Globalisation, societies,

and institutions

Seminar # 1
 Capitalism: a definition
• Capitalism is an economic system based
on private ownership of the means of
production and their operation for profit.
Characteristics central to capitalism
include private property, capital
accumulation, wage labor, voluntary
exchange, a price system, and competitive
markets.
(Wikipedia in English)

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 Capitalism: a definition
• Capitalism refers to an economic
system characterized by private
ownership of the means of production.
By extension, the term can also
designate the social organization
induced by this system or a system
based on the accumulation of
productive capital guided by the search
for profit.
• (Wikipedia in French)
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 Capitalism: a definition
• On the one hand, capitalism denotes a specific
economic and social order, on the other hand, it
denotes an epoch of economic history. The central
characteristics are disputed in view of the historical
change and the numerous definitions of capitalism as
well as ideological differences. In general, capitalism is
understood as an economic and social order based on
private ownership of the means of production and
control of production and consumption via the market
(market economy).Other constitutive features are:
accumulation (for some the “heart”, main feature and
guiding principle of capitalism),“free wage labour” and
the “striving for profit in the continuous, rational
capitalist enterprise
• (Wikipedia in German)
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 Capitalism: a definition
• Capitalism is a social and economic order or
system that is in constant movement, derived
from the usufruct of private property over
capital as a production tool, which is mostly
constituted by business relationships linked to
investment activities and obtaining profits, as
well as labor relations, both self-employed
and free subordinate salaried workers, for
commercial purposes
• (Wikipedia in Spanish)

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 Capitalism: a definition
Capitalism is an economic system based on private ownership of the
means of production and the consequent deriving of profit from them,
and on the free circulation of goods within the market; hence the
capitalist economy is also called a market economy. The freedom of
activity in the market manifests itself in the form of free enterprise, the
free circulation of goods and services, the free circulation of property
rights, the existence of efficient financial institutions and on free
competition between actors.

Economists, historians, political economists, and sociologists take a

wide range of perspectives in their analyses of capitalism and recognize
its various forms in practice. Thus, among these are laissez-faire and
free-market capitalism, or state capitalism and welfare capitalism.

The various forms of capitalism, treat issues such as the free market,
state ownership, obstacles to free competition or the conduct of social
policy by the state, among others, in different ways. The degree of
competition in markets, the role of intervention and regulation, and the
extent of state
Wikipedia in Polish
 Capitalism: a definition
Capitalism is a social and economic system of production and
distribution based on private property, legal equality, and freedom of
enterprise. The main criterion for making economic decisions is the
desire to increase capital, to make profit. The concept of "capitalism" is
an economic abstraction that emphasizes the characteristic features of
the economy at a certain stage of its development while discarding the
less significant ones.

The real economy of particular countries has never been based on

private property alone, nor has it provided complete freedom of
enterprise. There have always been features that are not characteristic
of capitalism - class privileges, state ownership, restrictions on property
ownership, including restrictions on the size of real estate or land plots,
customs barriers, anti-monopoly rules, etc. - to a greater or lesser
extent. Some of them are a legacy of previous epochs, and some of
them are a consequence of the development of capitalism itself.
Wikipedia in Russian
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 Capitalism
• Economists, political scientists and historians have
adopted different perspectives in their analyses of
capitalism and have recognized various forms of it in
practice.
• The degree of competition in markets, the role of
intervention and regulation, and the scope of state
ownership vary across different models of capitalism.

• The extent to which different markets are free, as well

as the rules defining private property, are matters of
politics and policy.

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C h anging fortunes: 2003-2014
11
 Global 500
2019 2022
Wal-Mart Wal-Mart
Sinopec Saudi Aramco
Royal Dutch Shell State Grid
China National Petroleum Amazon

State Grid China National

Petroleum
Saudi Aramco Sinopec
BP Exxon Mobile
Exxon Mobile Apple
Volkswagen Royal Dutch Shell
Toyota Motors United Health Group
The distribution of the largest firms

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The rise of the Dragon

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 Questions
• How many “capitalisms” do exist?

• How many have existed? Does history

play a role?

• How fast is capitalism changing?

