The Evolution of Varieties of Capitalism in Europe
This chapter challenges the conventional view that international economic developments are eroding distinctive varieties of capitalism. On the premise that we can understand institutional change only if we look over a longer historical perspective, it examines the character of economic challenges and the institutional responses to them in Britain, France, Germany, and Sweden during three periods: 1947-63, 1967-1983, and 1990-2005. It asks three questions: what types of challenges induce change in the institutions of the political economy? Can varieties of capitalism survive international economic challenges? Through what processes do the institutions of the political economy change? It analyses the institutions of the political economy as ones that address: a wage problem, work problem, and total factor productivity problem. It shows that these four countries developed distinctive institutional approaches to those problems in the two decades after the Second World War, corresponding to liberal and coordinated market economies identified by Hall and Soskice. It argues that the levels of economic performance promoted by domestic institutions depend on the character of the international monetary regime, and that the impetus for institutional change can be endogenous to existing institutions and generated by their unintended consequences. It examines the response to adverse economic developments in the late 1960s and 1970s, and the response to globalization since 1990. The chapter concludes that varieties of capitalism should be understood, in dynamic terms, as a set of institutionally conditioned adjustment paths, which often continue to diverge, even in the wake of common economic shocks.
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