An Introduction To Varieties Of Capitalism (Peter Hall)

Abstract: This chapter outlines the theoretical perspective behind a Ð''varieties of capitalism' approach to comparative political economy, emphasizing the central role of the firm as the agent of economic adjustment and the impact of the relationships it forms in the spheres of corporate governance, labor relations, skill formation, inter-corporate relations, and employerÐ'-employee relations. It develops the distinction between liberal market economies, where firm endeavours are coordinated primarily by markets, and coordinated market economies, where coordination is more heavily strategic, and explores how the institutional complementarities in these economies give rise to distinctive forms of innovation as well as comparative institutional advantages that condition the response of firms and national governments both to globalization and to the dilemmas they face in the realms of economic and social policy-making.

Keywords: comparative institutional advantage, comparative political economy, coordination, economic adjustment, economic policy, globalization, institutional complementarities, skills, social policy, varieties of capitalism

1.1 Introduction

Political economists have always been interested in the differences in economic and political institutions that occur across countries. Some regard these differences as deviations from Ð''best practice' that will dissolve as nations catch up to a technological or organizational leader. Others see them as the distillation of more durable historical choices for a specific kind of society, since economic institutions condition levels of social protection, the distribution of income, and the availability of collective goodsÐ'--features of the social solidarity of a nation. In each case, comparative political economy revolves around the conceptual frameworks used to understand institutional variation across nations.

On such frameworks depend the answers to a range of important questions. Some are policy-related. What kind of economic policies will improve the performance of the economy? What will governments do in the face of economic challenges? What defines a state's capacities to meet such challenges? Other questions are firm-related. Do companies located in different nations display systematic differences in their structure and strategies? If so, what inspires such differences? How can national differences in the pace or character of innovation be explained? Some are issues about economic performance. Do some sets of institutions provide lower rates of inflation and unemployment or higher rates of growth than others? What are the trade-offs in terms of economic performance to developing one type of political economy rather than another? Finally, second-order questions about institutional change and stability are of special significance today. Can we expect technological progress and the competitive pressures of globalization to inspire institutional convergence? What factors condition the adjustment paths a political economy takes in the face of such challenges?

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

1 We concentrate here on economies at relatively high levels of development because we know them best and think the framework applies well to many problems there. However, the basic approach should also have relevance for understanding developing economies as well (cf. Bates 1997).

We outline the basic approach in this Introduction. Subsequent chapters extend and apply it to a wide range of issues. In many respects, this approach is still a work-in-progress. We see it as a set of contentions that open up new research agendas rather than settled wisdom to be accepted uncritically, but, as the contributions to this volume indicate, it provides new perspectives on an unusually broad set of topics, ranging from issues in innovation, vocational training, and corporate strategy to those associated with legal systems, the development of social policy, and the stance nations take in international negotiations.

As any work on this topic must be, ours is deeply indebted to prior scholarship in the field. The Ð''varieties of capitalism' approach developed here can be seen as an effort to go beyond three perspectives on institutional variation that have dominated the study of comparative capitalism in the preceding thirty years. 2

2 Of necessity, this summary is brief and slightly stylized. As a result, it does not do full justice to the variety of analyses found within these literatures and neglects some discussions that fall outside them. Note that some of our own prior work can be said to fall within them. For more extensive reviews, see Hall (1999, 2001).

In important respects, like ours, each of these perspectives was a response to the economic problems of its time.

The first of these perspectives offers a modernization approach to comparative capitalism nicely elucidated in Shonfield's magisterial treatise of 1965. Devised in the post-war decades, this approach saw the principal challenge confronting the developed economies as one of modernizing industries still dominated by pre-war practices in order to secure high rates of national growth. Analysts tried to identify a set of actors with the strategic capacity to devise plans for industry and to impress them on specific sectors. Occasionally, this capacity was said to reside in the banks but more often in public officials. Accordingly, those taking this approach focused on the institutional structures that gave states leverage over the private sector, such as planning systems and public influence over the flows of funds in the financial system (Cohen 1977; Estrin and Holmes 1983; Zysman 1983; Cox 1986). Countries were often categorized, according to the structure of their state, into those with Ð''strong' and Ð''weak' states (Katzenstein 1978b; Sacks 1980; Nordlinger 1981; Skocpol and Amenta 1985). France and Japan emerged from this perspective as models of economic success, while Britain was generally seen as a laggard (Shonfield 1965; Johnson 1982

During the 1970s, when inflation became the preeminent problem facing the developed economies, a number of analysts developed a second approach to comparative capitalism based on the concept of neocorporatism (Schmitter and Lehmbruch 1979; Berger 1981; Goldthorpe 1984; Alvarez et al. 1991). Although defined in various ways, neo-corporatism was generally associated with the capacity of a state to negotiate durable bargains with employers and the trade union movement regarding wages,

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