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In Pursuit of Prosperity:
The Politics of Economic Modernization in Post-War France and Beyond
Charles R. Hankla
Associate Professor
Department of Political Science
Georgia State University
Atlanta, GA 30302-4069 USA
1-404-413-6169
[email protected]
Website: http://www2.gsu.edu/~wwwpol/2756.html
Visiting Scholar
Sciences Po Lille and CERAP (CNRS), France
33-(0)9-52-29-67-75
Abstract
In this project, I seek to explain both the form and impact of economic modernization policy
using a new political economy framework. Specifically, I focus on three important characteristics of
countries – the economic preferences of their governments and interest groups, the interest representation
of their farmers, businesses and workers, and the relative centralization of their political institutions. I
contend that, when a country’s political institutions are centralized and its farm, business, or labor
interests are decentralized, the preferences of the government will largely determine policy. By contrast,
when a centralized state faces centralized interest representation, economic policy-making will broadly
reflect the corporatist model, with the interests of the government tempered though negotiations with
organized groups. In a third case, where a country’s political institutions are decentralized but its interest
representation is centralized, policy outcomes will reflect only the negotiated preferences of the
centralized interest groups. Finally, when both political institutions and interest organizations are
decentralized, policy-making will generally embody the pluralist model, with disparate state and private
interests setting policy within a variety of separate issue areas. Moreover, I argue that government will be
most successful in promoting economic modernization when its level of centralization is aligned with that
of interest groups. Cooperation between the state and interest groups, rather than dominance by one or
the other, is critical for effective economic management.
I test my contentions with an examination of economic policy outcomes in France during the
period 1945-68, my dependent variable. France is an excellent laboratory for evaluating my framework
because, by moving from the 4th to the 5th Republics and from agriculture to industry, I am able to
examine all possible combinations of my independent variables. In addition, to ensure the broader
applicability of my arguments, I also include a briefer application to the case of post-independence India
as well as a cross-national quantitative analysis.
My project moves beyond existing research by combining preferences, interest groups, and
political institutions into a single theoretical framework. It also speaks to prior research on both
corporatism and the developmental state, but emphasizes that policy-making styles are not fixed
characteristics of countries but can vary both across time and, critically, across sectors of the economy. It
may also prove useful to policy-makers in thinking about the best ways for states to promote economic
growth and social stability, a question that has been on the minds of many since the financial crisis.
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Chapter 1: Building the Modern Economy
The pursuit of national prosperity is nothing new. States have played an active role in
promoting economic modernization at least since the upheavals of the industrial revolution. This
state engagement reached a new urgency after the Second World War, when reconstruction and
decolonization forced modernization onto the top of the political agenda nearly everywhere in
the world. In Europe, many leaders saw an opportunity in the war’s destruction to create modern
economies and prosperous societies freed from the bonds of the past. In the newly independent
states, the drive for rapid economic transformation was felt even more acutely. Inspirational
leaders such as Nehru in India and, a decade later, Nkrumah in Ghana promised to liberate their
countries from the economic subservience of colonialism and carry them into an industrialized
future.
While ideas about modernity and the role of government have evolved since that heady
time, the notion that national authorities must take action to ensure the economic prosperity of
their peoples has remained a fixture of political discourse. This is as true today as it was fifty or
one hundred years ago; even a cursory glance at the rhetoric and policies of many modern states
reveals a preoccupation with how government can transform economic outcomes.
Despite this continuity, few studies of economic modernization consider anything but the
very recent past. In addition, the near-universal focus on the “developing world” as a distinct
entity means that the experiences of industrialized states have rarely been brought to bear on the
economic development issues of today.1 This book leverages the past experiences of one
industrialized modernizer – France just after the Second World War – to improve our
understanding of modernization policy more generally. The experiences of France during this
1
The classic study by Gerschenkron (1962) is a notable exception.
2
period are particularly relevant to the many industrialized modernizers of today, namely those
middle-income countries that have achieved a certain level of economic development but that are
seeking to upgrade further their productive capacity.
What, then, is the meaning of economic modernization? I adopt a broad definition that
encompasses a fairly wide variety of economic outcomes. For me, modernization (which I will
also refer to as transformation) is the process of upgrading a country’s productive capacity.
Successful modernization, therefore, involves the enhancement of national productivity through
the development of human, industrial, and agricultural capital. This enhancement, in turn, results
in the creation of higher value-added goods and in the achievement of higher aggregate national
income. My particular interest here is in the efforts of states to promote this modernization
through specific constellations of national policy.
When are modernization policies successful and when do they fail? And, at a time when
so many states are committed to economic transformation and when so many experts are ready to
provide technical advice on how to do it, why are development outcomes so mixed? Drawing on
the experiences of postwar France and, to a lesser extent, post-independence India, I develop a
new theory that seeks to explain both the form and success of modernization policy. This new
theory considers the preferences and the organization of states and interest groups in an
interactive model. Its key insight, to be explained in more detail below, is that the most effective
modernization programs are crafted and implemented with the cooperation of both state and
private interests. This cooperation is best achieved when the state and interest groups are
characterized by a similar degree of organizational centralization. What matters most critically
for economic outcomes, then, is not fundamental characteristics of states such as geography,
though these do set the circumstances under which states must operate. Nor is it transient factors
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such as choosing the “right policies”, which in any case can vary depending on national
circumstances. What matters most in the success of modernization policy is instead the right
process of policy development and implementation. Even this process is not a fixed
characteristic of countries, but rather can vary across sectors of the economy and across
relatively short periods of time. Getting this process right improves the likelihood that countries
will development and implement modernization policies that fit their circumstances and needs,
policies that can transform the material future for their citizens.
