MPIfG Working Paper 00/3, March 2000
Institutions in Comparative Policy Research
by Fritz W. Scharpf
Prof. Fritz W. Scharpf is Director at the Max Planck Institute for the Study
of Societies, Cologne.
Varieties of the "new institutionalism" hold a
promise of theoretical integration across several sub-disciplines of the social
sciences and a wide range of research fields, including comparative politics,
the study of European integration, comparative political economy, comparative
industrial relations, or comparative industrial governance (Hall & Taylor
1996; Jupille & Caporaso 1999; Thelen 1999). There are thus good reasons to
explore the usefulness of institutional explanations in comparative policy
research as well. But in doing so, we need to be aware of the special conditions
that complicate their application in this particular field. To begin with, it
seems useful to specify the ways in which institutionalist and policy
perspectives may intersect.
The policy perspective focuses on two different questions
which I described as being "problem-oriented" and "interaction-oriented"
(Scharpf 1997, 10-12). Under the first perspective, policy research will analyze
the nature and the causes of (societal) problems that (public) policy is
expected to resolve as well as the (empirical or potential) effectiveness of
policy responses to these problems. Quite obviously, much of the substantive
knowledge required in problem-oriented policy analyses will not come from
political science but from other disciplines, such as macro-economics,
labor-market economics, public health, biology or climatology. Within the
perspective of interaction-oriented policy research, by contrast,
political-science knowledge is likely to dominate analyses of the interactions
among policy makers, and of the conditions which favor or impede their ability
to adopt and implement those policy responses which problem-oriented analyses
have identified as being potentially effective. Similarly, the study of
institutions also includes two distinct perspectives, one focusing on the consequences
that institutions may have for actors and actions within their domains, the
other one focusing on the genesis of and transformation of institutional
arrangements themselves. If we combine these perspectives in a fourfold table,
it is clear that interesting research questions may in fact be located in all
In the first cell, one would locate "functionalist"
attempts to explain the existence of specific institutions by their ability to
solve certain societal or economic problems - a perspective which, for
instance, informs the institutionalism of transaction-cost economics (Williamson
1985). In the second cell, the perspective is reversed, asking how the existence
of given institutions contributes to the emergence or avoidance of certain
societal or economic problems - a perspective adopted by "structuralist"
studies which, for instance, are attributing differences in the rate of
inflation to the existence or absence of centralized wage-setting institutions (Calmfors
& Driffil 1988) or of independent central banks (Cukierman 1992). In the
third cell, research could focus on how institutional change may be explained as
the outcome of strategic interactions among purposeful and resourceful actors
- a perspective which, for instance, has been highly productive in explaining
major institutional changes in the European Union as the outcome of strategic
interactions among national governments (Moravcsik 1998).
The fourth cell, finally, identifies the perspective on
institutions that is characteristic of interaction-oriented policy research. It
treats institutions as one set of factors affecting the interactions among
policy actors, and hence the greater or lesser capacity of policy-making systems
to adopt and implement effective responses to policy problems. This is the
perspective adopted in the present article. It differs from the "structuralism"
in cell 2 by its actor-centered character. Actors and their interacting choices,
rather than institutions, are assumed to be the proximate causes of policy
responses whereas institutional conditions, to the extent that they are able to
influence actor choices, are conceptualized as remote causes (Scharpf 1997). But
since actors differ in their orientations and capabilities, and since we also
need to take account of the problem perspective, the search for, or the use of,
institutional explanations faces characteristic difficulties in the context of
in interaction-oriented policy research. These difficulties will be discussed
in the following section before I will then turn to the uses of institutional
explanations in comparative policy studies.
Elusive Quest for Generality
To a greater degree than is otherwise true in the social
sciences, policy research aspires to pragmatic usefulness in the sense that it
should be able to provide information which (if heeded by policy makers -
which is another question altogether) could contribute to the design of
effective and feasible policy responses to given societal problems. At the
practical end of a continuum, this calls for in-depth analyses of specific
policy problems and interaction constellations that may best be done by
consultants or by the in-house staffs of ministerial departments and other
policy-making organizations, rather than by theory-oriented academic research.
At the same time, however, such applied work would greatly benefit from being
able to draw on empirically validated theoretical propositions specifying
general causal mechanisms affecting the feasibility and effectiveness of policy
Given the multi-dimensionality and variety of real-world
policy problems, however, any general theoretical proposition can at best cover
partial aspects that need to be integrated with other partial theories in the
development of effective policy designs - just as the solution of any complex
engineering problem will draw on a wide range of distinct natural-science
theories. But in policy research even the search for partial theories is
affected by the real complexity of its subject matter. While the natural
sciences can often rely on experimental designs in order to isolate the causal
effect of a single factor, this is not usually possible in the social sciences.
Here the comparative empirical study of real-world phenomena is generally
our only way to discover causal relationships. But regardless of whether
comparison is inter-temporal, cross-sectional, or cross-national (which will be
my focus here): If institutional conditions are thought to matter, they are in
themselves very complex "factors" with a high degree of variability
across time and space. Moreover, if the dependent variable is to be policy
responses, interaction-oriented policy research must also consider at least two
additional sets of factors that are likely to have causal influence - the
characteristics of the policy problems faced, and the characteristics of the
policy actors involved. These conditions constrain the design of theory oriented
and empirical policy research (Scharpf 1997, chapter 3).
The standard way of dealing with complex factor
constellations in empirical research is through multivariate statistical
analyses that seek to identify the causal effect of specific variables while
trying to control for the influence of other factors. Since internationally
comparative policy studies are inevitably plagued with the "small-n problem"
of too many variables and too few cases, it has become common practice to
multiply the number of available observations by relying on cross-country pooled
time-series data (Beck & Katz 1995). Their usefulness is limited, however,
by the fact that some of the factors that influence outcomes may be both
country-specific and relatively stable over time, so that the multiplication of
observations does not increase the available information to nearly the same
degree. The same is true if exogenous shocks (like the oil-price crises of
1973-1975 and of 1979-81) affect all countries at the same time. If these "fixed
effects" are then accounted for by the introduction of country and year
dummies in the regression equations, what is left is statistical information
about relationships among variables that are cleaned of all influences that are
specific for a given country or a given time period.
