Tuesday, 17 December 2013

Varieties Of Capitalism - Part II

This article evaluates the arguments about the strengths and weaknesses of the ‘varieties of capitalism’ approach discussed in a previous post, Varieties of Capitalism to analyse the U.S. and Germany.

One of the most visited articles in this blog is related to Varieties of Capitalism. So today we will spend a bit more time discussing and evaluating this approach.

I. Introduction
In an era where the world is more connected than ever, the word ‘globalisation’ is constantly being used to understand the changes in societies and in employment relations, i.e. by one economy being connected to the world it will influence its employment relation practices. 

Two approaches were initially developed: simple globalization that defends that all economies and employment relation policies and practices will converge; and institutional that defends that employment relations are dependent of their national institutions (governments, laws, organizations) that mediate part of those economic pressures (Bamber, Lansbury & Wailes, 2011).
A third approach, Varieties of capitalism (VOC), was created as an evolving theory from the criticisms of those two previous approaches. This essay is an overall evaluation of VOC. Can it be criticised? Yes… in my opinion.

II. Evaluating VOC
VOC is a firm-centric approach used for the understanding/comparison of employment relations in different countries (Bamber, Lansbury & Wailes, 2011). It disagrees with the simple globalization by proving that a simple convergence is not possible due to different institutions arrangements and history. Additionally it also goes a step further than the simple view of institutional since it explains the reasons behind the differences. With the firm at the centre of the analysis, traditionally VOC is divided in two main forms of capitalism:
  • Liberal market economies
  • and Coordinated market economies
The authors mention a third form called Asian Market Economy for distinctive and emerging cases of Japan, Korea and China. In my opinion, the introduction of this third cluster was a correct judgement seeing the unique characteristics of Asian markets. However it is also true that the Mediterranean countries do not completely fit with the West European CME (Bamber, Lansbury & Wailes, 2011), neither are Latin American markets represented in the study. Those emerging economies have its own uniqueness which is allowing them to develop almost as rapid as the Asian markets, so seeing from that sense they could have their own cluster. In fact, some authors introduce more types of possible categories of economies  but still leaving behind any Latin American representative Therefore we should ask the question, “Should the VOC be divided even in more clusters?”.

It is true that a good theory needs to be broad and able to be generalised, but it is also true that differences will always exist between economies, i.e. no economy is alike. Although the creation of more clusters would create a better fit within some countries it might also not be broad enough to comprise many other countries. Hence, the choice would always need to consider either having more generalisations and fewer clusters or more details and more clusters. Eventually there is no right or wrong decision since with a creation of many clusters the theory will also fail to generalise (and be a theory) but it will indeed have fewer exceptions and therefore will be more accurate.
Although it is important to have a general understanding of the differences in forms of capitalism a academic/researcher should not draw into conclusions from generalisations since he/she might overlook important differences, thus no matter how many clusters are created a more detailed analysis and comparison will always be necessary. In this case, the VOC approach of the textbook has the advantage of specifying a number of variables  for comparison (Bamber, Lansbury & Wailes, 2011, p19):
  • Industrial relations
  • Vocational training and education
  • Corporate governance
  • Inter-firm relations
  • Relations with its own employees
These are shown as interconnected, i.e. not independent (institutional complementarity) and therefore by “focusing on interconnections between institutional arrangements” (Bamber, Lansbury & Wailes, 2011, p21) they facilitate the comparison among economies while not treating: “employment relation institutions in isolation” neither “institutions as separate from the social actors who engage with them” (Bamber, Lansbury & Wailes, 2011, p21) – putting for that reason VOC as a more analytical theory then the institutional approach.

Conversely, the traditional VOC can as well be criticised by being too deterministic and too focused on national institutions. The first case is due to its firm-centric approach where VOC can overlook the role of social actors (having them too dependent on institutional context), where in fact workers and the state can also shape institutions. In the second case it is mainly due to the assumption of closed economies, where in fact international pressures can indeed affect institutions within a certain economy (e.g. multinational firms). To overcome those criticisms it is necessary to approach VOC with an historical factor, where there is the need to investigate: 1) the effect of the role of the state and labour movement within institutions and 2) trade and international framework agreements.
As mentioned, this approach can be considered as more analytical since it tries to explain the reasons behind the different employment relations while comparing different countries, i.e. it tries to investigate 1) why similar countries might have different outcomes and 2) why dissimilar countries might have the same outcomes. In fact, by trying to explain the root-causes of similarities and differences between economies VOC can become a valuable study while comparing with other approaches.

VOC is an evolving theory for the understanding of employment relations, it can be seen as a more adequate solution while comparing with simple globalization and institutional mainly because (Bamber, Lansbury & Wailes, 2011):
  • it does not only focus on differences but also explains the commonalities within countries with different institutional arrangements;
  • it does not treat institutions as independent variables, i.e. institutions by themselves also change;
  • and it also tries to understand why the same institutional arrangements in different countries can produce different outcomes.
However it is true that the categorization of market economies in VOC can be criticised as too general and for that reason a close comparison, is necessary (the authors use five interconnected spheres/variables). Still, in the US different states have different rules so can we really say it is a homogeneous economy? How can we really compare when within the same country there might be different institutional arrangements?
Finally, as mentioned, VOC can also be connected to chronological events, i.e. history matters, which can be good indicators to predict the future. Nonetheless answers can not be seen as given since rarely history repeats itself. There are always different factors, conditions and contexts behind every single change and therefore different reasons for differences among countries. But event if history would repeat itself this approach does no gives a guide for future directions. What should we do with the information collected?

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For referenced authors see: https://sites.google.com/site/apariciofernandesresearch/
Image from: http://www.nottingham.ac.uk/Politics/Images-Multimedia/Research-Projects/Global-Capitalism260x260.JPG

Blog Editor and Owner: Luis Aparicio Fernandes (or Mikey) is a Business Expert and a Traveler based in Sydney, Australia. He is a member of The International Honor Society Beta Gamma Sigma due to his achievements in business. You can follow Luis on Google+, and LinkedIn.