The MPIfG’s Research Program

The past two decades have vindicated this disequilibrium approach to studying the economy in its relations to society. The global financial crisis of 2007 has demonstrated that the idea of a “great moderation,” in which cyclical fluctuations can be controlled by allowing central banks to hit their inflation targets free of political intervention, markets work efficiently with minimal regulation, and unemployment can be durably brought down by flexibilizing labor market institutions, was a pious illusion, and perhaps an ideological veil. Growth turned out to be highly dependent on an oversized financial sector and was highly unequally distributed, with most of the returns going to the now infamous “top 1 percent.” In retrospect, the jolt imparted by the financial crisis has turned out to be a partial and temporary one. The massive intervention of central banks, including through unorthodox policies, contributed to temporarily stabilizing the economy, giving the impression that a return to normality could be achieved, but led simultaneously to new risks, inequalities, and instabilities.

The onset of the coronavirus crisis in 2020 – another “black swan” that was anticipated by some but not seriously considered as a possibility by policy-makers – has shown once again the role of uncertain futures and the vulnerability of liberalized capitalism. It has exposed the shortfalls of a regulatory regime that entrusts private markets with the solution to social problems. Reliance on private providers for essential services, the global organization of supply chains, and calls for health and social expenditure cuts, will likely meet with greater resistance in the future. Globalization, already on the defensive before this crisis, may once more be at a historical turning point. This also underlines the main starting point of research at the MPIfG, which is that economic phenomena can only be understood in their interaction with politics and society. To investigate the societal consequences and policy responses to this crisis will be of prime importance for scholars in the field of economic sociology and political economy.

Institute research on the political economy of growth models takes secular stagnation as a point of departure. Post-war growth was based on a model in which aggregate demand grew in lockstep with aggregate supply thanks to institutions that ensured the transfer of productivity increases to real incomes. This “fordist” or “wage-led” model of growth was undermined by internal and external changes. Due to a distributional shift away from labor income towards capital income, starting in the 1970s, advanced countries were confronted with a problem of excessive savings and demand shortfall, to which they have responded by activating a set of alternative demand drivers. In some cases, growth has been kept up by relying mostly on credit-financed domestic consumption, made possible by easier access to household debt or the wealth effects of asset appreciation (including housing assets). In other cases, growth has relied heavily on external demand, giving rise to export-led growth models. Other countries have been able to combine multiple growth drivers, while still others have been unable to find any alternative to the wage-led growth model. Different growth models rest on distinct key sectors and associated coalitions of “core” producer groups.

Research in the political economy cluster will continue to develop the “growth model perspective,” paying attention to the effects of crises on national-level trajectories, in particular in terms of a conceivably greater role of the state in economic management in the future. A particular emphasis will be put on the politics of growth models. We will try to chart a middle course between the “producer group coalition” and “electoral turn” perspectives in political economy. The former emphasizes the influence that economic actors and interest groups have on key policy decisions. The latter underscores the preferences of voters as ultimate determinants of policy choice. Both have strengths and weaknesses. The producer group coalition perspective is often able to provide persuasive explanations of why certain key policy decisions are adopted, but it takes the problem of building democratic majorities largely for granted. The democratic turn approach has the opposite problem: it neglects that some interests are weightier than others.