Emerging Trends in The Social and Behavioral Sciences

Varieties of Capitalism

Item

Title

Varieties of Capitalism

Author

Hall, Peter A.

Research Area

Social Institutions

Topic

Government Systems

Abstract

Scholarship on varieties of capitalism (VofC) explores the ways in which the institutions structuring the political economy affect patterns of economic performance or policy making and the distribution of well‐being. Contesting the claim that there is one best route to superior economic performance, a number of schemas have been proposed to explain why countries have often been able to secure substantial rates of growth in different ways, often with relatively egalitarian distributions of income. Prominent among them is a VofC analysis focused on the developed democracies that distinguishes liberal and coordinated market economies according to the ways in which firms coordinate their endeavors. On the basis of institutional complementarities among subspheres of the political economy, it suggests that the institutional structure of the political economy confers comparative institutional advantages, notably for radical and incremental innovation, which explains why economies have not converged in the context of globalization. Although this framework is contested, it has inspired new research on many subjects, including the basis for innovation, the determinants of social policy, the grounds for international negotiation, and the character of institutional change. In this issue area, there is promising terrain for further research into the origins of varieties of capitalism, the factors that drive institutional change in the political economy, how institutional arrangements in the subspheres of the political economy interact with one another, the normative underlay for capitalism, and the effects of varieties of capitalism on multiple dimensions of well‐being.

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Identifier

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extracted text

Varieties of Capitalism
PETER A. HALL

Abstract
Scholarship on varieties of capitalism (VofC) explores the ways in which the institutions structuring the political economy affect patterns of economic performance
or policy making and the distribution of well-being. Contesting the claim that there
is one best route to superior economic performance, a number of schemas have
been proposed to explain why countries have often been able to secure substantial
rates of growth in different ways, often with relatively egalitarian distributions
of income. Prominent among them is a VofC analysis focused on the developed
democracies that distinguishes liberal and coordinated market economies according
to the ways in which firms coordinate their endeavors. On the basis of institutional
complementarities among subspheres of the political economy, it suggests that the
institutional structure of the political economy confers comparative institutional
advantages, notably for radical and incremental innovation, which explains why
economies have not converged in the context of globalization. Although this framework is contested, it has inspired new research on many subjects, including the
basis for innovation, the determinants of social policy, the grounds for international
negotiation, and the character of institutional change. In this issue area, there is
promising terrain for further research into the origins of varieties of capitalism, the
factors that drive institutional change in the political economy, how institutional
arrangements in the subspheres of the political economy interact with one another,
the normative underlay for capitalism, and the effects of varieties of capitalism on
multiple dimensions of well-being.

INTRODUCTION
Is there more than one route to efficient economic performance? What are
the most consequential institutional differences across capitalist political
economies? How enduring are these differences and what effects follow
from them? These are the core issues taken up by analysts of varieties of
capitalism (VofC). They bear on the distribution of well-being as well as
what makes economies competitive. Many European economies have a
more equal distribution of income than the Anglo-American economies
and, on the basis of an efficiency-equity trade-off, some argue that this
egalitarianism comes at the cost of economic growth. Others suggest that
more egalitarian forms of capitalism can be just as efficient.
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Research on this subject was inspired by a turn in the social sciences to a
“new institutionalism.” Like states, markets are institutions that take a historically specific shape, and analysts of varieties of capitalism are interested
in how their operation is affected by other institutions in the political economy, such as trade unions, firm networks, and policy regimes. Research on
this topic speaks to a number of overarching issues in institutional analysis, such as how institutions in one sphere of the political economy affect the
operation of those in other spheres. This work has also been revealing about
the pacing and drivers of institutional change.
The research done on this topic carries many implications for policy
making. VofC analyses have shown, for instance, that more generous social
policies do not always reflect the triumph of labor over business. They
have shown how the institutional shape of the political economy conditions
the positions taken by national governments in international negotiations.
Studies of institutional complementarities call into question the efficiency
of piecemeal reforms to one sphere of the economy and the accuracy of
estimations assessing the impact of such reforms that do not take such
institutional interaction effects into account.
At the heart of these inquiries are questions, not only about how political
economies differ but also why ensembles of institutions cohere. One of the
defining features of this research is its inclination to treat political economies
as coherent wholes with distinctive features grounded in national histories
rather than as examples of a homogeneous market terrain onto which new
institutions can be readily grafted without much concern for other institutions in the economy. Thus, this research draws on neoclassical economics
and game theory, but questions some of the assumptions of neoclassical
models.
FOUNDATIONAL RESEARCH
The contemporary study of comparative capitalism dates to pioneering
research in the 1960s of Andrew Shonfield (1969), who compared the
character of state intervention across political economies with a view to
establishing how each was able to modernize. In early works, France and
Japan were typically presented as success stories. When global attention
shifted to the problem of “stagflation” during the 1970s, analysts began to
emphasize instead how the structures of wage bargaining condition the
economic success of countries. Their most prominent contention was that
superior economic performance can be secured where wage bargaining is
operated by relatively centralized trade unions and employers associations
under what were usually termed “neocorporatist” arrangements. In this
era, the small states of northern Europe emerged as major success stories

Varieties of Capitalism

3

(Goldthorpe, 1984). The third strand of work influencing subsequent theories
was by the French “regulation school” and scholars of firm-networks, which
emphasized connections between how production is organized on the
shop floor and supportive firm-networks, bargaining institutions or policy
regimes at the regional level and in the macro-economy. This literature
focused on the institutional underpinnings for “Fordist mass production”
(after Henry Ford) or “diversified quality production” seen as an alternative
to it (Boyer, 2005; Streeck, 1991).
Many current debates in the field revolve around an analytical framework
presented in Hall and Soskice (2001) and the term “varieties of capitalism” is
often used to refer to that framework. If a first wave of work focused on modernization and the second focused on stagflation, this third wave emphasizes
the problems of the political economy in an era when international competition became more intense and factors of production more mobile. Many
scholars argued that, in the face of this globalization, economies would “liberalize” to converge on something similar to an American model.
Hall and Soskice argued against this convergence thesis on the grounds
that different types of political economies have distinctive comparative
advantages they can exploit to prosper in an open global economy. As the
English political economist David Ricardo once argued, the best way to
survive intense competition is often not to imitate one’s competitors but to
capitalize on one’s differences. The innovative element here was to suggest
that national comparative advantages might be rooted in the institutional
structures of the political economy.
Because it set many of the terms for contemporary debate, I summarize the
core propositions of this “VofC” approach. In contrast to previous work that
emphasized trade unions and rarely discussed firms, this is a firm-oriented
perspective, which sees companies as central actors in the economy and organizations whose success turns on the quality of the relationships they form in
key realms of endeavor, including industrial relations where wages are set,
interfirm relations governing technology transfer, markets for corporate governance that supply finance, and intrafirm relations bearing on how products
are made.
VofC analyses distinguish between two ways of managing these relationships: one based on competitive market relations and the other on the types
of strategic coordination described by game theory. The approach a firm will
adopt depends on the extent to which each is supported by the overarching
institutions of the political economy, including relevant policy regimes, interfirm networks, and the structure of industrial relations. Thus, this approach
distinguishes between types of economies according to how firms coordinate their endeavors. In one ideal type, known as liberal market economies

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

(LMEs), most firms coordinate many of their activities via market mechanisms, while, in the ideal type of coordinated market economy (CME), a
typical firm’s relations with other actors turn more heavily on strategic coordination.
In addition, Hall and Soskice (2001) allow for a number of subtypes
reflecting, for instance, differences in the forms of strategic coordination
found in East Asia and northern Europe and the “mixed market economies”
of southern Europe where there is more strategic coordination in corporate
governance than labor relations (Hall & Gingerich, 2009). Others argue for
the distinctiveness of CMEs in the Nordic region, where social democratic
dominance has given rise to distinctive industrial relations regimes and
social policies. In western Europe, that schema yields four types of political
economies—LMEs in Ireland and the United Kingdom; the mixed market
economies of Portugal, Spain, and Greece; Nordic coordinated economies in
Denmark, Sweden, Finland, and Norway; and continental CMEs in most of
the rest.
The influence of this paradigm follows from the implications that can
be derived from it. First, it posits “institutional complementarities” where
the presence of a specific set of institutions in one sphere of the economy
enhances the returns available from corresponding institutions in other
spheres, often turning on whether market (or strategic) coordination is
found in both spheres. The implication is that firms and workers may hesitate to change institutions in one sphere without corresponding reform in
other spheres. For instance, Goyer (2011) finds that German firms were more
reluctant than French firms to liberalize the market for corporate governance,
lest an aggressive takeover regime interfere with the advantages they draw
from strategically coordinated industrial relations not present in France.
Second, proponents of this approach build on the work of Swenson (2001)
to emphasize the political importance of “cross-class coalitions” in which
segments of labor and capital unite behind a policy position to defend a set
of institutional structures from which both benefit. The implication is that
cross-national variation in some kinds of institutions, such as the shape of
an industrial relations system, is often explained by a politics in which the
balance of class power is less important than cross-national variation in the
interests of employers—a challenge to the “power resources” approach to
such issues (cf. Korpi, 2006).
Building on this, VofC analysts develop an account of why employers
have interests in social policy regimes (Estevez-Abe, Iversen, & Soskice,
2001; Iversen & Soskice, 2001; Mares, 2004). Instead of seeing business
as an implacable opponent of social policy, these scholars argue that the
generous unemployment benefits of many CMEs are supported by business
as well as labor because they provide incentives for workers to invest in the

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industry-specific skills central to the production regimes of such economies.
“Specific skills” are typically acquired through apprenticeship or experience
and of value principally in one industry or firm, while “general skills” are
portable across sectors and occupations. The observation that firms in CMEs
tend to make extensive use of specific skills, while those in LMEs rely on
general skills can be used to explain, not only cross-national variations in
firm strategy but also national differences in educational systems, social
policy regimes, and gender segmentation across occupations.
The most radical implications of this approach concern national economic
performance. The contention is that aggregate economic performance, measured by rates of economic growth or productivity, can be as high in coordinated as LMEs, a point often supported by reference to Germany, Sweden,
Denmark, and Norway. However, the VofC perspective also emphasizes that
aggregate performance can be secured in different ways. The institutional
structures of coordinated and LME are said to confer distinctive competitive
advantages on firms that translate into national comparative advantages.
The most striking contention here is that by virtue of their fluid labor
and capital markets, which make it easy for firms to begin new ventures
knowing they can quickly be unwound, LMEs offer more support for
radical innovation, understood as the development of entirely new products
or technologies. By contrast, CMEs are said to be better at incremental
innovation, involving quality control and continuous improvements to
products or production processes, because strong trade unions and longer
job tenures encourage firms to make long-term commitments to workers
that elicit higher levels of cooperation and encourage investment in the high
skill levels that make such innovation feasible. Thus, LMEs should produce
radical innovations more successfully, while CMEs are better at quality
control and incremental innovation.
This point carries implications for where firms locate their operations.
Hall and Soskice (2001) argue that many firms will engage in “institutional
arbitrage”—locating endeavors such as research and development that
depend on radical innovation in LMEs, while high-value-added manufacturing is more often located in CMEs. Although other considerations also bear
on location decisions and there are always exceptional cases, this theory provides a new perspective on globalization, which explains why globalization
might not lead to convergence on the American economic model.
CUTTING-EDGE RESEARCH
The VofC framework elaborated by Hall and Soskice has inspired many
theoretical critiques, efforts to test the approach, and to extend it. Some
of this research asks whether countries cluster into the types of capitalism

