Hall and Soskice: Varieties of Capitalism

PA Hall and DW Soskice, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford University Press, USA, 2001).

Comparative political economy is the study of differences between political-economic systems across national boundaries. "The object of this book is to elaborate a new framework for understanding the institutional similarities and differences among the developed economies, one that offers a new and intriguing set of answers to such questions" (1-2).

The authors identify three strands of thought in the varieties of capitalism literature. The first, or modernization approach, grew out of post WWII rebuilding and focused on governmental ability to create growth. The second, or neo-corporatism, built upon the work of Olsen, for example, and argued that it was the ability of groups in society to work together that created growth. The third group, or social systems of production literature, focused more heavily on changing structures in production and focused heavily on regional and sectoral institutions (4). "where we break most fundamentally from these approaches, however, is in our conception of how behavior is affected by the institutions of the political economy. Three frameworks for understanding this relationship dominate the analysis of comparative capitalism" (4-5). These frameworks are as follows: institutions socialize; institutions arise from power, and institutions form a matrix of sanctions and incentives (5).

"The varieties of capitalism approach to the political economy is actor-centered, which is to say we see the political economy as a terrain populated by multiple actors, each of whom seeks to advance his interests in a rational way in strategic interaction with others...The relevant actors may be individuals, firms, producer groups, or governments. However, this is a firm-centered political economy that regards companies as the crucial actors in a capitalist economy. They are the key agents of adjustment in the face of technological change or international competition whose activities aggregate into overall levels of economic performance" (6).

Following this approach, the firm is viewed relationally, and according to five issue areas. These are the following: industrial relations, vocational training and education, corporate governance, inter-firm relations and employee relations. Different national political economic organizations can be compared looking at these five nodes. The authors divide different organization in the following way: "The core distinction we draw is between two types of political economies, liberal market economies and coordinated market economies, which constitute ideal types at the poles of a spectrum along which many nations can be arrayed" (8).

"In short, deliberative institutions can provide the actors in a political economy with strategic capacities they would not otherwise enjoy; and we think cross-national comparison should be attentive to the presence of facilities for deliberation as well as institutions that provide for the exchange of information in other forms, monitoring, and the enforcement of agreements" (12).

The authors also diverge from other theories of comparative political economy as they focus on the role of culture, history and norms in their analysis.

The chapter continues in great detail about the implications of political economic analysis through the comparative political economy method. The roles of America and Germany are explored separately. The homogenizing effects of globalization are questioned and the implications of this method can be seen to change the analysis of social policy and coordination in the economic realm.

UPDATE:

"The developed economies are currently experiencing profound changes. A technological revolution is creating entirely new sectors, based on biotechnology, microprocessors, and telecommunications, whose products are transforming business practices across the economy" (54). "If technology provided the spark for this revolution, the accelerant has been liberalization in the international economy" (55). "For political economy, the principal issue raised by globalization concerns the stability of regulatory regimes and national institutions in the face of heightened competitive pressure...Will institutional differences among nations of th sort we have identified remain significant or will the process of competitive deregulation unleashed by international integration drive all economies toward a common market model" (55). Some argue that globalization has tipped the scales in favor of international capital, as it is free to move but labor is constricted. This school of thought also explores the possibilities of a homogenizing effects being imposed upon firms to conform to the logic of capital accumulation. Some disagree that global capital is overly constraining the ability of states to act. They claim that international integration is not as intense as we would imagine or that governments are actually manipulating the actions of international institutions in the interest of national power.

"The varieties of capoitalism approach calls into question each of the assumptions underpinning the conventional view of globalization. First, it suggests that firms are not essentially similar across nations..Second, our perspective suggests that firms wil lnot automatically move their activities off-shore when offered low-cost labor abroad...Finally, our perspective calls into question the monolithic political dynamic conventionally associated with globalization" (56-7).