competition and change, Vol. 16 No.

3, July, 2012, 206–23

Varieties of Capitalism or Dependency?

A Critique of the VoC Approach for
Latin America
Matthias Ebenau
Queen Mary, University of London, UK and Universidad Católica de
Córdoba, Argentina

This article critically discusses the recent enlargement of the ‘Varieties of

Capitalism’ (VoC) approach to Latin America as an attempt to come to
terms with the persistence of transnational socioeconomic inequalities. It
finds that the VoC approach largely fails to deliver a convincing analysis and,
by implication, to inform political strategies capable of overcoming them.
Through an engagement with the VoC approach’s foundational theoretical
body and the new ‘hierarchical market economies’ ideal-type, three main
analytical shortcomings are identified: (1) the approach’s functionalist
firm-centrism; (2) its methodological nationalism; and (3) its fundamental
ahistoricism. By way of conclusion, the article proposes an alternative
perspective on transnational inequalities which is centred on classical
dependency approaches but also combined with insights from geographical
political economy, among others.

keywords Varieties of capitalism, Latin America, transnational inequalities,

dependency theory, institutionalism, neoliberalism

Introduction
This article critically analyses the recent enlargement of the influential ‘Varieties of
Capitalism’ (VoC) approach to the political economies of Latin America as a novel
attempt to explain the persistence of considerable socioeconomic inequalities on a
transnational scale. These transnational inequalities — the fact that some economies
seem to be consistently less successful than others at producing, enhancing, and
capturing value, and at translating it into social gains for the majority of their popu-
lations — constitute a highly problematic and evidently extremely resilient feature of
the global political economy (Babones, 2012; Kaplinsky, 2005: 43–47). In other words,
these economies, or even entire world regions, seem to be in a kind of semi-permanent

© The University of Hertfordshire Business School DOI 10.1179/10245294 12Z.00000000014

and W. S. Maney & Son Ltd 2012
 VARIETIES OF CAPITALISM OR DEPENDENCY? 207

crisis, relative to others, in the sense that the income levels, social equality, job avail-
ability, quality and security, and many other features of ‘human development’ remain
lower, with the gaps in many areas even widening. The resulting challenge for
political economy scholarship is two-fold: to investigate the root causes of the dis-
crepancies and, on a more practical-political level, to answer the familiar question of
‘what is to be done’ to improve the lot of this group (often referred to as ‘developing
countries’ or the like), both in relative and in absolute terms (see Dicken, 2011:
ch. 14).
Historically speaking, the political responses to this complex challenge have been
extremely varied. Nevertheless, from the 1970s onwards the academic and policy
mainstream was increasingly taken over by a new neoliberal orthodoxy. Its advocates
argued that the one and only way to prosperity for developing countries would be to
press ahead with economic liberalization, international opening, privatization, and a
general dismantling of the interventionist state. Indeed, faced with the pressures of
‘globalization’, the adoption of such political strategies was seen as simultaneously
inevitable and benign, as is well captured in Thomas L. Friedman’s notion of the
‘golden straitjacket’ (Friedman, 2000: ch. 6). However, in recent years cracks have
appeared in neoliberalism’s dominance, for at least two reasons:
1. The stubborn refusal to materialize of the promised across-the-board improvements
in terms of economic success and wellbeing, and the implied global convergence,
and
2. The incidence of a series of increasingly severe economic crises, affecting many of
those countries whose governments had been closely following the neoliberal
precepts, and culminating (for now) in the current global upheaval (Wade, 2010:
147–57).

As a result, much attention has been diverted to understanding why the predicted
globalization-induced ‘catch-up’ and convergence did not happen, and to deriving the
appropriate policy lessons.
The VoC approach, through its recent enlargements to non-OECD (Organisation
for Economic Co-operation and Development) political economies, is one of the most
recent entrants to the scholarly field concerned with understanding the structural
crisis of much of the developing world. Nevertheless, even at this early stage it merits
attention because it builds on a refined analytical framework and methodological
apparatus, which have led the approach to a canonical status in the long-established
research tradition concerned with institutional diversity among the so-called
‘advanced capitalist economies’ and its impacts on socioeconomic performance.
Proponents and scholars sympathetic to the approach have expressed considerable
optimism that VoC-guided research on developing economies would yield new
insights regarding both the ‘micro level’ of business strategy and, by implication,
these economies’ trajectories at the ‘macro level’ (see e.g. Hancké et al., 2007: 13–14,
37–38; Miller, 2010: 654–56; Schneider, 2009: 553–55).
In contrast, this article will argue that the VoC approach largely fails to live up to
the challenge of explaining the persistent transnational inequalities in question and
informing political strategies capable of overcoming them. This claim is the result of
a critical engagement with the foundations of the VoC framework and in particular
208 MATTHIAS EBENAU

the ‘hierarchical market economy’ (HME) analysis, an ideal-typical notion developed

by business historian Ben Ross Schneider and collaborators to capture what they
identify as the defining features of a Latin American ‘variety’ of capitalism. For the
purposes of this article, this particular enlargement arguably constitutes the most
interesting among the new branches of VoC literature, since it refers to a ‘classical’
case of long-standing and deeply entrenched transnational inequalities and because it
constitutes a relatively consolidated and rapidly expanding body of analyses.
The next section gives an overview of the VoC approach and introduces the HME
model. The following main section identifies, through a theoretical, methodological,
and empirical engagement with the associated analytical narrative, three central
shortcomings: (1) its problematic functionalism and firm-centrism; (2) its methodo-
logical nationalism; and (3) its disregard for change and history. Moreover, it
discusses the resulting problems in the VoC approach’s policy recommendations.
The final section then sketches out some ‘positive’ lessons to be drawn from the
preceding critical engagement, with a view to developing a more adequate perspective
on transnational inequalities.