In the field of comparative political economy, there is a
growing and methodologically sophisticated literature relying on these remedies
for the small-n-disease. They seem most useful for the identification of stable ceteris-paribus
relationships of an essentially "structural" character. Examples are
studies of the relative influence of economic growth, trade openness, capital
mobility and other "economic" factors on the one hand, and of the
political and organizational strength of left-of-center political parties, of
labor unions, or corporatist institutional arrangements and other "institutional"
factors on the other hand, on levels of taxation and social spending (Rodrick
1997; Garrett 1998; Garrett & Mitchell 1999; Hicks 1999). Similar methods
are used to assess the effects of wage dispersion on private service employment
(Iversen & Wren 1998), of central-bank independence on inflation (Cukierman
1992 ), or of more or less centralized wage-setting institutions on inflation
and unemployment (Calmfors & Driffil 1988; Soskice & Iversen 1999;
Iversen 1999). From the perspective of developing politico-economic theory,
these are very useful studies, even though their reach is constrained either by
the availability of quantitative time-series data that are cross-nationally
standardized, and by the need to reduce complex qualitative factors to
quasi-quantitative indicators or to dummy variables.
From a policy perspective, however, the information that
is screened out through the use of country and year dummies in pooled
cross-section time-series regressions may be more important than the statistical
regularities that are discovered. Exogenous challenges may change radically over
time, and even if all countries were confronted with the same challenge at a
given time (say, the dramatic rise of real interest rates in the international
capital markets of the early 1980s), countries with different economic and
social structures, and with different policy legacies may differ greatly in
their vulnerability and hence in problems that their policy systems must deal
with. Moreover, even where these "fixed effects" play no role, the
information used in multivariate regressions is generally too "thin",
and the probabilistic effects identified are too uncertain to provide much
guidance for policy choices in specific historical constellations.
Turning instead to historical studies of single cases,
which may do justice to the complexity of interacting factors, cannot be the
answer, since these will not allow lessons to be derived for other cases, let
alone cumulative theory development.
For some purposes, it may be useful to combine deductive theoretical work and
statistical analyses of some empirical indicators with case studies that explore
the more complex specific antecedent conditions (Coppedge 1999). An example is
Iversen's (1999) theoretical and econometric analysis of the joint effects of (accommodating
or non-accommodating) monetary policy regimes and (more or less centralized)
wage-setting institutions on inflation and unemployment, backed up by more
detailed historical explorations of developments in a few European countries.
Here, statistical analyses are used to identify probabilistic regularities,
while the influence of various (and changing) institutions on policy choices is
presented in the narrative mode. For Iversen's purposes, that seems a perfectly
But what if we are primarily, or at least equally,
interested in empirically supported generalizations about the influence of a
greater variety of policy-making institutions on the capacity for effective
policy responses in a wider range of policy areas? From what I have said, it
follows that comparative case studies are likely to be better suited to this
task than multivariate regressions based on quantifiable data and indicators.
But it also follows that in order to arrive at potentially generalizable
conclusions, we must then find ways to cope with the excessive variety and
complexity of causal constellations. This can often be achieved by focusing the
comparison on a subset of cases in which it is possible to hold other contingent
conditions sufficiently constant to allow the influence of institutional
variations to be identified with some confidence. But in order to do so, we must
have a theoretical understanding of the contingencies that we are trying to hold
The effect of institutional conditions on the
effectiveness of policy choices is contingent on two broad sets of
non-institutional factors - the nature of the problems or challenges that
policy is supposed to meet and the normative and cognitive orientations of
policy actors involved. Both are generally ignored in "structuralist"
theories asserting the unconditional superiority or inferiority of certain
policy-making institutions, such as "neo-corporatism" or the "Westminster"
Thus the multiple-veto characteristics of German political
institutions may indeed impede policy changes (Tsebelis 1995) - but compared
to the stop-go policies facilitated by the single-actor British political system,
this condition favored successful German economic policy from the 1950s to the
end of the 1980s. In the 1990s, however, when new economic challenges would have
required major policy changes, the same institutional conditions are considered
causes of German policy failures (Manow & Seils 2000). Conversely,
institutional conditions and the challenges arising from the external policy
environment did not change between 1978 and 1979 in Britain, or between 1983 and
1984 in New Zealand. Nevertheless, radical policy changes were brought about by
new governments whose cognitive and normative orientations differed from those
of their predecessors (Rhodes 2000; Schwartz 2000). Both of these contingencies
can be specified more precisely.
In the political economy of advanced welfare states,
policy challenges are themselves a complex concept that is best defined by the
interaction among three sets of factors - changes in the policy environment
impacting on more or less vulnerable socio-economic structures and on more or
less vulnerable policy legacies.
For examples of recent changes in the policy
environment, one may think of the two oil price crises, of the fall of the
Berlin Wall, of the completion of the European internal market and of the
European Monetary Union, but also of demographic changes resulting in the "graying"
of the population, or of changes in family structures increasing the labor-force
participation of women. Such changes will often affect several or many countries
at the same time. But whether and how these will lead to policy problems is
likely to be conditioned by the characteristics of domestic socio-economic
structures and policy legacies.
The importance of differences in socio-economic
structures is obvious: The second oil-price crisis constituted a different
type of policy challenge for oil-exporting Norway than it did for oil-importing
welfare states. Similarly, the Danish economy, which is dominated by small,
family-owned enterprises, was less affected by recent increases in capital
mobility than was true of Sweden, where large, multinational enterprises play a
major role (Benner & Vad 2000). The second set of mediating factors is
described by the concept of policy legacies (Skocpol & Weir 1985)
which refers to existing policies and the practices, and expectations based on
them. Since their theoretical importance is less obvious, a clarification seems
Even though policy legacies are the product of past
political choices, they are not necessarily at the disposition of present policy
makers. For one thing, not everything can be changed at the same time in modern,
highly differentiated policy systems. In any one policy area, therefore, the
body of existing policy in other areas must mostly be considered an invariant
environment of present policy choices. But even where changes are considered,
they are likely to be impeded by policy inertia. In multi-actor policy systems
with high consensus requirements, innovators will be at a competitive
disadvantage in interactions with the beneficiaries and defenders of the status
quo (Scharpf 1988). But even if formal (majoritarian) decision rules do not have
a conservative bias, the status quo is favored by the fact that a proposed
innovation must not merely appear superior in the abstract, but that the
expected gains must be big enough to also cover the costs of transition - and
that these are likely to increase with the extent to which the new policy would
depart from status-quo solutions. In extreme cases, the status quo may be
protected by "lock-in effects" (David 1985; Arthur 1989; 1990), and
even when policy change is feasible, it is likely to be "path dependent"
(Pierson 1996; 1997; Thelen 1999) in the sense that only certain goals can be
reached from a given starting position.
