Open Varieties of Capitalism: Continuity, Change and Performances

Open Varieties of Capitalism Also by Uwe Becker EMPLOYMENT ‘MIRACLES’. A CRITICAL COMPARISON OF THE DUTCH, SCANDINAVI...

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Open Varieties of Capitalism

Also by Uwe Becker EMPLOYMENT ‘MIRACLES’. A CRITICAL COMPARISON OF THE DUTCH, SCANDINAVIA, SWISS, AUSTRALIAN AND IRISH CASES VERSUS GERMANY AND THE U.S. (edited with Herman Schwartz)

Open Varieties of Capitalism Continuity, Change and Performances Uwe Becker

© Uwe Becker 2009 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identiﬁed as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2009 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave®and Macmillan®are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN: 978–0–230–20164–4

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This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 18

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Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

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Contents Acknowledgements List of Figures List of Tables

vii viii ix

1 Introduction

1

2 Capitalist Varieties as Open Systems Capitalism VoC theory as systems theory Varieties of capitalism as open social systems with contested reference frames Systemness requirements and factors of openness Equi-functionality Societal trial and error and systemness

15 15 17

3 Capitalist Diversity, Ideal Types and Typologies Empirical diversity and simplifying typologies The criteria and the types Emerging capitalisms as a basis for additional ideal types?

44 44 50 61

4 Typologies, Cases and Historical Constellations Cases on the liberal versus embedded liberal continuum Locating cases in the four-directional typology: exploratory considerations Measurement problems: the rule of thumb as good as sophisticated methods? Capitalist varieties and democracies as historical constellations

66 67

5

95

Pressures, Challenges and Changes Changing context 1: globalization, Europeanization and neo-liberal dominance Changing context 2: individualization Some overall politico-economic changes Quantifying institutional change Change and the paradigmatic character of neo-liberalism v

22 27 33 39

76 81 85

95 100 104 108 115

vi

Contents

6 Performances: Growth, Productivity, Competitiveness Brightly shining US capitalism and darkness in ‘Europe’? Economic growth: spurred by accidental circumstances Bad luck, yet a few strong states: the case of Germany Innovation and competitiveness Employment and the social dimension Appendix A

121 123 132 138 142 151 159

7 Conclusion and Prospects Varieties and change Changes Performances Prospects: towards a new re-mix?

166 166 169 173 176

Notes Bibliography Index

183 192 215

Acknowledgements The basic ideas of political economies as open, system-like configurations as presented on the pages of this book originated in the late 1980s in theoretical articles published in Theory & Society (1988) and Politische Vierteljahresschrift (1989) on functional logic and the French theorie de la regulation, and have recently been further developed in a piece on ‘Open Systemness and Contested Reference Frames’ in the Socio-Economic Review (2007). The stress on accidental, non-policy factors, such as house price bubbles, in the explanation of economic performance goes back to the empirical work I did since the late 1990s – a time when social pacts to restrain wages were considered the primary explaining factors – on Dutch employment and welfare development in comparative perspective, which culminated in the compendium on Employment Miracles (2005; editor; together with Herman Schwartz). This empirical work was triggered by Visser and Hemerijck’s A Dutch Miracle (1997). The theoretical work got a new push by the publication of Hall and Soskice’s Varieties of Capitalism (2001) and the subsequent debate on their approach. I do not agree with many components of these books, but I am indebted to their authors for the stimulus they gave me to rethink my ideas. For comments on parts of the manuscript or on earlier drafts and their discussion I would like to thank Brian Burgoon, Peter Hall, Corina Hendriks, Martin Höpner, Franca van Hooren, Torben Iversen, Kees van Kersbergen, Peer Hull Kristensen, Cathie Joe Martin, Glenn Morgan, Daniel Mügge, Sofia Perez, Aimee Rindoks, Herman Schwarz, Vivien Schmidt, Kathleen Thelen, Barbara Vis, Jelle Visser, Natascha van der Zwan, the members of the EU-financed Smallcons project on the political economies of Austria, Denmark, Finland, the Netherlands, Sweden and Switzerland as well as various attendents at conferences where I presented my ideas. I also thank the Palgrave reviewers. The English was considerably improved by the text editor, Ann Marangos. For having lot a patience with someone who is running for a deadline postponed twice I am deeply indebted to Janneke, Kiki and Max. The work on the book has been facilitated by a grant (no. 400-04-704) by the Netherlands’ Organization for Scientific Research. Amsterdam, November 2008

vii

List of Figures 2.1 Varieties of capitalism as open system-like configurations 3.1 Illustration of a simple, dichotomous typology of ideal–typical varieties of capitalism and concrete cases 3.2 Imaginary cases in the four-directional typology most approximating the liberal, corporatist, statist and group type of capitalism respectively 4.1 Strictness of employment protection and product market regulation in 2003 4.2 Location of aggregates of political economies on the axes between the dichotomous ideal types of liberal and embedded (liberal) capitalism 4.3 Estimated location of six political economies in the field between the ideal types of liberal, statist, corporatist and group capitalism in the late 1990s/early 2000s 5.1 Hedge funds, development of assets managed, 1988–2008 ($bn) 5.2 Wage-share of national income in the EU15, Japan and the US, 1970–2005 6.1 East German productivity in comparison to West Germany 6.2 Efficiency of innovation inputs: application and intellectual property outputs

viii

41 47

64 67

73

80 106 108 140 145

List of Tables 2.1

The elements of reference frames of varieties of capitalism 2.2 Comparative advantages in non-electronic machinery of advanced OECD countries in 2002 4.1 Indicators of market orientation and embeddedness 4.2 Extent of market/liberal orientation 4.3 Alternative scales: coordination index (mid-1990s), economic freedom index (2008) and private equity environment rankings (2007) 4.4 Embeddedness score and corporation index 4.5 Rough country scores on the dimensions of the four ideal types 4.6 Formal institutional structures of selected Western democracies 5.1 Union density rates, 1970–2003 5.2 Support for welfare state intervention, 1996–2006 5.3 Valuation of competition and individual responsibility for unemployed people to find a job 5.4 Summing-up the contextual changes and challenges 5.5a Changes in the indicators of market orientation 1 5.5b Changes in the indicators of market orientation 2 5.6 Degrees of institutional change on the axis between embedded and liberal capitalism, mid-1990s–mid-2005 5.7 Income inequality (Gini Index) in the mid-1990s and mid-2000s 5.8 Measure of coordination in corporatist wage bargaining systems 6.1 GDP per capita and per hour worked in PPP (USA = 100), annually worked hours per head and employed persons, 2006; estimated size of the black economy in 2005 6.2 Broad social indicators: life expectancy, adult obesity (both in 2005), ratio of high to median incomes (2006) and poverty rate (2000) 6.3 Rough country comparison of GDP growth per capita and employment ix

27 37 69 72

74 75 79 87 101 102 102 105 110 111 112 113 114

124

126 128

x

List of Tables

6.4

Rough country comparison of competitiveness and social performance in the mid-2000s 6.5 Countries ordered by approximated variety of capitalism and by socio-economic performances 1992–2006 and in the mid-2000s 6.6 Summarized polluters’ ranking 6.7 Improving and worsening productivity growth 1995–2004 as compared to 1985–1994 related to the existence of house price ‘bubbles’ 6.8 Countries ordered by approximated variety of capitalism and GDP growth per hour, 1992–2006 6.9 Bavaria in international comparison in 2006 6.10 Countries by approximated VoC and competitiveness in the mid-2000s 6.11 Efficiency of education spending: adult literacy in 1994–98/2003 6.12 Countries by approximated variety of capitalism and by employment level in 2007 6.13 Low paid employment and minimum wages in 2004 and 2007 6.14 Countries by approximated VoC and income inequality in the mid-2000s 6.15 Youth labour force participation rate, unemployment rate and long-term unemployment in 2006 6A.1 Basic economic data: average annual changes in % 6A.2 Development of house prices, debt and savings, and the propensity to consume out of housing wealth 6A.3 Indicators of competitiveness and innovative capacity 6A.4 Comparative advantages of main OECD countries in 2002 6A.5 Basic employment data 6A.6 Environmental ‘performances’ in 2005 and changes 1990/1995–2005 7.1 Global summary of institutional changes, liberal and non-liberal 5N.1 Legitimate income differences in eight countries

128

130 131

132 133 141 142 144 151 153 155 158 159 160 161 162 164 165 172 188

1 Introduction

Capitalisms are diverse and changing. Much has been written about this in recent years – in the context of the discussion on the varieties of capitalism this book is a critical yet constructive contribution. Many authors have seen all capitalisms moving in a liberal direction, others, joined by politicians and journalists, assert that maintaining or improving competitiveness unavoidably requires this move and have pleaded for it to speed up (although the crisis of deregulated capitalism starting in 2007 might have made them more cautious). A third group has been denying such a requirement and pointed to alternative routes as well as path dependencies that avert radical change. To assess these controversially debated claims this book will have to scrutinize the theories that make these claims and delve into empirical features and developments such as the types and characteristics of existing capitalisms, the pressures and changes they have been subject to during the past decades of global challenges and the ways they compete and perform, economically as well as in terms of social welfare. Primarily the value added of this book will have to be realized in the theoretical field. My overall interest in this field concerns whether the theory of Varieties of Capitalism and similar approaches can help to tackle adequately the topics just mentioned above. What are the strengths and weaknesses of these theories? Do they gradually have to be adjusted to new empirical knowledge or do they need to be radically reformulated because of, as critics say, their inherent incapability to understand institutional change? I tend to subscribe to the latter judgement, although one has to avoid lumping together all authors and approaches and to recognize that approaches to be rejected at the same time chip in valuable elements for an alternative theory. Topics related to the overarching subject of change to be dealt with here are the relevance 1

2


and character of the ‘complementarities’ that many authors assume to exist within the varieties of capitalism and the relation of change to path continuity and dependence. How and on the basis of which criteria capitalisms have to be differentiated will be another theme this book will tackle, partially in an exploratory way. To assess whether or not the politico-economic developments taking place in recent years are positive and which variety of capitalism has to be preferred is only an issue here so far as these questions have to be discussed in relation to broadly, although not unanimously, accepted social goals such as limited material inequality. The dominant position (but perhaps eroded by the current debt/financial crisis) that expects better socio-economic performance and more justice from liberalization will be scrutinized critically but this does not necessarily imply the rejection of any liberal principle. The significant changes that have taken place in the global political economy from the mid-1980s to 2008 are obvious. Striking features, from a western perspective, have been the rise of the Asian Tiger economies, the breakdown of the Soviet bloc and the subsequent integration of Eastern Europe into the world market, the emergence of India and particularly China as serious competitors in a number of areas, the related reshuffle of the international division of labour, the removal of barriers to competition and trade by the World Trade Organization (WTO) and the EU and the appearance of hedge and private equity funds throughout developed economies. One also has to mention the invention of the internet – as a means of communication as well as a technical ingredient revolutionizing international financial trade, the volume of which has enormously expanded since the early 1990s. Together these developments point to a new phase of globalization. Another striking feature has been the almost continuous gain of the influence of neo-liberalism, in academic economics, ideologically and in terms of policy intentions. To help their countries’ companies to stay competitive, to keep disposable income high and unemployment low, governments, the story goes, have to continue privatizing public services, freeing product markets, rendering labour markets flexible and liberalizing welfare systems. This has at least been the standard recipe until now – fall 2008 – when the crisis of the largely deregulated US and UK financial system will perhaps herald the start of some reversal. Comparative findings covering the one and a half decades since 1990 show that countries with the strongest liberal image – the United States, Canada, Great Britain, Ireland, Australia and New Zealand – by and large have done well in terms of GDP growth – even if it was, as has particularly

Introduction 3

been the case in the US and the UK, extremely debt-induced. In GDP terms, a number of much less liberal political economies as those in the Alpine regions (Austria; Switzerland is highly corporatist and pretty liberal at the same time), Benelux (except the Wallonian half of Belgium) and Scandinavian countries performs equally well, however (parts of northern Italy and the German states of Bavaria, Hesse and Baden Württemberg could be added). With respect to employment the situation is similar, though in this case the high level is accomplished by different routes: while the US ‘excels’ with a large number of relatively cheap jobs in personal services, retail and the like, the group of small, mostly strongly corporatist, countries is either, as in the case of the Netherlands and, somewhat less, Switzerland, strong in part-time work or, as in Scandinavia – Finland is the exception – in public employment. Moreover, these countries are richer – measured in GDP per capita – than all the Anglo-Saxon countries except the US and some of them roughly equal the US in GDP per hour. In social and environmental terms these countries lead, with Japan, the league (though with respect to environmental care it would be more exact to say that they perform less badly than other countries) and the Scandinavian countries (except oilexporting Norway) and Switzerland are, together with Japan, the US and even Germany, top-ranked innovators, while Australia, Ireland and New Zealand do not even belong to the second layer. Looking at competitiveness only, the situation is similar. While the shares of most Anglo-Saxon countries in world export have declined, this is hardly true for the continental European states just mentioned (as well as France). One has directly to add, however, that France, Germany and Italy have performed miserably in terms of GDP growth and employment. A contrasting case is Spain where GDP and employment have been, until 2007, on a strong growth path while competitiveness is rather low. For an adequate comparative account of performances this heterogeneity, the different indicators at its basis and the difference not only between individual countries but also sometimes even larger regional units have to be taken into consideration. Only looking at GDP growth and grouping together all continental west-European countries delivers distorted pictures of reality. Such pictures are not only regularly drawn in speeches of politicians, however, but also by prominent scholars such as Alesina and Giavazzi (2006) who base their argument about underperforming Europe largely on data describing the, indeed very precarious, Italian situation. Another example is Eichengreen (2006) who asserts that Europe was good in the catch-up period of the third quarter of the 20th century but has run into difficulties at the moment innovation

4


was required (ibid.: 5ff). Or take Baumol et al. who praise (2007: VIII) the ‘entrepreneurial capitalism’ of the US and compare it to Europe and Japan with their combination of large, often state-championed, enterprises and small retail or ‘mom and pop’ shops. Perhaps this is a cliché image of the French economic landscape, but the often highly competitive small and mid-size companies in Scandinavia (particularly Denmark), the German language countries and northern Italy would probably be surprised at being compared to ‘mom and pop shops’. The Varieties of Capitalism (VoC) perspective is an attempt systematically to capture the different ways to performance and competitiveness. That there is more than one road to Rome is a message that is also relevant for public policy. According to Peter Hall and David Soskice (2001), who have been at the forefront in the development of the VoC theory, there are ‘liberal’ and ‘coordinated’ routes to international competitiveness, each containing institutional advantages. They have produced the most systematic account to categorize such diverse roads but they have not been the first. Early attempts of such theorizing can be found in the 1920s (Hilferding 1924, opposing organized to liberal capitalism) and a revival took place in the 1960s in the work of Shonfield (1965) and Galbraith 1967. It was only with Albert’s Capitalisme contre capitalisme (1991) that the subject of forms of capitalism entered its current stage with attention to the impact of globalization on different political economies and their potential for adjustment to these challenges. Albert identified two types both of which are viable alternatives of adjustment in his judgment: a European (and Japanese!) ‘Rhineland model’ and ‘Anglo-Saxon Capitalism’. Similar distinctions together with a comparable message were put forward by Hutton (1995) – who distinguishes ‘stakeholder’ from ‘shareholder capitalism’ – Crouch and Streeck (1997) opposing ‘institutional economies’ to free market economies, Dore (2000) with a similar distinction and by authors of or in the intellectual vicinity of the French ‘Regulation School’ distinguishing even four (Amable 2003; Boyer 2004) ‘social systems of innovation and production’. None of these approaches is as much discussed as is that of Hall and Soskice, however. The specific attribute of the VoC theory as presented by the Hall and Soskice stream, to some degree resembling ‘Regulation Theory’ of the 1980s with its functionally composed ‘accumulation regimes’ (cf. Boyer 1986), is its conception of political economies as ensembles of complementary components such as corporate governance, industrial relations and the training and welfare systems. Complementary components are supposed mutually to enhance their efficiency and to be functional for

Introduction 5

the performance of the political economy as a whole. With its stress on complementarities Hall and Soskice’s theory appears to be one of the few theories where a systems or at least systems-like approach in the analysis of social entities still – long after systems theory largely disappeared from the Social Science scene in the 1970s – plays a central role, even if it is not theorized and only implicit. The functional relationship between parts and the whole is characteristic for systems. Many critics of this theory start just here and consider the idea of complementarities as a manifestation of a functionalist view. Almost everybody participating in the VoC discussion, critics and criticized as well, seem to be afraid of being considered a functionalist and, as a consequence, there is nearly no contribution to this discussion without a statement against functionalism (see for example Crouch and Farrell 2004: 6; Hay 2004: 236; Streeck 2004a: 426; Thelen 2004: 3; Boyer 2005a: 367; Crouch 2005: 61ff, Hall and Thelen 2005: 3; Morgan 2005a: 16). Nothing is wrong with a critical stance against functionalism, but one gets the impression that for many scholars the words system, complementarities and functionality already unavoidably point to functionalist reasoning. As we will see, this is not the case. Functionalist reasoning was indeed characteristic for classic systems theory, but it is not necessarily an aspect of every systems theory. A related criticism has been aimed at the rigid character of the conception of complementarities as provided by the VoC approach and its difficulties in explaining structural change. Apart from the authors just mentioned it was also put forward by for example Amable (2003), Höpner (2005a) and Jackson (2002). As configurations of complementary elements, capitalist varieties have been conceived in a way such that either nothing or the varieties as a whole – ‘the system’ – will change (Thelen 2004: 3). Like systems in classic social scientific systems theory where, in analogy to biological organisms, the parts have been assumed to exist by functional necessity, empirical varieties of capitalism are assumed to have a largely inflexible structure and to be highly path dependent. The main authors of the VoC approach have always taken notice of the structural changes currently occurring (cf. Hall and Soskice 2001: 53ff). However, they understated the extent of these changes by asserting that, mitigated by international competition, capitalist varieties will stay on the paths of their comparative institutional advantages (p. 50). Implicitly, this argument takes given comparative advantages for granted, holds the much criticized assumption of fixed relationships between institutional structures and performances and ignores the possibility that changes could improve the advantages or that changes take place because

6


actors suppose that they will bring about advantages. As a response to the criticisms a number of papers specifically dealing with change has been produced, but they (Hall and Soskice 2003; Hall 2006; Hall and Thelen 2005) still do not address the questions of how change can take place in configurations of complementary elements and how these configurations have to be conceived for rendering possible the analysis of change. Or (as in Hall 2007) the concept of complementarities is not even mentioned. So, what to do with the complementarities and how to relate them to change? Critics of the original VoC theory accept the requirement of some complementary or functional relations in political economies (Boyer 2005: 367; Crouch 2005: 61ff; Höpner 2005a: 344; Streeck 2005: 363f), but do not see institutional coherence in empirical political economies (Streeck and Thelen 2005: 19f) and reject rigid constructions. Some identify permanent disequilibria and processes of continuous adjustment and readjustment (Boyer 2005a, Höpner 2005a) while others point to the forces of autonomy at, e.g. the company level (Morgan 2005b: 415; Streeck 2005). In the same spirit Crouch (ibid.) prefers to consider varieties of capitalism as ‘loose’ or loosely coupled configurations or ‘ensembles’ (see also Pierson 2004: 163), Deeg (2005: 34) has introduced the concept of ‘variable complementarities’ and Hancké and Goyer (2005: 53) that of ‘alternative adjustment paths’, although it remains unclear how the limits of ‘looseness’ and variability have to be conceived. Some authors, e.g. Lane (2005: 84) even see the child thrown out with the bathwater. Whatever the differences between the critics, however, and whatever their contradictions, their arguments have a common direction: that of conceiving varieties of capitalism less rigid with space for autonomous developments, contradictions and permanent processes of adjustment. Perhaps because of their fear to backslide into functionalist reasoning none of the critics does formulate, however, an encompassing alternative. Building upon earlier ideas (Becker 1988, 1989a and 2007a) this book will do so by stressing openness and the space for change, but at the same time acknowledging the requirement of a systems character of competitive political economies. Politico-economic systems will be understood as open systems or to be precise as open and relatively loosely ordered social entities revealing some degree of systemness, which points to (some degree of) functionality among components of a configuration. Without this functionality a political economy cannot be competitive. Any mechanism automatically bringing about systemness does not exist, however. Certain roots of this approach go back to the work of Robert

Introduction 7

Merton in the 1940s and 1950s (cf. Merton 1967; originally 1949) and to critics of the Parsonian mainstream systems theory such as Nicholas Demerath III (1967), who formulated the idea of different degrees of systemness. Factors of openness are the open borders making national or territorial economies (but less so political economies) in a certain sense fictitious units, the relative autonomy of the components of political economies (e.g. firms, stock markets, state departments), the uncertainty among relevant actors with respect to what is functional but also their special and sometimes personal interests (think about CEOs strategies of enrichment), the often existing equi-functional options and the contested complex reference frames, consisting of economic, social and environmental goals. The last two aspects will receive particular attention: Equi-functionality because it undermines, at least partially, the validity of the idea of comparative institutional advantages in international competition – in fact, as we will see, no strong relation between institutional structure and economic specialization does exist. The second aspect, contested complex reference frames, deserves particular attention because first, one has to be aware that systemness is always related to some reference point – X is functional for goal/reference point A – and secondly, because politico-economic reference frames are made up of more than only economic reference points such as competitiveness and growth. Think about goals such as CO2 reduction, job security, generous social benefits and gender equality, contested goals, which moreover are open for different interpretations and influenced by relative autonomous ideological developments. For a large part, the political and ideological struggle between liberal, conservatives and social democrats parties and organizations has been about these goals. The factors of openness are the basis for institutional change. The adaptation to capitalist competition, everyday problem-solving trial and error at various points in a political economy, changing power relations and related interest-based or relatively autonomous ideological contention about reference points, requirements to meet changed reference frames and relatively autonomous actions of specific institutions, certain industrial (sub-) branches or individual firms continually bring about institutional change. The forces of path continuity limit the scope of change. Path continuity (simply put: despite some liberalization Japanese capitalism is still far away from the US variety) mainly results from transformation costs, the inertia of action, disagreement among policy-makers and power relations that propel political economies along their ‘paths’. It may also

8


partially stem from rational awareness of the exigencies of systemness. The empirical feature of path continuity and the much more referred to concept of path dependence – not pointing to the feature but to a causal mechanism pinning down development on a limited range of paths – will recurrently receive attention in this book. The second overarching theoretical subject of this book is the distinction between varieties or forms of capitalism. There is a basic dichotomous distinction in most of the literature whether they are called shareholder vs stakeholder, liberal market economy vs coordinated market economy or the like, and that all point to a divide between forms of liberal and embedded capitalism. This basic distinction reflects that the ideological and political struggle in recent decades – and in fact in the past 150 or so years – has been about taming or just freeing capitalism. And whatever the subdivisions of embedded capitalism might be, change and development has taken place largely in terms of more or less liberal, not in terms of moves from one to another variety of embedded capitalism. It also reflects that there exists a lot of empirical, often statistical, material illustrating this divide. These features do not imply that specifying varieties of embedded capitalism is irrelevant. Is is relevant because the dichotomous model does not adequately cover the fundamental differences existing in capitalist political economies. Many authors share this point of view. The confusion produced by the typological discussion is remarkable, however. It stems from the conflation of ideal types and classifications as well as of types and cases (countries; given political economies). Most typologies are dichotomous and distinguishing liberal and coordinated or stakeholder and shareholder varieties but many participants in the discussion hold that a more differentiated typology is required. This turned out to be one source of confusion, e.g. when the construction of a ‘mixed type’ was considered a step towards differentiation. The confusing aspect is that a mixed type is offered against the background of a reality that is always mixed. The latter has to be distinguished from ‘pure’ ideal types. A similar confusion comes in when change is supposed to bring about ‘hybridization’. All empirically given political economies are hybrids, however. The character of hybrids may change, but the transformation of ideal types into hybrids is impossible. A third confusing picture is drawn by scholars working with classifications instead of ideal types (for this distinction see Dogan and Pelassy 1990). There, countries/real political economies are classified as belonging to types A, B, . . . N. The confusing aspect is that classifications sometimes are constructed in

Introduction 9

terms of politico-economic as well as geographic categories with resulting typologies that e.g. consist of liberal, social-democratic, conservative, Mediterranean and Asian types. Imagine political regimes would be classified, in one and the same typology as dictatorial, democratic and African or Pacific. I will consequently work with the Weberian distinction between ideal types and empirical cases (Weber 1972: 3f, 122ff) and distinguish ideal–typical varieties of capitalism from empirical political economies (sometimes I also call them empirical or real varieties of capitalism). As ideal types varieties of capitalism are analytical categories. It is the empirical cases, the national political economies that perform, change or remain unchanged. Ideal–typical varieties of capitalism can help to specify and map the cases and to indicate the direction of their development. That’s all. The only prominent scholars following similar lines are Vivien Schmidt (2002: 107ff) and Colin Crouch (2005: 23, 62f). Ideal types are idealized and simplified, but not fictitious, constructions of reality that have to bring order into the analysis of the manifold varieties and nuances of social settings that define empirical cases. Complex cases such as political economies, welfare states or democracies never represent ideal types, they approximate them. A pure liberal variety of capitalism does not exist. Ideal types may be reformulated, but in principle they are fixed constructions while cases are historical entities and may change their location on the axes between the types (Dogan and Pelassy 1990: 174). The ideal types I want to distinguish are the liberal, statist, corporatist and group or meso-communitarian varieties of capitalism. These ideal types should at least be sufficient to determine the field where the OECD capitalisms are located in. Their exact location is difficult to specify because of measurement problems and, currently, lacking data, however. Whether a fifth or sixth type is required for the analysis of emerging (China, India) or largely dependent (Latin America; cf. Schneider 2007) capitalisms is a question to be touched upon but not exhaustively answered here. The first thing to be said about the approach of this book is that it is comparative and holistic. The subject is – as in Regulation Theory – the macro-level of political economies, their institutional configurations and settings. VoC theory claims that the firm is at the heart of its approach, but de facto it is also strongly oriented towards the macro-level. This can simply be inferred from the high relevance attached to the analysis of complementarities and the related comparative institutional advantages.

10


The consequence of the macro-orientation is that institutional configurations and structures are more salient units of analysis than strategies and choices. The macro-level is largely out of reach for the strategies deployed by the various private actors in a capitalist market economy and beyond their control. State action regularly points to this level, but it is restricted to an accompanying role – capitalism is not a planned economy – and generally human capacity consciously to construct whole political economies and to control their effects is limited, intellectually as well as by conflict and disagreement. Unintended consequences of human action are at least as important at this level as action itself, therefore. The focus on the holistic level, on macro-configurations partially to be understood as unintended consequences of action implies that the approach employed here is rather structure-centred. Is this approach institutionalist? I would like to call it open historicalstructuralist, but it is not much different from historical institutionalism (as e.g. put forward by Steinmo et al. 1992), which for its part is not so different from Giddens’ theory of structuration (1977: ch. 2). It also resembles aspects of Hodgson’s (2002) institutionalism,1 which stands apart from the VoC discussion, but which has a strong macro-orientation and an eye for functional requirements. All of these authors stress the relevance of contingency and openness as well as the limits of rational action and understand the relation between structure and action as one of mutual influence. I prefer, however, a more careful use of the concept of institutions than is common. Almost all authors in the VoC debate deploy an extremely broad definition including rules as the basic element, norms, rule- and/or norm-governed social bodies and various, conceptually unspecified social structures (basic references for this use of the institution concept are North 1990, March and Olsen 1995, Ostrom 1995, and Hall and Taylor 1996). Does it, however, make sense to call an institution everything from informal rules such as tipping to formal rules like co-determination or judicial review including the bodies enacting or representing these formal rules? And why should industrial relations and social security systems called institutions? Are these relations and systems rules? If it is meant that they are rule-related or contain rules of the game than it is difficult to find something where this is not the case. Or take norms: The line of demarcation between concepts is often vague, but for the sake of a maximum of conceptual clarity a norm – which is a generic concept – should be called a norm and not an institution – which is another generic concept. Do not norms and informal rules rather belong to the realm of culture, which might have a relatively independent influence

Introduction 11

on politico-economic development? And wouldn’t it be necessary to distinguish entities that are institutionalized from those that are not? These questions should be answered with a clear ‘yes’! On the other hand, the broad and vague concept of institutions has become fairly established – not to say institutionalized – in the VoC discussion and from conversation and during conferences one can learn that everybody seems to share a more or less identical set of connotations related to the concept. The list of connotations includes industrial relations, corporate governance, authority structures within companies, inter-firm relations, social protection regulation and training systems as well as the rules governing these entities and is largely identical with the list of elements most scholars identify, in whatever technical language, as defining political economies. These ‘institutions’ could also be called structuring instances, but for pragmatic reasons and because I agree with the direction of the historical variety of institutionalist theory I will, with reservation, not avoid to talk of institutions, institutional configurations, settings and structures even when I am aware that using these terms does not meet the requirements of precision. Such pragmatism is more often required because the institution concept is not the only one that lacks precision. There is, for example, much writing about ‘national capitalisms’ as the capitalism of national states. When the word national has any specific meaning, however, then not every territorial state is a national state. In spite of this, we speak of national states and international relations when it would be more appropriate to speak of territorial states and interstate relations. The historical dimension of my historical-structuralist approach is worth mentioning because it makes us learning about patterns of development, of the interchange of continuity and discontinuity. More specifically, it elucidates the various historical legacies – for example those of absolutism or the transformation of feudal fragmentation into modern times – that, apart from systemness pressures, have been constitutive for the institutional configurations characterizing the different empirical political economies. This historical dimension will receive special attention in Chapter 4. Among other things it will point to the partially common roots of empirical varieties of capitalism and varieties of democracy – it is not an accident that capitalism is most liberal in countries where the same qualification is true for politics. It will also point to cultural influences. As indicated earlier, the concept of culture covers the world of informal rules and norms – considered more important than values and pointing to what is normal and involving structures of mutual expectations (take the tipping example). Related patterns of

12


interaction have to be added to this definition that is formulated in the tradition of Thompson et al. (1990) and resembles common sense. When openness is stressed and attention to contingent factors is considered worthwhile, then it should not be a surprise that accidental circumstances will have their place in the economic analysis provided here. Examples are the demand-facilitating house price bubbles (particularly in combination with favourable rules for tax relief on the interest to be paid on mortgages) that many, but not all, countries experienced in the 1990 and 2000s and the currency advantage of the US – it is difficult to imagine France, Germany or Japan having such a huge and long-lasting deficit on their current-accounts as the US has. Or consider Germany with its burden of unification costs on the one hand, and on the other, the more recent demand from vastly industrializing countries as China, India and Russia just for the goods – machinery, tools – Germany specializes in. The surprise is rather that these circumstances are so often ignored and that many analyses of economic performances concentrate solely on institutions and policy-making. With respect to the latter they are somewhat resembling political parties praising their own policies or criticizing those of their competitors. My position here, particularly in Chapter 6, is that: • The explanatory value of policy-making has to be considered

as limited. Therefore, the book is somewhat skeptical towards approaches that, talking in terms of successes and failures, concentrates on policy in explaining politico-economic development. Such studies often assume an unrealistically high level of analytical competence of policy-makers (and their advisers) as well as of policy consensus. The imprecision of the social and economic sciences tends to be as ignored just as dissent among policy-makers and other relevant players, continuously changing contexts and accidental circumstances. • Stressing the importance of luck also means that one has to be cautious with respect to institutionalist reasoning. Institutions matter, but they do not explain everything. Omitting this brings about the danger of institutionalist determinism. It is only a determinist and in this sense ‘rigid’ institutionalism that constructs an absolute opposition between rigid and flexible politico-economic structures and that is unable to understand that even rigid contexts, as in Sweden or Austria (leaving alone Greece), can allow for good performances. ‘We must allow’, Richard Freeman (2000: 2) rightly states, ‘for the possibility that there is no real difference in the performance of capitalist institutions, and that observed variation in economic outcomes is largely a matter

Introduction 13

of luck.’ Largely, because this is not the whole story, but Political Economy would be well advised to leave its preoccupation with institutions and policy and to give more attention to accidental circumstances. • Another point to be mentioned here is that comparisons in Comparative Political Economy need to be appropriate, which, among other things, means that size has to be taken into account. Unspecified comparisons between small and large countries, in terms of good and bad performances, do not make much sense if one knows that certain regions within the large countries, such as southern Germany, perform as good or better – sometimes in spite of a more rigid labour market – than small countries that we presented as models. Size is ignored, when spots such as Denmark are compared to the huge US and, in between, Germany. Often it seems that authors are unaware of how small countries such as Denmark and Finland or, somewhat larger, the Netherlands really are. Chapter 2 will develop the general elements of a theory of varieties of capitalism as open yet to some degree system-like configurations in discussion with the mainstream VOC literature. The chapter will also stress, what seems to be overlooked sometimes, that capitalism is always liberal and therefore that the distinction is not between liberal and non-liberal capitalism but between (liberal) capitalism and embedded (liberal) capitalism. Chapter 3 will establish the difference between ideal types and empirical cases, present criteria for the construction of ideal–typical capitalisms, stress the importance of simplification for working with ideal types and construct a four-directional typology (with space for one or two additional types based on regions outside the economically advanced world). The partially exploratory Chapter 4 will concentrate on empirical cases and their location in the field between the ideal types. It will present results that in part might be surprising. The chapter will also discuss problems of imprecise measurement and put the cases in broader, also historical, context. The topics in Chapter 5 are institutional change, the pressures – global competition, Europeanization, social structural change, ideology – supposed to trigger this change and the forces (of path continuation) tempering it, and the long sixth chapter describes and analyses politico-economic, social and environmental performances in comparative perpectieve. This is done in critical discussion with work, of e.g. Roberto Alesina and Barry Eichengreen, describing the (continental) European economy as negative contrast to the United States while ignoring the influence of the debt bubble. To be clear at the outset,

14


the task of this chapter is not to provide a complete overview of all otherwise important aspects of socio-economic reality, but to point to those aspects that indicate performance in terms of economic growth, competitiveness, social welfare/security related to the labour-market, and to the environment. The concluding chapter summarizes the preceding ones and discusses the prospect of capitalist development. Is the current direction of development reversable towards one where absolute GDP growth becomes less important than productivity growth and where growth more than currently is subjected to social and environmental targets?