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

identified by this framework—a difficult task because the typology turns
on forms of coordination that can rarely be measured directly. Hall and
Gingerich (2009) construct a widely used but time-invariant index of
(market-oriented vs strategic) coordination and find that Organisation for
Economic Cooperation and Development (OECD) countries cluster on coordination in labor relations and corporate governance as suggested by the
theory; but they also identify a group of southern European “mixed market
economies” where corporate governance is more strategically coordinated
than labor relations. Using time-variant measures, Schneider and Paunescu
(2012) find country groupings and sector-specific comparative advantages
predicted by the theory, but also recent movement, especially in the Nordic
region, toward an LME model and Casey (2009) too finds support for these
theories. Using a cluster analysis highly sensitive to the variables chosen as
proxies, Geffen and Kenyon (2006) find a stable cluster corresponding only
to LMEs, which raises questions about the theory.
In this context, it is important to note that several analysts have developed
other classifications of capitalism, based on alternate principles. Some time
ago, Whitley (1999) identified six types of business systems that vary according to the ways firms secure coordination and control, linked to the institutional context. Amable (2003) posits five forms of capitalism, characterized
by distinctive institutional complementarities, in Scandinavia, Asia, southern
Europe, the Anglo-American world, and continental Europe. More recently,
Becker (2009) suggests four types of capitalism seen as loosely ordered and
relatively open systems.
Another series of analyses assess the contention that LMEs provide more
propitious institutional ground for radical innovation than CMEs. Taylor
(2004) saw no evidence for this proposition; but Allen, Funk, and Tüselmann
(2006) and Akkermans, Castaldi, and Los (2009) find that the revealed
comparative advantage of sectors corresponds broadly to VofC predictions
with some notable exceptions. Huo (2012) extends the theory to show why
competition encourages radical innovation based on information effects,
while cooperation does not. In a bold intervention, Acemoglu, Robinson,
and Verdier (2012) find support for the proposition that radical innovation
is more likely in LMEs, and use the point to contend that economic growth
in the “cuddly capitalism” of CMEs is ultimately dependent on the technological innovations devised in the “ruthless capitalism” of LMEs. However,
using different measures, Maliranta, Mättännen, and Vihriälä (2012) dispute
this argument on the grounds that radical innovation can be found in the
Nordic economies.
A third group of studies ask whether institutional complementarities
operate as Hall and Soskice predict. In a wide-ranging debate, some
critics contend that market-oriented institutions can be complementary

Varieties of Capitalism

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to institutions supporting strategic coordination, while others argue that
complementarities are rooted in institutional features more specific than
the types of coordination they support. Höpner (2005) draws a useful
distinction between complementarity, coherence, and compatibility. In
addition to complementarities between the institutions supporting labor
relations and corporate governance in France and Germany, Goyer (2011)
finds patterns of international investment influenced by VofC, as investors
seeking steady returns invest more heavily in CMEs, while those seeking
more risk and larger returns favor LMEs. A number of studies ask whether
multinational enterprises exploit institutional comparative advantages or
undermine national institutional practices by adhering to the practices of
their home country (Morgan & Kristensen, 2006).
It is hotly debated whether the varieties of capitalism identified in this literature are stable over time, converging, or otherwise dissolving. Everyone
agrees that some liberalization has taken place in all economies but Hall
and Gingerich find slower liberalization in CMEs than in LMEs and argue
it preserves many of the main differences, while Streeck (2009) argues, on
the basis of the German case, that coordinated capitalism is disappearing as
the inexorable entrepreneurialism of capitalism erodes the normative order
underpinning CMEs. Some analysts argue that declining trade union membership is destroying strategic coordination, while others contend that trade
unions and employers associations retain strategic capacities, even in the face
of the cleavages globalization opens up between more and less competitive
firms (Baccaro & Howell, 2011; Thelen & van Wijnbergen, 2005).
The issue of how and why varieties of capitalism might be changing
is bound up with debates about how they originate. Although Hall and
Soskice (2001) explicitly specified that VofC were not explaining why
countries develop different types of capitalism and Hall and Thelen (2009)
argue that institutional reform is dependent on a coalitional politics in which
distributive issues based on who benefits predominate, some analysts accuse
them of taking an overly functionalist approach to such issues (Streeck,
2009). Others argue that the emphasis on cross-class coalitions understates
the extent to which such processes are driven by fundamental conflicts
between capital and labor (Coates, 2005; Korpi, 2006).
Thelen (2004) treats these issues empirically by charting the development
of skill formation systems in four countries. She argues that early conflicts
between skilled labor, artisans, and employers conditioned subsequent processes of coalition formation to drive each country along a distinctive trajectory, while Streeck and Yamamura (2002) ascribe the features of national
capitalism to a multitude of historical developments. Iversen and Soskice
(2009) take the view that the development of the economy is the driving force
and explore how it relates to the development of political institutions (with

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an emphasis on electoral rules). They argue that early forms of coordination in regional economies, with preindustrial roots, conditioned the support
employers and their political allies would later provide for proportional representation. However, these are still matters of lively debate (cf. Boix, 1991;
Martin & Swank, 2012).
KEY ISSUES FOR FUTURE RESEARCH
There is ample room for further research on this topic and many important
issues are signaled by contemporary debates. Preeminent among them is the
question of why countries developed distinctive varieties of capitalism, a
topic closely linked to broader issues in the study of institutional change.
The central actors include firms, which must devise corporate strategies, and
governments, whose regulatory regimes support particular strategies. However, each responds to different incentives, as firms seek to compete more
effectively on domestic and international markets, while governments try
to please their constituencies that may include electorates as well as producer groups. One of the overarching issues is how much influence producer
groups have relative to electorates and over what kinds of policies. This topic
is neglected in political science, which tends to divide into scholars of electoral politics and producer politics (but cf. Culpepper, 2010; Trumbull, 2012).
The parallel problem for contemporary capitalism is one of understanding
how changes occur in the institutional infrastructure of varieties of capitalism. Here, the challenge is to go beyond studies adducing large-scale determinants such as “globalization” or “the balance of class power” toward work
that provides an analytical account of the processes whereby such changes
take place. Comparative case studies of specific instances of policy making,
in which regulations pertaining to employment relations or corporate governance change, provide one of the best routes into such issues, although their
findings must also be integrated into a more general understanding of what
drives such processes along distinctive paths.
Here, one of the principal tasks is to develop models of how reform
coalitions form that are sensitive to the ways in which existing institutions
condition interests. This problem mirrors the more general dilemma facing
contemporary political science of how to integrate accounts ascribing causal
importance to coalitions of socioeconomic groups with accounts of how
institutions structure politics. There is widespread agreement that both
types of factors drive political outcomes but few works look explicitly at
how institutions condition coalitions. Here, a more intensive dialog between
game-theoretic analysis and historically grounded enquiry would be useful;
and Swenson (2001) provides a template with an argument that institutional
arrangements in one sphere of the political economy (industrial relations)

Varieties of Capitalism

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condition the interests of employers in proposals for institutional reform in
other spheres (such as social policy).
We also need to know more than we do about the precise nature of the
institutional structures that underpin types of capitalism and how they relate
to one another. Prevailing accounts of these structures emphasize regulatory regimes, formal organizational rules, and conventional firm practices.
However, many practices may depend, to some extent, on normative orders,
embodying beliefs about what is appropriate or just, that are also features of
the political economy. In other words, we might build on work in economic
sociology to ask whether a normative underlay is crucial to the persistence
of some types of capitalism and, if so, what factors might change it. These
are issues yet to receive much attention from political scientists (cf. Wueest,
2010).
There is also merit in enquiring further into the ways in which the subspheres of the political economy relate to one another and how these relationships are changing in the current conjuncture. For example, some accounts
identify complementary relationships between a production regime, industrial relations regime, international regime, and policy regime specific both
to varieties of capitalism and to particular historical epochs (Hall, 2013). We
should ask whether these categories adequately define the principal institutional realms of a political economy and whether recent developments have
altered the relationships between them in important ways. Does the growth
of the financial sector, for instance, mean that it deserves a more central role
in such analyses?
Closely related are questions about the extent to which the basic character of capitalism has changed over time. Some contend that changes in how
capitalism operates, visible between the interwar years, the years of post-war
growth, and the period since 1980 are so large that they dwarf cross-sectional
variation in how varieties of capitalism work. While there is as yet no systematic empirical support for this contention, it is worth asking whether we are
in a new era—perhaps of “finance capitalism”—and whether that has altered
the basic character of political economies.
In the same vein, we do not as yet know nearly enough about how changes
in electoral politics impinge on the operation of the political economy.
Iversen and Soskice (2006) have argued forcefully that electoral systems
based on proportional representation enhance the operation of CMEs, but
there is scope for asking how variations in voting behavior across space
or time might affect the support governments provide for the types of
institutional arrangements central to varieties of capitalism. Do policies
affect the distribution of economic returns, for instance, without much effect
on the overall operation of the economy or do electoral shifts contribute to
the transformation of national varieties of capitalism?

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Attention is also turning toward questions about whether specific types
of capitalism tend to require or promote distinctive growth strategies,
understood as combinations of macroeconomic and supply-side policies.
If so, are the growth strategies of the past still feasible in the economic
conditions of the present? Some analysts argue that the efficient operation
of particular types of political economies requires complementary macroeconomic policies (Carlin & Soskice, 2009) or that some kinds of “growth
strategies” are viable only in certain types of political economies (Hall, 2012).
We need to know more about what range of growth strategies is feasible in
particular varieties of capitalism, such as the mixed market economies of
southern Europe. Neoclassical economists have long tried to identify viable
growth strategies, but they rarely deploy models that that are attentive to the
institutional structures of the political economy. There is scope for research
that integrates their insights into analyses of varieties of capitalism.
These considerations also raise questions about the relationship between
national varieties of capitalism and international regimes. Eichengreen
(1996) argued that post-war growth in Europe was made possible by the
interactions between particular sets of domestic institutions and international regimes. Fioretos (2011) has explored how domestic structures
condition the positions governments take within such regimes. But we
know less about whether the viability of particular types of capitalism
or corresponding growth strategies depends on supportive international
regimes in trade and monetary affairs. The Euro crisis raised this issue in
stark terms: Can all the varieties of capitalism prosper inside a monetary
union or are some better served by a floating exchange-rate regime?
Much of the research into such topics concentrates on the developed
economies. Hence, we should ask whether the principles behind this
research can be used to understand the operation of political economies
in the developing world. In many cases, new principles may have to be
devised for that purpose. Schneider (2009) has found some parallel variation
across Latin American economies, with the addition of a new category, and
Feldmann (2007) uses a VofC analysis to compare Slovenia and Estonia.
However, it is apparent that much of the relevant variation in transition
economies and the developing world not well captured by standard VofC
models, partly because some of these countries exhibit state-led forms
of coordination that are rare in the developed democracies, are highly
dependent on foreign direct investment, or lack trade unions strong enough
to support strategic coordination in industrial relations (Bohle & Greskovits,
2012; Nölke & Vliegenthart, 2009). There is room for creative thought
about the most consequential institutional differences between developing
political economies in which large foreign or state-led sectors sit beside large
informal economies and numerous small indigenous firms (Witt, 2010).

