Varieties Of Capitalism And Institutional .
B.J.Pol.S. 39, 449–482 Copyright r 2009 Cambridge University Pressdoi:10.1017/S0007123409000672 Printed in the United KingdomFirst published online 1 May 2009Varieties of Capitalism and InstitutionalComplementarities in the Political Economy:An Empirical AnalysisPETER A. HALLANDDANIEL W. GINGERICH*This article provides a statistical analysis of core contentions of the ‘varieties of capitalism’ perspective oncomparative capitalism. The authors construct indices to assess whether patterns of co-ordination in theOECD economies conform to the predictions of the theory and compare the correspondence of institutions across subspheres of the political economy. They test whether institutional complementarities occuracross these subspheres by estimating the impact of complementarities in labour relations and corporategovernance on growth rates. To assess the durability of varieties of capitalism, they report on the extentof institutional change in the 1980s and 1990s. Powerful interaction effects across institutions in thesubspheres of the political economy must be considered if assessments of the economic impact ofinstitutional reform in any one sphere are to be accurate.The field of comparative political economy has been interested for many years inunderstanding how differences in the organization of national political economies condition aggregate economic performance. Behind such inquiries lies the intuition that morethan one economic model can deliver economic success. But what are the central featuresthat distinguish the operation of one political economy from another, and how shouldcountries be categorized along these dimensions of difference?For the developed economies, the answers usually given to these questions in each erahave corresponded to the principal challenges confronting those economies. During the1960s, when economic modernization was high on the agenda, efforts to identify distinctive types of capitalism emphasized variation in the character of state intervention into theeconomy.1 When inflation rose to new heights during the 1970s, the emphasis shifted tothe contributions of neo-corporatism to wage and price moderation.2 In recent years,scholars have been seeking approaches salient to an era of globalization.3* Department of Government, Harvard University and Woodrow Wilson Department of Politics, University of Virginia (email: phall@fas.harvard.edu). The authors wish to record their gratitude to AlexanderKuo and Stanislav Markus for efficient research assistance and to the John D. and Catherine T. MacArthurFoundation for a grant to Hall for research and writing. For helpful comments, they wish to thank James Alt,Bruno Amable, Moreno Bertoldi, Robert Boyer, Colin Crouch, Ekkehard Ernst, Peter Gourevitch, TorbenIversen, Bruce Kogut, Jonas Pontusson, Marino Regini, David Soskice and Wolfgang Streeck.1Andrew Shonfield, Modern Capitalism (Oxford: Oxford University Press, 1969); Chalmers Johnson, MITI andthe Japanese Miracle: The Growth of Industrial Policy 1925–75 (Stanford, Calif.: Stanford University Press, 1982).2Fritz Scharpf, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell UniversityPress, 1991); Peter J. Katzenstein, Small States in World Markets (Ithaca, N.Y.: Cornell University Press,1985); Lars Calmfors and John Driffill, ‘Centralization of Wage Bargaining’, Economic Policy, 6 (1988),13–61; David Cameron, ‘Social Democracy, Corporatism, Labour Quiescence and the Representation ofEconomic Interest in Advanced Capitalist Society’, in John H. Goldthorpe, ed., Order and Conflict inContemporary Capitalism (New York: Oxford University Press, 1984), pp. 143–78.3Bruno Amable, The Diversity of Modern Capitalism (Oxford: Oxford University Press, 2004); VivienSchmidt, The Futures of European Capitalism (New York: Oxford University Press, 2002); Colin Crouch