Transnational inequalities and Latin American HMEs: The VoC

perspective
Over the last decade or so, the VoC approach has emerged as the most influential
framework in institutionalist ‘comparative capitalisms’ (CC) research. The approach
shares three central features with the wider CC literature that in turn shape its
explanatory aims and (meta-)theoretical outlook:
1. The assumption that there are different (national) ‘varieties’ of capitalism
2. That these are distinguished primarily in institutional terms, and
3. That these institutional differences are of pivotal importance for the degree (and
kind) of socioeconomic performance of different ‘varieties’ (Coates, 2005: 9–17).

What sets VoC apart from other CC frameworks (such as power resources-theoretical
or historical-institutionalist variants) is its heavy reliance on rational choice theorems
drawn from political science and business studies, particularly from transaction cost
economics (Streeck, 2010: 21–22).
To elaborate, the following gives a brief overview of the central theoretical, con-
ceptual, and methodological tenets of the wider VoC approach, before presenting
in more detail the HME ideal-type and the associated perspective on transnational
inequalities. Hall & Soskice (2001: 6–21), in the original and still most influential
exposition of the VoC framework, put centre stage what they call a ‘relational view
of the firm’. In this perspective, the degree and kind of competitiveness of any one
national economy depend crucially on institution-mediated solutions to collective
action problems, as construed by transaction cost economics, in five spheres in
particular: corporate governance, inter-firm relations, industrial relations, firm-level
relations with employees, and vocational training/education. There are two distinct
but similarly efficient modes of coordination, each linked to a particular capitalist
‘variety’: (1) ‘market-based’ coordination, predominant across the primarily Anglo-
American ‘liberal market economies’ (LMEs); and (2) ‘strategic’ coordination,
prevailing in the Continental European and Japanese ‘coordinated market economies’
 VARIETIES OF CAPITALISM OR DEPENDENCY? 209

(CMEs). VoC proponents expect that under normal circumstances one or the other
form will structure coordination in all relevant spheres of a given national economy,
due to a process of self-selection based on the efficiency-enhancing effects of ‘institu-
tional complementarities’. More precisely, where such complementarities exist, i.e.
where the mode of coordination is the same across domains, firms will be able to
draw on specific ‘comparative institutional advantages’. These, in turn, will lead them
to develop distinct, but equally viable, specialization patterns which form the basis
of international success and, by implication, good socioeconomic performance at the
level of the national economy.
By design and choice of empirical focus the foundational LME/CME dichotomy
limits the VoC approach’s explanatory ambitions to institutional differences among
so-called ‘advanced’ economies. Yet, more recently proponents of the approach have
attempted to extend its relevance to geographical and substantial terrains which had
previously been left largely to area studies and ‘development’ specialists. This has
implied a small but critical alteration of the underlying rationale: whereas the LME/
CME dichotomy was developed primarily to show that there were more diverse
institutional sources of economic efficiency than neoliberal orthodoxy would have it,
the HME ideal-type shifts the centre of attention to why this ‘variety’ seems quite
stable despite its relative inefficiency in terms of economic success and social equal-
ity. By implication, the focus is on the structural differences of HMEs from their
‘advanced’ counterparts. These differences, in turn, are taken to represent likely root
causes for the former’s structural crisis, that is, their long-term inferior performance
(Schneider, 2009: 555–56; Schneider & Soskice, 2009: 33).
In a nutshell, the HME analytical narrative draws on an application of the ‘rela-
tional view of the firm’, with some amendments and slight modifications. According
to Schneider (2008: 8–9; 2009: 556–57), the main distinguishing feature of HMEs is
the dominance of ‘hierarchical’ coordination across all the institutional spheres
deemed relevant, rather than just in intra-firm vertical integration. However, this
mode is held to be inferior on efficiency grounds, because it fails to deliver on a
number of collective goods — particularly in, but not limited to, the area of education
and skills. As a consequence, the proponents of the HME model suggest that the
interaction effects across institutional spheres within this ‘variety’ should be seen as
‘negative complementarities’. These, far from sustaining virtuous cycles, merely
render the dysfunctional configuration more resilient to change (Schneider &
Karcher, 2010: 633; Schneider & Soskice, 2009: 47–8). As a result, Latin American
economies develop mainly less beneficial, but persistent, ‘comparative institutional
advantages’ in low-technology, low-value-added sectors such as agro-industry,
minerals, and metals and, at best, the production of simple industrial commodities.
Conversely, the VoC approach implies that normally they will be unable to establish
‘high road’ (high-technology, high-skills, and high-wages) production regimes and
complementary welfare state arrangements which would be capable of reducing the
considerable levels of inequality and informality (Karcher, 2011: 180–82; Schneider,
2008: 14–15; Schneider & Soskice, 2009: 41–43).
In more concrete empirical terms, then, VoC proponents see Latin American HMEs
as characterized by four central features:
210 MATTHIAS EBENAU

1. The dominance of diversified, largely family-owned and controlled, conglomerates

— grupos económicos — over the domestic big business sector
2. Alongside these the strong role played by subsidiaries of foreign, often US-based,
transnational corporations (TNCs)
3. Atomistic labour relations, both at the aggregate and firm levels, and
4. Low and general levels of education and vocational skills (Schneider, 2009: 558–63).