Varieties of Capitalism

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Finally, we need a better understanding of the contribution VofC make to
the distribution of well-being. The foundational analyses in this field associate CMEs with a more egalitarian distribution of income. As globalization
and the growth of service sector employment alter the basis for growth, however, this is again an open question. In an important intervention, Thelen
(2014) argues that all capitalist economies are changing in terms that can be
appreciated only by decoupling the concept of egalitarian capitalism from
the VofC schema. She finds divergent trajectories in CMEs, as some such as
Sweden and the Netherlands remain egalitarian, while others like Germany
where dual labor markets have promoted inequality do not. Thelen attributes
much of this divergence to a politics based on the size of the manufacturing sector, but other factors may be at work. We should enquire further into
the relationship between varieties of capitalism and various forms of income
inequality.
However, there is also a relationship between varieties of capitalism and
other types of inequality such as inequalities in health, which deserve more
attention (McLeod, Hall, Siddiqi, & Hertzman, 2012). A person’s health is
affected by sets of working conditions and social policies that vary systematically across types of capitalism, because the latter promote certain kinds
of managerial structures, employment practices, and policy regimes. There
is scope for seeing each variety of capitalism as a distinctive structure of
economic relations that distributes health and other aspects of well-being in
particular ways by virtue of how it distributes various kinds of economic and
social resources that extend well beyond income. Studies of such phenomena could enrich our understanding of the determinants of cross-national
variations in health and well-being and move the field of population health
beyond its emphasis on income inequality.
In sum, there are still many open questions to be investigated about varieties of capitalism. Precisely which schemas will best describe the principal
differences among the political economies of the world in the coming years
is an issue that remains to be determined, but the contention that variations
in the institutional structure of the political economy shape what firms and
governments do, as well as the ensuing distribution of well-being, will be a
keystone for many kinds of fruitful research.
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innovate more radically than’ coordinated market economies’? Hall and Soskice
reconsidered. Research Policy, 38, 181–191.

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Casey, T. (2009). Mapping Stability and Change in Advanced Capitalisms. Comparative European Politics, 7, 255–278.
Coates, D. (Ed.) (2005). Varieties of capitalism, varieties of approaches. Houndmills, Basingstoke, England: Palgrave Macmillan.
Culpepper, P. D. (2010). Quiet politics and business power: Corporate control in Europe
and Japan. New York, NY: Cambridge University Press.
Eichengreen, B. (1996). Institutions and economic growth: Europe after world war II.
In N. Crafts & G. Toniolo (Eds.), Economic growth in Europe since 1945 (pp. 38–72).
Cambridge, England: Cambridge University Press.
Estevez-Abe, M., Iversen, T., & Soskice, D. (2001). Social protection and the formation of skills: a reinterpretation of the welfare state. In P. A. Hall & D. Soskice
(Eds.), Varieties of capitalism: The institutional foundations of comparative advantage
(pp. 145–183). Oxford, England: Oxford University Press.
Feldmann, M. (2007). The origins of varieties of capitalism: Lessons from postsocialist transition in Estonia and Slovenia. In B. Hancké et al. (Eds.), Beyond varieties of capitalism (pp. 328–350). Oxford, England: Oxford University Press.
Fioretos, O. (2011). Creative reconstructions: Multilateralism and European varieties of capitalism after 1950. Ithaca: Cornell University Press.
Geffen, D. A. & Kenyon, T. (2006). Heinz capitalism: how many varieties are there?
An empirical reexamination of coordination mechanisms in advanced market
economies. SSRN. doi:10.2139/ssrn.1005407
Goldthorpe, J. H. (Ed.) (1984). Order and conflict in contemporary capitalism. New York,
NY: Oxford University Press.
Goyer, M. (2011). Contingent capital, short-term investors and the evolution of corporate
governance in France and Germany. Oxford, England: Oxford University Press.
Hall, P. A. (2012). The economics and politics of the Euro crisis. German Politics, 24,
55–71.

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Hall, P. A. (2013). The political origins of our economic discontents. In M. Kahler
& D. Lake (Eds.), The new politics of hard times (pp. 120–149). Ithaca, NY: Cornell
University Press.
Hall, P. A., & Gingerich, D. (2009). Varieties of capitalism and institutional complementarities in the political economy: An empirical Analysis. British Journal of
Poltiical Science, 39, 449–482.
Hall, P. A., & Thelen, K. (2009). Institutional change in varieties of capitalism.
Socio-Economic Review, 7, 7–34.
Höpner, M. (2005). What connects industrial relations and corporate governance?
Explaining institutional complementarity. Socio-Economic Review, 3, 331–358.
Huo, J. J. (2012). Beyond cooperation: Competition in coordinated capitalism. Paper
presented to the Seminar on the State and Capitalism since 1800, Harvard University (November).
Iversen, T., & Soskice, D. (2001). An asset theory of social policy preferences. American
Political Science Review., 95, 875–893.
Iversen, T., & Soskice, D. (2006). Electoral systems and the politics of coalitions: Why
some democracies redistribute more than others. American Political Science Review,
100, 165–181.
Korpi, W. (2006). Power resources and employer centered approaches. World Politics,
58, 167–206.
Maliranta, M., Mättännen, N., & Vihriälä V. (2012). Are the nordic countries really
less innovative than the U.S.? (19 December). http://www.voxeu.org/article/
nordic-innovation-cuddly-capitalism-really-less-innovative.
Mares, I. (2004). The politics of social risk. New York, NY: Cambridge University Press.
Martin, C. J., & Swank, D. (2012). The political construction of business interests. New
York, NY: Cambridge University Press.
McLeod, C. B., Hall, P. A., Siddiqi, A., & Hertzman, C. (2012). How society shapes
the health gradient: Work-related health inequalities in a comparative perspective.
Annual Review of Public Health, 33, 59–73.
Morgan, G., & Kristensen, P. H. (2006). The contested space of multinationals: Varieties of institutionalism, varieties of capitalism. Human Relations, 59, 1467–1490.
Nölke, A., & Vliegenthart, A. (2009). Enlarging the varieties of capitalism: The emergence of dependent market economies in east central Europe. World Politics, 61,
670–702.
Schneider, B. (2009). Hierarchical market economies and varieties of capitalism in
Latin America. Journal of Latin American Studies, 41, 553–75.
Schneider, M. R., & Paunescu, M. (2012). Changing varieties of capitalism and
revealed comparative advantages from 1990 to 2005: a test of the Hall and Soskice
claims. Socio-Economic Review, 8, 1–23.
Shonfield, A. (1969). Modern capitalism. Oxford, England: Oxford University Press.
Streeck, W. (1991). On the institutional conditions for diversified quality production.
In E. Matzner & W. Streeck (Eds.), Beyond Keynesianism (pp. 21–61). Aldershot,
England: Elgar.
Streeck, W. (2009). Re-forming capitalism. Oxford, England: Oxford University Press.

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Streeck, W., & Yamamura, K. (Eds.) (2002). The origins of non-liberal capitalism. Ithaca,
NY: Cornell University Press.
Swenson, P. (2001). Capitalists against markets. New York, NY: Oxford University
Press.
Taylor, M. Z. (2004). Empirical evidence against varieties of capitalism’s theory of
technological innovation. International Organization, 58, 601–631.
Thelen, K., & van Wijnbergen, C. (2005). The paradox of globalization: Labor relations
in Germany and beyond. Comparative Political Studies, 36(8), 859–880.
Trumbull, G. (2012). Strength in numbers: The political power of weak interests. Cambridge, MA: Harvard University Press.
Whitley, R. (1999). Divergent capitalisms: The social structuring and change of business
systems. Oxford, England: Oxford University Press.
Witt, M. (2010). China what variety of capitalism? INSEAD Faculty Working Paper
2010/88.
Wueest, B.R. (2010). Varieties of capitalist debates: how institutions shape public
conflicts on liberalization in the U.K., France and Germany. CIS Working Paper,
University of Zurich.

FURTHER READING
Hall, P. A., & Soskice, D. (Eds.) (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford, England: Oxford University Press.
Hancké, B. (Ed.) (2009). Debating varieties of capitalism. Oxford, England: Oxford University Press.
Hancké, B., Rhodes, M., & Thatcher, M. (Eds.) (2007). Beyond varieties of capitalism.
Oxford, England: Oxford University Press.
Iversen, T., & Soskice, D. (2009). Distribution and redistribution: The shadow of the
nineteenth century. World Politics, 61, 3(July).
Thelen, K. (2004). How institutions evolve: The political economy of skills in Germany,
Britain, the United States and Japan. New York, NY: Cambridge University Press.
Thelen, K. (2014). Varieties of liberalization and the new politics of social solidarity. Cambridge University Press: New York, NY.

PETER A. HALL SHORT BIOGRAPHY
Peter A. Hall is Krupp Foundation Professor of European Studies in the
Department of Government at Harvard University, a Faculty Associate at
the Minda de Gunzburg Center for European Studies and Co-director of
the Successful Societies Program for the Canadian Institute for Advanced
Research. His publications include Governing the Economy (1986), The Political
Power of Economic Ideas (1989), Developments in French Politics I and II (1990,
2001), Varieties of Capitalism (2001), Changing France (2005), Successful Societies
(2009), Social Resilience in the Neo-Liberal Era and more than a 100 articles on

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15

comparative political economy and politics in the developed democracies.
He has written widely about comparative institutional analysis, varieties of
capitalism, economic policy-making, the role of ideas in politics, and methods of political analysis. His current research focuses on the development
of the European political economies, issues in institutional change and the
social basis for variations in population health across nations.
http://www.gov.harvard.edu/people/faculty/peter-hall
http://www.people.fas.harvard.edu/∼phall/
http://www.cifar.ca/successful-societies
RELATED ESSAYS
Domestic Politics of Trade Policy (Political Science), Michaël Aklin et al.
Mediation in International Conflicts (Political Science), Kyle Beardsley and
Nathan Danneman
Neoliberalism (Sociology), Miguel Angel Centeno and Joseph N. Cohen
Domestic Institutions and International Conflict (Political Science), Giacomo
Chiozza
The State and Development (Sociology), Samuel Cohn
Globalization: Consequences for Work and Employment in Advanced
Capitalist Societies (Sociology), Tony Elger
States and Nationalism (Anthropology), Michael Herzfeld
Why Do States Sign Alliances? (Political Science), Brett Ashley Leeds
Domestic Political Institutions and Alliance Politics (Political Science),
Michaela Mattes
Stratification and the Welfare State (Sociology), Stephanie Moller and Joya
Misra
Why Do Governments Abuse Human Rights? (Political Science), Will H.
Moore and Ryan M. Welch
The New Political Economy of Colonialism (Political Science), Thomas B.
Pepinsky
The Welfare State in Comparative Perspective (Sociology), Jill Quadagno et al.
Impact of Limited Education on Employment Prospects in Advanced
Economies (Sociology), Heike Solga
Trends in the Analysis of Interstate Rivalries (Political Science), William R.
Thompson
Postsocialism (Anthropology), Elizabeth Cullen Dunn and Katherine Verdery
Why Do States Pursue Nuclear Weapons (or Not) (Political Science), Wilfred
Wan and Etel Solingen
Constitutionalism (Political Science), Keith E. Whittington



Varieties of Capitalism
PETER A. HALL

Abstract
Scholarship on varieties of capitalism (VofC) explores the ways in which the institutions structuring the political economy affect patterns of economic performance
or policy making and the distribution of well-being. Contesting the claim that there
is one best route to superior economic performance, a number of schemas have
been proposed to explain why countries have often been able to secure substantial
rates of growth in different ways, often with relatively egalitarian distributions
of income. Prominent among them is a VofC analysis focused on the developed
democracies that distinguishes liberal and coordinated market economies according
to the ways in which firms coordinate their endeavors. On the basis of institutional
complementarities among subspheres of the political economy, it suggests that the
institutional structure of the political economy confers comparative institutional
advantages, notably for radical and incremental innovation, which explains why
economies have not converged in the context of globalization. Although this framework is contested, it has inspired new research on many subjects, including the
basis for innovation, the determinants of social policy, the grounds for international
negotiation, and the character of institutional change. In this issue area, there is
promising terrain for further research into the origins of varieties of capitalism, the
factors that drive institutional change in the political economy, how institutional
arrangements in the subspheres of the political economy interact with one another,
the normative underlay for capitalism, and the effects of varieties of capitalism on
multiple dimensions of well-being.