450HALL AND GINGERICHThe object of this analysis is to subject one of the most prominent of these newapproaches to a set of empirical tests. We focus on the ‘varieties of capitalism’ perspectiveintroduced in a volume edited by Hall and Soskice and now widely referenced in theliterature.4 Applying the new economics of organization to the macroeconomy, thisapproach distinguishes between capitalist economies by reference to the ways firms andother actors co-ordinate their endeavours. It suggests that nations cluster into identifiablegroups based on the extent to which firms rely on market or strategic modes of coordination. From these formulations follow many important contentions about variationsin economic performance, comparative institutional advantage, national responses toglobalization and comparative public policy.The varieties-of-capitalism approach is grounded in a rich set of comparative casestudies, but efforts to assess it using statistical analysis on larger numbers of cases are stillat an early stage.5 Those efforts have been limited partly because we do not yet have goodmeasures for the character of co-ordination, the concept at the heart of the analysis. As aresult, the position of many countries within those categories remains ambiguous. Weseek indicators for co-ordination that will allow us to test some basic tenets of thisapproach and that others can use for subsequent assessments.We are especially interested in one of the core contentions of the varieties-of-capitalismapproach, namely, its theory of institutional complementarities in the macroeconomy. One setof institutions is said to be complementary to another when its presence raises the returnsavailable from the other. Economists have identified such complementarities at the level ofthe firm, where marketing strategies based on customized products, for instance, may becomplementary to computer-controlled production processes.6 However, Hall and Soskiceargue that complementarities, with positive effects on aggregate economic performance, areembedded in institutions across subspheres of the political economy.7 This is an important(F’note continued)and Wolfgang Streeck, eds, The Political Economy of Modern Capitalism: Mapping Convergence andDiversity (London: Sage, 1997); Suzanne Berger and Ronald Dore, eds, National Diversity and GlobalCapitalism (Ithaca, N.Y.: Cornell University Press, 1996); Michel Albert, Capitalism Against Capitalism(London: Whurr, 1992).4Peter A. Hall and David Soskice, eds, Varieties of Capitalism: The Institutional Foundations ofComparative Advantage (Oxford: Oxford University Press, 2001); Bob Hancké, Martin Rhodes and MarkThatcher, eds, Beyond Varieties of Capitalism: Conflict, Contradiction and Complementarities in the EuropeanEconomy (Oxford: Oxford University Press, 2007); John L. Campbell, John A. Hall and Ove K. Pedersen,National Identity and the Varieties of Capitalism: The Danish Experience (Montreal: McGill University Press,2006); David Rueda and Jonas Pontusson, ‘Wage Inequality and Varieties of Capitalism’, World Politics, 52(2000), 350–83; Herbert Kitschelt, Peter Lange, Gary Marks and John Stephens, eds, Continuity and Change inContemporary Capitalism (New York: Cambridge University Press, 1999).5For efforts to look at some of its propositions, see Mark Zachary Taylor, ‘Empirical EvidenceAgainst Variety of Capitalism’s Theory of Technological Innovation’, International Organization, 58(2004), 601–31; Lane Kenworthy, ‘Institutional Coherence and Macroeconomic Performance’, SocioEconomic Review, 4 (2006), 69–91; Matthew Allen, Lothar Funk and Heinz Tüselman, ‘Can Variation inPublic Policies Account for Differences in Comparative Advantage?’ Journal of Public Policy, 26 (2006),1–19.6R. Jaikumar, ‘Postindustrial Manufacturing’, Harvard Business Review, November–December(1986), 69–76; Paul Milgrom and John Roberts, ‘The Economics of Modern Manufacturing, Technology,Strategy and Organization’, American Economic Review, 80 (1990), 511–28; Paul Milgrom and JohnRoberts, Economics, Organization, and Management (Englewood Cliffs, N.J.: Prentice Hall, 1992).7See also Masahiko Aoki, ‘The Japanese Firm as a System of Attributes: A Survey and ResearchAgenda’, in Masahiko Aoki and Ronald Dore, eds, The Japanese Firm: Sources of Competitive Strength
