From Catch-all Politics to Cartelisation: The Political Economy of the Cartel Party

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1 West European Politics, Vol. 28, No. 1, 33 60, January 2005 From Catch-all Politics to Cartelisation: The Political Economy of the Cartel Party MARK BLYTH and RICHARD S. KATZ The John Hopkins University, Baltimore, MD, USA ABSTRACT Adaptations to coordination problems endogenous to political parties have established the cartel party as the emerging equilibrium type in modern Western democracies. However, these factors alone are insufficient to maintain such an equilibrium given the threat of defection. That threat is mitigated by three factors: historical changes in party form, systemic changes in the global economy and changed ideas about governments. Together, these changes produce both a cartel of parties and the cartel party organisational form, without requiring overt conspiracy. These speculations are mapped onto actual experiences of the UK, the US and Sweden. The theory of the cartel party is advanced by emphasis on the cost of production of policies and the constriction of the policy-space over which parties compete. We also explain why a cartel of parties might be stable, notwithstanding the temptation to defection often attributed to cartels as multi-player prisoners dilemmas. The purpose of this article is to explain recent changes within the party organisations and party systems of advanced capitalist states from one common theoretical logic. The argument we present here is that over time a series of adaptations to coordination problems endogenous to political parties established the cartel party as the emerging equilibrium type of party in modern Western democracies. However, these endogenous factors are insufficient, in and of themselves, to maintain such an equilibrium, since the threat of defection, especially in multi-party systems, is ever present. We argue that such a threat is mitigated, however, by three factors: historical changes in party form, systemic changes in the global economy, and changed ideas about the appropriate role and function of governments. Taken together, these endogenous and exogenous changes combine to produce both a cartel of parties and a specific organisational form, the cartel party, without any overt conspiracy between the players. 1 Correspondence Address: Department of Political Science, The John Hopkins University, Baltimore, MD , USA ISSN Print/ Online # 2005 Taylor & Francis Ltd DOI: /

2 34 M. Blyth and Richard S. Katz The paper is divided into four parts. The first part places the cartel party in historical perspective by analysing the evolution of party forms as attempts to overcome a series of coordination problems. Building upon this discussion, the second part of the paper establishes the conditions for the formation and maintenance of such a party form and of a cartel of parties. The third part maps these theoretical speculations onto actual cases, specifically the UK, the US, and Sweden. The fourth and final part expands beyond the consideration of organisational form to ask the question, if this argument is plausible what does it mean for electoral competition? Our answer is twofold. First of all, we argue that electoral competition no longer occurs over which party can effect change to benefit its constituents, but rather centres on managerial competence, and precisely not trying to effect systemic change. Second, this analysis suggests a new way of viewing the recent return of minority, protest and anti-party-system parties. Such parties act as substitute suppliers of policy and are the only parties likely to attempt to break the established equilibrium since their identity is constructed in opposition to a cartel. Yet paradoxically, when they manage to break a cartel, they face strong imperative to act like cartel parties. This article aims to advance the theory of the cartel party in several respects. Supplementing the portrayal in earlier work of cartelisation as a response to a scarcity of the material resources that parties require to remain competitive (Katz and Mair 1995), in this paper we emphasise the cost of production of policies as the analogue to the products produced by firms in a conventional economic cartel. Also extending the earlier work that took public subventions as the primary indicator of cartelisation, in this paper we focus primarily on constriction of the policy-space over which parties compete. We also address the problem of defection directly, and explain why a cartel of parties might be stable, notwithstanding the temptation to defection often attributed to cartels as multi-player prisoner s dilemmas. The Evolution of Political Parties Why Parties? Internal, External, and Network Coordination Problems Modern political parties were invented to address three coordination problems in representative democracies. The first problem to arise was what we call the internal dilemma : the problem of coordination of action within assemblies of nominal equals. While this problem does not depend on the members of assemblies being elected or being regarded as representatives, its relevance in even the earliest parliaments served as a catalyst to the development of coordinative devices that soon were recognisable as parliamentary parties. 2 The second coordination problem was what we term the external dilemma : that of organising and coordinating large numbers of activists, both within a given geographic area and across space. Such collective action

3 From catch-all politics to cartelisation 35 dynamics beset all mass actions whether strikes or riots or spiritual revivals but with regard to political parties, such problems are particularly acute in relation to elections. The need to mobilise ever greater numbers to win elections created a new external coordination problem that served as a further spur to party development. Taken together, these internal and external coordination problems led, in turn, to a third, network, problem: that of connecting the simultaneously evolving parliamentary parties and their supporting coalition of extra-governmental political activists into a permanent and adaptive organisational form. As we demonstrate, each of these dilemmas promoted a particular organisational response, while each such response was itself vulnerable to another type of dilemma. As such, analysing the sequence dilemma response dilemma allows us to understand how each attempt to overcome these endemic problems gave rise to particular party forms, and, indeed, continues to do so today with the cartel party. Responding to the Internal Dilemma: The Elite Party The first step in the evolution of modern political parties was the elite or cadre party. Particularly at the constituency level, this organisational form was characterised by an essential fusion between the party on the ground and the party in public office, with the former being little more than the patron or personal supporters of the individual elected official (Duverger 1954: 63 71). Since the campaigns conducted by elite parties were primarily local exercises in the mobilisation of clienteles, there was little need or desire for central coordination. As the party was essentially a voluntary alliance of local elites, the challenge confronting national party leaders was to establish any sort of authority over their followers in parliament. This was a core element of the transition from monarchic to parliamentary government, with the attendant increase in the importance of a reliable parliamentary majority for the holders of ministerial office. Thus, the emergence of elite parties is best understood as the organisational response to an internal coordination problem facing leaders in this period. In the absence of an extended suffrage, the external dilemma was simply not so pressing and the elite form of party sufficed as a mode of organisation. From Elites to Classes: the Rise of External Problems The second step in the evolutionary chain was the emergence of the mass party, which arose precisely because of the increasing salience of external over internal coordination problems. If the elite party was the archetypal party of parliamentary origin held together by exchanges of influence or material rewards among its leaders, then the mass party was the archetypal party of extra-parliamentary origin. The stimuli for this new party form were the coordination problems that arose in mounting extra-parliamentary