INTRODUCTION
Is there more than one route to efficient economic performance? What are
the most consequential institutional differences across capitalist political
economies? How enduring are these differences and what effects follow
from them? These are the core issues taken up by analysts of varieties of
capitalism (VofC). They bear on the distribution of well-being as well as
what makes economies competitive. Many European economies have a
more equal distribution of income than the Anglo-American economies
and, on the basis of an efficiency-equity trade-off, some argue that this
egalitarianism comes at the cost of economic growth. Others suggest that
more egalitarian forms of capitalism can be just as efficient.
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Research on this subject was inspired by a turn in the social sciences to a
“new institutionalism.” Like states, markets are institutions that take a historically specific shape, and analysts of varieties of capitalism are interested
in how their operation is affected by other institutions in the political economy, such as trade unions, firm networks, and policy regimes. Research on
this topic speaks to a number of overarching issues in institutional analysis, such as how institutions in one sphere of the political economy affect the
operation of those in other spheres. This work has also been revealing about
the pacing and drivers of institutional change.
The research done on this topic carries many implications for policy
making. VofC analyses have shown, for instance, that more generous social
policies do not always reflect the triumph of labor over business. They
have shown how the institutional shape of the political economy conditions
the positions taken by national governments in international negotiations.
Studies of institutional complementarities call into question the efficiency
of piecemeal reforms to one sphere of the economy and the accuracy of
estimations assessing the impact of such reforms that do not take such
institutional interaction effects into account.
At the heart of these inquiries are questions, not only about how political
economies differ but also why ensembles of institutions cohere. One of the
defining features of this research is its inclination to treat political economies
as coherent wholes with distinctive features grounded in national histories
rather than as examples of a homogeneous market terrain onto which new
institutions can be readily grafted without much concern for other institutions in the economy. Thus, this research draws on neoclassical economics
and game theory, but questions some of the assumptions of neoclassical
models.
FOUNDATIONAL RESEARCH
The contemporary study of comparative capitalism dates to pioneering
research in the 1960s of Andrew Shonfield (1969), who compared the
character of state intervention across political economies with a view to
establishing how each was able to modernize. In early works, France and
Japan were typically presented as success stories. When global attention
shifted to the problem of “stagflation” during the 1970s, analysts began to
emphasize instead how the structures of wage bargaining condition the
economic success of countries. Their most prominent contention was that
superior economic performance can be secured where wage bargaining is
operated by relatively centralized trade unions and employers associations
under what were usually termed “neocorporatist” arrangements. In this
era, the small states of northern Europe emerged as major success stories

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3

(Goldthorpe, 1984). The third strand of work influencing subsequent theories
was by the French “regulation school” and scholars of firm-networks, which
emphasized connections between how production is organized on the
shop floor and supportive firm-networks, bargaining institutions or policy
regimes at the regional level and in the macro-economy. This literature
focused on the institutional underpinnings for “Fordist mass production”
(after Henry Ford) or “diversified quality production” seen as an alternative
to it (Boyer, 2005; Streeck, 1991).
Many current debates in the field revolve around an analytical framework
presented in Hall and Soskice (2001) and the term “varieties of capitalism” is
often used to refer to that framework. If a first wave of work focused on modernization and the second focused on stagflation, this third wave emphasizes
the problems of the political economy in an era when international competition became more intense and factors of production more mobile. Many
scholars argued that, in the face of this globalization, economies would “liberalize” to converge on something similar to an American model.
Hall and Soskice argued against this convergence thesis on the grounds
that different types of political economies have distinctive comparative
advantages they can exploit to prosper in an open global economy. As the
English political economist David Ricardo once argued, the best way to
survive intense competition is often not to imitate one’s competitors but to
capitalize on one’s differences. The innovative element here was to suggest
that national comparative advantages might be rooted in the institutional
structures of the political economy.
Because it set many of the terms for contemporary debate, I summarize the
core propositions of this “VofC” approach. In contrast to previous work that
emphasized trade unions and rarely discussed firms, this is a firm-oriented
perspective, which sees companies as central actors in the economy and organizations whose success turns on the quality of the relationships they form in
key realms of endeavor, including industrial relations where wages are set,
interfirm relations governing technology transfer, markets for corporate governance that supply finance, and intrafirm relations bearing on how products
are made.
VofC analyses distinguish between two ways of managing these relationships: one based on competitive market relations and the other on the types
of strategic coordination described by game theory. The approach a firm will
adopt depends on the extent to which each is supported by the overarching
institutions of the political economy, including relevant policy regimes, interfirm networks, and the structure of industrial relations. Thus, this approach
distinguishes between types of economies according to how firms coordinate their endeavors. In one ideal type, known as liberal market economies

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

(LMEs), most firms coordinate many of their activities via market mechanisms, while, in the ideal type of coordinated market economy (CME), a
typical firm’s relations with other actors turn more heavily on strategic coordination.
In addition, Hall and Soskice (2001) allow for a number of subtypes
reflecting, for instance, differences in the forms of strategic coordination
found in East Asia and northern Europe and the “mixed market economies”
of southern Europe where there is more strategic coordination in corporate
governance than labor relations (Hall & Gingerich, 2009). Others argue for
the distinctiveness of CMEs in the Nordic region, where social democratic
dominance has given rise to distinctive industrial relations regimes and
social policies. In western Europe, that schema yields four types of political
economies—LMEs in Ireland and the United Kingdom; the mixed market
economies of Portugal, Spain, and Greece; Nordic coordinated economies in
Denmark, Sweden, Finland, and Norway; and continental CMEs in most of
the rest.
The influence of this paradigm follows from the implications that can
be derived from it. First, it posits “institutional complementarities” where
the presence of a specific set of institutions in one sphere of the economy
enhances the returns available from corresponding institutions in other
spheres, often turning on whether market (or strategic) coordination is
found in both spheres. The implication is that firms and workers may hesitate to change institutions in one sphere without corresponding reform in
other spheres. For instance, Goyer (2011) finds that German firms were more
reluctant than French firms to liberalize the market for corporate governance,
lest an aggressive takeover regime interfere with the advantages they draw
from strategically coordinated industrial relations not present in France.
Second, proponents of this approach build on the work of Swenson (2001)
to emphasize the political importance of “cross-class coalitions” in which
segments of labor and capital unite behind a policy position to defend a set
of institutional structures from which both benefit. The implication is that
cross-national variation in some kinds of institutions, such as the shape of
an industrial relations system, is often explained by a politics in which the
balance of class power is less important than cross-national variation in the
interests of employers—a challenge to the “power resources” approach to
such issues (cf. Korpi, 2006).
Building on this, VofC analysts develop an account of why employers
have interests in social policy regimes (Estevez-Abe, Iversen, & Soskice,
2001; Iversen & Soskice, 2001; Mares, 2004). Instead of seeing business
as an implacable opponent of social policy, these scholars argue that the
generous unemployment benefits of many CMEs are supported by business
as well as labor because they provide incentives for workers to invest in the

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industry-specific skills central to the production regimes of such economies.
“Specific skills” are typically acquired through apprenticeship or experience
and of value principally in one industry or firm, while “general skills” are
portable across sectors and occupations. The observation that firms in CMEs
tend to make extensive use of specific skills, while those in LMEs rely on
general skills can be used to explain, not only cross-national variations in
firm strategy but also national differences in educational systems, social
policy regimes, and gender segmentation across occupations.
The most radical implications of this approach concern national economic
performance. The contention is that aggregate economic performance, measured by rates of economic growth or productivity, can be as high in coordinated as LMEs, a point often supported by reference to Germany, Sweden,
Denmark, and Norway. However, the VofC perspective also emphasizes that
aggregate performance can be secured in different ways. The institutional
structures of coordinated and LME are said to confer distinctive competitive
advantages on firms that translate into national comparative advantages.
The most striking contention here is that by virtue of their fluid labor
and capital markets, which make it easy for firms to begin new ventures
knowing they can quickly be unwound, LMEs offer more support for
radical innovation, understood as the development of entirely new products
or technologies. By contrast, CMEs are said to be better at incremental
innovation, involving quality control and continuous improvements to
products or production processes, because strong trade unions and longer
job tenures encourage firms to make long-term commitments to workers
that elicit higher levels of cooperation and encourage investment in the high
skill levels that make such innovation feasible. Thus, LMEs should produce
radical innovations more successfully, while CMEs are better at quality
control and incremental innovation.
This point carries implications for where firms locate their operations.
Hall and Soskice (2001) argue that many firms will engage in “institutional
arbitrage”—locating endeavors such as research and development that
depend on radical innovation in LMEs, while high-value-added manufacturing is more often located in CMEs. Although other considerations also bear
on location decisions and there are always exceptional cases, this theory provides a new perspective on globalization, which explains why globalization
might not lead to convergence on the American economic model.
CUTTING-EDGE RESEARCH
The VofC framework elaborated by Hall and Soskice has inspired many
theoretical critiques, efforts to test the approach, and to extend it. Some
of this research asks whether countries cluster into the types of capitalism

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

identified by this framework—a difficult task because the typology turns
on forms of coordination that can rarely be measured directly. Hall and
Gingerich (2009) construct a widely used but time-invariant index of
(market-oriented vs strategic) coordination and find that Organisation for
Economic Cooperation and Development (OECD) countries cluster on coordination in labor relations and corporate governance as suggested by the
theory; but they also identify a group of southern European “mixed market
economies” where corporate governance is more strategically coordinated
than labor relations. Using time-variant measures, Schneider and Paunescu
(2012) find country groupings and sector-specific comparative advantages
predicted by the theory, but also recent movement, especially in the Nordic
region, toward an LME model and Casey (2009) too finds support for these
theories. Using a cluster analysis highly sensitive to the variables chosen as
proxies, Geffen and Kenyon (2006) find a stable cluster corresponding only
to LMEs, which raises questions about the theory.
In this context, it is important to note that several analysts have developed
other classifications of capitalism, based on alternate principles. Some time
ago, Whitley (1999) identified six types of business systems that vary according to the ways firms secure coordination and control, linked to the institutional context. Amable (2003) posits five forms of capitalism, characterized
by distinctive institutional complementarities, in Scandinavia, Asia, southern
Europe, the Anglo-American world, and continental Europe. More recently,
Becker (2009) suggests four types of capitalism seen as loosely ordered and
relatively open systems.
Another series of analyses assess the contention that LMEs provide more
propitious institutional ground for radical innovation than CMEs. Taylor
(2004) saw no evidence for this proposition; but Allen, Funk, and Tüselmann
(2006) and Akkermans, Castaldi, and Los (2009) find that the revealed
comparative advantage of sectors corresponds broadly to VofC predictions
with some notable exceptions. Huo (2012) extends the theory to show why
competition encourages radical innovation based on information effects,
while cooperation does not. In a bold intervention, Acemoglu, Robinson,
and Verdier (2012) find support for the proposition that radical innovation
is more likely in LMEs, and use the point to contend that economic growth
in the “cuddly capitalism” of CMEs is ultimately dependent on the technological innovations devised in the “ruthless capitalism” of LMEs. However,
using different measures, Maliranta, Mättännen, and Vihriälä (2012) dispute
this argument on the grounds that radical innovation can be found in the
Nordic economies.
A third group of studies ask whether institutional complementarities
operate as Hall and Soskice predict. In a wide-ranging debate, some
critics contend that market-oriented institutions can be complementary

