2.1 Structuralist approaches: the specter of neoliberalism and parties' impotence

More recent work has particularly concentrated on the post-1970s period, the so-called Silver Age of the Welfare State (after the “Golden Age” during the Trente Glorieuses). This period saw the simultaneous occurrence of several crucial changes that ostensibly have tilted the state-market relationship toward markets (Glyn, Reference Glyn2006; Streeck, Reference Streeck2015): The 1970s oil crises and subsequent recession, slowing growth rates, intensifying globalization, substantial tax and public debt rates, existing policy commitments and legacies, intensifying financialization, a shift toward new paradigms (e.g., new public management and neoliberalism), some ideological convergence of parties on the state-market dimension, and a political shift toward market-friendly and state-skeptical governments have led scholars to conclude that liberalization has become the dominant – and potentially even the only – direction of political reforms (Simmons and Elkins, Reference Simmons and Elkins2004; Streeck and Thelen, Reference Streeck and Thelen2005; Streeck, Reference Streeck2009, Reference Streeck2015; Baccaro and Howell, Reference Baccaro and Howell2011; Höpner et al., Reference Höpner, Petring, Seikel and Werner2011).

According to these structuralist (and often liberalization-critical) analyses, liberalization has become an omnipresent and unavoidable force. While the form and pace might differ across contexts (Murillo, Reference Murillo2002; Thelen, Reference Thelen2012), the direction is clear: more liberalization. Domestic political factors (like parties) are often portrayed as either reluctant or unable to stop this trend, as the structural and ideational factors supposedly predominate.

The same expectation follows from efficiency theory (Scharpf, Reference Scharpf1991; Genschel, Reference Genschel2002), one of the main globalization theories. It argues that globalization increases firms' mobility potential, resulting in global (tax) competition that ultimately ends in a “race-to-the-bottom” as countries have to decrease taxation, retrench their welfare states, and weaken the state vis-à-vis the market. Accordingly, this prominent line of research concludes that governing parties do not affect (de)liberalization reforms, as they are overpowered by (or willingly agree to) the international liberalization trend.

2.2 Partisan hypothesis: parties do matter

A second strand of literature fundamentally disagrees. Work in the tradition of the “partisan hypothesis” (Hibbs, Reference Hibbs1977; Alt, Reference Alt1985; Schmidt, Reference Schmidt1996) and “power resource theory” (Korpi, Reference Korpi1983; Huber and Stephens, Reference Huber and Stephens2001) argues that parties matter. Parties represent different electorates with different socio-economic interests that parties transform into policy positions; this means that the party composition of government shapes the policies that are proposed and put into action. Liberalization should be more likely under market-friendly rightwing governments (especially economic liberals and fiscal conservatives) and less likely under left-of-center governments which favor an active state and de-commodification (Engler and Zohlnhöfer, Reference Engler and Zohlnhöfer2019). Obinger et al. (Reference Obinger, Schmitt and Zohlnhöfer2014) found support for this argument when looking at privatization, i.e. one important dimension of liberalization. Gingrich (Reference Gingrich2011) shows across a range of policy areas that parties do matter for the kind, form, and timing of “making markets.”

Another line of research has refined standard partisan theory, showing that political competition is increasingly multi-dimensional, as a second ideological dimension reflecting social values has emerged alongside the traditional state-market dimension (Kitschelt, Reference Kitschelt1994; Häusermann et al., Reference Häusermann, Picot and Geering2013). Given that (de)liberalization is mainly about economic aspects (at least in the way it is understood in most of the literature as well as in the data used here), one might expect that especially parties' positions on the first ideological dimension (state-market) should be relevant.

Accordingly, this second line of research concludes that parties do matter and that partisan differences are related in particular to the economic dimension of the ideological space.

2.3 Historical institutionalism: parties used to matter, but are constrained now

A third line of research takes an intermediate position between the two above-discussed perspectives: Historical institutionalists argue that policy-making is crucially shaped – and constrained – by political decisions made in the past, as positive feedback effects create path dependencies (Skocpol, Reference Skocpol1992; Pierson, Reference Pierson1993). These arguments were helpful in explaining why – despite common prophecies of doom – welfare states have largely withheld retrenchment efforts and been “readjusted” rather than reduced (Esping-Andersen, Reference Esping-Andersen2002; Häusermann, Reference Häusermann2010; Morel et al., Reference Morel, Palier and Palme2012; Hemerijck, Reference Hemerijck2017).

