Introduction

Beyond economic complementarities, the main focus of Part II, politics and political institutions are decisive in the evolution of all varieties of capitalism. Various forms of state intervention that establish the foundations for the economic institutions – from training programs to competition agencies – depend on active, continuing support from political coalitions (Thelen 2001). In the case of hierarchical capitalism, business groups and labor unions used their political advantages to press for policies and institutions that reinforced institutional complementarities and favored insiders. At the same time, the politics and strategies of these insiders depend on their preferences that, in turn, are fundamentally shaped – in hierarchical and other types of capitalism – by the complementarities they face in the economic sphere. This chapter analyzes the politics and institutions that favor insiders and continuity. However, reformers and outsiders have cause to continue to use politics to challenge the negative complementarities examined in previous chapters. Chapter 8 considers the politics of these challenges and some efforts to escape from the negative complementarities of hierarchical capitalism.

A number of perspectives – crony capitalism, entrenchment, and rent seeking, not to mention Marxist arguments (instrumental and structural) – would expect big business to dominate policy making – especially economic and social policy. In the entrenchment (Morck, Wolfenzon, and Yeung 2005) and crony capitalism views, business groups in developing countries maintain their privileged positions and favorable regulations by virtue of close ties to sympathetic political leaders. Among other things, weak institutions, the huge size of business groups, and venal politicians favor entrenchment. The rent-seeking view, more theoretically elaborated by Olson (1982) and followers, reaches fairly similar conclusions; however, business-group dominance depends more on the organization of special-interest groups and less on the venality of politicians.