Varieties Of Capitalism Essay

Varieties Of Capitalism Essay

Introduction

Due to the rapid process of globalization, the issue of whether socio-economic institutions and policies are converging or diverging across different nations has become controversial. Various literatures on comparative institutional studies has been developed, in which the Varieties of Capitalism approach by Hall and Soskice (2001) is one of the most significant concepts that is being widely discussed. According to Hall and Thelen (2005), the ‘varieties of capitalism’ is a firm-centered approach where firm is placed as a key actor and is being considered relational. It emphasizes the concept of institutional complementarities, which ‘…one set of institutions is complementary to another when its presence raises the returns available from the other’ (Hall and Gingerich, 2004, p.6). Also, the development of relationships between firms and other five domains – industrial relations, vocational training and education, corporate governance, inter-firm relations as well as employees, is essential to ensure coordination to maintain competencies (Hall and Soskice, 2001). According to Knell and Srholec (2005), the varieties of capitalism literature has mainly distinguished and identified two types of coordination - Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs), in which competitive markets are dominant in LMES while CMEs are mainly based on strategic interaction.

Using the UK as an example of LME and Germany as an example of CME, this essay will consider the ‘varieties of capitalism’ (VoC) implications for financial structures as well as labour relations of the respective economies. The definition of institutional complementarities will be outlined in the first paragraph, while the implications will be discussed in the context of the UK and Germany economies in the second and third paragraphs respectively.

Institutional Complementarities
The concept of institutional complementarities revolves around the notion of the idea that ‘the co-existence (within a given system) of two or more institutions mutually enhances the performance contribution of each individual institution’ (Deeg, 2007. P.611). Hopner (2005) argued that the idea of complementary implies that different spheres of institutions could only be combined in a number of ways in order to be effective, which enhanced the theory of the existence of various types of capitalisms. Hall and Soskice (2001) identified these differences in the varieties of capitalism literature and then classified economies into liberal market economies and coordinated market economies, each with its unique institutional complementarities.

The United Kingdom representing LME
Under the VoC framework, economies of various nations are mainly being classified into either liberal market economies or coordinated market economies. According to Deeg and Jackson (2008), market competitions and hierarchies are the main ways for firms to coordinate activities with other spheres in...

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