Probably the most striking example quoted for the assumed ‘negative complementari-
ties’ is the ‘low-skills equilibrium trap’, a vicious circle theorem introduced from the
rational choice literature on labour markets: firms, in the absence of a suitably qual-
ified workforce, are unlikely to pursue high-skill, high-quality production strategies.
Workers, in turn, in the absence of high-wage and better protected jobs which such
strategies would create, have no incentives to make the necessary investments in
enhancing their skills. Upward movement in the skills profile of HME workforces
does not occur because the collective action problem of mutually protecting the
entailed ‘co-specific assets’ remains unresolved (Schneider & Karcher, 2010: 634–39).
In a significant extension of the HME narrative, Schneider & Soskice (2009: 43–47)
also identify a larger-scale complementarity: since low-income groups are susceptible
to electoral bribery, they are largely excluded from programmatic voting. In conse-
quence, the (hypothetical) ‘median-voter’ has an interest in the retention of regressive
welfare transfers. This, the authors argue, sustains a structural centre-right bias in
electoral behaviour which militates against politically mediated redistribution. As a
result of these and similar problematic interaction effects, the HME model is fortified,
despite its economically and socially problematic implications.

Firm-centrism, methodological nationalism, and ahistoricism:

Problems and lacunae in VoC and the HME construct
As a matter of course, it is to be welcomed that new perspectives are being developed
to explain the stubborn persistence of transnational inequalities and to aid the
formulation of policies and strategies to counteract them. Yet VoC analysis, in terms
of the HME ideal-type, comes with crucial shortcomings in both regards, as this
section will set out in more detail. In particular, three analytical problems with the
VoC perspective on the relative deficits of Latin American political economies will be
identified:
1. Its reliance on unqualified functionalist, firm-centric assumptions, leading to a neglect
of capitalist power relations and the role of the state
2. Its methodological nationalism, resulting in a relative ignorance of the systemic,
transnational structures and processes in which institutions at the nation-state level
are embedded, and
3. Its neglect of change and history.

These deficits, in turn, lead to questionable policy implications which, with a

modernization-theoretical bent, partly mirror and partly legitimise the largely
discredited neoliberal approaches.
 VARIETIES OF CAPITALISM OR DEPENDENCY? 211

Functionalist firm-centrism and the neglect of capitalism

According to Hall & Soskice (2001: 14), one of the distinctive strengths of the VoC
approach is the integration of ‘analysis of firm behaviour with the analysis of the
political economy as a whole’. In this sense, a fundamental assumption underlying
the VoC approach’s ‘micro-to-macro’ explanatory framework is that individual firms
are the decisive economic agents, whose behaviour aggregates into socioeconomic
outcomes at the macro level. The analytical privilege afforded to institutionally medi-
ated firm behaviour is thus central not only to the VoC framework’s understanding
of distinctive production regimes but also to its analyses of the relative strengths and
weaknesses of different political economy configurations. However, this view, while
being attractive to many due to its obvious simplicity, leaves a number of important
blind spots in the methodological framework, ultimately leading to a questionable
functionalist firm-centrism pervading VoC analyses of Latin American economies.
One of the most important lacunae concerns the role of labour, which is taken into
view only insofar as it represents a potential partner for business in resolving collec-
tive action problems (see also Bruff & Horn, Bieler, and Sippola in this special issue
on the role of labour). The best labour can do, it is implied, is to seek mutually
beneficial cross-class settlements. In the HME ideal-type this line of reasoning is
particularly prominent in the treatment of the area of education and skills. Here, the
explanation given for the persistence of a ‘low-skills equilibrium’ and the associated
problem of informality assumes that, in principle, it should be in the interest of
business and labour alike to move towards a ‘high road’ production regime which
would open more profitable ventures for the former and provide better jobs for
the latter. The persistence of informality is thus viewed primarily as the effect of a
dysfunctional institutional context which gives perverse incentives to both sides (see
e.g. Schneider, 2009: 568; Schneider & Karcher, 2010: 634–35).
It seems relatively safe to assume that most workers would be interested in moving
from informality to jobs in the normally more protected and better paid formal econ-
omy. But, conversely, much empirical research on labour informality suggests that its
availability plays a significant role for firms to enhance and ensure their global com-
petitiveness. Even though the employment conditions in TNC subsidiaries themselves
are normally comparatively good, the same mostly does not hold for suppliers further
down the line. In this sense, transnational production networks are characterized by
a hierarchical coupling of the formal and informal economies (Knorringa & Pegler,
2006: 472–76; Phillips, 2011: 384–89). The Mexican apparel industry after the intro-
duction of the North American Free Trade Agreement (NAFTA) in 1994 constitutes
a striking example. In their analysis of this sector’s development, Bair & Gereffi
(2003: 158–63) found that, despite its apparent dynamism due to the fact that
US-based TNCs increasingly shifted higher value-added activities across the border,
generalized improvements for workers further downstream did not follow. On the
contrary, under pressure from lead firms the profit margins of smaller Mexican
suppliers often decreased, as did their workers’ wages, while economic benefits were
reaped by a small group of local elites (see also Olmedo (2006) for a case study from
Argentina). More broadly speaking, such processes are not merely the results of an
institutional ‘perversion’ of firms’ better rationality. Rather, they are constitutive of
the organization of cross-border production networks, insofar as their attractiveness
212 MATTHIAS EBENAU