2 Capitalist Varieties as Open Systems

Capitalism With the distinction between liberal and other forms of capitalism one could forget that any capitalism is liberal. Therefore, it makes sense to start the discussion of capitalisms with a brief identification of the fundamental characteristics of capitalism as a historical formation. It is liberal because it meets the classic liberal principles of state-protected private productive property, the freedom to move this property, the market, the rule of law and absence of force in market exchanges, competition and free labour as a commodity, even if these principles are only realised by degree. Competition is a consequence of private property or at least of relatively autonomously operating companies, whoever owns them, and of the existence of markets where buyers are free to choose between sellers. Competition is the engine of the unique capitalist dynamic, which since its origin in the 17th–19th centuries has been revolutionizing the human way of life. The productive force of competition is a point liberals never tire of repeating. Perhaps nobody, however, has formulated it as apt as Marx and Engels in their Communist Manifesto (Marx and Engels 1966: 62): Capitalism ‘cannot exist without permanently revolutionizing the instruments of production (. . .) and all social relations (. . .). The permanent revolution of production, the continuous convulsion of all social conditions (. . .) distinguishes the bourgeois epoch from all the previous ones’. In Capital this theme rears and is very central. Here Marx (1970: 618) stresses that competition forces companies to raise productivity (and also to push down wages, which is the basis of class conflict): ‘Competition compels every individual capitalist (. . .) permanently to expand his capital for maintaining it’. This is a structural ‘law of the 15

16


capitalist mode of production’. Generally, the study of the capitalist ‘law of motion’ is Marx’ principal subject (ibid. 15). Before the emergence of capitalism the pace of economic growth and social change was very slow. And it is only with capitalism that modern, systematic, science developed and that competition (sports competitions are an example) and meritocracy evolved towards generalized principles. Recently this point has also been made by William Baumol who starts his book on The Free-Market Innovation Machine (2002: 1) with: ‘Under capitalism, innovative activity – which in other forms of economy is fortuitous and optional – becomes mandatory, a life-and-death matter for the firm.’ As Marx he attributes capitalist dynamic primarily to the pressure of competition (ibid. 3, 10). Historical sociologists in the Weberian tradition doubt that this pressure is an exhaustive explanation and add as complementary factor the ‘Protestant spirit of capitalism’ (cf. Nee and Swedberg 2005). According to this theory (the basic reference is Weber 1975) industrial capitalism originally emerged in the northwestern hemisphere because there the Reformation of the 16th and 17th centuries had brought about values and norms facilitating liberalism and economic development such as the positive valuation of manual labour, equality, discipline, sobriety, goal rationality and long-term orientation. Whether or not this theory is right is not a question to discuss here, however. The relevant point is that capitalism basically, even if some complementary factors might be required, is dynamic because of its liberal, competitive, configuration. Much of the change that is discussed in the VoC literature stems from this dynamic character and is endogenous therefore. The connection between its liberal and its dynamic character does not necessarily imply that the more liberal capitalism is, i.e. the more the market penetrates all aspects of economic life, and the less the state is involved, the more innovative and generally dynamic it is. Once established, the competitive stance can also be adopted by state administrations or, for example, corporatist players. The success of political economies with a considerable statist (France for a long time; East Asian countries that developed by ignoring the liberal wisdom of the so-called ‘Washington consensus’ of the World Bank and the IMF) or corporatist component (Scandinavian, Benelux and Alpine countries) illustrates this. As the same countries illustrate, capitalist dynamic can also coexist with a labour market that is not fully liberalized. Moreover, in a society more than only capitalist dynamic and economic growth might be important.

Capitalist Varieties as Open Systems

17

With these statements we have entered the realm of the different varieties of capitalism. A liberal type is part of every typology of different capitalisms. Since capitalism generally is a liberal formation, the basic analytical distinction expressing this most appropriately is the one between a liberal type (or ‘pure capitalism’) and types – plural! – of embedded liberalism. Ideal–typical liberal capitalism is the purely liberal variety where the market governs every aspect of the economy and where politics unrestrictedly facilitates private property and the market. Embedded capitalisms, by contrast, are embedded in regulatory frameworks that for stakeholder rights and social or whatever ends restrict the free use of productive private property and limit the operation of the market. The concept of embedded liberalism/capitalism, coined by Polanyi (1957), was much in use in the 1990s (see e.g. Crouch and Streeck 1997) but since then it has largely been displaced by Hall and Soskice’s concept of coordinated capitalism. I cannot avoid to use the latter in the discussion of these authors’ dichotomous theory, but since at the ideal–typical level coordination and market are diametrically opposed as non-market and market I principally prefer the concept of embedded liberalisms/capitalisms, which I want to diversify into statist, corporatist and group varieties, the ideal types which will be defined in Chapter 3. It has to be added that because capitalism is not a national affair, constructed ideal–typical varieties of it can only be understood as units with imagined separate territories. Real varieties of capitalism or political economies do not have separate territories, at least their economic dimension does not have. Partially, they are transnational. This is because of the international division of labour, global trade, the existence of multinational companies, the membership of national states in supranational organizations such as the World Bank and the WTO and because of supranational legislation and governance by bodies such as the EU. At the same time, empirical political economies might not be homogeneous within countries because of differences between regions and branches. It is important to have this in mind when discussing the varieties and their development.

VoC theory as systems theory The best known and most influential distinction of varieties of capitalism is the one of Peter Hall and David Soskice between a liberal market economy (LME) and a coordinated market economy (CME). Particularly relevant here is that they conceive these varieties as configurations, the elements of which are supposed to be complementary: ‘institutions

18


can be said to be complementary if the presence (or efficiency) of one increases the returns (or efficiency of) the other’ (Hall and Soskice 2001: 17). Boyer (2005a) as well as Crouch (2005: ch. 3) have produced interesting discussions of the meaning of the concept of complementarity, but in Hall and Soskice’s work its meaning seems to be clear: it is that of mutual support without which the politico-economic institutions at stake cannot (optimally) perform. They (ibid. 28ff; cf Hall and Gingerich 2004: 16) identify seven main institutions that, in order to maintain and enhance competitiveness, have to be in a relation of (mutual) complementarity: (1) industrial relations; in the LME type largely restricted to the game of wage versus profit; in the CME type with space for macro-economically oriented negotiations; (2) corporate governance where the pattern is stock-market reliance versus versus bank dependence; (3) inter-firm relations: competitive contractor-competitor relationships versus strategic networking and cross-shareholding; (4) employer–employee relations within firms: unidirectional control of management versus some form of employee involvement; (5) training and education systems: stress on general versus stress on specific skills with an important role for apprenticeships; (6) the level of social protection: residual benefits and easy hiring and firing versus generous social security and considerable employment protection; and (7) product market regulation: laissez-faire principle versus social embeddedness. Complementarity of these institutions is seen in this VoC theory (as it is usually abbreviated) as a condition of ‘comparative institutional advantages’ in international competition. The respective patterns (cf. the schemes in Hall and Soskice 2001: 28, 32) are assumed to result in a high capacity for radical innovation and a specialization in pricesensitive mass production in the LME type and incremental innovation and quality-sensitive flexible specialisation in the CME type. In the authors’ method of classification (they do not consequently differentiate between ideal types and cases) the former type is supposed to be present in the Anglo-Saxon world, the latter in Northwest Europe as well as Japan. Mostly, the US and Germany are discussed as the cases exemplifying the two types. The emphasis on complementarities is a distinctive aspect of VoC theory as well as of ‘Regulation Theory’ of scholars such as Bruno Amable and Robert Boyer. The latter is somewhat different but to a large extent it has been integrated in the discursive nexus of the dominant VoC theory. Regulation theory is much older than the VoC approach. It has its roots in the work of Michel Aglietta (1976), was further developed by


19

Boyer and colleagues at the Centre Pour La Recherche Économique Et Ses Applications (CEPREMAP) in the 1980s and was much discussed in European Political Economy at that time. At least as early as 1986 Boyer (1986: 46) and his colleague Liepietz (1986: 120) wrote about complementarities in ‘modes de régulation’ – the unit resembling varieties of capitalism. Currently, the concept ‘mode of regulation’ has largely been replaced by that of ‘social system of innovation and production’ (SSIP; although regulationists have also adapted the VoC language), and it is particularly Amable who stresses the importance of complementarities (cf. Amable 2000: 647, 655 and Amable 2003: 248ff). Emphasizing complementarities reveals the analytical ambitions of these theories and renders them two of the few theories where a sort of systems approach in the analysis of social entities still – social scientific systems theory lost prominence in the 1970s1 – plays a central role, even if the authors are not explicit about this. Most of us very often use the word system when we want to denote entities consisting of a number of related elements or aspects such as, to mention examples at stake here, training or welfare systems. This use of the word – Hall and Soskice use it this way 71 times in the Introduction to their Varieties of Capitalism – has nothing to do with systems theory, however. There, a system consists of elements the quality and configuration of which is goal-related. In biology, where the theory of non-mechanical systems originated, organisms are conceived as related to the goal of survival, in social scientific systems theory survival was also used as the goal society is related to or it was translated into the goals of order, stability and reproduction. And in Political Economy, as in the case of the VoC literature, the goal is profitability, efficiency or competitiveness. Varieties of capitalism are constructed as entities the parts of which are functional for the performance of any such variety as a whole. This functional relationship between parts and the whole is characteristic for systems. Systems theory was criticized for its functionalism as well as for its inability to deal adequately with change (prominent critics were Gouldner 1971 and Giddens 1977). As indicated in the introductory chapter these criticisms have also been put forward against VoC theory. Is the functionalism criticism justified? A functional relation is given when a cause is explained by its effect, to be precise by the effect wanted. But not every functional explanation is functionalist. We want to have ordered traffic and traffic lights have – in functional language: have the function – to bring this about. Nothing is functionalist here. The functional configuration is intended and evident (Merton, 1967: 105 would have called it ‘manifest’), and the traffic lights are deliberately constructed and

20


positioned. Something similar can be said about thousands of things in daily use, but also about, e.g. a training system or any specific law legislated in parliament, even if in these latter examples conflict and compromise are involved. The criticism of functionalism only makes sense with respect to the opposite case: that of ‘objective’ complex, supposedly functional, configurations that do not emerge out of intention and design and which are beyond the constructive capacity of individuals, groups or organizations. As a striking example one could mention macro-social entities with many, at least partially autonomous parts. In this case, a reasoning is functionalist when the identification of a functional need or requirement is accompanied by the assumption that there is always a mechanism bringing about the fulfilment of the requirement, when the wanted effect as it were forces into existence the element causing it (cf. Holmwood 2005). In a functionalist reasoning the elements of an entity exist by functional necessity, and development is conceived as a teleological process where equilibrium – homeostasis – regularly returns after periods of adaptation to changed environments (Stinchcombe 1968). The Parsonian mainstream of classic social scientific systems theory was functionalist in this sense. The reference to biology was considered sufficient to sustain the claim not only of functional unity in social configurations but also of the existence of mechanisms – such as natural selection – re-establishing it time and again (Parsons 1977: 180).2 The same verdict is true for some versions of Marxism that, with modes of production as central subject, show some thematic similarity to VoC theory. Prominent examples are the structural-functionalist Marxism of Althusser and Poulantzas and particularly Gerry Cohen’s Karl Marx Theory of History. A Defence. The latter (Cohen 1978: XI) stated: ‘Economic structures are as they are because, being so, they enable human productive power to expand’ and ‘superstructures are as they are because, being so, they consolidate economic structures’. Early regulation theory, which had Marxist roots, has also been criticized for its functionalism, but its main authors always repudiated functionalism (Lipietz 1984: 87; Boyer 1986: 30, 95) and instead stressed the contingent character of historical constellations (Liepietz 1986: 113f, 120; cf. the critical discussion in Becker 1989a). Hall and Soskice’s VoC theory is not a blatant functionalist systems theory.3 They do not explicitly assume the existence of politico-economic institutions by functional necessity – although comparative institutional advantages are supposed to require certain sets of complementary institutions – and they also do not assume any objective, e.g. natural


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selection-like, mechanism bringing about functionality. Their theory is rigid, however. And the formulations demonstrating this rigidity – such as ‘a particular type of coordination in one sphere of the economy should tend to develop complementary practices in other spheres as well’ (Hall and Soskice 2001: 18)4 and ‘institutional reform in one sphere of the economy could snowball into changes in other spheres as well’ (p. 63f) – also resemble functionalist formulations. On the other hand, the ‘should’ and ‘could’ point to the careful character of these formulations that seem to leave space for other than complementary possibilities. Hall and Soskice never discuss such possibilities. It is, however, the very construction of their complementarities as tight couplings (Thelen 2004: 3) that renders their theory rigid and the varieties of capitalism highly path dependent. A strong formulation of this rigid conception of capitalist varieties comes from Amable (though he also criticizes rigid theories of capitalist varieties) who (2003: 248f) states that (further) liberalization of continental European capitalism brings about the danger of damaging its functional coherence (similarly Lane 2005: 84). A third fundamental criticism I would like to add regards the use of the concept of complementarity itself. I think it is not a good concept to express what is at stake here. In VoC theory a relation is defined as complementary when the presence of one institution increases the returns of the other institution. Since seven main institutions are identified (industrial relations, corporate governance, inter-firm relations, employer–employee relations within firms, training and education systems, the level of social protection, product market regulation) this means that there would be 21 mutual complementarities: those of industrial relations of a specific sort and corporate governance of a specific sort, of industrial relations and inter-firm relations and so on, of corporate governance and inter-firm relations, of corporate governance and the education/training system and so on, of the level of social protection and product market regulation, of the level of social protection and interfirm relations and so on, of product market regulation and industrial relations and so on. The complete picture of these relationships should make clear that some of them might be those of complementary institutions, but that many, perhaps most relationships do not even have a direct character, let alone a complementary one in the sense of mutually being functional to each other (take the education/training system and product market regulation of corporate governance and the level of social protection as examples). Maybe a number of institutions shares certain aspects – for example restricted shareholder rights, restricted product

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markets, restricted labour market flexibility – perhaps these institutions have common historical roots and perhaps they mutually reinforce their existence in such cases, but this partial similarity should not be confused with mutual complementarity as understood in the VoC literature. For the optimal performance of a system such complementarity, e.g. that product market regulation enhances corporate governance and vice versa, is not necessary however. What is required is only that the system’s components, institutions or whatever, are functional for its goals. In that sense they have to be complementary, to complement each other, to add up to a coherent configuration. The goals functionality in a capitalist variety is related to making up its reference frame. In VoC theory this is competitiveness. What the relations and goals are when capitalist varieties are understood as open systems will be considered now.

Varieties of capitalism as open social systems with contested reference frames Stressing functionality is an important step in politico-economic macroanalysis. A political economy does not work when its main elements do not feature some degree of functionality. An education and training system where the only business is having fun, inter-firm relations solely based on personal friendship or a form of corporate governance that is only good for the remuneration of CEOs undermine economic performance and competitiveness and will probably not survive for a longer period. Everybody directly understands that such arrangements do not meet the requirements for competitiveness and even survival. A rigid conception of these requirements brings about, however, the problems outlined with respect to the analysis of change. Therefore, what we have to look for is a theory that is not rigid and does not have fundamental difficulties in explaining change, but that at the same time acknowledges the necessity of functional relations in successful political economies. The solution to this question is to maintain the systems perspective of the VoC literature, but to conceive empirical varieties of capitalism as open systems or more exactly as open systems in the sense of open and relatively loose ordered social entities revealing a certain degree of systemness. This latter circumscription is appropriate because it reflects that societies and political economies are not systems like biological organisms or machines. They are not that ‘perfect’; they are marked by conflict and dysfunctionality and their structures are less determinate, with space for development in different directions.


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It is because of the space for conflict and dysfunctionality that macrosocial configurations such as political economies have to be understood as open ‘systems’ with varying degrees of systemness. Open systems turn out to be systems, precisely: system-like configurations, whenever they perform. Without a certain degree of systemness, i.e. of functionality of their parts in relation to a reference frame of goals such as economic growth, political economies cannot ‘perform’, i.e. stay competitive. They have to meet a battery of requirements in the fields of e.g. finance, education and infrastructure, which will be outlined further on and that partially resemble the complementary institutions in the VoC literature. At the same time political economies are open social systems because of their multi-layered, contested and often contradictory reference frames consisting of goals such as competitiveness of firms and national economies as locations for investment, profitability, high wages, job security, generous social benefits and environmental care. Furthermore, they are open because of the limited capacity of the social actors to determine functionality in advance and because they feature relatively autonomous parts – particularly companies (cf. Morgan 2005b) – with reference frames of their own, possibilities of equi-functional arrangements where different combinations of institutions bring about the same or similar results and, as a rule, some degree of dysfunctionality. (Institutional) Change – the (partial) restructuration of vocational training and company financing, international company mergers, outsourcing of production processes and services, new management practices, new political ideas and strands (such as the Greens three decades ago), the redirection of aspects of public policy, possibly its correction after a while and so on – is the order of the day and not a theoretical problem therefore. When the forces of openness are very strong they might even bring about systems failure, i.e. such a low level of systemness that a political economy looses competitiveness. A pronounced tradition to conceive social configurations as open systems does not exist in the social sciences, but ideas pointing in this direction repeatedly have been put forward. Sporadically they have been present, for example, in the work of Robert Merton in the 1940s and 1950s (particularly 1957: 19–84). He wrote about deviant elements in social systems emphasizing that not all of their parts are functional and that functional elements are not always functional for everybody but sometimes only for the powerful. He also saw space for functional alternatives or equi-functionality in social systems. In the 1960s these ideas experienced some revival as an aspect of the more general and also

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politically virulent move toward openness and against hierarchy, order and fixed values. In this context, Nicholas Demerath III (1967) formulated the idea of different degrees of systemness, which is very important in this book. Later the concept of open systems gained broader prominence in Richard Scott’s textbook on organization theory, Organizations: Rational, Natural and Open Systems (2002; 5th edition; 1st edition 1981) summarizing the theoretical developments just touched upon as well as subsequent ones under the heading of ‘open systems perspective’. In the spirit of Merton, Scott (pp. 24ff, p. 77) also mentions ingredients of open systems as defined here, such as ‘loose coupling’ or ‘semiautonomous’ parts. And like Luhmann (1984), he particularly stresses the open boundaries of such systems. Apart from this aspect, open systems theory is a relatively isolated part of his book, however, and he does not discuss the interplay between systemness pressure and openness. The same can be said about Hodgson and Knudsen (2006) who conceptualize economies as ‘undesigned social orders’ (pp. 2f) that evolve – in processes of ‘Darwinian evolution’ – by their responsiveness as ‘open systems’ to internal as well as external pressures (p. 8). Neither of these theories makes reference frames a subject of discussion, however. Reference points and frames (consisting of one or more reference points) are taken for granted and not specifically mentioned. The same is true for VoC theorists and their critics; in fact not even classic social systems theory theorized about reference frames. These frames are essential components of systems, however, because functionality and systemness are not self-sufficient but related to some reference frame. Independent from a reference frame there can be no functionality of a political economy’s parts at all. If reference frames had deliberately been discussed in the literature on varieties of capitalism this might have resulted in the insight that taking into account complex and possibly contradictory sets of goals is crucial for understanding real varieties of capitalism and the changes they are subjected to. The goals explicitly or implicitly present in every piece of this literature are performance, efficiency and competitiveness. There is also some awareness that a political economy is governed by more than only ‘efficiency considerations’ (Hall and Soskice 2001: 18). Hall (2005: 374) concedes that ‘it is useful to highlight the distinction between complementarities that enhance aggregate economic performance (. . .) from those that deliver benefits primarily to a few specific groups’. Boyer (2004: 16) points out that in coordinated economies not all coordination processes have the same aims and (2005b: 26) refers to ‘multiple orders and domains’. Streeck (2004a: 428) writes that economic preferences are


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only ‘one value among others’ and that ‘other objectives than efficiency may take precedence’ (2004b: 104; see also 2005: 364f), according to Jackson (2005a: 378) complementarity/functionality has to be related to the outcomes one is interested in, and Höpner (2005b: 384) refers to ‘conflicts of aims between different kinds of performance’. No analysis of the relevance of goals other than performance and competitiveness and of the possible differences between economic and non-economic goals does follow, however. When discussing reference frames of capitalist varieties it is very important to make a distinction between their existential and politically contested dimensions. Economic goals such as competitiveness and in the longer run, environmental goals, are more and rather directly existential than non-economic goals such as limited material inequality or broad participation in company decision-making. Competitiveness of a national political economy as well as of individual companies (in the latter case measured in terms of turnover and profitability) is, just like a certain degree of social order, an existential goal because it is a condition of material survival within the given system – not in the absolute sense but in terms of employment and standard of living. Losing competitiveness or, to be more precise, seriously declining competitiveness over a period of several years means losing jobs and income as well as increasing material insecurity and poverty. In the sense that they have to be met for survival understood this way existential reference points could also be called objective. Basically, they are independent of personal preferences, and in this respect they differ fundamentally from genuinely political goals. These goals do not necessarily have to be accomplished and could therefore be called ‘subjective’ – even if they are historically grown and have become part of objective social reality. The phrase that economic reference points are more existential than genuinely political ones indicates that the distinction between existential or ‘objective’ reference points on the one hand and political or ‘subjective’ ones on the other is somewhat arbitrary. To begin with there might be some hierarchy of economic reference points. If, for example, competitiveness is the basis for prosperity and the financing of generous welfare than competitiveness is more existential than employment for every participant in the labour market because labour income can be compensated by social security income. And non-economic goals might have existentially necessary components – as some degree of freedom and equality, for example, might be required for maintaining competitiveness. For restricted freedom and large inequalities could have a demotivating effect undermining productivity.

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Furthermore and importantly, existential reference points are not exactly determined by their objective character but also politically and ideologically construed and hence contested, and, depending on power relations and human constructive capacity, society might fail to realize them. National political economies may, and in some cases they actually do, lose competitiveness. No automatic road to success does exist here. Openness comes in again, which also means that there is space for (fallible) different interpretations of any given situation and for preferences. Challenges from globalization cannot always be measured exactly and have to be interpreted. The same is true for the economy’s capacity to respond and particularly for the effectivity of institutional and other changes policy-makers might consider. An example is loosening employment protection. How much will the economy be enhanced, if at all, by loosening it by 1 point (on the OECD scale from 0 to 6)? A look at other countries might help to answer such questions, but an unequivocal, absolutely certain answer can never be given. Some leftist groups or political parties might also question the priority that is given to competitiveness. How much of it is required; only its maintenance or its improvement, and what is the price worth to be paid? Doesn’t it make sense to offer some competitiveness for, e.g., leisure? And critics could say that prioritizing existential goals such as competitiveness and profitability is in the special interest of shareholders and managers and that it is these groups who try to sell their preferences as existential requirements. This criticism is right but it only points to the fact that within a given institutional structure special interests and existential requirements can concur. The political and ideological struggle between Liberals, Conservatives and Social Democrats in the past decades has been about the sort of reference points briefly discussed here (and summarized in Table 2.1) and the means and ways to meet them: pro and contra flexibilisation of labour markets and generous social security benefits, about the requirements of globalization, authority structures within firms and (de)regulation. In about two decades there has been a move towards more liberal reference frames in most western countries. In election campaigns, party programmes, in the political media and the social sciences individual responsibility is much more stressed than twenty years ago, the free market is valued higher than equality, equality of condition has increasingly been replaced by equality of opportunity and environmental goals have been beaten by targets of GDP growth. Democratic arrangements such as co-determination are under pressure while shareholder orientations

Capitalist Varieties as Open Systems Table 2.1

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The elements of reference frames of varieties of capitalism

Contested goals where (dis) functionality is related to: Existential, systemic goals, also contested, however

Possible contested political goals, e.g.

Contenders, e.g.

Order Efficiency Profitability Competitiveness

Equality Freedom GDP growth Generous social security Environmental protection Full employment Co-determination Low taxes

Political parties State bureaucracies Governments Organisations Unions Employers & companies Social movements Voters

become dominant. The battle is not over, and one has to differentiate between countries – change in Japan, Scandinavia and Switzerland seems to be slower than in, e.g. Britain and Germany (cf. Dore 2000; Hall and Gingerich 2004; Streeck 2001; Schmidt 2002) – but this appears to be the current trend in most countries.

Systemness requirements and factors of openness Reference frames of capitalist varieties containing more goals than those directly related to competitiveness is one aspect of the varieties’ openness. Another aspect relates to the varieties’ systemness requirements, to their variability and indeterminacy. Before continuing with the theme of openness it is necessary, therefore, to identify these requirements, i.e. the requirements of systemness with respect to the overarching economic goal of competitiveness. Functional requirements of contested goals such as more income equality and better environmental care might also be the subject of social scientific analysis but they will not be considered here. As indicated, in the VoC theory seven institutions need to fit functionally into competitiveness (in VoC language: need to be in a relation of mutual complementarity with respect to this goal): industrial relations, corporate governance, inter-firm relations, employer–employee relations within firms, training and education systems, the level of social protection and product market regulation. To varying degrees these are indeed elements conditional for economic success, although it has to be specified what exactly has to be functional. There are many

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more, partially very ordinary, functional requirements to be mentioned, however. Some are of a rather general character, others might be more variety-specific. Let’s have a look. More or less including Hall and Soskice’s seven elements one can, in an arbitrary order, mention the following requirements: • A functional social climate, particularly social peace and high val-

•

•

•

•

•

uation of economic individualism. These are very elementary and general but often overlooked requirements. Players involved in the market game should accept the rules of selling and buying and not use force or personal networks disturbing open exchanges to get what they want. The more they behave according to these rules the better the market functions. The existence of, e.g. corruption and Mafia-like organizations and practices demonstrates that market-adequate behaviour is not automatically given. A functional state structure and administration enabling politics to accomplish envisaged policies. A too much-scattered state structure might, for example, not even be functional for a strongly liberal economy, while a strong state might be a potential danger. Remarkably, this aspect is largely ignored in the VoC literature. The rule of law has also to be mentioned as elementary requirement of competitiveness. This seems to be an evident aspect but looking around in the world reveals that it is not realized everywhere. Functional competition legislation without which non-market forces (market-dominating companies, state regulation) might become too much or just, depending on the context, too little influential. Competition enhances development, but unequal competition might hamper it, reinforce inequality between regions or countries and therefore justify protectionism. It is not a surprise that no ‘later industrializer’ was successful without some form and degree of protectionism. In the 19th and early 20th centuries continental Europe and the US caught up to Britain by protecting their markets and, more recently, something similar has been true for emerging Asian countries in relation to the West. Functional inheritance legislation (of which there might be liberal, communitarian and social-democratic varieties) and functional licensing procedures for start-ups (how long does it take to get all required permits to start a company?). A functional physical infrastructure consisting of elements such as streets, airports, telephone and communication services, hospitals and recreation facilities.

