Varieties of Capitalism

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Varieties of Capitalism: The Institutional Foundations of Comparative Advantage
Varieties of Capitalism.jpg
AuthorPeter Hall, David Soskice
CountryUnited Kingdom
LanguageEnglish
SubjectCapitalism, Institutional economics, Comparative economic systems, Comparative advantage
PublisherOxford University Press
Publication date
2001
Pages540 pp (first edition)
ISBN0-19-924774-9
330.12/2
LC ClassHB501 .V355 2001

Varieties of Capitalism: The Institutional Foundations of Comparative Advantage is an 2001 book on economics, political economy and comparative politics, by political economists Peter A. Hall and David Soskice.[1][2]


Contents[edit]

In their introductory chapter, Hall and Soskice set out two distinct types of market economy that implement capitalism: liberal market economies (LME) (e.g. US, UK, Canada, Australia, New Zealand, Ireland) and coordinated market economies (CME) (e.g. Germany, Japan, Sweden, Austria).

Those two types can be distinguished by the primary way in which firms coordinate with each other and other actors, such as trade unions. In LMEs, firms primarily coordinate their endeavours by way of hierarchies and market mechanisms. Coordinated market economies rely more heavily on non-market forms of interaction in the coordination of their relationships with other actors. The authors considered five spheres in which firms must develop relationships with others:

  • Industrial relations — Companies have to coordinate with their workers, trade unions and other employers over wage and productivity. CMEs generally have a higher level of membership in trade unions and employers organizations, and bargaining over wages tends to happen at the industry, sectoral, or national level. Conversely in LMEs, workers and employers are often less organized, and wage negotiations take place at the company level (the interview and hiring process).
  • Vocational training and education — In CMEs, workers tend to have specific skills that are tied to the firm or the industry they are working in. In LMEs, workers have more general skills that easily can be used to work at other companies.
  • Corporate governance — Firms in CMEs rely more on patient capital, i.e. capital that does not totally depend on financial openness and short-term return on investment (ROI). LMEs tend to rely more heavily on public information about finances and short-term capital, such as stock markets.
  • Inter-firm relations — Inter-firm relations in CMEs tend to be more collaborative, while inter-firm relations in LMEs are more competitive and arms-length.
  • Relations with employees — In CMEs, managers often have to cooperate with employees to reach major decisions, while in LMEs, there are often more adverserial relations between management and employees, in which managers are the prime decision-makers.

While Hall and Soskice categorized the capitalism of different countries into two types (LME and CMEs), there is a "hybrid" type, represented by countries in the Mediterranean ring.[citation needed]

Varieties of Capitalism offers a new framework for understanding the institutional similarities among and differences between 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 (CMEs and LMEs) 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[who?] 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 the 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 institutions in other spheres. (For example: countries with stock market liberalization have less labour protection, and vice versa.) Firms of liberal and coordinated market economies respond very differently to a similar shock (an economic cycle), 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 companies toward particular kinds of corporate strategy. Thus, the two types of economy have different capacities for innovation, and tend to distribute income and employment differently.

Criteria Liberal market economy Coordinated market economy
Mechanism Competitive market arrangements Non-market relations
Equilibrium Demand-supply and hierarchy 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
Monitoring
Sanctioning of defectors
Employment conditions Full-time, general skill
Short-term, fluid
Shorter hours, specific skill
Long-term, immobile
Wage bargain Firm level (when hiring) Industry level (industrial action)
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 advantages High-tech and service Manufacturing
Policies Deregulation, anti-trust, tax-break Encourages information sharing and collaboration of firms

Examples of LMEs are the US and the UK, while Scandinavian countries are typically of CMEs. Germany was often described as an CME, but following the Hartz reforms, this viewpoint has become highly contestable.


Reception[edit]

British Labour Party politician, Ed Miliband, was heavily influenced by Varieties of Capitalism during his time as Leader of the Opposition.[3] Miliband campaigned to become Prime Minister with the vision of transforming the British economy from the Liberal Market Economy it currently is to a Coordinated Market Economy - which he believed would be more equitable but retain economic competitiveness.[4] David Soskice disagreed arguing that "to be successful... you need to show that you're a party which understands what are the sectors" that deliver more university-driven growth,[5] whereas Colin Crouch was more sympathetic to Miliband's vision, stating that "it is possible for human beings... to try [and change the UK's type of capitalism]".[6]

Colin Crouch criticizes the deterministic nature of Varieties of Capitalism where “actors seem to exist in an iron cage of institutions, which they cannot change”. Crouch argues that “institutional entrepreneurs” frequently adjust the institutional framework which is viewed as stable in Varieties of Capitalism, citing examples such as Silicon Valley and Thatcherism.[7] Authors observe that many of the CMEs have been unstable since the 1990s and subject to institutional change and policy drift, including the archetypal Germany.[8][9]