Explaining the Success of Economic Modernization: Past Approaches
Given the importance of economic modernization, with its impact on the lives of millions
and on the basic contours of the international system, it is not surprising that many scholars have
taken a stab at explaining it. Some researchers have found the wellsprings of development in
factors outside the control of states. These include such fundamental and slow-changing national
characteristics as culture, geography, and placement within the international system. Indeed, in
recent years there has been an explosion of work asking basic questions about the origins of
global inequality. Perhaps the most well-known is Jared Diamond’s popular 1997 book Guns,
Germs, and Steel, in which he argues that the availability of animals and plants for domestication
in Eurasia, as well as the supercontinent’s east-west axis, contributed to its higher level of
development. On a smaller scale, Faye et al. (2004) has argued that landlocked countries, which
are quite common in Africa, face significant development challenges due to their lack of access
to world markets. And Bloom and Sachs (1998), among many others, have found that the
greater disease burden of many tropical countries has impeded their economic modernization.
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On the question of culture and development, the classic work is of course Weber’s The
Protestant Ethic and the Spirit of Capitalism, which linked the protestant idea of “the calling”
with the capitalist accumulation of wealth. More recently, scholars such as Clark (2007) have
drawn a link between the cultural characteristics of Europeans and the economic dominance of
the West since the Industrial Revolution.
Other researchers focusing on the underlying circumstances of countries have attributed
global economic inequality to international or systemic factors. The international and regional
circumstances in which states find themselves, these scholars argue, may well limit or expand
their development options. One of the key questions here -- whether the economic globalization
that characterizes the modern international system benefits modernizing countries or impedes
their economic transformation -- remains hotly debated among political economists. Some
answer the question with an unequivocal “yes” or “no”, while others assert that the answer lies
somewhere in the middle. The most famous “no” undoubtedly comes from dependency theory
(e.g. Cardoso and Faletto 1979), which links underdevelopment in the “periphery” to
discriminatory economic policies in the “core”. Other scholars have attested to the development
benefits of international trade and investment (e.g. Krueger 1998), seeing globalization as
providing valuable opportunities for states to move up the value chain. A third group, concerned
mostly with understanding the impact of foreign direct investment on development, has adopted
a more nuanced response, seeing different sorts of FDI as having different types of impacts on
the modernization of recipient states (e.g. Moran, Graham, and Blomström 2005). Other
important strands of the literature attribute economic success or failure to the structure and
quantity of foreign aid (e.g. Sachs 2006) or to the presence of civil war or state collapse in a
country or its neighbors (e.g. Collier 2007).
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Do the underlying circumstances of countries leave any room for state or private sector
action in promoting economic modernization, or are outcomes predetermined by these
constraints? There is no question that any explanation of growth must consider fundamental
distinctions of history and geography. The rapid modernization of the Asian tigers is all the
more extraordinary given their lack of an industrial heritage, while the solid postwar
performance of Germany or France may seem less surprising. That said, it is reasonable to ask
whether such relatively fixed characteristics can explain the rapidly transforming economic
landscape of the last 200 years. And one might wonder whether culture can be defined
independently of the political and economic institutions that directly impact growth. It seems
equally reasonable to suspect that economic and political transformation informs cultural
characteristics as the other way around (see Acemoglu and Robinson 2012).
The best way to understand these fundamental characteristics, then, is to see them as
constraints on the range of modernization policy options available to states. In the large number
of cases, these constraints will structure the modernization policies that states can reasonably
choose, and they will undoubtedly make economic transformation more difficult in some
contexts than in other. The best modernization strategy will be different for a landlocked country
with little existing industry versus a middle-income country with excellent ports. All the same,
the underlying constraints facing states will rarely determine economic outcomes in any real
sense. Excepting cases of widespread civil violence or state failure, modernization policy
options are available to states that can improve their economic trajectories significantly. The
question, of course, is how these policies can best be developed and implemented.
Setting aside for the moment geographic, cultural, and international factors, by far the
most common focus of modernization research has been on the specific economic policies of
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states. Scholars in this school of thought take the opposite position from their counterparts
discussed above; the key to development lies not in the basic circumstances of states but in the
relatively transient adoption of “correct” economic policies. For many (but not all) researchers
in this school, the correct policies are, in their essence, fixed and unchanging regardless of a
country’s existing circumstances. The key challenge of development, then, is to convince
uninformed or irresponsible governments to take the measures necessary to transform their
economies. In other words, the challenge of modernization is a challenge of “political will”.
In this school of thought, one finds the familiar debates between advocates of the free
market, advocates of the command economy (now quite rare), and supporters of various stripes
of mixed economies. The literature here is vast, and its impact on development policy has been
even more striking. In the immediate postwar era, most scholars backed the idea of state
involvement in the development process, and the policies of the newly-formed international
financial institutions and bilateral aid agencies reflected this consensus. With the economic
crises of the 1970s and disappointment in the growth trajectory of many dirigiste states in the
developing world, the pendulum swung to a more laissez-faire conception of the state’s role,
something embodied most famously in the “Washington Consensus”. The global financial crisis
and the recent success of China, hardly a paragon of free-market liberalism, may well signal a
new shift in the economic policy debate.