Capitalist Varieties as Open Systems • A functional wage structure,

•

•

•

•

•

•

•

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i.e. one that enhances worker performance. This might be one with considerable wage dispersion as incentive for individual efforts or just one with limited dispersion stimulating cooperation and the sense for solidarity. Could it be that one or the other is particularly functional for specific varieties of capitalism? Labour force availability. This requirement points to aspects such as childcare facilities and immigration legislation, and it is trivial but nonetheless not met optimally in many countries. Functional education/training, in the formal as well as informal (learning by doing) sense. This aspect has an important role in the VoC literature. A distinction is made between education/training systems concentrating on general and specific skills respectively of which the former are supposed to be functional for LMEs and the latter for CMEs. Functional social and employment protection. This points to high versus low replacement rates in case of e.g. unemployment and sickness and to rigid versus rather loose dismissal rules. Do different (real) varieties of capitalism require different levels of this protection (as is argued by Estevez-Abe et al. 2001 and Iversen 2005)? Functional taxes to finance the infrastructure and social security. What is the good mixture of corporate taxes, income taxes, wealth taxes and indirect taxes? Functional financing of investment, which might be done out of profits, via banks, the stock market, private capital or a combination of these possibilities. This is not only a money affair, however, because each form of financing involves a specific relationship between financer and material investor. For this reason, financing resorts under corporate governance. Functional employer–employee relationships within firms are also needed (and are another aspect of corporate governance). There are companies with unidirectional control of management and others with one or another form of employee involvement. And it seems to be clear that chaotic or highly antagonist relationships would be dysfunctional. Something similar can be said about industrial relations (at the macroeconomic level). Different varieties exist (from relations between unions and employer associations restricted to the wage – profit game to fully corporatist ones, from country-wide to plant wage bargaining), but the question is of course whether specific capitalisms require specific industrial relations.

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This list is not exhaustive. One could add for example inter-firm relations and of course government policy with respect to the business cycle such as monetary policy, fiscal policy and public investment. Some of the listed components, particularly the first two and physical infrastructure later on, are very fundamental. It does not make much sense to talk about different varieties of these factors. By contrast, the varieties of other components – education/training systems, corporate governance regimes, wage structures, intra-firm relations, tax and welfare systems and industrial relations – just indicate essential differences between political economies. And the variation that exists in the latter group of components, particularly in the cases of wage structure, intra-company relations and the welfare system partially stems from the impact of other than economic goals and the power relations connected to the prevalence of a certain reference frame of goals. Listing functional requirements is one thing; their realization is quite another one. No a priori guarantee exists here. But since political economies would underperform without a certain level of functional arrangements we are allowed a posteriori to conclude that this level is given whenever political economies perform. And the better they perform the more functional requirements are met. A subsequent question is to what degree different capitalisms require a specific set or configuration of different components (institutions in VoC language). The rejection of any rigid conception of capitalist varieties does not make superfluous this question. Openness is not total openness and some degree of systemness requires some degree of coherence. To the disapproval of those who expect exact information the ‘some degree’ remains vague, however. More precision is impossible because in reality we are confronted with historically grown sets, which should not be confused with logically configured ones, and because we cannot create experimental varieties of capitalism to test and to measure the coherence of a number of configurations. We can, of course, produce tautological statements such as that the more liberal/non-liberal a capitalist variety is the more liberal/non-liberal its components must be, but such statements do not tell us whether certain specific components and combinations of components are required for competitiveness. Moreover, sometimes we do not know whether a component is liberal/non-liberal at all. That an education and training systems concentrates, as in the rather liberal USA, on general skills does not imply that this concentration is liberal, and something similar can be said about hierarchical intra-company relations.


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The inability to answer satisfactorily the question of to what degree different capitalisms require specific sets or configurations of different components is a feature of the openness of these capitalisms to which I will return now. We left this theme with the contested reference frames. A number of other, earlier touched-upon, factors will be discussed now. A first and very trivial one is the openness of territorial borders and the international division of labour. Capitalisms or political economies do not have separate ‘national’ territories (constructed ideal–typical varieties of capitalism can only be understood as units with imagined separate territories, therefore). Partially, they are transnational and national economies only cover segments in the international division of labour and are connected by global trade. This transnational character is illustrated by the existence of multinational companies, outsourcing and the border-crossing modularization of production, supranational organizations such as the World Bank and the WTO and by supranational legislation and governance of bodies such as the EU. Although competitiveness is a goal of companies as well as of territorial states its requirements have partially to be met, if they are met at all, outside the territories of national states – this is true for, e.g. product market regulation, monetary policy (in the case of Euroland), the financing of investment and infrastructural factors. These requirements are even more withdrawn from the control of players within these states than domestic requirements and the realization of systemness is more difficult. The second, also relatively trivial factor is the diversity within capitalisms that points to the different organization and structure of economic sectors. Industry is different from private services, these are different from public services and small family-owned firms are different from big corporations. Significant differences might even exist within the sectors. And all of these categories might have different functional requirements in terms of financing investment, labour market protection, product market regulation and education/training. Systemness might have a different meaning for each of them. Another, very significant, aspect of openness is that functionality is difficult to determine (Amable 2003: 4; Streeck 2004b: 101f). This is because of the character of society and limited human capacities to know and accomplish goals in complex environments. How do we know with certainty what the most functional (liberal or whatever) institutional configuration is and more generally, how what is functional in multi-layered, quickly changing macro-economic contexts? Is the German institutional configuration, as Hall and Soskice seem to suggest,

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functional? Or would it, as is claimed by neoclassic economists and employer associations, be functional for Germany and other European countries such as e.g. France, the Netherlands and Sweden as well as Japan more to liberalize their dismissal rules because of increasing global competition and/or because corporate governance has moved into liberal direction? Which education system and which vocational training system are most functional to current requirements? Different groups in society and different policy-makers as well as political economists will have different answers to these questions. Can we, with respect to policymaking, be sure that a certain institutional change will bring about the envisaged result? Listening to politicians, economists taking their wisdom from abstract models (mostly built on rationalist assumptions) and mimicking journalists one could get the impression that we can. We cannot, however. The ‘causal texture’ (Streeck op.cit.) of the real social and politicoeconomic world is complex and our intellectual access to the nexuses between its various parts and aspects is largely a matter of interpretation. Ex post we can get some certainty about the causal nexuses in this world, but even then different ideas about the ‘causal texture’ will persist. Take as examples the Dutch ‘miracle’ and the Japanese and German decline of the 1990s that are now in the past – even if the processes have continued into the 2000s. We still do not have generally accepted knowledge, which set of factors caused these processes and what the exact weight of single factors has been. An aspect of this is that we have difficulty in assessing accurately the relevance of (un)favourable circumstances such as the costs of German unification and, in Japan and the Netherlands, (bursting) house price bubbles (cf. Becker and Schwartz 2005), circumstances which moreover are largely beyond the control of policymaking. And what is true for ex post situations is even truer for ex ante situations. General laws of societal and politico-economic development cannot be formulated. From an epistemological point of view this is because hypothesis testing by experiment, as conducted in the natural sciences and technical affairs, is impossible in the macro-societal world. Ontologically, it is because the social world does not fit into the assumptions of the natural sciences. The difference makes the however conditioned ‘subjective factor’ that with its individual preferences, special aspects, mistakes and miscalculations is involved in the myriad of human action. So, uncertainty and intellectual dispute will always remain (cf. Pierson 2004: 14f and generally on uncertainty Beckert 1996). And when there is uncertainty and dispute, action will not be homogeneous or might change


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direction – even if, as often is the case, one view is dominant (as neoclassic economics currently is and Keynesianism was before). Openness is the result. Different interests of the main socio-economic groups, of players at the micro-level and the state administration, as well as the power relations among them, are a related factor bringing about openness. Some of these groups prefer change but they are split about the direction of change while other groups prefer the maintenance of the status quo. Again, action will not be homogeneous – even if the power relations are not symmetrical. The ‘subjective factor’ and, at least partially, the interest structure prevalent in a political economy also come to the fore in the relatively autonomous course of action of companies, state departments and other relevant actors. Governments might, with more or less success, try to coordinate the activities of state departments and hierarchies have to limit the freedom of individual action, but companies definitely act on behalf of their own special interests. They might communicate with state administrators, but they invest where they think it will be most profitable, they will finance investment in a way they consider most appropriate and they might abruptly break with past practices in these and similar matters (internal firm structure) whenever such breaks will reduce costs. The changes generated by such autonomous action might render dysfunctional what yesterday was functional. The same might happen by the unintended consequences of action that can result in an unanticipated course of development (Pierson 2004: 15). Because of these unintended consequences, the myriad of action, divergent interests and ideas, conflict, power relations and limited human cognitive and action capacities the institutional configuration of a capitalist variety never is a matter of design. When the forces of openness are very strong they might even bring about systems failure, i.e. such a low level of systemness that a political economy looses competitiveness.

Equi-functionality The only important factor of openness not yet discussed is equifunctionality. It deserves special attention because its openness is that of the existence of alternatives to components of given institutional structures. The openness stemming from multi-layered reference frames, power relations, the myriad of action and human cognitive incapacities

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points to the uncontrolled changeability of social structures and practices and to, connected to this, a course of history that is to some degree open. Equi-functionality, by contrast, points to institutional choices and alternatives of action. The use of this concept in comparative political economy dates back at least to Streeck and Hollingsworth (1994). It is also important in recent writings of Crouch who prefers to talk of functional equivalence (2005: 66, 154f), Jackson (2002) and Deeg (2005: 34) who talk of ‘variable complementarity’. Termed equifinality it was originally formulated by Robert Merton (1967 [1949]) and given central attention by Athur Stinchcombe (1968). Its main message is that differing elements are functional equivalents when they bring about identical or similar results. In other words: there is more than one route to accomplish something. Investment can, all else being equal, be financed in more than one way, quality watches can be produced in artisanal workshops but also in mechanized processes and, to mention a final example, the organization of firms producing/providing the same goods/services might or might just not include workers’ codetermination. Let us consider this in more detail. Though barely discussed in the VoC literature the political structure of a country is a point in case. The liberal US capitalism combines with a fragmented political system, but Britain’s liberal capitalism combines with one of the most centralized states in the world – a combination once thoroughly analysed in Andrew Gamble’s The Free Economy and the Strong State (1988). On the other hand much more embedded capitalisms are complemented by highly centralized states as in, e.g. France, Japan, the Netherlands and the Scandinavian countries but also by federations as Germany and de facto weak central states as the Italian one. And in Switzerland a very fragmented state structure co-exists with an economy with both strong liberal features – e.g. very high market capitalization, employment protection clearly below the European average level – and a high level of social security as well as a restricted, partially compartmentalized internal market (Schulte 2004: 12ff). Financing is an example already mentioned. Summarizing research on corporate governance in Germany Crouch (2005: 151) concludes that companies there seem to be able to ‘work with a diversity of financial regimes’ and that different financial regimes all can coexist with codetermination. Is there any reason to think that Germany is an exceptional case? Looking at figures Höpner (2005c: table 1) presents we can see market capitalization of German firms from 1990 to 2002 having risen from 21 per cent to 35 per cent and that similar changes have taken place in other countries not famous for their liberalism and


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with some form of co-determination: in Belgium from 33 per cent to 52 per cent, in Denmark from 29 per cent to 44 per cent and in Sweden from 40 per cent to 74 per cent. The Netherlands (41–96 per cent) and Finland (16–106 per cent) have even moved into the league of the UK (86–119 per cent) and the US (53–106 per cent). We have to suppose that these changes involved increased shareholder influence that have put liberal pressure on co-determination and the entire building of corporate governance. Co-determination still exists, however, and the institutional arrangements of the political economies on the NorthwestEuropean continent are still radically divergent from those of the US in 1990 when its market capitalization level was 53 per cent. A particularly interesting case illustrating equi-functionality is Finland where the opening towards the capital market that was crucial for the rise of Nokia (Moen and Lilja 2005: 353), went together with a strengthening of corporatism (ibid. 369ff). Some more attention will now go to the systems of education and training that in VoC theory are directly linked to different routes to competitiveness providing each capitalist variety with ‘comparative institutional advantages’. In the liberal and coordinated varieties distinguished by the theory competitiveness is supposed to be accomplished by mass production of price-sensitive goods and flexible specialization into quality-sensitive goods respectively. And these modes of production are supposed to be related to specific secondary education and training institutions. The idea is that an apprenticeship system generating specific skills facilitates quality production (see e.g. Thelen 2004: XII) while a labour force with predominantly general skills makes it easier to specialize in price-sensitive mass production. The first objection to be raised here is that empirical varieties of capitalism are not homogeneous. Mass production, Taylorism and Fordism are not restricted to political economies approaching the LME type, but prominently present in countries such as Germany or the Scandinavian ones that strongly feature elements, such as institutions generating specific skills, the theory attributes to CMEs. In such countries that reveal, as I prefer to say, one or the other form of embedded liberalism much manufacturing – tyres, bricks, furniture, bottles and other technically simple things, but also machine and electronic components – is operated by workers at assembly lines who for their job are not required to be skilled (even if they are). Given this factor and that services (largely ignored in VoC theory) are good for 70 per cent or more of employment comparative institutional advantages of CMEs relate, if at all, only to a relatively small segment of a country’s economy.

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This relatively small segment of the economy does not absorb all skilled workers. For some qualifications there might be shortages, but generally after graduation many apprentices in Austria, Germany, Switzerland and Denmark (in these countries about half of those attending secondary education take extensive ‘dual’ – school and companybased – apprenticeships5 ) will not find an occupation they have been trained for. They have to look for employment in assembly line production or comparable sorts of production and in, for example, the field of storage. Or they have to look for simple service jobs. In the early 2000s, in Germany 13.3 per cent of the labour force consisted of skilled manual workers of which 44.7 per cent were employed in a job for which no training was required at the point of recruitment; in Denmark the respective figures had been 12.3 per cent and 34.1 per cent and in Britain – where ‘skilled’ is less skilled than in the two other countries – they were 8.8 per cent and 59.8 per cent (Gallie 2007: 91). The service sector also does not provide jobs for all qualified workers.6 Supply is larger than demand, because the jobs employees are trained for can also be taken by unskilled ones. In cases like retail the latter are largely equi-functional to skilled personnel and with some amount of practical experience the differences tend to disappear. Or take technical services where task specialization is increasing. In car repair, for example, firms working with well-educated all-round mechanics lose ground against firms employing briefly trained specialists for tyres, clutches, brakes and so on. In such cases division of labour is equi-functional to an all-round qualification. This is in fact the same process that, as we all know, has made traditional craft jobs such as tailors, shoemakers, bakers and butchers largely disappear all over the economically advanced world. They have only survived in artisan niches. For the rest, their work has been taken over by factories producing on a large scale and by machines that can be operated by semi-skilled or even unskilled workers. In all of these cases division of labour and automation appear to be equi-functional to comprehensive qualification. A comparable picture appears when we go back to the (relatively small) segment where vocational training is supposed to bring about comparative institutional advantages by way of quality production. The classic reference constructing a tight connection between the apprenticeship system, a high level of vocational training and quality production is an article Streeck published in 1991. Diversified quality production, as he called it, is ‘able to obtain superior competitiveness in world markets through sophisticated application of information technology, a diversified product range, and non-price competitive marketing strategies,


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Table 2.2 Comparative advantages in non-electronic machinery of advanced OECD countries in 2002∗ Australia Austria Belgium Denmark Finland France Germany Ireland

4%; 18%; 8%; 14%; 13%; 11%; 17%; 2%;

0.36 1.85 0.64 1.45 1.27 1.12 1.71 0.22

Italy Japan Netherlands Norway Sweden Switzerland UK USA

19%; 16%; 8%; 4%; 16%; 17%; 13%; 14%;

1.93 1.64 0.64 0.40 1.97 1.72 1.33 1.46

Note: ∗ The percentages refer to the share of the sector in total merchandize exports, the second figures show the ratio of exports to imports in the respective sectors; a value higher than 1 indicates a comparative advantage. Source: ITC (2004).

combining all these with high wages, skilled labour, and a flexible, non-Taylorist organization of work’ (p. 25). This has never been completely wrong, but diversified quality production also appeared to be possible in countries where, such as the US, Taylorist organizations of work with un-skilled or semi-skilled labour have been more prominent than in the German-language countries and Scandinavia. A case often mentioned as an example where vocational training and quality production coincide is the machinery and tool industry. Table 2.2 shows that with a few exceptions – e.g. Australia, Ireland and the Netherlands – most advanced industrial countries have comparative advantages in the production of ‘non-electronic machinery’, whatever their variety of capitalism and independent of their education and training systems. Sweden, Italy and Austria lead the league, but the US is well positioned and Britain, another general-skills country, ranks higher in this branch of industry than the Netherlands, a special-skills country (with no comparative advantages at all in this field). One can add that since the 1990s even in the German machinery industry the nexus between highly skilled labour and quality production has become weaker. Machine production became modularized, the number of the average machine’s parts became drastically reduced, these parts were increasingly offshored and imported (Glassmann 2004: 47), the number of engineers doubled and automation increased while the importance of highly skilled machinists decreased (ibid. 55, 59). Perhaps the data in Table 2.2 are too superficial, and we need more specific information. Part of this information is that the US not only is a large-scale producer of ketchup, but also of quality high tech, sophisticated aircraft and of agricultural machines. Furthermore, the

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US machines and tools industry that was very strong until the 1970s (Finegold et al. 1994; cf. Berger 2005: 17) is experiencing some sort of a revival in recent years (Macpherson and Kalafsky 2003). It seems that this is possible without a comprehensive apprenticeship system. Companybased vocational training and informal learning can, just as in Italy, be equi-functional and fill the gap. Another often referred to example are cars. It is again that German, Japanese and Swedish, but not American, cars are classified as quality cars. It is debatable whether quality is the differentia specifica of these countries’ car brands – a recent J.D. Power and Associates Long-term Dependability Survey does not confirm this (CNN 2006) – but even when we suppose it is we have to acknowledge that German and Japanese quality cars are also produced in the US as well as in a number of other countries such as South Africa, and suppliers in countries without sophisticated apprenticeship systems make many parts of such cars. And isn’t Britain, not a frontrunner in institutionalized long-year vocational training of its workforce, the location of the production of Japanese quality cars, and Italy, also lacking a formal apprenticeship system, the producer of quality machinery? What we see is again that there is more than one way to Rome. Also, German (and probably also Swedish) car production underwent, just as the machine tool industry, significant changes into a direction somewhat away from the traditional emphasis on vocational training. In fact, the unity of this emphasis and quality was a feature of the 1980s and perhaps the early 1990s (Jürgens 2004: 415). When it became clear that the future trend of car production was moving toward automation, skill upgrading at the level of skilled manual workers, ‘Facharbeiter’, lost its urgency. Moreover, car-producing companies, inclusive the producers of expensive luxury cars, in the 1990s increasingly shifted to standardized, assembly line production processes. The number of skilled manual workers – still very high by American standards – decreased while that of university graduates increased (ibid. 416, 418) which reflected a change in production organization but was also related to the outsourcing of an increasing number of parts. The parent companies concentrated on the final assemblage, the production of core parts such as engines and on development, design and marketing. This is a more general trend, and it is not restricted to Germany (cf. Culpepper 2007 for similar developments in Switzerland and, to a lesser extent, Austria). Quality production is not bound to one model of production. Fitting into this observation is that the US and Britain are ranked very high in one of the very few comparative investigations of quality production


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(Aiginger 2000). Aiginger’s research includes the whole range of goods produced in an economy, not only luxury cars and specialized machinery. The US and Britain perform particularly well in ‘quality’ pharma- ceuticals, probably produced in mass production.7 This is another indication that, against the background of equi-functional configurations, there are good reasons to speak of comparative institutional advantages in the strict sense Ricardo spoke about comparative advantages: political economies with a strong liberal stance – particularly the US – appear to be, on the whole, as good in the production of quality goods as political economies with comprehensive apprenticeship systems. Since the former, because of their hierarchical organization of work and their stricter division between high-skilled professionals and low-skilled workers, are better in mass production they tend, but not more than that, to concentrate there. The concentration on quality goods production by flexible specialization can be left to apprenticeship economies then. Furthermore, whatever the education and training system below the university/professional level is, every country needs qualified plumbers, nurses, hair dressers, medical assistants, bank clerks, technical specialists, old-style secretaries and so on. All education and training systems existing in economically advanced countries more or less provide for the required qualifications – but these systems are under fire everywhere. One cannot build skyscrapers or bridges with only unskilled workers, and the service of computer and telephone networks and other machinery where the service company has to go to the customers, still requires all-round trained technicians and mechanics. In countries without an apprenticeship(-like) system these qualified people will be formed by Community Colleges, intra-firm training or simple by years of practical experience (perhaps complemented by some courses).

Societal trial and error and systemness Equi-functional solutions to specific problems, opening up alternative trajectories of politico-economic development, might consciously be adopted – partially – possibly. By contrast, the openness stemming from multi-layered reference frames, conflict of interests and ideas, power relations, the myriad of action, its unintended consequences and human cognitive incapacities to determine functionality in complex political economies points to the uncontrolled changeability of social structures and practices. The complex institutional configuration of a capitalist variety never is a matter of design. At the macro level of political economies we are in the realm of ‘undesigned social orders’,

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Hodgson and Knudsen say, the development of which is governed by the “‘blindness” of Darwinian evolution’. The latter ‘assumes that organisms, including humans, act as if they are fumbling in the dark with little conception of what they are doing or where they are going’ (Hodgson and Knudsen 2006: 2f, 11). Perhaps this is exaggerated, but when we concede successful design at micro and meso levels and replace ‘blindness’ by a ‘considerable degree of blindness’ at the macro level we are still in an undesigned social order. If not by design (nor by any objective teleology), how then do political economies generate their systemness? A first answer could be that it has historically evolved, but this answer only tells us that the generation of systemness in the long-term view is rather incremental and that it takes place in historically given contexts. It does not give the clue to the how-question. The good answer proposed here is that (a certain level of) politico-economic systemness has to be understood as a result of permanent processes of societal trial and error. Figure 2.1 is an attempt to illustrate this and the whole picture of open systemness. The notion of trial and error reflects the ‘fumbling in the dark’ character of this process, the concept societal that conflict of interests and normative ideas is one of its outstanding features. Therefore, it is a process that is quite different from one situated in an experimental setting where all participants search together for an answer to a question or a set of related questions. Processes of societal trial and error are the social form of natural selection. Individuals, groups, organizations, firms and governments react to changes in their environments and reference frames by attempting to adjust their setting and rules. These processes are, to borrow a sentence from Gary Herrigel (2005: 560), processes of ‘piecemeal recomposition and re-articulation of institutional rules and ties’. In the context of ongoing social conflict, paradigmatic ideas and power relations people and organisations formulate different options corresponding to their particular interests and depending on their insight into social reality. Originally independent or partially related structures become adjusted, supplemented by new elements and made as is thought to be functional for the goal of economic performance in a context of rival goals and human cognitive as well as institutional restrictions (Becker 1988: 879). Some of the participants in the VoC discussion seem to think in the same direction (cf. Boyer 2005a: 367 and Jackson 2005: 379f; perhaps Campbell’s concept of bricolage – 2004: 68ff – could also be useful in this context). Take as an example the education and training arrangements just discussed. In the US business complains since years about the deplorable


Adjustment pressure

Adjustment pressure

Contested reference frame (goals): – order – competitiveness – equality – social security – ...

External changes: – new technologies – new competitors – international financial markets – socio-structural individualization – ...

Elements: (more or less functionally related to the reference frame; equi-functionality is possible)

– (organized) industrial relations – corporate governance – inter-firm relations – employer–employee relations within firms – training and educational systems – level of social protection – product market regulation – ...

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Adjustment pressure

The open system has to adapt to changes in both reference frame (societal goals) and external circumstances. Adaptation is hampered by the relative autonomy of system-elements and limited human capacity to adjust. If accomplished, systemness will be achieved by societal processes of trial and error.

Figure 2.1 Varieties of capitalism as open system-like configurations8

state of education (Martin 2005: 187ff), advisory commissions have been formed to help improve the situation (see e.g. Uhalde et al. 2006) and national politicians campaign for drastic change. Real change is very slow, however, the demands of business sectors differ, the direction of the required change is disputed and states, communities and neighbourhoods do not want to give up the stake they have in education policy. And since the US economy is doing relatively well the urgency of adjustment is rather low. So, the role of Community Colleges that can offer some sort of school-based apprenticeships is somewhat enhanced and the thinking about the large number of high school drop-outs has

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been intensified. In Germany there is much fuss about the country’s comparative backlog in general education and the shortage of higherlevel vocationally trained employees. The demand for lower secondary apprentices declines at the same time that the number of juveniles not finishing or not even qualifying for the apprenticeship system has become very problematical (cf. Böcklerimpuls 2007: 4f and Thelen 2007). Higher-level secondary education and vocational training have gradually been strengthened in recent decades – too slow, however, it is said – but the basic apprenticeship system is still relatively rigid. It does not, as e.g. the Dutch system, provide for the possibility of shorter, for example one-year, training sessions.9 In the meantime politics complains ritually about the shortage of classic apprenticeship places and teacher organizations warn that education is more than preparation for the labour market while the states, craft guilds and business associations regularly disagree among each other and do not want to narrow down their powers. On the other hand, media (cf. e.g. Das Parlement, 20 November 2006 and 9 July, 2007) jubilate about the flourishing machine and tools industry, the heart of the German industrial apprenticeship system. The picture as a whole features much discussion and some fragmented policy-making of a number of players. Part of this action is constructive, but sometimes measures are redeemed briefly after implementation. It is a process of muddling through where any strong sense of urgency seems to be absent. As a rule the actors involved in such processes – politicians and policy-makers at different levels, interest group representatives, advisory agencies, managers – do not act on the basis of grand visions. They will probably produce some story, pack up their policies in ideological terms and point to necessities, but knowledge about the decisive factors bringing about a new equilibrium is not strictly required. Largely, they act according to what is acceptable in a given culture, in the framework of their routines and, caused by uncertainty and the danger of high costs, with a high level of caution when they take new steps. The process of adjusting might involve learning, accommodation and compromising. It slows or shuts down when the involved actors, or at least the dominant group of actors, are satisfied with the state they have reached. When error prevails over success these processes fail, however. The same is true when there is too much conflict. We are talking about open processes here, even if this openness is restricted by the structure of the paths where the processes take place. By now, it should have become clear that understanding institutional change is not a problem at all in the open systems perspective. Capitalist competition, interest-based or relatively autonomous ideological


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contests on reference points, requirements to meet changed reference frames and relatively autonomous actions of specific institutions, certain industrial (sub-) branches or individual firms permanently bring about change. Learning and intended change has to be added. On the other hand, the forces of path continuity are limiting the scope of change. Path continuity mainly results from transformation costs, the dominance of given norms, the inertia of action, disagreement among policy-makers and power relations that propel political economies along their ‘paths’.

3 Capitalist Diversity, Ideal Types and Typologies

Empirical diversity and simplifying typologies If empirical varieties of capitalism were structured by rigid requirements of complementarity the space for differences would be limited and the lines of demarcation between these varieties would be relatively clear. This is, however, not the case. Instead, diversity determines the picture – even if one has to concede that it might be limited by path inertia and by unifying cultural roots of national political economies. As analysed in the previous chapter, this diversity stems from the openness and heterogeneity of empirical political economies where the, at least to some degree, different service and industrial sectors coexist just as do big-company capitalism and small-company capitalism. It also stems from the considerable range for equi-functionality of any variety’s components, the latter’s relative autonomy and from circumstantial factors like the average size of firms and the character as well as relative importance of the service and industrial sectors. Whether one is in the US, Britain, France, Germany, Sweden or Japan, small, privately owned companies might have American, British, French and so on traits, but they are differently organized from large public corporations. Something similar might be said about the differences between banks and steel mills. Furthermore, there are the differences between countries and periods of time. Taking the services: Italy has, and France until recently had, a very scattered banking sector in contrast to the high concentration level in, e.g. Belgian and Dutch banking. Or take the role of the state: in post-war French capitalism, the state has been much more important than in Dutch, German or Swedish, let alone American, capitalism. In British capitalism there has, however, been a period where a large nationalized sector of the economy 44

Capitalist Diversity, Ideal Types and Typologies

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co-existed with the country’s liberal tradition, while the traditionally considerable, though recently reduced, nationalized parts of Austrian and French capitalism fit into these countries’ state tradition, and in Italy the nationalized sector was a requirement for the thriving clientelism where public sector jobs have been exchanged for personal or party-political services (McCarthy 1995). In Japan as well as other East Asian capitalisms, the state has a guiding role (particularly it has had this role in these countries’ economic catch-up processes), but at the same time companies – at least the big corporations – form a sort of community and the reliance of companies and individuals on state provisions is low. In Scandinavia, Belgium and the Netherlands, by contrast, the state is, although to different degrees, less guiding, but welfare reliance on state provisions is high. These countries, just as Austria, Switzerland and, to a somewhat lower degree, Germany, reveal corporatist capitalisms where the cooperation of capital and labour on macroeconomic issues is crucial. Of the corporatist countries some, as e.g. the Netherlands, are rather tri-partite variants with the state as third player and more statist than the bi-partite ones as given in, e.g. Denmark. Italy does not have a strong liberal tradition, is not poor, but its social security system is as residual as that of the United States. Until the 1960s the same was true for a larger number of West European countries (that, including Scandinavian ones, also had higher material inequality than the US; cf. Kaelble 2007: 213, 223) and even today, the level of the welfare system of some of the states in the ‘liberal’ USA – for example, in Wisconsin and Massachusetts – is not much lower than that of, e.g. Austria and Germany. In the East European countries it is more difficult to detect a structural identity of their emerging political economies. Their path does not seem to have already been fixed to the same degree as in the older western political economies. Similar things can be said about India and China. Particularly China with its communist state rule appears to reveal, in its industrially developed regions, a very special variety of capitalism. And what about the peculiarities of the Latin American capitalisms? Or of African political economies: to what degree are they capitalist at all? In fact, this is a question that has to be asked with respect to nearly all political economies outside the West, parts of East Europe, Japan and the Asian Tigers. So, there is a lot of capitalist diversity and even those capitalisms often quickly identified as very similar as those of the US and Britain – perhaps too quickly in this case (O’Sullivan 2005: 552) – and of the Netherlands and Belgium or of Denmark and Finland are only similar to some extent

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and have a considerable number of peculiarities. To reduce this complexity analytically Comparative Political Economy needs to work with typologies where a few types have to cover a large number of empirical cases. Working with typologies means: • To construct order out of empirical diversity by concentrating on a

selected number of features, abstracting from other features and by bringing the selected ones under common denominators – types. • To create the possibility easily to identify change as movement from one type to another one as is done in classification-based typologies or alternatively, as I prefer, as movement within the space between ideal types as in ideal type-based typologies. Concentrating on a number of selected features implies that typologies are neither intended to cover every aspect of reality nor to signal all changes. They are pragmatic devices and do not intend precision. For every aspect of a given feature one might construct a separate typology: a typology of service companies, of university education systems, of the hierarchy of technological qualifications, of gender relations in the economy and so on. As explained in the introductory chapter, I prefer ideal type-based typologies. Classifications are rigid and sometimes conceal considerable differences within the types of classified cases – for example, those between the US and Canada or Britain, which generally are classified liberal. Particularly, classifications do not leave any space for change other than the radical jump from one type to another one (or the simultaneous move of all cases classified under a type; in this case the very type changes), and most scholars working with classifications draw rather static pictures of reality – although that might also stem from their idea of relatively fixed complementarities. Ideal type-based typologies leave this space for change. In fact, they define it. In the Weberian tradition, they consist of idealized and simplified, but not fictitious, constructions of reality. Simplification means bringing down the number of types drastically below the number of cases1 on the basis of a few relevant criteria – relevant for the aim of the investigation one wants to do. If there are a hundred countries with twenty, let alone more, structural peculiarities a handful of types can never give space to all of these peculiarities. Throughout, I will consequently distinguish between ideal types and empirical cases. Empirically, a pure liberal, corporatist, statist or mesocommunitarian capitalism, to mention the types I want to distinguish, does not exist. Ideal types may be reformulated and different authors


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will propose differing sets of ideal types, but in principle they are fixed constructions for analytical purposes. Cases, by contrast, are historical entities and may change their location in the space between the types (Dogan and Pelassy 1990: 174). It is the cases that are open for change, not the types. It is similar to the world of colours: pure colours (blue, red, yellow, black and white) remain what they are, but there are many blends of them and they can endlessly be changed by differently re-mixing the pure colours. In an elementary form, the distinction between ideal types and empirical cases/countries is illustrated in Figure 3.1. VoC A

VoC B

Note: ( = empirical varieties of capitalism/political economies) located in the field between the ideal types.

