The Comparative Political Economy of Growth Models: Explaining the Continuity of FDI-Led Growth in Ireland and Hungary*

• DOI: 10.1177/0032329220985723
• Date: 01 March 2021
• Published date: 01 March 2021
• Author: Dorothee Bohle,Aidan Regan
• Subject Matter: Special Issue Articles

https://doi.org/10.1177/0032329220985723

Politics & Society

2021, Vol. 49(1) 75 –106

© The Author(s) 2021

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DOI: 10.1177/0032329220985723

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Special Issue Article

The Comparative Political

Economy of Growth Models:

Explaining the Continuity of

FDI-Led Growth in Ireland

and Hungary*

Dorothee Bohle

European University Institute, Florence

Aidan Regan

University College Dublin, Ireland

Abstract

This article argues that the quiet politics of informal business-state interaction

explains the political determinants of growth regimes. Building on the business power

literature within the study of comparative capitalism, it shows that the noisy politics

of elections often leads to changes of government but rarely to fundamental changes

in the growth regime. Rather, growth models can be traced to the interactions and

interests of dominant corporations within a country and its policymaking elites. The

argument is developed through a comparative case study research design, using

the case of foreign direct investment–led (FDI-led) growth in Ireland and Hungary.

FDI-led growth regimes are a universe of cases that rely on state-led industrial and

enterprise policies targeting the capital investment of foreign-owned multinational

firms. Despite periods of noisy electoral politics challenging basic tenets of the FDI-

led growth model in both Hungary and Ireland, the continuity of FDI-oriented growth

is traced to the corporate politics of business-state elite deals.

Keywords

comparative capitalism, growth models, business power, quiet politics, Ireland, Hungary

985723PASXXX10.1177/0032329220985723Politics & SocietyBohle and Regan

research-article2021

Corresponding Author:

Aidan Regan, School of Politics and International Relations, University College Dublin (UCD), Ireland.

Email: aidan.regan@ucd.ie

*This is one of six articles that constitute a special issue titled “Quiet Politics and the Power of Business:

New Perspectives in an Era of Noisy Politics.” Some of the articles in the issue were first presented at the

SASE annual meeting at the Université Claude Bernard Lyon 1 in June 2017, organized by Glenn Morgan,

Christoph Houman Ellersgaard, Stéphanie Ginalski, and Christian Lyhne Ibsen, and at a workshop at the

University of Bristol funded by the School of Management and the Political Studies Association section on

Labour Movements in June 2018, organized by Glenn Morgan, Christian Lyhne Ibsen, and Magnus Feldmann.

76 Politics & Society 49(1)

Economic crises often bring about remarkable political and economic changes. Crises

are moments for critical choices, when established institutions and policies collapse

and alternatives are tested.1 The Great Depression sounded the death knell for eco-

nomic liberalism. The victorious alternative, Keynesianism, saw itself discredited half

a century later, when the end of Fordism and the oil crisis undermined its foundations

and brought a new version of economic liberalism—neoliberalism—to the fore. On

one level, the Great Financial Crisis is no different. It seems to have ushered in a

period of political instability and the ascent of right-wing political forces promoting

economic nationalism. At the same time, however, despite political turmoil and the

noisy politics of right-wing populism, there is remarkable continuity in the basic eco-

nomic growth models that countries are pursuing. From the perspective of compara-

tive political economy, Germany has not changed its export-oriented model

substantively, and the United States under Trump and Brexit-torn Britain seem to rely

as much on their financial sectors as before the crisis.

