WILL A SINGLE EUROPEAN MODEL OF CAPITALISM EMERGE?

Varieties of Capitalism Session 7

Presented by: Dini L Silveira and Kenjiro Taniguchi

OVERVIEW p  Review of key VoC elements p  Equilibrium in VoC and changes in the European ideal cases p  Explanation of “non-convergent” changes between UK and

Germany p  Conclusion and Final remarks

Key elements in VoC

•  Institutions: “the humanly devised constraints that shape interaction. In consequence, they structure incentives in human exchange, whether political, social, or economic.” North (1990, 3).

•  Institutional Complementarities: “institutions can be said to be complementary if the presence (or efficiency) of one increases the return from (or efficiency of) the other.” (Aoki, 1994, in Hall and Solskice, 2001)

• Strategic Interactions amongst actors supported by national institutions create equilibria in LMEs and CMEs

Institutional Complementarities and Subsystems

No change à a requirement to sustain equilibria within Market Economies

U.K.

•  Some CME strategies… -  Introduction of policies to

address employment issues -  Application of Keynesian

macroeconomic policies to increase economic growth

•  …and some LME strategies* -  Shift towards empowering

employers individually -  Employees’ power in training

and unemployment negotiations were undermined

•  * Inconsistency = uncertainty

Germany

•  LME strategies** -  firms held down wages to

increase competitiveness -  Looser wage coordination -  German banks reduced their

domestic investments -  Reduced social benefits -  Development of a dual labor

market (low-wage and part-time jobs, no wage collective bargaining)

•  **Incremental changes=less uncertainty

… but changes have been observed!

Possibilities of Incremental Changes • Between the “equilibriums”

• Beyond the “equilibriums”

•  Perspective of public policy – “ideological, political, and electoral” pressures – compromise among actors with different interests and values – competition between two major parties

LME à CME CME à LME

LME à X CME à Y

Single European Model (X=Y) ? Explanation of incremental changes

1.  Path Dependency 2.  Constitutional & Political Differences 3.  Time Lags

All leads NOT to X = Y, but to

LME à LME’ CME à CME’

(“non-convergent” changes)

1. Path Dependency •  For example, in Germany…

•  The reasons for path dependency •  Political power: “existing institutions continue to provide rents for those

actors that have a political voice” (Hassel 2007) •  Uncertainty: “none of the actors have had a vision on how a radically

different institutional setting would look like and work” (Hassel 2007) •  Costliness: “both the learning curve and the opportunity cost of new

learning make it very likely that actors will persist with familiar forms of action after these have ceased to produce rewards, and may even prevent actors finding alternative paths when these are in principle available” (Colin Crouch and Henry Farrell

“They show distinctly that […] reform steps were taken in the traditional incremental manner that keeps existing institutions intact and adapts their functioning to a new environment.” (Hassel 2007)

1. Path Dependency “On the whole, however, there is little indication that the training efforts of private firms have substantially diminished because of a lack of interest by firms in vocational training” (Hassel 2007)

2. Constitutional & Political Differences U.K.

(Strong Government)

• Constitutional Constraints •  First-past-the-post system •  Parliamentary sovereignty •  Weak court •  Centralized government

• Political Constraints •  Single-party government •  Centralized party

organization

Germany (Highly Constrained Government)

• Constitutional Constraints •  Bicameralism with PR •  Para-public institutions •  Federal Constitutional Court •  Federalism

• Political Constraints •  Coalition government •  Decentralized party

organization

à　Unsustainable Equilibrium à Sustainable Equilibrium

3. Time Lag • Distinction between…

• Political Organization • Productive Coordination

• Time Lag •  “Convergence” •  “Divergence” •  “Non-convergence”

“even if the organized, nonliberal capitalism of the postwar era will finally be gone—which it likely already is—there will always be enough differences between countries, produced by time lags and tradition” (Streeck 2009)

Final remarks •  Main conclusion: it is unlikely that Germany and the UK will

promote dramatic changes to their market economies in order to convert into a single model due to path dependency, political processes and the “non-convergence” time lag. Additionally, they may adopt some LMEs or CMEs characteristics to ensure healthy national economic performances.

•  “Institutional change can relax the tightness of coordination or

shift its equilibria without eliminating strategic or market coordination altogether.” (Hall, p. 29)

•  Germany and the EU: even though the formation of the EU

may cause changes in the complementarities system, the CME model will nevertheless remain present in Germany