Figure 3.1 Illustration of a simple, dichotomous typology of ideal–typical varieties of capitalism (A and B) and concrete cases

Adhering to the types – cases distinction forbids to speak of liberal, statist or whatever capitalist cases. One has always to speak in terms of ‘approximating’, ‘approaching’ and of ‘rather’ and ‘most’. That is the way I will do it in this book. Using these words over and over again looks longwinded or ugly, however. So, sometimes, I will prefer to speak of liberal, statist, meso-communitarian or corporatist cases – though the meaning of the message always remains that of cases approximating ideal–typical liberal, statist, group or corporatist capitalism. Colin Crouch formulates it the other way round. Apart from Vivien Schmidt, he is the only prominent scholar in the discussion relevant here who also consequently distinguishes between ideal types and cases. He does not locate cases in the space between ideal types, but considers cases as entities where elements of different types merge: ‘Empirical cases must be studied, not to determine to which (singular) of a number of theoretical types they should each be allocated, but to determine which (plural) of these types are to be found within them, in roughly what proportions and with what change over time’ (Crouch 2005: 26). The only advantage of the ‘in-between-formula’ is perhaps that it is easier to illustrate the difference between the two categories and the changes cases are subject to. However the difference between types and cases is illustrated, the ‘mixed’ type Hall and Soskice talk about (2003; cf. Hall and Gingerich 2004) does not fit into ideal – type typologies (the concept of a mixed type is prominent in the editors’ Introduction and the contributions of Molina and Rhodes, and Mykhnenko to the 2007 volume on Beyond

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Varieties of Capitalism by Hancké, Rhodes and Thatcher2 ). Presenting a mixed type indicates that the authors are aware of the limits of their dichotomous model. But rationally, this type cannot be constructed. This is because ideal types are ‘pure’ constructions while it is reality that is ‘mixed’ – always!3 Otherwise, the distinction of types and cases does not make any sense. A concept of ‘pure mixed types’ confusingly merges types and cases. As outlined in the first section of the previous chapter no country with only market and market-facilitating regulation exists, while on the other hand all varieties of capitalism with a non-liberal adjective are still – even basically – capitalist and in that sense largely liberal. The United States is a specifically mixed empirical variety of capitalism where liberal elements are stressed more than in any other of the bigger countries, while France, Germany, Japan and the Scandinavian countries feature differently mixed varieties with more stress on non-market factors. Similar things can be said about other countries. Since empirical varieties of capitalism are always mixed or hybrid it follows that it does not make sense to describe the processes of change and particularly of convergence in and between political economies as processes of ‘hybridization’. A great number of texts using this concept have been published in recent years (e.g. Perraton and Clift 2004, Wai-Chung Yeung 2004, Goyer 2006, Hölz 2006, Aoki et al. 2007, Campbell and Pedersen 2007, Clift 2007, Deeg and Jackson 2007; for earlier references see Höpner 2001: 37). At first sight its use seems plausible: one starts from a given state of affairs in countries A and B, sees one of them or both moving into the direction of the other and calls this hybridization. By this reasoning the (unnoticed) assumption must be that at the start of the processes of change the cases are identical with pure types (for example the US and Britain assumed to be purely liberal; France, Germany and Japan purely ‘coordinated’). This looks like a classification where national political economies are not distinguished from ideal types but assigned to types. With hybridization confusion comes into the classification game because now a distinction is made (at least implicitly) between typical and diverging national political economies. There is no criterion, however, on the base of which we can determine which political economies are typical and which are not. Empirically, we will only find that all national political economies more or less differ from each other. The only way out of this confusion is the strict distinction between ideal types and cases. The concept of hybridization does not really have a raison d’être in the context of cases as distinguished from ideal types, and if one wants to continue using it at all, it could only be understood as re-hybridization of existing empirical political economies, which are all hybrids.


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Another example of confusion of ideal types and cases comes to the fore when ideal types – or at least the classified countries called ideal types in the VoC literature – are regularly supposed to be ideal socio-economic performers. A number of texts have been published that discuss the empirical validity of this idea and particularly scrutinize the claim that the countries presented as archetypical LME and CME respectively, the US and Germany, have performed best in the recent past (e.g. Kenworthy 2006: 80ff). The result of this exercise has been that in terms of GDP per capita and economic growth the US has been the best liberal performer in the 15 years up to 2008 (although tiny Ireland is top in growth and Australia doing better in this respect than the US; including social criteria such as poverty and the distribution of income the ranking would change), but that Germany is not the best performer among the ‘coordinated’ market economies. The corporatist Scandinavian, Benelux and the Alpine countries have done better in all respects, France has held its own and, in terms of economic growth, many more countries have outpaced Germany. Other scholars might add subtle nuances and put the countries’ performances into a different perspective. Aren’t exports a better indicator of competitiveness than GDP growth, they might ask. They might even question the findings mentioned. One has to ask, however, whether the discussion of empirical data is the most important thing in this context. In my view the crucial question is whether the assumption of ideal types as best performers is sustainable. The answer has to be that ideal types do not perform at all, just as they do not change. Constructing idealized best performers as machine-like systemic configurations every element of which is in a perfect functional relation to economic performance and providing ‘comparative institutional advantages’ might be an attractive idea, but this idea ignores what is said earlier about equi-functionality and the impossibility exactly to determine functionality and systemness. We simply do not know unambiguously what is perfectly functional in macro-economic configurations and so we cannot construct perfect functional relations! Moreover, assuming ideal types to be ideal performers would mean that the more ideal types one constructs the more ‘best performers’ one gets. This would be a strange direction of analysis and would not leave any space for the construction of idealized capitalist varieties that could never be best performers. Generally, analytical idealization does not mean constructing best worlds. Ideal–typical varieties of capitalism have to be understood as constructions idealizing historically grown differences and nothing more than that. They point to idealized ways to socio-economic performance,

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but not to ideal ways to performance. Depending on details of their construction, ideal–typical varieties of capitalism also point to different degrees of emphasis on reference points such as environmental care and social equality. Real varieties of capitalism should be understood as open system-like configurations, but in the constructions of ideal types the systems dimension can be ignored – simply because the theory is about varieties of capitalism, not about varieties of systemness.

The criteria and the types The next step is to specify the typology to be worked with here and the criteria it is based upon. The dichotomous and in that sense simple typologies of organized versus liberal (Hilferding in the 1920s), Rhineland versus Anglo-Saxon (Albert), stakeholder versus shareholder (Hutton), liberal versus coordinated capitalism (Hall and Soskice) as well as similar ones have already been touched upon on previous pages. Simplification is a very important device for typologies, but they also have to come to terms with fundamental differences. The difference between liberal and non-liberal or, to be precise, embedded liberal capitalism – embedded in regulatory frameworks that for stakeholder rights and social or whatever ends restrict the free use of productive private property and limit the operation of the market – is a fundamental difference, at the heart of all typologies mentioned. And there are more, particularly quantitative, indicators of this difference than of anyone between embedded varieties. Therefore, we will often have to address it in this book. The liberal–non-liberal difference is also the divide that marks a politico-ideological cleavage: political forces are pro-market or they are just for more non-market regulation and, for example social democratic or conservative, embeddedness. Much political struggle, e.g. in the EU, has been about this. And politico-economic change in recent years most often meant change from embedded into the direction of liberal capitalism. The dichotomous typologies referred to reflect this. Since the liberal–embedded-liberal dichotomy is so important for understanding current processes of change it will receive adequate attention in the following chapters – attention facilitated by the large amount of empirical material indicating differences on the axis between its poles. An appropriate typology also needs to cover fundamental differences between embedded capitalisms, however. The superficial evidence presented at the start of this chapter indicates that it would be wrong to consider the French, German, Greek, Italian, Swiss and Scandinavian political economies, to take a few European examples, as similarly


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coordinated but the British as liberal and therefore different. They all differ from each other in much more than marginal details and the distances between France and Denmark or Germany and Italy might be as large or larger than those between Denmark or Switzerland and Britain. We are not able exactly to measure such distances, but dichotomous typologies of capitalist varieties presenting too simplified view. We have to look for non-dichotomous typologies. In geographic terms they have been presented by for example Rhodes and Apeldoorn (1997) pointing to Anglo-Saxon (as well as Irish), Germanic and Latin forms of capitalism and by Ebbinghaus (1999) who distinguishes Anglo-Saxon, Nordic, Central and Southern European types. Such typologies classify countries and are based on similarities between them, but they tend to be inherently static since a switch from a southern to a Nordic position and vice versa is only a theoretical possibility. Imagine Greece becoming a Nordic capitalism and Finland a southern one: what would be the meaning of these types then? And in an ideal-type typology: can a country move on the axis between Nordic and southern types? Even more confused is the situation when a typology consists of both geographic and materially circumscribed types. Such a typology is offered by Amable (2003: 173ff) who distinguishes liberal, Asian, continental European, social democratic and Mediterranean types of, what in French regulation theory is called, ‘social systems of innovation and production’ (and which is roughly the same as a variety of capitalism). What is required is a materially defined non-dichotomous typology. The already discussed variant of the varieties of capitalism theory presenting an additional ‘mixed’ type does not meet this requirement. A more serious candidate is the typology put forward by Boyer (2004: 13f; cf. Hollingsworth and Boyer 1997) who draws distinctions between four social systems of innovation and production: market-based, social democratic, statist and meso-corporatist the latter of which pointing to the cooperation of labour and capital within (large) companies as well as between companies in different branches as it exists in East Asian countries. In articles preceding his 2003 book Amable worked with a similar typology preferring a type of ‘European integration/public’ above that of statism (e.g. 2000: 671ff). These authors again, however, work with classifications instead of ideal-type typologies. Amable (2003) for example subsumes the usual Anglo-Saxon countries under ‘liberal’, Japan and Korea under ‘Asian’, Greece, Italy, Portugal and Spain under ‘Mediterranean’, Scandinavia under ‘social democratic’ and the remaining West-European countries of Austria, the Benelux, France, Germany, Switzerland, but also Ireland under ‘continental European’. Perhaps

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there are good empirical reasons for putting together these groupings, but the last one presents a very remarkable mélange! Everything critically to be said against this has been said on previous pages. The typology with market-based, social democratic, statist and mesocorporatist types is one that could serve as a basis for further elaboration. Perhaps the types have to be termed somewhat differently and have to be put into an ideal-type frame. Embedded liberal capitalism is divided into three types and there is attention for Asian peculiarities. For obvious reasons this attention is absent in Vivien Schmidt’s typology of European varieties of capitalism (2002: 107ff). Similar to Boyer she distinguishes market capitalism, state capitalism and managed capitalism. State capitalism is of course also some sort of managed capitalism and the latter could also have been called corporatist since it is in corporatism that ‘economic actors (. . .) operate cooperatively and (. . .) co-ordinate the direction of their activities with the state’ (ibid.: 108). What has to be stressed is that Schmidt, writing in terms of countries coming ‘close’ and ‘closest’ to the ideal types with no one ‘entirely fitting’, is the only prominent author presenting a non-dichotomous ideal type-based typology. So, putting the elements together, – we have a fundamental divide of liberal versus embedded (liberal) capitalism that is present in all typologies, – and from Boyer and Schmidt I propose to adopt three types of embedded capitalism: statist, social democratic/managed and mesocorporatist, which I would like to rename into statist, corporatist and, to avoid having the concept of corporarism twice in a row, group or meso-communitarian capitalism. The explication of this will follow soon. Before, we have to mention the criteria on the basis of which the types of capitalism have been determined. Up to now the selection of the four types just mentioned is only impression-based. It has to be theoretically underpinned and empirically made plausible that these types idealize politico-economic reality in a way that is useful for identifying fundamental differences and analysing changes. And we have to consider whether the criteria require one or the other type to be added. What are the criteria upon which the typology has to be based? This question has to be decided pragmatically because objective metacriteria for selecting the most appropriate criteria do not exist. The choice depends on what one wants to know. Everyone involved in


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the discussion seems to go for a comprehensive characterization of capitalist varieties, although this sometimes tends to collide with a firmcentred orientation. The very concept of varieties of capitalism indicates a macro-societal approach. The question is which criteria do define the macro-level character of capitalist varieties and by implication those aspects that can best indicate macro-level change. Remarkably, in the literature hardly any discussion takes place concerning the question of which criteria are most appropriate. Authors who explicitly mention their criteria (many typologies do not do that and are only descriptive) tend to simply proclaiming them. Hall and Soskice’s criteria (2001: 6) appear to be identical with the main institutional components or domains of capitalism they identify: industrial relations, corporate governance, inter-firm relations, employer–employee relations within firms, training and education systems, the level of social protection, product market regulation. The list of criteria Amable (2003: 173ff) presents (the character of product and labour markets, finance, welfare and education) is more limited, but not fundamentally different. In a somewhat older piece, Boyer and Hollingsworth (1997: 2) offered a very, if not extremely, broad catalogue of criteria including the firm-related ones as well as the macro-relationship between capital and labour, the ‘conceptions of fairness and justice’ held by them, the norms, rules and ‘receipts for action’ prevailing in a society, and the structure of the state and its policies. Schmidt (2002: 107f), by contrast, keeps it relatively simple and offers three criteria: (1) resembling Hall and Soskice’s ideas, the structure of business relations; (2) the relations between government and firms and labour; and (3) the relations between capital and labour. Taken together, the criteria put in these lists are pretty encompassing. Therefore, the question is not whether new criteria have to be added but rather which criteria or combination of them should be preferred and whether single criteria should be dropped. After all, we do not have to forget that a typology has to simplify diversity and that the number of criteria should be limited. The more criteria one uses, the greater the potential for variation and the more ideal types will have to be constructed – at least when capitalisms are understood as configurations of only loose complementarities and, partially, relative autonomous components. With this in mind, simplifying diversity (and avoiding too much arbitrariness) should mean to concentrate on politico-economic criteria and to select a few core criteria that point to fundamental and overarching features of capitalism distinguishing it from other politico-economic formations such a feudalism or state socialism. This meta-criterion is met by the relation between (wage) labour and

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(private) capital as well as by the relation between politics and the economy as largely separated entities. Given the salient character the liberal-embedded–liberal divide has with respect to politico-economic change a related second meta-criterion should be that the criteria can be described in these terms. If they can, I suppose, they could also be described in terms of the varieties of embedded capitalism. This is true for all criteria put forward by the authors mentioned, with the exception of training and education, and largely of the structure of the state. Neither specific nor general skills nor the training systems generating them are intrinsically liberal or non-liberal. And a much-decentralized state structure might be liberal under a civic point of view but could possibly undermine market liberalism because it could create extra barriers to the free movement of capital and expertise. A centralized state probably is, however, a condition of the statist variety of embedded capitalism. The remaining criteria of those referred to are industrial relations, corporate governance, inter-firm relations, employer–employee relations within firms, the level of social protection, the character of product markets, the prevailing economically relevant norms and conceptions of fairness and justice. Of these, industrial and intra-firm employer–employee relations can be subsumed under the overarching label of the capital–labour nexus while social protection as well as the character of product markets resort under the relation between politics and markets. Simultaneously they always express certain levels of commodification – for example, generous social protection is a stronger de-commodifyer than residual social protection. Corporate governance belongs to the capital – labour relation, although because of state regulation it might also resort under the overarching politics – market divide. Inter-firm relations should be dropped as defining criterion of varieties of capitalism because they do not belong to the elements of capitalism that define it as specific historical formation. The remaining question is whether we should follow Boyer and Hollingsworth, and give the status of a separate criterion to culture and ideologemes (values, conceptions of fairness; on the basis of Jameson, 1981: 185ff, ideologemes can be interpreted as the elements of ideologies). Are cultures and ideologies independent factors? The next question is what is meant by these concepts. Supposed that ideologies can easily be circumscribed as sets of values, conceptions of fairness and ideas of the best order of social arrangements (liberalism and conservatism are ideologies in this sense) the question is particularly how culture should be defined. Perhaps this is not more difficult than defining ideology, but the discussion has, as pointed out in the Introduction, become confused


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by the conceptual imperialism of the all-embracing new institutionalism (of e.g. North 1990, March and Olsen 1995 and Ostrom 1995) and by the restriction of the concept to attitudes representing values and studied by conducting surveys as in dominant use of the political culture concept in the tradition of Almond and Verba (1963). Just using common sense, the concept of culture means a way of life of groups or entire societies. This comprehensive meaning is reflected in the work of Thompson and colleagues (1990) who defined culture as the interconnected whole of patterns of interaction, collective norms and values, of which the first two elements – pointing to what is accepted as normal and involving structures of mutual expectations – are given more importance than the last one. Because of its comprehensiveness it is this definition, which allows for some overlap of the meaning of culture and ideology that I want to adopt. Now we can again pose the question whether ideology and culture are independent factors. The answer is both yes and no. Take for example political economies that structurally reveal high or, on the opposite, low levels of state interventionism. These political economies include political cultures where state interventionism and state reluctance respectively are considered ‘normal’ by a relevant majority – even if the norm is contested. Or take corporatist capital–labour relations that not only, by definition, involve negotiations in terms of the common interest but also a culture of consensualism. To take a final example, competitive individualism is indicated by the large number of elections (including primaries at various levels) and elected jobs, and the numerous awards one can go for or the sharp criteria in sports trials that is considered much more normal in the most liberal of all countries, the US, than anywhere else. It furthers a culture of risk-taking and a higher valuation of individual responsibility as well as an easier acceptance of inequality. Culture as a structural property pointing to patterns of interaction among citizens, but also, as in the examples, between organizations as well as between citizens and the state is inherent to many (or most) politico-economic relations (and other societal relations as well; we will come back to this in the next chapter). As integral part of social relations culture does not need to be mentioned as a separate criterion, however. Culture is only of possible interest as separate and truly independent criterion when it adds up to the relations under consideration. This is possible, because culture, wherever it has originated, can become a force of its own. This seems to be the case with clientelism. The pattern of interaction involved is that of hierarchical, yet mutual support, largely on an individual basis. A patron, who controls material, organizational

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or whatever important resources needs votes or certain services and a client wants to have a job (or a better job), for example, or a pension (cf. Brinkerhoff and Goldsmith 2002). Clientelism is pre-capitalist and gives capitalism a specific, often disturbing component. For conceptions of fairness and other ideologemes also holds that they are only independent criteria when they add up to the relations between capital and labour as well as state and economy. Higher or just lower than average levels of risk-taking and of individual independence are examples of cultural traits that are not natural aspects of whatever capitalist variety’s structural relations. Neither are their justifying ideologemes. Something similar can be said about social democratic or conservative conceptions of justice, for example, pointing to equality of social condition and to social harmony respectively. As said, in some cases culture and ideology add up to the relations-based criteria, sometimes they do not. One has to be cautious, however, because using the cultural/ideological criterion could threaten the maxim of simplicity. For this criterion would open the door for the construction of many types idealizing national cultural and ideological peculiarities. A compromise is to use this criterion for constructing ideal–typical sub-varieties of capitalism under the condition that cultural and ideological features bring about a significant divide between more than one country at each side (with only one country there would be the danger or creating too many sub-types). So, having discussed the criteria offered by the main strands of theorizing capitalist diversity we can conclude that the overarching criteria already mentioned, i.e. the relations between capital and labour and between politics and the economy, are sufficient to build up a typology of varieties of capitalism with possibly an additional role for culture and ideology. Summarizing the criteria look like this: I. The relationship between capital and labour. At the macro-level it involves the relationship between unions and employers and/or their associations and the degree of its formalization. At the micro-level the intra-firm relationship of management and employees. It is moreover involved in corporate governance (does any form of co-determination exist?) and connected to the relations between firms and investors as well as stakeholders and shareholders. II. The relation between politics and economy. It includes the welfare dimension (insurance against labour market and employment risks; taxing and the redistribution of income), employment protection, product–market regulation (including a large number of norms with


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regard to health and safety of goods and production processes), privatization/nationalization of companies or entire business sectors, the partial regulation of wages and profits, supply and demand, and, related to these aspects, the scope and character of economic policy. As a second-order criterion I want to add: • The cultural and ideological orientation of a political economy. This criter-

ion is about relatively stable or ‘core’ patterns of interaction, norms – what is considered ‘normal’ in a political economy – and ideological principles with respect to performance and distributional questions. These elements might justify the sub-division of types when more than one country is approaching either sub-type. The ideal types which have already mentioned a few times (liberal, statist, corporatist, meso-communitarian/group) and that, I think, are appropriate for analysing capitalist varieties have been constructed on the basis of these criteria. All four types reflect either a specific capital – labour relationship, a specific politics – economy relationship or both. They have been constructed by idealizing distinctive empirical realities in developed capitalist countries. These types are not much different from those presented by other authors (particularly by Robert Boyer – although he does not work with ideal types proper – and Vivien Schmidt) and separately each one points to well-known realities, but they are criteria-based and deliberately chosen. Put in a few words, the picture of the typology and of national political economies most approximating the ideal types are these: 1. The liberal type Ideal–typical liberal capitalism is the purely liberal variety where the market governs every aspect of the economy and facilitates unrestrictedly private property and the market politics – apart from regulations regarding health, human safety and partially the environment. Besides this facilitation and the provision of residual social security/welfare for transitional periods of sickness and ‘involuntary’ unemployment, the legal and infra-structural framework state interventionism is very limited, and the capital–labour relation is largely individualized and adversarial. Unions and employers’ associations are weak, and labour as well as companies highly commodified. Shareholders and private owners are the only stakeholders and the invisible

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hand of the market is believed to bring about the common good. National political economies most approximating this ideal type are, with considerable differences between e.g. the US and New Zealand, those of the Anglo-Saxon countries and, to a somewhat less extent, Ireland4 and Switzerland, but all other capitalist countries also feature strong liberal traits. Otherwise they would not be capitalist. 2. The statist type In this ideal type that is largely defined by the politics–market relationship, market regulation is restricted by political regulation that attempts to determine the overall direction of the economy. Shareholders and private owners are complemented by the state as prominent stakeholder. The latter is assumed to know best what the common interest is and therefore intervenes into the economy. Statism does not directly inform about the level of politically arranged welfare provision and the character of the capital–labour relationship, but since it ideal–typically tends to imply a hierarchical conception of politics and economy, a hierarchical organization of companies with limited rights for labour fits best in this context. The direct relation between capital and labour tends to be adversarial. Social democratic statism is not impossible, however. Leaving aside fascist capitalist regimes like Nazi-Germany, France has traditionally been the empirical political economy most approaching this ideal type, although statist features have also been strong in other European and East Asian countries. And even the most liberal political economies are statist to some degree. 3. The corporatist type This ideal type is first of all defined by the capital–labour relationship of institutionalized cooperation in a formal as well as informal sense. It consists of bargaining – at the level of peak organizations as well as of branches and large firms – about wages and work conditions and of negotiations about targets for long-term socio-economic development in terms of the common interest. Corporatist regulation partially corrects market regulation. When, as particularly in tri-partite corporatism, the state takes directly part or is integrated in the negotiations in some way, topics such as social security, health care and income inequality are also on the corporatist agenda. The commitment of the main socio-economic players to pragmatism, consensualism (as opposed to majority decisions) and the common interest, however contested it may be, is an underlying aspect of corporatism. Labour and politics are stakeholders in this system, and the former also has a voice in companies. Political economies most approximating this type


59

are the Scandinavian and Alpine ones and that of the Netherlands. Belgium and Germany also reveal strong corporatist features. 4. The group or meso-communitarian type As the liberal type this one is equally defined by both its capital–labour as well as its politics–economy relationship. The distinctive feature is the organization of companies and of company networks (bringing together industrial, financial and trade services firms) as groups or communities. Managers as well as workers are members óf and stakeholders ín these groups and expected to act cooperatively on behalf of the group’s common interest. For their employees the (larger) companies or business networks are not only employers but also welfare systems. State-organized social security is only supplementary, and apart of this and the provision of legal and infra-structural tasks the role of politics is restricted to enhance the competitiveness of national companies in international competition. This ideal type is most approximated in East Asian countries. Japan (Anchordoguy 2005) and South Korea are examples. Remember that the ideal types described are idealized realities. Empirical reality is not only mixed but crossed by power relations and is also less idyllic. With these remarks we do not yet close the pages on ideal types, however. Before, we still have to address the topic of sub-types on the basis of cultural and ideological criteria. Does their construction make sense? I think the answer has to be positive in at least two instances:

A clientelist sub-variety Clientelism is a hierarchical pattern of interation at the individual level (among individuals and groups and between state or party officials and citizens/groups) and has the form of a patron–client relationship. The bonds between them are founded on mutual advantage: the patron furnishes excludable resources (jobs, welfare benefits) to dependents and accomplices in return for their support and cooperation (votes, services; cf. Brinkerhoff and Goldsmith 2002: 3). Clientelist exchanges, for example in the field of welfare benefits or regarding the allocation of jobs, undermine competition and meritocratic principles and therefore the efficacy of the market and of general administrative rules in the distribution of money, goods and the better jobs. A small amount of clientelism is perhaps not even so bad because it can shortcut long bureaucratic procedures, but above this minimal level it has a disturbing

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impact on a political economy, and the stronger clientelism is the bigger this impact. Principly, clientelism can combine (and in historical perspective has combined) with political economies of all colours, but it has particularly been present in Mediterranean countries – many books have been written about Italian clientelism – and in the lower developed capitalisms of Latin America, Asia and Africa. Clientelism is akin to patrimonialism (which, in fact, is a variety of it) that will be touched upon in the next section when some attention will be given to emerging capitalisms as basis of additional ideal types. Social-democratic and conservative sub-varieties This is a distinction of sub-varieties of the statist and corporatist types of capitalism. In the social–democratic type equality in the form of equality of condition and the participation of labour in company decisionmaking is stressed while in the conservative type care by ‘the strong’ for ‘the weak’ and harmony are central values. The social democatic– conservative division is just as the liberal-embedded – liberal division one of political contest. Both may bring about generous welfare systems and redistribution, but in the conservative sub-type this is not necessarily the case. Of the strongly corporatist countries Scandinavia and continental varieties most approximate the two sides of this divide, while in the statist field French history is one social-democratization (as well as recently of liberalization). Because of the basic dichotomy of liberal and embedded capitalism it does not make sense to construct social democratic and conservative sub-types of liberal capitalism, and the group capitalist ideal type is not suitable for this sub-division because of its largely stateless character. It also makes no sense to construct a liberal sub-variety of statist and corporatist capitalism, but empirically corporatist or statist elements on the one hand and liberal elements on the other hand come of course together and constitute specific hybrids – simply because capitalism is always liberal to some degree. It is often said that Switzerland has a strong liberal component (Katzenstein 1985), and in some periods of Dutch politicoeconomic development liberalism has also played a prominent role while statism has joined corporatism in other periods. In Scandinavia, the latter combination has been important. And where Scandinavian corporatism has been tending into social democratic direction, Austrian, Dutch and Swiss corporatism has had stronger conservative traits. The same is true for Belgium and Germany, which also rank high on the corporatist index, although lower than the countries just mentioned.