As a consequence, similar changes in the policy
environment may constitute problems differing in nature or in severity,
depending on the accidental goodness-of-fit between these changes and existing
national policy legacies. Thus, the policy problem generated by the first
oil-price crisis was massive job losses in countries like Germany, where the
monetary regime was non-accommodating, while rampant inflation became the
dominant problem in Britain and other countries with an accommodating monetary
legacy (Scharpf 1991). Similarly, the "graying of the population"
constitutes a massive financing problem in welfare states whose earnings-related
pensions are financed by the "pay-as-you-go" contributions of a
shrinking active population, whereas "funded" pension systems are much
less threatened. Under conditions of increasing international competition and
capital mobility, moreover, the characteristic differences in the policy
legacies of Scandinavian, Continental, and Anglo-Saxon welfare states (Esping-Andersen
1990; 1999), of national production systems (Soskice 1999; Estevez-Abe et al.
1999) and of industrial-relations systems (Crouch 1993; Golden et al. 1999) have
come to matter very much for the problem load that must be faced by national
policy systems (Scharpf 2000a; Scharpf & Schmidt 2000).
In combination, external changes impacting on given
socio-economic structures and policy legacies will create time and
country-specific patterns of vulnerabilities which, in democratic polities, are
transformed into challenges to which policy actors may have to respond. That
these responses are influenced by the institutional setting is generally assumed,
but the dominant strands of current institutionalist theorizing, "rational-choice
institutionalism" and "sociological institutionalism" (Hall &
Taylor 1996; Thelen 1999), 
differ in their conceptualization of these influences, even though both make
quite strong claims about the value of institutions as predictors of what actors
will in fact do.
In sociological institutionalism, institutions are defined
very broadly, so as to include not only externally imposed and sanctioned rules,
but also unquestioned routines and standard operating procedures and, more
importantly, socially constructed and culturally taken-for-granted world views
and shared normative notions of "appropriateness" (Berger &
Luckmann 1966; March & Olsen 1989; DiMaggio & Powell 1991; Zucker
1991). In that view, therefore, institutions will define not only what actors
can do, but also their perceptions and preferences - and thus what they will
want to do.
In rational-choice institutionalism, by contrast,
institutional rules are understood as external constraints and incentives
structuring the purposeful choices of self-interested rational actors (Shepsle
1989; North 1990). But since actors are also assumed to have standardized and
stable preferences defined by their personal or organizational self-interest,
and since they are assumed to be rational in the sense that their perceptions
can be taken to be correct representations of the objective situation, and that
their cognitive capabilities are sufficient to identify the consequences of
available options for their self-interest, the knowledge of institutions will
also allow predictions and explanations of what actors will in fact do. As
George Tsebelis (1999a, 4) has put it: "Since institutions determine the
choices of actors, the sequence of moves, as well as the information they
control, different institutional structures will produce different strategies of
the actors, and different outcomes of their interactions."
In the light of empirical policy research, however, both
of these theoretical positions appear much too deterministic.
Above, I referred to the examples of Britain in 1978/79 and New Zealand in
1983/84, but the point can be stated more generally: Even if external and
institutional conditions remain constant, policies can change if the cognitive
and normative orientations of policy makers change - as they did when
Keynesianism was replaced by monetarist and neo-liberal economic paradigms (Hall
1992; 1993). In our own framework of "actor centered institutionalism"
(Mayntz & Scharpf 1995; Scharpf 1997), we therefore find it necessary to
treat actor orientations (i.e., their preferences and perceptions) as a
theoretically distinct category - influenced, but not determined by the
institutional framework within which interactions occur.
In our view, actor preferences
have at least two dimensions, individual and organizational self-interest on the
one hand, and (internalized) normative obligations and aspirations on the other
hand. In the
organization-theoretic literature, this corresponds to the distinction between
"system maintenance" and "goal attainment" (Etzioni 1964,
16-19), and there it is generally assumed that in cases of conflict the former
takes precedence over the latter.
In any case, the "goals" of corporate and collective actors are
strongly influenced by the institutional rules to which they owe their existence
and by institutional and cultural norms which define the criteria of their
success or failure. For that
reason, they will vary greatly between different types of actors - political
parties, government ministries, unions, central banks, etc. -, and in time
and place. By contrast, the "maintenance" or survival interests in
assuring adequate organizational resources, defending organizational autonomy,
and (where institutionally relevant) achieving competitive success, are likely
to be more uniform and constant - which allows fairly general and reliable
predictions of organizational responses to institutional incentives (and hence
useful suggestions for institutional design).
Like actor preferences, cognitive orientations
are also shaped by institutional norms and incentives defining the role-specific
content of "conventional wisdom" and "selective perceptions"
(Dearborn and Simon 1958). Central banks will pay more attention than union
leaders to early indicators of inflation. Moreover, certain policy areas may be
dominated by the specific paradigms (Hall 1993) of particular "advocacy
coalitions" (Sabatier 1987; 1999) or "epistemic communities" (Haas
1992). Beyond that, the capacity for effective policy responses is affected not
only by the quantity and quality, but also by the diversity of policy-relevant
information and analysis provided by an institutionalized information
infrastructure. Thus, in the heyday of Austro-Keynesianism in the 1970s, policy
coordination in Austria was greatly facilitated by the fact that the government,
the political parties and the social partners relied on the analyses provided by
a single economic research institute. In Germany, by contrast, unions and
employers maintain separate research institutes, the federal government and the Länder
support altogether six such institutes; the federal labor administration as well
as the Bundesbank maintain large in-house research capacities, the
independent Council of Economic Advisors relies on its own research staff, and
the big commercial banks also have their own macro-economic research departments.
All of these provide not only data, explanations, and policy recommendations
for their respective sponsors, but they also publish their often inconsistent
findings and contradictory interpretations - which are then debated in the
financial press and in the economic and financial pages of the general press,
and which allow very different policy proposals to claim "scientific"
The downside of the monopoly model are, of course, the
risks of "groupthink" (Janis 1972) - that is, of the failure to pay
attention to observations, interpretations and recommendations that do not
conform to the dominant world view. This was arguably the case in Britain in the
early 1970s, when policy makers in the Treasury continued to rely on the
Keynesian recommendations derived from the single macro-economic simulation
model even though the economy had ceased to respond as predicted (Hall 1992).
