The politics of common knowledge: Ideas and institutional change in wage bargaining

Domestic economic institutions change through processes of conflict and bargaining. Why do the strongest groups in such conflicts ever change their minds about the acceptability of institutional arrangements they once opposed? Drawing on the cases of Ireland in 1986-87 and Italy in 1989-93, this article demonstrates how the process of common knowledge creation between employers and unions changed the course of negotiations over national wage bargaining institutions. Common knowledge creation happens when existing institutions are in crisis. The institutional experimentation that follows such crises, characterized by deep uncertainty, places a premium on persuasive argument. The ideas most likely to serve as the basis for newly common knowledge will have analytical and distributive appeal to both unions and employers, and they must be ratified in public agreements, which I call common knowledge events. Common knowledge events establish new social facts, which can change the payoffs associated with different institutional outcomes. This can lead even powerful actors to accept institutions they had previously opposed.