Varieties of Capitalism and Institutional Complementarities451contention. If correct, it implies that efforts to reform one sphere of the political economymay yield negative economic results if unaccompanied by parallel reforms in other spheres.It predicts a particular politics of institutional defence.By subjecting that contention to empirical assessment, we bring together issues typicallytreated by quite separate literatures. One considers the impact of institutional reform inlabour markets, while another considers reform in corporate governance.8 However, thereis growing evidence of interactions across some spheres of the political economy.9 We askwhether the interaction effects postulated by the varieties-of-capitalism approach can befound across the spheres of labour relations and corporate governance.We begin by developing indices to measure the character of co-ordination in labourrelations and corporate governance. We then use these measures to assess the plausibilityof the logic used by varieties-of-capitalism analysts to differentiate among developedpolitical economies and the appropriateness of its categories. Turning to the theory’s corepostulates about the presence of institutional complementarities in the macroeconomy,we ask whether the institutional arrangements it sees as complementary actually yieldhigher rates of economic growth. Finally, we inquire into the durability of the categoriesgenerated by the varieties-of-capitalism literature, by examining patterns of institutionalchange over the past two decades. Before taking up its core propositions, however, weopen with an overview of the varieties-of-capitalism perspective.10(F’note continued)(Oxford: Clarendon Press, 1994), pp. 11–40; Martin Höpner, ‘What Connects Industrial Relations andCorporate Governance? Explaining Institutional Complementarity’, Socio-Economic Review, 3 (2005),331–58; Glenn Morgan, Richard Whitley and Eli Moen, eds, Changing Capitalisms? Internationalization,Institutional Change and Systems of Economic Organization (Oxford: Oxford University Press, 2005).8Stephen Nickell, ‘Unemployment and Labour Market Rigidities, Europe versus North America’,Journal of Economic Perspectives, 11 (1997), 55–74; Organization for Economic Cooperation andDevelopment, OECD Jobs Study: Evidence and Explanations; Part II, The Adjustment Potential of theLabour Market (Paris: OECD, 1994); Calmfors and Driffill, ‘Centralization of Wage Bargaining’; WendyCarlin and Colin Mayer, ‘How Do Financial Systems Affect Economic Performance?’, in Xavier Vives,ed., Corporate Governance: Theoretical and Empirical Perspectives (New York, Cambridge UniversityPress 2000), pp. 137–68; Rafael LaPorta, Florencio Lopez-de-Silanes, Andrei Schleifer and Robert W.Vishny, ‘Law and Finance’, Journal of Political Economy, 106 (1998), 1113–55.9Robert J. Franzese Jr, Macroeconomic Policies of Developed Democracies (New York: CambridgeUniversity Press, 2001); Bruno Amable, Ekkehard Ernst and Stefano Palombarini, ‘How Do FinancialMarkets Affect Industrial Relations: An Institutional Complementarity Approach’, Socio-EconomicReview, 3 (2005), 311–30; Ekkehard Ernst, ‘Financial Systems, Industrial Relations, and IndustrySpecialization: An Econometric Analysis of Institutional Complementarities’, in H. Schubert, ed., TheTransformation of the European Financial System (Frankfurt: European Central Bank, 2003), pp. 60–95;Torben Iversen, ‘Wage Bargaining, Central Bank Independence and the Real Effects of Money’, International Organization, 3 (1998), 469–504; Peter A. Hall and Robert J. Franzese Jr, ‘Mixed Signals: CentralBank Independence, Coordinated Wage Bargaining, and European Monetary Union’, InternationalOrganization, 3 (1998), 505–35; Michel Goyer, ‘Capital Mobility, Varieties of Institutional Investors andthe Transforming Stability of Corporate Governance in France and Germany’, in Hancké, Rhodes andThatcher, eds, Beyond Varieties of Capitalism, pp. 195–222.10This approach originates in the early work of David Soskice and the account given of it here drawsextensively on joint work with him. See David Soskice, ‘Reinterpreting Corporatism and ExplainingUnemployment, Coordinated and Non-coordinated Market Economies’, in R. Brunetta and C.Dell’Aringa, eds, Labour Relations and Economic Performance (London: Macmillan, 1990), pp. 170–214;David Soskice, ‘The Institutional Infrastructure for International Competitiveness: A ComparativeAnalysis of the UK and Germany’, in A. B. Atkinson and R. Brunetta, eds, The Economics of the NewEurope (London: Macmillan, 1991), pp. 45–66.