for TNCs is in good part based on the possibilities of articulating activities across
territories with different regulatory regimes and factor endowments, enabling them
to reap benefits from regulatory arbitrage and an uneven division of labour (Dicken,
2011: 221–25).
In that they question the VoC approach’s analytical and normative emphasis on
ostensibly mutually beneficial cross-class settlements, these findings constitute a chal-
lenge to the approach’s foundational understanding of ‘capitalist society [. . .] as an
economy, and society and economy as happily unified in a joint search for economic
efficiency’ (Streeck, 2010: 31). In this sense, they support claims by Marxist political
economists and proponents of the power resources school, among others. Scholars
from these positions argue that analyses of capitalist institutions and their variation
need to pay more attention to the conflictual and hierarchical character of capital-
labour relations, in the sense of an independent explanatory dimension. The corner-
stone of these views is the argument that capitalism is not just any mode of
organizing production, but also a ‘mode of exploitation [and] a relationship of
power’ (Wood, 1981, cited in Bruff, 2011: 489), which contrasts markedly with the
VoC approach’s functionalist firm-centrism.
A related shortcoming concerns the lack of attention given to the role of the state
in the VoC approach’s treatment of Latin American capitalism. While Schneider
(2009: 554–55, 573) acknowledges that in the subcontinent the state is ‘rarely out of
sight’, he argues that the emphasis on firm behaviour is adequate, indeed necessary,
because the market reforms since the 1980s have effected a shift to a ‘model of
business-led development’. As a consequence, where the role of the state is brought
into view, this is done through the firm-centric lenses of the approach, as in Schneider
& Soskice’s (2009: 43–47) stylized treatment of ‘negative complementarities’ between
HME production regimes and electoral systems (as sketched out above).
The problem with this perspective is not only that it empirically misses much of
the still-considerable role of public companies and state regulatory intervention
virtually all over the region (Sánchez-Ancochea, 2009: 70–79), but also, more funda-
mentally, it underestimates the potential significance of state action for the future
trajectories of Latin American capitalism. For instance, while the HME narrative
emphasizes the resilience of the institutional deficiencies which sustain this model’s
economic inefficiency and socially inegalitarian outcomes, recent years have in fact
seen significant reductions in social inequality. For example, Nora Lustig and her
colleagues found that, between the late 1990s and the late 2000s, the regional
Gini coefficient fell from 0.53 to 0.503, with reductions in some countries, including
notoriously unequal Brazil, well beyond 10 per cent and up to Ecuador’s 17.1 per
cent. This trend, while not reducible to a single origin, seems to be related to the
broader resurgence of left-of-centre politics in the region, as one crucial driver
consists of increasingly progressive government transfers (Lustig et al., 2011). Latin
America remains a highly unequal region by any standard, but nevertheless this
development defies the negativity of the VoC approach’s predictions for the future of
its ‘variety’ of capitalism. Conversely, it signals the importance of research into tran-
snational inequalities to be attentive to politics, including the ongoing contestation
over appropriate economic strategies which in many parts of the region has given way
to a broader revaluation of the state’s economic role (Schrank, 2009: 57–58; Thwaites
Rey & Castillo, 2008: 40–43).
 VARIETIES OF CAPITALISM OR DEPENDENCY? 213

Methodological nationalism and the neglect of transnational structures

and processes
Another key assumption underlying the VoC framework and, by implication, the
HME ideal-type is the focus on the nation-state level. In other words, the VoC
approach takes nation-states as coherent and relatively self-contained regulatory
units, vis-à-vis other scales, be they sub or trans-national. Individual countries thus
serve as the VoC approach’s basis for institutional analysis, categorization, and ideal-
type building (Hall & Soskice, 2001: 16). Consequently, the HME analytical narrative
conceptualizes Latin American political economies and their associated less-than-
benign comparative institutional advantages as the results primarily of a mutually
reinforcing web of ‘internal’ negative complementarities. As will be argued in this
subsection, this near-exclusive focus on the national level amounts to a marked case
of methodological nationalism. This comes with yet another series of shortcomings
with regard to the task of understanding the specificities of Latin American political
economies and the causes of transnational inequalities.
While the national indisputably remains the single most important level at which
institutions governing economic action are ‘bundled’, long-standing trends, such as
the growing intensity of cross-border economic interaction and international regime
formation etc., render any inflexible focus problematic. This has already been hinted
at above with regard to the VoC approach’s questionable reduction of the behaviour
of TNCs to a function of national institutional contexts (see e.g. Schneider & Karcher,
2010: 633–44). More fundamentally, national institutions constitute merely one ‘layer’
of a multiscalar environment of economic action, reaching from the global to the
local level and linked together, among other things, by the networks established by
TNCs (Dicken, 2011: 54–56). Thus, the political-economic configurations which the
VoC approach seeks to capture in the HME ideal-type are invariably transnationally
embedded.
Consider, for instance, to name but one example particularly relevant to the con-
temporary Latin American context, the formation of international economic regimes.
This process has been ongoing for more than two decades in the region and has
become pervasive, particularly in the form of bilateral or small subregional trade and
investment agreements. Crucially, these agreements over-determine national-level
institutions and policies whereby they contribute, among other things, to a fortifica-
tion of existing specialization patterns. While they demand far-reaching, ‘WTO-plus’
measures regarding liberalization of market access and international investment
(i.e. measures that go beyond those established by the statutes of the World Trade
Organization), they prohibit outright the discrimination against foreign producers
and service providers, policies which are used by governments of a broadly
developmentalist inclination to enable the consolidation of higher-level ‘indigenous’
industrial capacities. Moreover, they ban most forms of performance requirements,
mandatory technology transfer, and local supply exigencies, i.e. heterodox govern-
ance tools that can be employed to channel foreign investments in such a way as to
strengthen local capabilities for value creation, enhancement, and capture (Estay &
Sánchez, 2005: 36–77; Kaplinsky, 2005: 240–42). Thus, the agreements in question
imply a considerable weakening of the legal and institutional basis for certain
kinds of state regulatory action that seek to create comparative advantages in higher
value-added production, which have been (and partly continue to be) used by the
214 MATTHIAS EBENAU