Whatever the case, it is impossible to deny that economic policies matter for economic
outcomes, and scholars and practitioners will no doubt continue to have lively debates about
what policies developing countries should pursue (for recent popular examples, see Easterly
2002, Sachs 2006). Arguments over economic policy, however, beg the broader political
questions. Why do countries choose the economic policies that they do? And might the same
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formal policies work better in some national contexts than in others? Indeed, are all economic
policy choices available to all countries, or does a country’s institutional and political context
circumscribe its options?
A growing literature takes these questions seriously and advances the notion that
variation in ideology and institutions, both political and economic, underlies differences in
economic trajectory. From this point of view, the causes of growth are to be found in a wide
variety of factors, including the ideology of governments and their democratic openness, the
existence of a “developmental state” devoted to growth and able to work in concert with the
private sector, and the presence of more basic institutions that ensure private property and the
enforcement of contracts.2 In this book, I develop a theory that falls within this broad tradition,
but I take it a step further. I do this by bringing political institutions, interest groups, and the
preferences of state and private actors into the same model, specifying when each should matter
in the formation of modernization policy. Moreover, my purpose is not only to explain policy
outcomes themselves, but also to propose an original argument for when these policies will
produce stagnation and when they will set a country on a trajectory towards economic
modernization.
Preferences, Institutions, and Modernization
My goal in this book is to develop a new theory that will improve our understanding of
what separates the success stories of economic modernization from the failures. An obvious first
step down this path is to note my assumptions and highlight the cases to which my argument
applies. Because I am interested in the form and success of modernization policy, I am
2
Rodrik (2007) for example argues that a wide variety of country-specific economic policies can produce positive
outcomes as long as they are in keeping with the fundamental principles of neo-classical economics.
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concerned only with those countries that can be said to have developed and implemented such a
policy in one of its myriad forms. This category evidently includes a large number of countries
in the world today, but excludes failed or purely klepocratic states. It also, at least in theory,
excludes countries pursuing purely laissez faire economic policies or policies oriented only at
maintaining the status quo, but there are few such cases in existence.
I build my theory around a close examination of domestic politics. Specifically, I focus
on three important characteristics of countries – the economic preferences of governments and
interest groups, the centralization of business, labor, and agrarian representation, and the
centralization of political institutions. For my purposes, centralization means that a relatively
small group of leaders dominates an institution. Political centralization can take many forms in a
democracy; for example, a state is centralized when a powerful executive controls most of the
levers of policy or when a single disciplined party dominates the legislature. Likewise, an
interest group is centralized when its executive is able to determine its bargaining position and
impose that position on the membership, or when its rank-and-file are so united on an issue that
they act as one. I do not consider state dominated interest groups, which are especially common
in autocratic systems, to be centralized because they do not represent the independent
preferences of private actors. Instead, I classify systems with state dominated interest groups, or
with no interest groups at all, as characterized by highly decentralized private interests. For this
book, I take both centralization and actor preferences as exogenous and do not seek to explain
them. I provide more detail on the measurement of these concepts in my empirical chapters.
How do institutions and preferences interact to produce economic policy? I contend that,
when a country’s political institutions are centralized and its business, labor, and farm interests
are decentralized, the economic preferences of the governing party or elites will largely
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determine state policy. As discussed below, prior research has found that political centralization
tends to insulate policy-makers from interest group power. This is because more centralized
political institutions provide fewer “access points” through which interest groups can influence
policy (Ehrlich 2011). When policy is controlled by a small number of individuals at the center
of power, changing that policy will be more challenging for private sector interests than when
decisions result from a more decentralized process. The greater insulation of a centralized state,
combined with a decentralized and unorganized structure of interest group power, will provide
governments with maximum freedom to carry out their economic policies. Under such
conditions, state authorities are unlikely to face coordinated opposition to their decisions and will
be in a better position to play one private sector group against another. A state dominated
economic policy will be the outcome.
By contrast, when a country’s political institutions are centralized and its business, farm,
and / or labor representation is as well, state officials will have to consider the preferences of
organized interest. The centralized political institutions will, however, provide political leaders
with a modicum of insulation, allowing them some room to pursue their preferred policies. Put
differently, interest groups will have difficulty influencing the centralized policy process on the
front end, but, by the same token, political leaders will need to consider the possible response of
private interests to their enunciated policies. Under these conditions, economic policy will be
corporatist in nature, with outcomes determined by bargaining among representatives of the state
and the peak-level interest groups. Both state and interest group leaders will begin the
bargaining process with internally formulated preferences, but also with an understanding that
coordination will be required for effective policy. And, in keeping with the corporatist mold of
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policy formation, only a small number of influential actors will be given a seat at the table when
that coordination takes place.
In a third case, where a country’s political institutions are decentralized but its interest
representation is centralized, government officials will have little opportunity to resist the power
of organized business, labor, or agriculture. These interest groups will have the ability to inject
themselves into the policy formation process itself by lobbying legislators, ministers,
bureaucrats, and other influential state actors. And, once the policy is made, they will have the
power to threaten coordinated non-cooperation if the government’s decision does not accord with
their desires. Consequently, economic policy outcomes will reflect the preferences of these
centralized interest groups, and the state’s preferences will be effectively captured by organized
social interests.
In the final case, when both political institutions and interest organizations are
decentralized, policy-making will embody the pluralist model most closely, with smaller interest
groups lobbying multiple different state actors to affect policy. State leaders will be heavily
constrained by these interest groups, but will have some ability to build different winning
coalitions to maintain office. Policy will reflect the interests of these state-society coalition
members. For example, business associations may fracture by sector of the economy and,
likewise, different state agencies may be responsible for economic policy-making in different
industries. In this scenario, the ultimate results would be state-private sector coordination at the
sectoral rather than national level, with different actors involved in coordinating different
elements of economic policy. Such a process would be open and decentralized, with important
roles to be played by different components of government and the private sector.
