Reformers and Investors: Crisis and Confidence during the Depression.

Research in Political Economy, Vol. 17, 1999.

Steve Snow
Wagner College

Note: This is a pre-publication version of the final, published article.

Two moderate leftist governments came to power during the Great Depression with

comparable economic agendas, yet they met with quite different fates, largely due to

investors’ attitudes. Capital flight and disinvestment plagued the French Popular Front

(1936-1938) from the moment of its election, which as a result was forced to give way to

rightist cabinets that repealed its reforms and suppressed the labor movement. The Swedish

Social Democrats (1932-36), on the other hand, enjoyed increased investment confidence

and ultimately built a welfare state that other affluent democracies can only aspire to.

Based on an inductive analysis of both cases, this paper seeks to explain the reasons for the

levels of confidence so important to both administrations’ fortunes. The behavior of French

and Swedish owners of capital demonstrates that during the rule of leftist governments, not

all capital strikes result from radical policies; it also indicates how investment confidence

can hold steady.1 These lessons are quite relevant to the current, neo-liberal era.

Investors and business, sometimes correctly, suspect leftist governments of putting

other concerns ahead of theirs. They dread a wide range of political dynamics and policies,

from a more militant working class to drastic redistribution of income, property and land.

On occasion, they engage in capital flight, and it would be helpful to understand why and

under which circumstances. If owners of capital sell the currency, send the proceeds out of

the country, and refuse to invest, an economic crisis can ensue that subverts the

government’s political fortunes. Extreme instances of this dynamic, such as Allende’s

Unidad Popular in Chile, are the subject of most analyses of this subject, which tend to
 2

assume that the political world does not impinge on investors’ calculations. A central

objective of this paper is to specify a broader range of variables that influence investors’

attitudes, and “bring politics in” to a theoretical approach in which economic variables have

hitherto held sway.

A comparative investigation of the Swedish and French experiences suggests that

not only those who seek to implement socialism, but also cautious moderates on the left

confront the dangerous consequences of disinvestment. Investors shy away not only from

radicalism, but also from radicalization, i.e., an unpredictable, politically driven move to

the left. Fears of radicalization—and the capital flight it causes—can occur when the

administration is linked to the revolutionary left and tolerates militant workers. Analysis of

the Swedish and French experiences illustrates the importance of two variables to explaining

the causes of disinvestment: labor militance and the government’s political balance. By

political balance I mean the composition of the government’s legislative support. To which

side do investors perceive the reformers to lean? Is the government listing to the left

because of revolutionary parties or factions? Or is it stabilized by the ballast that

conservatives offer? In the latter case, investors have fewer reasons to fear radicalization,

and they are thus less likely to disinvest. Owners of capital will be alarmed, however, if the

reformers’ agenda in parliament depends on those who denounce reformism and extol

revolution. Investors realize that reliance on the votes of the radicals often pressures a

moderate government to move leftward. Strikes and work stoppages also feed suspicions

of radicalization and cause uncertainty: when the government presides over an increase in

labor unrest, or, particularly, rewards strikers’ demands, business confidence tends to fall.

When reformers demonstrate that they can act against labor’s interests, on the other hand,

they are most successful in reassuring owners of capital that they will maintain a healthy

business climate. In sum, to be successful, reformism must turn away from workers and
 3

revolutionaries. These are the lessons the Popular Front and Swedish Social Democratic

cases offer.

1.0 Explaining Confidence under the Moderate Left

The politics of reform, the economic problems leftist governments face, and the

laudable efforts of the Popular Front and Swedish Social Democrats have all attracted much

analysis and commentary. This paper engages a variety of debates on these topics, with the

aim of evaluating the most persuasive explanations for the successes and failures of the

French and Swedish reformers. The initial questions must be: when does dramatic reform

tend to appear on the political agenda, and when it is likely to succeed? After all, before

investors can thwart reforms, reformers must be in power and be able to pass legislation.

In an ambitious, compelling analysis of the degree of legislative success gained by

reform governments of various stripes, Keeler argues for the importance of two factors:

crisis and the level of political mandate. Deep economic dislocation, for example, often

leads to voter dissatisfaction with political incumbents, and perhaps even a landslide victory

for those promising change. The significance of this mandate, Keeler argues, is determined

by the depth of political and/or economic crisis, and in turn profoundly influences the ability

of the newly elected reformers to pass their program (Keeler 1993, 436-442). Without

question, an atmosphere of crisis—in the unambiguous form of the Great Depression—

played a key role in the election of the Swedish and French governments, as well as the

subsequent passage of their programs. The degree of political mandate, however, is not as

clearly related to either the Popular Front’s difficulties or the Swedish Social Democracy’s

achievements. On the one hand, the Front enjoyed (what Keeler argues was a misleadingly)

large electoral victory and saw its reforms fail, while the Social Democrats won relatively

small majorities until 1940 yet built the stout foundations of the Swedish welfare state

(Keeler 1993, 471, 451). While the margin of victory may not be a determining factor, a
 4

sense of crisis seems to be crucial in electing a government willing and able to undertake

meaningful changes (cf. Oksenberg and Dickson, 1991).

Once elected, new problems face leftist politicians. Perhaps the most serious is

maintaining investors’ goodwill. “As long as investment decisions are ‘free’... the ultimate

political sanction is non-investment, or the threat of it” (Offe 1984, 244). It is important to

discover, therefore, if and how the governing left can obviate this danger. Perhaps crisis

acts not only as a window of opportunity in the political world, but also in the realm of

economics? Block (1977) argues the threat of disinvestment is reduced during abnormal

economic conditions. Workers’ demands are usually constrained by politicians’ need to

maintain normal investment patterns, but some circumstances, such as depressions, wartime,

or post-war reconstruction, reduce investors’ importance and at the same time increase the

intensity of pressure from below (Block 1977, 25-27). As does Miliband (1969, 1973),

Block argues labor’s direct action is the key to successful reforms, and is aided by periods

of crisis, which offer important opportunities. There is, in fact, good reason to believe that

these two factors have operated to the benefit of leftist governments. Block’s explanation

seems aimed at the New Deal in the US, but also can be applied productively to the post-

war Labour administrations of 1945-51 in Great Britain. Yet it was painfully obvious that

the power of business to foil reforms was alive and well in France during the Depression;

one cannot explain Sweden’s success, therefore, in avoiding disinvestment by reference to

Block’s thesis. A more widely applicable account of the causes of capital flight and the

maintenance of investment confidence, therefore, would be advantageous.