According to historical institutionalists, parties had played a crucial role in shaping countries' politico-economic systems, especially in the early post-World War II period, but their influence has decreased over time, as path dependencies increasingly narrow governments' room for maneuver (Boix, Reference Boix1998; Kittel and Obinger, Reference Kittel and Obinger2003; Kwon and Pontusson, Reference Kwon and Pontusson2010; Finseraas and Vernby, Reference Finseraas and Vernby2011; Garritzmann and Seng, Reference Garritzmann and Seng2016). Applied to liberalization and de-liberalization reforms, this line of research thus posits that parties used to matter for (de)liberalization, but that their effect has decreased.

Interestingly, we also find the opposite claim in the literature, namely that partisan effects have increased, as globalization intensifies. Schmitt and Zohlnhöfer (Reference Schmitt and Zohlnhöfer2019) argue – in line with compensation theory – that globalization has led to new welfare demands that left (but not right) parties respond to with de-liberalization reforms. Simultaneously, globalization might be a “legitimation strategy” (ibid.: 20) for parties favoring liberalization, making it more likely that they enact market-enhancing reforms. Thus, partisan differences should become more visible as globalization intensifies. Consequently, this line of research posits that partisan influence on (de)liberalization has not decreased, but increased over time.

2.4 Institutions matter and determine party politics

Finally, important work in comparative political economy argues that institutions play an important role in the politics of (de)liberalization, potentially muting partisan effects. The “Varieties of Capitalism” (Hall and Soskice, Reference Hall and Soskice2001) approach identified different institutional settings that – if complementary – result in “comparative advantages”. More specifically, liberal market economies' (LMEs) comparative advantage is an institutional environment that concentrates on radical innovation, made possible by institutions such as deregulated labor markets, a top-down, management-focused company culture, a stock market-oriented banking and corporate governance system, and an education and social system focused on private investments and individual responsibilities. Further liberalization would thus contribute to LMEs' comparative advantage and should accordingly be the economic imperative for all governing parties, irrespective of their political stripe. The opposite is true for coordinated market economies (CMEs): Cooperation is made possible here by institutions such as a regulated labor market, long-term employment, a “Hausbanken”-centered banking system, a vocationally-oriented education system, and an encompassing de-commodifying social safety net. Liberalization would thus harm CMEs' comparative advantage, so that all relevant parties would push for (further) de-liberalization. It follows from this line of research that parties' positions are determined by their respective contexts, such that all governing parties support the prevailing type of capitalism, rendering party politics essentially irrelevant for (de)liberalization.

A related literature points to countries' “growth models” (Baccaro and Pontusson, Reference Baccaro and Pontusson2016) or “growth regimes” (Hassel and Palier, Reference Hassel and Palier2021), i.e. “ensembles of institutionalized practices central to the process whereby a country secures economic prosperity” (Hall, Reference Hall, Hassel and Palier2021). Discussion is ongoing on the exact number of growth models/regimes, their characteristics, and respective politics, but we can tentatively derive expectations regarding the role of parties from this perspective.

The growth model literature falls into three camps. Some scholars (e.g., Bohle and Regan Reference Bohle and Regan2021) argue that electoral politics has no influence on the often low-salience, technical, complex topics of countries' growth models. Going back to Culpepper (Reference Culpepper2011), this implies that parties might matter in salient areas, but lack influence under “quiet politics.” A second camp, the influential Baccaro & Pontusson variant of the growth model perspective, is largely focused on structural factors, but points to the role of “hegemonic social blocs,” leaving some room open for political agency: Social blocs, understood by Baccaro and Pontusson in a (neo-) Gramscian way, are the respective predominant (“hegemonic”) coalitions shaping policy-making, consisting mainly of the major economic actors in the dominant economic sectors, but also of the respective governing parties. We can thus conceptualize two types of change with regard to (de)liberalization: Either hegemonic social blocs bring the (de)liberalization policies more in line with their respective growth model (analogous to the VoC-story), or a change in the social bloc occurs, transforming also the growth model. Third, still other variants of the growth model paradigm (e.g., Haffert and Mertens, Reference Haffert and Mertens2021; Hall Reference Hall, Hassel and Palier2021; Hassel and Palier, Reference Hassel and Palier2021) spell out a more actor-centered perspective, arguing that governing parties select a growth strategy, which is then translated into policies.