governments of successful ‘late developers’ like China and the East Asian ‘tigers’
(Acosta, 2004: 92–96; Chang, 2002: ch. 2). In this sense, they constitute significant
international constraints on government-led attempts to move beyond the structural
deficiencies whose persistence the VoC approach attributes to the ‘internal’ configu-
ration of the HME model itself (see also Rodrigues & Reis on Portugal in this special
issue).
Moreover, such international trade agreements also contribute to perpetuating the
problematic character of the comparative advantages which many Latin American
economies do actually possess in simple commodity and agricultural production.
Particularly in the latter area, the USA and the European Union (EU) continue to
protect their markets and thus foreclose improvements in opportunities for Latin
American producers. This limits the potential macroeconomic and social benefits
which could be gained from such exports and renders these kinds of comparative
advantages permanently precarious, because they continue to depend on market con-
junctures marked simultaneously by a secular trend of declining producer prices and
increasing volatility (Kaplinsky, 2005: 57–61). The asymmetries which this selective
protectionism implies are quite obviously at odds with the Ricardian theory at the
heart of the case for free trade. Nevertheless, many smaller Latin American countries,
and especially those with a higher ‘political trade dependence’, have found themselves
compelled to conclude such agreements in order not to forfeit unilaterally granted
trade privileges and the benevolence of the powerful North American neighbour
(Shadlen, 2008: 12–14).
In summary, the example of international economic regimes underpins the more
general argument that national institutional ensembles are by no means discrete
institutional containers, but are systemically embedded within a multiscalar transna-
tional context. Moreover, it shows that this context is constitutively asymmetric, that
is, it is marked by hierarchical structures of power between states, groups of firms,
and other socioeconomic actors (see also Becker & Jäger on Europe in this special
issue). In this sense, this discussion draws attention to the importance of appreciating
the extent to which individual ‘varieties’ are not equal as units, but instead are parts
of a hierarchically structured global political economy, for understanding the specific
weaknesses of Latin American (and other peripheral) economies and the reasons for
the persistence of transnational inequalities (Brenner et al., 2010: 187–88; Panitch &
Gindin, 2005: 140–44).

Ahistoricism and the neglect of change

The very raison d’être of the VoC approach is crystallized in its proponents’ insistence
on the reproduction of the distinctiveness of the identified ‘varieties’ and, notably in
contrast to the globalization mainstream of the 1990s, on the economic sustainability
of the CME model (see e.g. Hall & Soskice, 2001: 21). The implied focus on the
relative stability of the status quo is inherent to the VoC approach’s HME extension
as well, even though here it comes in a more negative spirit. The assurances of its
proponents that HME analysis should not be taken to suggest the impossibility of
change generally come as a mere afterthought, the significance of which they do not
systematically explore (see e.g. Schneider & Karcher, 2010: 645; Schneider & Soskice,
2009: 48). As a result, this focus turns out to induce a rather problematic bias towards
static and ahistoric analyses.
 VARIETIES OF CAPITALISM OR DEPENDENCY? 215

One of the most immediate pointers to the resulting inability of the VoC approach
to come to terms with actually occurring change is the resurgence of left-of-centre
politics throughout the region (Schrank, 2009: 57–58). While the VoC approach
suggests that the only likely direction of model change in HMEs, if it occurs at all,
will be a limited transition to more market-based coordination, the only argument
offered by way of an explanation for this obviously countervailing trend is the recent
commodity boom, which is held to constitute one of the ‘occasional exogenous shocks
[that] can alter the usual logic’ of the Latin American ‘variety’ (Schneider & Soskice,
2009: 46; see also Schneider, 2009: 571). It is, of course, absolutely warranted to point
out that it is quite uncertain whether the new left-of-centre governments will succeed
in fundamentally altering the institutional characteristics which the VoC approach
seeks to capture in the HME ideal-type. In this vein, a historically-informed
awareness of the continuities, for instance, the persistence of high levels of labour
informality (see e.g. Féliz, 2012), is an important antidote to partly over-enthusiastic,
uncritical debates about the ‘pink tide’. Against this background, the VoC approach
may be seen to strike a welcome cautionary note.
However, the VoC approach’s commodity boom argument, if anything, explains
away the sources of change — the exhaustion and increasing crisis-proneness of
neoliberal policies, the resurgence of protest and resistance, and the subsequent
decomposition of neoliberal power blocs — which are at the heart of the processes
which brought left-of-centre governments to power in countries as diverse as
Nicaragua, Venezuela, Bolivia, Brazil, and Uruguay, to name but a few (Ramírez
Gallegos, 2006: 33–43; Sader, 2009: 171–73). Thus the framework does not provide
tools for arriving at a more nuanced understanding of the sources of and potential
for change, a task for which one would have to engage with a number of the issues
referred to throughout this article, such as conflicts of interest, power balances, and
political contestation. In contrast, the account of contemporary processes of change
that comes with the VoC approach is based on a concept of path-dependence which
is excessively narrow and over-emphasizes continuity. In this sense, it represents what
Streeck (2009) has called an ever-present basso continuo, asserting that everything
will remain the same unless the basic equilibrium is offset by shocks which, by
definition, are ‘external’ to the model and thus essentially unpredictable within the
analytical framework (see also Bruff & Horn’s article on the more general problem
this poses for institutionalist approaches in this special issue).
A closely related problem with the VoC approach’s HME analysis is that it takes
the historical genesis of today’s ‘variety’ into its present form and its structural crisis
virtually completely out of the picture. In passing, its proponents note that the present-
day political economies of Latin America are the result of a long history which, in
the more recent past, has been characterized especially by various waves of far-
reaching neoliberal-inspired ‘structural adjustment’ (Schneider & Karcher, 2010: 633;
Schneider & Soskice, 2009: 33). Yet, they do not insert this recognition anywhere into
their analytical narrative. Rather, they locate the reasons for the persistent problems
experienced by most Latin American countries in achieving the desired long-run
economic dynamism and improvements in social wellbeing, including the failure of
the neoliberal reforms to ‘deliver’ on their respective promises, in the HME model’s
present (Schneider, 2009: 573; Schneider & Karcher, 2010: 624–25). This perspective,
however, is flawed. To demonstrate the full scope of the problems which result from
216 MATTHIAS EBENAU

