the Institutional Foundations of Comparative Advantage

149 Pages·2004·4.64 MB·English

Varieties of Capitalism
The Institutional Foundations
of Comparative Advantage
edited by
PETER A. HALL
AND DAVID SOSKICE
OXFORD
UNIVERSITY PRESS
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Cover illustration: Work by Ford Maddox Brown, 1852-1865.
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PREFACE
Are there fundamental differences in national political economies condi-
tioning economic performance and social well-being? How should these
differences be construed? Can we expect them to survive the pressures
that integration into an international economy places upon nations?
These have long been fundamental issues in the field of comparative
political economy. They have acquired a new urgency in the contempo-
rary era, as technological change and the developments associated with
'globalization' shift the climate for business around the world, calling
into question many settled understandings.
This book outlines a new approach to the comparison of national
economies that can be used to answer such questions. Building on the
new economics of organization, it develops an approach to understand-
ing the macroeconomy and the institutions within it that moves beyond
earlier conceptions built on influential distinctions between 'strong' and
'weak' states or 'neo-corporatist' and 'pluralist' societies. It brings the
firm back into a central position in our understanding of the political
economy and, as such, should be of interest to scholars of business as
well as political economists. It applies concepts drawn from game theory
and the new institutionalism in economics to the problem of under-
standing national economies, effecting an integration between theories
of the firm and conceptions of the macroeconomy relevant to economics
as well as political science.
For many years, discussions of international trade have been domin-
ated by theories of comparative economic advantage. However, recent
patterns in the movement of goods across national borders have called
into question classic theories of comparative advantage. At the same time,
endogenous sources of growth based on economies of scope, learning by
doing, and positive externalities have led some to argue that the institu-
tional frameworks within which firms operate may condition what they
can do. This raises the possibility that nations may derive comparative
advantages from their institutional infrastructure, but few theories have
been developed to explain precisely how institutions generate such
advantages or in what they consist. The approach to comparative capit-
alism developed in this volume fills that gap, offering an account of how
the institutions structuring the political economy confer comparative
advantages on a nation, especially in the sphere of innovation.
vi Preface
This theory of comparative institutional advantage has wide implica-
tions. It generates predictions about what kinds of activities firms will
move across national borders when international markets become more
open and where they will move them. It provides a new analysis of the
pressures governments experience as a result of globalization and one
capable of explaining the diversity of policy responses that follow. It
offers a novel perspective on the positions governments are likely to take
in international economic negotiations. Perhaps most important, it calls
into question the presumption that increasing international economic
integration will force the institutions and regulatory regimes of diverse
nations into convergence on a common model.
The implications for policy-making of this approach to comparative
political economy are equally radical. It casts the fundamental problems
facing economic policy-makers in a new light, suggesting that their prin-
cipal task is not to identify endeavors in which firms can excel and
provide incentives for pursuing them, but rather the more difficult one
of improving the capacities of firms to coordinate with other actors in
the economy. It calls for a reexamination of social policy and a reinter-
pretation of the welfare state. Social policies are often seen as measures
that impede the operation of markets, forced on an unwilling business
community by labor or the political left. However, the essays in this
volume suggest that many kinds of social policies actually improve the
operation of markets and enhance the capacities of firms to pursue
distinctive strategies, thereby inspiring active support in the business
community.
Building on the distinction between 'liberal market economies' and
'coordinated market economies' that is central to the approach, the con-
tributors to this volume explore many of the institutional complementar-
ities found in such economies. They show how firms develop corporate
strategies to take advantage of the institutional support available in any
economy for particular modes of coordination, deriving from this a new
perspective on issues in strategic management. They examine how
national legal frameworks for contracting and standard-setting reinforce
specific patterns of business coordination and the ways in which monetary
regimes interact with industrial relations systems to generate distinctive
patterns of economic performance. The result is a textured account of how
some institutions in the political economy can reinforce the operation of
others to generate nationally distinctive forms of capitalism.
Although grounded in large bodies of empirical research, the contribu-
tions to this volume are bold and bound to be controversial. Even at this
length, the volume covers only some of the issues raised by this approach
Preface vii
to comparative political economy and a few of the nations to which it can
be applied. We construe the book, however, not as the end of a story but
as its beginning. Above all else, it is an effort to open research agendas in
multiple fields by suggesting new lines of inquiry and analysis. We hope
that readers will find the contents as stimulating as we found the works
on which we have built.