Taken together, this literature offers varying views on partisan effects: In some accounts party positions are determined by the respective growth models, in others parties can matter (to some degree) in shaping the respective growth model.

In sum, existing work fundamentally disagrees on the role of political agency in general, and parties in particular, for liberalization and de-liberalization reforms. Table 1 summarizes the rival claims. Depending on which part of the literature one reads, parties do not matter or they do; their influence is either decreased or increased; or their impact is shaped by institutions or not; and so on. This disagreement is at least partly due to the fact that most existing work uses established, but misleading tools to study the relationship, as we discuss below.

Table 1. Summary of rival arguments in the literature

2.5 A conditional theory of partisan influence on liberalization: testable hypotheses

So, what should we expect and formulate as testable hypotheses? In our reading and against the background of our previous work on the partisan politics of public policy, we find it more likely that parties do matter than that they do not, especially on crucial and salient issues such as the state-market relationship. Parties differ substantially and systematically in their views on the state and the market (Röth, Reference Röth2018), as do voters (Engler and Zohlnhöfer, Reference Engler and Zohlnhöfer2019); moreover, these issues are relevant for citizens and parties and are salient on the political agenda (Baumgartner et al., Reference Baumgartner, Breunig and Grossman2019). Parties thus have both policy and vote incentives to try to make a difference. Moreover, we expect that particularly parties' position on the first dimension (the state-market relationship) matters for (de)liberalization. Though second-dimension politics (the socio-cultural dimension) are without doubt also highly important in today's party politics, it would seem to be less directly connected to economic (de)liberalization reforms. We thus expect:

Moreover, given that the salience of these questions has, if anything, increased over time, we imagine that partisan politics has become an even more important factor. We find this plausible given the knowledge that parties are particularly relevant when issues are salient and citizens care about them (Culpepper, Reference Culpepper2011, Busemeyer et al., Reference Busemeyer, Garritzmann and Neimanns2020), as they arguably do for these crucial “bread-and-butter” issues. Moreover, we agree with Schmitt and Zohlnhöfer (Reference Schmitt and Zohlnhöfer2019) that parties in the globalized, post-Cold War, neoliberal age have particularly high incentives and opportunities to affect (de)liberalization. Thus, we expect:

Finally, while we do not believe that contexts and institutions mute party politics, we posit that institutions can moderate partisan influence (Schmidt, Reference Schmidt1996; Garritzmann et al., Reference Garritzmann, Röth and Kleider2021). Specifically, we agree with scholars of comparative capitalism that types of capitalist organization matter, but we expect these to moderate partisan influence rather than to render parties impotent. Arguably the most interesting cases are parties in “adverse contexts”, i.e. market-friendly parties in CMEs and market-skeptical parties in LMEs.Footnote ³ These cases are particularly intriguing because these parties are likely to face the strongest cross-pressure between their policy goals and electorates, on the one hand, and the economic and functionalist pressures (most vocally articulated by business groups), on the other hand. The question thus becomes: Do parties still matter in these “adverse contexts” or are they rendered useless by the contextual effects? Extending Hypothesis 1, we lean toward the first position and expect parties to try to establish their preferred policy positions even if this means “swimming against the current” of economic pressures. Thus:

3.1 Measuring (de)liberalization

We want to test our propositions and prove the usefulness of our methodological setup in the widest possible sense, i.e., in a large country sample, over time, and covering many policy areas. The “Liberalization Database” (Armingeon et al., Reference Armingeon, Baccaro, Fill, Galindo, Heeb and Labanino2019) provides a unique opportunity, offering detailed information on liberalization and de-liberalization reforms in 37 advanced capitalist democracies between 1973 and 2013, covering 13 policy areas.Footnote ⁴ The unit of analysis is individual policy reforms, coded with regard to their direction (liberalization or de-liberalization), policy field, and magnitude of change. The latter is done by assessing the substantial reform contents using a combination of Hall's typology of first-, second-, and third-order change and Baumgartner's concept of a “status quo change”, understood as “a major change that challenges an existing status quo of a given policy” (Fill, Reference Fill2018: 3). For details on the data, case selection, and coding process see Armingeon et al. (Reference Armingeon, Baccaro, Fill, Galindo, Heeb and Labanino2019).

