Hall and Soskice (2001)
•more than one way to organise a market economy, and institutional arrangements play a key role in shaping how market societies function
•they develop a firm-centric theory of comparative institutional advantage
•in market economies, firms are faced with five spheres of coordination that must be addressed (internal & external):
–industrial relations
–vocational training and education
–corporate governance
–inter-firm relations; and relations with their own employees
•Hall and Soskice: possible to identify 2 institutional solutions to these coordination problems for superior economic outcomes:
1.liberal market economies (LMEs) – firms rely on markets and hierarchies to solve coordination problems (e.g. US, Australia, NZ, UK, Canada, Ireland)
2.coordinated market economies (CMEs) – firms make greater use of non-market mechanisms to resolve coordination problems (e.g. Germany, northern European countries, Japan, Korea)
nb: institutional complementarities
•this is key to Hall and Soskice’s argument!
•in the VoC model, these refer to 2 related but separate effects
1.institutions are said to be complementary to the extent that the existence of one enhances the effectiveness of another
2.institutional arrangements are likely to converge on one or other institutional solutions (equilibria) over time
•→ ‘nations with a particular type of coordination in one sphere of the economy should develop complementary practices in other spheres as well (Hall and Soskice 2001:18)
So, the VoC approach:
•is a useful framework for comparative ER
•understanding the impact of globalisation on national patterns of ER
•stresses that it is not possible to understand ER issues in isolation – ER changes need to be placed in broader context
•specifies the (number of) relevant variables – limiting factor of the approach/helpful for focusing comparative analysis?
•focuses on interconnections between institutional arrangements, overcoming the tendency of the institutional approach to treat ER institutions in isolation
•firm-centric nature overcomes tendency of institutionalist analysis to treat institutions as separate from social actors
•unlike simple globalisation and institutionalist approaches, VoC explains both similarities and differences between countries
•has become increasingly influential in comparative ER analysis
Criticisms
•does not contain enough variety (Allen 2004) – it focuses on only two (CMEs and LMEs)
•this limits the number of countries to which it can be applied
•CME + LME categories so large that the framework could ignore important differences between countries said to be of the same variety (e.g. Japan and Germany)
•criticised for its determinism – only 2 viable forms of capitalism and once a country has a particular set of institutions, little can be changed
–VoC is based on comparing 2 cases as the same point in time (comparative statics)
–like institutionalist analysis, assumption that the behaviour of social actors is largely determined by the institutional context in which they operate (social action is path dependent)
–change is a common feature of ER in many countries (Traxler et al. 2001)
–there can also be change in outcomes (e.g. shifts in wage and working co
•relative lack of attention on international factors and links between nation states
For the VoC approach to prevail in comparative ER?
•need to increase the varieties of capitalism to capture differences in the social organisation of market economies
•e.g. Hancke et al. (2006) argues for 4 varieties, extending the model to Easter European countries
•comparative ER analysis should be based on a less deterministic view of the role of institutions (e.g. reconceive institutions as resources) and needs to adopt a more dynamic approach
•be attentive to connections between countries and the potential role of international factors