Varieties of Capitalism

7

to institutions supporting strategic coordination, while others argue that
complementarities are rooted in institutional features more specific than
the types of coordination they support. Höpner (2005) draws a useful
distinction between complementarity, coherence, and compatibility. In
addition to complementarities between the institutions supporting labor
relations and corporate governance in France and Germany, Goyer (2011)
finds patterns of international investment influenced by VofC, as investors
seeking steady returns invest more heavily in CMEs, while those seeking
more risk and larger returns favor LMEs. A number of studies ask whether
multinational enterprises exploit institutional comparative advantages or
undermine national institutional practices by adhering to the practices of
their home country (Morgan & Kristensen, 2006).
It is hotly debated whether the varieties of capitalism identified in this literature are stable over time, converging, or otherwise dissolving. Everyone
agrees that some liberalization has taken place in all economies but Hall
and Gingerich find slower liberalization in CMEs than in LMEs and argue
it preserves many of the main differences, while Streeck (2009) argues, on
the basis of the German case, that coordinated capitalism is disappearing as
the inexorable entrepreneurialism of capitalism erodes the normative order
underpinning CMEs. Some analysts argue that declining trade union membership is destroying strategic coordination, while others contend that trade
unions and employers associations retain strategic capacities, even in the face
of the cleavages globalization opens up between more and less competitive
firms (Baccaro & Howell, 2011; Thelen & van Wijnbergen, 2005).
The issue of how and why varieties of capitalism might be changing
is bound up with debates about how they originate. Although Hall and
Soskice (2001) explicitly specified that VofC were not explaining why
countries develop different types of capitalism and Hall and Thelen (2009)
argue that institutional reform is dependent on a coalitional politics in which
distributive issues based on who benefits predominate, some analysts accuse
them of taking an overly functionalist approach to such issues (Streeck,
2009). Others argue that the emphasis on cross-class coalitions understates
the extent to which such processes are driven by fundamental conflicts
between capital and labor (Coates, 2005; Korpi, 2006).
Thelen (2004) treats these issues empirically by charting the development
of skill formation systems in four countries. She argues that early conflicts
between skilled labor, artisans, and employers conditioned subsequent processes of coalition formation to drive each country along a distinctive trajectory, while Streeck and Yamamura (2002) ascribe the features of national
capitalism to a multitude of historical developments. Iversen and Soskice
(2009) take the view that the development of the economy is the driving force
and explore how it relates to the development of political institutions (with

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

an emphasis on electoral rules). They argue that early forms of coordination in regional economies, with preindustrial roots, conditioned the support
employers and their political allies would later provide for proportional representation. However, these are still matters of lively debate (cf. Boix, 1991;
Martin & Swank, 2012).
KEY ISSUES FOR FUTURE RESEARCH
There is ample room for further research on this topic and many important
issues are signaled by contemporary debates. Preeminent among them is the
question of why countries developed distinctive varieties of capitalism, a
topic closely linked to broader issues in the study of institutional change.
The central actors include firms, which must devise corporate strategies, and
governments, whose regulatory regimes support particular strategies. However, each responds to different incentives, as firms seek to compete more
effectively on domestic and international markets, while governments try
to please their constituencies that may include electorates as well as producer groups. One of the overarching issues is how much influence producer
groups have relative to electorates and over what kinds of policies. This topic
is neglected in political science, which tends to divide into scholars of electoral politics and producer politics (but cf. Culpepper, 2010; Trumbull, 2012).
The parallel problem for contemporary capitalism is one of understanding
how changes occur in the institutional infrastructure of varieties of capitalism. Here, the challenge is to go beyond studies adducing large-scale determinants such as “globalization” or “the balance of class power” toward work
that provides an analytical account of the processes whereby such changes
take place. Comparative case studies of specific instances of policy making,
in which regulations pertaining to employment relations or corporate governance change, provide one of the best routes into such issues, although their
findings must also be integrated into a more general understanding of what
drives such processes along distinctive paths.
Here, one of the principal tasks is to develop models of how reform
coalitions form that are sensitive to the ways in which existing institutions
condition interests. This problem mirrors the more general dilemma facing
contemporary political science of how to integrate accounts ascribing causal
importance to coalitions of socioeconomic groups with accounts of how
institutions structure politics. There is widespread agreement that both
types of factors drive political outcomes but few works look explicitly at
how institutions condition coalitions. Here, a more intensive dialog between
game-theoretic analysis and historically grounded enquiry would be useful;
and Swenson (2001) provides a template with an argument that institutional
arrangements in one sphere of the political economy (industrial relations)

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condition the interests of employers in proposals for institutional reform in
other spheres (such as social policy).
We also need to know more than we do about the precise nature of the
institutional structures that underpin types of capitalism and how they relate
to one another. Prevailing accounts of these structures emphasize regulatory regimes, formal organizational rules, and conventional firm practices.
However, many practices may depend, to some extent, on normative orders,
embodying beliefs about what is appropriate or just, that are also features of
the political economy. In other words, we might build on work in economic
sociology to ask whether a normative underlay is crucial to the persistence
of some types of capitalism and, if so, what factors might change it. These
are issues yet to receive much attention from political scientists (cf. Wueest,
2010).
There is also merit in enquiring further into the ways in which the subspheres of the political economy relate to one another and how these relationships are changing in the current conjuncture. For example, some accounts
identify complementary relationships between a production regime, industrial relations regime, international regime, and policy regime specific both
to varieties of capitalism and to particular historical epochs (Hall, 2013). We
should ask whether these categories adequately define the principal institutional realms of a political economy and whether recent developments have
altered the relationships between them in important ways. Does the growth
of the financial sector, for instance, mean that it deserves a more central role
in such analyses?
Closely related are questions about the extent to which the basic character of capitalism has changed over time. Some contend that changes in how
capitalism operates, visible between the interwar years, the years of post-war
growth, and the period since 1980 are so large that they dwarf cross-sectional
variation in how varieties of capitalism work. While there is as yet no systematic empirical support for this contention, it is worth asking whether we are
in a new era—perhaps of “finance capitalism”—and whether that has altered
the basic character of political economies.
In the same vein, we do not as yet know nearly enough about how changes
in electoral politics impinge on the operation of the political economy.
Iversen and Soskice (2006) have argued forcefully that electoral systems
based on proportional representation enhance the operation of CMEs, but
there is scope for asking how variations in voting behavior across space
or time might affect the support governments provide for the types of
institutional arrangements central to varieties of capitalism. Do policies
affect the distribution of economic returns, for instance, without much effect
on the overall operation of the economy or do electoral shifts contribute to
the transformation of national varieties of capitalism?

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Attention is also turning toward questions about whether specific types
of capitalism tend to require or promote distinctive growth strategies,
understood as combinations of macroeconomic and supply-side policies.
If so, are the growth strategies of the past still feasible in the economic
conditions of the present? Some analysts argue that the efficient operation
of particular types of political economies requires complementary macroeconomic policies (Carlin & Soskice, 2009) or that some kinds of “growth
strategies” are viable only in certain types of political economies (Hall, 2012).
We need to know more about what range of growth strategies is feasible in
particular varieties of capitalism, such as the mixed market economies of
southern Europe. Neoclassical economists have long tried to identify viable
growth strategies, but they rarely deploy models that that are attentive to the
institutional structures of the political economy. There is scope for research
that integrates their insights into analyses of varieties of capitalism.
These considerations also raise questions about the relationship between
national varieties of capitalism and international regimes. Eichengreen
(1996) argued that post-war growth in Europe was made possible by the
interactions between particular sets of domestic institutions and international regimes. Fioretos (2011) has explored how domestic structures
condition the positions governments take within such regimes. But we
know less about whether the viability of particular types of capitalism
or corresponding growth strategies depends on supportive international
regimes in trade and monetary affairs. The Euro crisis raised this issue in
stark terms: Can all the varieties of capitalism prosper inside a monetary
union or are some better served by a floating exchange-rate regime?
Much of the research into such topics concentrates on the developed
economies. Hence, we should ask whether the principles behind this
research can be used to understand the operation of political economies
in the developing world. In many cases, new principles may have to be
devised for that purpose. Schneider (2009) has found some parallel variation
across Latin American economies, with the addition of a new category, and
Feldmann (2007) uses a VofC analysis to compare Slovenia and Estonia.
However, it is apparent that much of the relevant variation in transition
economies and the developing world not well captured by standard VofC
models, partly because some of these countries exhibit state-led forms
of coordination that are rare in the developed democracies, are highly
dependent on foreign direct investment, or lack trade unions strong enough
to support strategic coordination in industrial relations (Bohle & Greskovits,
2012; Nölke & Vliegenthart, 2009). There is room for creative thought
about the most consequential institutional differences between developing
political economies in which large foreign or state-led sectors sit beside large
informal economies and numerous small indigenous firms (Witt, 2010).

Varieties of Capitalism

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Finally, we need a better understanding of the contribution VofC make to
the distribution of well-being. The foundational analyses in this field associate CMEs with a more egalitarian distribution of income. As globalization
and the growth of service sector employment alter the basis for growth, however, this is again an open question. In an important intervention, Thelen
(2014) argues that all capitalist economies are changing in terms that can be
appreciated only by decoupling the concept of egalitarian capitalism from
the VofC schema. She finds divergent trajectories in CMEs, as some such as
Sweden and the Netherlands remain egalitarian, while others like Germany
where dual labor markets have promoted inequality do not. Thelen attributes
much of this divergence to a politics based on the size of the manufacturing sector, but other factors may be at work. We should enquire further into
the relationship between varieties of capitalism and various forms of income
inequality.
However, there is also a relationship between varieties of capitalism and
other types of inequality such as inequalities in health, which deserve more
attention (McLeod, Hall, Siddiqi, & Hertzman, 2012). A person’s health is
affected by sets of working conditions and social policies that vary systematically across types of capitalism, because the latter promote certain kinds
of managerial structures, employment practices, and policy regimes. There
is scope for seeing each variety of capitalism as a distinctive structure of
economic relations that distributes health and other aspects of well-being in
particular ways by virtue of how it distributes various kinds of economic and
social resources that extend well beyond income. Studies of such phenomena could enrich our understanding of the determinants of cross-national
variations in health and well-being and move the field of population health
beyond its emphasis on income inequality.
In sum, there are still many open questions to be investigated about varieties of capitalism. Precisely which schemas will best describe the principal
differences among the political economies of the world in the coming years
is an issue that remains to be determined, but the contention that variations
in the institutional structure of the political economy shape what firms and
governments do, as well as the ensuing distribution of well-being, will be a
keystone for many kinds of fruitful research.
REFERENCES
Acemoglu, D, Robinson J. A., & Verdier, T. (2012). Can’t we all be more like Scandinavians: asymmetric growth and institutions in an interdependent world. Centre
for Economic Policy Studies Discussion Paper No. 9113.
Akkermans, D., Castaldi, C., & Los, B. (2009). Do ‘liberal market economies’ really
innovate more radically than’ coordinated market economies’? Hall and Soskice
reconsidered. Research Policy, 38, 181–191.