According to Pontusson (1993, 552), reformers are punished when they violate the

“systemic interests of capital,” as did Swedish reformers in the 1920s who sought to

increase inheritance taxation. Pontusson is less than clear, however, as to capital’s specific

interests, and apparently takes capitalist resistance as evidence that they have been violated.
 5

“There may be room for disagreement on the relevance of inheritance taxation for the

systemic interests of capital… [in Sweden, but] it is clear that organized business perceived

and responded politically to this threat” (1993, 571). This reasoning is not convincing. If

one contends that x is the cause of business opposition, evidence that business opposition

exists does not argue for the explanatory importance of x. More systematic accounts of

what triggers an investment strike usually emphasize strictly economic factors, and focus on

policies pursued by the extreme left. According to a widely held view, economic—and

eventually political—crises flow from radical policies, which “threaten the very institution of

private profit. Under such circumstances, rational capitalists will not invest” (Przeworski

1985, 45; cf. Lindblom 1977, Kolm 1979). This argument is parsimonious and persuasive,

although its applicability is limited due to neglect of the political factors that influence

investors’ evaluations. In Przeworski’s analysis of the transition to socialism, for example,

“pressures for a significant improvement of material conditions erupt” from various social

groups, forcing the government to grant them economic concessions. Policies won in this

manner reduce profits, antagonize investors and cause economic and political crisis

(Przeworski 1985, 44-45). It is clear, however, that owners of capital react to the process

of labor militance and direct action, not only to their practical results. Disinvestment

commences as dramatic social turbulence begins, and does not await a final translation into

radical politics. In his discussion of the dynamics of leftist reformism, as well, Przeworski

(1985, Ch. 5) equates popular pressures with the end of profits, and does not fully explore

the importance of political events. A “class compromise,” according to Przeworski’s

formalized representation of the bargaining between labor and capital, signifies that workers

consent to the institution of private profit, and in return capitalists pledge a specific rate of

wage increases and investment. Under the conditions of a compromise, labor militance

causes zero or negative profits (1985, 182-3). Crucially, the conditions governing the
 6

stability of any compromise—that is, those under which capitalists will continue to invest—

encompass partisan control of the government, normal investment risks, and whether the

economy is “well situated in the international system” (1985, 184). These types of political

variables deserve more amplification and elaboration than Przeworski supplies.

Popular pressure is not the saving grace of the left, as Block and Miliband would

have it, nor does it eliminate profits, as per Przeworski. Labor militance, for example, can

lead to reforms that otherwise would not have occurred and at the same time be a central

cause of disinvestment. Strikes and demonstrations can achieve the workers’ goals, while

also frightening business, and thereby threatening the government’s and its reforms’

viability. Where the reformers concede the masses’ demands, investors and business are

unlikely to take financial risks, at the least, and may become committed opponents of the

government. Thus, apparently successful militance often results in short-lived reforms and

political defeat for the government (as during the French Popular Front); when workers and

their revolutionary allies press towards socialism, the reaction of their enemies can be

catastrophic (as under Unidad Popular in Chile).2 Investors want to see the reformers

refuse the workers’ demands. Fewer strikes means less temptation for the government to

go beyond its original program, and a quiescent labor force means higher profits for

business. The successful post-war British Labour governments and the Swedish Social

Democrats (SAP) during the 1930s, for example, made clear that they valued a sound

economy more highly than fulfilling labor’s demands.

When confronting a leftist government with a modest agenda, investors’ concerns

shift to the future. Taking with a grain of salt administration denials of more far-reaching

intentions, investors ask, What will tomorrow hold? It does not take extremism to sow

doubt and hostility: unpredictability and guilt by association are quite enough. Anxiety over

the prospect of radicalization, however, is distinct from the panic impending socialism
 7

causes. The former is a worry about stability, and the latter a fear for the existence of

profit. A government agenda that moves steadily leftward may eventually become

revolutionary, but investors under the moderate left rarely fear root-and-branch revolution.

Instead, investors—as during the Popular Front—direct their suspicions to the far-left and

the workers, both of whom can push around government policy. In Sweden, there were no

such causes for alarm.

2.0 Investors and Reformers in France and Sweden: the short term

Drastic and crippling capital flight commenced when the Popular Front was elected;

Sweden saw no post-electoral decrease in business confidence. If we examine only

economic variables, this appears profoundly puzzling, as both governments’ programs were

quite similar. Both were proto-Keynesian prescriptions for ameliorating the Depression’s

effects. The Popular Front proposed to stimulate the economy by raising the purchasing

power of consumers, improving unemployment benefits and old-age pensions, increasing

spending on public-works projects, abolishing the deflationary budget cuts of the previous

government, and reducing the working week with no loss in pay. Similarly, the Social

Democrats planned to revive consumption and maintain the price level by subventions to

assist the unemployed, price supports for agriculture, and increasing (by sixty-six times!)

public-works spending. The SAP proposed deficit financing to pay for these measures,

along with raising direct and indirect taxes, and doubling inheritance levies.3

In the elections of 18 September 1932, the Social Democrats won enough seats to

form a minority government. Judging from the value of the currency and the stockmarket

(Figure 1), however, investors were unconcerned.4

 8

115

SAP/Agrarian coalition
announced: 27 May
April 29=100

110

105

100
4/29
5/27
6/28

Figure 1. Stockholm Stock Index: 29 April--28 June 1933.

(Source: Svenska Dagbladet)

Likely as not, they correctly predicted that the SAP, while able to govern, would not have

enough votes to pass its legislation. In May 1933, however, came a shocking development

that caused a sea-change in Swedish politics: the conservative Agrarian Party, despite

having no history of parliamentary cooperation with the left, promised to support the Social

Democrats in exchange for agricultural price subsidies.

 9

105

First ballot: 25 April

95
Strikes begin: 14 May

85

Evacuations of plants begins:

13 June
75
4/1
4/24 5/14
6/13 7/1

Figure 2. Index of the Paris stockmarket: April--July 1936.

(Source: The Wall Street Journal)

The agreement between the Agrarian and Social Democratic parties was proclaimed

on 27 May 1933. Despite the surprise announcement, which meant that the Crisis Program

was soon to become law, investors remained calm (Figure 2). In fact, stock prices and the

value of the krona actually increased slightly: from 12 May to 26 May, for example, the

stockmarket gained 3.2%; yet in the following fortnight—from 26 May to 7 June—the

market rose 9.5%. The number of krona notes in circulation, which would have increased

upon hoarding, was unaffected (Economist, various issues), and the monthly index of

Swedish industrial shares was also quite stable: from February to August 1933, the index

was 50, 52, 59, 66, 65, 63, 65 (Statistical Year-book of the League of Nations [SYLN]

1934/5, 246). The absence of a negative reaction from the markets is especially surprising
 10

because the Social Democrats had publicized the dramatic break from economic orthodoxy

their crisis program entailed.5 The reaction of the French markets to a leftist administration

able to pass its program was quite different.