Varieties of Capitalism has been criticized for its claim that economies perform best economically when exhibiting institutional frameworks that are ideal-types of CMEs and LMEs. This claim was developed further by Peter Hall and Daniel Gingerich who claim to find higher levels of economic growth in countries with institutions which match each other in terms of being CME or LME-types.[10] Mark Blyth responds to this implicit explanation of the Eurosclerosis found in Southern European states, with their mixed institutions, by arguing that many of those countries have not actually underperformed the US and that unemployment metrics are not cross-comparable when considering the US’s mass incarceration.[11] Mark Taylor has questioned Soskice and Hall’s claim that ideal-types of CMEs and LMEs show innovative specialization in different subject areas. The empirical results in Soskice and Hall’s book is driven by a major outlier in innovation output – the US – with other LMEs not showing any distinct innovation patterns from CMEs or intermediate countries.[12] Other research provides more mixed support for the central thesis of the Varieties of Capitalism approach, highlighting how some sectors in different countries conform to expectations, while others do not.[13] The approach continues to influence important work in the area of socio-economics, including how institutions structure firms' and countries' responses to the climate emergency.[14] Work has also sought to highlight the similarities and differences between the Varieties of Capitalism approach and related frameworks, such as historical institutionalism and regulation theory[15]

See also[edit]

References[edit]

  1. ^ Ebbinghaus, Bernhard (2016-07-07). Lodge, Martin; Page, Edward C.; Balla, Steven J. (eds.). Peter A. Hall and David Soskice,. 1. Oxford University Press. doi:10.1093/oxfordhb/9780199646135.013.31.
  2. ^ Thelen, Kathleen (2012-06-15). "Varieties of Capitalism: Trajectories of Liberalization and the New Politics of Social Solidarity". Annual Review of Political Science. 15 (1): 137–159. doi:10.1146/annurev-polisci-070110-122959. ISSN 1094-2939.
  3. ^ "What is Milibandism?". The Observer. 1 February 2014. Retrieved 22 September 2020.
  4. ^ "Departmental Determinism". The Economist. 1 January 2014. Retrieved 22 September 2020.
  5. ^ "Varieties of Capitalism". Analysis. 23 June 2014. Event occurs at 25:44. BBC Radio 4. Retrieved 22 September 2020.
  6. ^ "Varieties of Capitalism". Analysis. 23 June 2014. Event occurs at 21:33. BBC Radio 4. Retrieved 22 September 2020.
  7. ^ Crouch, Colin (2005). Capitalist Diversity and Change: Recombinant Governance and Institutional Entrepreneurs. Oxford: Oxford University Press. ISBN 9780199286652.
  8. ^ Blyth, Mark (2003). "Same as it Never Was: Temporality and Typology in the Varieties of Capitalism". Comparative European Politics. 1 (2): 215–225.
  9. ^ Thelen, Kathleen (2014). Varieties of Liberalization and the New Politics of Social Solidarity. Cambridge: Cambridge University Press. ISBN 9781107282001.
  10. ^ Hall, Peter; Gingerich, Daniel (2009). "Varieties of Capitalism and Institutional Complementarities in the Political Economy: An Empirical Analysis". British Journal of Political Science. 39 (3): 449–482.
  11. ^ Blyth, Mark (2003). "Same as it Never Was: Temporality and Typology in the Varieties of Capitalism". Comparative European Politics. 1 (2): 215–225.
  12. ^ Taylor, Mark Zachary (2004). "Empirical Evidence Against Varieties of Capitalism's Theory of Technological Innovation". International Organization. 58 (3): 601–631.
  13. ^ Allen, Matthew M. C. (2013). "Comparative capitalisms and the institutional embeddedness of innovative capabilities". Socio-Economic Review. 11 (4): 771–794.
  14. ^ Wood, Geoff (2020). "The comparative institutional analysis of energy transitions". Socio-Economic Review. 18 (1): 257–294.
  15. ^ Allen, Geoffrey T.; Allen, Matthew M. C. (2020). "Comparing Capitalisms: Debates, Controversies and Future Directions". Sociology. 54 (3): 482–500.

Further reading[edit]

  • Allen, M., 2004. The varieties of capitalism paradigm: not enough variety?. Socio-Economic Review. 2 (1), 87-108.
  • Hall, Peter A., Soskice, David (eds.): Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press, 2001.
  • Peter A. Hall, Kathleen Thelen, "Institutional change in varieties of capitalism", Socio-Economic Review, Volume 7, Issue 1, January 2009, Pages 7–34
  • Hancké, Bob, Rhodes, Martin and Thatcher, Mark (eds.). 2007. Beyond Varieties of Capitalism: Conflict, Contradictions, and Complementarities in the European Economy. Oxford University Press.
  • Howell, C. 2003. "Varieties of Capitalism: And Then There Was One?" Comparative Politics, 36:1, pp. 103–124.
  • Kathleen Thelen. 2012. "Varieties of Capitalism: Trajectories of Liberalization and the New Politics of Social Solidarity." Annual Review of Political Science 15:137-159.

External links[edit]