But when the analyses of institutionalized information monopolists do fit the
problem (and if they are believed) they will facilitate effective
problem-solving in single-actor systems and effective coordination in
multi-actor systems. The pluralistic model, by contrast, will provide protection
against the institutionalization of error. But the cacophony of voices may
render coherent policy choices difficult even in single-actor systems, and is
likely to work against cooperative or at least coordinated problem solving in
of Institutional Effects
We thus have three major sets of variables that will
affect the capacity of a system to come up with effective policy responses: the
nature of the policy problem, the orientations of policy actors, and the
characteristics of the institutional setting. Since each of these will vary
greatly over time and space, comparative policy research will be faced with a
dilemma: If we try to cover a variety of significant policy choices in a larger
set of countries (say, the usual OECD-18 set), the number and diversity of
distinct factor constellations will overwhelm available methods of multivariate
statistical analysis as well as Ragin's (1987) Boolean "qualitative
comparative analysis". And if we try to instead select our cases by the
logic of "most similar systems" or "most different systems"
designs (Przeworski & Teune 1970) in order to identify the influence of a
single set of factors, we are likely to end up with very few cases at best. Thus,
focusing on Britain in 1978/79 or on New Zealand in 1983/84 does in fact allow
us to identify the influence of actor orientations while problems and
institutions are held constant. Similarly, in my "Crisis and Choice in
European Social Democracy" (Scharpf 1991), I selected four countries (Austria,
Britain, Germany and Sweden) which during the 1970s were faced with the same
problems of "stagflation", and which at the time had governments with
strong preferences for the maintenance of full employment and with cognitive
orientations shaped by the Keynesian paradigm. Within this design it was then
relatively easy to relate differences in policy choices to differences of
institutional structures (in particular, central-bank independence and
concentrated or fragmented collective bargaining institutions).
Need for Institutionalist Working Hypotheses
In comparative policy research, however, we want to study
a larger population of countries and policy choices, or seek to explain cases
selected for their topical interest, rather than by the logic of a
variance-controlling research designs. Still, for the reasons discussed above, a
purely empirical approach would not serve our purposes. Instead, we might rely
on theoretically grounded working hypotheses, rather than empirical research,
for some causal influences in order to simplify and guide our empirical search
for other explanatory factors. Preferably, these should be hypotheses with high
predictive power - meaning that they should allow us to form precise
expectations about significant causes and effects on the basis of relatively
limited and easily obtainable information (Scharpf 1997, chapter 1).
Such hypotheses are clearly not available for all factors
involved in our complex constellations. We have no general theory that would
allow us to predict the occurrence of policy problems or the characteristics of
effective solutions. These need to be identified by case-specific problem and
policy analyses. Similarly, we have no general theory predicting the type of
institutional settings within which policy interactions take place. They also
need to be identified empirically in the specific cases at hand. But once we
have obtained both of these sets of empirical information, we can use them to
formulate theoretically grounded expectations of the policy responses which we
should expect under the circumstances.
Substantive problem and policy analyses will generate
policy recommendations of a prescriptive character which, however, can be
converted into empirically relevant predictions if they are coupled with the
assumption that the perceptions of all policy actors are identical with those of
the policy analyst, and that the preferences of all policy actors are
exclusively defined by a normative commitment to maximizing the public interest
as defined by the policy recommendations of the analyst. If these (unrealistic)
assumptions were true, institutions would only play a very limited role. But
since we have reason to think that institutions matter, we also need hypotheses
that predict their influence on the effectiveness of policy responses.
This influence is most obvious where formal institutional
rules impose direct constraints on the repertoire of permissible policy choices.
But we expect that within this repertoire the actual choice among permissible
options is also affected by institutional rules prescribing actor constellations
and modes of interaction, and by institutional incentives and disincentives
affecting actor preferences. For formulating such predictions, rational-choice
institutionalism has a clear advantage over the less information-efficient
sociological variety. Its predictive power depends precisely on its narrow focus
on the incentive-effect of institutional rules on organizational self-interest
and on the assumption of complete information and adequate information
processing capacity. Thus, if we know how the organizational self-interest of
specific policy actors would be affected the available responses to given policy
challenges, and if we know the actor constellation and the applicable rules of
the game, we can then apply a range of analytical (essentially game-theoretic)
tools to predict the policy outcome that interactions between rational and
self-interested policy actors would produce in the specific case.
From what was said above, it follos of course that both of
these predictions are based on unrealistic assumptions and thus will often be
false. But that does not mean that they would be useless.
I will return to this point in the concluding section, and now turn to a brief
overview of the institutional hypotheses that are likely to play a major role in
comparative policy studies.
on Permissible Policy Options
Countries differ in the range of institutionally
permissible policy options. An example is the power of governments to determine
wages and working time - an option which was routinely exercised by Belgian
governments in the 1980s and 1990s, and which is available in most other
countries as well, but which is ruled out in Germany by the constitutional
guarantee of collective bargaining. Similarly, the judicial interpretation of
the German constitution imposes narrow constraints on the permissible extent of
property taxation, and it is claimed to rule out a Scandinavian-type "dual
income tax" which would tax capital incomes more lightly than incomes from
other sources. Admittedly, the German case represents an extreme example of
legalism-cum-judicial-activism, but similar legal fetters - for instance on
the public debt - can be found in other constitutional democracies as well.
More important for most countries is the increasing
tightness of international legal constraints. Thus, the blatant protectionism
which shielded import-substituting industrialization in Australia and New
Zealand well into the 1980s (Schwarz 2000) would now be liable to massive legal
sanctions by the World Trade Organization (WTO). Similarly, the tight control of
capital transfers, and the highly discriminatory regulation of credit markets
which facilitated the success of macro-economic full-employment strategies in
Sweden until the mid 1980s (Benner & Vad 2000), would now be ruled out by EU
directives liberalizing capital markets and financial services. More generally,
the rules of "negative integration" and in particular, European
competition law have become a major constraint on all economic-policy options
that could be construed as inhibiting or distorting free competition in the
markets of EU member states (Scharpf 1999a). And countries that have joined the
European Monetary Union not only had to transfer their monetary competencies to
the (totally independent) European Central Bank, but they also had to accept
legally binding constraints on their fiscal-policy options. As a consequence,
the option of achieving full employment through Keynesian strategies of demand
reflation is no longer available at the national level among EMU member states.