To reduce complexity, Armingeon et al. (Reference Armingeon, Baccaro, Fill, Galindo, Heeb and Labanino2019) offer two indices that cover for each country-year a weighted index of the number and magnitude of reforms, one for liberalization (“lib”), one for de-liberalization (“delib”). We use these as our main dependent variables. In additional tests we also studied the political dynamics in the individual policy fields, which is, however, for statistical reasons only possible in some areas.

We focus on 23 advanced democratic OECD economies, as these are relatively similar with regard to their socio-economic prosperity but provide interesting institutional and partisan variation.Footnote ⁵

3.2 Measuring party politics

Our main independent variable is the partisan composition of government. A huge literature discusses the pros and cons of different operationalizations of party preferences. Here, we employ three common measures because they capture different aspects of party politics. First, as much of the literature focuses on simple left-right differences, we use the proportion of cabinet seats held by leftwing, center, and rightwing parties, respectively (Armingeon et al., Reference Armingeon, Knöpfel, Weisstanner and Engler2014). We estimate models using the leftwing variable versus center or rightwing parties' seat-shares (as the reference category) and check the results using instead the rightwing variable versus the other categories.

Second, we use the respective cabinet seat-shares of specific party families as a simple, but more fine-grained measure. Especially welfare state scholars have pointed to the fact that for policy-making there are substantive differences within the broader left and right camps, especially between Christian democrats and other rightwing parties, but also between social democrats and “new left” parties. In order to capture these differences and to speak to this debate, we look at the role of four party families: social democrats, Christian democrats, conservatives, and liberals.

Third, we use data from the Manifestos Project (Volkens et al., Reference Volkens, Lacewell, Regel, Schultze and Werner2011) to construct manifesto-based measures, which allow for a more detailed, time-varying operationalization of party preferences. More specifically, we follow conceptualizations of a two-dimensional ideological space and focus on the economic state-market dimension, which is particularly relevant for (de-)liberalization, as theorized above. Our measure is Röth's (Reference Röth2018) transformation of the manifesto data, which provides the most convincing operationalization of the state-market dimension and has been successfully applied and validated in previous work (e.g., Kleider et al., Reference Kleider, Röth and Garritzmann2018; Röth Reference Röth2018; Garritzmann et al., Reference Garritzmann, Röth and Kleider2021). Higher values on this index indicate more market-friendly positions and should be related with more liberalization and less de-liberalization. As a robustness test, we also used alternative measures, focusing e.g., on the emphasis parties place on “welfare expansion” and “welfare limitation”, respectively, in their manifestos. To come to cabinet positions, we weight each parties' position on the economic dimension according to their respective cabinet seat-share.

All partisan composition variables are coded with a one-year lag, i.e., we assume that governments in year t affect expenditure levels in year t + 1, which seems reasonable given the lengthy legislative process of passing budgets.Footnote ⁶ As our model clusters observations at the cabinet level (discussed below), we have to worry less about political cycle effects, because in our setup the exact time point of a policy change within a government's term is not relevant – if it happened within a cabinet's duration, our approach picks it up.

3.3 Controls

We control for a range of alternative explanations found relevant in previous analyses: GDP per capita, GDP growth, inflation, unemployment rate, share of elderly people (65+), trade openness and deindustrialization capture structural changes. These socio-economic variables are included without lags, assuming they have immediate effects on budgets, as governments use economic forecasts when deciding about their budgets. We control for institutional constraints (Schmidt's (Reference Schmidt1996) 6-point index), because political institutions might affect (de)liberalization. Voter turnout picks up the argument that with larger electorates policy-makers might be more responsive to public demands. Finally, union density covers the potential influence of unions on (de)liberalization. For an overview of all data sources see Online Appendix Table A.

3.4 Estimation strategy: mixed-effects models

The established approach in macro-quantitative analyses of partisan effects on public policy (or on other outputs or outcomes) is to apply TSCS regressions to annual observation data (“country-years”). TSCSs are useful since they allow the researcher to simultaneously analyze variation across countries and time, while being able to control for alternative explanations. Much debate has centered on the question of the exact model specifications (for many: Beck and Katz Reference Beck and Katz2011).