this fundamental ahistoricism for the VoC approach’s analytical narrative, one argu-
ably would need to go back centuries to the earliest integration of Latin America into
the nascent capitalist world economy. But, for the present purposes, it is sufficient to
point to some manifest connections between the neoliberal reforms of the 1980s and
1990s and the problems which the VoC approach identifies as being parts of today’s
HMEs. For instance, the (further) rise in non-standard forms of employment, by
definition many of them informal, was an immediate and often consciously accepted
part of neoliberal labour market reforms, as was a weakening of labour unions
through the decentralization of collective bargaining (Fraile, 2009: 217–28). Similarly,
trade and investment agreements, which figured among the central recommendations
of the ‘Washington Consensus’, considerably increased the ability of TNCs to exer-
cise their economic power in a hierarchical fashion over smaller domestic firms,
workers, and local and even national governments, due to the implied reduction of
regulatory restraints on capital mobility and an enhancement of investors’ legal status
vis-à-vis governments (among other factors) (Estay, 2004: 125–37). The VoC
approach, however, does not further explore such obvious historical connections
but instead presents a narrative in which various negative characteristics seem linked
to each other quasi-causally, in a seemingly self-perpetuating and ‘always-already’
existing web of negative equilibria.

Policy prescriptions
Like most other approaches in the wider CC field, the VoC approach self-consciously
seeks to extrapolate lessons for economic and social policy-making from its analyses.
In accordance with its transaction cost economics foundations, the approach’s
proponents thereby posit the (more) effective cooperation of economic actors with
each other as a fundamental goal. On the basis of the notion of ‘institutional com-
plementarities’, they emphasize the need for policies to be ‘incentive compatible’
relative to the coordination capacities already embedded in a given economy’s institu-
tions (Hall & Soskice, 2001: 45–48). In contrast, the general thrust of the HME anal-
ysis implies that a wholly different, deliberately ‘incentive incompatible’, approach
needs to be taken in order to improve this model’s relatively inferior socioeconomic
performance and thus lay the ground for overcoming transnational inequalities. In
other words, in order to overcome the dominant ‘oxymoronic coupling of hierarchy
with markets’ (Schneider, 2009: 556), it will be necessary to intervene more directly
and heavy-handedly to unsettle the perverse ‘hierarchical’ equilibrium (Schneider &
Karcher, 2010: 645). But the VoC approach’s policy prescriptions suffer from a
number of limitations, following in good part from its analytical shortcomings of
functionalism and methodological nationalism, as well as its ahistoricist bias.
First, it is evident that the VoC approach’s proponents see the most promising
strategy for improving the socioeconomic performance of today’s HMEs as the
modification of institutional incentives faced by economic actors, so as to induce
them to cooperate in a more ‘rational’ manner. However, the above critique of the
VoC approach’s functionalist firm-centrism suggests that institutional reform initia-
tives premised on such assumptions are likely to miss their aims, because they do not
recognize the extent to which the current state of affairs — dysfunctional or not from
the point of view of some hypothetical ‘collective efficiency’ — can indeed be in the
 VARIETIES OF CAPITALISM OR DEPENDENCY? 217

best interest of powerful actors, including large shareholders of TNCs and the
owners of domestic grupos. In this sense, since agents with different structural posi-
tions in capitalist political economies will usually disagree on a single ‘performance
indicator’, institutions which are in fact dysfunctional for the wellbeing of the
majority of the population may persist so long as they are backed up by actors with
the necessary power (see Amable, 2003: 9). Against this backdrop, rather than relying
on functionalist and firm-centric efficiency criteria, what seems necessary is an
exploration of the conditions for reasserting the improvement of the wellbeing of the
majority as the fundamental aim of economic and social policies over firms’ unmiti-
gated profit interests. However, by assuming that ‘markets’ and ‘hierarchies’ consti-
tute an oxymoron, the VoC approach largely takes capitalism as a contested system
of power out of the picture.
Second, since the VoC approach’s HME narrative construes the institutional con-
figuration sustaining the problematic HME equilibrium as one which is overwhelm-
ingly ‘internal’ to the nation-states in question, possible strategies for overcoming
them are envisaged principally as exercises in national-level institutional engineering.
However, the general lack of attention paid to the embeddedness of these institutions
within a hierarchically structured transnational system means that such policy
prescriptions will remain skewed and of limited effectiveness. In contrast, in order to
sustainably improve the socioeconomic performance of these economies, it seems
warranted to bring back to the political agenda topics such as a more equitable world
economic order, which would, inter alia, imply a revaluation of the principle of spe-
cial and differential treatment in the global trade regime and the reassertion of states’
sovereignty vis-à-vis national and international investors. This is not a priority with
the VoC approach, however, which recommends, in a move which seems remarkably
similar to the recommendations of the modernization-theoretical approaches of about
half a century ago, that policy makers seek to model national institutions in the image
of the more prosperous ‘advanced’ economies.
Third, the VoC approach recommends pushing for change with the aim of making
the market reforms of the 1980s and 1990s work, thereby assuming that the latter
were well intentioned, adequate at least in principle, and merely hampered in their
effectiveness by institutional deficits external to them. The problem with these
assumptions is that they neglect the historicity of Latin American political economies
and, more immediately, the ways in which the neoliberal reforms themselves have
contributed to the emergence of these political economies as we study them today.
Similarly, the resulting policy prescriptions essentially amount to a call for ‘more of
the same’. Differing explanations of the failure of the neoliberal reforms to ‘deliver’
the promised socioeconomic results, and thus further global convergence, are pushed
to the sidelines. This concerns especially those related to critical positions vis-à-vis
the VoC approach’s functionalist firm-centrism and its methodological nationalism:
these reforms could never have been expected to increase long-term socioeconomic
performance and the wellbeing of the majority of Latin American populations,
because they were the results of a class project driven particularly by transnational-
ized capital fractions and orchestrated so as to benefit especially metropolitan loca-
tions (as will be briefly discussed in the next section). In contrast, what seems needed
when devising policy strategies capable of overcoming the problems in question is
218 MATTHIAS EBENAU

