Academic journal article Review of Social Economy

Flexible Specialization, Supply-Side Institutionalism, and the Nature of Work Systems

Academic journal article Review of Social Economy

Flexible Specialization, Supply-Side Institutionalism, and the Nature of Work Systems

Article excerpt


From the New Right supply-side perspective, "flexibility" has been seen exclusively in terms of removing or reducing the "institutional rigidities" that prevent the full operation of market forces and the ability of economic agents to respond to price movements. In periods of prolonged economic crisis it is concluded that the market mechanism has been prevented from working efficiently as an allocative and incentive system. Thus the experience of the stagflationary era led many mainstream economists to deduce that "rigidities" and "imperfections" in the labor market had produced excessively high wage costs, restrictive practices and poor productivity. Rigidities in capital markets, allied with excessive regulation, had discouraged investment and risk-taking and high government expenditure had produced high marginal rates of tax that constituted a major disincentive to work, save, and invest. In the face of such rigidities, intervention was necessary to: curb vested interests and distributional coalitions; facilitate reallocation of resources between the public and private sectors; reorder the fiscal activities of the state; and, in general, to restructure economic relations and the governmental role in the economy.

Despite the supply-side emphasis on marginal tax rates, at the heart of most neoconservative analyses of the difficulties of the western industrialized economies was the belief that the above-mentioned "institutional rigidities," primarily those associated with trade union and governmental activity, were the main cause of the high inflation, slow technological change and sluggish economic growth that had characterized the 1970s. By the early 1980s US New Right "liberal productivist" ideas were spreading to Europe in the form of so-called "Euro-sclerosis" theories, most of which have been inspired by, and based upon, the analysis of Olson (1982). It became commonplace, for example, to ascribe the U.S. superior employment growth to her more flexible labor market, and the OECD argued that:

[The] Main impediments to better functioning of labor markets arise from specific wage-bargaining institutions, tax and social spending policies, and over-protective legislation. In particular, in many countries the interaction of the income tax and social transfer system, especially unemployment benefits, exacerbated the unemployment problem.

(OECD 1989b: 16).

Alongside neoclassical supply-side analysis, but perhaps rather overshadowed by it, there was an emergence in the 1980s of a new strand of analysis seeking to develop what Streeck (1991: 22) has called "a social-institutional perspective on the supply-side of modern industrial economies." This "supply-side institutionalism" held out the prospect of a superior competitiveness through sophisticated application of new technology, and suggested that a diversified product range and non-price competition policies could be combined with high wages, skilled labor and a flexible non-Taylorist organization of work.

The two main developments were flexible specialization (FS) and diversified quality production (DQP). According to Piore and Sabel (1984), Fordist mass production was an historically contingent development, related to the pre-eminence of the large US corporations and their ability to generate mass markets for standardized products. Since the 1970s, it is alleged, the system has been in crisis for demand-related reasons. In such a crisis, it is argued, only an alternative technological paradigm can break the deadlock and offer the chance for a "second industrial divide." With the changes that have taken place in the consumer market, smaller-scale production increasingly has a competitive edge over the established vertically integrated firms, and the economies of scope supercede the economies of scale. A reversal of the Fordist fragmentation and deskilling of labor emerges, and with it the prospect of better work in which the versatility and self-direction of the traditional craft worker reemerges. …

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