Party system development is often said to be essential for democratization. But if this is a necessary precondition, why do two of the most successful developing regions in terms of democratization, the Caribbean and the Pacific, which are composed similarly of small (island) developing states, display such extreme divergence in their experiences with party democracy? The former has the most stable and pure two-party systems in the world, while in the latter political parties are either weakly institutionalized or absent. Since both have attitudinally homogenous societies and similar institutions, conventional explanations that highlight the importance of social cleavages and electoral systems cannot explain this difference. Employing the framework of a most similar systems design incorporating twenty-three countries, we challenge dominant assumptions about the causes of party system development (PSD) and subsequent institutionalization (PSI) by focusing on their distinctive post-colonial political-economic settlements. Specifically, we process trace the role of labor movements and their manifestation as political parties and argue that this provides the strongest explanation for why the Caribbean has stable party systems, but the Pacific does not. By emphasizing the importance of pre-existing social organizations for the development of parties, our analysis foregrounds the otherwise largely neglected literature on early European party organization and the role of political economy in PSD.