Varieties of Capitalism

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Varieties of Capitalism: The Institutional Foundations of Comparative Advantage
Author Peter A. Hall and David Soskice
Country England
Language English
Subject Capitalism, Institutional economics, Comparative economic systems, Comparative advantage
Publisher Oxford University Press
Publication date
Pages 540 pp (first edition)
ISBN 0-19-924774-9
LC Class HB501 .V355 2001

Varieties of Capitalism: The Institutional Foundations of Comparative Advantage is a book edited by political economists Peter A. Hall and David Soskice. Following a sizable introductory chapter written by Hall and Soskice, various other authors analyze two distinct types of capitalist economies: liberal market economies (LME) (e.g., U.S., U.K., Canada, Australia, New Zealand, Ireland) and coordinated market economies (CME) (e.g. Germany, Japan, Sweden, Austria). They considered 5 spheres which firms must develop relationships with:

1. industrial relations and wage and productivity - mainly focussed on how wages are determined 2. vocational training and education - firm or sector; generalist or specific 3. corporate governance - returns on investment 4. inter-firm relations - competitive or collaborative 5. relations with employees - adversarial or cooperative

They categorized capitalism of different countries into the two types (LME and CME, however there is a third type which is "Hybrid" which consists of countries in the mediterranean ring, but Hall and Soskice only used LMEs and CMEs in their analysis). Varieties of capitalism is a new framework for understanding the institutional similarities and differences among the developed economies since national political economies can be compared by reference to the way in which firms resolve the coordination problems they face in these five spheres. These two models are at the poles of a spectrum along which many nations can be arrayed. i.e.) even within these two types, there are significant variations. Extending the scope of Hall and Soskice's framework to countries outside Western Europe and the US, other authors have developed different varieties of capitalism, such as dependent market economies and hierarchical market economies.

According to the book, institutions are shaped not only by legal system but by informal rules or common knowledge acquired by actors through history and culture of one nation. Institutional complementarities suggest that nations with a particular type of institution then develop complementary institution in other spheres. (for example: countries with stock market liberalization has less labor protection and vice versa). Firms of LME and CME respond very differently to a similar shock and institutions are socializing agencies and go through a continuous processes of adaptation.

Institutional arrangements of a nation’s political economy tend to push its firms toward particular kinds of corporate strategies. Thus, two types of economies have different capacities for innovation and tend to distribute income and employment differently.

Criteria LME CME
Mechanism Competitive market arrangements Non-market relations
Equilibrium Demand/supply and


Strategic interaction among firms and other actors
Inter-firm relations Competitive Collaborative
Mode of Production Direct product competition Differentiated, niche production
Legal system Complete and formal contracting Incomplete and informal contracting
Institutions’ function Competitiveness

Freer movement of inputs


Sanctioning of defectors

Employment Full-time, General skill

Short term, Fluid

Shorter hours, Specific skill

Long term, Immobile

Wage bargain Firm level Industry level
Training and Education Formal education from high schools and colleges Apprenticeship imparting industry-specific skills
Unionization Rate Low High
Income Distribution Unequal (high Gini) Equal (low Gini)
Innovation Radical Incremental
Comparative Advantage High-tech and service Manufacturing
Policies Deregulation, anti-trust, tax-break Encourages information sharing and collaboration of firms

Examples of LMEs are the U.S. and the U.K economies while most of Scandinavian countries and Germany are CMEs.


Peter A. Hall, David Soskice (eds.): Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press, 2001.

External links[edit]

  • the book's introduction [1]
  • Peter A. Hall [2]
  • David Soskice [3]