A Game-Theoretic Analysis of Class Relationships and Economic Growth with Applications to Spain and Sweden

In this paper, I try to answer two important and unsettled questions in contemporary political economy: (1) Is economic growth through cooperation between capital and labor possible without third party enforcement?; and (2) What are the effects of strong labor power on obtaining cooperation and thus economic growth? I adopt a game-theoretic framework to address these questions in this paper. The theoretical findings suggest the following: (1) Under certain political, economic, and social conditions, capitalists will find it in their interest to invest at a maximum possible level and the labor will find it in their interest to claim as small a proportion of national output as possible. Under these circumstances, high level of investment, coupled with low worker claim over the national output, will create conditions favorable to economic growth; (2) In countries where political and economic conditions are such that workers feel pretty certain about their future, the strong labor can actually initiate economic growth by voluntarily lowering their claim over the national output. I show actual examples of class war, unstable class cooperation, and a sustained class cooperation in the last section of this paper.