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Allen, M., Funk, L., & Tüselmann, H. (2006). Can variation in public policies account
for differences in comparative advantage? Journal of Public Policy, 26, 1–19.
Amable, B. (2003). The diversity of modern capitalism. Oxford, England: Oxford University Press.
Baccaro, L., & Howell, C. (2011). A common neoliberal trajectory: the transformation
of industrial relations in advanced capitalism. Politics and Society, 39, 521–563.
Becker, U. (2009). Open varieties of capitalism: Continuity, change and performance.
Houndmills, Basingstoke, England: Palgrave Macmillan.
Bohle, D., & Greskovits, B. (2012). Capitalist diversity on Europe’s periphery. Ithaca, NY:
Cornell University Press.
Boix, C. (1991). Setting the rules of the game: the choice of electoral systems in
advanced democracies. American Political Science Review, 93, 609–624.
Boyer, R. (2005). How and why capitalisms differ. Max-Planck Institute for the Study
of Societies Discussion Paper 05/4.
Carlin, W., & Soskice, D. (2009). German economic performance: Disentangling the
role of supply-side reforms, macroeconomic policy and coordinated economy
institutions. Socio-Economic Review, 7, 67–99.
Casey, T. (2009). Mapping Stability and Change in Advanced Capitalisms. Comparative European Politics, 7, 255–278.
Coates, D. (Ed.) (2005). Varieties of capitalism, varieties of approaches. Houndmills, Basingstoke, England: Palgrave Macmillan.
Culpepper, P. D. (2010). Quiet politics and business power: Corporate control in Europe
and Japan. New York, NY: Cambridge University Press.
Eichengreen, B. (1996). Institutions and economic growth: Europe after world war II.
In N. Crafts & G. Toniolo (Eds.), Economic growth in Europe since 1945 (pp. 38–72).
Cambridge, England: Cambridge University Press.
Estevez-Abe, M., Iversen, T., & Soskice, D. (2001). Social protection and the formation of skills: a reinterpretation of the welfare state. In P. A. Hall & D. Soskice
(Eds.), Varieties of capitalism: The institutional foundations of comparative advantage
(pp. 145–183). Oxford, England: Oxford University Press.
Feldmann, M. (2007). The origins of varieties of capitalism: Lessons from postsocialist transition in Estonia and Slovenia. In B. Hancké et al. (Eds.), Beyond varieties of capitalism (pp. 328–350). Oxford, England: Oxford University Press.
Fioretos, O. (2011). Creative reconstructions: Multilateralism and European varieties of capitalism after 1950. Ithaca: Cornell University Press.
Geffen, D. A. & Kenyon, T. (2006). Heinz capitalism: how many varieties are there?
An empirical reexamination of coordination mechanisms in advanced market
economies. SSRN. doi:10.2139/ssrn.1005407
Goldthorpe, J. H. (Ed.) (1984). Order and conflict in contemporary capitalism. New York,
NY: Oxford University Press.
Goyer, M. (2011). Contingent capital, short-term investors and the evolution of corporate
governance in France and Germany. Oxford, England: Oxford University Press.
Hall, P. A. (2012). The economics and politics of the Euro crisis. German Politics, 24,
55–71.

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Hall, P. A. (2013). The political origins of our economic discontents. In M. Kahler
& D. Lake (Eds.), The new politics of hard times (pp. 120–149). Ithaca, NY: Cornell
University Press.
Hall, P. A., & Gingerich, D. (2009). Varieties of capitalism and institutional complementarities in the political economy: An empirical Analysis. British Journal of
Poltiical Science, 39, 449–482.
Hall, P. A., & Thelen, K. (2009). Institutional change in varieties of capitalism.
Socio-Economic Review, 7, 7–34.
Höpner, M. (2005). What connects industrial relations and corporate governance?
Explaining institutional complementarity. Socio-Economic Review, 3, 331–358.
Huo, J. J. (2012). Beyond cooperation: Competition in coordinated capitalism. Paper
presented to the Seminar on the State and Capitalism since 1800, Harvard University (November).
Iversen, T., & Soskice, D. (2001). An asset theory of social policy preferences. American
Political Science Review., 95, 875–893.
Iversen, T., & Soskice, D. (2006). Electoral systems and the politics of coalitions: Why
some democracies redistribute more than others. American Political Science Review,
100, 165–181.
Korpi, W. (2006). Power resources and employer centered approaches. World Politics,
58, 167–206.
Maliranta, M., Mättännen, N., & Vihriälä V. (2012). Are the nordic countries really
less innovative than the U.S.? (19 December). http://www.voxeu.org/article/
nordic-innovation-cuddly-capitalism-really-less-innovative.
Mares, I. (2004). The politics of social risk. New York, NY: Cambridge University Press.
Martin, C. J., & Swank, D. (2012). The political construction of business interests. New
York, NY: Cambridge University Press.
McLeod, C. B., Hall, P. A., Siddiqi, A., & Hertzman, C. (2012). How society shapes
the health gradient: Work-related health inequalities in a comparative perspective.
Annual Review of Public Health, 33, 59–73.
Morgan, G., & Kristensen, P. H. (2006). The contested space of multinationals: Varieties of institutionalism, varieties of capitalism. Human Relations, 59, 1467–1490.
Nölke, A., & Vliegenthart, A. (2009). Enlarging the varieties of capitalism: The emergence of dependent market economies in east central Europe. World Politics, 61,
670–702.
Schneider, B. (2009). Hierarchical market economies and varieties of capitalism in
Latin America. Journal of Latin American Studies, 41, 553–75.
Schneider, M. R., & Paunescu, M. (2012). Changing varieties of capitalism and
revealed comparative advantages from 1990 to 2005: a test of the Hall and Soskice
claims. Socio-Economic Review, 8, 1–23.
Shonfield, A. (1969). Modern capitalism. Oxford, England: Oxford University Press.
Streeck, W. (1991). On the institutional conditions for diversified quality production.
In E. Matzner & W. Streeck (Eds.), Beyond Keynesianism (pp. 21–61). Aldershot,
England: Elgar.
Streeck, W. (2009). Re-forming capitalism. Oxford, England: Oxford University Press.

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Streeck, W., & Yamamura, K. (Eds.) (2002). The origins of non-liberal capitalism. Ithaca,
NY: Cornell University Press.
Swenson, P. (2001). Capitalists against markets. New York, NY: Oxford University
Press.
Taylor, M. Z. (2004). Empirical evidence against varieties of capitalism’s theory of
technological innovation. International Organization, 58, 601–631.
Thelen, K., & van Wijnbergen, C. (2005). The paradox of globalization: Labor relations
in Germany and beyond. Comparative Political Studies, 36(8), 859–880.
Trumbull, G. (2012). Strength in numbers: The political power of weak interests. Cambridge, MA: Harvard University Press.
Whitley, R. (1999). Divergent capitalisms: The social structuring and change of business
systems. Oxford, England: Oxford University Press.
Witt, M. (2010). China what variety of capitalism? INSEAD Faculty Working Paper
2010/88.
Wueest, B.R. (2010). Varieties of capitalist debates: how institutions shape public
conflicts on liberalization in the U.K., France and Germany. CIS Working Paper,
University of Zurich.

FURTHER READING
Hall, P. A., & Soskice, D. (Eds.) (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford, England: Oxford University Press.
Hancké, B. (Ed.) (2009). Debating varieties of capitalism. Oxford, England: Oxford University Press.
Hancké, B., Rhodes, M., & Thatcher, M. (Eds.) (2007). Beyond varieties of capitalism.
Oxford, England: Oxford University Press.
Iversen, T., & Soskice, D. (2009). Distribution and redistribution: The shadow of the
nineteenth century. World Politics, 61, 3(July).
Thelen, K. (2004). How institutions evolve: The political economy of skills in Germany,
Britain, the United States and Japan. New York, NY: Cambridge University Press.
Thelen, K. (2014). Varieties of liberalization and the new politics of social solidarity. Cambridge University Press: New York, NY.

PETER A. HALL SHORT BIOGRAPHY
Peter A. Hall is Krupp Foundation Professor of European Studies in the
Department of Government at Harvard University, a Faculty Associate at
the Minda de Gunzburg Center for European Studies and Co-director of
the Successful Societies Program for the Canadian Institute for Advanced
Research. His publications include Governing the Economy (1986), The Political
Power of Economic Ideas (1989), Developments in French Politics I and II (1990,
2001), Varieties of Capitalism (2001), Changing France (2005), Successful Societies
(2009), Social Resilience in the Neo-Liberal Era and more than a 100 articles on

Varieties of Capitalism

15

comparative political economy and politics in the developed democracies.
He has written widely about comparative institutional analysis, varieties of
capitalism, economic policy-making, the role of ideas in politics, and methods of political analysis. His current research focuses on the development
of the European political economies, issues in institutional change and the
social basis for variations in population health across nations.
http://www.gov.harvard.edu/people/faculty/peter-hall
http://www.people.fas.harvard.edu/∼phall/
http://www.cifar.ca/successful-societies
RELATED ESSAYS
Domestic Politics of Trade Policy (Political Science), Michaël Aklin et al.
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Domestic Institutions and International Conflict (Political Science), Giacomo
Chiozza
The State and Development (Sociology), Samuel Cohn
Globalization: Consequences for Work and Employment in Advanced
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Misra
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Moore and Ryan M. Welch
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Pepinsky
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Thompson
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Why Do States Pursue Nuclear Weapons (or Not) (Political Science), Wilfred
Wan and Etel Solingen
Constitutionalism (Political Science), Keith E. Whittington


Varieties of Capitalism
PETER A. HALL

Abstract
Scholarship on varieties of capitalism (VofC) explores the ways in which the institutions structuring the political economy affect patterns of economic performance
or policy making and the distribution of well-being. Contesting the claim that there
is one best route to superior economic performance, a number of schemas have
been proposed to explain why countries have often been able to secure substantial
rates of growth in different ways, often with relatively egalitarian distributions
of income. Prominent among them is a VofC analysis focused on the developed
democracies that distinguishes liberal and coordinated market economies according
to the ways in which firms coordinate their endeavors. On the basis of institutional
complementarities among subspheres of the political economy, it suggests that the
institutional structure of the political economy confers comparative institutional
advantages, notably for radical and incremental innovation, which explains why
economies have not converged in the context of globalization. Although this framework is contested, it has inspired new research on many subjects, including the
basis for innovation, the determinants of social policy, the grounds for international
negotiation, and the character of institutional change. In this issue area, there is
promising terrain for further research into the origins of varieties of capitalism, the
factors that drive institutional change in the political economy, how institutional
arrangements in the subspheres of the political economy interact with one another,
the normative underlay for capitalism, and the effects of varieties of capitalism on
multiple dimensions of well-being.

