Models of Capitalism in Europe: Towards the Return of the State?*

By Lehndorff, Steffen | International Journal of Action Research, January 1, 2010 | Go to article overview

Models of Capitalism in Europe: Towards the Return of the State?*


Lehndorff, Steffen, International Journal of Action Research


The present economic crisis has sparked a new debate in a wider political and academic public about the role of the state in advanced capitalist societies. The paper discusses this issue in a comparative perspective: How have different models of capitalism in Europe coped with major economic and societal challenges before the present crisis? Taking the UK and Sweden as flagship examples for contrasting models of capitalism in Europe, and Germany as an increasingly controversial case between these poles, the paper describes major moves taken in these three countries, from the mid-1990s, to tackle the challenges of globalisation and the liberalisation of EU labour and product markets, and to respond to societal changes such as ageing and the changing gender roles. It concludes with a comparative assessment of changes in these three models of capitalism in Europe before the current economic crisis as a basis for an outlook at the respective prospects in the near future, given the legacies of this crisis for public budgets and the capacities of the states.

Key words: varieties of capitalism, co-ordinated and liberal market economies, role of the state in contemporary capitalism, welfare and gender regimes

1. Introduction

The massive economic and financial crisis of 2008 and 2009 triggered a new debate on the fiiture role of the state in capitalist economies. This is hardly surprising. The contrast between the billions pumped in by governments in an attempt to save their economies and rescue their financial institutions and the previously almost undisputed article of faith that the 'market' achieves the best possible outcome and that the state should keep out of the economy as far as possible is indeed dramatic. True, Nicolas Sarkozy might well have been accused of exaggeration when he declared that 'the ideology of the dictatorship of the market and the powerlessness of the state died with the financial crisis' (FAZ, 24.10.2008). Nevertheless, the contrast between this ideology and the measures governments across the world had to take in order to stem the crisis most certainly give us every reason to examine the extent and substance of the 'return of the state' (e.g. Leibfried 2008, Huffschmid 2008).

However, the question - also posed by the authors referred to above - is what is meant by 'return'. Even in the heyday of the market mythology, the state was never actually absent. Indeed, the basic conditions for the development of the gigantic bubble in the financial markets and for the dominance of the financial over the 'real' economy were actually created by government action, namely the deliberate elimination of the existing regulations and fiscal framework within which economic actors used to operate (Krugman 2007). At the same time, the neo-liberal state took on new tasks and, particularly in the wake of privatisation policy, developed into a 'market creating state' (Levy 2006). Thus neo-liberalism always required the existence of a state capable of acting.

The most forcible objection to the idea that the state has become less important in the era of neo-liberalism is surely that raised by the varieties of capitalism school (Hall/Soskice 2001). This strand of the institutional tradition can be reduced in its essence to the idea that market transactions - the starting point for all classical and neoclassical analysis in economics - are impossible in practice without the existence of social institutions (cf. the stimulating retrospective survey by Coates 2005). The most important argument of this school is that productivity and growth can be promoted not only by arrangements that allow the much vaunted free play of market forces the scope it requires to operate but also by those institutional systems that serve as barriers to the spontaneous working of market forces. In 'coordinated market economies', the latter can be as effective in promoting economic growth and employment as the former in 'liberal market economies', provided that the institutional system has a sufficiently high level of coherence and complementarity to encourage firms to adopt a long-term approach to their activities. …

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