The sharp rise in income inequality in the Anglo-Saxon economies intensiWes a
long established debate about the connection between the economic institutions
of capitalism and democratic government. It was a well established position in
the ‘‘politics and markets’’ literature that one job of democratic government was
precisely to moderate the inequalities generated by markets (Korpi 1983 ; Esping-
Andersen 1985 ). But if the price of a dynamic Anglo-Saxon style capitalism is
huge and rising inequality, that gives some support to radical arguments that
more fundamental reform is required in the power structures of capitalist
institutions (for instance Dahl 1985 ).
Agency and institutional change are also linked in another key issue. One
possible conclusion from experiences since the early 1990 s—a conclusion appealing
to many policy elites—is that political leadership can be critical in reshaping
institutional structures and practices. On that view a key diVerence was that the
UK, for instance, was ‘‘lucky’’ enough to produce a Margaret Thatcher at the end of
the 1970 s, while Germany was ‘‘unlucky’’ enough to end up with Helmut Kohl three
years later. But even setting aside one obvious objection—that a Thatcher could
only function in the institutional setting oVered by the UK—the links between
agency, institutional change, and policy performance remain complicated by
another powerful set of institutional contingencies. Even the most polemical
supporters of the ‘‘agency’’ view rely on the argument that historical agents were
eVective because they embraced more impersonal structural changes—notably, the
wave of globalization that, originating in a globalWnancial services revolution,
has swept over the economies of the advanced capitalist world since the early 1970 s.
On this view, the key role of agency consists in recognizing inevitability, and
in reshaping the traditional institutional ensembles of Rhineland and East
Asian capitalism to accommodate a familiar Anglo Saxon pattern of domination
by highly developed, globally trading securities markets. Here is a revived institu-
tional fatalism smuggled in by the back door of agency. And this fatalism has
in turn produced the argument that pre-existing institutional legacies can be
exploited to combat this fatalism. The best known version is associated with
Garrett (for instance 1998 a, 5 ; 1998 b), where it is held that an active state
can build institutional systems, for instance in labor markets, that promote eco-
nomic competitiveness in global markets, and can coordinate those social forces to
resist attacks on the institutions of developed welfare states. In this way, it is
possible to create ‘‘a virtuous circle between activist government and international
openness’’ ( 1998 b, 789 ). In short, agency may involve more than recognizing
the ‘‘inevitability’’ of globalization; it can involve shaping a social democratic
response to it.
The ‘‘democracy’’ part of social democracy in this argument provides a natural
link to the next section, where we examine the connection between economic
institutions and democratic government.
154 michael moran