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The Shifting Relationship between Postwar Capitalism and Democracy

February 26, 2021


  • Peter A. Hall, Krupp Foundation Professor of European Studies in the Department of Government and the Minda de Gunzburg Center for European Studies, Harvard University
  • Erik Jones, Director of European and Eurasian Studies, SAIS Europe

Hall began the discussion by introducing the three questions: ‘What is the balance of influence between Capitalism and Democracy?’ ‘How does this balance affect the distribution of wellbeing in capitalist democracies?’ and ‘How is this balance determined?’
To approach these questions, Hall began from classical theories of democracy. In these theories, some see democracy as a threat to capitalism, others see capitalism as threatening to democracy, and yet others see the two in a symbiotic relation to each other. However, Hall argued, all these approaches have an important limitation, namely that they treat capitalism and democracy as fixed sets of core institutions, even though important dimensions of their operations change over time. In order to develop a more historical analysis with categories that capture key changes in the operation of democracy and capitalism, Hall used the concepts of growth regimes and representation regimes.
Growth regimes refer to the ensemble of institutionalized practices central to the process whereby a country secures economic prosperity, are composed primarily of the complementary practices of two actors: firms, which oversee production, and governments, whose policies affect production. On the other hand, representation regimes determine whose voices are heard, as well as in what form and with how much force they are heard. Representation regimes operate via the electoral arena and the arena of producer group politics and change over time. The quality of representation is often said to be conditioned by cross-national variation in institutional arrangements, by the opinions of median voters or by the variation in the partisan composition of governments. However,
Hall argued that none of these conditions fully explain changes in the character of representation over long periods of time, since constitutional rules are often invariant over such periods, median voters’ accounts may not say enough about how these voters’ concerns change over time, and partisan alternation in governments may matter mainly in the short term. As an example of this, Hall pointed to European political parties which, over 75 years post-WWII, have tended to all move together to the left and to the right across the continent.
Hall explained these movements by pointing to major world events and to changes in the prevailing structure of political cleavages. In this context, three broad time periods are identifiable in post-war developed democracies: a 1945-1975 modernization era, a 1975-2000 liberalization era and a knowledge-based era since 2000. In each of these periods, the growth regime and representation regime shifts, thereby altering the balance between democracy and capitalism.
Hall concluded that while capitalism always influences public policy, democratic governments can also impose serious constraints on the operation of capitalism offsetting some of its most adverse effects. Whether they do so depends on the character of the prevailing representation regime, which in turn depends on the galvanizing force of economic events and the shifting structure of political cleavages. Therefore, the balance of influence between capitalism and democracy is not fixed.