Partisan Politics and Institutional (Re)Creation: Locating and Explaining the Origins of Modern Finance Capitalism

Abstract

Why do some countries rely more heavily on equities markets, while others depend more on commercial banking? Analyses of the origins of contemporary capitalist institutions usually look back to the late nineteenth and early twentieth century. However, this paper demonstrates that financial institutions – regarded as central to the way capitalist systems are organised – changed radically in the mid-twentieth century in many countries. This paper argues that government partisanship in formative moments of institutional (re)creation can better account for their modern manifestation than prominent alternative explanations. A new measure of partisanship that is sensitive to these institutional transformations is presented. Case studies on Germany and France offer evidence consistent with this argument.

Acknowledgements

My thanks go to Cathie Jo Martin, Michael Shalev, Colin Crouch and Alexander Hicks for their insightful comments. My thanks also go to the anonymous reviewers of this journal.

Notes

1. Hall and Soskice (2001) specifically use stock market capitalisation over GDP as an indicator for liberal versus coordinated market economies. The Coordination Index in Hall and Gingerich (2004) incorporates stock market capitalisation as well as the dispersion of corporate ownership.

2. See Pagano and Volpin (2005) on the electoral system effects and La Porta et al. (1999) on the legal family effects.

3. Germany and Austria changed their constitutions markedly after World War I as well.

4. Some of these were re-implemented from the inter-war period, but because these inter-war bargains were so short-lived, there was insufficient time for these practices to become properly institutionalised. See, for example, Streeck and Yamamura (2001).

5. For this reason, I exclude data for 1938 and 1999 from the analysis.

6. In the contemporary period, bank lending comes from more than simply deposits, such as the wholesale markets. However, this does not affect the main point of the paper, which focuses on changes during the middle of the twentieth century.

7. Each variable is multiplied by 100 before taking the ratio to avoid mathematical problems that occur with dividing numbers less than one.

8. The indicator is from Franzese (2002). The expert studies include Laver and Budge (1992), Laver and Hunt (1992), Laver and Schofield (1990), Dodd (1976), Castles and Mair (1984), Sani and Sartori (1983), Inglehart and Klingemann (1976), Mavgordatos (1984), Blair (1984), Kerr (1987), Taylor and Laver (1973), Browne and Dreijmanis (1982). Multiple expert studies are used to minimise the bias/subjectivity caused by relying on only one or a couple.

9. Both variables are with respect to GDP, which drops out when taking the ratio of them.

10. For example, Roe (2003), with an adjusted R-squared value equal to 45 per cent.

11. Results on medium-sized firms are not shown in the paper.

12. The major sources for the position of the BDA on co-determination in the plants are the annual reports (Jahrescherichte) of the BDA and the public speeches of former BDA president (1949–53), Walter Raymond. Printed copies of the presidential speeches may be found in the annual reports.

13. The agreement was signed 15 November 1918, and signed by representatives of 21 employers' associations and the three trade union federations.

14. Also, see Vinen (1991: 45–52), for a discussion on how small business was excluded from political power to the benefit of big business during the Third Republic.

15. André Philip was a professor of economics who had investigated American production techniques during the inter-war years. He was an advocate for Socialist reform from the 1930s on.

16. Commissariat à l'Intérior, ‘Critique de rapport sur la politique économique d'après guerre présenté par le Comité National d'Etudes de la résistance’, June 1944 (AN F^1a 3791).

17. For further discussion on the usefulness and powers of Works Committees, see ILO, Labor Management Cooperation in France, 1950, pp. 186–8.

18. For information on the formulation and effect of this banking legislation, see the six chapters on French banking in Alhadeff (1968).