In Chapter 1 I emphasized that, contrary to the findings of the current theoretical literature and contrary, as well, to popular wisdom, political parties, understood as coalitions of interests and ideas, play a rather pivotal role in the economic-policymaking process and in the evolution of the economy. More precisely, I pointed out that, although they are constrained by the configuration of domestic institutions and the international economy in regard to macroeconomic policymaking, all governments have substantial autonomy to affect the production factors or structural conditions of the economy in line with their ultimate partisan preferences. Broadly speaking, social democratic governments primarily mobilize the public sector to shape the supply side of the economy – in order to reconcile growth and equality. Conservative governments believe instead in employing market mechanisms to optimize the savings and investment rates and thus maximize economic growth.

To shed light on the nature and consequences of these economic strategies, and to pave the way for the statistical and historical analysis undertaken in the rest of the book, this chapter starts by developing a stylized model of the political economy of advanced nations. The second section then provides empirical evidence on the economic trade-offs revealed by this model (essentially between unemployment and economic inequality), that all advanced countries face. The third section examines the alternative economic strategies that different parties will embrace, depending on their initial preferences (presented in Chapter 1) toward the distribution of income, to manage the supply side of the economy.