4 36 M. Blyth and Richard S. Katz agitation for expansion of the suffrage (and for political and economic rights more generally) and then in election campaigning under mass suffrage. While the internal dilemma did not disappear, in that the maintenance of regular parliamentary support was still essential for a government s continuance in office, the advent of mass suffrage greatly increased the salience of the external dilemma: the extent and complexity of the organisation required for electoral success. The mass party was both a response and a further stimulus to the political activation of broad elements of society (especially the working class) that had been left outside of the ambit of the elite party. The mass party attempted to make up in collective actions for what it lacked in individually influential supporters, and this required overcoming the external dilemma the coordination of an extensive party on the ground. The mass party had three strategies for overcoming the external dilemma that had not really been faced by the elite party. First, it sought to solve the external coordination problem through the provision of a range of club goods and selective incentives. 3 Second, it sought to foster a sense of collective identity through a strategy of encapsulation. Third, it advanced a new conception of the proper nature and role of parties in representative democracy, a conception that once accepted further strengthened its own chances of success. In contrast to the elite party s claim to be a group that intends to promote the public interest upon some principle on which they are all agreed, the mass party represents only one segment of society, its classe garde e, in competition with other segments of society. This new form changed what was presented to the electorate, from a choice among individual candidates based on their relative claims of competence to a choice among parties based on their identification with particular segments of society. This organisational form proved to be far better suited to the new conditions of mass participation than its elite competitor and, as such, furthered the elite party s general demise as a party form by forcing those parties to adapt. In sum, in developing an organisational form to overcome the increasingly salient external coordination problem, the mass party changed the nature of elections themselves in such a way that it reinforced its position as the most evolutionarily adapted form. However, precisely because of this evolutionary advantage, once a mass party achieved a substantial presence in public office, a new problem arose for the mass party: the network problem. From Classes to Masses: the Rise of Network Problems In general terms, the mass party s solution to the problem of external coordination took two forms. The first was the reinforcement of corporate identity from the top to the bottom. Here the support of the mass party was constitutive of the member s identity within a well-delineated group, most likely driven or reinforced by the perception of opposition, or even persecution, from some other well defined group. The other solution was

5 From catch-all politics to cartelisation 37 policy, either in the form of support for particular political positions or in the form of actual delivery of public services (e.g., state provision of health care or public support of church schools) that are of particular value to the members of the party s clientele. 4 Pursuit of the second strategy, which was not possible until there was a substantial party in public office, requires the coordination of the party in public office with the party on the ground. The problem of network coordination thus stems directly from the very success of the mass party. Part of the mass party s solution to the network problem lies in its conception of parties in democratic governance. If party was the political arm of a particular social segment, then it followed that the party on the ground should control and direct the party in public office which is in effect its delegate. However, since the party congress (or equivalent body) cannot be in continuous session, it needs to elect an executive committee to act in its place. This executive then becomes the core of a central office that, though nominally subordinate to the party on the ground, in fact solves the coordination problem of networking leaders, members and constituents by effectively rising above all of them. Though providing an elegant solution to the network dilemma that the rise of the mass party engendered, over the long run this was paradoxically to prove its undoing as it laid the ground for its successor: the catch-all party. The Universal Church? The Growth of Catch-all Politics As Katz and Mair (1995: 12) suggest, the catch-all party was both an adaptive response by the elite parties to the mass parties electoral success and a response by the mass party to the persistence of network problems under the mass party form. For the elite party, this involved the acceptance of many of the elements of the mass party s understanding of democracy. In particular, catch-all politics meant adopting a form of party membership organised in branches and represented in a party congress, but not the substance of control of the party in public office by the membership organisation. 5 Moreover, the potential clientele groups for ex-elite parties were too small for an electoral strategy based on identity to be successful, and in general too well-off for provision of club goods to be a productive strategy. Thus, rather than marking a simple emulation, the shift from elite to catch-all party constituted the development of a qualitatively new party form that aimed at the development of a permanent networked party without giving up much, if anything, to the party on the ground. At the same time, the mass parties confronted a twofold problem of their own. On the one hand, the success of their efforts to expand state welfare provision had converted many of their club goods into general public entitlements, thus blurring many of the social boundaries vital to a politics of identity and segmentalism. On the other hand, their leaders in government tended to chafe under their subordinate position within the