a careful and critical appraisal of how the ‘Washington Consensus’ reforms have
sustained or perhaps even created (some of) them. Fortunately, this is a process which
is currently occurring in parts of the region.

Back to the future? Towards an alternative perspective on

transnational inequalities

Moving on from a critical evaluation of the analytical shortcomings in the VoC

approach’s extension to Latin America and the problems in the entailed policy recom-
mendations, this concluding section adopts a somewhat more constructive outlook.
In this sense, it presents and briefly discusses a number of theoretical and methodo-
logical approaches which enable us to tackle the VoC approach’s distortions and
limitations, and may thus inform analyses of differential socioeconomic performance
and transnational inequalities. It should be stressed that the aim of this section is not
to present a new ‘macro-synthesis’ which could somehow ‘replace’ existing theories,
and neither is it simply to offer a ‘mix-and-match’ toolkit. Rather, its goal is to show
how different approaches can contribute to a research perspective which is diverse,
flexible, and open, but consistent at a fundamental theoretical level; moreover, it is
united around the common analytical-normative purpose of understanding the
persistence of transnational inequalities and pointing to ways of overcoming them.
As the preceding discussion has shown, three fundamental theoretical and
methodological exigencies from such a research programme are:
1. To incorporate an understanding of capitalism as a system, including the inherent
structural asymmetries and conflicts of interest
2. To include a sensitivity for the multiscalar, transnational embeddedness of the
institutional environments which govern economic interactions, and
3. To be attentive to the historicity of contemporary political-economic configurations,
including sources and processes of future change.

With these points in mind, it would seem instructive to revisit one of the main para-
digms from the classical ‘development’ debates of the 1960s and 1970s which speaks
to all these points: the (primarily Latin American) dependency approaches. The
following will sketch out some of the central tenets which make them interesting as
a central point of reference for the analysis of transnational inequalities, thereby
drawing particularly on the influential formulation of Cardoso & Faletto (1983).
Against the background of the critique of the VoC approach’s functionalism and
firm-centrism advanced above, what makes this perspective appear particularly
adequate for the task at hand is its firm grounding in critical political economy. This
is apparent in the centrality accorded by Cardoso & Faletto (1983: 21–22) to the
‘sociological’ analysis of the structures of domination and social stratification which
condition control over, and decision making in, the economic system. In this sense,
dependency approaches cast specific political-economic configurations as the con-
tested subjects of conflict-ridden interaction among diverse socioeconomic groups.
Thus, they appear considerably better placed to accommodate empirical phenomena
such as the structural coupling between formal and informal economies, which
characterizes many political economies outside the capitalist cores. Probably the key
characteristic of dependency theories is their decisive argument that the structural
 VARIETIES OF CAPITALISM OR DEPENDENCY? 219

crisis-proneness of peripheral capitalisms is the result of a mutually constitutive

relationship between ‘internal’ and ‘external’ factors. Thus, dependency approaches
are firmly grounded in an understanding of the transnational embeddedness of
national economies which the VoC approach mostly lacks. In this sense, Cardoso
& Faletto (1983: 19–20) advance a perspective which emphasizes a dialectical co-
constitution, positing that the dependency of peripheral capitalist configurations is
the result of the inscription of ‘external’ influences into relations between social
groups and classes within nation-states. Such a formulation is more adequate than
the VoC approach’s focus on states as institutional containers for understanding the
power effects of international economic regimes on the relations between different
kinds of firms, workers, and government apparatuses at national and sub-national
levels.
Finally, and considering the analytical shortcomings and problematic policy impli-
cations resulting from the VoC approach’s ahistoricism, dependency theories consti-
tute a more suitable basis from which to construct analyses of global socioeconomic
inequalities. Arguably the most famous formulation of their historicist imperative is
Frank’s (1966) sharp critique of the dominant modernization approaches of the time
for neglecting the ‘development of underdevelopment’. Frank pointed to the ways in
which the relations between ‘metropoles’ and ‘satellites’, over the long run, have
contributed to the structural and deeply entrenched socioeconomic problems of the
latter — a critique which could easily be turned against the VoC approach’s HME
construct in its present form. Obviously, such a perspective would be much more
attentive to the historical significance of the neoliberal reforms, which were driven
by the international financial institutions, for (re)producing and aggravating the
problems whose persistence the VoC approach seeks to pin down as the result of
contemporary HMEs.
Now, while these are some good reasons for considering dependency approaches
as potential sources of inspiration for a critical research programme on transnational
inequalities, one cannot brush over the reasons why they have fallen out of favour
with many political economy scholars, including some of their erstwhile advocates,
since the 1970s. Clearly, in part, these reasons are political, related to the effects of
the wider neoliberal roll-back. But to some extent they can also be traced back to
analytical shortcomings in the dependency frameworks themselves, which need to be
carefully reconsidered if one wants to make these approaches fruitful in the present.
This points to a number of ways in which the assumptions and concepts of the
dependency school need to be complemented, respecified, modified, or even
replaced.
A first critical point relates to the insufficiency of understanding of the complexity
of capitalist societies inherent in many dependency analyses. In line with most
political economy approaches of their time of origin, both Marxist and otherwise,
they often remained overly focused on a narrowly conceived economic sphere. Thus,
they frequently ignored the importance of the structural categories of (for example)
‘gender’ and ‘race’, which continue to play a critical role in the hierarchical structur-
ing of the social relations of production (Grosfoguel, 2000: 367–69). In order to
accommodate the entailed complexity, Quijano (2007: 115–17) devised the notion of
‘heterogeneity of social classification’, which he takes to refer to a continuous process
220 MATTHIAS EBENAU