Francs above current rate

4.5

2
4/7 4/25
5/22
6/13
7/2
Figure 3. Three month forward rate of Francs per Pound:
Discount over spot rate April--July 1936 (Source: The Economist)
 11

65
billions of francs

61

57

53
3/6
5/15 6/12 7/24
Figure 4. Gold holdings of the Bank of France.
3 March to 24 July 1936 (Source: The Economist)

In a classic sign of capital flight, after the first round of French elections on 25 April

1936, the number of franc notes in circulation rose dramatically—an increase, in fact, larger

than any of 1935 or 1936—as notes were exchanged for gold and other currencies

(Economist, various issues). The Paris stock market quickly fell by 20% (Figure 3), and

within five months it had dropped more than 32% (SYLN 1936/7, 250); the three-month

forward rate of the franc against the pound more than doubled, attesting to doubts

regarding the future value of the currency (Figure 3); and the Bank of France lost 10 million

francs worth of gold (Figure 4), as it redeemed notes.

 12

What explains investors’ dramatically different reactions in France and Sweden?

One possibility is that the Swedish markets (perhaps even the Swedes themselves?) were of

a different, more tranquil sort than the French. By this explanation, the data above are

simply products of two essentially different and incomparable markets—one staid, the other

volatile—not indicators of different responses by the investment communities. In the six

months immediately preceding the respective elections, however, the French stock market

was in fact markedly calmer than the Swedish. In the so-called Krueger Crash of March

1932, for example, within four weeks the exchange rate against the pound fell more than

7%; the Swedish index of industrial shares plummeted nearly 35% in the following four

months (SYLN, 1934/5, 246; Thomas 1936, 199). The French index of industrial shares, on

the other hand, were quite stable in the 7 months before the Popular Front’s election (SYLN

1936/7, 250). Given their demonstrated potential for volatility, therefore, it is all the more

striking that Swedish markets were not disrupted by the announcement of May 1933, which

made clear that the government was able to implement its heterodox program.

Simmons offers an excellent explanation for the massive scale of French

disinvestment after the 1936 elections; she does not, however, shed light on why Sweden’s

experience was so very different. She investigates why some states during the inter-war

years met gold standard requirements of currency stability and relatively free trade, while

others devalued and erected trade barriers. French owners of capital, according to

Simmons, were apprehensive because of labor unrest and fears of inflation—the presence of

a left-wing government magnified both factors—and predicted the Popular Front would be

forced to devalue the franc. In other words, given the circumstances, the government was

not seen as trustworthy to manage the currency. For nations on the gold standard, “the

central question is whether the government’s commitment to price stability is credible to

market participants” (1994, 55). Simmons identifies four variables that influence such
 13

investor appraisals: regime type (democratic or authoritarian); policymakers’ preferences

(leftist, conservative, etc.); time horizon (stable or unstable governments); institutional

monetary constraints (independence of central bank, e.g.); and degree of labor unrest (1994,

56-63). Simmons analyzes nations on the gold standard, yet her analysis must hold, at least

to some degree, for those on other monetary regimes as well. After all, not only nations on

the gold standard faced market participants who feared inflation and a depreciating

currency. Employing Simmons’ analysis to Sweden, investors should have had similar

concerns to those of their French colleagues, albeit to a lesser extent, about the incoming

Social Democrats. Both Sweden and France were democratic states controlled by stable

leftist governments.6 Where they differed, first and most clearly, was in the strike rate; this

was unquestionably an important explanatory factor, as I discuss below. Another difference

is to be found in the central bank’s degree of independence: Simmons argues the Swedish

Riksbank was slightly more amenable to political pressure that the Bank of France (1994,

299-304), and that a more politically malleable monetary authority tends to make investors

predict inflation. This was, therefore, a cause for Swedish investors’ skepticism of price

stability under the SAP.

Not that they needed more reasons to predict increasing prices. After Sweden went

off the gold standard in September 1931, there were widespread fears of an “inflationary

reaction” and “dangerous fluctuations” in the krona’s value (Thomas 1936, 185, 187). In

light of these dangers, after the fall from gold Swedish monetary authorities declared they

would attempt to use a weekly price-level index to maintain the internal purchasing power

of the currency. “It is, however, one thing to make an official declaration of policy and

quite another to be able to carry it out effectively... the public must have complete faith in

the bank’s intentions and its capacity to fulfill them” (Thomas 1936, 192). Using an index

to maintain domestic purchasing power proved to be a reasonable policy, but it was untried
 14

and its announcement was unlikely to have completely mollified Swedish investors. Further,

the SAP declared that deflation, not inflation, was Swedish business’ primary problem, and

sought to raise prices to benefit producers (Thomas 1936, 201; Gaitskell 1939, 104). In

sum, when the SAP was elected, only a year after Sweden’s departure from the stability of

gold, owners of capital saw a relatively pliable central bank, a government committed to

deficit financing, and one which declared it saw no danger in a little inflation. It is

surprising, therefore, even taking account of Simmons’ explanation, that Swedish investors

seemed so sanguine about future monetary stability. And inflation was not the only worry.

One did not have to read between the lines of the Crisis Program to figure out that

budget deficits were on the way. The Social Democrats loudly proclaimed their proposed

break with economic orthodoxy by financing public works programs through borrowing

(Arndt 1963, 210; Thomas 1936, 208). The Popular Front was more cautious during their

electoral campaign, and felt constrained to argue, rather implausibly, that only “Socialists

could restore balanced budgets” (Jackson 1988, 163). One might suspect that the reason

investors did not take alarm at the Social Democrats’ frankness was because Swedes were

used to budgetary shenanigans; perhaps French owners of capital sent their funds abroad so

quickly because the Popular Front threatened to damage a sterling French tradition of

balanced budgets. In fact, both nations had fiddled the budgetary books, but France was by

far the worse offender. Occasionally, Swedish governments resorted to statistical sleights of

hand: in the financial years 1931-2 and 1932-3, for example, 165 million kronor were taken

from accumulated funds to achieve an ostensible balanced budget (Thomas 1936, 235).

Instead of dipping into savings, however, French governments borrowed heavily. For the

years 1932-1935, annual budget deficits drove up the national debt from 265 billion to 333

billion francs (Arndt 1963, 139-40; see also Shirer 1969, 153-4). Economic orthodoxy in

both nations declared balanced budgets a sine qua non of a healthy economy; the Swedes
 15

simply came much closer to achieving them. Before the Crisis Program was passed, the

principles of Swedish economic policy “were simple and orthodox: ...borrowing for

unremunerative objects was not allowed” (Wilson 1939, 67). Accordingly, in response to

Social Democratic plans of deficit spending, economists, bankers and the bourgeois parties

predicted all “sorts of catastrophes, especially inflation” (Odhner 1988, 191). Opponents of

the crisis policy predicted “interest rates would rise, the state’s finances would be

undermined by increased debt, and confidence in the business community would be lost”

(Wigforss 1938, 30; see also Uhr 1977, 107-110). This didn’t happen, even though the SAP

borrowed heavily. In 1932, for example, loans were 11% of total expenditure; for the years

of 1933 and 1934, however, it was between 27% and 29% (Wilson 1939, 69). In the event,

although direct comparisons are difficult, budget deficits under the SAP and Popular Front

were roughly comparable, both increasing by perhaps 25% (Kalecki 1938, 37-8; Wigforss

1938, 34). The unbalanced books in France were by no means a break with past practice—

if anyone should have been shocked at the deficit spending, it was the Swedes—and both

nations’ deficits were roughly similar in size. In terms of explaining the disparate levels of

business confidence, in short, we should look elsewhere.