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In which of these four cases is state intervention most likely to be effective in promoting
economic modernization? Making such a prediction is perilous, as economic upgrading is likely
to depend on a wide variety of factors, many of them outside the control of governments and
interest groups. That said, my theory does point to some preliminary expectations. In general, I
argue that government will be most successful in promoting economic modernization when its
level of centralization is aligned with that of interest groups. For my purposes, success is defined
with a counterfactual: a successful modernization program is one that produces better economic
outcomes (measured most directly by change in national income) than the status quo policy.
Obviously, measuring success is fraught with myriad complications, and I will return to this
issue in the empirical chapters which follow.
I argue, then, that centralized governments cooperating with centralized business, labor,
and agricultural interests in a corporatist framework, along with decentralized governments
cooperating with decentralized business, labor, and agriculture interests in a pluralist framework,
will be in a good position to shepherd the economy. By contrast, government dominated and
interest group dominated economic systems will be less successful in promoting upgrading. The
logic is that cooperation between the state and interest groups is critical for economic
management. When institutions are such that either side can effectively ignore the preferences
of the other, the quality of policy will suffer.
In state-dominated systems, for example, we would expect the linkages between
government agencies and interest groups to be weaker, something that is likely to impair the
development of realistic policies (see Evans 1995). Even when these links are well developed,
the absence of a coordinated interest group preference may also intrude on the development of an
effective policy. A dominant state must still understand the needs of the private sector to
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construct effective modernization policy, and when these private actors are not able to speak
with a single voice, this task is complicated considerably.
In the reverse case, where interest groups are dominant, their overwhelming power can
lead to redistributional policies that impair competitiveness. It is always easier for private actors
to engage in rent-seeking than to compete on world markets. When these actors dominate the
policy-making process at the expense of the state, they are more likely to demand subsidies,
trade protection, and other benefits than the more challenging policies that can contribute to
long-run growth. As theorists of the developmental state have pointed out, strong states with an
interest in the aggregate welfare of the country are more likely to develop and implement such
policies (see Johnson 1982, Wade 2003). To summarize, corporatist and pluralist systems will
make economic policy in very different ways, but the outcomes will reflect a broader level of
social and political buy-in than policies produced in state or interest dominated countries.
What are the implications of these arguments for the oft debated impact of regime type
on economic development? While I do not attempt to draw a direct link between democracy and
the success of economic modernization policies, my theory broadly points to the potential
benefits of democratic systems of government. To the extent that autocracies are more likely to
be centralized politically and to have decentralized interest groups, they would be at a
disadvantage in crafting economic policy. Of course, many democracies also suffer from a
misalignment in the centralization of state and private actors which could likewise impair their
economic performance.
As I will discuss in more detail below, the book deals with two cases – postwar France
and, secondarily, post-independence India – that have experienced a sharp break with the past. I
examine these cases not because the pursuit of economic modernization requires such a break,
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but because most countries that have dedicated themselves fully to economic change have done
so following some internal or external political shock. Moreover, if Olson (1982) is correct, the
introduction of new modernization policies may only be possible after a major shock has washed
away many of the institutional accretions of the past. Countries building from the ground up
have fewer status quo actors standing it their way. It thus makes sense to examine countries
seeking to transform their economies after some watershed event in their histories because the
hypothesized relationships will be in clearer relief.
Readers will notice immediately that my theory ascribes a central role in the content and
success of modernization policy to the state. Some may question my argument on its very basic
level by pointing to a nation’s economic and social fundamentals (education level, capital
formation, etc.) as the source of its success or failure. I recognize here the importance of such
factors, and I control for them by comparing policies and outcomes within the same countries but
across time and sector. Others, more wedded to purely market solutions, will object that state
intervention in economic affairs leads inevitably to disaster. I never deny that state intervention
can lead to disaster, but I follow a large number of political economists in asserting that states
can also play a key role in promoting industrial upgrading and modernization. After all, states
perform a variety of critical economic functions that are well recognized by neoclassical
economics. These include providing a wide variety of public goods, enforcing contracts,
protecting property rights, ensuring the provision of market related information, and the like.
Perhaps more controversially, many scholars have argued that states can also play a role in
encouraging economic modernization by helping to overcome the collective action problems
inherent in upgrading (e.g. Waldner 1999).
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Ultimately, my purpose here is to understand the politics behind state policies and their
success, a goal that I pursue by exploring how the state and private actors interact. As noted
above, I do not advocate any single strategy for economic modernization, and indeed one
implication of my theory is that appropriate strategies will need to be hammered out by
representatives of the state and private sector in each country. I am interested only in explaining
the policy that is made and in trying to understand the political process that is most likely to
achieve an effective modernization strategy. I hope that, by the end, skeptics will be convinced
that states can facilitate as well as impede economic progress. In the next section, I turn to a
discussion of my strategy for testing this theory with the case of postwar France.
Economic Modernization in Postwar France
France emerged from the Second World War with its economy and infrastructure
devastated. Nearly two million buildings had been damaged, extensive areas of farmland had
been rendered unusable, and both train and ship transport was at a virtual standstill (Eichengreen
2007). But the country’s technocratic elite also saw in the destruction an opportunity to set
France on a path towards economic modernization that had eluded it for decades.