6 38 M. Blyth and Richard S. Katz party hierarchy. The response was a movement towards catch-all politics, with its abandonment of appeals to core constituencies, its emphasis on the provision of public goods and its freeing of the party in public office from the control of the party on the ground. There were however limits to such a strategy in that by not appealing to core constituencies, the solidary effect of identity continued to decline. As a consequence, such parties needed to distribute goods ever more widely since the party had literally to catch-all in order to win. As party form converged on the catch-all model, each catch-all party sought to encompass an ever bigger coalition in the hope of stabilising its vote share in the face of diminishing returns to policy distributions. As such, catch-all parties became increasingly unstable, as network coordination problems arose once again, while they suffered diminishing returns to the provision of the goods that such parties relied upon. Given these dilemmas, a new party form emerged that solved the network dilemma in such a way that it did not depend upon an ever-expanding supply of public goods: the cartel party. To summarise, political parties developed in order to solve problems of coordination that are inherent in liberal democratic polities, namely internal, external and networking dilemmas. The problem confronted was determined by the environment of electoral competition in a given period, and as this changed, so did the prevalent party type. Some of these changes (e.g., industrialisation and growth) were largely exogenous. Other changes (e.g., expansion of the suffrage, assumption by the state of responsibility for economic management and social welfare) were endogenous to party politics and were often themselves part and parcel of party attempts to wrestle with their various coordination problems. These changes allowed for the development, persistence and success of specific party forms that were more advantageous under changed conditions, while these changes also required that the existing parties adapt, if they were not to be selected out by the new circumstances. Given this shift from elite to mass to catch-all, we hypothesise that the cartel party is merely the latest organisational response to the same set of problems. However, in order to understand why this new party form is qualitatively different than its forerunners a brief discussion of the political economy of cartels is essential. For while we do not wish to stretch the concept too far, nor to over-analogise the oligopolistic similarities of the market for votes and the market for goods, we do feel that for the concept of the cartel party to move beyond that of descriptive ideal type some discussion of the logic of cartels and the applicability of this to the political world is necessary. The Political Economy of the Cartel Party The basic purpose of a cartel is to maximise joint profits of oligopolistic firms through the restriction of competition. Firms are able to collude by

7 From catch-all politics to cartelisation 39 varying either prices or quantities or both. The cartel is, as Stigler (1964) put it, a joint sales agency. Being large enough that market price is not simply a structural fact that firms have to accept, such firms price decisions are strategically interdependent on one another s choices. That is, market price can be set by the firms themselves rather than being dictated by competition, so long as they cooperate. And therein lies the rub. While joint maximisation would maximise profits, such collusion has the character of a multi-person prisoner s dilemma in that while it may be objectively rational to cooperate, the dominant strategy in such a situation is to defect and go for market share at the other firms expense. However, realising this, all firms should then defect on the first round. Assuming that market demand is short-run elastic, cartels thus should be very difficult to get started, and very costly to maintain; and, indeed, experience shows that stable cartels have in fact been few and far between. 6 There is, however, a possible solution to such defection dynamics. Oligopolistic markets typically create Cournot Nash rather than competitive equilibria. Such equilibria are stable outcomes that result from each firm simultaneously choosing a production quantity in relation to other firms decisions. Given that such decisions take place in an environment of public knowledge of each player s cost structures, each firm effectively knows the market demand curve facing all firms. Dynamically, this means each firm takes any other firm s choice of output level as fixed, and then sets its own production quantities. The net effect of this is, however, not to create a cartel, at least initially, since it increases production by all firms to a point greater than that where joint maximisation would occur. Nonetheless, such behaviour opens up cartelistic possibilities. By announcing a price rise (or a quantity cut), one firm can act as price leader and signal to the others their own revised demand schedules. In such circumstances other firms can join in, thus limiting their own outputs and achieving higher profits than would be achieved by unilateral defection. Such a situation is a Nash equilibrium in that once such tacit restriction has taken place, no firm has an incentive to defect given the others choices. 7 The question we have to answer now is what any of this has to do with party politics? In order to understand why post-catch-all politics mimics cartel dynamics we need to find political analogues for firms and for quantities. First of all, if competitive party systems tend to have less than ten members with power usually being held by less than five out of the ten players, then it is hardly a stretch to see such a system as oligopolistic and parties as the equivalent of firms. 8 However, establishing this does not make it a cartel. To make this further claim we need to find analogues for quantities. If we assume that, economically speaking, quantities represent outputs, and that the outputs of parties in government are policies, then we can further assume that policies are the functional equivalent of quantities. If this follows, then the key question is how parties set quantities, that is, cartelise the market for votes through the fixing of the policies they produce. And, indeed, why would

8 40 M. Blyth and Richard S. Katz parties do this rather than compete? We argue that two key changes have occurred that have effectively turned parties from maximising competitors into risk averse colluders: the limits of catch-all politics, and the rhetoric and reality of globalisation. 9 In turn, these changes have themselves encouraged new adaptive strategies, including the deployment of a discourse of downsizing expectations and the externalisation of policy commitments that have together increasingly cartelised party systems and helped create cartel parties. 10 Why Cartelise? The Fiscal Limits of Catch-all Politics For illustration, assume a party system that is dominated by two catch-all parties and that each catch-all party has indeed attempted to maximise support through its expansion of public goods provisions. As noted above, if all such parties pursue the same strategy then voters will become increasingly indifferent to party choice. 11 If we further assume that voters would prefer more public goods to less, but also assume that there is a defined fiscal limit beyond which such provisions cannot be made without creating at least the perception of fiscal irresponsibility, then the catch-all strategy runs into a structural limit that may be both welfare decreasing and election losing. If this is the case then two consequences follow. First, the space for policy competition becomes essentially maxed-out. Given the perception of an impending fiscal crisis, states cannot squeeze any more resources out of their societies for the production of public goods without being seen to harm growth itself: the elixir of catch-all politics. As such, active policy competition, in terms of providing more and more public goods in order to overcome networking problems, comes to be seen as a less feasible strategy. Second, at the same time as reaching such limits (both perceived and real), as many states arguably did in the late 1970s and early 1980s, a new form of network problem arose that put another nail in the coffin of the catch-all party: members and constituencies actually became less relevant to the problem of governing. Specifically, at the same time as policy competition reached its limits, the technology of elections moved away from mass participation to media marketing (Butler and Ranney 1992). Organisations that could provide volunteer labour (e.g., unions) became less valuable than public relations expertise and the money to pay for it. Indicatively, estimated campaign expenditure for both the British Labour and Conservative parties more than tripled between 1964 and 1983, more than quadrupled for the Swedish Socialists between 1960 and 1976, roughly quadrupled for the Norwegian Labour Party between 1961 and 1981 (all in nominal terms, see Katz and Mair 1992). Thus, on the one hand, the costs of providing public goods began to exceed the capacity of states to provide, while, on the other hand, the costs of running electoral campaigns increased beyond the capacity and willingness of the party on the ground to provide. As such, catch-all politics

