Varieties of Capitalism
|Author||Peter A. Hall and David Soskice|
|Subject||Capitalism, Institutional economics, Comparative economic systems, Comparative advantage|
|Publisher||Oxford University Press|
|Pages||540 pp (first edition)|
|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.
|Mechanism||Competitive market arrangements||Non-market relations|
|Strategic interaction among firms and other actors|
|Mode of Production||Direct product competition||Differentiated, niche production|
|Legal system||Complete and formal contracting||Incomplete and informal contracting|
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|
|Income Distribution||Unequal (high Gini)||Equal (low Gini)|
|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.