Constellations and Modes of Interaction
In addition to imposing substantive prohibitions,
institutional rules also define the constellations of actors that may
participate in the adoption and implementation of policy responses as well as
their permissible modes of interaction - which could be classified as
"mutual adjustment", "negotiated agreement", "voting"
or "hierarchical direction" (Scharpf 1997). Together, these rules
determine the most basic and policy-relevant characteristic of the institutional
setting, namely the number of formal "veto positions" (Tsebelis 1995).
In extreme simplification, one may thus speak of "single-actor
constellations " in which all relevant policy choices are potentially
determined by the preferences and perceptions prevailing in a unified action
center, or of "multiple-actor constellations" in which effective
policy depends on the choices of several independent actors that may be acting
from separate and potentially conflicting preferences and perceptions.
Here, policy can be blocked at multiple veto positions, and effective action
will depend on negotiated agreement. The theoretical expectation is that,
everything else being equal, the adoption of policy changes will be more
difficult in multiple-actor than in single-actor constellations.
In practice, most policy choices result from multi-actor
interactions. But some countries, whose political institutions approximate the
ideal "Westminster model", have the option of treating any
major policy problem in a single-actor constellation (Wilson 1994). In other
words, hierarchical direction is an institutionally available mode of
interaction. This ideal type
was approximated in Britain under Thatcher, and in New Zealand until the 1993
reform of the electoral system, but despite the existence of coalition
governments, France also comes close to the single-actor pattern (Schmidt l996,
chapters 1 and 2). Germany, by contrast, is characterized by a multi-actor
constellation with coalition governments and a bicameral parliament at the
center, autonomous subnational governments, an independent central bank, an
independent constitutional court, and with constitutional guarantees of
autonomous collective bargaining by unions and employers' associations, and an
even more extreme example of a multiple-veto system is the Swiss combination of
bicameralism, all-party coalitions, and the referendum.
as Structures of Incentives
Institutional rules will affect policy responses not only
by restricting options and by constituting actor constellations and regulating
their modes of interaction but also by structuring the incentives of the
participating actors. In rational-choice institutionalism, these incentives are
defined by reference to the self-interest of the corporate and collective actors
involved in the policy process - e.g., governments, political parties, central
banks, labor unions, their sub-units or the individuals acting for them.
In single-actor systems, the incentives that have the most direct effect on
policy choices are constituted by the mechanisms of political accountability. In
multi-actor systems, accountability is weakened, and policy outcomes are more
affected by incentives favoring cooperation or conflict among the veto-actors.
Accountability is most clearly institutionalized in
Westminster-type political systems in which all policy competencies are
concentrated in a central government whose choices are controlled by the winner
in periodic two-party electoral competition. Under the restrictive assumption of
a one-dimensional and single-peaked distribution of voter preferences, this
model creates incentives for self-interested governments to adopt policies
corresponding to the preferences of the median voter (Downs 1957), and under
even more restrictive assumptions of complete information all around, these
policies would maximize aggregate welfare (Mueller 1989). It should not be
forgotten, however, that under the same complete-information assumptions, and in
the absence of transaction costs, the Coase-Theorem predicts that
welfare-maximizing outcomes would also be achieved in consociational democracies
through negotiations among parties and associations representing the interests
of affected groups (Coase 1960; Scharpf 1997, chapters 6 and 8). Under idealized
conditions, in other words, democratic accountability would assure effective
policy responses in multi-actor as well as in single-actor constellations.
In the real world, however, policy information is
incomplete and contested, and inter-group negotiations are impeded by high
transaction costs. Under these conditions, it is plausible that voters as well
as the members of organized interest groups will oppose policy changes whose
immediate impact on their status-quo interest position is negative. Then the
institutions of democratic accountability create incentives favoring policies
maximizing short-term benefits and avoiding short-term costs for voters and
interest groups - which may prevent the adoption of effective policy responses
to manifest problems. But the extent to which this is likely varies with the
specifics of institutional arrangements.
For one thing, an increasing number of countries have
exempted certain policy functions from the control of democratically accountable
governments and legislative majorities - by providing constitutional courts,
independent central banks or cartel offices with a greater, though surely not
unlimited, freedom to pursue
unpopular policies. To an even greater (and from the perspective of democratic
accountability much more problematic) degree, this is also true of the European
Central Bank, of the European Commission, and of the European Court of Justice
in its role as interpreter and guardian of Treaty obligations - under
institutional rules where its interpretation of the Treaties could only be
reversed by unanimous agreement among member governments that needs to be
ratified by the parliaments of all member states (Scharpf 1999a). On the other
hand, the negative incentive-effect of democratic accountability increases with
the proximity of elections and their expected salience for the parties in power.
Thus, the fact the legislative term was shortened to three years in 1970 is said
to have reduced the capacity of Swedish governments to govern from a long-term
perspective (Immergut 1999), and in France shorter intervals between
parliamentary and presidential elections have been shown to affect the
willingness of governments to maintain potentially unpopular initiatives (Bonoli
1997). In Germany, the government is even less insulated from short-term
electoral pressures since the four-year parliamentary term is punctuated by
altogether 16 Land elections that affect the partisan composition of the Bundesrat.
By contrast, the realization of Margaret Thatcher's radical reforms benefited
from the five-year interval between general elections, and even more from the
fact that she was facing a divided opposition which, under first-past-the-post
election rules, practically ruled out electoral defeat.