452HALL AND GINGERICHTHE VARIETIES-OF-CAPITALISM APPROACHIn contrast to the literature focused on national labour movements, varieties-of-capitalismanalyses assume that firms are the central actors in the economy whose behaviour aggregatesinto national economic performance. In order to prosper, firms must engage with other actorsin multiple spheres of the political economy: to raise finance (on financial markets), to regulatewages and working conditions (industrial relations), to ensure workers have the requisite skills(education and training), to secure access to inputs and technology (via inter-firm relations),to compete for customers (in product markets), and to secure the co-operation of theirworkforce (firm–employee relations). Adopting a relational view of the firm, this perspectiveassumes that success in each of these endeavours depends on efficient co-ordination with otheractors. The central problems facing firms are, therefore, co-ordination problems.The varieties-of-capitalism approach draws a distinction between two modes ofco-ordination. In one, firms co-ordinate with other actors primarily through competitivemarkets, characterized by arms-length relations and formal contracting. Here, equilibrium outcomes are dictated primarily by relative prices, market signals and familiarmarginalist considerations. In the second, firms co-ordinate with other actors throughprocesses of strategic interaction of the kind typically modelled by game theory. Here,equilibrium outcomes depend on the institutional support available for the formation ofcredible commitments, including support for effective information sharing, monitoring,sanctioning and deliberation.11Although instances of market and strategic co-ordination occur in all capitalisteconomies, this approach contends that, in the spheres central to firm endeavour, thebalance between these two types of co-ordination varies across political economies. Atone end of the spectrum stand liberal market economies (LMEs), where relations betweenfirms and other actors are co-ordinated primarily by competitive markets. At the otherend are co-ordinated market economies (CMEs), where firms typically engage in morestrategic interaction with trade unions, suppliers of finance and other actors.12Whether a firm co-ordinates its endeavours through market relations or through strategicinteraction is said to depend on the institutional setting. Where markets are imperfect andthere is substantial institutional support for the formation of credible commitments, firms canbe expected to rely more extensively on strategic co-ordination. Where markets are fluidand there is little support for such commitments, firms will rely more heavily on marketco-ordination. Accordingly, there should be a correspondence between the institutionalconfiguration of each sphere of the economy and the character of co-ordination there.1311This list of the institutional correlates of effective strategic co-ordination is a familiar one that drawson the conventional literature plus the presence of a capacity for deliberation whose importance isoutlined in Hall and Soskice, ‘Introduction’. See Elinor Ostrom, Governing the Commons: The Evolutionof Institutions for Collective Action (New York: Cambridge University Press, 1990).12The approach concentrates on cross-national variation because it examines spheres where nationalregulations and nationally-specific institutions are especially important, but it acknowledges there can beadditional variation across specific regions or sectors. See John L. Campbell, Rogers Hollingsworth andLeon Lindberg, Governance of the American Economy (New York: Cambridge University Press, 1991);and Gary Herrigel, Industrial Constructions: The Sources of German Industrial Power (New York:Cambridge University Press, 1996).13Of course, the distinction between institutions and co-ordination is a narrow one, especially if coordination is construed as rule-patterned behaviour. Here, institutions are defined as rules and practices,more or less formal, that actors take into account when making decisions about what actions toundertake. These include the institutions generated by the organizational setting. See Hall and Soskice,
