Varieties of Capitalism

Question 1

3 types of economic system

Answer 1

○ Liberal Market Economies (LMEs)
○ Coordinated Market Economies (CMEs)
○ Hybrid Mediterranean Economies

Question 2

Empirical-institutional differences

Liberal Market Economies

Answer 2

• UK/US
  ○ Flexible Labour Markets
  ○ Ownership Diffusion
  ○ General Skills: University education

Question 3

Empirical-institutional differences

Coordinate Market Economies

Answer 3

• Germany/Japan
  ○ Rigid Labour Markets for Core Employees
  ○ Ownership Concentration
  ○ Form/Sector Specific Skills

Question 4

Core Concepts in VoC

Answer 4

Complementarity

Path dependency

Comparative institutional advantage

Question 5

Complementarity

Answer 5

○ In economics, a complementary good is one which enhances another good.
○ In institutional theory, complementarity refers to a situation where different institutions enhance the effects of each other
○ “Complementarity” infers that in order to perform at their optimal levels, institutions need to occur in “bundles”
○ If firms value a particular institution they should be willing to invest in complementary institutions

Example: protection of minority shareholders and takeovers in the USA versus Russia

Question 6

Path dependency

Answer 6

○ Actors and institutions “invest” resources into certain ways of doing things (branch tree analogy)
○ To “break” with the past means there are “sunk costs”
○ Thus, the actions of both actors and institutions are shaped by past experience
○ Example: government subsidies to finance part- time work in German auto sector in 2009-10

Question 7

Comparative institutional advantage

Answer 7

○ CIA refers to the fact that it is believed that bundles of certain institutions provide an advantage to economies in global competition to carry out specific tasks
○ Different institutions give different economies CIA in different ways
Thus various economies should excel at different activities, in concert with their CIA

Question 8

Comparative institutional advantage

Tasks to be solved :

Answer 8

§ raising capital
§ securing the services of skilled employees
dealing with suppliers

Question 9

Comparative institutional advantage

Interacting Institutional Spheres (Innovation)

Answer 9

§ ability to take risks: risk-taking/innovative design/rapid product development based on new research
§ ability to issue long-term commitments:
high quality of an established product lines/ generate trust with stakeholders/continuous improvements

Question 10

The Three Types

Answer 10

- Liberal-Market economies
		○ Anglo-Saxon model; Anglophone model
			§ US, UK, Canada, Australia, New Zealand, Ireland
	- Coordinated market economies
		○ Germany, japan, Sweden, Austria
	- "Hybrid"
Mediterranean ring

Question 11

Five Sets of relationships

Answer 11

- Industrial relations
		○ Mainly focussed on how wages are determined 
	- Vocational training and Education
		○ Firm or sector; generalist or specific 
	- Corporate governance
		○ Returns on investment 
	- Inter-firm relations
		○ Competitive or collaborative 
	- Relations with employees
Adversarial or cooperative

Question 12

Coordinated market economies

Answer 12

• “in CMEs institutions promote long-term relations and coordination based on non-market mechanisms” (Lange 2009;185)
  ○ Co-ordinated economies are relational in nature
  ○ Parties are rewarded for maintaining high quality relationships
  ○ Focus is on quality and on incremental innovation
  ○ Competition does occur in markets but cooperation between actors plays an important role

Question 13

Liberal Market Economies

Answer 13

• Based on short term relationships
  
  • Contractual in nature
    ○ Short term relationships
  • Parties rewarded for opportunism
  • Focus on quantity
    Focus on radical innovation

Question 14

Core Differences
CMEs
LMEs

Answer 14

• CMEs
  ○ National/Sector based wage settling
  ○ Sector-level training in specific skills
  ○ Venture Capital: Long term return on investment
  ○ Firms linked through mutual finances links
  ○ Co-operative firm level industrial relations
• LMEs
  ○ Firm/individual pay setting
  ○ Highly general skills
  ○ Short term return on investment]finance based on equities-shareholder model
  ○ Firms act autonomously
  ○ Adversarial or HRM approach to firm level relations

Question 15

Institutions and Regulation: Implications

Answer 15

• Institutions as the basis for competition
  
  • Inferiority of hybrids?
  • Institutional arbitrage
  • Implications for China, India and other economies

Question 16

Criticisms of VOC

Answer 16

• Static Institutional equilibrium
  
  • Institutional arbitrage and the role of MNCs
  • Growing convergence on the Anglo-American model
    ○ Effect of financial crisis?

Question 17

VoC summary

Answer 17

• VoC approach essentially grew out of comparing the US and the UK, on the one hand, with (West) Germany and Japan, on the other.
  
  • “Firm Centred”
  • Focused on “Strategic interactions”
  • Institutions associated with different types of innovation