In his investigation of “The Economic Lessons of the Nineteen-Thirties,” Arndt

advances some tentative hypotheses regarding the puzzling maintenance of confidence

under the Swedish Social Democratic governments. First, Arndt (1963, 219) asserts that

“in Sweden both State intervention and social reform were already before 1932 an accepted

tradition.” He does not elaborate on this point, but one could imagine that a nation with a

strong record of successful social reform would not be threatened by another major

legislative effort in that regard. But Swedish and French reformist achievements were not

that different. Before the election of the Front, France certainly had only limited

accomplishments in the field of social welfare. Yet the French had passed compulsory
 16

Sickness Insurance in 1930, Pension Insurance in 1910 and 1930, and Unemployment

Insurance in 1914 (Flora and Alber 1981, 59). In Sweden, surprisingly enough, the record

was no grander. Esping-Andersen, in fact, argues that part of the success of SAP

governance in the 1930s can be traced not to a cumulation of reformist legislation but rather

the absence of previous reforms. The veritable legislative tabula rasa allowed the SAP the

freedom to construct social programs in accordance with their own principles, instead of

being forced to operate within the confines of existing laws and regulations. Upon the

Social Democrats’ assumption of power, previous governments had legislated only work

accident and pension insurance (the latter not having matured, most pensioners had to rely

on poor relief). In short, “until the 1930s Sweden was an international laggard in social

security development…. The massive social need that emerged with the economic crisis

confronted a wasteland of social protection” (Esping-Andersen 1988, 40, 44).

Arndt (1963, 219) also conjectures that “the openness and clarity with which the

Swedish government from the beginning explained its policy may have had something to do

with” maintaining confidence. Without question, the Social Democrats offered a coherent,

clear platform in the 1932 elections. In the 1928 campaign, by contrast, the SAP leaders

appeared to disagree on the issues of socialization and inheritance taxation (Tingsten 1973,

273ff). Their imprecision on these delicate subjects hurt the party, as the bourgeois

opposition did not squander the opportunity to frighten voters by capitalizing on the

vagueness of the SAP plan (Tilton 1979, 508). By 1932 the party had, in the words of one

of its leaders, learned it should not go “to the electorate only with an idea or a line, but also

with a well formulated practical proposal for the realisation of this idea” (Tingsten 1973,

289). Here Arndt makes an important point: investors seek stability and predictability, and

react against vagueness and imprecision—especially by leftist parties. It is important to

 17

analyze, therefore, those factors that cause owners of capital to believe that a reformist

agenda may not be as stable as it seems.

Finally, Arndt briefly points to the French “social cleavage” between left and right,

worker and owner, as compared to the absence of “sharp class cleavages” in Sweden (1963,

141, 219). Sweden was indeed not as divided along class lines as was France, which

Stanley Hoffman describes as being in the 1930s “two armed camps” (quoted in Wolfe

1969, 175). Further, it is not uncommon for observers to trace the success of Social

Democracy to, as Schumpeter (1962, 325) phrased it, Sweden’s “exceptionally well-

balanced social structure.” Accounts of Scandinavian tranquility are often overdone,

however. It is important to remember, for example, that in the 1920s and early 1930s the

Swedes had strike and lockout rates that were the highest in the world (Åmark 1988, 73),

and employers frequently employed the blacklist to weed out union organizers (Thomas

1936, 167). Note also that one close observer describes the Swedish social structure in the

early 20th century as “a class system with an extraordinary concentration of capital within a

tiny clique of wealthy families” (Esping-Andersen 1988, 40). We can see Arndt’s central

point, however, when comparing Swedish and French political parties’ ideologies. On the

right, the conservative and rightist parties of the French Chamber were often linked to

extreme nationalism and anti-Semitism (Mazgaj 1986; Irvine 1986);7 in Sweden, by

contrast, the bourgeois parties were more similar “to that of the more forward looking of

the British Conservatives” (Arneson 1939, 56). On the left, in France the Communist party

was hugely influential and the Socialists were split between reformers and those who called

for revolution; in Sweden, the parties to the left of the SAP were “a laughing stock” for

their continual quarrels and irrelevance (Parker 1939, 49). Further, the Riksdag’s legislative

rules denied the Communists and Independent Socialists any places in the powerful

parliamentary committees.8 The absence of a far-left party in the Swedish government, and
 18

the riven, fractious and influential political factions to the French reformers’ left, both figure

prominently in my explanation for investors’ behavior. Arndt, in sum, helps point the way to

a consideration of the importance of agenda stability, as well as revolutionary parties and

groups, to any convincing explanation of the levels of confidence in each case. In addition,

as Simmons notes, we must consider the effects of labor militance, which had such a clear

impact in the immediate post-electoral period in France.

French investors reacted briskly to the ebb and flow of strikes after the Front’s

election, as they did throughout its rule. Capital flight began quickly after the ballot of 25

April (Figures 3 and 4). In Figure 3, the stock index and forward rate of the franc indicate

investors’ striking pessimism immediately after the elections.9 It got worse, though, on 14

May, when began the largest strike movement in the history of the Third Republic. Starting

as isolated sit-down strikes, late in the week of 14 May they began to spread widely, and,

most threatening, often involved workers taking over their factories (see Danos and Gibelin,

1986). The militance reached its peak on 11 June; by 13 June the number of strikes had

begun to decline, and the workers began to leave the factories. The strike wave was mostly

over by 26 June, when the government announced that the number of strikers had declined

by a million to 165,000 (Colton 1966, 155). Strike rates clearly influenced indicators of

confidence during this period. Notice in Figure 3 that after the steep drop following the

election, disinvestment appears to have lessened before the worst of the strikes,

approximately from 7-22 May. At this point, apparently, investors already had decided on

their bets regarding financial life under the Popular Front. The strike movement made them

revise their calculations, and the forward rates and stock prices only began to recover on 13

June, after workers began to leave the factories they had occupied. The weekly and

monthly data in Figure 4, with something of a lag, tell the same tale.10 The weekly

statements of the Bank of France detailing its gold holdings indicated a dramatic drop in
 19

confidence after the poll of 25 April, a brief recovery beginning on 15 May, followed by a

further slide that did not right itself until after 13 June. Similarly, the monthly index of

French industrial shares (Figure 4), taking account of the reporting lag, indicates a fall in

April, which began to even out in July. These data strongly suggest that the strikes strongly

shaped investors’ reactions to the Popular Front. Indeed, one wonders if the strikes had not

occurred in late May, perhaps the brief upturn in the markets would have continued, greatly

lessening the disinvestment and thereby changing the financial complexion of the Popular

Front’s rule. In fact, investors repeated their sharply negative reaction to strikes throughout

the life of the Popular Front, but not because the militance brought about socialism or

eliminated profits. The central and more mundane concerns of French business were of the

power of the strikers to disrupt production schedules, act collectively to demand reforms,

and thereby propel the government leftward.

