| Summary: | The new institutionalist school of economics addresses the divergence between countries' long-run economic performance by attributing it to differences in institutional heritage. Institutions which suppress the kleptocratic inclinations of governments and enshrine a 'credible commitment' to protect property rights encourage productive activity. But that is not to say states that cannot ensure universal property rights have not achieved economic growth. Such governments may resort to clientelist arrangements that guarantee a subset of asset holders their property rights will be protected in exchange for political and economic support. Such a system of 'crony capitalism' is an inefficient allocator of resources but it can ensure political stability which in turn allows an otherwise weak government to preside over sustained growth. This thesis compares the fortunes of Spain and Argentina, two 'crony capitalist states' characterised by distributional conflict, between 1950 and 2000. The principal hypothesis is that Spain's economic performance far outstripped that of Argentina over subsequent decades because the web of alliances between the state and society included a greater variety of economic interests than its Argentine counterpart and consequently achieved a closer approximation of a credible commitment to universally guarantee property rights. Argentine corporatism constructed in the late 1940s by president Juan Peron failed to integrate powerful interests and Argentine society is consequently defined by a variety of well-organised and powerful economic interest groups that compete for a share of national rent. The executive is forced to negotiate directly with these groups to secure support for new economic policy rather than operate through an effective state bureaucracy. Interests left out of the alliance will act to change the policy or remove the president, resulting in Argentina's perpetual cycle of economic and political instability. In Spain, the executive presided over a state segmented between interest groups. Each group was rewarded in return for loyalty with control over the ministry pertinent to a particular area of Spanish society. Economic interests such as labour, business and agriculture, meanwhile, were represented through compulsory membership of a monolithic syndicate. Within this bureaucracy, different factions representing a variety of economic interests engaged in a war of attrition to shape policy before the arbitrating dictator. This highly centralised state bureaucracy survived the transition to democracy and Spanish political parties abandoned their class-based identities and became mass movements organised under disciplined hierarchies of control. Thus negotiations over reform continued to operate within the state which ensured political stability which is a pure public good and encourages productive activity.
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