As a consequence, the first twenty-five years after the war gave birth to French economic
policy as we know it today. Those years began with a turn to large-scale indicative planning and
dirigisme in an effort to reconstruct the French economy. The post-war period also saw a
dramatic expansion of the French welfare state and an unprecedented growth in the public
sector’s social role. And, perhaps anomalously, France played a major role during those years in
creating the European Community, an organization that, at least on the face of it, did not seem to
be in keeping with the country’s state capitalist orientation.
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French leaders adopted these policies as part of a broad economic modernization strategy,
pursued at a time when the dangers of permanent stagnation loomed in the aftermath of
occupation and war. These policies continue to structure the economic debate in France today,
whether over welfare benefit cuts, government support for national champions, or the expansion
versus deepening of the European Union. And their importance does not end with France.
Dirigisme and indicative planning have been emulated in a number of countries around the
world, and French policy continues to leave its mark on the structure of European integration.
To test the theory outlined above, I present a close examination of the form and impact of
France’s three major post-war economic policy choices – indicative planning, the welfare state,
and European integration. A study of France during this period will allow me to investigate the
origins of a new growth strategy developed after a significant political disruption. A disruption
of this sort creates new opportunities for transforming policy as fresh ideas and institutions gain
prominence. Moreover, studying post-war France allows me to vary each of my key independent
variables and therefore permits a comprehensive examination of the theory. France under the
Fourth Republic (1946-58) was characterized by relatively decentralized political institutions; it
was a parliamentary system with proportional representation, creating unstable coalition
governments. This political decentralization combined with the decentralization of interest
representation in the industrial sector and centralization in the agricultural sector (Eichengreen
2007, Zysman 1977). The country’s political institutions then centralized in 1958 with the
establishment of the Gaullist Fifth Republic and its strong President (Debré 1981). This new
centralized state in turn faced, for the most part, the same structure of interest representation that
had confronted its predecessor. The exceptions are a brief period of centralization in business
representation that occurred during the mid-1960s (Hall 1986) and a shift to a new leadership
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and a new ideology in the agrarian lobby during the early 1960s (Keeler 1981). By examining
how French economic policy varied from the Fourth to the Fifth Republics and from the
industrial to the agriculture sector, I am thus able to examine all of the variation present in my
model.
In effect, therefore, I am adopting a most-similar-systems research design (see, for
example, Meckstroth 1975), where I seek maximum variation on the independent variables of
interest and minimum variation elsewhere. By examining a single country, I am better able to
hold potentially confounding cultural, social, and economic factors constant while I investigate
the effects of changes in my independent variables. To complete my qualitative analysis of
postwar France, I draw on the secondary literature in both English and French, as well as on an
extensive examination of primary sources. These sources include memoires of the key actors
during the period, government and interest group documents maintained in various French
archives, and contemporary journalistic accounts.
My model predicts that, during the Fourth Republic, industrial policy in France should be
dominated by a pluralist collection of small but powerful interest groups cooperating with
different components of a decentralized state. Agricultural policy, on the other hand, should
reflect the dominant power of the organized farmers’ lobby. During the Fifth Republic, by
contrast, the state should be able to pursue its preferred policies unimpeded in the industrial
sector, at least until the centralization of the patronat during the mid-1960s. Agricultural policy
during this period should reflect a negotiated settlement between state and agricultural interests,
in the corporatist fashion.
Testing my argument requires two tasks. First, I “code” my dependent and independent
variables. In the context of my qualitative study, this task involves classifying each of my
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variables according to the theoretical framework that I have developed. Second, I draw a causal
link between the political factors I examine and the policy outcomes I want to explain. In
carrying out this task, I make use of process tracing (Mahoney 2003) to undertake a careful
analysis of economic policy decision-making in France. Such an analysis allows me to test
whether the causal mechanisms highlighted by my framework actually produce the economic
policy outcomes predicted. Moreover, the approach permits me to expand the number of
observations that I consider to include each step in the chain linking cause and effect.
Some readers might wonder why I rest my argument primarily on qualitative evidence
within a single country. First, I believe that my theory is best tested with a detailed historical
analysis because it specifies not just a hypothesized relationship between independent and
dependent variables, but a full causal process. My approach allows a more complete
examination of this process than would a quantitative study. Also, a number of the variables that
are central to my argument are difficult to operationalize accurately in a large-N study. Finally,
and more to the point, my cross-temporal and cross-sectoral most-similar-systems framework
makes it possible to hold a number of potentially confounding variables constant while honing in
on the key factors of interest.
My findings from the French cases provide strong support for my expectations. Under
the Fourth Republic, the predicted pluralism of industrial policy accords well with the important
role played by the “modernization committees” during the first few plans (see Hall 1986,
Eichengreen 2007). These committees, made up of representatives of labor and industry,
cooperated with the French planning bureaucracy to set the broad guidelines for planning during
the 1950s. Critically, the modernization committees represented business interests at the
industry level, rather at the peak level, as would be expected of a more corporatist arrangement.
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French planning policy therefore represented a complex series of agreements between an
influential state, ideologically committed to planning, and a large number of independent interest
groups. Similarly, the expansion of the welfare state during this period represented an effort by
the French state, under pressure by moderate labor unions, to achieve labor quiescence during the
critical period of industrialization while heading off any potential threat from radical left unions.
Moreover, as the theory would predict, the French welfare state represented a pluralist structure
of state-society relations, with different interest groups and state agencies taking a leading role in
creating different components. For this reason, for example, family policy was separated from
income support policy as the structure of social transfer was established (Nord 2010).