of classification and re-classification with respect to a hierarchically organized distri-

bution of labour along these different structural axes. To replace the economistic
(class-)reductionism of dependency approaches with such a nuanced framework seems
necessary for a fuller understanding of capitalism as a system, for instance, with
regard to the unequal incidence of labour informality and poverty.
Another frequent critique of dependency approaches concerns their alleged over-
emphasis on the ‘external dimension’. While this critique is often overstated, it retains
a grain of truth, namely that many scholars in this tradition remain overly fixated on
the nation-state as a ‘tool’ for overcoming the situation of (external) dependency.
Thus, they ultimately fail to break fully with the notion that the key to overcoming
transnational inequalities would lie in some form of nationally-conceived ‘develop-
ment’ (Grosfoguel, 2000: 361–63; Kay, 1989: 174–76, 184–86). Evidently, such an idea
is hard to square with the character of economic interactions which fundamentally
and increasingly transcend any single institutional scale. In contrast, network
approaches in geographical political economy, such as the global production network
(GPN) framework, lend themselves to analyses of the cross-border dimension of
economic processes, their institutional framing on and across different scales, and
their social results (Coe et al., 2004: 469–76). In the context of the present discussion,
their strengths are to be seen in the way they combine an understanding of the
fundamental significance of cross-border production processes for contemporary
political economies on the one hand, and the latter’s territorial ‘grounding’ on the
other.
A third point relates to dependency approaches’ understanding of historical change.
In particular, Frank’s (1966: 23–27) adamant insistence on the impossibility of a
substantial change of peripheral countries’ structural position has been criticised for
being overly schematic, and such points appear to have been vindicated by trends of
differentiation among peripheral economies. In this context, Cardoso & Faletto’s
(1983: 144–60) analysis of change, centred on the notion of ‘associated-dependent
development’, seems more suitable for coming to terms with global trends which have
taken place since the heyday of the dependency debates — including, for instance, the
emergence of Mexico as a major export power in the wake of NAFTA. This term
highlights that, on the one hand, the dynamism of some peripheral economic sectors
is possible but that, in the absence of far-reaching changes in power relations, on the
other this will often come at high social costs and rarely amount to a rupture with
global hierarchies (also see Kay, 1989: 134–39).
In order to methodologically specify this notion for analysing how such forms of
transnational interdependence impact upon national or sub-national institutional
configurations in concrete situations, it may be useful to combine it with the concept
of ‘variegated capitalism’ (see also Bruff & Horn and Sippola in this special issue).
This concept has been developed over recent years by a group of critical economic
geographers (see e.g. Brenner et al., 2010: 206–16) as a means of grasping different
forms of ‘systematically produced geo-institutional differentiation’ while also embed-
ding such analyses in their global context. As such, it is more methodologically
specific than the dependency optic, and more attuned to contemporary processes of
change, particularly the gradual and uneven ‘neoliberalization’ of political economies
and the more recent widespread crisis of such neoliberalization processes (Schmalz &
Ebenau, 2012).
 VARIETIES OF CAPITALISM OR DEPENDENCY? 221

To conclude this brief sketch of a critical perspective on transnational inequalities

that learns in a critical-constructive fashion from the shortcomings of the VoC
approach, it should be stressed that scholars interested in pursuing such an agenda
should not ignore the contributions which institutionalist research on differential
socioeconomic performance can make. A ‘critical institutionalist analysis’ has much
to commend it, especially its ability to mediate between holism and individualism and
thus to offer an entry point for research which can match the VoC approach in its
empirical focus on concrete actors, but is simultaneously attentive to the wider struc-
tures within which their interactions take place (May & Nölke, 2012: 1–2). Thus, the
network approaches and the concept of ‘variegated capitalism’ ought to serve not
only for updating the dependency fundamentals of such a perspective but also
constitute channels for a dialogue with critical-institutionalist perspectives, with the
aim of incorporating the latter’s insights so as to reach a better understanding of the
reasons for the persistence of transnational inequalities and the policies and strategies
necessary for overcoming them.

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Notes on contributor
Matthias Ebenau is a doctoral candidate in the School of Politics & International
Relations, Queen Mary, University of London, UK, and is currently a visiting
researcher at the Catholic University of Córdoba, Argentina. His interests lie in the
broad field of International and Comparative Political Economy and his work has
been published on social movements and the political economy of free trade, the
ongoing global economic crisis, and various issues in ‘development’ politics, among
others, in German, English, and Spanish. He co-authored Auf dem Sprung? Krise und
Transformation in Brasilien, Indien und China (Dietz, 2011) with Stefan Schmalz, and
is a member of the editorial board of the journal PERIPHERIE: Zeitschrift für Politik
und Ökonomie in der Dritten Welt.
Correspondence to: Matthias Ebenau, School of Politics & International Relations,
Queen Mary, University of London, Mile End Road, London, E1 4NS, UK. Email
m.ebenau@qmul.ac.uk
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