Investors feared not only the effects of labor militance, but also the influence of the

more extremist elements of the Popular Front, an electoral alliance composed (from left to

right) of the Communists, Socialists and Radical Socialists. It was a motley and often

incompatible group, only brought together by deflation, Soviet foreign policy and right-

wing violence in the streets. The Socialists, for example, rejected the Communists as tools

of Moscow and the Radical Socialists as “proto-fascists”; the Communists, for their part,

yelled “social fascists” at Socialists, and only allied with the Radical Socialists on orders

from the Soviets. Confusingly, party labels meant little when it came to policy: on certain

issues, some Radical Socialists were to the left of a Socialist faction or two, and a group of

Socialists were quite pro-Communist (Weber 1994, 148-9).

Most voters and investors did know, however, that it was the Communists who

called for a dictatorship of the proletariat. Alarmingly, the election returns of 25 April and 3

May brought that party a stunning increase in support, raising their total seats from ten to
 20

seventy-two; the Socialists went from ninety-seven to 147 seats, the Radical Socialists were

the electoral losers, going from 159 to 106 seats (Jackson 1988, 8). From the start,

therefore, observers associated the government with increased political power for the far

left, whose parties made clear that they had only temporarily abandoned their distinctive

objectives. The Communists, for example, had proposed a capital levy, and the Socialists

the forty-hour week—both of which were eliminated from the final Popular Front program

in an attempt to mollify the middle-classes. Many observers questioned, however, whether

these policies would reappear if the opportunity arose, and this is precisely what occurred

with the forty-hour week. The politicians at the leftist end of the alliance certainly did not

help assuage such fears. Communist leader Maurice Thorez, for example, in spite of his

later attempts to restrain strikers’ enthusiasm, called the Popular Front

a government permitting the preparation of the total assumption of

power by the working class; in short, a government that would be
the preface to armed insurrection (quoted in Tiersky 1974, 72).

Among the Socialists as well, an influential splinter rejected Blum’s reformism. Marcel

Pivert, for example, called for “nationalization of the country’s key industries,” and after the

election declared it was “the hour of France’s social revolution”—“everything is possible.”

Jean Zyromski, leader of the pro-Communist Socialists, announced that he spurned the idea

of “a government wishing simply to manage to interests of bourgeois society”. It proved

exceedingly difficult, in the words of the Socialist Party newspaper, to “please Pivert and

Zyromski on the one hand and the country’s investors on the other” (quotes in Colton 1966,

131-32).

In sharp contrast to the French Socialists, the Swedish Social Democrats by 1932

had healed their split between reformists and revolutionaries, and they governed with the

votes of the conservative Agrarians, whose influence swamped that of the few weak

Communists and Independent Socialists. Stung by assertions that it was beholden to radical
 21

leftists, the SAP had learned an important lesson during the 1920s. Because of electoral

cooperation with the Swedish Communist party in the “Cossack election” of 1928,

opponents linked the Social Democrats to Russian Communists, putting up posters that

warned of impending Bolshevism in Sweden (Odhner 1988, 189n; Tingsten 1973, 272-3).

In response to the effectiveness of this attack and their defeat in the election, the SAP took

measures to eliminate factions and disassociate the party from their more radical political

colleagues. According to Schullerqvist (1992), there were three essential steps. First, the

party specifically repudiated the Communists—they had refrained from criticism in the 1928

election. Second, a splintered leadership directing various factions was replaced by

moderates’ monolithic control. Radical SAP members were defeated in elections for

internal party positions, and subsequently forced to toe the temperate party line. Finally, the

SAP-affiliated Confederation of Trade Unions purged Communists and other leftists from

its constituent unions. In short, “opportunities decreased for Communists and Syndicalists

to exert influence” on the party, and moderates gained firm control, then unified a “labor

movement with competing centers of power” (Schüllerqvist 1992, 288-9 and passim). As a

result, by 1932 there were few party members or union leaders who could frighten investors

by demanding social transformation instead of reform. The revolutionary parties were no

scarier.

The Communists and Independent Socialists were protean and powerless. One

could say that the Communists were marginalized after the election of 1932 when the SAP

refused to govern with them (Esping-Andersen 1985, 87), but they, with the Independent

Socialists, were already firmly on the margins of Swedish politics: out of 230 seats in the

lower house of the Riksdag, in 1932 the Communists won only 2, and the Socialists only 6

(Arneson 1939, 55). There was, therefore, little possibility of the far-left radicalizing the

reformist agenda. On the contrary, the Social Democrats relied on the conservative
 22

Agrarians’ support, and it was clear that these political partners would veto any radical

policies (Tilton 1974, 568-9). On the parliamentary level, therefore, there was little to

cause concern. Combined with the SAP’s novel and assertive policy towards labor,

Swedish owners of capital had few reasons to disinvest.

3.0 Reformers and Investors in France and Sweden: the long term.

In terms of investment behavior, the immediate post-electoral period in both nations

was similar to the succeeding years. Even after Blum’s fall from power, investors deeply

mistrusted the succeeding Popular Front administrations, and only began to bring money

home and increase production after November 1938, seven months after conservatives took

over the government. The monthly index of industrial shares, for example, was in March

1938 still below its level of February 1936 (SYLN 1935/6, 258; 1937/8, 254) Throughout

the tenure of the SAP, on the other hand, “private enterprise responded readily to the

stimulus imparted by the State” (Arndt 1963, 219; see also Thomas 1936, 234 and Gaitskell

1939, 106). From 1933 to 1936, for example, the Swedish index of industrial shares soared

82%; savings bank deposits and savings certificates also rose steadily (SYLN 1939/40, 227,

238). Analysts have put forward several factors to account for the economic success of

Swedish Social Democracy in the 1930s. These factors were by no means absent in France,

however, and thus cannot offer an explanation for the failure of similar policies there.

Luck played a role. The SAP came to power at the worst point of the Depression,

just when the economy was touching bottom, and therefore the party was able to take

political credit for prosperity’s return. In addition, the Social Democrats benefited from a

depreciated krona without taking the political blame for the fall from the gold standard. In

comparison, the Popular Front had the bad fortune to come to power just as the slight

economic revival petered out that had begun in 1935 (Ehrman 1947, 153). Further, Blum
 23

was forced to devalue the franc after three months in office, contributing to the widespread

impression that leftist politicians could not be trusted to manage the currency. All did not

depend on destiny, however. French investors could have helped pull the economy out of

depression had they been more receptive to the Popular Front’s reflationary stimulus, and

had they taken the boost provided by the Front’s two devaluations.

