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Britain From Replacing to Reinforcing a Liberal Market Economy Chapter 4 For most of the post-1945 period, Britain was an economic laggard routinely criticized for having failed to establish an institutional foundation that could sustain a competitive and innovative modern industrial economy. Politicians, the business sector, and scholars widely attributed Britain’s inability to maintain its historically prominent position among industrialized countries to the structure of its national system of economic governance, especially to the absence of economic institutions underwriting long-term social contracts. Particular criticism was directed at national institutions that made up the financial, corporate governance, industrial relations , and innovation systems. To modernize the industrial base of the economy, British governments undertook repeated, often comprehensive reform programs. The direction, scope, and outcome of these reforms varied significantly across three distinct post-war periods . Efforts to introduce designs more akin to those found in centralized and coordinated economies in the 1960s and 1970s failed to be sustainable despite an initially broad political consensus and extensive support among key sectors of the business community. In contrast, against a background of little partisan consensus and open hostility among many economic groups, a comprehensive reform program that aimed to establish a liberal market economy was gradually consolidated in the course of the 1980s. Finally, in the 1990s and 2000s, Conservative and Labour governments successfully reinforced the core of the liberal market economy and a pattern of institutional specialization became evident. This chapter examines the factors that contributed to differences in the institutional trajectory in the three periods, specifically why some designs proved sustainable and others not. Particular attention is given to the nature of support within the business community and the extent to which firms in different sectors were able to credibly commit to structural reform agendas championed by governments. The underlying rationale behind a government’s structural reform agenda is to influence corporate strategies through policies and institutional innovations in ways that make firms more competitive in existing and new product markets. The chapter finds that the ability of governments to shape corporate strategy in ways that Britain 69 made institutional reforms to the British market economy sustainable was a function of how governments reconciled domestic reforms with their foreign economic policies. This chapter departs from a majority of studies in the voluminous literature on Britain’s failed and successful reforms after World War II. The primary emphasis within that literature has been on domestic factors. The inability of governments to sustain early post-war reforms is often attributed to the organizational capacity of economic groups, the structure of state-society relations, or an entrepreneurial elite averse to innovation (e.g., Wiener 1981; Beer 1982; Hart 1992; Wood 2000). Meanwhile, the consolidation of the liberal market program in the 1990s is typically seen as the product of new economic ideas or the reduction in the ability of labor unions to shape government agendas following reforms in the 1980s (e.g., Hay 2001; Howell 2005, 131–173). Although domestic factors played major roles in shaping the British trajectory after 1950, attention to such factors cannot fully account for institutional developments over time. The weak organizational capacity within the business sector is often identified as a reason that firms were unable to commit credibly to government reforms and has been used to explain the failure of structural reforms in the 1960s and 1970s. Yet firms were able to credibly commit to government reforms during and after the 1980s when their organizational capacity was less significant. Research seeking explanations in the structure of state-society relations overlook that there has been no fundamental transformation of that structure since World War II. Similarly, accounts arguing that an elite consensus in the 1980s served to consolidate reforms in that decade overlook that institutional innovations proved unsustainable in the early post-war decades when there was a stronger political consensus on the nature of institutional reform (albeit on a different type of market economy). Other studies suggest that early post-war reforms were doomed to failure because of the historical legacies of British capitalism presented an inhospitable foundation for centralized and coordinated economy designs (e.g., Elbaum and Lazonick 1987). The implication is that institutional transformations cannot occur in economic systems due to entrenched path dependencies. A related inference is that the restoration of the British liberal market economy in the 1980s was an inevitability given nineteenth-century historical legacies of such forms of governance. Neither the failures of early reforms nor their sustainability in later...

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