Freeman: Single Peaked Vs. Diversified Capitalism

FREEMAN, RB. 2000. Single Peaked Vs. Diversified Capitalism: The Relation Between Economic Institutions and Outcomes. NBER Working Paper.

From the abstract: "Capitalist countries have historically had quite different labour market institutions and social policies. Do these differences produce sufficiently different economic outcomes to identify a single peak set of institutions? This paper shows that: 1. Labour market institutions have large effects on distribution, but modest hard-to-uncover effects on efficiency. 2. Institutional diversity is increasing among advanced countries, as measured by the percentage of workers covered by collective bargaining. 3. The case for the US having the institutions for peak economy status rests on its 1990s full employment experience, which arguably counter balances its high level of economic inequality. The historical pattern whereby some capitalist countries do better than others in some periods...then run into problems is more consonant with the view that capitalism permits national differences in institutions to persist than with the view that all economies must converge to a single institutional structure" (abstract).

"The labour market is potentially the most idiosyncratic market in advanced capitalism" (1).

The single peaked model of capitalism would argue that it would be possible for the US to achieve a full employment status with the right kind of labor market institution. A Diverse Capitalism approach would understand this to be problematic. In a diverse capitalism approach, "To move from one peak to a higher one or to the global optimum req1uires that the economy descend from the local peak before it ascends the higher one" (3). "The expense of changing institutions permits variety in the institutional environment" (3). There are a variety of different "landscapes", ie., the relationship between a kind of institutional labor market relationship and a certain kind of desired output. These provide an opportunity for comparative analysis. There is also a normative element to this analysis: it is possible to analyze the variety among countries by different metrics, with obviously different results.

There is then a various analysis of different forms in which a capitalist economy can form, as well as an exploration of whether or not the US represents a "Peak Economy".

The paper ends with three questions posed. As a summary:

Do different labor institutions and organization affect economic performance in different ways? Yes. Not in an absolute deterministic way, but yes.

Will distinct characteristics between institutions continue as the global economy becomes more integrated? Yes. Because institutions become embedded, because values differ and because different institutions do not preclude the same output.

Does the US represent a "peak economy"? No.

UPDATE:

There is a great variety in different capitalist countries in their institutional structure and consistency. From the US to Japan to Germany, three very successful capitalist countries operate with three very different kinds of institutional milieus. This study examines the claim that there is only one form of institutional structure and consistency that is agreeable to the interests of global finance and capital. This is identified as the single peaked verses diverse capitalist thesis.

The reason that there can be a multitude of structures within capitalist organization is that there are large costs associated with transitioning from one institutional structure to another.

If the single-peaked hypothesis was correct, it would be possible to note a few things: firstly, there would be one clear set of institutions that could be emulated; these should persist over time; countries who fall around the peak should be able to conform to these institutions and achieve gains in growth, and there should be long-term global convergence towards homogenous institutions of capitalism.