An Introduction to

Varieties of Capitalism
Peter A. Hall and David Soskice (2001)
 Comparative Institutional Advantage
• National rates of growth cannot be explained fully by incremental
additions to the stock of capital and labor and fixed rates of technical
change
• The institutional structure of a particular political economy provides firms
with advantages for engaging in specific types of activities there.
• The institutional context can condition rates of growth and technological
progress
 Firm-centered political economy
• Key actors are companies and firms, not nations or individuals
• Firms’ preferences determine solutions to coordination problems,
ultimately shaping the institutional characteristics of different capitalist
systems
 Institutional Complementarities
• Definition: “two institutions can be said to be complementary if the
presence (or efficiency) of one increases the returns from (or efficiency
of) the other.”
• Nations with a particular type of coordination in one sphere of the
economy should tend to develop complementary practices in other spheres
as well.
• Ex: long-term employment ~ financial system: independent of
profitability
• Ex: fluid labor markets~financial markets: transfer resources readily
Figure: Institutions across sub-spheres of the political economy
 Coordinated Market Economies Liberal Market Economies
(CMEs) (LMEs)
Financial Patient capital through cross- Stock market capitalization
shareholding Investors depend on publicly available
system Financiers have access to inside information to value the company
information, not just public reports
Corporate Consensus decision-making, strong Concentration of power at the top, few
worker representation. Work councils restrictions on layoffs and high rates of
governance endowed with considerable authority labor mobility
over layoffs and working conditions
Industrial Industry-level bargaining and work Market-based, few collective
councils, strong unions, equalizing agreements, weak unions
relations wages
 High levels of employment
protection
Education & Publicly subsidized training system & Individuals are encouraged to invest in
apprenticeships to create skilled general skills, transferable across firms,
Training workforce. rather than company-specific skills
 Coordinated Market Economies Liberal Market Economies
(CMEs) (LMEs)

Intercompany Industry associations and Standard market relationships and

relations (+) collaboration, joint ventures enforceable formal contracts.

Technology Cultivate inter-company relations Rely on labor mobility - movement

transfer that facilitate the diffusion of of scientific or engineering personnel
technology across the economy across companies

Corporate Product differentiation and niche Direct product competition with other
strategies production firms in the industry

Innovation Incremental innovation Radical innovation

Thank You
For Your Attention