The Diversity of Modern Capitalism

The Diversity of Modern Capitalism

The Diversity of Modern Capitalism

The Diversity of Modern Capitalism

Synopsis

This book considers why institutional forms of modern capitalist economies differ internationally, and proposes a typology of capitalism based on the theory of institutional complementarity. Different economic models are not simply characterized by different institutional forms, but also by particular patterns of interaction between complementary institutions which are the core characteristics of these models. Institutions are not just simply devices which would be chosen by 'socialengineers' in order to perform a function as efficiently as possible; they are the outcome of a political economy process. Therefore, institutional change should be envisaged not as a move towards a hypothetical 'one best way', but as a result of socio-political compromises. Based on a theory of institutions and comparative capitalism, the book proposes an analysis of the diversity of modern economies - from America to Korea - and identifies five different models: the market-based Anglo-Saxon model; Asian capitalism; the Continental European model; the socialdemocratic economies; and the Mediterranean model. Each of these types of capitalism is characterized by specific institutional complementarities. The question of the stability of the Continental European model of capitalism has been open since the beginning of the 1990s: inferior macroeconomicperformance compared to Anglo-Saxon economies, alleged unsustainability of its welfare systems, too rigid markets, etc. The book examines the institutional transformations that have taken place within Continental European economies and analyses the political project behind the attempts attransforming the Continental model. It argues that Continental European economies will most likely stay very different from the market-based economies, and caat political strategies promoting institutional change aiming at convergence with the Anglo-Saxon model are bound to meet considerableopposition.

Excerpt

At the start of the twenty-first century the role of institutions and the conditions for institutional change are at the core of the economic debate in Europe. the debate has its roots in a comparison of economic performance within the triad of Europe, Japan, and the usa in a context of globalization and the emergence of a new growth trajectory associated with what is commonly dubbed the 'knowledge-based economy' (OECD 2000). At the end of the 1980s the discussion about the relative merits of different models of capitalism seemed to be very clear. the context was that of the long-term economic success of Europe and Japan, as opposed to what was perceived as a long-term decline in the usa. Comparative analysis showed that Europe and Japan had all but caught up with the usa in terms of gdp per capita, not simply by adopting the us methods of work organization, but by developing specific modes of organization that proved to be superior to their American counterparts. As a result, the usa was losing ground in terms of industrial competitiveness, as witnessed by the growing trade deficits and the loss of market shares in manufacturing. the feeling in the usa was that something drastic needed to be done in order to 'regain the productive edge' (Dertouzos et al. 1989). Deficiencies in the us model were observed in a number of areas, the most prominent being the financing relationship and the pattern of corporate governance, as well as the employment relationship. the financing pattern reflects the pressure that firms' owners exert on firms' strategies. a major deficiency in the American model was held to be its focus on short-term profits, which are necessary to please shareholders and financial markets. On the other hand, the long-term relationships established between banks and firms in Europe and Japan allowed for the implementation of more long-term strategies financed by 'patient' capital. This explained why the manufacturing sector was in much better shape in Germany or Japan than in the usa. Also, differences in the degree of centralization of wage bargaining, employment protection, and more generally the labour-market institutions encouraged different attitudes with respect to cooperation in

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