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Jimmy Donaghey

Purpose of the session

Introduce students to Varieties of Capitalism
Explain key underpinnings of this approach Outline the core arguments of varieties of capitalism

Introduce the models of capitalism that comprise the

analytical framework

Industrial revolution impacted different countries at

different times and in different ways Welfare states and trade unions developed along patterns determined in nationally specific contexts US developed a highly market driven system Post WW1 saw the emergence of communist economies, particularly in Central and Eastern Europe West European economies developed capitalist economies with more social protection and workers right- role of social-democratic governments

Core concepts in VoC

Path dependency
Complementarity Comparative institutional advantage

In economics, a complementary good is one which enhances another good. In institutional theory, complementarity refers to a situation where different institutions enhance the effects of each other Complementarity infers that in order to perform at their optimal levels, institutions need to occur in bundles If firms value a particular institution they should be willing to invest in complementary institutions

Path Dependency
Actors and institutions invest resources into certain

ways of doing things To break with the past means there are sunk costs Where possible, choices will be made to minimise these costs Thus, the actions of both actors and institutions are shaped by past experience

Comparative institutional advantage

CIA refers to the fact that it is believed that bundles of

certain institutions provide an advantage to economies in global competition to carry out specific tasks Different institutions give different economies CIA in different ways Thus various economies should excel at different activities, in concert with their CIA

The three types

Liberal-Market economies Anglo-Saxon model; Anglophone model

US, UK, Canada, Australia, New Zealand, Ireland

Coordinated market economies Germany, Japan, Sweden, Austria Hybrid Mediterranean ring

Five sets of relationships

Industrial relations
Mainly focussed on how wages are determined

Vocational training and Education

Firm or sector; generalist or specific

Corporate governance
Returns on investment

Inter-firm relations
Competitive or collaborative

Relations with employees

Adversarial or cooperative

Hall and Soskice (2001)

Chapter 1 of this volume possibly the most important

contribution to political economy since the 1970s. Argued that a clear distinction could be drawn between 3 types of economic system
Liberal Market Economies (LMEs) Coordinated Market Economies (CMEs) Hybrid Mediterranean Economies

Key differences
Common theme in both Soskice (1990) and Aoki

(1990) was that

A) US/UK predominantly based on private contracts

and markets B) in contrast, (W.) Germany and Japan based on coordination

Coordination: essentially the process of non-market

means of firms cooperating to gain competitive advantage

Coordinated market economies

in CMEs institutions promote long-term relations and coordination based on non-market mechanisms (Lange 2009;185) Co-ordinated economies are relational in nature Parties are rewarded for maintaining high quality relationships Focus is on quality Competition does occur in markets but cooperation between actors plays an important role

Liberal Market Economies

Based on short term relationships
Contractual in nature Short term relationships Parties rewarded for opportunism Focus on quantity Co-operation does occur but insofar as it aids

competition and generally short term

Core Differences
CMEs National/Sector based wage settling Sector-level training in specific skills Venture Capital: Long term return on investment Firms linked through mutual finance links Co-operative firm level industrial relations LMEs
Firm/individual pay setting Highly general skills Short term return on

investment Finance based on equitiesshareholder model Firms act autonomously Adversarial or HRM approach to firm level relations

Criticisms of VoC
Static Institutional equilibrium
Overly generalises a) between countries b) between sectors Growing convergence on the Anglo-American model Effect of financial crisis? Overly focussed on manufacturing Neglects role of state

VoC summary
VoC approach essentially grew out of comparing the

US and the UK, on the one hand, with (West) Germany and Japan, on the other. Relational approach Firm Centred Focused on social systems of production Strategic interactions

Core issues remain

How many varieties?
Variation within capitalisms Variation within countries

However, clear that there are ways in which countries

are more similar and more different to others

VoC has been a highly influential theory to explain

differences and similarity of work organisation It is far from being a complete explanation It does provide key points of reference for analysing differences Important for companies operating across boundaries to be aware of differences