Our critique is more fundamental. The common TSCS models on annual observation data assume that each observation is independent. Statistically speaking, this is not true, however, as governments usually do not change annually but rather after elections or with cabinet redesigns. Using annual data without statistically acknowledging this data structure thus artificially inflates the number of observations, resulting in overconfident estimates. Thus, we posit that we cannot fully trust results based on such models and therefore lack trustworthy macro-quantitative analyses of the partisan politics of (de)liberalization.

Some scholars proposed using cabinet terms as the unit of analysis instead (Obinger et al., Reference Obinger, Schmitt and Zohlnhöfer2014; Garritzmann and Seng, Reference Garritzmann and Seng2016; Schmitt, Reference Schmitt2016). While cabinet approaches solve the problem of artificially inflated observations, they create new problems. First, aggregating to the level of cabinets throws away interesting information on constantly changing variables (e.g., socio-economic developments). It becomes harder to tell to what degree these matter. Second, countries differ starkly with regard to the government duration and time since democratization. Thus, comparisons of cabinets across countries and time become difficult, as some countries simply have twice as many cabinets and we might end up comparing a government in one country in the 1970s to another government in the 2010s. This is problematic given that reforms might be context-specific.

Consequently, neither using cabinet terms nor simply applying TSCS models to annual data is ideal. We posit that we can combine the strengths of both approaches and solve their respective weaknesses. Mixed-effects models allow for the simultaneous estimation of fixed effects and random effects (Henderson, Reference Henderson1975; McLean et al., Reference McLean, Sanders and Stroup1991). We can still use annual observations as the unit of analysis, but design a model that acknowledges the cross-classified nested structure of the data within cabinets in countries and years. An additional advantage is that we can decompose the variation on the different levels (countries, years, cabinets) to explore where the relevant variation comes from.

To the best of our knowledge, our study of partisan effects on public expenditure (Garritzmann and Seng, Reference Garritzmann and Seng2020) and subsequently Ennser-Jedenastik's (Reference Ennser-Jedenastik2021) analysis of family policies and Seidl's (Reference Seidl2022) study of knowledge investments are hitherto the only studies that made use of mixed-effects models for this purpose. We claim, more generally, that mixed-effects models are superior to existing approaches when one is interested in studying partisan influence on any kind of output or outcome in comparative macro-quantitative work. Mixed-effects models should thus become the new standard when studying partisan influences on anything in a macro-quantitative setup.

More specifically, our dependent variable ([de]liberalization) and the socio-economic control variables vary annually. Our main independent variable, the partisan composition of the government, varies on a cabinet-term basis. Finally, some control variables (the institutional variables) are largely time-invariant in the period under study. Thus, we design a model with annual observations nested in governments, but also nested in countries as well as in time points (years). The model is thus a cross-classified hierarchical model with random intercepts for governments, countries, and years:Footnote ⁷

$$\eqalign{& y_{igct} = \beta _0 + \beta _1X_{igct} + \beta _2W_{gct} + \beta _3Z_c + \beta _4S_t + \tau _{g00} + \tau _{0c0} + \tau _{00t} + \varepsilon _{igct} \cr & with\;\tau _{g00}\sim N( {0, \;\sigma_g^2 } ) \;\;\;\;\tau _{0c0}\sim N( {0, \;\sigma_c^2 } ) \;\;\;\;\tau _{00t}\sim N( {0, \;\sigma_t^2 } ) \;\;\;\;\varepsilon _{igct}\sim N( {0, \;\sigma_\varepsilon^2 } ) } $$

where y is the dependent variable, X is a vector of annually observed control variables, W is a vector of cabinet-term independent variables, Z is a vector of country-specific independent variables, S is a vector of time-specific independent variables, τ _g00 is the government-level error term, τ _0c0 is the country-level error term, τ _00t is the time-level error term, and $\varepsilon _{igct}$ is the idiosyncratic error.

The time dimension S is modeled with cubic splines to account for non-linear dynamics (Beck et al., Reference Beck, Katz and Tucker1998). The estimation was done by restricted maximum likelihood in order to avoid small sample bias of estimates and confidence intervals, as mentioned by Stegmueller (Reference Stegmueller2013). We additionally corrected the denominator degrees of freedom with a Kenward-Roger approximation for tests in linear mixed models.