The krona depreciated by roughly 30% after going off gold in 1931, and this clearly

contributed to Sweden’s financial recovery under the SAP by making exports more

competitive (Gaitskell 1939, 97; Thomas 1936, 234). Ironically, much of the resulting

export revenue came from Nazi Germany, whose rearmament campaign had an enormous

appetite for Swedish iron ore and timber (Esping-Andersen 1988, 44; for statistics see

Gaitskell 1939, 105). German militarism had a similar, if less positive, effect on France. To

meet the Nazi threat, the French were forced to spend much more on arms than they could

afford. This certainly abetted production, however, and eventually buoyed the French

economy—after the fall of the Popular Front, however (Jackson, 1988 187-188). When the

Socialists were in power, on the other hand, the armament industries “found excuses to

keep their production down despite lucrative contracts from the government” (Shirer 1969,

306). The devaluations did little to dispel this pervasive attitude.

Taking a step that was years overdue, the Front first devalued the franc by roughly

25% in September 1936. This led to a brief upturn in French economic fortunes, and a rise

in the stockmarket, but capital flight continued. In the six months following devaluation,

for example, gold losses totaled 7 billion francs. “These capital exports, in turn, completely

defeated the reflationary policy of the Blum government” (Arndt 1963, 144). Regulations

accompanying the devaluation discouraged immediate repatriation of capital: to prevent

“windfall profits,” owners of capital were forced to trade in their holdings at the old

exchange rate, or pay a penalty equal to the difference. This policy was abandoned and free
 24

trade in gold re-established in March 1937, and those who were penalized or had received

only the pre-devaluation rate were compensated for the difference. This new policy,

however, only temporarily attracted funds from abroad and soon money began again to

drain from the country (Jackson 1988, 181-2).

In February 1937, Blum declared a “pause”: no further reforms would be

implemented, and nothing would be done that “might undermine the confidence of the

business community” (Wolfe 1951,152). By June, however, the money markets “were

seized by a panic,” leading to the fall of the Blum government (Jackson, 1988 181). The

Radical-Socialist leader Chautemps formed another Popular Front government, which also

was unable to win the confidence of investors. This would be quite surprising, if we viewed

investment behavior as driven only by economic criteria. Chautemps tried hard to win back

confidence: his government devalued the franc again, balanced the budget, and abandoned

the Popular Front’s program. Blum, in fact, was alarmed by his successor’s priorities.11

While the second devaluation led to a brief boom that enticed home some capital, this also

was only temporary (Jackson, 1988 184-85). Fatally for his chances of restoring

confidence, Chautemps and his Finance Minister insisted on publicly defending the gains of

Matignon (Wolfe 1951, 173). Only one week after the Chautemps government took power,

a strike was settled only by extending the 40 hour week to the restaurant and hotel workers,

and a fresh wave of sit-down strikes occurred in the fall and winter of 1937, and (Colton

1966, 290). The continued “pause” did not sufficiently address the concerns of business

and owners of capital, who “were reluctant to invest, or indeed to place any confidence in

the government, until labour discipline, as they saw it, had been imposed and the symbol of

their defeat [the Matignon Accords] had disappeared” (Jackson 1985, 207). The second

Popular Front government’s tolerant attitude towards strikes and the reforms of Matignon

meant investment would not be forthcoming. In short, political considerations were at least
 25

as important to French investors as economic factors such as a cheapened franc. After the

devaluations of 1936-38, the franc had lost more than half its value (Weber 1994, 165),

making exports much more competitive. Yet what stands out in this period is the “amazing

refusal of the French business community to be stimulated by higher prices at home and by

the potential improvement in export markets” (Wolfe 1969, 174). The undervalued krona

offered an advantage to Swedish industry as well, but most importantly, Swedish industry

took advantage.

The reforms the French workers gained at Matignon—most notably, the forty-hour

week—makes it tempting to argue that there is a key difference between the Swedish and

French cases: the French reforms hurt owners of capital, and the Swedish reforms did not.

This assertion has some plausibility considering that wage increases in France led to

inflation. We must separate, however, the profound hostility to the reforms from their

putatively negative economic effects. The better part of this hostility was a result of the

political circumstances under which the Popular Front program was radicalized. To end the

strikes of May-June 1936, French business agreed at Matignon to the right of labor to

organize, collective bargaining, sharp wage increases, paid vacations, and the forty-hour

week. Pushed hard by the massive strike waves and worker occupations, Blum declared the

law was “imposed on me by the circumstances in which I took over the government”

(quoted in Colton 1966, 168). Matignon represented, therefore, a fundamental

radicalization of the original Popular Front program, which mentioned neither paid holidays

nor collective bargaining, nor gave a specific figure in its pledge to reduce the working

week. Even so, the restrictions of the forty-hour week, wage increases and inflation did not

add up to decreased profits for French business.

As did the Swedish Social Democrats, Blum recognized that the problem of the

French economy during the depression was low prices, not inflation. Accordingly,
 26

therefore, industry profited greatly from the Blum Experiment, as it was able to take

advantage of reflation. From 1936 to 1938 prices increased sharply in France, and although

this added to the already widespread doubts concerning the stability of the franc, business

benefited tremendously in real terms. From April 1936 to April 1937, Kalecki (1938, 34-5)

estimates that big industrialists enjoyed a 60% increase in purchasing power. Ehrmann

(1941, 156) notes that the net profits of 122 undertakings in various branches rose by an

average of 36% in 1936-37, and according to Sauvy (1984, 2:315), business revenues

increased 11% (in constant francs) in 1937. “The entrepreneurial classes… were,

paradoxically, the chief beneficiaries” of the Matignon reforms (Wolfe 1951, 204). By the

same token, while the application of the forty-hour week was unduly inflexible, the law

doesn’t seem to have drastically restrained French factory owners. In November 1938, for

example, 8% of all workers employed in large establishments worked for more than 40

hours; by February 1939, after the elimination of the forty hour week, the figure had only

risen to 19% (Ehrmann 1947, 92-3). Even in June 1939, the work-week would only

fluctuate between 41 and 42 hours (Weber 1994, 165). Yet while French profits went up,

investment did not.

Employers did object strongly to the forty-hour week, but certainly not because it

reduced profits, and “less to the effects of the law on production than to it as a symbol of a

new dispensation on the shopfloor” (Jackson 1988, 183). The forty-hour week was a

central symbol of the Popular Front precisely because it was achieved through working-

class direct action. From investors’ and business’ point of view, Matignon was the worst of

both worlds. Not only was it the badge of a profound radicalization of policy, but it also

failed to limit strike rates in the long term. Compared to the period from 1932-1935, for

example, during the rule of the Popular Front (1936-1938) the average number of industrial

disputes increased by 56 times, and the average number of workers involved per dispute by
 27

ten times (Mitchell 1975, 179).12 This labor militance did not quickly fade when

conservatives took power in the spring of 1938, much to investors’ disappointment.