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Emerging capitalisms as a basis for additional ideal types? The outlined typology attempts to cover the highly developed capitalist world and in its orientation it is predominantly western. The world is bigger, however, and capitalism has penetrated other parts of the world too. Do these other capitalisms – particularly those vastly emerging ones in Eastern Europe, Latin America as well as China and India – provide an empirical basis for the construction of additional ideal types? An ideal– typical capitalism labelled ‘emerging’, as Hancké et al. propose (2007: 4), conceals fundamental differences and is not so useful, but these authors are right in putting this topic on the agenda. It needs some specification, however. Do the political economies in post-communist Eastern Europe provide the empirical basis for a separate ideal type? To begin with, there are certain peculiarities such as the special position of the so-called oligarchs in Russia (cf. Menshikov 2007), who perhaps are a transitional phenomenon, however. Generally, the institutional structure of the relatively young east European capitalisms is more in a flux and less seasoned than that in western countries. Although state ownership is still considerable in many of these political economies and market capitalization rather low (Lane 2006: 23), the development that takes place seems to point into the direction of western types of capitalism. In the central European economies of the Czech Republic, Hungary, Poland, Slovakia the movement is towards (social) statist and, in Slovenia, corporatist varieties (Bohle and Greskovits 2007: 3–6), while in Russia and the other states that emerged out of the former Soviet Union change has got a, sometimes radical, liberal antecedent. Each of these countries might feature peculiarities, but it has to be repeated that a typology does not need to cover all peculiarities. With respect to the criteria as formulated here it is not easy, though not impossible, to detect something developing in Eastern Europe (including Russia) that does not suit into the space between the liberal, statist, corporatist and group/communitarian ideal types. Of the few contributions on the character of east European capitalism, Bohle and Greskovits (2007) stress that the forms of this capitalism do not fit into given typologies, but eventually they do no formulate any alternative. King (2007: 307), by contrast, who looks separately at employment, training and wage bargaining systems in Eastern Europe, talks of a type of ‘liberal dependent post-communist capitalism’. He is not specific on his criteria, however, and not consistent when he, at other places of his article (p. 309), says that Hungary is closer to the

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‘Mediterranean’ type of capitalism (whatever such a type may be) and that Putin’s Russia has evolved towards a patrimonial capitalism (p. 316). With the latter, a form of capitalism with an important role for political leadership is meant that is structured along the lines of patron–client relationships between political centre, local politicians and the top of business companies (see Brinkerhoff and Goldsmith 2002). Perhaps this is a fruitful hint. Clientelism has already been touched upon in the previous section and I have poposed to understand clientelist capitalism as a subvariety of the chosen four ideal types. If there is something special with patrimonialism that it qualifies for a separate ideal–typical variety of capitalism, then it must be that it is not just, as clientelism, a culture denoting relations – patterns of interaction – among individuals and between the state and individuals but that it involves a specific relationship between state and economy. Perhaps this is meant when capitalism with strong patrimonial traits is named ‘crony capitalism’, which in the Wikipedia is described as ‘an allegedly capitalist economy in which success in business depends on close relationships between businessmen and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth’. As clientelism, patrimonialism, however, undermines capitalism as an economic order based on private property and universal rules. The construction of a patrimonial ideal type of capitalism seems, at first sight, problematical therefore. That patrimonialism penetrates capitalism is a real possibility, however, and to different degrees it is an empirical fact in a large number of countries. This is not only true for Eastern European, particularly Russian, political economies. It has also been put forward with regard to the Chinese political economy. Its patrimonialism is a recurring theme. The country is an authoritarian regime, about 35 per cent of employees work in state-owned companies (early 2000s; Nee and Opper 2007: 99) and ‘political capital’, that is good connections of CEOs with governments at central as well as regional levels and preferably their membership in the communist party CCP, is an important ingredient of corporate governance. Moreover, hinterland regions are bulwarks of corruption (ibid. 108f and 98). With the exception of the existence of a ruling communist party in a market economy this is not yet special, however. The special thing, according to Nee and Opper, is not even the direct interference of the state into the economy. Special are the absence of legal limits to this interference and generally the weakness of the legal system, which is still not independent of the CCP (p. 106). Fitting into this is


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that banks cannot conduct independent loan decisions (p. 110). These features make the authors call Chinese capitalism a ‘politicized capitalism, where state actors set the regulatory framework and remain directly involved in guiding transactions at the firm level’ (p. 93). This case with its ‘absence of clearly defined state–firm boundaries’ is perhaps a viable basis for constructing an ideal type of patrimonial, ‘politicized’ capitalism. The relationship between state and economy, one of the two main criteria to construct ideal–typical capitalisms, is clearly affected in a particular way. It is obviously the state–economy nexus of an embedded capitalism, but different from those in statist, corporatist or communitarian varieties. A patrimonial–politicized ideal– typical variety of capitalism would be one with a non-capitalist component. For capitalism involves the presence of clearly defined state-firm boundaries that in this type would be absent. We cannot ignore, however, that capitalism originates out of a non-capitalist past and that the emerging capitalist countries host a large part of the world’s population. Therefore, one could argue that it makes sense to construct ideal types reflecting this reality. Patrimonial–politicized capitalism is a possible candidate then and it is not only China approximating it to some degree, but also Russia – probably to a lesser extent – and other countries. Before specifying patrimonial–politicized capitalism as an ideal-type more comparative research is required, however. Isn’t it sufficient to locate cases such as the Chinese one somewhere in the vicinity of the clientelist subvariety? I will address emerging political economies at most marginally in this book, but these questions deserve serious discussion. Latin American capitalism is, as has especially been put forward by Ben Schneider in recent years, another case deserving attention as possible empirical basis for the construction of a particular ideal–typical variety of capitalism. As is probably well known, Latin America is also a host of strong clientelism and partially patrimonial relations (Brinkerhoff and Goldsmith 2002). Peculiar however is, according to Schneider, the hierarchical character of the capital–labour relationship within firms, a relationship facilitated by business associations and reinforced by national governments and labour courts (Schneider 2007: 3f, 18). This is a reason for him to name Latin American capitalism a hierarchical market economy (HME). Related features he considers are the high percentage of family-owned companies, an atomized labour force and the relatively weak unions, the low education level of workers and their short-term linkages to firms (three years is the average job turnover). One can cast doubt on the nexus of these elements to hierarchy, point to the diversity within Latin America (Bolivia, for example, is different from Argentina),

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but this does not matter for the construction of an ideal type. When it could be sustained in comparison to statist and liberal cases that withinfirm hierarchy has a particular character in some, not even necessarily Latin American, countries then the construction of an ideal type of the hierarchical market economy would make sense. This also needs more discussion, however. So, at the moment we still have the four ideal types of capitalism plus the three sub-types presented in the previous section. Two more possible candidates have been discussed here. Figure 3.2 presents the four-type typology as a graph with space for drawing locations of empirical capitalisms as specific mixtures of the ideal types. Corporatist

Statist

Liberal

Group Note: ∗ By the longer liberal axis, the figure takes into account the basically liberal nature of capitalism. At the point of intersection the value is zero for each direction.

Figure 3.2 Imaginary cases in the four-directional typology most approximating the liberal, corporatist, statist and group type of capitalism respectively∗

In Figure 3.2 such mixes are plotted of imaginary cases being strongly liberal, statist, corporatist and group/meso communitarian. At the point of intersection of the lines the value is zero for each direction, which means that there is neither a continuum from liberal to statist nor from corporatist to group (with three or five ideal types this would directly


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be visible). The axis representing the liberal direction is longer than the three other ones because it has to illustrate that even the least liberal capitalism is still to a considerable degree liberal. Capitalism is liberal by definition. Capitalism is also statist by definition, but basic statism is conditional (the law, public order, money) and historically, territorial states with a power centre were conditional for the emergence of capitalism – even for its most liberal variety. Therefore, basic statism does not need to be taken into account in the figure. Related to the continuum between liberal and embedded the values add up: a country cannot be strongly liberal and strongly statist (leaving apart basic statism) at the same time, but because of their partial overlap high corporatist and high statist values can coincide. Technically this figure is limited to the illustration of not too many countries at once, but principally it is suitable for illustrating the change empirical political economies undergo between two or more historical moments. The next step is to concentrate on cases, to analyse which countries reveal what mixes of types and to investigate whether it is possible to locate the cases with some precision on the axes and in the space between the ideal–typical varieties of capitalism. First, I want to address these questions with respect to the dichotomous liberal–embedded liberal divide, second with respect to the four-directional typology. The final section of the next chapter will point to and selectively illustrate the resemblance of the character of political economies and democracies within countries. Regularly, a strongly corporatist capitalism is joined by a democracy with an important role for institutionalized bargaining, and a capitalism with strong statist ingredients is accompanied by a democracy also revealing a considerable degree of statism.

4 Typologies, Cases and Historical Constellations

We are informed from all sources that the political economies in the Anglo-Saxon world most approximate the liberal type, that statist and corporatist capitalism are strong in a number of continental European countries, that the group/meso-communitarian type is most approximated in East Asia, e.g. in Japan and South Korea, and that some national capitalisms – Italy, Greece, Japan – still feature a considerable, pre-capitalist, component of clientelism and perhaps patrimonialism. Less is known, however, about the differences between the national political economies approximating one or the other ideal type. This is the topic we will now turn to. In this chapter, where cases will receive more attention than types, we also have to ask whether and how these differences and the approximations to the ideal types can be quantified. Quantification is involved in descriptions whenever words like ‘more’ and ‘higher’ are used. The question is whether more precision is possible. As said, it is easier to differentiate between liberal and embedded capitalisms than between varieties of the latter that often overlap and are more difficult to illustrate. Therefore, we will begin with the easier step. And since making distinctions in a context of change where differences of 1980 are not necessarily the same as those of 2000 we have to fix one period as point of comparison. In this chapter this period will be the years from the late 1990s to 2005, a spread that is a result of the fact that not all data are available for every year. A difference of about 5 years between the most recent and the ‘oldest’ data should be acceptable, however, and the year for every indicator distinguishing countries will be, apart of a very few slight exceptions, the same for each of them.

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Typologies, Cases and Historical Constellations 67

Cases on the liberal versus embedded liberal continuum The role of the market is central to the liberal–embedded distinction by its positive stress in the former case and its critical acceptance in the latter. As the first indicator of this distinction we can take the levels of labour market and product market protection/regulation in the late 1990s. In Figure 4.1 we see that, in the late 1990s, the Anglo-Saxon countries (and Ireland) are indeed those with the least protection and the ‘freest’ market, although in terms of product market regulation the difference with Japan and most of the highly developed political economies on the European continent is much smaller than the differences in terms of labour market protection. Differences between individual countries are also significant. Taking together the two indicators the UK and the US appear to be considerably more liberal than Canada and New Zealand (with Ireland and Australia in-between), while Denmark approximates the least liberal Anglo-Saxon countries (with respect to employment protection this

3.5 Spain

Overall employment protection

3

France Norway

2.5 Germany

Sweden

Finland

2

Japan

Belgium Netherlands

Austria

Italy

New Zealand Denmark

1.5

Australia Ireland

1

Switzerland

Canada UK

0.5 US

0 0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Product market regulation Source: OECD 2004b: 117 (Table 2.A2.4) and Conway et al. 2005: 59.

Figure 4.1 Strictness of employment protection and product market regulation in 2003 on a scale from 0 to 6

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is also true for Switzerland). France, Italy and Norway, by contrast, are strongly represented in the upper regions of protection, and these countries’ distance to (particularly) Denmark, but also Finland, the Netherlands, Austria and Sweden is roughly as big as the latter group’s distance to the group of Ireland, Australia, New Zealand and Canada. The Anglo-Saxons are more liberal, but on the whole the picture is rather one of gradual differences from liberal to embedded/non-liberal than of a clear divide between two groups of countries. Looking at Table 4.1 the conclusion has to be similar. Taking the income replacement rate in case of unemployment in 2004 (in Australia, Canada and New Zealand unemployment benefits in the strict sense as different from social assistance do not exist) we see the initial rates being less different than one might perhaps expect. In the Anglo-Saxon countries they are significantly lower, but still at a level of about 50 per cent (up to a ceiling) or more of the previously earned income of a constructed average unemployed. A dissonant feature is that Italian initial benefits also have a comparatively low level. In the case of the duration of unemployment benefits the differences are bigger but they do not always coincide with a demarcation of more liberal versus more embedded political economies. In the UK and US benefit duration is short, but this is also true in Austria, Italy, Japan and, somewhat less, Germany. It is a surprise, then, that the differences after 60 months of unemployment in most countries still resemble the initial ones. Supplemented by general income assistance, housing assistance and things like heat assistance the benefit percentages are nearly as high as the initial replacement rates.1 Fitting strongest into a liberal pattern, these supplements are lower in the US and so the US-rate after 60 months is much lower than the initial rate. The latter is also true for Italy – high labour market and product market protection, yet low unemployment protection – which is the most deviant case; not because of its liberalism in this aspect, but because of its generally somewhat archaic, family-relying, welfare system. In the less liberal countries of Austria, France and Norway the rate is somewhat lower after 60 months and approximates those of Britain and New Zealand. Conversely Ireland, where the rate after 60 months is higher than the initial one, is in the same league as Belgium, Finland, Germany, the Netherlands and Sweden. Considering the collective bargaining coverage the picture is less diverse, however. With the exception of Switzerland (40 per cent), all continental West European political economies and Ireland have a coverage rate of at least 70 (Germany 68) per cent, while that of the US is only 14 per cent and that of Australia, New Zealand and Britain about 30 per cent. The Japanese rate is also very

Table 4.1

Indicators of market orientation and embeddedness

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands NewZealand Norway Spain Sweden Switzerland UK US

AIUIRR 2004

MDoUB 2004

UIRR60M 2004

Temporary work 2004, % total employment

CBC ca. 2000

Tax receipts 2004 (% GDP)

State expenditures 2006 (% GDP)

Total market capitalization 2002

45 63 61 63 70 70 75 69 49 54 62 74 56 68 67 75 77 54 54

0 9 No limit 0 48 23 23 12 15 6 8 24 0 36 21 28 24 6 6

46 57 61 48 70 65 57 66 64 22 48 66 54 58 49 63 69 53 36

26.4 (1998) 8.9 8.7 12.8 9.8 16.2 12.3 12.2 3.4 11.9 13.9 14.6 – 9.9 30.4 15.1 12.3 5.7 4.0

80 95 90 32 80 90 90 68 70 80 15 80 25 70 80 90 40 30 14

31.2 42.6 45.0 33.5 48.8 44.2 43.4 34.7 30.1 41.1 26.4 37.5 35.6 44.0 34.8 50.4 29.2 36.0 25.5

34.4 49.2 49.0 39.9 51.4 48.6 53.4 45.7 34.4 50.1 38.1 46.7 38.1 40.5 38.5 55.6 36.3 45.0 36.6

93 16 52 81 44 106 68 35 49 40 53 97 37 35 71 74 207 119 106

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Notes: AIUIRR = Average initial unemployment income replacement rate; MDoUB = Maximal duration of unemployment benefits; UIRR60M = (Average) unemployment income replacement rate after 60 months; CBC = collective bargaining coverage. Sources: Columns 1–3: OECD 2006a: 60; column 4: OECD Database (for Australia Campbell and Burgess 2001: 173); column 5 OECD 2004b: 145 (for Ireland in 1995: Dice Report 2001: 2); columns 6–7: OECD 2007c: 56ff; column 8: Höpner 2005: table 1.

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low, which is caused by the low number of unions and employers’ associations operating and bargaining nationwide, but which is not related to any strength of liberalism in that country. Companies and agglomerations of companies are the foremost units of action in Japan. An equalizer is temporary work. In political economies with high employment protection for regular work it seems to be an alterantive route to flexibility (and to the commodification of labour). As a consequence it is high there and low in countries with a relaxed labour market – though with special circumstances Australia, Canada and Switzerland (the latter two countries employing many cross-border workers) do not fit into this picture.2 Overall, the US crystallizes out as the most liberal country, Ireland as a more embedded one than its liberal image suggests and Switzerland as a clearly less embedded political economy than those of its neighbours and Scandinavia. Regarding Switzerland and the US the columns on tax receipts and state expenditures confirm this pattern. The assumption is that the higher these values are, particularly public expenditures (states regularly run into budget deficits and taxes are not their only income), the more politics intervenes into the economy. The US again scores very low (despite its very high military expenditures), and the other Anglo-Saxon countries (except Great Britain), Ireland and Spain also have low scores (the same is true for largely meso-communitarian Japan where neither liberal nor statist features are worth mentioning). As said, it is not true for the UK, which is rather comparable to Germany. Total market capitalization, i.e. the total share value of listed companies in per cent of GDP, is the final criterion. It indicates, apart from the ups and downs of the stock market cycle, the extent to which companies themselves have become commodified and also the relevance of ‘shareholder value’. The low level of capitalization in Austria, Germany, Italy and Norway is remarkable, but even more remarkable is the low level in Ireland, that again does not fit into an outspoken liberal pattern, and New Zealand as well as the high level in Finland (Nokia-land) and the Netherlands. Finally, Switzerland shows an extremely high market capitalization, which partially could be explained by the many international listings at the Swiss stock market. On the basis of the preceding considerations we can very carefully try very roughly to quantify the differences between the national political economies in terms of liberal versus embedded-liberal. Our languages are full of quantifications, but we have to be very carefully with them and results of measurement can only be very rough because quantification of qualitative entities is a tricky affair that is always arbitrary to some


extent, a point we will return to in a moment. The method I am using here is: (a) to determine seven criteria by taking the 10 indicators of Figure 4.1 and Table 4.1, merging the three unemployment replacement indicators to one indicator and dropping the one on taxes because its message is not fundamentally different from that on expenditures, (b) constructing a five-level scale that for every criterion runs from very low over low, intermediate and high to very high and attaching 1 point to every level (½ point in the case of temporary work; see note 2), (c) and to give 6 points extra to every national political economy because capitalism is basically liberal. The result is shown in Table 4.2. This method is arbitrary by not specifically weighing each of the criteria (is there any good reason, except pragmatism, to attach the same number of points to most criteria?) and by excluding criteria such as tax progression, employee influence in companies, the level of financial market regulation, company protection/the protection of the board and of minority shareholders (against hostile takeovers),3 the level of infra-structure privatization, the relevance of meritocratic versus seniority-based payment and the average time and cost required to open a business.4 The (cautious) assumption is that these criteria would not dramatically change the picture since in most cases the critical features of a political economy appear to come out of the same quiver.5 The collected data can provide, therefore, a first, but nothing more than rough indication of differences between national political economies at stake here. By and large the result fits into the well-known images, although they might also contain surprises. The picture as a whole is that of a continuum. A few countries deviate somewhat from these images, particularly Ireland and Switzerland, but also Denmark that in this account does not much differ from its Scandinavian neighbours. Given the imprecision of the figures it makes sense to reduce the number of the divisions and to aggregate the countries into groups by using the values of 18.5, 21, 23.5, 26, 28.5 and 31 points as demarcation lines (the minimum and maximum number of points of the scale are 13, = 6 + 7 × 1, and 39 points, = 6 + 6× 5 + 3, respectively). The US as the most liberal economy forms a separate group, the next is filled by usual suspects from Australia, the UK and Canada, but also by Switzerland,

Extent of market/liberal orientation (the capital letters indicate liberalism scores)

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands NewZealand Norway Spain Sweden Switzerland UK US

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Table 4.2

Employment protection

Product market regulation

Unemployment benefits + benefit duration

Extent of temporary Work6

Collective bargaining coverage

Public expenditures

Total market capitalization

Quantitative impression∗

H L I H H/I I L L H L L L H L L L H vH vH

H I L I I I vL I H vL I I I vL I I L H H

H/I I L H/I vL/L L/I L/I I I L/I∗∗ L/I∗∗ L/I H/I I/L I L L/I H/I H/I

H I I H I H H H vL H H H 2.0 I vH H H L L

L vL L H L L L L L L L/I∗∗ L H L L L I H vH

H L L H L L L I H L L/I∗∗ I H I H L H I/L H

H vL L I L H I L L L L/I H L L I I vH H H

30.0 20.0 21.0 30.0 22.0 25.0 21.0 23.5 26.0 19.0 23.5 25.0 28.5 20.5 26.0 22.5 29.0 30.5 33.0

Notes: ∗ The QI is constructed by attaching points to the 7 values: from 1 for very low (vL) over low, intermediate and high to 5 points for very high (vH). 6 points are added for the basically liberal character of any capitalism. ∗∗ These Italian and Japanese scores are positioned at L/I because these countries’ corresponding values in Table 4.1 do not represent a highly liberal orientation


followed by New Zealand. Subsequently we have Finland, Ireland, the Netherlands and Spain, then Denmark, Germany, Japan as well as Sweden and finally the least liberal group of Austria, Belgium, France Italy and Norway. In Figure 4.2 these groups are located on the axis between ideal types of liberal and embedded capitalism. (39) Liberal

US

Aus, CH Can, UK

NZ

Fin, Ire DK, Ger NL, Esp J, S

A, B, F It, N

(13) Embedded

Figure 4.2 Location of aggregates of political economies on the axes between the dichotomous ideal types of liberal and embedded (liberal) capitalism

Figure 4.2, I want to repeat, provides nothing more than an impression, although substantiated, of the differences between countries on the embedded–liberal scale. It does not want to suggest precision. This is one aspect where it deviates from the factor analysis-based coordination index for the mid-1990s constructed by Hall and Gingerich (2004; cf. Table 4.3) who look for similar though not identical differences. These authors (ibid.: 11) use six criteria reflecting their firm-centered approach – (a) shareholder power; (b) dispersion of control; (c) size of the stock market; (d) level of wage coordination; (e) degree of wage coordination; (f) labour turnover.7 They do not distinguish ideal types and cases and present two countries that are, according to their calculations, as pure as ideal types: the US as totally uncoordinated by any other force except the maket – and Austria as totally coordinated by non-market forces; by inference, it is not a market economy at all in their statistical account. If we ignore these fundamental differences, their results however are not totally different from those presented in Table 4.2 and Figure 4.2. Generally, national differences are larger in the Hall/Gingerich index (temporary work does not belong to their criteria) and cases separately worth mentioning are Germany that in my calculation is considerably more liberal and Ireland that is less 50 – although this does not imply that it is more ‘coordinated’. A somewhat different picture with Ireland as the most liberal (or in this case economically free) country arises from the Index of Economic Freedom as compiled by the Heritage Foundation and Dow Jones & Company (Holmes, et al. 2008). The advantage of this index is that the overall differences between the developed political economies are not as large as in that of Hall and Gingerich. Implicitly it seems to take into account that all capitalist countries are basically liberal. This index is based on ten equally weighted criteria, scales the countries from 0 to 100 points, and the overall scores are the averages of the scores per criterion (see the

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Table 4.3 Alternative scales: coordination index (mid-1990s), economic freedom index (2008) and private equity environment rankings (2007)

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway Portugal Spain Sweden Switzerland UK USA

Coordination index of Hall/ Gingerich (scale 0–1)

Economic freedom index (scale 1–100)

Private equity environment (−10–10)

0.36 1.00 0.74 0.13 0.70 0.72 0.69 0.95 0.29 0.87 0.74 0.66 0.21 0.76 0.72 0.57 0.69 0.51 0.07 0.00

82.0 70.0 71.5 80.2 79.2 74.8 65.4 71.2 82.4 62.5 72.5 76.8 80.2 69.0 64.3 69.7 70.4 79.7 79.5 80.6

3.1 1.5 1.1 4.4 3.8 2.6 1.4 1.9 3.1 −2.5 −1.7 2.6 2.0 1.9 −0.3 −1.0 3.8 3.8 4.8 6.4

Overall environment for private enterprise 1 16 14 10 3 5 11 11 13 27 18 7 4 15 19 20 9 6 8 2

Sources: Hall and Gingerich 2004: 14; Holmes, et al. 2008; Apax/EIU 2008: 12f.

scores in Table 4.3). The criteria are: business, trade and fiscal freedom, government size, monetary, investment and financial freedom, property rights, freedom from corruption and labour freedom. While the spread within the group of countries considered here is relatively small (or absent) for most criteria it is considerable in the cases of labour and fiscal freedom and huge in that of government size. The most remarkable datails of the freedom index are perhaps that the US is not revealing the highest overall score and that not the US, but Denmark has the most free labour market (the Danish one is almost totally unrestricted with 99.9 points against 92.3 points in the US; most other countries discussed here have scores between 55 and 70 points). In government size Denmark scores low with 19.8 points (the Swedish score is even 3.9, the French 13.2), while the US-score is 59.8 and that of Ireland and the other Anglo-Saxon countries is above 60 points, except


that of the UK (40.1 points; most points go to Hong Kong: 93.1). The selection of criteria, their weighing, and sometimes even the way scores are calculated is never completely free of ideological points of view, but in the case of the index of economic freedom the ideological influence seems to be so strong (the state and taxes as bad things) that its scores have a very special colour. Table 4.4 indices)

Embeddedness score and corporatism index (based on 13 different

Embeddedness score (39 minus liberal (score in Table 4.2) Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway Spain Sweden Switzerland UK USA

9.0 20.0 19.0 9.0 17.0 14.0 18.0 15.5 14.0 20.0 15.5 14.0 10.5 18.5 13.0 16.5 10.0 8.5 6.0

Siaroff’s average corporatism score (scale 1 to 5; mid-1990s) 1.688 5.000 2.840 1.150 3.545 3.295 1.674 3.543 2.000 1.477 2.912 4.000 1.955 4.864 1.250 4.674 3.375 1.652 1.150

Source: (corporatism score): Siaroff 1999: 185.

Finally, a look at the private equity environment rankings again shows a somewhat different picture. The ranking resembles the other ones presented here, but the overall scores differ considerably, with huge gaps between the Anglo-Saxon (particularly the US) and Scandinavian countries on the one hand and the Latin countries and Japan on the other. The six criteria used in these ranking are the overall environment for private enterprise (it is separately presented in Table 4.4 and relates, among other things, to the judicial system, property rights, the levels of corruption, red tape and state control), financing enviroment (market capitalization, interest rates, quality of regulatory system), legal and

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policy environment (culture and laws regarding private equity, corporate taxes, takeover regulation), entrepreneurial environment (cultural attitudes towards private enterprise, income taxes, government regulation of setting up new firms), market opportunities (GDP level, quality of management, skills of the work force) and risk (economically, politically, with respect to currency matters). Overall, the inclusion of criteria such as collective bargaining coverage and unemployment benefits (as in Table 4.2) appears to make a crucial difference. If they are excluded (as in Table 4.3), the inroad of Scandinavia (and, as was already known, Switzerland) into fields of the liberal domain is remarkable. In such cases, the differences between these countries and Ireland and New Zealand largely deminish. Remarkable is also the considerable distance between the Anglo-Saxon and Scandinavian countries on the one hand and the Mediterranean ones on the other – those societies that moreover reveal relatively strong clientelist features (Greece could be added here). And the special position of the US is still worth mentioning.

Locating cases in the four-directional typology: exploratory considerations We have to go further than Hall and Gingerich have gone and further than figure 4.2, however. This figure (and Table 4.2 at its basis) only presents the first, still dichotomous, step in the attempt to locate political economies in a four-dimensional typology. The location of national political economies in the field that divides embedded capitalism into the three ideal types of statist, corporatist and group capitalism is the second step we now turn to. Reversing the data of Table 4.3 we can say that political economies are embedded, i.e. either corporatist and/or statist or meso-communitarian, to the degree they are not liberal (see Table 4.4). The specification of this is more difficult than the previous step because locating countries in the field of embedded capitalism is not only a task of determining locations on a continuum. It is a question of essential differences. There are a few clear institutional indicators of these differences, but not so many characteristics that indirectly indicate them in an unequivocal way like those in Tables 4.1 and 4.2; and quantitative indicators are scarce. Because quantified data are availably we should start with the corporatist variety and the corporatism index of indices drawn by Siaroff (1999). His index is calculated on the basis of the indices of several


authors and adopted in Table 4.4. He uses 22 criteria, i.e. the level of unionization, the dominance of export companies, the degree of centralized wage bargaining, the existence and power of workers councils, the centralization of the state, the role of capital and labour in social policy, the degree of consensualism in bargaining processes and the relevance of long-term orientations. The higher these values are the more corporatist a country is. Some of Siaroff’s criteria, for example the level of unionization (isn’t the broad acceptance of a macro-economic role of the unions more important?) might be very debatable, in need of further specification (only directly centralized wage bargaining?) or simply referring to empirical facts in strongly corporatist political economies, e.g. the dominance of large export-oriented companies (Austria and Denmark do not have large companies). Other criteria such as the macro-orientation of corporatism, are missing (which brings about a high corporatism score for largely meso-oriented Japan). And just like the Hall–Gingerich coordination index Siaroff’s corporatism index does not distinguish ideal types from empirical cases; resembling Hall–Gingerich’s maximum coordination score Austria is perfectly corporatist. And with all the problems related to it, this index quantifies complex qualities such as consensualism, state centralism and the power of workers councils. Nonetheless, Siaroff’s index of indices might very roughly indicate to what degree embedded capitalisms are corporatist (because they include ideal–typical (Austria) and nearly ideal–typical (Norway) cases, his scores cannot be made compatible to the embeddedness scores). What about statist and group or meso-communitarian capitalism? While Siaroff in 1999 could summarize 13 comparative investigations on corporatism (in the meantime some more studies have appeared; see e.g. Kenworthy 2003), such investigations have barely been done on statism and meso-communitarianism. The main reason is probably that these types have not generally been accepted in CPE and that no research traditions of comparatively covering approximating empirical cases have developed. There have been many publications on the statist aspects of the French political economy and on the peculiarities of Japanese capitalism (those of Ronald Dore stand out), but comparatively we have to start more or less from scratch.8 In the context of a book that does not concentrate on this subject, nothing more than a first step can be made. The task is complicated by the fact that corporatism and statism, both featuring a macro-orientation, may add up to some degree, which means that, as was already indicated in Figure 3.2, political economies can have

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both strong corporatist and strong statist characteristics – once more reflecting the hybrid character of empirical cases. An example would be a tripartite corporatism where the state component is particularly stressed (as in the Netherlands of the 1950s and early 1960s; cf. Windmuller 1969; Hendriks 2004). Meso-communitarianism, by contrast, stands largely apart by its meso-orientation, and cases approximating this type of embedded capitalism will only overlap marginally with corporatism and statism and cases approximating corporatism and/or statism will only include a marginal ‘group’ component. An opening to (some) more precision might be offered by logical inference: to the degree that they are not liberal, political economies are corporatist, statist or meso-communitarian. Since the latter is fundamentally different from (but not completely incompatible with) the former two and since these can considerably overlap the logical conclusion must be that to the degree political economies are not liberal they are predominantly corporatist and/or statist or meso-communitarian – though a slight overlap is possible. Strongly statist/corporatist (as well as strongly liberal) political economies might be a bit meso-communitarian and vice versa – the important role of the Japanese state (as well of South Korea and other ‘Tiger Economies’) has already been noted. The task, therefore, is not only to determine to what degree political economies are corporatist, statist and meso-communitarian but also to what extent they overlap. For this operation we do not have the required data, however. So, we can only infer the following four constellations (for the moment leaving apart intermediate cases): 1. Low embeddedness = high liberal score, some statism + low corporatism and perhaps some meso-communitarianism. 2. High embeddedness and high corporatism score = high corporatism + perhaps some meso-communitarianism + unspecified statism. 3. High embeddedness and low corporatism score in western countries = high statism + perhaps some meso-communitarianism. 4. High embeddedness and low corporatism score in east Asian countries = high meso-communitarianism + some unspecified statism and perhaps some corporatism. Based on this and distinguishing between strongly tripartite corporatism (with a main role for the state as in Austria and the Netherlands) and weak tripartite or bipartite corporatism (with a restricted role of the state as in Denmark and Switzerland) we can construct Table 4.5.

