Coalitions and business cycles; the political economy of stagflation

Abstract

Institutional rigidities emerging on the path of macroeconomic evolution areinvestigated with the concept of `distributional coalitions` developed by MancurOlson as derived from the `logic of collective action`. Economies evolve in thehistorical long-run toward their coalitional-institutional equilibrium divergingfrom the competitive equilibrium assumed by equilibrium business cycletheorists. Macroeconomic theories based on ` a priori` notion of equilibriumdismiss the institutional coalition-dense versus coalition-free market structures.A coalitional theory of business cycles based upon the logic of `distributionalcoalitions` narrows the gap between current macroeconomic theories. It isargued that both the absence of a sound microeconomic foundation forinvoluntary unemployment in contemporary neo-keynesian disequilibriummacroeconomics and the absence of involuntary unemployment in the`continuous market-clearing` equilibrium framework of new classicalmacroconomics reflect in essence the different phases of accumulatedinstitutional rigidities caused by `distributional coalitions`. Henceforth, thestudy underlines the emergence of diverging macroeconomic performances incapitalist economies as a result of accumulated institutional rigidities in historyand time. It is argued that `encompassing organizations` play a key role inexplaining the more successful absorbtion of external shocks in corporatisteconomies with respect to other industrialised countries and how the concept of`encompassing organizations` might provide solid foundation lacking in theliterature on neo-corporatism.Distributional CoalitionsEncompassing Organizations