9 From catch-all politics to cartelisation 41 reached its limits as a strategy that would promote party success and stability. Why Cartelise? The Rhetoric and Reality of Globalisation Concomitant with these changes were the ideational and material changes associated with globalisation, that is the progressive disembedding of market transactions from regulation such that the role of the state and thus of party has diminished. For the sake of brevity we will highlight three aspects of globalisation that are of particular salience for our analysis of parties: first, increasing export dependence and flows of foreign direct investment (FDI) relative to domestic investment; second, an increasing inability to regulate the domestic political economy unilaterally due to open capital accounts; third, by becoming dependent upon such external sources of growth, states become subject to financial market beauty pageant dynamics, whereby they must appeal to market sentiment rather than rely upon growth as a function of their domestic market fundamentals (Keynes 1964: ). Taking the issue of openness first, it is a commonplace to state that since the 1970s the export dependence of advanced capitalist societies has increased dramatically. At one extreme, openness for the USA increased from per cent in 1970 to 21.9 per cent by More modestly, but still significantly, average European trade openness in the same period increased by around eight to ten percentage points across all states. 13 The salience of this observation for political parties strategies is twofold. If openness is growing and exports are becoming an increasingly important component of GDP, then the ability to hold domestic costs closer to world market prices becomes paramount. As such, parties ability to finance public goods provision through taxation declines (Rodrik 1997). Related to this is the issue of the greater mobility of FDI. As openness increases, capital mobility rises and FDI becomes a more important source of growth. As a result, the ability to practise differential taxation regimes, and thus fund welfarist policies, declines as states seek to encourage capital inflows and discourage outflows (Rodrik 1997). Any state still practising capital controls when its neighbour does not is effectively taxing their investment at a higher rate. In such an environment the incentive for firms is to avoid such taxation by moving beyond controls, while the incentive for the state is to deregulate first and catch the mobile capital rather than to be left as the rather expensive hold-out (Helleiner 1994). Given such tipping game dynamics, states as a group give up on capital controls (as practically all European states did during the 1980s and 1990s). The upshot of such a policy is that it exacerbates the well known Mundell Fleming problem (Mundell 1960). States with full convertibility (open capital markets) cannot have an independent monetary policy (the ability independently to determine the rate of interest) and stable exchange

10 42 M. Blyth and Richard S. Katz rates at the same time. Parties in deregulated and open states are further constrained in that while giving up controls signals credibility and may encourage capital inflows, it also makes fiscal expansion (and hence public goods production) all the more difficult as exit by capital is made ever more possible. 14 A further consequence of this is as much ideational as material. As states open up to finance, they become increasingly dependent upon market opinion as to the state of their economy rather than the state of the fundamentals per se (Keynes 1964: 156 8). In large part this is due to a shift in ideas that paralleled, but is not wholly related to, the material aspects of globalisation. In brief, catch-all parties were creatures of the Keynesian era. States were assumed to have primary responsibility for ensuring jobs and growth and were also assumed to be able to marshal fiscal instruments to those ends. Unfortunately for the practice of catch-all politics, in addition to the material changes noted above, a reformation in the way policy-makers and their economic advisors thought about the economy occurred over the same period. 15 In contrast to basing policy upon Keynesian models that assumed that people had no knowledge of the economic system and did not perceive any interrelationships between the (hypothesised) variables (Bleaney 1985: 142), policy became increasingly dominated by new theories such as rational expectations, which argued that people do indeed invest in being correct to the point that economic agents are assumed [to be] completely aware of the true structure of the economy, that is, the form of the equation and the size of the coefficients in the econometric model which govern it, and make full use of this in forming their expectations (Bleaney 1985: 143). The policy consequences of such an ideational shift are dramatic, for it argues that while we can expect individual market participants to make mistakes, systematic mistakes by markets are impossible because the structure of the market itself is seen as invariant and known to all agents. In such a world, catch-all parties and their attendant policies become counter-productive. For if they accept this logic, as governing left of centre parties increasingly did during the 1990s, then any intervention into the market, whether for the private interest of controlling their coalition or for the public interest of boosting the economy with the public good of growth, can only end in disaster. States, and by extension parties, should then abandon such strategies. Given such an unfriendly environment, catch-all parties engaged in three survival strategies: downsizing constituent expectations, externalising policy commitments, and separating themselves ever further from any defined constituency. The end result of this was to reform catch-all politics: or, more appropriately, to cartelise it. Cartelising the Party System: The Discourse of Downsizing Expectations In an environment where catch-all strategies were obviated, parties had to find a new set of strategies to survive. The first was to downsize voters