Typologies, Cases and Historical Constellations 79 Table 4.5

Rough country scores on the dimensions of the four ideal types

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands NewZealand Norway Spain Sweden Switzerland UK USA

Liberal

Statist

Corporatist

Meso-communitarian

H L L H L I L I I L L I H L I L I H VH

I H I I I I H I I H I H L H H I I I L

L VH I L H H L H L L L H L VH L H H L L

L L L L L L L L L L H L L L L L L L L

For more precision we need a compatible corporatism index, which is generated by a method of calculating scores that takes into account the difference between ideal types and cases. We also need criteria and, for a large number of countries, data for the determination of the levels of statism and meso-communitarianism. Before this enormous amount of work is done, we will not be able to plot positions of countries in the coordinates of Figure 3.2 with some precision. At this moment it is only possible to estimate these positions on the basis of the limited data available in Tables 4.2 and 4.4 and with the help of the rule of thumb of, I hope I can claim, a somewhat sophisticated sort.9 A rough result of this is shown in Table 4.5. With some more precision and only for six countries it is presented in Figure 4.3 (more countries would have made the figure indecipherable). As in Figure 3.2 the value of ideal–typical liberal capitalism is 39 points, which is 13 points more than the value of the other types. This difference stems from the 6 points given in advance for the basically liberal character of all capitalist varieties plus the 7 points a country minimally scored on the six criteria in Table 4.2 (so, the extra value assigned for the liberal character of all capitalisms is 1310 ).

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26 Corporatist

39 Liberal

26 Statist Netherlands France UK USA Japan Germany

26 Group

Figure 4.3 Estimated location of six political economies in the field between the ideal types of liberal, statist, corporatist and group capitalism in the late 1990s/early 2000s

What we can see in Figure 4.3 is not a spectacular new picture. The US is most liberal, followed by the UK, and the liberal scores of the other 4 countries are not very much different but relatively high because of the basically liberal character of all capitalisms. Japan is strongly mesocommunitarian, the other cases score low there (for the differences see note 9), and France (still) stands out for its statism. The most remarkable case, reflecting its liberal tradition, its impact of religion on politics and its etatization since the occupation by Napoleon in the early 19th century (Randeraad 1998), is perhaps the Netherlands with a relatively high score for liberalism and overlapping high scores for corporatism and statism (to a lesser degree this is also true for Germany). Compared to the Netherlands, Switzerland – the corporatism of which is rather bipartite – would score less in the statist direction but more in the liberal one. And if we would add New Zealand we would see a case with low scores for and little overlap between corporatism and statism. Neither Table 4.5 nor Figure 4.3 includes the differentiation in clientelist and social democratic versus conservative sub-types. It would require another dataset that is not yet available and one more transformation of quality into quantity. I will not do this here. Criteria


for clientelism could, among others, be the annually produced rankings of corruption, the size of the black economy, a measurement of oversized public employment (to take an example, Italian railways until recently employed much more workers than their comparable British, French or German counterparts; cf. Parisio 1999: 821) the number of pensions as compared to the number of pensioners (according to Ginsborg 1990: 290, the first number was twice as high than the latter in the southern half of Italy), the number of certain categories of welfare recipients in international comparison (for Italy, particularly the use of its disability pension, see Ferrera 1996: 21–6), the importance of family ties for getting things done, and surveys exploring the normality of patron–client relationships in various fields. With respect to the social democracy–conservatism divide we could think about election results, the dominance of social democratic or conservative parties over a longer period and at times of overall social, political and cultural change (as in the 1960s), the strength of labour unions, the influence of religion and church or religious traditions (that might even be strong in societies currently secularized to a large degree), social policies supporting economic activation and egalitarian principles or just paternalist policies where ‘the weak’ have to be assisted by ‘the strong’. And again, surveys would be an undispensible means to detect the normality and level of acceptance of either social democratic or conservative principles. In part this work has been done, for another part it has still to be carried out and all the aspects have to be put together. Not an easy task.

Measurement problems: the rule of thumb as good as sophisticated methods? When this task will have been fulfilled and after the requirements for more precision will have been met a broad coverage of topics and more precision will be possible, not precision however. It will still be particularly difficult to plot changing positions into figures such as 4.3. We have to be aware of a margin of imprecision of, as we can learn form the liberal–embedded continuum, 10 per cent or perhaps even 20 per cent. How then could we seriously claim to illustrate the start and finish lines of aggregate trajectories of change of less than 10 per cent? We will come back to this in Chapter 5. The question the measurement of change only illustrates the general difficulty of the social sciences with precision and precise measurement.

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The social sciences have, however, the obligation to be as exact as possible and to refine its measurment techniques as much as possible. This is simply because social scientists, particularly comparativists, very often produce statements with quantitative messages – and the media repeat them. One gets informed that the US is the most liberal, that the state is more interventionist in France than in most other countries, that the Scandinavien countries have the most ‘social’ political economies, that Danish employment protection is less rigid than in the other continental EU member states, that the US is most dynamic, that it is easier to start a company in Switzerland than in the Netherlands, that Finland is as innovative as the US, that the latter is more individualist than average European and East Asian societies, that the Netherlands and Scandinavia are most collectivist, that it is much more difficult to buy a Danish company than a British one and so on. We are quantifying all the time and sometimes our ‘mores’, ‘mosts’ and ‘highers’ are underpint by plain data, but often they are not. The measurement problems we are confronted with stem from: • The more or less arbitrary selection of criteria for the definition of the

item to be measured. To take an example, a liberal (or statist, corporatist or meso-communitarian) variety of capitalism can be defined by 6, 10 or 20 criteria and different mixes are also possible. No objective instance can tell us which criteria are the right ones. Something similar can be said about employment protection and many other politico-economic entities. • Imprecise statistics. Regularly, different publications present different data on, e.g. employment and GDP growth and sometimes this is even true for one and the same publication (as a comparison of the data presented in the main text of the OECD’s Employment Outlook with those in the statistical annex may illustrate). With unemployment the situation is even worse – even within the statistical annex. And generally, agencies such as the OECD annually revise their data. This means that the British employment rate of 2003 in the Employment Outlook of 2004 is (slightly) different from the one published in the Outlook of 2007. • Transformation of quality into quantity. This indicates a huge general problem of the social sciences and renders them almost by definition less precise than natural sciences. The transformation is regularly done by attaching quantitative scores to qualitative entities (e.g. job dismissal procedures). This is a tricky procedure as such, and the relative weighting of these scores is abitrary again. The danger of


•

•

•

•

biased weighting is also present because one can attach scores to items that help to bring about a desired outcome. One should be aware of this and of imprecision whenever one wants to use constructed data such as the OECD’s index of employment protection legislation (EPL). The OECD has improved its measurement, but the EPL is still a construction based on an to some degree arbitrary selection of criteria as well as on their arbitrary weighting (cf. Howell et al. 2007: 12f ). Missing data. In complex cases authors have to admit very often that certain data are not available and will have to be gathered in future research. In our case, for example, no comparative data over the easyness or just difficulty of hostile take-overs of companies seem to exist. Or take comparative unemployment replacement rates: they do not take into account eligibility criteria. These criteria might make a big difference between the number of unemployed and that of unemployment benefits recipients. As indicated in note 1, in the US the number of the latter (monthly reported, the development of this figure always gets attention at Wall Street) is about a quarter of the number of registered (not to talk of broadly) unemployed persons, while in Western Europe, with the exception of France, Italy and Spain, the recipiency rate is much higher. Scattered information. Since no single researcher or even research team collects all the required information one depends heavily on the published work of other researchers. They might have used different criteria, however, and different methods of calculation. Are their measurements reliable; how far do data sources depend on third sources; did they control their sources? Data heterogeneity. In complex cases one always depends on datacollecting agencies like the OECD or Eurostat, but they do not collect all data annually and the intervals of collection are not the same for every item. And regularly the method of measurement has changed over time. There is nearly no OECD statistics with data over a larger span of time without notes on ‘statistical breaks’. The sometimes different meaning of concepts and categories in different countries is an extra complicating factor and possible source of confusion, particularly when data depend on surveys. Questions where something about liberalism is asked have for example to take into account that in American political discourse liberals are not those who, as in the classical liberalism of John Locke and Adam Smith and in European political discourse, strongly favour markets, but on the opposite those who advocate more state intervention. Or take

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engineers and researchers per 1000 inhabitants: is this exactly the same sort of engineers and researchers in each country? These problems indicate that there is sufficient reason to discuss how precise the differences between political economies (and generally between complex cases in the comparative social sciences) can be determined. Quantitative–oriented researchers sometimes seem to assume that the social sciences, at least partially, can measure as exactly as the natural sciences. Otherwise it would be difficult to understand why they work with factor and regression analysis (with a suggested precision of three digits) even in cases where quality has to be transformed into quantify by some procedure that is always arbitrary to some degree and everything but precise. It seems that strongly quantitative oriented research tends to ignore the problems just listed. For serious social scientific work it would be appropriate to point to these problems and to the limits of precision – which is more than presenting a standard deviation with again several digits after the comma. And the selection of criteria and the method of transforming quality into quantity need to be explicitly explained. This does not bring about more precision, of course, but it brings more clarity. The social sciences have the obligation to be as precise as possible, but they should not be confused with physics. Interpretation and estimation belong to its main ingredients and express the complex, interdependent character of social reality that should not be ‘analyzed away’ (Hall 2003: 386) and that by natural scientific standards even might be described as illusive. ‘There is a good reason that certain questions are not answered by formulas. They are too difficult for that’, physicist Robert Dijkgraaf wrote in an analysis of the use of quantitative methods in Economics in NRC Handelsblad (15 March 2008: 38). Mathematical techniques might be important in some fields but research, and specifically the selection of subjects, should not be subjugated to its technical operationability, and the results mathematical techniques generate should be taken with a pinch of salt. The question whether measurement, for example, based on factor analysis, in the end is more precise than calculation by a substantiated rule of thumb cannot a priori be answered. I tend to give the latter a good chance. A possibly fruitful invention to tackle imprecision could be fuzzy-set analysis. As attempt to come to terms with the often fuzzy character of the reality social sciences study as well as of the imprecision of many social-scientific concepts Jay Verkuilen (2005: 464) presents fuzzy-set analysis as a ‘method for managing vagueness’. This method, or


a modified version of it, could perhaps be particularly interesting for the difficult determination of the locations of national political economies in the field between the ideal types as well as of the change of these locations in the course of historical development. For ‘sets’ are similar to ideal types and Charles Ragin, who put fuzzy-set analysis on the map of the social sciences, has developed a technique to calculate the locations between sets. In its current state of development fuzzy-set analysis would, however, once more lead to a confusion of ideal types and cases. The problem is that cases are supposed to be localized according to their status of membership (full or not at all) in sets and that ‘qualitative break-points’ for distinguishing ‘relevant and irrelevant variation’ have to be determined (cf. Ragin and Pennings 2005: 424; see also Vis 2007: 108ff, Vis 2008; a politico-economic application of fuzzy-set analysis is presented by Duerr et al. 2008). Vis has already made the step to construct ideal types out of ‘sets’. Ideal types are simplified idealizations of complex reality, however, of which empirical reality cannot be a ‘full member’. And working with ‘qualitative breakpoints’ is a move back to the classification of cases as A or B instead of locating them in-between the ideal types of A and B. Moreover, these breakpoints add an extra portion of arbitrariness. So, modification of fuzzy-set analysis for the purpose at stake in this chapter would require that the ideas of membership and the qualitative breakpoints (and maybe even that of ‘sets’) have to be dropped. Perhaps this is possible.

Capitalist varieties and democracies as historical constellations Empirical varieties of capitalism are not isolated entities. Their character fits more or less into the character of the larger, historically grown, social, political and cultural context they belong to.11 To some degree – don’t forget societies, just as political economies, are open, and that not everything is ‘complementary’ – they are similar to other parts. The forms of democracy (most capitalism exist in democracies) and of democratic governance (broadly defined as the ‘act or process of governing’ [Webster Dictionary] or ‘the way (. . .) how things happen in a polity’; March and Olsen 1995: 7) are striking examples and culture, understood as norms and interaction patterns (see the previous chapter) is the binding kit. What is considered ‘normal’ in the political economy resembles what are considered ‘normal’ aspects of democracy.

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Mostly democracy is defined in formal-institutional terms – e.g. by its parliamentary systems or election rules – which is of course a very important aspect. As Table 4.6 suggests, there is some, though not a general, connection between the character of country’s political economy and the institutional form of its democracy. A highly statist capitalism is unthinkable without a centralized state – which is largely the case in France. And macroeconomic concertation as in corporatism also fares well with political centralism (the Netherlands, Scandinavian democracies), although strongly corporatist Switzerland has a very fragmented state form and the perhaps most corporatist county of all, Austria, is a federation (of a weak type however; cf. McGann 2006: 183). The somewhat less corporatist Germany and Belgium (since the 1990s) are also federations. Strongly liberal political economies also combine with both centralized and decentralized, federal, forms of democracy. The US, the most and continuously liberal political economy since more than a century is a very decentralized, fragmented democracy. Perhaps this coincidence is not an accident. Britain, the Down Under states and Canada (for this country in comparison to the US see Lipset 1990) are less liberal, have a relatively recent, postwar, past of a more embedded capitalism, and combine with centralist political structures – Britain and NewZealand – and decentralized ones – Australia and Canada – as well. Finally, we have Japan that is not part of Table 4.6. It would perhaps best fit in a decentralized democracy, but the business communities do not regularly have a local character and the centralized Japanese state was good for facilitating the international competitiveness of the Japanese economy (Johnson 1982; this point of view has recently been challenged, however; cf. Porter and Sakakibara 2004). Formal–institutional structures are important but we should not overrate their relevance for the real way of life of a democracy and for democratic governance. And the inference of the latter from formal institutional structures is a form of institutionalist reductionism. It is very popular in the Lijphartian strand of comparative democratic research. There, consensual governance is derived from the dispersion of formal power (by e.g. proportional representation, federalism and bicameralism), while majoritarian governance is derived from the opposite institutional setting (cf. Lijphart 1984: 6–9, 23–9, the approach in Liphart 1999 slightly differs by integrating some more criteria). Formal institutions are obviously understood as unavoidable incentive structures. The only problem is that the people in, to take a few examples, Weimar Germany, or the French 4th Republic with their ‘consensual’ settings

Table 4.6

Formal institutional structures of selected Western democracies

Parliamentary Semi-presidential/dualist No. of democratic chambers District (plurality) system Proportional representation Unitarian/Federal Judicial review: full/limited Democratic referendum Local autonomy: high/low/medium Peculiarities

A

AUS

B

CH

CAN

DK

ESP

FIN

x

x

x

x

x

x

x

x

2

2

2

2

x

x

F

F

xl H

x H

x x F F

F F

M

H

2

SP 2

1

2

2

x

x

x

U

U F

U

U L

M

L

L

x F F x H

F

x

x M

Cumul

GER

I

IR

N

NL

NZ

S

UK

US

x

x

x

x

x

x

x

x

2

2

2

1∗

2

1

1

1

D 2

x∗∗

75% 25%

x

x

x

x∗∗

x

x

x

F F xr H

U F x M

U

U F

U

U

U

U

L

L

xl L

L

M

L

F F xr/l H

R

HoL

Notes: ∗ Norway has a qualified unicameralism in the sense that after election parliament is split in two chambers. ∗∗ Mixed member proportional representation. For example, half the seats in the German Bundestag are chosen by plurality vote, though the PR system is decisive for the total distribution of the seats; in New Zealand the situation is similar. r = regional/states level; l = local. Cumul = the cumulation of political functions at different levels (e.g. mayor and MP), R = Remis; HoL = House of Lords. Source: Becker 1999; Gabriel and Brettschneider 1994: 464ff; Wikipedia.

87

88


ignored these incentives – just as they have been ignored in the ‘consensualist’ Britain of the 1950s and 1960s with its ‘majoritarian’ setting. I want to propose12 politically relevant patterns of interaction, perhaps to be called political–cultural patterns of interaction, as a better, because non-reductionist, choice for distinguishing types of democratic governance. The criteria for a distinction of ideal types based on interaction patterns and their implicit norms could be inferred from the political and politically relevant axes of interaction. These axes are the relations between citizens and state (politicians, administrations), political elites (party representatives, individual politicians, functionaries of politically active organizations) among each other as well as citizens among each other. Following Thompson et al. (1990) in a modified way we can distinguish three plus one types of political interaction: (1) hierarchical, ideally characterized by civic inequality, elitism, low social trust, submissiveness, and possibly by contentious clashes of opposing forces; (2) individualist, featuring civic equality, individual independence, the rule of mutuality, relatively high social trust, pragmatism, and a state considered functional for only a few purposes; and (3) communitarian, also featuring civic equality, pragmatism and high trust, but here the whole of society is more important than the individual, and the state representing the whole. The fourth, additional, type is the autonomist, one characterized by unsocial individualism, enforced hierarchies within groups, low trust, and a struggle of everyone (or every group) against everyone. It is additional because autonomism undermines democracy. From these types of interaction patterns we can derive the criteria for establishing types of democratic governance: the distinction of top-down versus bottom-up politics, the importance given to the ‘common interest’, the rules of the game as well as the forms and patterns of participation. Four ideal types of governance result: (1) (2) (3) (4)

Statist politics of imposition, Consensual politics of (institutionalized) bargaining, Competitive arena politics and Clientelist politics as additional type of governance ín democracies.

These ideal types resemble three of the four ideal–typical capitalisms and the clientelist sub-type. They resemble three, but not four capitalism types because no governance type based on the meso-communitarian East Asian experience is formulated. This is the reflection of the problem that meso-communitarianism relates to the meso-level of society, while


democracy relates to its macro-level. Meso-communitarianism does not resemble any specific variety of democratic governance, therefore. Clientelism is an additional type but not a sub-type here because working with subtypes requires at least two of them. A brief explication of the typology that also could be plotted into a figure such as Figures 3.2 and 4.3, provides the following picture: 1. In the statist type of democratic governance the political centre claims to act in the common or general interest, the direction of politics is primarily top-down and apart from political strikes and street revolts citizens and interest groups have, in comparative terms, limited influence. As between state and citizens the relation between leftist and rightist elites (or equivalents) tends to be rather confrontationalist, and social trust among citizens is low. Aspects of the empirical basis for its construction are present in rather centralized European democracies (as the Netherlands, and Austria with the weak character of its federation and the strong role of the central state in corporation) as well as, and sometimes bordering authoritarianism, in Latin American, African and Asian countries. The example of a democracy where statist governance – just as a statist variety of capitalism – by imposition has been relatively prominent is France, though with varying degrees from the 1st to the current 5th Republic. One has to be cautious not to reproduce stereotypes and to take into account ‘cumul’ (the combination of local/regional with national functions; Jacques Chirac, for example, was mayor of Paris and Prime Minister at the same time for a few years in the 1980s), local clientelism, the recent decentralization of French politics (cf. Cole 2006: 31–57 and Howarth and Varouxakis 2003) and the erosion of the politics of imposition (Slama 1995). But the language of scholars describing French politics is unequivocal: According to Birnbaum (1980: 98) the Parisian executive interprets its actions ‘as expressions of the general interest’, Crouch and Menon (1997: 157) identify ‘strong elitism’, Meny (1993: 328) an ‘extremely interventionist state’, and Duverger a ‘Jacobin monarchy’ (quoted in Allum 1995: 340).13 Another example that could come to mind as approximating the statist type is post-communist Russia under Putin. It is characterized by Shevtsova (2000: 37f) as ‘constitutional–electoral autocracy’ with an ‘authoritarian–monarchical way of functioning’. Russia has legacies of a strong state dating back to the former Soviet Union, but again, one has to be careful with easy classifications. For other authors (e.g. Hanson 2007: 67–8114 ) just point to the country’s ‘weak state

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authoritarianism’ the weak aspect of which is a high degree of corruption in a state administration that still cannot fully control its borders towards other parts of the former Soviet Union and that is unable to monopolize the legal means of violence. 2. In the type of consensual politics of (institutionalized) bargaining the common interest is also the central target, but in this societycentered type it is political parties, interest groups, branches of government and active citizens that engage in its formulation. Macrosocial organizations even have the ‘task’ not only to act in their specific interest but also for the common good. Characteristic are the existence of many such organizations and the regular negotiations among them and with state departments in many fields from health care, agriculture, regional planning, the environment and labour relations to social security legislation. Regularly, such organizations are invited for talking. The most striking feature of this is perhaps the Swedish ‘remis’ where these organizations in their fields of competence have to be heard in the parliamentary legislation process. The corporatism of labour and capital is only one, although very prominent and most visible, aspect of this broader consensualism.15 Empirical democracies featuring consensual rules of the political game should be viewed critically, however. Negotiations can be asymmetrical and what appears as consensus at first sight (and is presented as such) can, and often does, conceal forms of dominance. The consensual ideal type is distinguished from the statist one by its higher social trust and larger range of popular inclusion giving way to overt and acknowledged bottom-up influences. Examples most approximating this ideal type are the same we already know from the discussion of corporatism: the Netherlands (Lijphart 1968; Van Vree 1994), Austria, Switzerland (the classic study is Lehmbruch 196716 ) and the Scandinavian democracies (classic is Elder et al. 1982). No democracy (and not even a dictatorship), however, can function without a certain level of consensualism, and in that sense France, the US and Japan are also to some degree consensualist. It is again the story of ideal types that are more or less approximated by different countries. 3. In the type of competitive arena politics citizens, interests groups and politicians strive for the realization of their specific goals. As in the market, the common interest is understood as a resultant of various special interests. Patterns of interaction between citizens are individualist, but trust-based. Looking for a country approaching this type the United States appears to be the obvious choice (a formidable,


comparative, general account is Lipset 1996). The most liberal politgical economy appears to be the most pronounced arena democracy. Just like interest groups, which are very active in using the various intervention points the fragmented structure of American democracy provides, representatives permanent involved in election campaigns and acting as individual political entrepreneurs (Dye 1997: 338), ad hoc coalitions and even Congress committees traditionally work for the realization of particularistic goals. Parties and peak organizations have been weak (although congressional party discipline has been strengthened in the years of Republican dominance since the mid1990s; cf. Mann and Ornstein 2006), there is much wheeling and dealing, ‘pork barrel’ and ‘logrolling’, i.e. looking for compromise and agreement on specific contested items, but overall coordination has largely been missing. Governance has been society-centred here and the bottom-up aspect has been strong, at least in the case of the relatively large, politically active, minority that not only votes but also takes advantage from the space American democracy provides for engagement in campaigning for and financial support of candidates for seats or political functions at its various levels. Less pronounced arena politics is, however, also present in democracies rather tending in statist or consensual–corporatist directions, and the often-asserted opposition between neo-corporatism and pluralist or polyarchic democracies is not viable. All western democracies have the arena component and are pluralist in the sense of the existence of numerous competing interest groups (Hague and Harrop 2004: 177–81). 4. In the type of clientelist governance formal structures of democracy are regularly circumvented and hierarchically structured personalized exchanges of favours and privileges accompanied by autonomist struggles of interests dominate politics. The common interest does not have a strong influence in this form of governance. In ideal–typical clientelism the state is weak – at least at the local and regional level – relations between citizens are largely particularistic, friendship outside the family is instrumental and social trust is low. Clientelism and the related feature of political corruption (Gerring and Tucker 2004) are endemic in most countries outside the Western World and its reduction has been a condition for EU membership of Eastern European countries of Romania and Bulgaria. In Western Europe Italy, as has been mentioned several times, is known for its clientelism, though, apart from the exit of the Christian Democrats from politics and the larger fiscal discipline enforced upon the country by the Euro

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(Ferrera and Gualmini 2004), it is not clear how much change has taken place since the ‘1st Republic’ ended in 1992 (cf. Leonardi and Fedele 2003). Characteristic for at least the previous period was, at the intersection of political economy and governance, the huge impact of the direct exchange of assets such as pensions, favours and jobs for votes. The mechanisms have been ‘partitocrazia’, a term pointing to the central position of party organizations in society, including their control of the huge nationalized sector of the economy (Gilbert 1995), ‘lottizzazione’, i.e. the distribution of assets in backstage politics according to the parties’ and factions’ electoral shares, and ‘sottogoverno’ – the provision of assets by party-controlled instances at all levels of society. An additional feature was the role of the Mafia in collecting votes for the DC in exchange for favours and non-prosecution. Aspects of clientelism are also present in other Western countries, e.g. in local-level France (cf. Warner 2001) where it counteracts statism as well as in the US where the relations between house members and their constituencies have often been described in terms of patronage and clientelism (Freedman 1994; see generally Kitschelt and Wilkinson 2006). The combinations of these forms of democratic governance with specific empirical varieties of capitalism are historically grown constellations. Their common roots are to be found in pre-capitalist and pre-democratic structures dating back to the 11th to 14th/15th centuries and different trajectories of modernization and democratization. Ex post, four trajectories can be distinguished in the Western world. In individual countries we might find mixes of these trajectories plus the influence of specific factors. 1. A more or less evolutionary one into the direction of liberal capitalism and democracy (though not necessarily a decentralized state) in regions where feudal particularism became transformed into liberal particularism, where feudalism was succeeded by constitutional monarchy (or where central aspects of this trajectory were brought oversees) and where the Reformation with its egalitarian principles had a strong impact. 2. Another evolutionary one towards corporatist capitalism and consensual, either centralized or decentralized, democracy in regions with weak or no feudalism and absolutism and also a strong impact of the Reformation.


3. A revolutionary one where feudalism in the 16th/17th century was succeeded by absolutism, but where the Reformation also had a strong impact – even if it was only in a negative way by repressing it. 4. An additional evolutionary trajectory where feudal lord – serf relationships became ‘modernized’ into informal patron – client relationships and where no Reformation took place. It is not a democratization trajectory and only adds up to the three preceding trajectories. The first pattern has been approached by Britain where the successful struggle of the gentry (lower nobility) for local independence from the centralized crown and parliamentary representation and against absolutist aspirations of the crown became, in the course of centuries, joined and replaced by the struggle of the emerging bourgeoisie for property rights and political representation based on property (cf. Ullman 1968). Feudal particularism gave way to market particularism and capitalism evolved in the context of a dualist constitutional monarchy that gradually converted into a parliamentary democracy with a ceremonial monarchy. Without, in the US explicitly (by way of the War of Independence) against, the political centralism and the monarchical component (even if Australia, Canada and New Zealand still accept the Queen as Head of State) a similar model also took root in the British settler colonies. Relevant examples of the second pattern were the regions along the shores of the North Sea, in the Alps and the post-tribal Danish and Swedish kingdoms. There, social distances did not become that huge and (nearly) unbridgeable as elsewhere in the medieval environment. This might be interpreted (Katzenstein 1985: 137f; Lehmbruch 1996; Crouch 1993: 299f) to have been a fruitful soil for the later development of consensual practices – the more because the weak or non-feudalism was not succeeded by religiously repressive absolutism (Danish absolutism has been called ‘liberal’, Swedish absolutism was not a lasting affair; Anderson 1994) or by no absolutism at all, as in the Low Countries and the Swiss confederation. Moreover, these latter regions had already given space to the development of guild corporatism. Decentralism and liberal ideas became more prevalent here (though the Netherlands became centralized in the 19th century) than in Scandinavia. Of the, currently highly corporatist, regions considered, Habsburg-Austria is the only exception to these patterns. Austria, however, appeared to be able to develop consensualism by social learning (Konrad et al. 2004).

94


The third, revolutionary, pattern is at home in France, Prussia, Spain and, up to a certain period, Austria – leaving apart smaller principalities. Feudal autonomies (of counties, cities, parishes) and early forms of political representation in estates were abolished by absolutism that was either religiously repressive or repressive against the peasants – or both of these. Social distances were big and cleavages were deep here and democratization could only brought by revolution. The legacy of absolutism and politically organized attempts to early industrialization (mercantilism) was a state-centred orientation with a politically defined ‘common interest’ (cf. Dyson 1980). Though changeable, this aspect has shown remarkable path continuity. The additional clientelist trajectory was a Mediterranean affair that took place in regions, that, such as exemplary in Southern Italy, had been feudalized in earlier centuries of the millennium and where feudal lord – serf relationships became transformed – ‘modernized’ – into contemporary patron–client relationships. This process was not disturbed by any Reformation or by rational bureaucratization (Shefter 1994: chs 1 and 2). In the course of these trajectories political economies and political systems have adapted to changing environments. Power relations, struggle, societal trial and error have been important ingredients in these processes and the mechanisms of change might best be described by the concepts Kathy Thelen (Streeck and Thelen 2005: 31) has coined: displacement, layering, drift, conversion and exhaustion. These processes are still going on.

5 Pressures, Challenges and Changes

Leaving the broader context we have to go back to the varieties of capitalism and the change that in recent decades has taken place in the empirical cases considered here. Politico-economic change of, e.g. the labour market, welfare system and corporate governance is largely a process of adapting – in Thelen’s language: layering and drift with conversion also involved – to a changing context. This context is the next topic of analysis. Main contextual changes have been globalization, particularly the intensification of global competition, Europeanization, social–structural change, the related emergence of new interest constellations and relatively autonomous ideological processes. The latter notably points to neo-liberalism that in the late 1970s started to become the dominant strand in economic thinking, received a push during the Thatcher and Reagan years, and since the 1990s did not tire of repeating time and again that globalization forced advanced economies to liberalize their markets and cut down social expenditures. Did globalization exert this pressure? Generally the answer is no; social affairs are not that determined! Let’s first look at contextual changes, however.

