Varieties of Capitalism includes an introductory chapter by Hall and Soskice, as well as further chapters by
Kathleen Thelen, Robert J. Franzese, Jr., Margarita Estevez‐Abe,
Torben Iversen, Soskice, Isabela Mares, Orfeo Fioretos,
Stewart Wood,
Pepper D. Culpepper,
Robert C. Hancké, Sigurt Vitols, Mark Lehrer, Steven Casper,
Gunther Teubner, and Jay Tate. In their introductory chapter, "An Introduction to Varieties of Capitalism", Hall and Soskice set out two distinct types of
market economy that implement capitalism: liberal market economies (LME) (e.g. US, UK, Canada, Australia, New Zealand, Ireland) and coordinated market economies (CME) (e.g. Germany, France, Japan, Sweden, Austria). Those two types can be distinguished by the primary way in which firms coordinate with each other and other actors, such as trade unions. In LMEs, firms primarily coordinate their endeavours by way of hierarchies and market mechanisms. Coordinated market economies rely more heavily on non-market forms of interaction in the coordination of their relationships with other actors. The authors considered five spheres in which firms must develop relationships with others: •
Industrial relations — Companies have to coordinate with their workers, trade unions and other employers over wage and productivity. CMEs generally have a higher level of membership in trade unions and employers organizations, and bargaining over wages tends to happen at the industry, sectoral, or national level. Conversely in LMEs, workers and employers are often less organized, and wage negotiations take place at the company level (the interview and hiring process). •
Vocational training and
education — In CMEs, workers tend to have specific skills that are tied to the firm or the industry they are working in. In LMEs, workers have more general skills that easily can be used to work at other companies. •
Corporate governance — Firms in CMEs rely more on patient capital, i.e. capital that does not totally depend on financial openness and short-term
return on investment (ROI). LMEs tend to rely more heavily on public information about finances and short-term capital, such as stock markets. • Inter-firm relations — Inter-firm relations in CMEs tend to be more collaborative, while inter-firm relations in LMEs are more competitive and arms-length. • Relations with employees — In CMEs, managers often have to cooperate with employees to reach major decisions, while in LMEs, there are often more adversarial relations between management and employees, in which managers are the prime decision-makers.
Varieties of Capitalism offers a new framework for understanding the institutional similarities among and differences between the
developed economies, since national political economies can be compared based on the way in which firms resolve the coordination problems they face in these five spheres. The two models (CMEs and LMEs) are considered ‘ideal types’ at the pole ends of a spectrum, along which many nations can be arrayed; i.e. even within these two types, there may be significant variations in national political economies. For instance, by categorizing the different OECD countries into LMEs and CMEs, Hall and Soskice identify another type - ‘Mediterranean capitalism’ (e.g. France, Italy, Spain, Portugal, Greece and Turkey). Mediterranean capitalist political economies are said to have market arrangements in labour relations but non-market coordination in capital procurement as a result of a large agrarian sector and extensive state interventions in recent history. Extending the scope of Hall and Soskice's framework to countries outside Western Europe and the US, other authors have developed different varieties of capitalism, such as dependent market economies, and hierarchical market economies. According to the book, institutions are shaped not only by the
legal system, but by informal rules or common knowledge acquired by actors through history and culture of one nation. Institutional complementarities suggest that nations with a particular type of institution then develop complementary institutions in other spheres. (For example: countries with stock market liberalization have less
labour protection, and vice versa.) Firms of liberal and coordinated market economies respond very differently to a similar shock (an economic cycle), and institutions are socializing(?) agencies, and go through a continuous processes of adaptation. Institutional arrangements of a nation's political economy tend to push its companies toward particular kinds of
corporate strategy. Thus, the two types of economy have different capacities for
innovation, and tend to distribute
income and
employment differently. Examples of LMEs are the US and the UK, while Scandinavian countries are typically of CMEs. Germany was often described as an CME, but following the
Hartz reforms, this viewpoint has become highly contestable. ==Reception==