INTRODUCTION
Is there more than one route to efficient economic performance? What are
the most consequential institutional differences across capitalist political
economies? How enduring are these differences and what effects follow
from them? These are the core issues taken up by analysts of varieties of
capitalism (VofC). They bear on the distribution of well-being as well as
what makes economies competitive. Many European economies have a
more equal distribution of income than the Anglo-American economies
and, on the basis of an efficiency-equity trade-off, some argue that this
egalitarianism comes at the cost of economic growth. Others suggest that
more egalitarian forms of capitalism can be just as efficient.
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Research on this subject was inspired by a turn in the social sciences to a
“new institutionalism.” Like states, markets are institutions that take a historically specific shape, and analysts of varieties of capitalism are interested
in how their operation is affected by other institutions in the political economy, such as trade unions, firm networks, and policy regimes. Research on
this topic speaks to a number of overarching issues in institutional analysis, such as how institutions in one sphere of the political economy affect the
operation of those in other spheres. This work has also been revealing about
the pacing and drivers of institutional change.
The research done on this topic carries many implications for policy
making. VofC analyses have shown, for instance, that more generous social
policies do not always reflect the triumph of labor over business. They
have shown how the institutional shape of the political economy conditions
the positions taken by national governments in international negotiations.
Studies of institutional complementarities call into question the efficiency
of piecemeal reforms to one sphere of the economy and the accuracy of
estimations assessing the impact of such reforms that do not take such
institutional interaction effects into account.
At the heart of these inquiries are questions, not only about how political
economies differ but also why ensembles of institutions cohere. One of the
defining features of this research is its inclination to treat political economies
as coherent wholes with distinctive features grounded in national histories
rather than as examples of a homogeneous market terrain onto which new
institutions can be readily grafted without much concern for other institutions in the economy. Thus, this research draws on neoclassical economics
and game theory, but questions some of the assumptions of neoclassical
models.
FOUNDATIONAL RESEARCH
The contemporary study of comparative capitalism dates to pioneering
research in the 1960s of Andrew Shonfield (1969), who compared the
character of state intervention across political economies with a view to
establishing how each was able to modernize. In early works, France and
Japan were typically presented as success stories. When global attention
shifted to the problem of “stagflation” during the 1970s, analysts began to
emphasize instead how the structures of wage bargaining condition the
economic success of countries. Their most prominent contention was that
superior economic performance can be secured where wage bargaining is
operated by relatively centralized trade unions and employers associations
under what were usually termed “neocorporatist” arrangements. In this
era, the small states of northern Europe emerged as major success stories

Varieties of Capitalism

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(Goldthorpe, 1984). The third strand of work influencing subsequent theories
was by the French “regulation school” and scholars of firm-networks, which
emphasized connections between how production is organized on the
shop floor and supportive firm-networks, bargaining institutions or policy
regimes at the regional level and in the macro-economy. This literature
focused on the institutional underpinnings for “Fordist mass production”
(after Henry Ford) or “diversified quality production” seen as an alternative
to it (Boyer, 2005; Streeck, 1991).
Many current debates in the field revolve around an analytical framework
presented in Hall and Soskice (2001) and the term “varieties of capitalism” is
often used to refer to that framework. If a first wave of work focused on modernization and the second focused on stagflation, this third wave emphasizes
the problems of the political economy in an era when international competition became more intense and factors of production more mobile. Many
scholars argued that, in the face of this globalization, economies would “liberalize” to converge on something similar to an American model.
Hall and Soskice argued against this convergence thesis on the grounds
that different types of political economies have distinctive comparative
advantages they can exploit to prosper in an open global economy. As the
English political economist David Ricardo once argued, the best way to
survive intense competition is often not to imitate one’s competitors but to
capitalize on one’s differences. The innovative element here was to suggest
that national comparative advantages might be rooted in the institutional
structures of the political economy.
Because it set many of the terms for contemporary debate, I summarize the
core propositions of this “VofC” approach. In contrast to previous work that
emphasized trade unions and rarely discussed firms, this is a firm-oriented
perspective, which sees companies as central actors in the economy and organizations whose success turns on the quality of the relationships they form in
key realms of endeavor, including industrial relations where wages are set,
interfirm relations governing technology transfer, markets for corporate governance that supply finance, and intrafirm relations bearing on how products
are made.
VofC analyses distinguish between two ways of managing these relationships: one based on competitive market relations and the other on the types
of strategic coordination described by game theory. The approach a firm will
adopt depends on the extent to which each is supported by the overarching
institutions of the political economy, including relevant policy regimes, interfirm networks, and the structure of industrial relations. Thus, this approach
distinguishes between types of economies according to how firms coordinate their endeavors. In one ideal type, known as liberal market economies

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

(LMEs), most firms coordinate many of their activities via market mechanisms, while, in the ideal type of coordinated market economy (CME), a
typical firm’s relations with other actors turn more heavily on strategic coordination.
In addition, Hall and Soskice (2001) allow for a number of subtypes
reflecting, for instance, differences in the forms of strategic coordination
found in East Asia and northern Europe and the “mixed market economies”
of southern Europe where there is more strategic coordination in corporate
governance than labor relations (Hall & Gingerich, 2009). Others argue for
the distinctiveness of CMEs in the Nordic region, where social democratic
dominance has given rise to distinctive industrial relations regimes and
social policies. In western Europe, that schema yields four types of political
economies—LMEs in Ireland and the United Kingdom; the mixed market
economies of Portugal, Spain, and Greece; Nordic coordinated economies in
Denmark, Sweden, Finland, and Norway; and continental CMEs in most of
the rest.
The influence of this paradigm follows from the implications that can
be derived from it. First, it posits “institutional complementarities” where
the presence of a specific set of institutions in one sphere of the economy
enhances the returns available from corresponding institutions in other
spheres, often turning on whether market (or strategic) coordination is
found in both spheres. The implication is that firms and workers may hesitate to change institutions in one sphere without corresponding reform in
other spheres. For instance, Goyer (2011) finds that German firms were more
reluctant than French firms to liberalize the market for corporate governance,
lest an aggressive takeover regime interfere with the advantages they draw
from strategically coordinated industrial relations not present in France.
Second, proponents of this approach build on the work of Swenson (2001)
to emphasize the political importance of “cross-class coalitions” in which
segments of labor and capital unite behind a policy position to defend a set
of institutional structures from which both benefit. The implication is that
cross-national variation in some kinds of institutions, such as the shape of
an industrial relations system, is often explained by a politics in which the
balance of class power is less important than cross-national variation in the
interests of employers—a challenge to the “power resources” approach to
such issues (cf. Korpi, 2006).
Building on this, VofC analysts develop an account of why employers
have interests in social policy regimes (Estevez-Abe, Iversen, & Soskice,
2001; Iversen & Soskice, 2001; Mares, 2004). Instead of seeing business
as an implacable opponent of social policy, these scholars argue that the
generous unemployment benefits of many CMEs are supported by business
as well as labor because they provide incentives for workers to invest in the

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5

industry-specific skills central to the production regimes of such economies.
“Specific skills” are typically acquired through apprenticeship or experience
and of value principally in one industry or firm, while “general skills” are
portable across sectors and occupations. The observation that firms in CMEs
tend to make extensive use of specific skills, while those in LMEs rely on
general skills can be used to explain, not only cross-national variations in
firm strategy but also national differences in educational systems, social
policy regimes, and gender segmentation across occupations.
The most radical implications of this approach concern national economic
performance. The contention is that aggregate economic performance, measured by rates of economic growth or productivity, can be as high in coordinated as LMEs, a point often supported by reference to Germany, Sweden,
Denmark, and Norway. However, the VofC perspective also emphasizes that
aggregate performance can be secured in different ways. The institutional
structures of coordinated and LME are said to confer distinctive competitive
advantages on firms that translate into national comparative advantages.
The most striking contention here is that by virtue of their fluid labor
and capital markets, which make it easy for firms to begin new ventures
knowing they can quickly be unwound, LMEs offer more support for
radical innovation, understood as the development of entirely new products
or technologies. By contrast, CMEs are said to be better at incremental
innovation, involving quality control and continuous improvements to
products or production processes, because strong trade unions and longer
job tenures encourage firms to make long-term commitments to workers
that elicit higher levels of cooperation and encourage investment in the high
skill levels that make such innovation feasible. Thus, LMEs should produce
radical innovations more successfully, while CMEs are better at quality
control and incremental innovation.
This point carries implications for where firms locate their operations.
Hall and Soskice (2001) argue that many firms will engage in “institutional
arbitrage”—locating endeavors such as research and development that
depend on radical innovation in LMEs, while high-value-added manufacturing is more often located in CMEs. Although other considerations also bear
on location decisions and there are always exceptional cases, this theory provides a new perspective on globalization, which explains why globalization
might not lead to convergence on the American economic model.
CUTTING-EDGE RESEARCH
The VofC framework elaborated by Hall and Soskice has inspired many
theoretical critiques, efforts to test the approach, and to extend it. Some
of this research asks whether countries cluster into the types of capitalism

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

identified by this framework—a difficult task because the typology turns
on forms of coordination that can rarely be measured directly. Hall and
Gingerich (2009) construct a widely used but time-invariant index of
(market-oriented vs strategic) coordination and find that Organisation for
Economic Cooperation and Development (OECD) countries cluster on coordination in labor relations and corporate governance as suggested by the
theory; but they also identify a group of southern European “mixed market
economies” where corporate governance is more strategically coordinated
than labor relations. Using time-variant measures, Schneider and Paunescu
(2012) find country groupings and sector-specific comparative advantages
predicted by the theory, but also recent movement, especially in the Nordic
region, toward an LME model and Casey (2009) too finds support for these
theories. Using a cluster analysis highly sensitive to the variables chosen as
proxies, Geffen and Kenyon (2006) find a stable cluster corresponding only
to LMEs, which raises questions about the theory.
In this context, it is important to note that several analysts have developed
other classifications of capitalism, based on alternate principles. Some time
ago, Whitley (1999) identified six types of business systems that vary according to the ways firms secure coordination and control, linked to the institutional context. Amable (2003) posits five forms of capitalism, characterized
by distinctive institutional complementarities, in Scandinavia, Asia, southern
Europe, the Anglo-American world, and continental Europe. More recently,
Becker (2009) suggests four types of capitalism seen as loosely ordered and
relatively open systems.
Another series of analyses assess the contention that LMEs provide more
propitious institutional ground for radical innovation than CMEs. Taylor
(2004) saw no evidence for this proposition; but Allen, Funk, and Tüselmann
(2006) and Akkermans, Castaldi, and Los (2009) find that the revealed
comparative advantage of sectors corresponds broadly to VofC predictions
with some notable exceptions. Huo (2012) extends the theory to show why
competition encourages radical innovation based on information effects,
while cooperation does not. In a bold intervention, Acemoglu, Robinson,
and Verdier (2012) find support for the proposition that radical innovation
is more likely in LMEs, and use the point to contend that economic growth
in the “cuddly capitalism” of CMEs is ultimately dependent on the technological innovations devised in the “ruthless capitalism” of LMEs. However,
using different measures, Maliranta, Mättännen, and Vihriälä (2012) dispute
this argument on the grounds that radical innovation can be found in the
Nordic economies.
A third group of studies ask whether institutional complementarities
operate as Hall and Soskice predict. In a wide-ranging debate, some
critics contend that market-oriented institutions can be complementary

Varieties of Capitalism

7

to institutions supporting strategic coordination, while others argue that
complementarities are rooted in institutional features more specific than
the types of coordination they support. Höpner (2005) draws a useful
distinction between complementarity, coherence, and compatibility. In
addition to complementarities between the institutions supporting labor
relations and corporate governance in France and Germany, Goyer (2011)
finds patterns of international investment influenced by VofC, as investors
seeking steady returns invest more heavily in CMEs, while those seeking
more risk and larger returns favor LMEs. A number of studies ask whether
multinational enterprises exploit institutional comparative advantages or
undermine national institutional practices by adhering to the practices of
their home country (Morgan & Kristensen, 2006).
It is hotly debated whether the varieties of capitalism identified in this literature are stable over time, converging, or otherwise dissolving. Everyone
agrees that some liberalization has taken place in all economies but Hall
and Gingerich find slower liberalization in CMEs than in LMEs and argue
it preserves many of the main differences, while Streeck (2009) argues, on
the basis of the German case, that coordinated capitalism is disappearing as
the inexorable entrepreneurialism of capitalism erodes the normative order
underpinning CMEs. Some analysts argue that declining trade union membership is destroying strategic coordination, while others contend that trade
unions and employers associations retain strategic capacities, even in the face
of the cleavages globalization opens up between more and less competitive
firms (Baccaro & Howell, 2011; Thelen & van Wijnbergen, 2005).
The issue of how and why varieties of capitalism might be changing
is bound up with debates about how they originate. Although Hall and
Soskice (2001) explicitly specified that VofC were not explaining why
countries develop different types of capitalism and Hall and Thelen (2009)
argue that institutional reform is dependent on a coalitional politics in which
distributive issues based on who benefits predominate, some analysts accuse
them of taking an overly functionalist approach to such issues (Streeck,
2009). Others argue that the emphasis on cross-class coalitions understates
the extent to which such processes are driven by fundamental conflicts
between capital and labor (Coates, 2005; Korpi, 2006).
Thelen (2004) treats these issues empirically by charting the development
of skill formation systems in four countries. She argues that early conflicts
between skilled labor, artisans, and employers conditioned subsequent processes of coalition formation to drive each country along a distinctive trajectory, while Streeck and Yamamura (2002) ascribe the features of national
capitalism to a multitude of historical developments. Iversen and Soskice
(2009) take the view that the development of the economy is the driving force
and explore how it relates to the development of political institutions (with