French agricultural policy under the decentralized Fourth Republic was dominated by an
effort to appease the country’s highly organized agricultural interests in their demands for costly
price supports (Keeler 1981). The willingness of French authorities to ignore the need for land
reform in favor of supports accords well with the theory’s predictions of agricultural dominance.
Likewise, a strong French motivation for the negotiation of the Rome Treaty and the creation of
the European Community was to maintain agricultural price supports while reducing their cost to
the French state. Deep French involvement in the creation of the EC was also motivated by a
desire to ensure that state planning would be permitted within any regional integration
arrangement (Gueldry 2001).
French planning continued under the Fifth Republic, but in an altered form. President De
Gaulle and his advisors were ideologically committed to planning but preferred channeling state
support to a small number of large businesses in an effort to create “national champions” (Hall
1986, Zysman 1977, Schmidt 1996). This strategy, far from representing the influence of major
corporations, indicated instead the ability of the newly centralized French state to do whatever it
19
wanted with industrial policy. The greater centralization of the patronat during the late 1960s
ushered in a brief period of corporatism into this era of state dominance, but that was not to last.
Things were a bit different with agricultural policy, however. In this sector, the
centralized power of the state met its match in the political strength of agrarian interests, and the
Fifth Republic was unable to dictate its own terms as it was in the industrial sector. Political
leaders were, however, in a better position to force the changes in agriculture that they believed
necessary than they had been during the shifting coalitional politics of the Fourth Republic.
These dynamics explain the seemingly corporatist cooperation between Fifth Republic planners
and agricultural association leaders in effecting agrarian reform within the protective context of
Europe’s Common Agricultural policy (see Keeler 1981). They can also explain why President
De Gaulle compromised his European policy of the “empty chair” after farmers forced him into a
second round in the election of 1965.
How does the evidence accord with my predictions about which configuration of stateinterest relations is most effective in promoting economic modernization? My framework would
predict that pluralist industrial policy under the Fourth Republic and corporatist agricultural
policy under the Fifth Republic would prove more successful than the interest dominance of
Fourth Republic agrarian policy and the state dominance of Fifth Republic industrial policy.
These predictions are also borne out by the evidence. Industrial transformation proceeded at a
rapid clip during the 1950s, but the less cooperative industrial policy of the De Gaulle years,
while it did enjoy some successes, also saddled the French economy with a series of large,
unproductive firms (see Adams 1989, Eichengreen 2007, Hall 1986). Likewise, agricultural
policy under De Gaulle succeeded in promoting agricultural modernization in a way that Fourth
Republic agrarian policy was not able to do (Keeler 1981).
20
India and Beyond
As noted above, I also devote a smaller portion of the book to applying my theory in the
case of post-independence India. This analysis is also based on both primary and secondary
sources gathered in India. The inclusion of India may at first seem strange, and indeed
comparisons between industrialized countries in Europe and developing countries in Asia are
rarely performed. It is my belief, however, that such a comparison provides a more rigorous test
for my theory while also highlighting some surprising similarities between the cases. Just as
France wished to launch itself on a rapid growth trajectory after the devastating conclusion of the
Second World War in 1945, India’s leaders sought to modernize and industrialize their country
after achieving independence from Britain in 1947. Both made use of state planning in
promoting growth, although the Indian version introduced more state controls. Likewise, while
France grappled with whether to devote its limited resources to industrial modernization, price
supports for farmers, or welfare benefits for workers, India struggled with the trade-offs between
channeling support to nascent industry, modernizing its vast but inefficient farmland, or
providing public goods such as primary education to its people. How each of the countries
resolved these dilemmas depended, I argue, on the relationship between ideology, interest group
organization, and political centralization.
In the case of India, the state was dominated by the Congress Party throughout the period
under study. But the structure of this party changed in important ways after the death of Nehru
in 1964 and the growing dominance of his daughter Indira Gandhi. Under Nehru, the party was
significantly decentralized, with local elites holding significant influence over the polity,
whereas Gandhi centralized authority under the office of the prime minister. As a result, Indian
centralization is less a matter of formal political institutions, as in France, and more a question of
intraparty structures. Interest groups in India, by contrast, were weak and relatively
21
decentralized. My theory therefore anticipates that Indian economic policy should take-on a
pluralist structure during the Nehru years and shift to a state dominance arrangement under
Gandhi. The structure of planning in India does indeed bear out those expectations. As in
France, outside interests were incorporated into the planning system in Nehru’s India, but were
largely shut out by Indira Gandhi, who increasingly used the planning process to her political
benefit. Not surprisingly, economic modernization policy was more effective under Nehru than
under Gandhi, despite some serious problems in both periods.
Finally, to highlight the generalizability of my argument, I undertake a quantitative study
of all countries, contingent on data availability. Many of my variables are difficult to
operationalize in a large-N context, but I make use of the closest proxies available, focusing on
the theory’s implications for economic success. The findings of this quantitative analysis will
hopefully provide a final piece of support for the argument.
Understanding Economic Modernization
With the arguments presented in this book, I hope to contribute in a number of ways to
our knowledge of the politics of economic modernization. For my inspiration, I draw on the
insights of an extensive literature linking government preferences, interest group organization,
and political centralization with economic policy outcomes.