The artwork on the cover of this book, Work by Ford Madox Brown, is
now in the Manchester City Art Gallery. Painted between 1852 and 1865
on Heath Street, Hampstead, it portrays two intellectuals, Thomas Carlyle
and F. D. Maurice, observing work in its social context during an earlier
era of intense economic change, much as the contributors to this book
observe the processes of globalization today.
This volume has had a long gestation. It is the culmination of a project
begun in 1992 as a collaborative effort between the Minda de Gunzburg
Center for European Studies at Harvard University and the Wissen-
schaftszentrum in Berlin to bring together a group of young political
economists to discuss the issues associated with varieties of capitalism
that we led jointly with Suzanne Berger of MIT. The participants met
twice a year over five years for intensive debate, and many spent
extended periods of time at the WZB. These discussions provided some
of the most exciting intellectual experiences of our lives, and we have
learned more than we can ever acknowledge from those who took part
in them.
We owe a particular debt to Suzanne Berger whose leadership was
indispensable to the project and whose lively intelligence and empathetic
criticism influenced many of the formulations in these pages. Tom
Cusack, Geoffrey Garrett, and Jonas Pontusson were also mainstays of
this project from the beginning whose intellectual contributions to it have
profoundly influenced our thinking. Among those who participated in
many of the sessions, we want to thank Carles Boix, Jonah Levy, Richard
Locke, Paul Pierson, Peter Swenson, Anne Wren, and Nicholas Ziegler.
Those who provided important contributions to specific sessions include:
Richard Clayton, Elie Cohen, John Ferejohn, David Finegold, Andrew
Glyn, John Griffin, Ellen Immergut, Wade Jacoby, Horst Kern, Desmond
King, Peter Lange, Gerhard Lehmbruch, Ton Notermans, Claus Offe,
Sofia Perez, Fritz Scharpf, Wolfgang Streeck, Gunnar Trumbull, Steven
Vogel, and John Zysman.
For the financial support that sustained this project, we are grateful to
the Wissenschaftszentrum and the Program for the Study of Germany
and Europe at Harvard. We thank Charles Maier, the Director of the
Center for European Studies, Abby Collins, its Associate Director, and
viii Preface
Friedhelm Neidhardt, the President of the WZB, for active encourage-
ment at crucial stages of the proceedings. Without the logistical support
of Hannelore Minzlaff and Ilona Kohler at the WZB as well as Lisa
Eschenbach at CES, our meetings would have not have been possible.
As usual, we are deeply grateful to them. Support for the preparation of
the Introduction was also provided through a grant from the research
and writing initiative of the Program on Global Security and Sustain-
ability of the John D. and Catherine T. MacArthur Foundation. Jessica
Berger, Alison Fleig, Holger Frank, and Daniel Gingerich worked with
efficiency and dispatch to prepare this volume for the press.
Over the years in which we have been working on this book, we
have received encouragement and constructive criticism from so many
friends and colleagues that it is impossible to list them all, but they
should know we are grateful. Among those who deserve special thanks
for the advice or close readings they provided are: Rainer Fehn, Peter
Gourevitch, Michel Goyer, Rogers Hollingsworth, Peter Katzenstein,
Stephan Leibfried, Margaret Levi, Philip Manow, Andrew Martin, and
Jonathan Zeitlin as well as the anonymous readers for the press.
Finally, for intellectual stimulation and sustained support, we owe
more than we can express to Nicola Lacey and Rosemary C. R. Taylor.
P.A.H.
D.S.
Cambridge and Berlin
January 2001
CONTENTS
List of Figures xi
List of Tables xii
List of Contributors xiv
1 An Introduction to Varieties of Capitalism 1
Peter A. Hall and David Soskice
Part I: General Themes and Diverse Applications
2 Varieties of Labor Politics in the Developed Democracies 71
Kathleen Thelen
3 Institutional and Sectoral Interactions in Monetary Policy
and Wage/Price-Bargaining 104
Robert J. Franzese, Jr.