11 From catch-all politics to cartelisation 43 expectations. This occurred because all parties had an interest in reducing the policy commitments that had over-extended them in the first place. Regardless of their political complexion, none of them could satisfy traditional demands for ever-increasing public goods provision given the changed economic context. Once the limits of catch-all politics were reached and globalisation, or, perhaps better, ideas about globalisation, restructured the context in which states operated, party elites embraced these new ideas about the economy as a way of ratcheting down constituent expectations (Rosamond 2002, 2003; Rosamond and Hay 2002). In cartel terms, they were signalling other players that they were limiting quantities and encouraging joint maximisation. And, if other parties did the same, they could cartelise the market and get more profit (hold on to office) and security (minimal cost of electoral defeat) for less (in terms of policy commitments). How then does one ratchet down expectations? The first way, particularly apparent in the UK, the US and Sweden, was discursive. Catch-all parties of the left proclaimed their newly found devotion to the free market and the global economy, despite all its drawbacks for their traditional constituencies. They did this because they had discovered a third way or die neue Mitte or den enda va gens politik, which in effect said states should not produce the public goods they had in the past because the market could do it better. Whether the market could in fact do it better was a moot point. What was important was that the deployment of such a discursive strategy got states off the hook for the production of such goods in the first place. While parties of the right with all their traditional distrust of the state had never been too comfortable with the production of public goods on an ever-broadening basis and had simply jumped on the neo-liberal bandwagon for ideological reasons, parties of the nominal left needed a justification for doing the same thing. Thus, in order to survive in a post-catch-all environment the rhetoric of globalisation and various third ways were employed (Hay and Watson 1999; Hay 1997). Cartelising the Party System: The Externalisation of Policy Commitments If the answer to the problems facing the catch-all party was to compete over less, then such parties had to find a way to signal their resolve. The way to do this was through the creation of binding institutional fixes to the problem of policy quantity reduction, thus credibly committing to cartelisation of the political market as a whole (Wickham Jones 1995). The logic of central bank independence illustrates this nicely. According to the economic ideas developed to justify state rollback, politicians through their overproduction of public goods tended to mesh the electoral cycle to the business cycle in order to get re-elected (Nordhaus 1975; Hibbs 1977; for the classic rejoinder, see Barry 1985). As such, the equilibrium rate of domestic inflation was always going to be higher than what it would counterfactually be in the absence of such political interference. As the electoral cycle was a

12 44 M. Blyth and Richard S. Katz recurrent fact, although politicians may proclaim that they will reduce inflation once they are in office, it is held that they cannot actually do so in practice since their inflation preferences are said to be time inconsistent (Kykland and Prescott 1977; Persson 1988). Given this, politicians should not be given the instruments to reflate the economy in the first place. The best way of assuring this was to devolve monetary policy to unelected central bankers with long time horizons, since only such a group would have preferences that would produce low inflation and thus safeguard growth (Forder 1998; Posen 1998). The relevance of these policy externalisations and exercises in diminishing expectations is that these logics have been embraced by ex-catch-all parties across Europe and beyond as the optimal cross-party solution to economic governance and development. Again, such a move only makes sense as a part of a cartelisation strategy. By devolving policy to those who are not directly responsible to their electorate, parties are able institutionally to fix policy quantities and thus cartelise the market by reducing the policy space over which parties could conceivably compete. (A similar argument could be made for the EU, see e.g., Smith 1997.) Seen in this way, such institutional fixes are the equivalent of binding quotas on policy production. Having an independent central bank means that politicians are no longer responsible for either creating or managing a large number of economic outcomes, and such externalisation to independent institutions insulates politicians from voters preferences and effectively curtails the supply curve of policy, thus cartelising the party system. What really makes this stick, however, is what these combined changes do to the traditional relationships of parties and voters. Previously we noted how exogenous technological and other changes have transformed the business of elections. As such, the institutional changes wrought by globalisation are compounded by the fact that the network dilemma, whose solution was so critical for catch-all parties, has simply become less pressing. The result of this is to catalyse a third set of changes in the relationships between parties and voters in this new reduced policy space that leads not merely to the creation of a cartelised system (as we saw above) but to the creation of cartel parties themselves. Cartelising the Party: Principals, Agents, Voters The consequences of these market/institutional changes for the form of party itself is twofold. First, by institutionally truncating the supply curve for policy, parties are encouraged to maintain the status quo rather than promote change. Seen within this context, defection, even in the short run, would make no sense for a vote-maximising party as the competitive policy space has been reduced in such a way that policy commitments beyond what other parties were offering (given public knowledge of other parties outputs) would be literally incredible. Second, such a mutual ratcheting

13 From catch-all politics to cartelisation 45 down of expectations and policies by parties creates conditions of greater certainty over the other parties likely moves in the future and thus creates equilibrial stability without overt collusion by the players. By cartelising the system through institutional and discursive strategies of narrowing the policy space (limiting what is in fact demandable) and externalising commitments (truncating supply) these new conditions have increasingly facilitated the transformation of the catch-all party into a cartel party. After all, if electoral conditions have changed in such a way as to make the network dilemma less pressing, why bother with the network? Indeed, we argue that parties have begun this transformation by restructuring party funding and commitments away from their catch-all bases towards sources of support that would drastically reduce the costs both of losing elections and of not providing traditional goods to constituents. This has occurred precisely because a post-catch-all party operating in a cartelised policy space is uniquely placed to exploit its constituents using a reversal of traditional principal/agent (PA) problems. Traditionally, voters as principals are understood to hire politicians as agents to perform the tasks of governance for them, in line with their preferences, subject to re-election. Failure of this relationship is conventionally attributed to incomplete information between agents and principals, allowing agents to hide and rent-seek from their principals. Basically, parties can misrepresent their intentions and, once placed in power by their principals (voters), they (as agents) can act as they wish and exploit the informational asymmetries to their own advantage. The positing of a cartelised environment, where the policy space is reduced and parties have tacitly agreed not to compete over certain issue areas, suggests not simple failure, but a more profound reversal of this conventional PA relationship. 16 Given the declining relevance of the mass base, politicians (this time seen as principals) can effectively hire agents (voters) to vote for them at election time. 17 After the election, voters have no effective power over the politicians since their sources of funding, and thus re-election, lie away from traditional mass organisations, while their traditional institutions of voice, party membership organisations, have been reformed to the point of redundancy. If one adds these changes to the restriction of the supply curve for policy facing parties discussed above, then we find that these three interrelated strategies; downsizing constituent expectations, externalising policy commitments and separating the party from any defined constituency, have the net result of moving party organisation into a post-catch-all period where the most likely outcome will be an increasing cartelisation of the political marketplace and increasingly cartel-like organisational innovation by parties themselves. In sum, this argument suggests several empirical hypotheses concerning both internal party arrangements and inter-party relations and policy. First, we expect to see decreasing dependence on resources generated by the party on the ground in favour of funds raised by the central party organisation.