Varieties of Capitalism and Institutional Complementarities453The distinction will be clearer if we describe a liberal and co-ordinated market economy. Market co-ordination is a familiar concept in neo-classical economics, and theUnited States is a typical LME. Here, firms face large equity markets marked by highlevels of transparency and dispersed shareholding, where firms’ access to external financedepends heavily on publicly assessable criteria such as market valuation. Regulatoryregimes allow hostile takeovers that depend on share price, rendering managers sensitiveto current profitability. Because trade unions are relatively weak and employment protection low, labour markets are fluid and wage setting primarily a matter of contractbetween workers and individual employers. Because labour markets are fluid, workershave incentives to invest in general skills that can be taken to other jobs, and, becauseindustry associations are weak, firms lack the capacity to mount the collaborative trainingprogrammes that confer industry-specific skills. Technology transfer is accomplishedprimarily by licensing or taking on expert personnel, and standards are usually set bymarket races. Top managers enjoy substantial authority over all aspects of firm strategy,including lay-offs. In such settings, many of the relationships firms form with other actorsare mediated by competitive markets. Although there are variations between them,the United Kingdom, Ireland, Canada, Australia and New Zealand are all generallyidentified as LMEs.Germany provides a good example of a CME. Its firms are closely connected by densenetworks of cross-shareholding and influential employers associations. These networksprovide for exchanges of private information, allowing firms to develop reputations thatpermit some access to capital on terms that depend more heavily on reputation than sharevalue. Accordingly, managers are less sensitive to current profitability. In the presence ofstrong trade unions, powerful works councils and high levels of employment protection,labour markets are less fluid and job tenures longer. In most industries, wage setting isco-ordinated by trade unions and employers associations that also supervise collaborativetraining schemes, providing workers with industry-specific skills and assurances of positionsif they invest in them. Industry associations play a major role in standard setting, andsubstantial amounts of technology transfer take place through inter-firm collaboration.Hemmed in by powerful workforce representatives and business networks, top managershave less scope for unilateral action, and firms typically adhere to more consensual styles ofdecision making. It should be apparent that, in order to perform their core functions, firmsin CMEs like that of Germany must engage in strategic interaction in multiple spheres,although the institutions on which they rely and the quality of the outcomes may vary fromone country to another. Austria, Japan, South Korea, Sweden, Norway, Finland, Denmark,Belgium,
May 01, 2009 · and Wolfgang Streeck, eds, The Political Economy of Modern Capitalism: Mapping Convergence and Diversity (London: Sage, 1997); Suzanne Berger and Ronald Dore, eds, National Diversity and Global Capitalism (Ithaca, N.Y.: Cornell University Press, 1996); Michel Albert, Capitalism Against Capita
that national diversity made for more varieties, including one based on statism. From Three to Two Varieties of Capitalism? The contemporary literature on the varieties of capitalism has its origins in the 1960s, when Andrew Shonfield in Modern Capitalism
are different terms available--modern capitalism, post-modem capitalism, laissez-faire capitalism, neo-American capitalism, neo-Conservative capitalism, neo-liberal capitalism, late . and necessary to advance the interests of diversity and equality. Finally, in Part VII
7 Amable, Bruno (2003): The diversity of modern capitalism. Oxford: Oxford Univ. Press, p. 9. 10 Therefore, this work is organized as follows: after a critical discussion of Weber’s notion of Capitalism, I will turn to Chinese Capitalism, the so-called Guanxi-type Capitalism. Related to this, a discussion
Peter Hall and David Soskice, The Varieties of Capitalism (2001), especially chapter 1 Bruno Amable, The Diversity of Modern Capitalism (2003), excerpts from Ch. 3 (handout) Bob Hancké, Debating Varieties of Capitalism (2009) Bob Hancké, Martin Rhodes and Mark Thatcher (eds), Beyond Varieties of
Rand, Ayn. "Man's Rights" 1963 (In the appendix of Capitalism: The Unknown Ideal) Rand, Ayn. "The Nature of Government" 1961 (In the appendix of Capitalism: The Unknown Ideal) Read for Thursday (Second class meeting): BB&T - The BB&T Philosophy (Values) Ayn Rand, Capitalism: The Unknown Ideal, Chapter 1 - What is Capitalism? Source: Signet Books
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