In their book, Cathie Jo Martin and Duane Swank pose two important questions: What explains variation in the organization of business interests across advanced economies? And what are the effects of that variation? The Political Construction of Business Interests explores the origins of business associations and their effects on larger developments in advanced industrialized countries when it comes to the welfare state, labor markets, and income inequality. Contrary to the widespread belief that business inherently opposes social programs, the authors offer a fresh perspective on why there is business support for the welfare state in some countries but not in others. In so doing, the book makes a significant and timely contribution to political economy research on the origins and effects of different forms of capitalism.
The authors provide two central arguments, both of which are supported with rich historical and statistical evidence in a multimethod research design. The first half of the book (Chaps. 2–6) explains the political origins of business associations during the late nineteenth century. The argument is straightforward: two-party systems are likely to produce pluralist, loosely organized employers’ associations (e.g., the UK and the United States), whereas multiparty systems are likely to create highly coordinated employers’ associations: sectoral associations in federalist polities (e.g., Germany) and macrocorporatist associations in centralized polities (e.g., Denmark). This is because in two-party systems, political leaders of both parties can promote the interests of business through legislative channels, with no need to delegate authority to business associations. In multiparty systems, however, employers are often represented in business parties that are unlikely to win parliamentary majorities. This induces right-of-center leaders to delegate authority to centralized business associations outside the legislative arena, largely for political reasons. The meat of the book is in the thorough comparative historical analysis of Denmark, Germany, the UK, and the United States that illustrates this argument. The authors then seek to demonstrate (in Chap. 7) that the same logic also sustained these differences in employer organization throughout the late twentieth century. In support, they provide statistical evidence for the association between party systems and the degree of business organization.
The second half of the book (Chaps. 8–12) examines the feedback effects of business organization on employers’ preferences toward active labor market and social policies, and on income equality. In short, where the degree of business organization is high, the results are greater business support for egalitarian policies and higher income equality. Macrocorporatist economies, in particular, induce employers to favor encompassing policies, often in cooperation with labor and the state, due to i) the ability of employers to act collectively in shaping public policies and collective bargaining (e.g., skills development); and ii) the diffusion of social partnership norms through employers’ associations. In pluralist economies, in contrast, employers lack collective-action capacities and traditions of social partnership, resulting in lower business support for egalitarian policies and in higher income inequality. Sectoral coordination, they argue, results in dual labor markets and modest income inequality, with highly protected and well-paid insiders and less well-protected outsiders. Interviews with Danish and British firms provide striking evidence that reveal the microfoundations of employers’ preferences and how these preferences translate into socioeconomic outcomes.
The book advances our understanding of political economy in a number of ways. It fills existing gaps in the varieties of capitalism (VoC) framework about the political construction and origins of coordinated and liberal economies. By championing electoral politics in explaining the organization of business interests, it brings political processes back into an otherwise apolitical VoC framework. The analysis also reveals why there is significant, and often overlooked, variation in corporatist structures among coordinated economies. Concomitantly, existing research has often neglected the variation in business attitudes toward public policies, given the predominant focus on labor in explaining welfare state outcomes. What distinguishes this book from previous research is that it spells out the conditions under which employers are more or less likely to promote egalitarian policies and social partnership in pursuit of their own interest. Finally, the book is an excellent example of historical institutionalist research. It offers a robust research design that explores big questions about the origins and feedback effects of business organization, supported by rich, comparative, historical case studies, including extensive archival and interview research, as well as quantitative tools.
Martin and Swank leave open some areas for future research. First, they do not explore the variation in country size. This raises the question of whether parts of their argument can be explained by a “small state” logic, in which small open economies have an incentive to develop corporatist structures and egalitarian policies, in order to protect workers from global market risks. Denmark, a small state, and Germany, acting like one, fit into this category. The size and positioning of states in the global economy, including in the European Union, might therefore deserve more attention in explaining business organization and welfare state outcomes. Second, the authors make a strong case for the socioeconomic superiority of the macrocorporatist “Danish model.” At the same time, they criticize German-style sectoral corporatism by claiming that it would result in dual labor markets and failures of coordination, a system “ill-equipped to address these [postindustrial] pressures” (p. 209). While some scholars agree with this gloomy characterization of the German model, others admire it for producing continued economic success and low unemployment, as well as highly competitive industries that benefit from sectoral and, increasingly, firm-level coordination. Third, the authors often find statistical support for the power resources of labor. Organized labor is thus an essential part of the equation when it comes to explaining business organization and preferences, welfare state policies, and collective bargaining; but this is less developed in both theory and case studies.
Finally, some might take issue with the relatively strong forms of path dependence found in the book. Business preferences, for instance, remain somewhat static in the analysis, without much room for temporal variation within countries—moving either toward or away from social investments in response to political and economic challenges, such as shifting labor or party power. Similarly, the book promises an explanation for the reproduction of—and creeping changes in—business organization throughout the late twentieth century, exploring “the mechanisms by which institutions are reworked” (p. 22). Instead of developing these mechanisms, however, the authors reason that “[t]he structure of party competition affects the incentives of state actors today as it did a hundred years past [in that] political leaders seek social partners’ aide to manage the transition to postindustrial production” (p. 129). The authors could have done more to fill in the gaps to explain how exactly this occurred. As a result, the book is more persuasive in explaining cross-national variation in business organization and preferences than over-time resilience or change.
In conclusion, Martin and Swank favor coordinated structures over pluralist ones, which, in their view, improve income inequality and skills development in advanced economies. Although policymakers continue to preach austerity and structural reforms, they could learn a great deal from this important book—that social investment and partnership can foster competitiveness, productivity, and prosperity. However, given the specific institutional context from which macrocorporatism emerged, and by which it has been sustained, the book also provides answers as to why countries might have a hard time emulating the Danish model.