14 46 M. Blyth and Richard S. Katz Second, we expect to see organisational changes designed to free central party leaders from control by active elements of the party on the ground. 18 Third, we expect to see policy convergence among oligopolistic parties coming from two angles: from the deployment of policy rhetoric designed to downsize expectations and free oligopolistic parties from traditional policy responsibilities and constituencies, and from the increasing institutional externalisation of such commitments. 19 Fourth, we expect an ideology of managerial competence to replace the various ideologies of principle, even at the rhetorical level, as the basis for choice among parties. In the next section, we examine these four hypotheses with regard to three cases: the UK, the US and Sweden. The Cases Cartelisation in the United Kingdom Catch-all behaviour was evident in British politics by the 1960s with the general acceptance of the welfare state and Keynesian economics that came to be known as Butskillism and internally with the dominance of both major parties by the party in public office (McKenzie 1963). This development was short-circuited, however, in the late 1970s by both parties inability to deliver sufficient material benefits due to a variety of exogenous shocks (Blinder 1998). This culminated in the Conservatives defeat at the hands of the Miners Union in 1974 and Labour s fabled winter of discontent and defeat in the 1979 general election. These events led initially to the victory of the left within the Labour Party and further electoral disaster. Being faced with an unelectable opponent, the Conservative Party had no incentive to behave like an oligopolist and behaved as an policy monopolist, effectively closing Labour out of the market. Given this, the last 15 years of British party politics has been the story of the Labour Party s attempt to re-establish its position within a cartel, and in order to do so it had to create an oligopoly out of a monopoly. This involved several elements, all of which accord with our main thesis. By 1992, the Labour leader Neil Kinnock had re-established some control over the party manifesto and the party accepted many of the policies of the Thatcher government; although generally described as a move to the centre, it was rather more, given that Thatcher had moved the Conservative Party itself sharply to the right (see Blyth 1997). Internally, in 1993 the Labour Party adopted the one-man one-vote principle for choosing both parliamentary candidates and members of the national executive, thus eliminating the unions block vote and changing, in line with our theory, the PA relationship party leaders faced. Under Tony Blair, this process has gone even farther. New Labour has actively courted and successfully solicited funds from business groups, while emphasising that the trade unions no longer have any special relationship with the party. Moreover, the policy

15 From catch-all politics to cartelisation 47 role of the conference was reduced in favour of the more easily managed Policy Forum, and, as we have suggested should be the case, Blair has increasingly relied on ballots of ordinary members to outflank the delegates and activists (Jones et al. 2001: 247). Evidence of the strategy of downsizing expectations and thereby curtailing the policy space facing parties is famously indicated in the joint statement by Tony Blair and Gerhard Schro der entitled Europe: The Third Way/Die Neue Mitte. Instead of class- or catch-all-inspired analyses of social problems, the analysis rests upon supply-side ideas such as: corporate tax cuts raise profitability and strengthen the incentives to invest... It helps create a virtuous circle of growth ; the taxation of companies should be simplified and corporation tax rates cut ; companies must... not be gagged by rules and regulations, all of which signals a cartelisation of the space for possible policy competition. Similarly, if one looks to the 1997 Labour Party election manifesto, class is mentioned only once and that is to say that it is an obsolete term; in the Third Way/Neue Mitte statement, the word class does not appear at all. 20 Regardless of the truth or virtue of such policy statements, they are hardly what one traditionally would have associated with the European left. 21 However, what this does signal is the triumph of managerial competence over delivering goods to specific constituencies. In terms of actual policy we see further evidence of cartelisation through the strategy of the externalisation of policy commitments. In May 1997, the new Labour government gave the Bank of England effective independence to set interest rates, subject only to the advice of an eight-member Monetary Policy Committee appointed by the government. This major shedding of economic power/responsibility on the part of the government had not been even mentioned in the party s election manifesto, and was judged to have been unthinkable by previous governments of either party. 22 Meanwhile, the deepening of the European Union, in particular the commitment to join European Monetary Union (EMU) in the near future, represents a further externalisation of policy commitments as the government s failure to take responsibility for economic policy can be blamed on the European Central Bank or on Brussels. Similarly, the institution of a Scottish parliament and a directly elected executive mayor for London allow the central government to shift responsibility for outcomes in these arenas as well. Similar to New Labour s internal reforms, the former leader of the Conservative Party in the United Kingdom, William Hague, effectively bypassed the middle levels of the party by creating a centralised membership list and direct membership ballots. Hague also reformed other aspects of the party s organisation so as to increase central control while giving the appearance of membership consultation. Moreover, having experienced the rapid increase in the costs of media-oriented campaigning without a corresponding increase in income from individual and corporate donations (between them, about 90 per cent of central party income the balance coming from fees levied on constituency associations), there are at least