On the question of preferences, scholars have long debated why governments opt for
certain policy choices over others. One prominent group sees the preferences of democratic
leaders as fundamentally determined by their links to the electorate. To take a small number of
examples from this large literature, Milner and Judkins (2004) find that in developed countries,
left parties tend to prefer more protectionist trade policies because of their benefits to workers,
22
while Quinn and Inclan (1997) make a similar case for constituency linkages as a driver of
international financial policy. In the area of monetary policy, Hibbs (1977) sees left parties as
internalizing labor’s willingness to accept high inflation in exchange for low unemployment.
And in the same vein, explanations of welfare state development often draw a connection
between the structure of social benefits and the partisan make-up of governing coalitions
(Esping-Anderson 1990, Huber and Stevens 2001).
Another group of researchers, those associated with the constructivist school of thought,
argue that preferences are not just a function of the political needs of leaders or the material
interests of their constituents. For constructivists, ideas truly matter; they are internalized by
actors and form a key part of their socially-constructed reality. In the past, constructivists have
spent little of their time analyzing economic policy, but this neglect is beginning to dissipate. In
a 2007 book, for example, Abdelal explains capital liberalization in recent decades with
ideational changes in Europe and the United States. Similarly, Woll (2008) develops a
constructivist explanation of corporate lobbying in trade policy, arguing that material interests
cannot fully explain firm preferences. And McNamara (1999) attributes European monetary
integration at least in part to changed ideas among the key actors on the continent.
I sidestep much of this debate by taking government and interest group preferences as
exogenous to my model. In other words, I am interested in the impact that these preferences can
have on policy outcomes, but I am not concerned here with explaining why governments and
interest groups desire what they do. My project, then, assumes that state preferences can be
understood independently of constituent interests, but also recognizes that the preferences of
organized social groups can matter tremendously in the formation of policy. Part of my purpose
23
is to specify how and when the preferences of these actors are most likely to affect policy
outcomes.
The constraining effect of interest representation on state economic policy has also been
the subject of much research. Many scholars in this area focus on understanding lobbying
coordination within industries, while others are interested in explaining the changing preferences
of interest groups. In the first category, Busch and Reinhardt (2000) link the geographical and
industrial concentration of firms with a louder voice for their preferences in the trade policy
process. Similarly, Frieden (1991) argues that policy-makers in Latin America have provided
more public resources to firms that were both mobilized and vulnerable to economic downturn.
And in a piece that fits into the second category, Milner (1987) finds that the economic crises of
the 1970s did not produce a global collapse in trade (unlike during the Depression) in part
because the more globalized firms of the era opposed significant protectionism.
A third school of interest group researchers examines shifting factor coalitions but is less
concerned with the organizational make-up of representation. For example, Rogowski (1989)
links alterations in the economic policies of key states with changing coalitions of land, labor,
and capital. Gourevitch (1986), for his part, examines how external economic crises have led to
new domestic political coalitions. And Hiscox (2002) identifies the mobility of labor and capital
as the key determinant of how interests mobilize to influence trade policy. My project will look
much more at the economy-wide organization of interest representation (or its lack) to explain
economic outcomes. In this way, it takes the approach of scholars who have argued that the
centralization of interest representation can have a dramatic impact on economic outcomes (e.g.
Freeman 1989).
24
In the final analysis, however, my project draws most directly on research seeking to
understand the role of political institutions in economic policy. Prior to the 1980s, social
scientists tended to focus on individual and mass behavior and to ignore (or discount) the role of
institutions, but more recent scholarship has shown convincingly that institutions can matter
critically to policy outcomes. Most modern research on institutions can be classified into one of
two broad categories – rational choice or historical. Rational choice institutionalism begins by
identifying actors and their preferences, and then moves into an investigation of how institutions
transform these preferences into outcomes. By contrast, historical institutionalism focuses on the
evolution of institutions over time, asking how institutions form and why they sometimes
produce counterintuitive results.
Together, these schools of thought have contributed significantly to our understanding of
economic outcomes. For example, the reform literature points to the importance of low party
fragmentation and high state insulation in the success of economic transformation (e.g. Haggard
and Kaufman 1995, Wade 2003), trade openness (e.g. Ehrlich 2011), and the balancing of
budgets (e.g. Roubini and Sachs 1989). At the same time, researchers identify high
fragmentation, and a significant number of veto points more generally, as contributing to policy
stability (Tsebelis 2002). In a similar vein, Bueno de Mesquita et al. (2004) associate a variety
of economic policy outcomes with the size of a government’s “selectorate”, the portion of the
population that has influence over political outcomes. Przeworski et al. (2001) explore the
relationship between democracy and economic development, and find no systematic connection
between the two (although their evidence indicates that democracies do enjoy a more balanced
distribution of wealth). Waldner (1999) investigates the institutional determinants of a state’s
ability to assist the private sector in overcoming the collective action problems that impede
25
development, concluding that states with more unified elites tend to be more successful.
Likewise, scholars in the trade literature have examined a number of specific institutions, finding
greater insulation, and thus freer trade, in countries with proportional electoral systems
(Rogowski 1987), unified government (O’Halloran 1994), centralized parties (Nielson 2003,
Hankla 2006), and other institutional features. And perhaps more relevant to our interests here,
scholars of Europe have investigated how the autonomy of state institutions impacts the ability of
governments to effect economic transformation (e.g. Hall 1986, Zysman 1977). Of course, all
these works provide only a taste of the vast and growing literature linking political institutions
with economic outcomes.