8

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

an emphasis on electoral rules). They argue that early forms of coordination in regional economies, with preindustrial roots, conditioned the support
employers and their political allies would later provide for proportional representation. However, these are still matters of lively debate (cf. Boix, 1991;
Martin & Swank, 2012).
KEY ISSUES FOR FUTURE RESEARCH
There is ample room for further research on this topic and many important
issues are signaled by contemporary debates. Preeminent among them is the
question of why countries developed distinctive varieties of capitalism, a
topic closely linked to broader issues in the study of institutional change.
The central actors include firms, which must devise corporate strategies, and
governments, whose regulatory regimes support particular strategies. However, each responds to different incentives, as firms seek to compete more
effectively on domestic and international markets, while governments try
to please their constituencies that may include electorates as well as producer groups. One of the overarching issues is how much influence producer
groups have relative to electorates and over what kinds of policies. This topic
is neglected in political science, which tends to divide into scholars of electoral politics and producer politics (but cf. Culpepper, 2010; Trumbull, 2012).
The parallel problem for contemporary capitalism is one of understanding
how changes occur in the institutional infrastructure of varieties of capitalism. Here, the challenge is to go beyond studies adducing large-scale determinants such as “globalization” or “the balance of class power” toward work
that provides an analytical account of the processes whereby such changes
take place. Comparative case studies of specific instances of policy making,
in which regulations pertaining to employment relations or corporate governance change, provide one of the best routes into such issues, although their
findings must also be integrated into a more general understanding of what
drives such processes along distinctive paths.
Here, one of the principal tasks is to develop models of how reform
coalitions form that are sensitive to the ways in which existing institutions
condition interests. This problem mirrors the more general dilemma facing
contemporary political science of how to integrate accounts ascribing causal
importance to coalitions of socioeconomic groups with accounts of how
institutions structure politics. There is widespread agreement that both
types of factors drive political outcomes but few works look explicitly at
how institutions condition coalitions. Here, a more intensive dialog between
game-theoretic analysis and historically grounded enquiry would be useful;
and Swenson (2001) provides a template with an argument that institutional
arrangements in one sphere of the political economy (industrial relations)

Varieties of Capitalism

9

condition the interests of employers in proposals for institutional reform in
other spheres (such as social policy).
We also need to know more than we do about the precise nature of the
institutional structures that underpin types of capitalism and how they relate
to one another. Prevailing accounts of these structures emphasize regulatory regimes, formal organizational rules, and conventional firm practices.
However, many practices may depend, to some extent, on normative orders,
embodying beliefs about what is appropriate or just, that are also features of
the political economy. In other words, we might build on work in economic
sociology to ask whether a normative underlay is crucial to the persistence
of some types of capitalism and, if so, what factors might change it. These
are issues yet to receive much attention from political scientists (cf. Wueest,
2010).
There is also merit in enquiring further into the ways in which the subspheres of the political economy relate to one another and how these relationships are changing in the current conjuncture. For example, some accounts
identify complementary relationships between a production regime, industrial relations regime, international regime, and policy regime specific both
to varieties of capitalism and to particular historical epochs (Hall, 2013). We
should ask whether these categories adequately define the principal institutional realms of a political economy and whether recent developments have
altered the relationships between them in important ways. Does the growth
of the financial sector, for instance, mean that it deserves a more central role
in such analyses?
Closely related are questions about the extent to which the basic character of capitalism has changed over time. Some contend that changes in how
capitalism operates, visible between the interwar years, the years of post-war
growth, and the period since 1980 are so large that they dwarf cross-sectional
variation in how varieties of capitalism work. While there is as yet no systematic empirical support for this contention, it is worth asking whether we are
in a new era—perhaps of “finance capitalism”—and whether that has altered
the basic character of political economies.
In the same vein, we do not as yet know nearly enough about how changes
in electoral politics impinge on the operation of the political economy.
Iversen and Soskice (2006) have argued forcefully that electoral systems
based on proportional representation enhance the operation of CMEs, but
there is scope for asking how variations in voting behavior across space
or time might affect the support governments provide for the types of
institutional arrangements central to varieties of capitalism. Do policies
affect the distribution of economic returns, for instance, without much effect
on the overall operation of the economy or do electoral shifts contribute to
the transformation of national varieties of capitalism?

10

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Attention is also turning toward questions about whether specific types
of capitalism tend to require or promote distinctive growth strategies,
understood as combinations of macroeconomic and supply-side policies.
If so, are the growth strategies of the past still feasible in the economic
conditions of the present? Some analysts argue that the efficient operation
of particular types of political economies requires complementary macroeconomic policies (Carlin & Soskice, 2009) or that some kinds of “growth
strategies” are viable only in certain types of political economies (Hall, 2012).
We need to know more about what range of growth strategies is feasible in
particular varieties of capitalism, such as the mixed market economies of
southern Europe. Neoclassical economists have long tried to identify viable
growth strategies, but they rarely deploy models that that are attentive to the
institutional structures of the political economy. There is scope for research
that integrates their insights into analyses of varieties of capitalism.
These considerations also raise questions about the relationship between
national varieties of capitalism and international regimes. Eichengreen
(1996) argued that post-war growth in Europe was made possible by the
interactions between particular sets of domestic institutions and international regimes. Fioretos (2011) has explored how domestic structures
condition the positions governments take within such regimes. But we
know less about whether the viability of particular types of capitalism
or corresponding growth strategies depends on supportive international
regimes in trade and monetary affairs. The Euro crisis raised this issue in
stark terms: Can all the varieties of capitalism prosper inside a monetary
union or are some better served by a floating exchange-rate regime?
Much of the research into such topics concentrates on the developed
economies. Hence, we should ask whether the principles behind this
research can be used to understand the operation of political economies
in the developing world. In many cases, new principles may have to be
devised for that purpose. Schneider (2009) has found some parallel variation
across Latin American economies, with the addition of a new category, and
Feldmann (2007) uses a VofC analysis to compare Slovenia and Estonia.
However, it is apparent that much of the relevant variation in transition
economies and the developing world not well captured by standard VofC
models, partly because some of these countries exhibit state-led forms
of coordination that are rare in the developed democracies, are highly
dependent on foreign direct investment, or lack trade unions strong enough
to support strategic coordination in industrial relations (Bohle & Greskovits,
2012; Nölke & Vliegenthart, 2009). There is room for creative thought
about the most consequential institutional differences between developing
political economies in which large foreign or state-led sectors sit beside large
informal economies and numerous small indigenous firms (Witt, 2010).

Varieties of Capitalism

11

Finally, we need a better understanding of the contribution VofC make to
the distribution of well-being. The foundational analyses in this field associate CMEs with a more egalitarian distribution of income. As globalization
and the growth of service sector employment alter the basis for growth, however, this is again an open question. In an important intervention, Thelen
(2014) argues that all capitalist economies are changing in terms that can be
appreciated only by decoupling the concept of egalitarian capitalism from
the VofC schema. She finds divergent trajectories in CMEs, as some such as
Sweden and the Netherlands remain egalitarian, while others like Germany
where dual labor markets have promoted inequality do not. Thelen attributes
much of this divergence to a politics based on the size of the manufacturing sector, but other factors may be at work. We should enquire further into
the relationship between varieties of capitalism and various forms of income
inequality.
However, there is also a relationship between varieties of capitalism and
other types of inequality such as inequalities in health, which deserve more
attention (McLeod, Hall, Siddiqi, & Hertzman, 2012). A person’s health is
affected by sets of working conditions and social policies that vary systematically across types of capitalism, because the latter promote certain kinds
of managerial structures, employment practices, and policy regimes. There
is scope for seeing each variety of capitalism as a distinctive structure of
economic relations that distributes health and other aspects of well-being in
particular ways by virtue of how it distributes various kinds of economic and
social resources that extend well beyond income. Studies of such phenomena could enrich our understanding of the determinants of cross-national
variations in health and well-being and move the field of population health
beyond its emphasis on income inequality.
In sum, there are still many open questions to be investigated about varieties of capitalism. Precisely which schemas will best describe the principal
differences among the political economies of the world in the coming years
is an issue that remains to be determined, but the contention that variations
in the institutional structure of the political economy shape what firms and
governments do, as well as the ensuing distribution of well-being, will be a
keystone for many kinds of fruitful research.
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Casey, T. (2009). Mapping Stability and Change in Advanced Capitalisms. Comparative European Politics, 7, 255–278.
Coates, D. (Ed.) (2005). Varieties of capitalism, varieties of approaches. Houndmills, Basingstoke, England: Palgrave Macmillan.
Culpepper, P. D. (2010). Quiet politics and business power: Corporate control in Europe
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Estevez-Abe, M., Iversen, T., & Soskice, D. (2001). Social protection and the formation of skills: a reinterpretation of the welfare state. In P. A. Hall & D. Soskice
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Feldmann, M. (2007). The origins of varieties of capitalism: Lessons from postsocialist transition in Estonia and Slovenia. In B. Hancké et al. (Eds.), Beyond varieties of capitalism (pp. 328–350). Oxford, England: Oxford University Press.
Fioretos, O. (2011). Creative reconstructions: Multilateralism and European varieties of capitalism after 1950. Ithaca: Cornell University Press.
Geffen, D. A. & Kenyon, T. (2006). Heinz capitalism: how many varieties are there?
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Hall, P. A. (2013). The political origins of our economic discontents. In M. Kahler
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Streeck, W., & Yamamura, K. (Eds.) (2002). The origins of non-liberal capitalism. Ithaca,
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FURTHER READING
Hall, P. A., & Soskice, D. (Eds.) (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford, England: Oxford University Press.
Hancké, B. (Ed.) (2009). Debating varieties of capitalism. Oxford, England: Oxford University Press.
Hancké, B., Rhodes, M., & Thatcher, M. (Eds.) (2007). Beyond varieties of capitalism.
Oxford, England: Oxford University Press.
Iversen, T., & Soskice, D. (2009). Distribution and redistribution: The shadow of the
nineteenth century. World Politics, 61, 3(July).
Thelen, K. (2004). How institutions evolve: The political economy of skills in Germany,
Britain, the United States and Japan. New York, NY: Cambridge University Press.
Thelen, K. (2014). Varieties of liberalization and the new politics of social solidarity. Cambridge University Press: New York, NY.

PETER A. HALL SHORT BIOGRAPHY
Peter A. Hall is Krupp Foundation Professor of European Studies in the
Department of Government at Harvard University, a Faculty Associate at
the Minda de Gunzburg Center for European Studies and Co-director of
the Successful Societies Program for the Canadian Institute for Advanced
Research. His publications include Governing the Economy (1986), The Political
Power of Economic Ideas (1989), Developments in French Politics I and II (1990,
2001), Varieties of Capitalism (2001), Changing France (2005), Successful Societies
(2009), Social Resilience in the Neo-Liberal Era and more than a 100 articles on

Varieties of Capitalism

15

comparative political economy and politics in the developed democracies.
He has written widely about comparative institutional analysis, varieties of
capitalism, economic policy-making, the role of ideas in politics, and methods of political analysis. His current research focuses on the development
of the European political economies, issues in institutional change and the
social basis for variations in population health across nations.
http://www.gov.harvard.edu/people/faculty/peter-hall
http://www.people.fas.harvard.edu/∼phall/
http://www.cifar.ca/successful-societies
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