It is clear, then, that national institutions differ
greatly in the extent to which they expose governments to incentives favoring
policies responding to short-term voter reactions, rather than strategies which,
though initially unpopular, may demonstrate their effectiveness and convince
voters in the longer term. But it should be kept in mind that, first, the
organizational self-interest that is affected by these incentives does not
circumscribe the full range of action-relevant preferences. Political parties
and governments may be committed to normative goals and role obligations that
will override electoral concerns - as was true of the Lubbers coalition
government in the Netherlands which stuck to its unpopular retrenchment program
in the face of practically certain electoral defeat in 1994 (Visser and
Hemerijck 1997). Even more important, governments are not necessarily helpless
when faced with negative voter reactions. They may be able to engage opposition
parties, organized interests, the media and the general public in
policy-oriented discourses that explain and justify the course of action that is
proposed and the sacrifices associated with it. Again, however, their capacity
to do so is influenced by institutional conditions - it is greater in
single-actor polities, where the government can speak with one voice, than it is
in multiple-veto constellations where policy choices will often have the
character of compromises among conflicting goals that are difficult to justify
from the positions of any one of the parties involved in their adoption (Schmidt
to Collaborate in Multi-Actor Systems
Depending on whether unilateral policy action is, or is
not, a realizable option, it is useful to distinguish between two variants of
multi-actor systems: In the first case, which one may call "policy
fragmentation", some of the instruments of public policy that are required
for the adoption of a successful policy response to a given problem are not
under the control of a single actor but are exercised by independent agents -
a formally independent constitutional court, a de-facto independent central bank
or cartel office, autonomous subnational governments, and in Europe, the EU
Commission and the European Court of Justice. The effect of policy fragmentation
is, first, to limit the range of policy options which a single actor may
unilaterally adopt and implement and, second, to raise the possibility that
mutually inconsistent unilateral policy choices will interfere with each other;
and even if some coordination is achieved by actors responding to others'
choices in the mode of "mutual adjustment", the outcome may still be
suboptimal. If that is to be
avoided, coordination through negotiated agreement
among independent actors may be required.
In the second case, which I have called "joint
decision making" (Scharpf 1988), none of the parties is allowed (or
physically able) to act unilaterally. Here, effective policy responses can only
be adopted and implemented with the agreement of several independent actors.
That may be true even in single-party governments if ministers are
representatives of intra-party factions that cannot be ignored by the prime
minister, or if ministries enjoy a large degree of constitutional autonomy so
that policy conflicts among them must be resolved through inter-ministerial
negotiations or through the cabinet as a collegiate body (Mayntz & Scharpf
1975). In coalition governments, the agreement of separate political parties,
each with its own policy goals and organizational self interest, is generally
necessary for important policy choices (Budge & Laver 1993), and in
bicameral legislatures the second chamber may have a veto that is exercised by
partisan majorities differing from those in the first chamber.
Given that no policy system is truly single-actor, the
difficulties of effective action depend, of course, on the substantive
convergence or divergence of policy preferences among the veto players involved
(Tsebelis 1995; 1999b). In contrast to mutual adjustment, the Coase-Theorem (Coase
1960) assures us that in the absence of transaction costs negotiations are able
to achieve efficient outcomes in all constellations where potential gains from
cooperation exist. But since transaction costs are never absent, the probability
of agreement depends very much on issue-independent incentives favoring
cooperation or conflict that are inherent in different institutional settings.
General incentives for cooperation should be strongest
within single-party and unitary governments of the Westminster model. Even if
intra-party factions may compete with each other for policy influence and career
opportunities, and even if individual ministerial departments may enjoy
considerable autonomy, all office holders of the governing party must win or
lose elections together, and thus should have strong incentives to cooperate on
successful policies. Similar incentives also exist among the parties in a
coalition government that should have a common interest in the success of their
government. But since each of them must ultimately face its own clienteles and
voters separately, there are also incentives to sharpen one's own profile
through tough bargaining strategies and even open conflicts within the coalition
- which may then delay, distort, or even block effective solutions. Blockage
is more likely in the "end-game" phase of an election period than in
the "honeymoon" of a new coalition, and it is generally more likely in
multi-party systems with an expectation of rapidly changing governing coalitions
- so that unilateral concessions in the interest of longer-term cooperation
are unlikely to have high future payoffs. This was true of multi-party coalition
governments in the French IVth Republic, and of Italian governments before the
early 1990s, whose capacity for effective policy responses was generally very
low. By contrast, the Danish multi-party system seems to have evolved into a
pattern of relatively stable minority governments that are free to seek the
support of variable ad-hoc majorities for their policy initiatives, and that are
thus able to achieve a remarkably high degree of problem-solving capacity (
Benner & Vad 2000). Thus,
its ad-hoc coalitions may be formed exclusively on the basis of convergent
substantive policy interests, whereas longer-term government coalitions are
usually based on agreements that rule out voting with the opposition against
another coalition party - with the consequence that effective policy responses
may be blocked within the coalition even though they would have majority support
in the full parliament.
At the opposite extreme are constellations of "divided
government" where institutional incentives favor conflict, rather than
cooperation. This is true in bicameral legislatures, when partisan majorities in
both houses are opposed to each other (Laver & Shepsle 1991; Krehbiel 1996).
Somewhat similar conditions may obtain in all constitutional democracies when
effective policy solutions require constitutional amendments
that can only be passed by super-majorities including parties in opposition to
the government of the day. Under these conditions, even compromises that would
advance the substantive policy goals of the opposition may be blocked. Since
governments and opposition parties are engaged in zero-sum competition for the
votes of the same electorate, the opposition has not only a substantive interest
in promoting its own policy goals through favorable compromises, but also a
competitive interest in
defeating government initiatives in order to undermine its reputation for
competent and successful political action. Thus conditions of divided government
are particularly unfavorable for effective but unpopular policy responses with a
high party-political salience (Laver & Shepsle 1991; Alt & Lowry 1994).
In between these extremes are located attempts to achieve
effective policy responses through "joint decision making" between
governments and independent public agencies or social-partnership organizations,
or among different national or subnational governments with autonomous
jurisdictions and separate constituencies (as is true of negotiations in the EU
Councils of Ministers). Here, agreement is not facilitated by a generally shared
interest in the success of a joint venture, but neither is it impeded by
disincentives arising from political competition. As long as each party is
unchallenged in its own institutional domain, self-interested cooperation on
substantive solutions has a chance under the "Coase Theorem" whenever
the policy goals pursued by all parties are better achieved through concerted,
rather than through separate action. In fact, much public-sector problem-solving
does occur in the form of agreements among local or regional or national
governments, and the important achievements of European integration are best
explained in terms of intergovernmental agreements as well (Moravcsik 1998).
Going beyond the Coase Theorem (which presupposes that
agreements can only be achieved if all parties involved will benefit from it),
long-standing patterns of successful substantive collaboration may create
additional generalized incentives to maintain cooperation even if one or the
other party must accept short-term sacrifices to its own institutional or policy
interests. Such incentives are said to explain the long-term success of
social-partnership institutions in Austria (Marin 1987; Heinisch 1999).