The capital strike that greeted the Popular Front’s election is justly famous. The

return of confidence, however, is little known but quite instructive as to investors’

motivations. The Socialists’ departure from government was not enough to satisfy owners

of capital; neither was the third devaluation in less than two years. Confidence improved

after the severe defeat of the left in the Senate elections of October 1938, and after the

dissolution of the Popular Front, but investors only brought their money home when the

labor movement had been thoroughly squashed. When in April 1938 Daladier formed the

first cabinet since the elections of 1936 devoid of Socialists, and which even lacked left-

wing Radical Socialist representation, confidence increased sharply but temporarily (Times

[London], 12 April). In the following three weeks, the stockmarket gained nearly 20%

(Wall Street Journal, various issues). The forward rates on the franc reflected the same

trend, averaging roughly a 30% fall (Economist, various issues), albeit for a shorter period

due to perceptive rumors of another devaluation, which occurred on 4 May. Yet even this

third devaluation and the expulsion of the Socialists from the government could not bring

back confidence in the long term: the stockmarket had slid back down by September 1938.

Continuing strikes were the central problem. When Daladier formed his government in

April, the Times’ correspondent paraphrased the comment of one French Deputy:

“confidence would return only when it was known both in France and abroad that methods

really had been changed—that there were to be no more stay-in strikes” (Times [London], 7

April 1938). This occurred only in the fall of 1938, when, in a “definite move to the right,”

Senate elections resulted in a complete defeat for the Socialists, the Popular Front was

formally dissolved, and the labor movement crushed. The elections of September led to the

defeat of Socialist candidates in 96 of 97 contested seats; even the left-wing of the Radical-
 28

Socialist Party lost ground to conservatives (Times [London], 24 October). The death of

the Popular Front itself finally came on 30 October at the Radical-Socialist Congress, when

the party broke relations with the Communists. Stock prices did begin to rise following

these events. It was the crackdown on labor, however, that had the strongest effect on

business confidence. With the political tide obviously running out for the left, which had

not even a tenuous connection to power after the end of the Popular Front, there remained

only the insolent workers.

In mid-November, a set of decree laws promulgated by the Finance Minister

Reynaud reduced overtime rates, re-instituted the six-day week, and removed most of the

restrictions on working hours. When the main union confederation (CGT) protested this

virtual repeal of the forty-hour week by calling a general strike on 30 November 1938, the

right welcomed this opportunity to crush the unions (Ehrmann 1947, 116): for the first time

since 1936, the government “unhesitatingly used wholesale force” against strikers (Colton

1951, 139; see also Jackson 1988, 111-12).13 It was a clear and humiliating defeat for the

workers. This inspired investors: in the three days after the attack on the unions, capital

inflows were estimated at $50,000,000 (Hargrove, 1938b).14 The strike’s failure, and the

ensuing government repression of workers, destroyed the labor movement’s power: from

January 1939 to the beginning of the war there were no recorded strikes in France. As a

result, confidence returned, despite the severe international tensions. From March to

October 1938, the stock market fell by 6.5%, yet from October 1938 to May 1939, the

market gained by more than 15% (SYLN 1938/9, 249; 1939/40, 227); bond prices also

increased sharply in the month after the failed strike (Economist, 24 December 1938). The

surge in confidence was to some degree a response to the substance of the decree-laws.

Reynaud’s policies, for example, did prune the (“ordinary”) budget, mostly by raising taxes.

Their effect, however, seemed to be of mainly political, not economic, importance. The
 29

government was still faced with the same economic problems, but the symbol of the Popular

Front was eliminated, the left was out of power, and the labor movement was emasculated

(Times [London], 15 November 1938). Leon Jouhaux, the leader of the CGT, cogently

summed up Reynaud’s message to capitalists: “You can bring back your money, for we have

mastered the working class” (quoted in Hargrove, 1938).

The climate of industrial relations could not have been more different in Sweden.

The SAP oversaw a decrease in strike rates and instituted labor market policies that effected

centralized control over unions, thereby reducing the likelihood of wildcat militance. The

Social Democrats further pleased business by the institution of highly centralized, supra-

industrial bargaining that acted to level wages, not maximize them. “Peak-level” bargaining

allowed more predictability for employers, in part by denying workers the ability to press

advantages they might enjoy in certain industries. Its implementation was caused by a

conjunction of several factors flowing from a severe strike in the construction industry

during 1933-34 (Swenson 1989; 1991). First, the employers’ federation threatened

widespread lockouts if the Social Democrats and its union confederation could not control

such wildcat strikes. Second, while the Agrarians had agreed to support the government in

return for farm-product price supports, in January 1934 the Farmers also demanded an end

to the construction strike that had been going on since April; in fact, the leader of the

Agrarian party made his party’s support for the Crisis Program conditional on the

willingness of the striking unions “to take account of the economic situation” (Swenson

1989, 46). Finally, in light of pressure from employers and parliamentary allies, the Social

Democrats themselves were willing to intervene in the strike to prevent lockout-related

strife and save their reformist agenda. In the end, due to pressure from the SAP-affiliated

union federation, the construction workers accepted a settlement that amounted to a clear

defeat: the agreement included piece-rate reductions of 12-15%, and eliminated the
 30

construction workers’ right to conduct decentralized strikes and negotiate regarding new

production techniques (Swenson 1989, 42-49; see also Åmark 1988, 72-73). In sum, this

“extraordinary intervention against the construction unions saved the Social Democratic

government and its crisis program” (Swenson 1989, 49). The defeat of a wildcat strike led

in part by Communist firebrands (Åmark 1988, 72; Swenson 1989, 48) doubtless also

reassured investors that the radicals to the left of the government would get no special

favors. In the end, the building strike marked a new stage in the behavior of Swedish

unions. The time-honored pattern of automatic political support for striking workers

abruptly changed, and the unions “had to realize the economic effect of their wage policy as

far as society was concerned” (Carlson 1969, 38-9). The SAP, by taking the side of

employers in the strike and implementing peak-level bargaining, proved that the government

and its allies would be friendly to business and willing to act against the labor movement.

Perhaps most reassuringly, after 1933 the government presided over dramatically decreased

industrial conflict. Compared to the period from 1930-32, the four years from 1933 to

1936 saw a decrease in the average number of industrial disputes (-52.7%), average number

of workers involved per dispute (-55%) and average number of days lost (-39.7%) (Mitchell

1975, 177-78). In Sweden it was government’s control of labor militance—not direct

action by the working class—that paved the way for successful reforms. Effective popular

pressure in France led to concessions by the government and employers, but it also served

to antagonize investors and business, with disastrous results.

