the actor towards her external environment. My
perceived self-interest with respect to questions of environmental degrada-
tion, for instance, will reflect to a significant extent my normative sense of
obligation to other individuals (living and yet to be born) and, conceivably,
other species.
7 Rather than defend the claim, an alternative strategy, of course, would be to
define crises as conditions of Knightian uncertainty. This might seem like an
attractive option. However it merely raises the question of whether the
instances Blyth chooses to refer to as crises are consistent with that definition.
This is an empirical question, for which Blyth provides no empirical evidence.
As such, it is perhaps fairest to see him as treating the 'crises' he identifies as
self-evidently moments of crisis and as self-evidently moments of Knightian
uncertainty. Yet, these are, at best, contestable claims.
8 To be fair to him, there is at least one point in the text where Swenson makes
precisely this point, suggesting that because of a variety of 'obstacles and
handicaps, reformers with considerable organisational distance from the capi-
talist world ... were usually responsible for taking the political initiative'
(2002: 12). This is a telling passage and, arguably, quite a significant concession.
For it is one thing to present capital as the principal agent in the authoring of
welfare state creation and reform; it is another thing altogether to argue that
the Swedish and US welfare states were designed by those 'with considerable
organisation distance from the capitalist world' in the perceived interest of
capital.
9 It is important to be clear about this. Polanyi does not so much provide a
theoretical account of interest-formation as develop an anthropological and
ethnographic approach to economic behaviour which eliminates the need
to make a priori assumptions about, say, the interests of capital. Though
sadly neglected, it is Polanyi's great contribution to turn what, for Blyth
and Swenson, is a theoretical question into an empirical question. In short,
if we observe the way in which capital comes to define and render action-
able its interests we do not need to make a prioriassumptions about such
interests.
10 These have been expertly analysed in a highly perceptive recent article by
Jacob S. Hacker and Paul Pierson in PoliticsandSocietyfrom which this section
draws considerable inspiration (2002). Though Swenson's book is not the
direct subject of their critique, much of the research on which it draws is
carefully unpacked and many of its conclusions problematized.
11 Given Notermans' obvious reliance upon this earlier literature (a literature
which he clearly cites), his claim (12) that the coordination of monetary policy
and its consequences for wages and the labour-market more generally have
been systematically ignored in the existing political economy of European
social democracy is perplexing (for recent contributions to this literature see,
for instance, Garrett, 1998; Hall and Franzese, 1998; Iversen et al.,2000; Watson,
2002).

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