Changing context 1: globalization, Europeanization and neo-liberal dominance Globalization became a buzz word in the 1990s but it is not a new phenomenon. In terms of trade relative to GDP it was already strong at the heyday of colonialism in the early 20th century. During World War I and in the 1920s it declined, and in the years of the World Economic Crisis, fascism and World War II it moved to a very low level. Thereafter, it took until the breakdown of the Bretton-Woods system in the early 1970s for globalization to receive some attention again, and it was not before the 95

96


1990s that the pre-World War I level was surpassed. Since then, with the breakdown of Soviet socialism, the removal of international trade barriers and, very important for international transactions at financial markets, the introduction of the Internet, globalization has accelerated and become a main topic in politico-economic discussion. A new feature of this recent period of globalization is the emergence of new competitors from outside the western world. The first one was Japan in the 1970s, it was followed by the ‘Tiger’ economies of Taiwan, South Korea, Hong Kong and Singapore, thereafter by East European countries and Brazil, and since the late 1990s China and, to a lesser degree, India as well as a number of smaller countries entered the scene. The ongoing discussion on globalization and its consequences is intense, but a number of features seems to be undeniable and widely known and can be summarized in note form: • Since the emergence of high-volume but low-wage production of

manufactured goods in subsequent regions of Asia and, since 1990, eastern Europe labour-intensive industries characterized by batch production at individual workstations, like garment assembly, shoes, toys, luggage, and cheap household goods, all gradually moved offshore to these regions along with some capital-intensive but medium-skill industries like ship-building and consumer electronics. As a result, in almost every OECD economy the number of manufacturing jobs has considerably fallen. • Most recently the production and development of ICT equipment have also increasingly moved to Asia, who is no longer only a competitor in low-wage sectors. ‘Taiwan’, for example, Suzanne Berger (2005: 19) writes, has become ‘a major world technology power’, China is moving up the value chain and India has become an important player in business services (Havik and McMorrow 2006: 10 and 17 respectively). • The intensification of trade and the relocation of production has also brought about a changed international division of labour that in part is characterized by the compartmentation or modularization of production processes – manufacturing has become ‘a commodity’ (Berger 2005: 83). • An aspect, one that has never been as evident as since 2008, is that globalization is particularly embodied in the exponential growth in the international financial markets, which have increased in magnitude, speed and volatility while at the same time national governments’ ability to control their effects decreased (Schmidt 2002: 17).

Pressures, Challenges and Changes 97 • An implication of the surge of international financial markets and

generally of the extension of the global division of labour is the increased mobility of capital (even if there are path dependencies such as sunk costs and the reliance on clusters that limit mobility). Related, though disputed, is capital’s increased power vis-à-vis labour and the state. • The current globalization period did not only bring new competitors and a new international division of labour but also new, large customers, such as China and India. The more competitive these countries become the more purchasing power they gain and the more goods and services still produced in the economically most advanced countries they can buy. As a whole, this is a growth-enhancing configuration (cf. Obstfeld and Taylor 2004). • Moreover, falling prices for imported manufactured goods has increased disposable income in the advanced economies and left space for increasingly shifting demand towards services and better quality manufactures. A sort of special European supplement to globalization is Europeanization as it has taken shape since the late 1980s/early 1990s. It can be defined as top-down influences of the EU towards its member states and their convergence on specific aspects that is induced by European treaties, legislation or policies (Falkner and Leiber 2004: 3; cf. Schmidt 2006). One should add, however, that Europeanization is part of European Integration, which is also a bottom-up process. It is national governments that constitute the European Council, the highest treatysigning and decision-making body of the EU, national governments also constitute the Council of Ministers, and the European Parliament, which is much more than only a talking assembly, is elected by the citizens of the member states. Particularly relevant changes in the environment of national capitalisms that have been brought about by Europeanization have been: • The Single European Act of 1986 where a single European market was

envisaged and the Maastricht Treaty on the Economic and Monetary Union (EMU; 1992) laying down the plan for economic and monetary integration that was realized in subsequent years. • Notable aspects of this process have been the establishment of the European Central Bank (ECB; 1997) and of the Euro (2002) – at least for the members of ‘Euroland’ because not all member states – among others Denmark, Sweden and the UK – have joined the EMU.

98


• The criteria for membership in the EMU, the so-called ‘Maastricht cri-

teria’, state that a member’s budget deficit is not permitted to exceed 3 per cent of GDP, that total public debt must be lower than 60 per cent GDP and that the limit of national inflation rates is the rate in the three member states with the lowest rate plus 1.5 per cent. • Competition policy of the EU commisioner and department with this task (Directorate-General of the European Commission; DG 4). The common market is a liberal endeavour anyway by breaking down national economic borders, but by the activities of DG 4 it becomes so in a pronounced way. This DG has to look after unfair competition and mergers (famous are cases such as that of Microsoft where companies have to pay fines of hundreds of millions Euro for the violation of certain rules) as well as after state subsidies to business direct forms of which have to be banned out. • Judication of the European Court of Justice prohibiting any form of economic protection that violates the principle of equality, which for example is the case in constructions that protect private companies – Volkswagen is a case – against hostile take-overs (cf. Höpner and Schäfer 2007: 18ff; Zumbansen and Saam 2007). EMU is more than just a contextual factor triggering neo-liberal policies at the national level. Just as international treaties breaking down trade barriers it already reflects the dominance of neo-liberalism. EMUEuropeanization, therefore, has ‘ensured that globalization has been more pronounced in Europe than elsewhere’ and because of its restrictive stance and the connected move away from Keynesianism towards monetarism it has lead to convergence in the monetary policy arena (Schmidt 2002: 4, 14). Two years after the Maastricht Treaty was signed the OECD published its Jobs Study (1994) where the entire neo-liberal policy creed of the time was summarized. More than Maastricht it reflected the wisdom that had become increasingly influential in the course of the preceding decade and at the same time strengthened this wisdom – not the least by a section on ‘Implementing the Jobs Study’ that was included for a number of years in the OECD’s Country Surveys. The ten recommendations made in the Jobs Study (1994: 2; 47–54) are: 1. Set macroeconomic policy such that it will encourage non-inflationary growth. Redirect public spending away from subsidies and make fiscal consolidation a main objective for the medium term.

Pressures, Challenges and Changes 99

2. Enhance the creation and diffusion of technological know-how by improving frameworks for its development. Intensify R&D. 3. Increase flexibility of working-time (both short-term and lifetime) voluntarily sought by workers and employers. 4. Nurture an entrepreneurial climate by eliminating impediments to, and restrictions on, the creation and expansion of enterprises. Lower start-up costs and eliminate any unwarranted regulatory impediments 5. Make wage and labour costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill levels. Keep minimum wages low, reduce non-wage labour costs and direct taxes. 6. Reform employment security provisions that inhibit the expansion of employment in the private sector. Loosen employment protection and permit fixed-term contracts. 7. Strengthen the emphasis on active labour market policies and reinforce their effectiveness. 8. Improve labour force skills and competences through wide-ranging changes in education and training systems. 9. Reform unemployment benefits and related systems. Restrict unemployment insurance benefit entitlements in countries where they are especially long, reduce after-tax replacement ratios where these are high, and tighten soft eligibility criteria. As a tenth recommendation, implicit in the argument of the Jobs Study, sometimes is added: 10. Enhance product market competition so as to reduce monopolistic tendencies and weaken insider–outsider mechanisms while also contributing to a more innovative and dynamic economy. Recommendations 3–6 and 9 belong to the core of the liberal creed, but the other ones should also sound familiar. For after the initial publication of the Jobs Study these recommendations, single ones, some of them or all have endlessly been repeated by politicians, neoclassic economists and journalists, particularly after the Australian, British, Canadian and US economies had entered a period of, as it appeared, unfettered prosperity in the second half of the 1990s and quickly recovered from the burst of the tech bubble in 2000/2001. Didn’t this prove that liberalization as recommended by the OECD was the best response to the new Asian and East European competitors? We will come back to this point and the emulation of the recommendations in the third section of this chapter.

100 Open Varieties of Capitalism

Changing context 2: individualization Less discussed than globalization, Europeanization and the dominance of neo-liberal ideas has been the contextual change that took place in the social structure. It can be summarized under the heading of individualization. It is worth consideration because it could be fertile ground for those aspects of neo-liberalism that stress individual initiative and responsibility and, related, welfare cuts. It involves the loosening of group and class ties and a process where individuals increasingly have to rely on themselves. This social-structural individualization has to be distinguished from normative individualization referring to the emphasis on individual responsibility and development. Both will be touched upon in subsequent pages. The social–structural aspects receiving most attention are demographic changes such as ageing and degreening by the low fertility rate (with Ireland and the US as relative exceptions). To some degree the latter is an indirect indicator of individualization. Other such indicators are the number of marriages per 1000 inhabitants that between 1970 and the early 2000s declined by, on average in the western world, about 30 per cent, the divorce rate that more than doubled in most countries and the average household size that shrank by more than 10 per cent towards levels of two persons per household in Scandinavia and Germany, somewhat higher levels in the Anglo-Saxon countries and still relatively high, though strongly declining levels in countries such Ireland and Italy (CoE 2003; Eurostat 2004). Another important indicator is the increase of the number of tertiary education attendents – only in the relatively brief period 1991–2002 the average increase was about 30 per cent (OECD 2004a). It reflects economic requirements but also the growing impact of individualistic meritocracy. Another yardstick for both the loosening of socio-economic classes and greater emphasis on the individual is union density. As table 5.1 shows, in many countries trade unions lost one third to one half of their members between 1970 and 2003 (sometimes from an already very low level as in France and the US). Clear exceptions to this trend are only Canada and Italy as well as the countries featuring the so-called ‘Ghent system’. There, in Belgium and Scandinavia, union membership increased. In these countries, unemployment benefits are administered by trade unions. To be eligible for these benefits, one has to belong to a trade union. What are the changes that have taken place, if at all, in the field of normative individualization. Does social–structural individualization lead to

Pressures, Challenges and Changes 101 Table 5.1

Union density rates, 1970–2003

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway Spain Sweden Switzerland UK US

1970

1990

50 63 41 32 60 51 22 32 53 37 35 37 55 57

41 47 54 33 75 72 10 31 51 39 25 25 51 59 13 80 24 39 15

68 29 45 27

2000

37 56 28 74 76 10 25 38 35 23

79 18 31 13

2003 23 35 55 28 70 74 8 23 35 34 20 22 22 53 16 18 29 12

Sources: OECD 2004b: 145; Blanchflower 2007: 3.

decreasing solidarity and thereby to diminishing support for the welfare state? Principally, individualization and solidarity do not need to oppose each other. It was only the weakening of traditional bonds and ties of families, neighbourhoods and early voluntary working class insurance arrangements that brought about modern, state-organized solidarity. By social–structural individualization individuals increasingly depend on society as a whole, and by imposing taxes and social contributions for financing social benefits the state creates anonymous solidarity. This nexus does not inform about the support of different layers of society to such arrangements in the context of changing circumstances, however. A relevant question therefore is whether people currently find individual responsibility more important than they did at lower levels of individualization. Do they (still) support welfare state solidarity? Tables 5.2 and 5.3 provide tentative answers to these questions, but the information comparative research provides is sparse and one has to keep in mind the considerable contextual differences between the surveyed countries. In a crisis year attitudes are different from those uttered in times of economic

102 Open Varieties of Capitalism Table 5.2

Support for welfare state intervention, 1996–2006 (% definitely)

Should it be the government’s responsibility to provide:

West Germany East Germany Sweden US

A job for everyone who wants it

Health care for the sick

A decent living standard for the unemployed

To reduce income differences

1996

2006

1996

2006

1996

2006

1996

2006

28 57 35 14

30 46 29 16

51 66 71 39

51 62 63 56

17 38 39 13

15 26 27 16

25 48 43 17

26 50 37 29

Source: Svallfors 2007: 22.

Table 5.3 Valuation of competition and individual responsibility for unemployed people to find a job (10-points-scale∗ )

France Britain Germany Austria Italy Netherlands Belgium Denmark Sweden Finland Ireland USA

Competition is good. It stimulates people to work hard and develop new ideas

People who are unemployed should take any job available or lose their unemployment benefits

1990

2000

1990

2000

4.03 3.81 3.25 – 4.11 4.28 4.03 3.93 3.22 – 3.70 3.17

4.73 4.01 3.80 3.19 4.16 4.68 4.80 4.02 3.46 4.28 3.81 –

4.40 5.33 4.42 – 3.63 4.89 4.63 4.57 3.86 – 5.28 4.61

4.53 4.92 4.09 3.87 3.41 5.23 4.89 4.87 3.95 5.07 5.60 –

Note: ∗ Competition is good; unemployed have to take any job = 1; competition is harmful; unemployed may refuse a job offer = 10. Sources: EVS 1990 and EVS 2000, own calculations.

growth, and specific national contexts also influence answers given in surveys. Table 5.2 contains answers given in the years 1996 and 2006. Both have been years of economic upswing and the general trend is one towards some more individualist attitudes. In the context of the downturn in


late 2008 the answers would possibly have been less individualist than in 2006. Another relevant context is the state–socialist past of the East Germans raising their non-individualist attitudes above those of the Swedes. What is remarkable is the generally low level of support for a decent living standard for the unemployed; that in the US the support for state intervention has somewhat increased1 – from a comparatively low level – and that West German attitudes with respect to the questions posed approximate the US level and are considerably more individualist than those in East Germany and Sweden. Eurobarometer surveys in 1976, 1989, 1993 and 2001 asking a question about the causes of poverty point into the same direction. The number of people indicating that poverty is caused by laziness decreased sharply between 1976 and 1993 in all countries, but increased again after 1993. Exactly the opposite is true for the ‘unfairness’ explanation (social unfairness explains poverty). An increasing amount of people choose this explanation in most countries until 1993, thereafter it decreased (Eurobarometer 2002: 19). The data in Table 5.3 send a different message. This table consists of a larger sample of countries and presents data on questions similar to those asked in the survey on which Table 5.2 is based. The attitudes in 2000 are not more individualist than those in 1990 had been – rather, it is the reverse trend. Perhaps this is so because of the very years the surveys was conducted in. 1990 was the last year before the recession (in Scandinavia: severe crisis) of the early 1990s, while 2000 was the year of the bursting bubble tech stocks. This table is important as a contrast to Table 5.2 because the comparison of the data shows the dependency of attitutes on context and also that the differences between countries can be different in different surveys. Differences between Sweden and Germany (West Germany is the host of 80 per cent of the country’s inhabitants) are relatively small in Table 5.3 and in 1990 US values for the possibility for unemployed people to refuse a job offer were higher than in most European countries surveyed. It seems that there is no clear trend in the support of welfare state interventionism, implying that social–structural individualism does not seem to have structurally strengthened normative individualism. At least, this is what one can say on the basis of the limited evidence. Broadening it by election results over the past twenty years would show that voters have shifted to the right of centre and that social democratic parties also made a move away from the left (Swank 2006b: 848). Does this indicate increased normative individualism? There is still fluctuation and new, leftist parties – notably the Greens with their affluent and well-educated


electorate – have gained strength. The picture of the politico-normative development is rather contradictory. Looking at Table 5.4, which provides an overview of the changes described in this and the previous section, one has to be aware of this.

Some overall politico-economic changes When the global and social context of national political economies changes the institutional structure will (be) adapt(ed) – either in a qualitative way by adding, substituting or transforming elements such as education or in a quantitative way by cuts in or extensions of certain elements, e.g. welfare benefits, with consequences in e.g. the level of income inequality. Adjustment is ‘needed’ because without it the economy would be in danger to deteriorating. In most cases, the direction of these adjustments is not strictly determined by its contextual change. When EU regulation enforces member states to carry out specific steps, we have a case of stricter determination; for the rest, however, the course of adjustment depends largely on the relevant actors’ interpretation of the situation, their knowledge that is shaped by learning but also fads and (perhaps) opportunism and the power relations among them. In the past quarter century this mix brought about a move towards neo-liberalism. In individual countries this development might have been more or less pronounced, but the general trend is beyond doubt. Ideal–typical varieties of capitalism did not change (they are analytical constructions), but empirical political economies did. What have been the main changes? It is difficult comparatively to quantify, but it is perhaps not completely wrong to say that loosened trade and product market regulation, at the intersection of global and national developments, has been the biggest change. This loosening, above all in non-manufacturing sectors, most of all took place in the period from the late 1980s to the mid-1990s (Simmons et al. 2006: 783, 786; Siegel 2007: table 2). Product market regulation is one of the indicators of market orientation versus embeddedness in political economies as discussed in Chapter 4 (see Table 4.2) and it will return in this chapter when the extent of change will have to be determined. Big changes in the previous chapter, that were not listed as indicators of market orientation versus embeddedness, have occurred in the fields of privatization and company finance (hedge funds and private equity) as well as in the power relation between capital and labour as expressed in the wage share. Privatization as measured by the revenues it generated has also been a process that, in the advanced economies, was

Table 5.4 Level

Summing-up the contextual changes and challenges Background

Challenges

Changes

Implications

Global

• Removal of barriers of international trade • Removal of barriers for capital mobility • New competitors: Asian tigers, China, India, Brazil, Eastern Europe • Internet

• Growing global trade • Increasing independence of growing financial markets • Growing international mobility of capital • High competition for products and capital

• Pressure to be competitive • Firms’ credible threat to outsource production • Downward pressure on taxation by increased capital mobility

European

• • • •

Single Market Competition policy Monetary integration (Euro, ECB) Maastricht convergence criteria/ Growth and Stability Pact • European social and environmental policy

• European laws and regulations directly affecting national laws and policy • Increased competition among EU member states • Liberalization of EU market

• Direct restrictions on macroeconomic policy options • Europeanization of social policy • Meeting EMU criteria and EU standards

Micro

• Demographic (partnership, housing, immigration, ageing, education) • Internet

• Social-structural Individualization

• Potentially eroding solidarity • Increasing welfare costs

105


concentrated in the 1990s (Simmons et al. 2006: 786) but it is difficult to find out how much it was motivated by competitiveness considerations and ideological factors or by budgetary reasons. In the first case the conviction that the market serves better would have been central, in the latter financial need as has particularly been the case for (candidate) member states of the EMU. Furthermore, in terms of changing varieties of capitalism privatization is difficult to quantify because it has to be related to the total stock of private companies as well as of public companies or even public economic activities in a broader sense (including, e.g. teaching). The revenues of privatization do not inform about this. In the case of hedge funds and private equity the situation is similar. The assets they manage have explosively grown in recent years. In 2008, hedge funds, after a steady increase in previous years, managed a volume of assets 25 times higher than in 1988 (cf. Figure 5.1) and something similar is true for private equity funds, although their spectacular increase only occurred in the years after 2002 (cf. ITUC 2007: 13). National data for a large number of countries are not available, however.2 By inference the same is true for the value of these assets in relation to the total of assets. The latter information would tell us about the direct impact of these funds on national economies. In any case we can say that these funds have sharply grown and that the larger the relative amount of the assets they manage the more substantial is the influence or even control of financial companies that have a decidedly short-term orientation. And the stronger economic short-terminism is the more liberal markets are.

Managed assets ($bn)

2000 1500 1000 500 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Year Source: Van Hedge Fund Advisor International.

Figure 5.1 Hedge funds, development of assets managed, 1988–2008 ($bn)


Furthermore, both these funds, but particularly hedge funds, indicate the increasing commoditization of productive property and employment by buying and selling companies and parts of them in a manner consumers buy clothes. They are also exponents of the debt bubble that has been ballooned since the mid-1990s and that is bursting at the moment of writing. As unregulated limited partnerships of financially strong individuals and institutions (pension funds, no longer outstanding examples of a long-term orientation,3 are prominently represented) their operations heavily rely on borrowed money – which until the financial crisis of 2008 was abundantly availably at cheap rates, particularly in Asia. Private equity funds appear in very diverse forms (cf. Vitols 2008 for a balanced account) and have a somewhat longer-term perspective than hedge funds. The latter are characterized by arbitrage strategies, high turnover and aggressive trading as well as managerial incentives to outperform financial benchmarks (Goyer 2006: 407). A recurring criticism is that they are ‘milking’ employees, society (because they receive tax relief for their leverage) and even shareholders (ITUC 2007). Whether or not and how far this is true is not a topic to be discussed here. I will only mention the counter arguments that these funds bring efficiency to sometimes ailing companies and that, among other forms, venture capital funds, which are often essential for start-ups, also come under the heading of private equity. A final change worth mentioning and at least indirectly indicating change in a liberal direction is the decline of the wage share, i.e. of the income of labour (including that of self-employed persons) as share of GDP (see Figure 5.2). Since about 1975 it is in decline, particularly in Japan and Europe.4 This development is partly due to the shrinking number of the self-employed as well as the rising number of pensioners receiving a capital income and for another part to the fragile position of low-skilled workers in the context of global competition. Competitive wages (if at all) for these workers are low wages (cf. IMF 2007: 171). And perhaps it is true that, before state redistribution, low wages and, as a consequence, the wage share did decline more in Europe than in the US where always a considerable group of low-paid workers existed. The declining wage share moreover illustrates a changed power relation between capital and labour. The bargaining position of capital vis-à-vis the unions has improved by its increased mobility (or only its alleged mobility) and the related capacity to use the threat of exit, by the discourse that for staying competitive wage moderation is required


85 EU15* Japan United States

Wage share

80 75 70 65 60 55 50 1970

1975

1980

1985

1990 Year

1995

2000

2005

Notes: ∗ GDP-weighted average of the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Spain, Sweden and the United Kingdom. ∗∗ Total labour compensation, including employers’ social security and pension contributions and imputed labour income for self-employed persons. Source: OECD 2007a: 117.

Figure 5.2 Wage-share of national income in the EU15,∗ Japan and the US, 1970–2005 (Share of total wages and salaries in total value added),∗∗ percentage.

as well by the decreasing union density. Wages have trailed profits and productivity therefore. Beside these changes and those in product market regulation change also occurred in the fields of employment protection, state expenditures, unemployment benefits, market capitalization, collective bargaining coverage and in the extent of temporary work. In Chapter 4, these indicators have already been discussed and quantified for about the mid-2000s. The next step is to calculate, as far as possible, how much they have changed in the preceding decade.

Quantifying institutional change An crucial message from Chapter 4 was that we are in the realms of imprecision where a sophisticated rule of thumb brings as much approximation to precision as advanced statistical methods do. The determination of the location of empirical capitalisms in terms of liberal vs embedded and in the field between the four constructed ideal types, as illustrated in Figures 4.2 and 4.3, could only be calculated approximately, therefore. With the same indicators the same imprecision reverts. Basic data – gross instead of net unemployment benefits both of which do not


take into account eligibility criteria are an example – sometimes are only crude approximations to reality; the necessary weighting of factors indicating change always remains arbitrary to some extent, not all data are available for all years and a number of such factors are neglected. Examples are the influence of workers in companies and the relevance of co-determination, the regulation of financial markets, tax progression, company protection against hostile take-over, the extent of red-tape hampering start-ups and the factors discussed in the previous section. So, what can be done is only to present a rough impression, this time of change in the institutional dimensions selected in the previous chapter (cf. Tables 4.1 and 4.2). The chosen period is that between the mid-1990s and the mid-2000s and the method of measurement is a very simple one. Change is calculated, first, in percentage per factor and, secondly, as average value. The latter needs to be done by weighing the factors (see the explanation of this in Table 5.5b). What are the main and most remarkable results? What can be said with all the cautiousness that is required because of the weak data basis? The strongest liberalization has taken place in the fields of market capitalization (up to the year 2000 there was a stock price explosion) and product market regulation (apart of specific national developments the latter also reflects WTO agreements and EU activities), in the case of employment protection the picture is somewhat mixed and the same is true for unemployment benefits and temporary work. The least pronounced changes occurred in the coverage of collective bargaining (in nearly half the case the latter was stable, in four it increased) and in public expenditures. The latter coincide with relatively stable tax receipts (OECD 2008b: 264). There has been a lot of discussion about a globalization-forced tax race to the bottom but income as well as corporate taxes did not change so much. Statutory corporate taxes have been lowered, but by broadening the tax base the effective rates remained relatively stable (cf. Genschel 2002: 250; Campbell 2004: appendix and Swank 2006b). State income shrank primarily because of privatization of public companies and so did state expenditures. Overall, with the exception of Ireland, all political economies have moved in a liberal direction, the most liberal countries have become even more liberal and the less liberal countries have become less embedded (see Table 5.6). It also appears that a slight convergence has taken place notably between the big countries approximating the liberal type on the one hand and the average of the economies approximating nonliberal, embedded types on the other. Canada and New Zealand as well as Denmark, France, Norway and Spain on the other side do not fit into

110

Table 5.5a

Changes in the indicators of market orientation in % 1


Product market regulation (index 1–6)

Employment protection (index 1–6)

Temporary work (% of full-time jobs)

Collective bargaining coverage (%)

1998

2003

Change

c1990

2003

Change

1994

2004

Change

1990

2000

Change

1.3 2.8 2.1 1.4 1.5 2.1 2.5 1.9 1.5 2.8 1.9 1.8 1.4 1.8 2.3 1.8 2.2 1.1 1.3

0.9 1.4 1.4 1.2 1.1 1.3 1.7 1.4 1.1 1.9 1.3 1.4 1.1 1.5 1.6 1.2 1.7 0.9 1.0

−30 −22 −33 −14 −27 −38 −32 −26 −27 −32 −32 −22 −21 −17 −30 −33 −23 −18 −23

0.9 2.2 3.2 0.8 2.3 2.3 2.7 3.2 0.9 3.6 2.1 2.7 – 2.9 3.8 3.5 1.1 0.6 0.2

1.2 1.9 2.2 0.8 1.4 2.0 3.0 2.2 1.1 1.9 1.8 2.1 1.5 2.6 3.1 2.2 1.1 0.7 0.2

+33 −14 −31 – −40 −13 +10 −31 +22 −47 −14 −22 – −10 −18 −37 – +17 –

– 6.0 5.1 11.3 12.0 18.3 11.0 10.3 9.5 7.3 10.3 10.9 – 12.9 33.7 14.6 12.9 6.5 –

– 8.9 8.7 12.8 9.8 16.2 12.3 12.2 3.4 11.9 13.9 14.6 – 9.9 30.4 15.1 12.3 5.7 4.0

– +48 +71 +13 −19 −11 +11 +19 −64 +63 +35 +34 – −23 −10 +4 −5 −12 –

80 95 90 38 70 90 90 80 70 80 20 70 60 70 70 80 50 40 18

80 95 90 32 80 90 90 68 70 80 15 80 25 70 80 90 40 30 14

– – – −16 +14 – – −15 – – −25 +14 −58 – +14 +13 −20 −25 −22

Sources: Conway et al. 2005: 59; OECD 2004b: 117; OECD database Temporary work; Dice Report 2001: 2.

Table 5.5b

Changes in the indicators of market orientation in % 2


Market capitalization

Unemployment benefits∗

Total public expenditures

1990

2002

Change

1993

2003

Change

1994

2004

Change

35.1 7.1 33.2 42.1 29.3 16.5 25.6 21.2 15.6 13.5 95.6 40.8 20.3 22.5 21.8 39.8 70.0 85.8 53.2

93.1 15.5 52.0 80.5 44.4 105.6 67.6 34.6 49.4 40.3 53.2 96.1 37.1 35.3 70.7 73.7 207.1 119.0 106.4

+165 +118 +57 +91 +51 +540 +162 +63 +217 +199 −44 +136 +83 +57 +224 +85 +196 +39 +100

27 27 40 19 51 38 38 28 31 17 10 53 30 39 32 28 30 19 12

22 32 42 15 50 36 39 29 32 34 8 53 28 34 36 24 33 13 14

−19 +19 +5 −25 −2 −5 +3 +4 +3 +100 −20 – −7 −12 +12 −13 +10 −31 +17

38.4 55.6 52.4 49.7 60.4 62.3 54.2 47.9 44.2 53.5 35.6 51.7 44.8 54.1 46.4 70.3 34.7 45.3 37.0

35.1 50.1 49.6 39.9 54.8 51.2 53.7 47.0 33.7 47.8 37.3 46.6 39.2 45.9 38.8 56.7 36.6 44.0 36.4

−9 −10 −5 −25 −10 −18 −1 −2 −24 −11 +5 −10 −13 −15 −16 −19 +5 −3 −2

Weighed average∗∗ 6# 11 20 15 7 13 7 14 −4 16 17 13 21# 5 7 15 6 7 6

111

Notes: ∗ ‘Average of gross unemployment benefit replacement rates, three family situation and three durations of unemployment’. ∗∗ With the exception of ‘market capitalization’ the change of which was divided by factor 105 all criteria were treated equally. Furthermore, changes at an extremely low level – Austrian market capitalization moved from 7.1% to 15.5% – received only 1 percentage point; changes from a very low start level have additionally been halved, e.g. in the case of the strong rise of unemployment benefits in Italy. # On the basis of 6 and 5 criteria respectively. Sources: OECD n.a.; OECD 2006b: 189; Höpner 2005c: table 2.