• To what extent does capitalism shape

political-institutional systems? And to
what extent does the reverse occur?
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 “Varieties of Capitalism”
The study of “capitalist
variety” started with Andrew
Shonfield’s book “Modern
Capitalism” (1967), and
intensified after the economic
problems experienced by the
Western economies in the
1970s:
– Club of Rome
– Bretton Woods crisis
– oil crisis
– birth of the EMS
– industrial restructuring
and technological
change

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 The debate in the 1990s
The fall of the Soviet
Union gave an
additional boost to the
study of capitalist
varieties. Before then,
many researchers had
focused on comparing
socialism and
capitalism. Since
socialism was now
gone and discredited,
attention naturally
turned to the way
capitalism worked in
different countries
 New developments in the 21st century
The most popular
perspective on capitalist
diversity is the Varieties
of Capitalism (VoC)
paradigm developed by
Peter Hall and David
Soskice (“Varieties of
Capitalism”, OUP, 2001),
which focuses on two
ideal types of capitalism
– liberal market
economies (LMEs) and
coordinated market
economies (CMEs).
Key elements in VoC approach 1/2
• Institutions
– «the humanly devised constraints that shape
interaction. In consequence, they structure
incentives in human exchange, whether political,
social, or economic» (D. North, 1990)

• Institutions can be formal or informal

– Formal institutions are normally established and
constituted by laws, regulations, and legal orders
which prescribe what may or may not be
– Informal institutions are constituted by
conventions, norms, values, and accepted ways of
«doing things»
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 Key elements in VoC approach 2/2

• Institutional Complementarities
«institutions can be said to be
complementary if the presence (or
efficiency) of one increases the return
from (or efficiency) the other» (Aoki,
1994)

• Strategic interactions amongst actors

(i.e. firms) supported by different
national institutions create different
equilibria (i.e. model of capitalisms)
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 Examples of institutional complementarities
German manufacturing system: high quality standards, a
diversified product range and customization → requires
skilled labor, which in turn facilitates high productivity and
high wages.

The creation and preservation of firm-specific skills requires

complementary labor market institutions: dual
apprenticeships (to generate occupation-specific skills),
dismissal protection (to favor longer job duration), and
collective bargaining (to prevent fluctuation of wages)

In Germany experienced workers who don’t face easy

dismissal have incentives to further invest in their firm-
specific skills. Then they can pass their knowledge to
younger workers → firm-specific knowledge is preserved
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https://www.theatlantic.com/business/archive/2014/10/why-germany-is-so-much-better-at-training-its-
workers/381550/
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The American different situation

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 The Varieties of Capitalism

⦁ Several forms of capitalism. Different countries

have different economic institutions, different inter-
firm relations, and different structures of firms
⦁ Differences in institutional framework→ Differences in
corporate strategies (rational response depends on context)

⦁ Institutional complementarities: the

functioning/efficiency of one particular institutional
structure in one area depends on the structure of
institutions in other areas. Implications:
⦁ Institutions tend to come in packages
⦁ Institutional reform in one area alone is difficult
⦁ No “single best practice” in one area of the economy,
independent of context

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Institutional complementarities
across sub-spheres of the
political economy

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 Macro and micro level

⦁ The focus is on variation in national

political economies among
advanced capitalist nations

• But: “Bringing the firm back in” →

Explaining the importance of firm
structures and relations between
firms and other actors
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 Market vs Coordination
In contrast to liberal market economies (LMEs), where the equilibrium
outcomes of firm behavior are usually given by demand and supply
conditions in competitive markets, the equilibria on which firms
coordinate in coordinated market economies (CMEs) are more often
the result of strategic interaction among firms and other actors.
In CMEs, the relevant institutions will be those reducing uncertainty
Actors have about the behavior of others, providing capacities for:

– the exchange of information among the actors;

– the monitoring of behavior;
– the sanctioning of defection from the cooperative endeavor.

Examples: powerful business or employer associations, strong trade

unions, extensive networks of cross-shareholding, and legal or
regulatory systems designed to facilitate information-sharing and
collaboration.

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 The importance of informal rules,
history and culture

• Multiple equilibria. How do we arrive at one

particular?

• History and common culture as the glue that

makes cooperation possible. Examples:
historical legacies of wars, revolutions and class
conflicts, state intervention in markets (labor,
capital and product).

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 Towards a convergence process?
Varieties of capitalism focuses on the LME and
CME - is this sufficient to capture the diversity
that exists today at a global level?

• Is the Anglo-Saxon system (LME) unique or

diversified between US and UK?
• Is the European continental system unique or
diversified between Germany (and others) and
France, Italy, Spain, Portugal?
• Is there an ongoing convergence process in
Europe?
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 Or towards new divergencies?
• Is Latin American capitalism related to the
LME or CME?

• Which model does Asian capitalism most

resemble? Or is it stand alone model?

• The rise of “authoritarian” capitalism

(Russia, China et al.)

• Towards “global” capitalism? 30

 The next seminars
The liberal market economies

The coordinated market economies

Towards a European model?

Hierarchical Capitalism and Asian Capitalism:

similarities and differences

The authoritarian capitalism

Is there an Islamic capitalism?

Varieties of capitalism 20 years later