Nevertheless, even institutionalized "corporatist" cooperation cannot
be taken for granted. The breakdown of "Concerted Action" in Germany
in the early 1970s (Scharpf 1991, chapter 7), the complete, but temporary,
suspension of coordinated wage setting in the Netherlands during the 1970s (Visser
& Hemerijck 1997), and the erosion of centralized wage setting in Sweden in
the 1980s (Compston 1995; Pestoff 1995) demonstrate that generalized incentives
are unlikely to maintain cooperation in the face of sustained conflicts over
either policy goals or institutional self-interest among the parties involved.
for Comparative Policy Research
This overview of hypotheses regarding institutional
incentives and their policy-relevant effects on organizational self-interest of
corporate and collective actors could be extended from the arenas of
parliamentary and intergovernmental interaction to other arenas in which
important policy choices are determined - e.g., interactions in monetary
policy, industrial relations, or European regulation. Moreover, the hypotheses
themselves could and should be formulated with greater differentiation and
precision regarding the assumed organizational self-interest of different types
of actors and the likely incentive effects of different types of institutional
arrangements. Given the deductive methods of rational-choice institutionalism,
the formulation of such hypotheses would not pose serious difficulties - and
given a suitable data base, some of these hypotheses may also be corroborated by
statistical analyses (see e.g., Bawn 1999; Tsebelis 1999b).
As I emphasized above, however, in the specific case the
hypotheses derived from rational-choice institutionalism will often turn out
false. So what is the role that they could and should play in comparative policy
research that is less interested in statistical probabilities than in explaining
the outcomes of individual cases? The answer is that having such hypotheses is
as useful for comparative case studies as having a regression line in a
scattergram is for the exploration of quantitative relationships: It focuses
attention on the "residuals" - i.e., on cases where the prediction
is not confirmed.
In fact, from what I said about the relationship between
problem-oriented and interaction-oriented policy research, it follows that we
are able to work with two different sets of theory-based hypotheses: On the one
hand, problem-oriented policy analyses predict the choices we should expect if
all policy actors had complete information and were exclusively motivated to
realize public-interest maximizing outcomes. On the other hand, rational-choice
institutionalist analyses predict the choices we should expect if all policy
actors had complete information and were exclusively motivated to realize
self-interest maximizing outcomes. If these two predictions agree, we could
conclude that institutional incentives are favoring the adoption of effective
policy responses to the problem in question. If they disagree, such responses
are made more difficult by institutional obstacles. But since (multi-purpose)
political institutions can rarely be optimized with a view to specific policy
problems,  this abstract
evaluation of institutional incentive-effects is not our main concern.
However, empirical policy research benefits very much from
being able to compare the observed outcome of policy interactions to these two
theory-based predictions, both of which rely on highly stylized assumptions
about actor orientations. If the outcome should agree with either of these, we
could content ourselves with having obtained a satisfactory explanation. But
when that is not the case (i.e., most of the time), we now have at least a clear
idea of where to search for explanations. Since both the nature of the problem
and the institutional incentives have already been accounted for, the
explanation must be found in actor orientations that differ from the stylized
assumptions underlying our predictions. Thus we now must seek empirical
information on the actual preferences and perceptions of the policy actors
More specifically, we should seek for cognitive
orientations that deviate from the information and cause-and-effect hypotheses
of the substantive problem and policy analyses which we consider to be true. At
the same time, we should also seek for actor preferences that differ from either
the perfectly public-interested or the perfectly self-interested motivations
assumed in our hypotheses. In doing so, it is often very useful - in the
spirit of Lindenberg's (1990) "method of decreasing abstraction" -
to begin by focusing on the institutionalized "norms of appropriateness"
that are emphasized by sociological institutionalism (March & Olsen 1989),
and to move on to searching for more idiosyncratic normative orientations and
identity concepts only when the more stylized institutional hypotheses fail to
explain choices. In any case, however, the discrepancy between theoretical
predictions and observed policy choices will guide and greatly simplify the
empirical search for those preferences and perceptions that actually can explain
the failure to adopt effective policy responses.
To give an example: After the Bundesbank had
switched to monetarism in the mid 1970s, all countries that had pegged their
currencies to the German mark (Austria, Denmark, the Netherlands, and Belgium)
were confronted with the same hard-currency environment which, in the absence of
union wage restraint, would produce high unemployment. When faced with this
challenge, rational-institutionalism would tell us, the centralization or
fragmentation of wage-setting institutions should not matter: Large or small
unions alike should find it in their organizational self-interest to save the
jobs of their members through wage restraint. In Germany and Austria, this is
what happened within a year or two, whereas collective bargaining in Denmark,
Belgium and the Netherlands continued to generate wage inflation even under
conditions of steeply rising unemployment. Since institutional incentives cannot
explain these differences, the comparison would then have to focus on the
influence of cognitive misperceptions and normative (ideological) orientations
that prevented the unions in some countries, but not in others, from fully
appreciating the impact of a change in (German) monetary policy on their own
employment situation (Scharpf 2000b).
The example has several interesting implications for
research strategies: First, what counts as a "case" in comparative
case studies depends on what is to be explained. In comparative policy research,
that is trying to explain differences in policy response to a given challenge,
the case is defined by the set of interactions connecting the challenge to the
response. Since the historical processes we are studying contain a considerable
variety of (often nested) policy challenges, we have considerable freedom in
selecting sets of cases which, at minimum, are similar with regard to the policy
challenge that was being faced. In the example, we could have focused on the
full set of countries that were members in the European currency "snake"
in 1973/74, asking why some of them responded to the German switch to monetarism
by quitting the snake, whereas others maintained their commitment to a
hard-currency position. Among the subset of soft-currency countries, we could
then compare responses to the challenge of escalating rates of inflation; among
the hard-currency countries, in turn, comparison would focus on responses to
rising unemployment, and so on. Among these sets defined by similar challenges,
moreover, it should usually be possible to identify subsets of cases that have
additional causal factors in common - which would then permit a more precise
focus on a narrower range of explanatory variables.