4 Social Protection and the Formation of Skills:
A Reinterpretation of the Welfare State 145
Margarita Estevez-Abe, Torben Iversen, and David Soskice
5 Firms and the Welfare State: When, Why, and How Does
Social Policy Matter to Employers? 184
Isabela Mares
6 The Domestic Sources of Multilateral Preferences: Varieties
of Capitalism in the European Community 213
Orfeo Fioretos
Part II: Case Studies in Public Policy,
Continuity, and Change
7 Business, Government, and Patterns of Labor Market
Policy in Britain and the Federal Republic of Germany 247
Stewart Wood
K Contents
8 Employers, Public Policy, and the Politics of Decentralized
Cooperation in Germany and France 275
Pepper D. Culpepper
9 Revisiting the French Model: Coordination and Restructuring
in French Industry 307
Bob Hancke
Part III: Corporate Governance, Firm Strategy,
and the Law
10 Varieties of Corporate Governance: Comparing Germany
and the UK 337
Sigurt Vitols
11 Macro-varieties of Capitalism and Micro-varieties of
Strategic Management in European Airlines 361
Mark Lehrer
12 The Legal Framework for Corporate Governance:
The Influence of Contract Law on Company Strategies
in Germany and the United States 387
Steven Casper
13 Legal Irritants: How Unifying Law Ends up in New
Divergences 417
Gunther Teubner
14 National Varieties of Standardization 442
Jay Tate
Bibliography 474
Index 521
LIST OF FIGURES
1.1 Institutions across sub-spheres of the political economy 19
1.2 Distributional outcomes across political economies 22
1.3 Complementarities across subsystems in the German coordinated
market economy 28
1.4 Complementarities across subsystems in the American liberal
market economy 32
1.5 Patent specialization by technology classes in the United States,
1983-1984 and 1993-1994 42
1.6 Patent specialization by technology classes in the Federal
Republic of Germany, 1983-1984 and 1993-1994 43
3.1 Bivariate relations of central-bank independence with inflation
and unemployment 108
3.2 Bivariate relations of coordinated wage/price-bargaining with
inflation and unemployment 114
4.1 Social protection and predicted skill profiles 154
4.2 Social protection and skill profiles 173
4.3 Vocational training and wage inequality 178
4.4 Skills, the bargaining system, and equality 179
4.5 The failure of early school leavers to pass standardized tests in
eleven OECD countries 180
5.1 The social policy space 188
5.2 The shapes of the indifference curves of firms 199
5.3 The location of the maximum of the utilities of firms 200
5.4 Illustration of comparative statics results 202
6.1 The revealed comparative advantage of British and German
manufacturing industry 222
12.1 Legal regulation game in Germany 402
LIST OF TABLES
1.1 The economic performance of liberal and coordinated
market economies 20
1.2 Changes in trade union density and the level of collective
bargaining, 1950-1992 59
3.1 Estimation results for the inflation equation (18) 136
3.2 Estimation results for the unemployment equation (19) 137
3.3 Estimated inflation impact of increasing central-bank
independence 137
3.4 Estimated inflation impact of increasing coordination of
wage/price-bargaining 138
3.5 Estimated unemployment impact of increasing central-bank
independence 139
3.6 Estimated unemployment impact of increasing coordination of
wage/price-bargaining 140
3.7 Descriptive statistics for the data 144
4.1 Employment protection in eighteen OECD countries 165
4.2 Unemployment protection in eighteen OECD countries 168
4.3 Skill profiles in eighteen OECD countries 170
4.4 Scientific citation rates and low-wage service employment in
eighteen OECD countries 175
4.5 Share of women by occupation 181
5.1 Predicted effects of incidence of risk, size, and skill intensity on
firms' sensitivities for risk redistribution and control 197
5.2 Preferred social policy 201
8.1 Overall results by employment zone 291
10.1 Corporate governance institutions and firm strategies in the UK
and Germany 339
10.2 Percentage of total shares in circulation held by different sectors
in Germany and the UK, end of 1995 342
11.1 Coordination characteristics for comparative institutional
advantage 369
11.2 Strategy shift in European civil aviation 377
11.3 Timing of commercial innovation 378
11.4 Differential rates of commercial innovation 381