This article analyzes the continuity of underlying growth models amid political

turbulence and electoral change. To that end, we explore the puzzling continuity of

foreign direct investment–led (FDI-led) growth in two European countries that were

hard hit by the Great Financial Crisis: Ireland and Hungary. Both countries embarked

on an FDI-led growth trajectory in the decades prior to the crisis and have experi-

enced a partial change toward more financialized consumption—reflected in their

housing booms during the 2000s. The deep crisis brought about political instability

and, in the Hungarian case, a partial regime change and outright economic nationalist

rhetoric. Yet, the deep crises and political upheaval notwithstanding, the major tenets

of FDI-led growth have been sustained, nurtured, and expanded. Ireland continues to

rely on inward FDI from the United States, and Hungary continues to rely on FDI

from Germany. What explains this continuity, and what are the political mechanisms

underpinning it?

Addressing these questions, the article seeks to contribute to current debates in

comparative political economy, which is increasingly focused on trying to explain

the political determinants of growth models, or national varieties of capitalism. The

dominant approach is the electoral perspective, whereby policy choices are traced to

changing demands among the electorate. Our major contention is that while the

“constrained partisanship approach” is powerful in explaining the noisy politics of

social policy reform and the welfare state,2 it has much less to say on industrial and

enterprise policy.3 Industrial and enterprise policies aimed at capital investment are

constitutive of national growth models, and these policies are rarely if ever dis-

cussed within the domain of noisy electoral politics. In order to explain the continu-

ity in industrial and enterprise policies, we turn to the literature on business power.

Specifically, we test the argument that the policy bargains underpinning industrial

policy can be traced to what Pepper D. Culpepper calls the “quiet politics” of busi-

ness elites and the state.4 To put it differently, major ingredients of growth models

never make it to the electoral arena but remain in the informal realm of business-

state interaction.

Bohle and Regan 77

The remainder of the article is structured as follows. First, we engage the theoreti-

cal debate on the comparative politics of advanced capitalism and make the case for a

business power perspective in explaining the political determinants of growth regimes.

Second, we specify more concretely the universe of cases we are examining: FDI-led

growth regimes in Ireland and Central Europe, where the role of the state and indus-

trial-enterprise policy is central. We also discuss our research design. Third, we test

our causal mechanism for how business and state elites shape growth, applying a pro-

cess tracing analysis of both countries. The final section concludes.

Explaining Growth Models: Electorates and Business

Power

Recent years have seen two important advances in comparative political economy

(CPE). On the one hand, a new wave of scholarship investigating growth models

has tried to overcome some of the shortcomings affecting the classical varieties of

capitalism (VoC) approach: its static character, institutional focus, supply-side bias,

and quest for microfoundations.5 Building eclectically on diverse, heterodox, and

post-Keynesian scholarship, this new perspective seeks to understand the demand

drivers of growth underpinning the structure of the macroeconomy. The framework

allows for multiple growth models, depending on the relative importance of differ-

ent components of aggregate demand (income growth). However, as outlined

recently by a number of authors, the central distinction is the extent to which coun-

tries secure income growth through household and government consumption and/or

net exports.6 The growth model perspective does not necessarily contradict the

major tenets of VoC but rather aims at refocusing CPE research on structural macro

variables.

The second, closely related advance in CPE is a focus on the political determinants

of growth regimes and national models of capitalism. Growth models do not emerge

out of thin air. Rather, they are a product of those strategies that key actors—govern-

ments, producer groups, and business elites—pursue to secure investment and profit-

ability and, in turn, income and employment growth. Thus, it is crucial to understand

the political coalitions that underpin an existing growth model, the conflicts that arise,

and the power that specific societal groups exercise in the respective model. It is pre-

cisely this debate, which spans the boundaries of CPE and international political econ-

omy (IPE), that our article speaks to. Currently, there are three understandings of how

political conflict shapes national growth regimes.7

The first perspective stresses electoral politics.8 Focusing on the transformation of

welfare states in advanced capitalist democracies, this perspective argues that global-

ization and technological change have transformed the labor market, with the implica-

tion that different occupational classes have developed distinct socioeconomic and

sociocultural preferences. Some groups prefer governments to prioritize social invest-

ment and economic and cultural liberalism, while others look for traditional social