Notes on Varieties of Capitalism (Voc)

Varieties of Capitalism (VoC) * “The object of this book is to elaborate a new framework for understanding the institutional similarities and differences among the developed economies, one that offers a new and intriguing set of answers to such questions” (1-2) * VoC is actor-centered: * “which is to say we see the political economy as a terrain populated by multiple actors, each of whom seeks to advance his interests in a rational way in strategic interaction with others” (p. 6) however all actors are not equally important: * “this is a firm-centered political economy that regards companies as the crucial actors in a capitalist economy” (p. 6) * relational conception of firms, coordination problems (how institutes may influence firms) * institutions offer firms opportunities * Coordinated Market Economies (CME) versus Liberal Market Economies (LME) * Ideal, typical varieties. Political economies do not resemble these ideals perfectly. These are the most efficient extremes. * Institutions in five different spheres: * Industrial relations: * How is wage bargaining and bargaining over working conditions organised? * LME: Company based wage bargaining; few rights to work-based representation; low unionisation * CME: Co-ordination of wage determination involving employers and union organisations; importance of employee participation within the firm’s decision-making (e.g. Germany: high degree of worker protection) * Education/training systems: * How is it secured that the working force has the skills required for the company to be competitive? * LME: Limited vocational training; only modest connection of higher education to industry * CME: Well-established vocational training (involving firms and unions). Higher education system delivers strong supply of scientists and engineers
(e.g. Germany: a link between industry and school) * Financial system/market for corporate governance: * How do firms get access to the capital required for them to finance their activities? * LME: High levels of stock market capitalisation; threat of takeovers determine firm governance (firms rely on the stock markets to finance activities) * CME: Stable shareholding; hostile takeovers difficult; banks central to monitoring and financing of companies; perhaps limited investment in new technology and industry (e.g. Germany: companies can be “bank-oriented”) * Inter-firm relations (cooperative/competitive): * What type of relationship do firms have with their own suppliers and with their rivals? * LME: Inter-firm relations governed by arms-length legal relations; strong tradition of anti-collusion competition (read: cartels) law
(fierce competition) * CME: Consensus-based inter-firm relations, often through business associations
(example: the board director of one company can be the board director of several others and as such also be interested in the well-being of competitors) http://en.wikipedia.org/wiki/Interlocking_directorate * Intra-firm relations: * Concerns the structure of firms * LME: top-managers enjoy significant unilateral powers. Higher job mobility
(the US) * CME: consensus decision-making. Top managers need to secure agreement with employee representatives . Longer average job tenure. * Instutional complementarity * The notion that the functioning/efficiency of one particular institutional structure in one area depends on the structure of institutions in other areas. (Synergies. Positive-sum.) * Synergies: “Since many of these institutional practices enhance the effectiveness with which others operate, the economic returns to the system as a whole are greater than its component parts alone would generate” (27)

* Comparative institutional advantage * ”…the institutional structure of a particular political economy provides firms with advantages for engaging in specific types of activities there” (p. 37) * Think: “comparative advantage” * LME better at radical innovation (decentralisation, lower barriers to entry, flexible capital). * Bio-tech, tech-oriented innovation business * CME better at incremental innovation (longer time horizons, stability, specialised labour, networks and learning). * Mechanical, engineering

* Implications in relation to globalisation: breaks with the hyper-globalisation thesis according to which the common pressures generated by globalisation lead to convergence on one (liberal) model of capitalism * Rather advocate: dual convergence thesis