16 48 M. Blyth and Richard S. Katz suggestions that the party may reverse its long-standing opposition to state subventions. Given this, we can conclude that the UK party system has cartelised to the extent that two consequences follow. First, the majority of the (opposition) party in parliament at any given point, given such a lack of policy differentiation, stands less risk of failure. While one cannot rule out such factors as one party being seen as inherently unelectable for a variety of reasons, we would predict that such oligopolistic producers of policy do not drive each other out of business since cartelised policy demand is inelastic and policy-goods are near perfect substitutes. Second, such opposition parties are virtually guaranteed their chance to govern (with the same policies as the present incumbent) so long as they can effectively stay in the race hence the importance of securing state, and other non-accountable, subventions. Cartelisation in the United States The political parties of the United States were once famously described as two bottles on a shelf, one labelled milk and the other whisky but both empty. Given this, a cartel of sorts might seem always to have been in operation. However, though the degree of policy competition between the Democrats and the Republicans may be small in comparative perspective, real policy differences were manifest until relatively recently. 23 Indeed, cartel dynamics have only come about, as our theory would predict, over the last 20 or so years because of the abeyance of the network problem and the effects of globalisation albeit globalisation more as rhetoric than reality. Similar to the situation in the UK, the perceived limits of catch-all politics became apparent in the mid-1970s. Congress had historically tried to appease all groups with growth, and when growth slowed there seemed to be a price to be paid in terms of higher inflation and unemployment. When American catch-all politics seemed to reach its limits, both the state and citizen groups portrayed business interests as the villains of the piece (Blyth 2002: 132 5). In response, the Campaign Finance Reform Act of 1971 sought to limit private money in politics. However, there were exceptions to the Act, the most important of which was a provision that allowed solicitation of contributions to a separate segregated fund to be utilized for political purposes by a corporation or a labor organization (Clawson et al. 1992: 30). The original idea was that these exceptions would put business and labour on the same level playing field. However, Sun Oil challenged the interpretation of this exception by arguing in the courts that the act did not preclude business from soliciting funds from anyone, and that it contained no restrictions on the number of such funds a corporation could set up. Although any one such political action committee (PAC) was limited to a donation of $5,000, the act effectively ended all restrictions on corporate donations as the number of PACs could be multiplied

17 From catch-all politics to cartelisation 49 exponentially (Clawson et al. 1992: 32; Vogel 1989: ). In 1974 there were 89 corporate PACs that contributed $4.4 million to the 1974 campaigns, with Democrats and Republicans receiving almost equal shares. By 1976 the number of PACs had risen to 433, which together contributed a total of $10 million to the 1976 presidential election race. In 1972 labour PACs spent $8 million and corporate PACs spent $8.2 million. By 1978 corporate PACs spent $39 million in comparison to labour s $18.6 million (Edsall 1984: 131). What is of most significance, however, is how the distribution of funds changed over time, thus encouraging a cartel strategy among the Democrats. By October 1978 Democratic incumbents received only 29 per cent of available PAC money (Vogel 1989: 209). In the 1980 campaign Democratic challengers received less than 1.5 per cent of available PAC money (Clawson et al. 1992: 143). In the 1982 Senate races, Democratic challengers received 6.8 per cent of available PAC money whereas Republican challengers received 21.8 per cent (Edsall 1984: 133). These changes sent a clear signal to the Democrats that their traditional catch-all strategy was exhausted, and that if they were to remain a viable party then funds would have to be solicited from these new sources. These changes in sources of financing consequently altered the relationship among party leaders, voters and their traditional constituents in a manner similar to what we saw in the British case. Since traditional constituencies, particularly unions, were less important to the process of winning (or at least raising enough to win) they had to be effectively disempowered. The question was how? Similar to Labour s experience in the UK, the 1980s were a period of electoral disaster for the Democrats where each defeat was met by a narrowing of the policy space as the Democrats moved further to the right. In response to such defeats a variety of discursive strategies ranging from the need for an industrial or strategic trade policy were deployed by the Democrats as an alternative supply-side answer to the fiscal downsizing of the Republicans (Graham 1992). All of them failed. Realising that the only way to beat the Republican monopoly was to become a duopoly, and that this meant competing over the same policy space, the Clinton campaign discovered the global economy and further cartelised the system. Throughout the 1992 and 1996 presidential campaigns Clinton repeatedly invoked the image of the US as a large corporation competing in the global economy despite the fact that such a concept is economic nonsense, since the US in the 1990s was the least globalised economy in the developed world. 24 Despite having little evidence for making such a claim, Clinton repeatedly stressed that reducing the budget deficit was the sine qua non of better economic performance (Blyth 2002: 195). One might excuse these gaps between rhetoric and reality as simple electoral posturing. To do so, however, would be short-sighted since deploying such rhetorical strategies had two effects that further cartelised US politics.

18 50 M. Blyth and Richard S. Katz First of all, by deploying such rhetoric and policies, traditional constituencies expectations could be downsized as necessary sacrifices on the altar of global competitiveness. Trade policies opposed by traditional constituencies, such as The North American Free Trade Area (NAFTA) and the World Trade Organization (WTO) agreements, were passed by the Democrats. Second, traditional Democratic policy commitments on progressive taxation, non-means-tested welfare benefits and using the budget to balance the trade cycle could similarly be abandoned in the face of the new global economy and the crushing deficit. Clinton s ambitious Health Security proposal was dropped in part because it was seen to make American corporations globally uncompetitive. Similarly, Democratic tax reforms from 1992 to 2000 repeatedly raised consumption (and some income) taxes rather than capital taxes, thus converging to the Republican policy agenda under the rhetoric of the limits of globalisation. And to cap it all off, Clinton signed a de facto balanced budget amendment into law in 1997 while simultaneously ending welfare as we know it. The upshot of all of this was to create a party system where the supply curve of possible policy had been narrowed to such an extent that the 2000 election offered the voters a choice between practical idealism and compassionate conservatism a distinction without a difference. Consequently, congressional discussion of macroeconomic policy options differs only over the size, and not the merit, of tax cuts, while the actual policies of the two parties, except for the single issues of abortion and school prayer, are now practically indistinguishable. 25 Again, we see a situation similar to what occurred in the UK. With the two parties engaged in non-competition over the same limited policy space, the choice facing voters is over nearperfect substitutes with inelastic demand produced by a duopoly. Both parties, especially the Democrats, have insulated themselves from demands from their core supporters by producing policies that enable them both to stay in power, despite the economic outcomes that are produced. 26 In sum, then, the US party system also shows evidence of cartelisation. The dependence of both parties on traditional sources of support has decreased, policy convergence, expectation reduction and policy externalisation have all occurred, and, finally, a common discourse of competence has replaced any notion of real policy alternatives. All of which suggests the emergence of a cartel. Cases: Cartelisation in Sweden In contrast to the deflationary policies enacted by catch-all parties in the UK and the US in the late 1970s and early 1980s, the Swedish Social Democrats (SAP) attempted a reflationary strategy, also called the third way. Sweden s original third way was effectively a large devaluation aimed at giving Sweden a one-time terms of trade boost in exports. In this regard it was rather successful, with Swedish economic performance throughout the

