Week 7: Varieties of Capitalism Flashcards
What is the Modernization approach?
- Varieties of capitalism
- Institutions as socializing agencies
- Focuses on modernizing industries still dominated by pre-war practices
- Key actors are those who have the strategic capacity to implement industrial plans
- Countries are categorized into strong and weak states
- Strong: capable of implementing policies effectively
- Weak: struggle to modernize due to less effective governance and policy
What are the three varieties of capitalism?
Modernization approach, Neo-corporatism and Social systems of production
What is Neo-corporatism?
- In this system, society is seen as a corporate—that is, united and hierarchical—body in which the government dominates and all sectors of society (e.g., business, the military, and labor) are required to work for the public interest as defined by the government.
- Institutions as a source of power
- Focuses on the state’s ability to negotiate and sustain durable bargains (gangas) with employers and trade unions
- Key actors: trade union, employers and state
- Countries are categorized into centralized and decentralized union ones
- Centralized: easier for states to negotiate broad, encompassing agreements
- Decentralized: negotiations are more fragmented and less comprehensive
What are Social systems of production?
- Varieties of capitalism
- Institutions as a matrix of sanctions and incentives
- Focuses on sectoral governance, national innovation systems and flexible production regimes
- Key actors: firms, industries and institutions involved in production and innovation
- Has a sociological approach looking at behaviors of firms
What are the basic elements of varieties of Capitalism (VoC)?
(1) A relational view of the firm
(2) Liberal market economies vs Coordinated market economies
(3) The role of institutions and organization in VoCs
(4) Role of culture and history
(5) Institutional infrastructure and corporate strategy
(6) Institutional complementarities
Elaborate one of the basic elements of VoC: A relational view of the firm
- In VoCs firms are seen as actors that want to become the best by developing a unique skill or resource on the market to remain competitive and have leverage
- To achieve that firms need to have good internal and external relations
- They face many coordination problems on the way
- Focus on 5 spheres where they have to develop their relationship:
(1) Industrial relations - bargaining over wages (salary negotiations)
(2) Vocational training and education - for the workers
(3) Corporate governance - managing the company
(4) Inter-firm relations - building relations with other companies
(5) Employees - ensures that they have adequate competences
Elaborate one of the basic elements of VoC: Liberal market economies vs coordinated market economies
LIBERAL MARKET ECONOMIES:
- Hierarchy and competitive market arrangements
- Market = competition/formal contracting
- The actor adjusts their willingness to supply and demand goods or services
UK/US/Australia/Canada/New Zealand/Ireland
COORDINATED MARKET ECONOMIES:
- Non-market relations to coordinate with other actors
- Network monitoring, incomplete contracting, etc.
- More reliance on collaborative relations
Germany/Japan/Switzerland/Netherlands/Belgium/Scandinavia/Finland/Austria
Elaborate one of the basic elements of VoC: The role of institutions and organisation
- Provide support for the relationship firms develop to resolve their coordination problems
- Exchange of information
- Monitoring of behavior
- Sanctioning of deflection
Elaborate one of the basic elements of VoC: The role of culture, informal rules and history
- Help to establish an equilibrium in coordination of strategic interaction through a set of shared understandings
- Common knowledge
- History and culture affecting coordination among actors
- The institutions of a nation’s political economy are bound up by history in two respects:
- They are created by actions that establish formal institutions
- Repeated historical experience builds up a set of common expectations that allow the actors to coordinate effectively
Elaborate one of the basic elements of VoC: Institutional infrastructure and corporate strategy
- These are shaped by nationally specific processes and governed by statutes rather than being firm-specific
- Corporate strategies vary on national levels based on statutes and regulations of the host country
Elaborate one of the basic elements of VoC: Institutional complementarities
- Reinforces differences between liberal and coordinated market economies
- Two institutions or practices can go well together (complementary goods)
- COMPLEMENTARY GOODS: Two goods are complementary if an increase in the price of one depresses the demands on the other
Talk about the German case in coordinated market economy (CMEs)
capitalist economy as a SYSTEM:
- Germany’s coordinated system has enabled it to combine economic growth with social equality. Its focus on cooperation and long-term planning fosters industrial strength while ensuring workers and businesses thrive together.
- The resulting equilibria depend on the presence of supportive institutions
talk about Liberal Market Economies (LMEs): The American Case
- Firms heavily rely on market relations to resolve the coordination problems
- Less institutional support provided to non-market forms of coordination
What are the implications of Varieties of Capitalism on Public Policy making?
- Economic Policy Making:
- The main problem facing policy-makers is inducing economic actors to cooperate more effectively with each other
- When firms coordinate better, their performances will be better
- Policy makers can improve national economic performance by improving coordination among private-sector actors - Social Policy:
- VoC highlights the importance of social policy to firms and the role that business groups play in the development of welfare states
- All LMEs are accompanied by liberal welfare states - National interests