Combined with the use of rational-choice working
hypotheses, then, structured comparisons within varying subsets of cases seem to
be our best hope for building a body of generalizable knowledge about the causal
relations between types of policy challenges, types of institutional structures,
and actor orientations. Moreover, by switching between overlapping subsets of
cases defined by either common challenges, or common actor orientations or
common institutions, we should be able to increase our confidence in the
explanations discovered in each of these dimensions. These explanations will
surely not amount to a general and comprehensive theory, but they will go beyond
the ad-hoc explanations that are otherwise characteristic of historical case
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1 Most of my
examples will be taken from the fields which I know best -
cross-national comparative studies of welfare-state and
employment policy responses to changes in the international
economic environment (Scharpf 1991; Scharpf and Schmidt 2000).
2 Worse yet, if such case studies
are written with the self-conscious intent of producing
inductive generalizations, they are likely to contribute to the
endless cycle of over-generalized propositions and false
falsifications that plagues not only the study of European
politics (Scharpf 1999b).
3 Another interesting combination
of methods is used by Hicks (1999) who relies on multivariate
regressions where quantitative time-series data are available,
but resorts to Ragin's (1987) "qualitative comparative
analysis" where only qualitative data can be obtained.
4 "Historical institutionalism",
the third strand discussed in these overviews, is primarily
interested in the path-dependent evolution of institutional
forms (Steinmo and Thelen 1992; Pierson 1997), but has no
distinct theory of its own about the way institutions influence
actors' choices. Some authors lean more toward rational-choice
assumptions, others toward social-constructivist interpretations.
5 I should add that my presentation
of the differences between the two is also overdrawn. For a more
integrative discussion, see Thelen (1999). From the
rational-choice side, a useful theoretical bridge is built by
Lindenberg's (1989) concept of socio-culturally defined "production
functions" through which (or the social roles in which) the
abstract individual self-interest in physical well-being and
social recognition must be concretely pursued. For the
organizational self-interest of corporate actors, this concept
seems even more pertinent.
6 Preferences, in our view must be
understood as relatively stable ("pre-strategic")
criteria for the evaluation of outcomes, rather than as
tentative commitments to a particular strategy (which may of
course be changed quite easily by "arguments"
providing new information). If this distinction is kept in mind,
much fruitless debate over the need to "endogenize
preferences" in analyses of policy interactions could be
7 A third dimension is defined by
identity concepts that may be more specific than
institutionalized norms and role obligations (Scharpf 1997,
8 The point is nicely made in the
dictum, ascribed to Lyndon Johnson, that "you got to be
re-elected to be a statesman".
9 See the reference to "production
functions" in note 5, above.
10 It is puzzling that in modeling
the effect of institutional rules on policy choices, Tsebelis
(1995; 1999a) considers only the "goal" dimension (expressed
by the ideological distance between veto players) while ignoring
the "maintenance" dimension (e.g., the effect of
competitive incentives on the organizational self-interest of
corporate actors and hence on their willingness to reach
11 In this regard, the approach
discussed here differs from the "analytic-narratives"
approach (Bates et al.1998) which expects rational-choice
analyses to provide complete explanations of historically unique
12 The same kind of descriptors
may be used to characterize wage-setting systems. Here,
effective decisions may, again, be vertically centralized and
horizontally concentrated in the arena of peak-level
negotiations among monopoly associations of capital and labor;
located at the level national industrial sectors and branches;
or decentralized to regional negotiations, to firm-level or shop
floor negotiations, or even to individual employment contracts.
13 The center would be hopelessly
overloaded if choices were in fact made there in many cases (Downs
1967). Nevertheless, the fact that any decision could be
centralized is likely to affect the choices made "in the
shadow of hierarchy" at the level of departments or
agencies (Scharpf 1997, chapter 9).
14 I will not here go into
intricacies of when it is useful to ascribe actor qualities to
corporate and collective actors, and when it is necessary to
focus on sub-units thereof or even on individuals (Scharpf 1997,
chapter 3), except to note that in general the incentives for
individuals acting in the name of corporate and collective
actors are closely linked to their success in terms of
15 The celebrated independence of
the German Bundesbank could have been abolished by ordinary
legislation. That it was maintained even in major conflicts with
governments of the day, from Konrad Adenauer to Helmut Kohl, was
due to broad public support for its institutional independence.
16 More precisely, the efficiency
of the outcome depends entirely on the underlying constellations
of actor interests. If they correspond to a "Battle of the
Sexes" - which is the constellation that Carey (this
volume) is primarily considering - mutual adjustment may be
highly efficient. A real-world example was the adjustment of
German unions after 1975 to the monetary policy announced
annually by the Bundesbank. But if the underlying constellation
should resemble a Chicken Game or the Prisoner's Dilemma, mutual
adjustment would produce highly undesirable policy outcomes. A
real-world example was the inflationary wage competition among
British unions in the 1970s (Scharpf 1987).
17 Negotiated coordination may
take two forms: "Negative coordination" merely avoids
policies that would have negative external effects on other
policy areas, whereas ""positive coordination"
attempts to maximize the gains from cooperation (Scharpf 1997,
18 Blom-Hansen (1999) points to a
second mechanism facilitating effective problem solving in
Scandinavian countries, namely the government's choice among
alternative arenas of decision making - parliamentary,
intergovernmental, and corporatist.
19 Such conditions are most likely
to occur in countries where an "activist"
constitutional court is deeply involved in substantive policy
choices - which is true of courts in Germany and Denmark, and
increasingly in Italy and France. In that sense, constitutional
courts may be able to create the very political deadlocks which
George Tsebelis (1999a) sees as their major source of power.
20 Competitive incentives may be
softened by expectations of an imminent return to government.
Thus, in Sweden in the early 1990s, opposition social democrats
collaborated with the conservative government in designing cuts
in welfare-state expenditures they considered necessary. For the
Netherlands in the 1980s, it is also suggested that the social
democrats did not attack on the unpopular reforms of the
christian-liberal government because they hoped to join a future
coalition with the christian democrats (Green-Pedersen 1999).
21 There is a parallel in
International Relations, where the "Realist" school
assumes a dominance of competitive incentives that force states
to pursue "relative", rather than "absolute gains"
(Waltz 1979) whereas "Liberal" theorists assert the
theoretical possibility and practical importance of
international agreements capturing "absolute" gains
from cooperation (Keohane 1984).
22 The exception are institutions
that are explicitly designed to serve a single purpose - as
may be true of the European Central Bank which is supposed to be
exclusively committed to price stability.
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