In this book, I move beyond existing research by combining all of the factors discussed
above – preferences, interest groups, and political institutions – into a single framework. My
argument is similar to that developed by Hall (1986), but in that classic book no specific
framework for understanding outcomes is developed and the focus is entirely on planning. I also
draw on the work of Haggard (1990), who sees development policy outcomes as resulting from
the interaction of actor preferences on the one hand and institutional or international constraints
on the other. I take the same position, but flesh out in more detail the expected outcomes from
different combinations of institutional constraint and preference.
In addition, unlike much of the scholarship that has come before, I develop predictions
both for policy outcomes and for the effectiveness of policy in promoting economic upgrading. I
also emphasize aspects of the policy-making process that are sometimes ignored in past studies.
For example, a potential problem with much of the research linking preferences with economic
policy is the assumption that partisan differences depend not on genuine beliefs but on differing
societal supports. As a result, states are often not considered independent actors but rather the
26
servants of social interests and public opinion. My project seeks to explain when states will take
the lead in economic policy and when they will follow the interests of sub-national groups.
My book also speaks to prior research on both corporatism and the developmental state.
Scholars of corporatism, who have focused their analyses on Western Europe and Latin America,
highlight the importance of interest group centralization to the coordination of economic policy
between the state and private actors (e.g. Schmitter 1974). It is this peak-level coordination that
defines corporatism and distinguishes it from more pluralistic systems. Advocates of
corporatism often tout its ability to generate macroeconomic stability (Garrett 1998), an
equitable distribution of income (Freeman 1989), and, more broadly, mutually beneficial
cooperation across all segments of an economy (Katzenstein 1985). Along similar lines, more
recent scholarship identifies the existence of distinct “varieties of capitalism” in which
institutional configurations in a variety of areas (education, industrial relations, finance, etc.) fit
together to produce a coherent political-economic system (Hall and Soskice 2001). This research
highlights the benefits of coordinated market systems in which state and private institutions are
mutually influential in the production process.
By contrast, scholars of the developmental state emphasize the role of technocratic,
centralized state bureaucracies in efforts to spur industrial upgrading, especially in the East Asian
tigers. Scholarship in this area focuses not only on the benefits of elite bureaucratic power (such
as the classic Japanese MITI discussed in Johnson 1982), but also on the ability of these
bureaucracies to communicate effectively with business leaders (Evans 1995). Some scholars of
the developmental state also emphasize its sidelining of labor, the better to promote investment
over consumption (Kohli 2004). Overall, however, scholars of the developmental state see
27
coordinated and firm state action as the best method available for industrializing states to build
comparative advantage in high value-added products (e.g. Wade 2003).
I draw on the important innovations found in both literatures, but go beyond them in three
ways. First, I argue that a complete explanation of economic policy-making requires an
understanding of how state centralization and interest group centralization interact. To be sure,
scholars of corporatism and the developmental state are both interested in the relationship
between government and interest groups. Neither approach, however, fully theorizes the
organizational structure of both state and private institutions. Corporatists are primarily
interested in interest group structure and consider state organization only secondarily, while
developmental state theorists have the opposite focus. In this book, I examine both state and
interest organization and develop expectations for their joint and mutually contingent influence.
Second, I emphasize that corporatism and pluralism, state dominance and interest
dominance, are not fixed characteristics of countries. Rather, I argue that they can vary both
across time and, critically, across sectors of the economy. My approach is in contrast to most
theories of corporatism and the developmental state, which imply that these characteristics are
relatively fixed elements of “national systems of political economy” (see Gilpin 2001). Third
and finally, my research combines the regional interests of both literatures by looking at Europe
and (secondarily) at Asia, allowing for new insights with this cross-regional comparison.
A further benefit of my project is the light it sheds on post-war French economic policy,
above and beyond any theoretical consideration. While there have been several important
studies of this topic in the past, most scholars have examined only one aspect of French policy at
a time. For example, some focus their attention on the negotiations for European integration,
usually looking at systemic factors. Others are interested in the welfare state, and still others
28
target their efforts towards economic planning. I examine all three at once, a strategy that allows
me to undercover the inevitable interrelationships that exist across these important policy
decisions (see Judt 2006). Beyond France, the historical portion of my project also sheds light
on the origins of the European Union, which few scholars have examined from a domestic
political economy perspective (but see Moravcsik 1998). Moreover, my project is selfconsciously interdisciplinary. It is rooted primarily in political science, but it draws heavily on
insights from economics, history, and sociology. My hope is that it may appeal to scholars in all
of those fields, as well as to policy-makers interested in the best ways for states to promote
economic growth and social stability, a question that has been on the minds of many since the
financial crisis.
I devote the book’s next chapter to a detailed discussion of my independent variables,
namely the ideologies and relative centralization of interest groups and the state in postwar
France. The purpose of the chapter is to identify variation over time and space in each of these
key factors. After this discussion, I focus in Chapter 3 on an evaluation of the first of my three
policy areas – indicative planning. Here, I link the four possible combinations of state and
interest group centralization discussed above with the nature of the planning process in postwar
France, as well as with its success. My purpose is to use both primary and secondary sources to
trace the causal linkages between each organizational combination and its predicted outcome. I
do the same for the expansion of the welfare state in Chapter 4 and for the France’s Europe
policy in Chapter 5. After completing my analysis of France, I devote my final substantive
chapter (Chapter 6) to testing the theory in other cases. I begin with a brief qualitative
examination of the post-independence economic policy of India, and then I present some cross-
29
national and cross-temporal quantitative evidence for my arguments. I then conclude my
analysis in Chapter 7 with a summary of my argument and a discussion of its implications.
30
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