The social democratic model of equality and full employment was built on centralized wage bargaining and accommodating macroeconomic and social policies. Although inflationary in its consequences, the model secured full employment through an encompassing alliance behind solidaristic wage restraint and an employment-intensive welfare state. The closest alternative to this model was not free-market capitalism, as is often assumed, but a well-organized industry- or sector-based collective bargaining system mated to a credible nonaccommodating monetary regime. Whereas negotiated solidarity and full employment went hand in hand in the centralized Keynesian model, decentralized monetarism deliberately ignored the distributive and full-employment interests of unions. The two models thus operated according to very different political-economic micrologics.

Keynesian centralization and monetarist decentralization are both varieties of organized capitalism and are clearly distinguished from liberal market capitalism, where economic actors lack strategic capacity. Each offers distinct solutions to problems of collective action and shortsighted behavior and can in this sense be thought of as institutional equilibria. While there has been no general shift toward free-market capitalism, however, the foundation of Keynesian centralization has been eroded over time by new technology, internationalization of product and capital markets, and deindustrialization. This raises some difficult questions about what may constitute a viable left agenda as we enter the new century. Broadly speaking we can distinguish three strategic responses. The first reaffirms the traditional social democratic commitment to full employment, equality, and continued welfare state expansion on the assumption that employers and unions will eventually find their way back to the centralized bargaining table. The second strategy, which we may call monetarist egalitarianism, uses a strict monetary policy rule to deter wage militancy while simultaneously securing an egalitarian structure of employment and wages through labor market regulations and a generous social wage. The third response acknowledges the importance of a well-organized collective bargaining system, strong independent unions, and a continued role for the government especially in education, but simultaneously seeks to boost the employment effects of a nonaccommodating macroeconomic regime by allowing greater flexibility in the wage and employment structure. In this chapter I assess the economic and political viability of these responses.