19 From catch-all politics to cartelisation 51 early to mid-1980s being far superior in terms of employment and output to those of the UK and the US (Bosworth and Rivlin 1985). In fact, there are grounds for claiming it was almost too successful insofar as it actually encouraged import inflation and an economic overheating in the mid to late 1980s (Martin 1996). In response to these developments, and similar to what we saw in the US case, Swedish business groups inadvertently promoted a cartelisation of the Swedish party system. Still hurting after the so-called Wage Earners Funds debacle in the mid- 1970s, where the Swedish state and the blue-collar union confederation (LO) attempted a leveraged buy-out of Swedish capital with their own funds, Swedish business went on an ideological counter-offensive (Steinmo 1988; Pestoff 1991). The Swedish Employers Federation (SAF) spent heavily on reinvigorating pro-market think-tanks such as SNS and Timbro, and influencing the public debate through lavish campaigns (Blyth 2002: ). Simultaneously, the Swedish economics profession underwent the same neo-classical reformation that had already occurred in the US and the UK (Blyth 2002: ). The upshot was the transformation of the ideational context within which policy was made, particularly financial policy. The Swedish finance ministry of the mid to late 1980s was an important receptacle for these new ideas about the costs of welfare institutions on growth, the need for competitiveness in the new global economy, and the costs of high taxation and capital controls. Indeed, tax reform and financial deregulation became a crusade within the SAP s finance ministry (Blyth 2002: 223 4). Unfortunately, the tax reform enacted was under-funded and financial deregulation took place with external capital controls in place. Taken together this merely succeeded in creating a real estate bubble that, when it burst, increased unemployment to 12 per cent its highest level since the 1930s. Unsurprisingly, the SAP lost the election and the bourgeois block came to power for the first time in 40 years. Given the influence of these new ideas on both the SAP and the newly empowered bourgeois parties, the Conservatives engineered a deflation after the real estate bubble burst that turned the deflation into a collapse of economic activity (Blyth 2002: 225 7). However, rather than capitalising on this error, the SAP took it as evidence that, in the words of the head of the Swedish Employers Federation, after a long illness, the Swedish Model is dead and they too sought to reform catch-all politics (Ulf Laurin, quoted in SAF-Tidningen, 16 Feb. 1990: 11, translated and quoted in Pestoff 1991: 160). Our four hypotheses the deployment of the discourse of downsizing, the externalisation of policy commitments, the truncation of the policy supply curve, and the cartelisation of the system receive partial confirmation in the Swedish case. Partial in the sense that since the late 1980s the first three have occurred but, surprisingly, the fourth has not followed. The reasons for this tell us a great deal about the limits of cartelised systems. As noted above, the discourse of downsizing has been a recurrent feature of Swedish public debate since the early 1980s, so much so that by the 1998

20 52 M. Blyth and Richard S. Katz elections both major parties policy proposals had converged to the extent that neo-liberal restructuring was universally in while the defence of the welfare state was very much out. In terms of policy, both parties targeted inflation fighting over employment creation. Sick-pay and other welfare benefits were reduced, and a host of other neo-liberal policy reforms were being considered by both the major parties. Moreover, policy externalisation has proceeded apace. Sweden joined the EU in the early 1990s in order, as the then Conservative prime minister put it, to make tax cuts (and hence welfare reductions) more or less inevitable (Carl Bildt, quoted in Kurzer 1993). Similarly, the Swedish central bank was made independent in the same period and the traditionally close relationship between SAP and LO has become increasingly distant during the 1990s. Comparatively, we see the same dynamics in Sweden as we saw in the US and the UK. As the catch-all strategy ran into trouble (or at least was perceived or portrayed to have run into trouble) parties shorted their policy positions and externalised their commitments. Overall, both parties, but especially the SAP, attempted to drop their core constituencies and truncate the policy supply curve such that, in an echo of Thatcher s rhetoric of there is no alternative, the Bildt government could declare Den enda va gens politik (the only way policy) and get support from the SAP for it. However, although the major parties behaved like cartel parties, they did not succeed in cartelising the system because of the one factor that limits the success of all cartels: the availability of substitutes. 27 Despite the SAP and the Conservatives insisting that there was no other way, and that policy convergence to a neo-liberal agenda of diminished expectations and reduced commitments was the only choice on the menu, the Swedish public forgot to listen. 28 The presentation of a cartelised set of policies by the two major parties in the 1998 elections resulted in a drop of support for the governing SAP from 45.4 per cent of the vote in 1994 to 36.5 per cent. However, this was not translated into support for the bourgeois parties as their share of the vote also plummeted, thus allowing the SAP to remain in office as a minority government, but only with the support of the Left Party which gained 5.8 per cent over In sum, cartelisation reached its limits in that despite both sides cartelised policy agendas, the SAP was forced by a popular demand for restoration of the welfare state to promise more money for health care and social services. As the New York Times noted, the most repeated claim in this election was not the dynamic pledge to bring about change common to campaigns elsewhere in Europe but a stolid promise to restore what was (Hoge 1998). Substitutes, in the form of the Greens and the former Communists allowed the Swedish public to desert the cartel and signal that while there may be only one choice on the menu, they may be prepared to eat elsewhere, thus exposing the limits of any cartelisation strategy. Yet this is not to say that such cartels necessarily become unstable because of the availability of substitutes. In the Austrian case, for example, the

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