Abstract and Keywords
This article outlines the main weaknesses in the interaction between political institutions and capitalism in both developed and developing nations, illustrates this interplay with historical capital markets examples, and shows how the interaction between capital markets and politics has been seen in the academic literature. It focuses not on the standard and important channel of how institutions affect preferences and outcomes, but on how and when immediate preferences can trump, restructure, and even displace established institutions. The article is organized as follows. First, it describes the concepts of how capital markets depend on political institutions and preferences. The second part shows how political divisions can lead to differing capital markets outcomes in the developed world, describing conflicts between haves and have-nots and fissures among the haves. The third part develops these concepts for the developing world, looking at elites' interests, nonelites' interests, political stability, and the impact of economic inequality. The fourth part examines several contemporary and historical examples in the developed world, including the power of labor in Europe, managers in modern America, populists in American history, and the forces for codetermination in mid-twentieth-century Germany. The fifth part extends and deepens the argument, showing the impact of left-to-right shifts over time and how these can be better analyzed in the academic literature. The sixth part describes overall limits to a political economy approach, while the final section concludes.
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