112 Open Varieties of Capitalism Table 5.6 Degrees of institutional change on the axis between embedded and liberal capitalism, mid-1990s–mid-2005 (% of change between brackets) Relatively high

Above average

Average

New Zealand (21) Japan (17) Austria (11) Belgium (20) Italy (16) Sweden (16) Canada (15) Germany (14) Netherlands (13)

Below average

De-liberalization

Australia (6) Ireland (−4) Denmark (7) France (7) Spain (7) UK (7) Switzerland (6) US (6) Norway (5)

this picture of convergence, but a much larger group (particularly in terms of inhabitants) does. It consists of Australia, the UK and the US as well as Japan, Germany, Italy, the Netherlands, Belgium and Sweden. So, in this respect the last decade differs from the previous one as analysed, on the basis of somewhat different criteria, by Hall and Gingerich (2004). As could be seen in Figure 4.2, indicating the differences in the mid2000s, the differences between, e.g. Italy, Japan or Belgium and the US are still significant. Related to Table 4.2 and Figure 4.2 the changes mean that e.g. Belgium has moved by 20 per cent from a value of 17.5 points in the mid-1990s to 21 points in the mid-2000s while the US moved by 6 per cent from 31 to 33 points. Looking at individual countries the most striking case seems to be Ireland, who did not liberalize at all. Product market regulation was loosened there too, market capitalization grew and state expenditures decreased, but employment protection and unemployment benefits increased. Finland is another remarkable case because of the explosive, Nokia-related, growth of its market capitalization, Japanese market capitalization, reflecting the decline of this country’s stock market, retreated, but whether or not Japan has considerably liberalized is a disputed question. Here, the indication of overall change is ‘above average’, which seems to be less than Ronald Dore asserts (2006/2007: 22f) who identifies a ‘shareholder revolution’ since the 1990s, but perhaps more than Steven Vogel (2005: 162) who thinks that most change in Japan has been ‘routine adjustment’ and ‘boundet innovaton (. . .) shaped by pre-existing institutions’. Italy is worth mentioning because of its strong elevation of unemployment benefits (from pre-modern, non-liberal to a level of western average). Finally, one has to mention the strong rise of temporary jobs in countries where employment protection is still high, while in


the context of flexible labour markets in Britain and the US, the extent of temporary work is low and relatively stable (but not in Canada). In Scandinavia, with the exception of Sweden (a slight increase there) it has declined. In most countries under consideration rising inequality has been the consequence of the processes of liberalization (the same is true for poverty as will be seen in the subsequent chapter). Lower wages for unskilled workers, frozen minimum wages and lower welfare benefits have been at the root of this development. Table 5.7 illustrates the changes in terms of the Gini index (the higher it is the more unequal the distribution of income is). Strong increases have taken place in Canada, Germany, Sweden (from the lowest level of all countries) and the US (from an already high level) while there was a decline in Australia, the Netherlands, the UK as well as – this should not be a surprise considering the data of Tables 5.5a and b – in Ireland. Table 5.7

Income inequality (Gini index) in the mid-1990s and mid-2000s


Mid-1990s

Mid-2000s

0.309 0.251 0.268 0.283 0.221 0.228 0.281 0.278 0.349 0.348 0.324 0.282 0.335 0.256 0.319 0.211 – 0.354 0.361

0.301 0.265 0.271 0.317 0.232 0.269 0.281 0.298 0.328 0.352 0.321 0.271 0.335 0.276 0.319 0.234 0.276 0.335 0.381

Source: OECD 2008c: 53.

Changes in a liberal direction are not the only changes that have taken place. France has not liberalized much but statism seems to have declined (Hall 2007); Levy (2005: 123) states that only the statist policies but not


the statist framework have been dismantled and that statism has become ‘market-conforming’ (p. 119). In some of the strongly corporatist countries, by contrast, a specific movement in the opposite direction has occurred. Due to shifting power relations between capital and labour wage bargaining, which has been known for its centralized character, has changed in four of these countries: in Austria, Denmark, the Netherlands and Sweden. Starting in the 1980s bargaining patterns have shifted from a (relatively) centralized level to a (relatively) decentralized level (a trend that also was visible in most other political economies; cf. OECD 2006a: 81). Although the move is liberal, it did not imply the weakening of corporatism. Sometimes with a brief period of decentralization in-between as in Denmark and Sweden6 it only changed its face from directly to indirectly centralized corporatism (see Table 5.87 ). Differing from the four countries with a changing corporatism, Finland and Norway could maintain their centralism. And in Switzerland, that is both strongly corporatist as well as strongly liberal, wage bargaining is relatively decentralized by tradition (which is also due to the fragmented political structure of the country). Table 5.8

Measure of coordination in corporatist wage bargaining systems

Austria Denmark Finland Netherlands Norway Sweden Switzerland

1970

1990

2000

Centralized Centralized Centralized Centralized Centralized Centralized Decentralized

Indirectly centralized Decentralized Centralized Indirectly centralized Centralized Decentralized Decentralized

Indirectly centralized Indirectly centralized Centralized Indirectly centralized Centralized Indirectly centralized Decentralized

The characteristic feature of indirect centralization is the political discussion, with the government, the peak organizations of capital and labour as well as expert bodies involved, of wage guidelines for the negotiations at branch level. The national discussion of guidelines is also the context of the typical corporatist exchanges – probably the term bargaining is still appropriate – of e.g. wage restraint against tax reduction or the maintenance of a given level of social security (the times that increased benefits could be negotiated are over). The remarkable aspect is that the state has taken initiative in this context: decentralization was, as Due et al. (1993: 146) call it, a process of centralized decentralization. And in indirect centralization the state behaved as the ‘competition state’ that Cerny (2000) has described. So, the statist component in the


countries approximating corporatism became somewhat strengthened in recent years. Now, a final step would be to plot the changes described in this section in the spider web with its four ideal types that was developed in Chapters 3 and 4. Given the imprecision of the calculation and the data it is based upon I will retreat from such an attempt, however. The location of the positions of countries within the field between the ideal types in Figure 4.3 was only an approximate indication, the extent of the move of most countries toward neo-liberalism is difficult to measure as long as the databasis is only fragmentary; it is not clear how much this move implies a weakening of the corporatist, statist and meso-communitarian character of the countries discussed (for the movement in the field between the ideal types does not have a zero-sum character), and because of the lack of a scale of statism it is impossible to illustrate the specific increase of statism in a number of countries approximating the corporatist type. The description of change in this and the previous sections, and the percentages provided in Tables 5.5a and b, is all that can be offered, therefore.

Change and the paradigmatic character of neo-liberalism Why has neo-liberalism become so dominant? Intensified global competition exerts pressure to change but does not dictate the direction of change. Also, empirical cases unequivocally demonstrating the superiority of strongly liberal political economies do not exist. As will be shown in the next chapter, the US and Britain have had high percentages of GDP growth in the past decade, but this is also true for a number of smaller European economies approximating the corporatist type such as Austria, Denmark, Finland and the Netherlands. And these countries have much less inequality as well as poverty and care more for the environment than all liberal countries except Britain. Moreover, some strongly liberal economies – e.g. New Zealand and Switzerland – have not grown noteworthily. And principally, the causal nexus between institutional structure and economic performance is weaker than often supposed. The strongest correspondence does not exist between institutional structure and economic performance but between the latter and the house price bubble. So, where does the dominance of neo-liberalism result from? My initial answer is that it stems from the relative autonomy of ideas and ideologies. They do not, of course, fall from heaven, but once there, they are very effective. As Hay and Rosamund (2002: 148) put it: ‘Whether the globalization thesis is “true” or not may matter far less than whether it is


deemed to be true (or, quite possible, just useful) by those employing it.’ When ideas and ideologies have become dominant they have got a paradigmatic character and, at least for a longer time, a relatively autonomous life of their own. In fact, the alternation of dominance of neo-classic economics (until about 1930; again since the late 1970, definitely since the 1990s; Harvey 2005: 13) and Keynesianism (in the decades in-between) is a good example. Early Keynesianism or in a broader sense demand-side economics developed in the late 1920s and the 1930s simultaneously in economic science (Keynes, but also Hilferding, De Man and Wicksell) and in Nazi Germany, New Deal America and Social Democratic Sweden. In the 1970s Keynesianism went into crisis because it had difficulties in explaining the economic changes of that time. Whether or not neoclassical economics offered such an explanation will not be discussed here. And I will also not discuss the details of its way to paradigmatic status. Often paradigms are defined as entities with some depth and coherence including worldviews and normative frameworks (Hall 1993: 279; Campbell 1998: 385). This definition is possible, but I prefer a looser one: paradigms are, for whatever motive, widely shared, dominant ideas and ways of thinking that are relatively immune against criticisms. ‘So long as something (. . .) is believed by a large enough group of people, then, because they believe it, it becomes true’, Blyth (2002: viif) writes with respect to economic paradigms. There have been very large groups of economists and journalists being relatively immune to criticism and repeating time and again that the loosening of employment protection and the tightening of welfare eligibility are fundamental requirements for improving the socio-economic performance of countries such as France, Germany and Italy, but also the Netherlands and Sweden. A deep core is not strictly required for endlessly repeating such messages. Epistemic communities are also often defined as featuring analytical depth and coherence. Haas’ (1992: 3) classic list of shared aspects defining such a community contains a set of normative and principled beliefs, causal beliefs derived from analysis and notions of inter-subjectively defined criteria for validating knowledge. Rival concepts with a similar content are Sabatier’s (1988) ‘advocacy coalitions’ based on shared ‘deep core beliefs’ and, related, ‘policy core beliefs’ (cf. Sabatier and Weible 2007: 194ff) as well as Hajer’s (1995) ‘discourse coalitions’ getting coherence by shared rules and norms. Nothing is principally wrong with these definitions. Some epistemic communities or advocacy/discourse coalitions might indeed be based on principle, deep core and ‘core policy beliefs’, analytical rationality and perhaps they are coherent. There is no reason, however, to assume that these characteristics are necessary.


People can belong to an epistemic community without taking notice of core beliefs. Such ‘membership’ requires a looser definition of an epistemic community as a group adhering, for whatever reasons, to a paradigm. Deeply shared values might be important in many of these communities, but fads and interest-related features such as idleness, opportunism and mimicking/imitation might be of considerable relevance as well. These and related features such as cascading have a central place in the policy analyses of Frank Baumgartner and Bryan Jones (e.g. in Baumgartner and Jones 2002; see also Simmons et al. 2006: 789f and the entire text of Lee and Strang 2006). Connected to these features are socialization processes within organizations, processes of, in academic Economics and business schools (the increased importance of the latter in this context is stressed by Lane 2005: 89), growing into ‘normal science’ without questioning it and adhering to ‘eminent authorities’. (Kuhn 1970: 11, 81). And for some people adhering to paradigms might give them a sense of belonging to a group with the right ideas. This looser definition of an epistemic community is particularly appropriate to our subject because the community we present is based upon a paradigm that is repeatedly criticized for its weak empirical basis. Studying imitation, idleness and opportunism in the maintenance of the neo-liberal paradigm is a tricky task because mimicking, adherence to authorities and idleness are mostly not ‘visible’ and cannot directly be perceived therefore (one of the exceptions is the stock market where herd behaviour is very ‘visible’). One cannot prove their explanatory relevance, but their involvement at the micro-level of the epistemic communities sustaining the neo-liberal paradigm has to be made plausible. For this we need the ‘thick description’ (Geertz 1970: 3–30) of the adherents’ routine-like repetitions of the neo-liberal paradigm and the identification of the motives behind them by interpretive inference. The basic assumption of this method is that features such as mimicking are ingredients of everyday life, and that science, policy-making and journalism are not radically different in this respect. Given this, one can tentatively infer from the description that mimicking, conformism and idleness – all or one of these factors – are prominently involved whenever unproved or empirically weak theorems are voluntarily repeated by people who can be expected to be able to acquire the critical information easily.8 Has it been power and dominance relations that have rendered neoliberal ideas paradigmatic in policy and media circles? Do they explain the maintenance of the paradigm and the epistemic community sustaining it? In the literature, this is regularly asserted – see for example Harvey (2005: 43, 48ff), who identifies powerful business groups at the


root of neo-liberal dominance, and Mudge (2008: 711ff) as well as Teles and Kenney (2008: 138), who stress the importance of scientific networks. I do not want to deny the influence of such groups and networks, but focusing on them contains the danger of a simplistic reasoning at the heart of which are strategically acting, powerful agents controlling large-scale socio-economic development. I want to hold against this that power relations and particularly dominance relations are more complex than supposed in the pieces referred to. Following the classic definition of Max Weber (1972: 28) power is the (relative) capacity of actors to carry through their will or interests against the resistance of other actors. It depends on resources such as money, networks, dependency and organization. Domination in the sense of ‘A dominates over B’ (ibid. 514ff) can be understood as a fixed power structure as it is found in colonial rule and generally in authority structures. Dominance is different from this, is related to ideas, ideologies and culture, and has the form: ‘A is the dominant one out of A, B, C . . . N’. Rivals to the dominant view or practice might still exist but are less accepted. A paradigm is dominant, it is ‘normal science’; in this sense it is synonym of dominance within academia. In the case of neo-liberalism the paradigmatic character and dominance has been considerably broader and covering a large epistemic community. In such a situation the paradigm becomes an ‘authoritative narrative’ or idea (Hajer 1995: 46) and is regularly accompanied by a typical behaviour of its adherents towards those with different ideas. Scholars and journalists asking critical questions have a good chance of receiving only a bland smile instead of an answer – a behaviour that generally tends to be the junior partner of strong paradigms (Kuhn 1970: 5ff). The dominance of a theory emerges out of choice, conflict, learning and accidental circumstances – think about the power of leftist ideas in the 1970 as well as of the oil crisis and the economic emergence of Japan as fundamental context triggering the response of neo-liberalism. Is dominance also made and sustained by powerful interests? Interests and preferences are involved in dominance; for example those of individuals who, at the micro-level, are interested in their jobs and careers or their acknowledgement by a group as well as those, at the macro-level, of capital and labour who are interested in their collective advantages. Interests are not plainly given. Ideas and ideologies are relatively autonomous and constitutive in the formation of interests (cf. Hall 1997) though the latter cannot be reduced to ‘social constructs open to redefinition through ideological contestation’ (Blyth 2002: 270f). It is not an accident that high-income strata tend to support parties that embrace


liberal principles. One can presume that the increase of these groups was a supportive element for the maintenance of liberal dominance. And it is not an accident that capital during the past decades has almost always supported neo-liberal formulas while labour either rejected them or only hesitantly submitted to some of them. One has to avoid class reductionism and to accept a constructive component, but there seems to exist some connection between the socio-economic position of the main economic players and their interests. A way of expressing this connection is to conceptualize the positions of labour and capital as articulation bases for interest formation (Becker 1989: 78ff). It is plausible to link the basic interests in profits versus wages directly to these bases, but there is no good argument for linking these fundamental interests unequivocally to specific policy orientations. An apparently best way to raise profits does not exist, there might be differences between short-term and long-term interests, and branches have specific articulation bases. Labour is in a similar situation: state workers’ interests might be different from those of mass production industry workers, which, in their turn, are different from those of high quality production or service workers. And so on. Once their interests have been established, does capital or labour has the power to bring about border-crossing epistemic communities with thousands of adherents? Did networks of capitalists establish these communities? Business supports neo-liberalism, but there is no evidence and, more important, no logical support that the emergence of neo-liberalism resulted from the powerful action of capital.9 The refuting argument in this case is that in a pluralist society nobody has the power resources to make large groups of people effectively accept a certain view when they think it is wrong. In the absence of a powerful actor commanding the required resources dominance, as different from power, is a phenomenon that is not narrowly controlled by any force involved in social and political interest conflict. Rather, it is an anonymous entity. No single interest group constitutes a theory as paradigm adhered to by a very broad epistemic community. Once the theory has become dominant, however, there will be individuals, companies or employers’ associations supporting it because they think to have an interest in its maintenance. In the case of neo-liberalism this is not only shareholder interests, but possibly also that of academic economists who want to get accepted the articles they write by highly ranked journals that, as a rule, are rather mainstream. In an open society dominance is never total dominance of course. Rivals always exist and not all interest groups are receptive to dominant ideas. This is one of the reasons that change into liberal direction has


remained limited in most countries. There are rival ideas and, what is very important, rival successful alternatives. For a considerable group of people, unions, political parties, voters and even some economists, European welfarism is as important as GDP growth. This is a force providing for path continuity and illustrates the contest on reference frames analysed in Chapter 3. Complicating decision-making procedures with disagreement about details are another such force, and the same is true for uncertainty about unintended consequences and for the transaction costs connected to the dismantling of, for example, generous unemployment benefits. As long as a given institutional structure provides ‘returns’ – simply returns, not increasing returns – this weakens the forces of change, even if they are ideologically dominant. Moreover, (radical) change will produce losers and increase uncertainty. As a reaction, potential losers and their organizations (supposed they have organizations) tend to mobilize against change. Given these factors, change towards neo-liberalism has been considerable in recent decades.

6 Performances: Growth, Productivity, Competitiveness

Reading what prominent economists such as Alesina, Eichengreen, Porter and Phelps write on continental Western ‘Europe’ one gets the impression of a huge economic performance gap between this part of the globe and the United States: the latter doing particularly well, the former disastrously bad – with respect to France and Germany Porter (in Snowdon and Stone-house 2006: 13) even talks of ‘a mess’. Apart from a few positive words (with reservations) about Scandinavia (ibid.; Alesina and Giavazzi 2006: 9) they state in general terms that ‘Europe’ was good as long as it could catch up by imitation of American inventions, but that it has run into serious trouble since it has itself to be inventive (Alesina and Giavazzi 2006: 8; Eichengreen 2006: 2 and 5). In Phelps’ (2003, quoted from Gordon 2004: 13f) view continental Europe performs poor because venture capital and equity finance are underdeveloped and because corporatist institutions, e.g. ‘the need to consult with workers’, hamper innovation and competition. It also has developed a culture of ‘dependency’ with the result that many juveniles lack the ‘sense of independence and are unwilling to strike out on their own’. These are remarkable claims for studies that have as their empirical basis an imaginary ‘continental Europe’ (as in the case of Phelps) or are largely restricted to Italy (as is the case with Alesina and Giavazzi) or France, Germany and Italy (as in the case of Eichengreen) respectively. Nonetheless, Alesina and Giavazzi (2006: 11) go so far as to say that Europe is a ‘frog in slowly warming water’. A lot is wrong in European political economies and much has to be reformed, but ignoring the sometimes huge differences between individual countries is a scientific sin. Being uncritical of the United States, which the quoted studies are to an amazing degree, is another one. Given the dominance of neo-liberal reasoning for about a quarter of a century the advice mostly heard whenever an economy features low 121


GDP growth and/or high unemployment is to cut unemployment benefits and to flexibilize and liberalize markets. Numerous reports making this point have been published. In the light of the predominant advice of these publications and the thousandfold reiteration of their message one should, of course, expect that the more liberal political economies are, or have become by the recent changes described in the previous chapter, the better they perform in terms of employment, GDP growth, productivity and competitiveness. This is not the case, however, and the neo-liberal theory is very problematic and does not survive a serious comparative test. On average, strongly liberal countries do not outperform less liberal ones and those countries liberalizing their economies most do not perform generally better than those countries that did less so. No clear pattern exists. Subsequently, I want to discuss GDP growth, productivity, employment, the innovative capacity and other aspects determining the level of competitiveness of political economies in a mid- to long-term perspective. Thereafter the political economies’ social dimension will be analysed: employment and unemployment levels of specific groups, details of income and wealth inequality, but also features such as literacy. This dimension also includes the environment. How ‘dirty’ are the compared countries in terms of CO2 and chemical emissions, in the consumption of resources and in the production of waste? Are there significant differences? The performances in the different fields will be related to the types of capitalism the economies under consideration most approximate. Given the measurement problems pointed to in Chapter 4, I will not, however, attempt to be exact in this task by, for example, calculating correlation coefficients of performances and the approximation of these economies to the liberal, statist, corporatlist or meso-communitarian types. The data lack the required precision for this exercise. This is true for the margins of error in the statistics provided by the OECD and comparable agencies, but even more so for the location of the national political economies in the field between the ideal types. We only know roughly how liberal Britain is and how corporatist the Netherlands. In the case of the other countries the situation is similar and all political economies contain features of second and third (and perhaps even fourth) varieties of capitalism. If we simply had liberal, statist, corporatist and meso-communitarian political economies the situation would be easier – but we do not. As a consequence I will, per group of countries mostly approximating one or the other type, differentiate only the performances by the categories of low, intermediate or medium and high.

Performances: Growth, Productivity, Competitiveness 123

An exhaustive explanation of the national performance profiles is not intended here, but I want to make clear that other than institutional factors, particularly accidental circumstances, can be very important and that unexpected combinations of remarkable GDP performances, a concentration of rigidities and a low level of innovative activities appear not to be impossible. Spain and, taking a case not considered until now, Greece, are examples of this. In the course of this chapter, I will also come back sporadically to the theory of comparative institutional advantages, already touched upon in previous chapters. In VoC theory these advantages are understood as advantages of specific varieties of capitalism as sets of complementary institutions, regularly even of ideal–typical sets of institutions. In this latter case the theory confuses, as pointed out earlier, ideal types with ideal performers. It is empirical, hybrid, capitalisms that perform, however, and these empirical capitalisms’ performances are the subject of this chapter. Let’s start with an overview.

Brightly shining US capitalism and darkness in ‘Europe’? The data tell quite a clear story. The United States as the most liberal political economy seems to have been the most dynamic one, particularly since the early 1990s – just around the time that doubts about its competitive capacity rose and Germany and Japan were discussed as models (e.g. by Thurow 1992). The US has a very high income per capita, respectable growth figures since 1992, and is one of the most innovative countries (see Tables 6A.1 and 6A.3) – though regarding this it is, according to the European Commission, not ahead of Germany, Japan and a few smaller EU member states. American computer chips and the American invention of the internet brought fundamental change into the material way of life of billions of people. Nothing similar can be said about the other strongly liberal political economies of Australia, Britain, Canada, Ireland and New Zealand. Since 1992 their GDP growth has been higher than in Japan and the large continental European countries, but they are not richer and less innovative than the latter and the other more embedded political economies of Northwestern Europe. If we take GDP per hour worked (a measure for productivity), then, as Table 6.1 shows, even the lead of the US disappears. Belgium, France, the Netherlands and, if it still would be a separate unit as until 1990, West Germany perform equal or better.1 Not bad for countries – France and Germany – described as a ‘mess’ by productivity specialist Porter.

124 Open Varieties of Capitalism Table 6.1 GDP per capita and per hour worked in ppp (USA = 100), annually worked hours per head and employed persons, 2006; estimated size of the black economy in 2005

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway Spain Sweden Switzerland United Kingdom United States

GDP per capita

GDP per hour worked

Hours worked per capita (per person in employment)

Black economy (% GDP)

81 81 77 84 80 75 71 73 93 66 73 83 59 118 67 80 86 75 100

83 84 104 82 85 82 99 93 102 76 71 102 56 141 78 89 80 82 100

852 (1723) 847 (1655) 637 (1571) 892 (1738) 822 (1574) 795 (1660) 622 (1568) 680 (1433) 788 (1640) 757 (1814) 896 (1784) 714 (1391) 917 (1787) 730 (1408) 746 (1655) 780 (1576) 937 (1657) 798 (1669) 869 (1797)

13 10 20 14 17 17 14 15 15 24 11 12 12 18 21 18 9 12 8

Sources: OECD 2007c: 12f and OECD 2007d, OECD 2008a: 353; Enste and Hardege 2007.

It is worth noticing that not only small countries or regions but also large ones such as France and West Germany are as productive as the US. For the US contains a number of smaller states such as those in New England and even bigger ones like California that are considerably more productive than the American average and hence more productive than most small, productive European countries. A remarkable case is Belgium. Its per hour GDP/productivity is higher than that of the US and its GDP per capita rises by 20 per cent if the country’s large black economy is included. This is remarkable because with Wallonia Belgium hosts one of those regions that, like the British Midlands and the German Ruhrgebied, have still not recovered from the crisis of heavy industry (coal and steel) of the 1970s and 1980s. This means that, taken separately, the Flemish part of Belgium has an unemployment level less than half that of Wallonia and is even more productive


and richer than the country as a whole. This is still remarkable, because Belgium (as well as its Flemish part) has a relatively rigid labour market, a generous welfare system, and is not known for its innovative dynamics. An even more remarkable case is Greece. It is not part of this analysis because it does not qualify as an advanced political economy, but it has developed strongly in the past decades and is nearly as rich as Germany, and if its huge black economy is included (28 per cent of GDP) it is even richer. And this is in spite of a labour market that is far from being liberal and in spite of extremely low efforts to innovate.2 Back to the general picture: the main difference between US-Americans and West-Europeans is the number of hours they annually work (Italians – as well as Greeks – do not fit into the pattern – see the bracketed figures in Table 6.1). It is due to the shorter working week European unions achieved in the 1980s, but also to early retirement policies reducing the employment rate and to the incidence of part-time work. Americans work many more hours than the average Dutch, French, German or Dane and Swede do for their, in purchasing power parities, 15 to 25 per cent lower GDP per capita. This raises the question whether it makes sense to go for an American-like income when it takes much more time than is required for the high standard of living in the previously mentioned countries. Do we need more cars, bigger television screens, bigger houses, more clothes, toys and household machines? These questions are particularly relevant when one takes into account that the US, just as Australia and Canada, is a much greater polluter and producer of CO2 (see Table 6A.6) than most West European countries (including Britain, which is performing relatively well in this respect) and Japan. Another aspect worth mentioning is that, as can be seen in Table 6.2, income inequality in the US in general and particularly between income deciles 9 and 5 is so large that the often referred to middle class is not richer than their counterpart in Northwestern Europe and that the poor are, relatively, poorer and more numerous. Also life expectancy is the lowest of the countries compared here (see also the remarkably low Danish score) and the percentage of obese people is by far the highest in the economically advanced world. It is almost eleven times as high as the Japanese figure, four times higher than that of Switzerland, three times higher than that of France, Italy, the Netherlands, Norway and Sweden and still more than twice as high as the continental West-European country, Finland, with the highest figure. Runners up are the other strongly liberal countries with about two-thirds of the American value. Corresponding to the high level of obesity is the American intake of food. The annual meat consumption per head is according to FAO data 125 kg

126 Open Varieties of Capitalism Table 6.2 Broad social indicators: life expectancy, adult obesity (both in 2005), ratio of high to median incomes (2006) and poverty rate (2000)


Life expectancy

Adult obesity

Ratio of 9th to 5th earnings deciles

Poverty; 50% or less of median income (mid-2000s) and change since the mid-1990s3

80.9 79.5 79.4 80.2 77.9 78.9 80.3 79.0 79.5 80.4 82.0 79.4 79.6 80.1 80.7 80.6 81.3 79.0 77.8

21.7 9.1 12.7 18.0 11.4 14.1 9.5 13.6 13.0 9.9 3.0 10.7 20.9 9.0 13.1 10.7 7.7 23.0 32.2

1.90 – – 1.87 1.73 1.75 1.98 1.73 2.05 – 1.86 1.76 1.79 1.47 2.14 1.67 1.81 1.98 2.30

12.4/1.0 6.6/1.9 8.8/−0.3 12.0/2.5 5.3/0.6 7.3/2.4 7.1/−0.4 11.0/2.5 14.8/4.4 11.4/−2.8 14.9/1.2 7.7/0.6 10.8/2.4 6.8/−0.3 14.1/1.9 5.3/1.7 8.7/1.2 8.3/−1.5 17.1/0.4

Sources: OECD 2007c: 10f; OECD 2008a: 358; Begg et al. 2007: 100 ; OECD 2008c: 127, database.

(Europe 80 kg; as a contrast it is 30 kg in poorer Asia), that of sugar 70 kg (Europe 40 kg, Asia 15 kg) and of milk products 260 kg (Europe 220 kg, Asia 40 kg. (quoted from NRC Handelsblad, 28 May 2008). Given that obesity is also high in Australia, Canada, New Zealand and Britain and that something similar is true for the levels of inequality, the number of hours worked annually and, what is very important, the marketization of personal services in these countries approximating the liberal type one can at least cautiously hypothesize a causal connection between low incomes, a high work load, the consumption of junk food and obesity. The basic question however is: are high obesity and life expectancy below the western average (as in the United States) the goals for which one needs a high average material standard of living?


The highest level of employment over the past years is to be found in Switzerland (as a hybrid of liberalism and corporatism), the Scandinavien countries, Japan and the political economies approximating the liberal type. Austria, the Netherlands, the latter with a huge number of part-time workers, as well as most recently Germany are no longer far away from Anglo-Saxon employment levels, however. The employment laggards have been Belgium, (still) Ireland, Germany for a long time and the bigger south-European countries of France, Italy and, in spite of a recently steady increasing employment rate, Spain (see Table 6A.5). In most of these countries female and juvenile employment as well as that of persons older than 55 years (who have been given or chosen early retirement) is much lower than in the Anglo-Saxon and Nordic political economies. Unemployment percentages – although generally less reliable than employment figures – correspond with this. In some countries they have been dramatically high and and with respect to some groups – particularly the age group of 15 to 24 years in France, Italy and Spain with percentages higher than 20 and a share of long-term unemployment of up to 50 per cent – one is talking about a disastrous situation. The countries where everything apart from the absolute GDP level is ‘better’ are the Scandinavian ones or more precisely Denmark, Finland and Sweden (Norway shares in the ‘Nordic values’ and social accomplishments, has a higher per capita income than the US, but is too much oil-dependent). These countries do not feature a high degree of economic liberalism, but a high degree of (social democratic) corporatism. In terms of employment and competitiveness they are strong; Denmark, Finland and Sweden are regularly described as innovative as the US, their efforts to reduce environmental demage are more serious than in most other countries and, most strikingly, inequality and poverty are low (although they have risen somewhat) and equality of condition and social mobility are the highest in the world. These countries also have less attractive features – the very high Swedish sickness leave is an example – and one has to take into account that they are small, very small. Sweden has as many inhabitants as London or Paris (about 9 million) and the three remaining Nordic countries (leaving out tiny Iceland with only 300,000 inhabitants) count each a little more than half of this population. Does it make sense to compare these small countries to large ones such as the US (300 million inhabitants and hosting states, the New England states and Wisconsin are examples, where poverty is considerably lower than the national average) or Germany (80 million, with a southern part as large as Scandinavia and performing comparatively very well)?


As simple charts, the general comparative picture can be summarized in Tables 6.3 and 6.4. The first one combines GDP growth per capita during the 15 years after 1992 and the current level of employment; the second one combines competitiveness and social performance (exact data are in the Appendix to this chapter in Tables 6A.1 and 6A.3 to 6A.5). In Table 6.3 (as well as in Table 6A.1) GDP growth per capita instead of GDP growth is chosen because in the former changes in population size are taken into account. Population growth in some countries (e.g. the US) and decline or stagnation in others (e.g. Italy and Japan) is then eliminated. It is only on this basis that national figures are seriously comparable. Table 6.3 Rough country comparison of GDP growth per capita and employment

GDP growth p/c 1992–2006

H\L

Employment rate in 2007 (population 15–64 years old) M A, ESP, IRL, NL

M

B, F, I

GER

H

AUS, CAN, DK, FIN, N, SE, UK, US NZ CH, J

L Notes: High employment rate ≥70%, intermediate: 65–70%; low

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