4.0 Conclusion

Economic factors cannot adequately explain investors’ reactions to the Popular

Front and SAP governments; political dynamics were decisive. French business refused to

invest largely because of labor’s historic, galling victory at Matignon—a drastic

radicalization of the Popular Front’s agenda—but also because of continuing strikes, and
 31

deep hostility to the government’s more radical elements. One can see the importance of

these factors in the circumstances that led to a return of confidence in France, and the

ineffectiveness in enticing capital home of purely economic measures such as devaluation.

Investors had few causes for worry in Sweden, where Social Democrats proved that they

were willing to act against the interests of the working class when necessary, and presided

over a decrease in strike rates. In addition, the SAP proved malleable in the face of business

pressure, was willing and able to cooperate with conservative political allies, and brushed

off the weak and marginalized parties to its left, thereby obviating fears of radicalization.

Overall, it is clear that these political circumstances in both nations had crucial

consequences for business confidence.

Swedish and French reformers’ experiences during the Depression offer several

insights. Leftist governments are subject to a drop in business confidence not only when

they institute radical policies, but also when they allow their agenda to move to the left.

Declarations of moderation do not prevent disinvestment when owners of capital fear

radicalization and associate the government with the extreme left and the militant working

classes. Reformism can best succeed when the moderates govern with those to their right,

without those to their left, and when they can demonstrate an ability to resist or reduce the

demands of labor. This helps explain why successful reformism has so embittered and

disappointed more traditional socialists.

This paper has focused on events of the 1930s, but the analysis is relevant to

contemporary policymaking. In what might be termed the post-Keynesian era, recently

there has been a powerful international trend toward neo-liberal economic policies, which

has resulted in a greatly increased volatility of international capital movements. As a result,

the power of individual investors to limit and often frustrate political programs is at its

zenith. Such institutional changes perhaps pose an insuperable barrier for radical leftist
 32

programs; indeed, it is tempting to argue that globalization has foreclosed all dramatic

economic options for the left. As in the years before governmental intervention in the

economy was widely accepted, today it is crucial to understand the causes of private

investment patterns and the political limits they impose.

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Uhr, C. G. 1977. Economists and Policymaking 1930-1936: Sweden’s Experience. History

of Political Economy 9:1.

Warner, C., ed. 1969. From the Ancien Regime to the Popular Front. New York: Columbia
University Press.

Weber, E. 1994. The Hollow Years: France in the 1930s. New York: Norton.

Wigforss, E. 1938. The Financial Policy During Depression and Boom. The Annals of the
American Academy of Political and Social Science 197: 25-39.

Wilson, G. 1939. Budgetary Policy. In Democratic Sweden. See Cole and Smith, eds.

Wolfe, M. 1951. The French Franc Between the Wars, 1919-39. New York: Columbia
University Press.

________. 1969. French Interwar Stagnation Revisited. In From the Ancien Regime to the
Popular Front. See Warner, ed., 1969.
 1
A earlier version of this article was presented at the New York State Political Science

Association 52nd Annual Conference, Albany, New York May 8-9 1998. For their comments and

criticisms, I thank anonymous reviewers, Margaret Levi, Richard Sherman, Cheryl Wheeler, and

especially John Keeler.

In another paper I explore these issues with reference to the reformist governments of the first

two years of the Spanish Second Republic (1931-33).

2
For a comparative analysis of the political dynamics of Unidad Popular and the Spanish

Popular Front, see Snow (1998).

3
The figures on public-works spending are from Heclo (1974,102).

While the economic plans were strikingly similar, the Popular Front was more specific than the

SAP as to its plans regarding nationalizations. To effect increased control over rearmament, the Popular

Front proposed the nationalization of war industries. In Sweden, although the SAP referred to

nationalization as “the party’s greatest and most essential task,” there were no specific proposals in the

1932 platform (Bergström 1988, 142). During the campaign of 1932, however, this did not prevent

political opponents of the SAP from warning of “an attempt at confiscation of private property more

diligently thought out than had been the case in 1928”, the previous election (Tingsten 1973, 309).
4
The election of September 1932 had no apparent impact on a daily or weekly level, but the

monthly Index of Swedish industrial shares did decrease for several months thereafter. If this drop was

in response to the SAP’s strong electoral showing in September, however, it stands to reason that one

would have seen a bigger shock to the markets when in May 1933 the Social Democrats gained a strong

parliamentary majority for their policies. (I calculated the daily stock indexes by equally weighting all

stocks quoted in Svenska Dagbladet [Stockholm stockmarket] and The Wall Street Journal [Paris

stockmarket] and determined their average percentage change during the relevant period. This index is

an indicator of each market’s general response to specific events, not an instrument to measure their

precise movements. The monthly Index of industrial shares for each nation is from SYLN, various
issues)
5
Apparently, however, some Swedish commercial banks evinced their displeasure with the Crisis

Program by raising interest rates in early 1933. The Riksbank quickly overcame this resistance by

negotiating with the banks and buying securities (Gaitskell 1939, 104; Thomas 1936, 209-10).
6
Blum’s Popular Front fell from power after a year in office, and while this was a much shorter

term than that of the SAP, it is investors’ reactions during that year that I seek to explain. During that

brief period, that is, investors could not know how long the government would rule.
7
In an ominous manifestation of French right-wing extremism, Shirer (1969, 324) recalls

hearing in Paris at this time “a remark that became almost a chant: ‘Better Hitler than Blum.’”
8
A party has to garner at a minimum 1/15 of the votes of the chamber in order to win a seat on

even the largest committee in the Riksdag, a threshold which none of the extremist parties met (Rustow

1955, 182)
9
The forward rate against the franc, as an indicator of business confidence, moves in the

opposite direction from stock prices. That is, as the forward rate increased, investors bet that the franc

would decrease in value. Instead of averaging the low and high quotes, for each day I took the low

quotation of the forward rate.

10
The weekly and monthly data in Figure 4, by their nature, do not indicate the strikes’ impact on

confidence as clearly as the daily data in Figure 3. This is because the first value that completely reflects

a particular date’s events occurs in the next week’s or month’s number. The monthly data, for example,

show the fall that followed the elections as beginning in May instead of April, and the end of the

market’s deep slide as beginning in August instead of July; they cannot indicate the temporary upsurge

of late May.
11
Blum complained the Chautemps government undertook “an economic and political

programme contrary to that which I had practised...[I] proclaimed the need for a ‘pause.’ But a ‘pause’

was not a reversal... to the policy of budget balancing” (quoted in Jackson 1988, 184)
 12
The number of days lost due to strikes in France from in the years 1936-1938 is not available.
13
Quoting Goethe, The Economist (3 December 1938) stated “Daladier's attitude to the unions

this week has been a clear case of ‘Und bist du nicht willig, so brauch’ ich Gewalt’” (“And if you are

not willing, then I will use force”).

14
Due to the heavy drain on London’s gold by the return of capital to France, during the first

week of December, for the first time in seven years, the Bank of England was forced to increase the

issue of notes secured only by government obligations instead of by gold (Korsmeyer, 1938). See also

the statistics in Weber (1994, 178-9).