Varieties+of+Capitalism+and+Institutional+Complementarities+in+the+Political+Economy+An+Empirical+Analysis

Peter Hall and Daniel Gingerich, “Varieties of Capitalism and Institutional Complementarities in the Political Economy: An Empirical Analysis,” British Journal of Political Science 39, no. 3 (2009), pp. 449–482. Summary by Efe - Main interest is on the theory of institutional complementarities: one set of institutions is complementary to another when its presence raises the returns available from the others. - They develop indices to measures the character of co-ordination in labor relations and corporate governance. Then they use these measures to assess whether the varieties of capitalism (I think that is something we should know from the other Hall reading). Then they look at the patters of institutional change over the past two decades. - Firms interact on several spheres of political economy: financial market, industrial relations, education and training, product markets, and firm-employee relations. - There is liberal market economies and coordinated market economies (two extremes US vs….. Swedeeen!) - H1: The character of co-ordination constitutes a key dimension stretching across spheres of the political economy. - H2: The underlying latent variables corresponding to each sphere of the economy should reflect variation along a spectrum running from market co-ordination to strategic co-ordination (the first one is US, second Sweden) - H3: It is possible to identify a distinctive set of LMEs that make extensive use of market co-ordination and another sey of CMEs that make extensive use of strategic co-ordination. - They do a factor analysis. Here are the variables: o Shareholder power: legal protection and likely-influence over firms of ordinary shareholders relative to managers or dominant shareholders. (composite variable covering six issues, coded 1-0, summed up) o Dispersion of control: how many firms in the economy are widely held relative to the number with controlling shareholders. o Size of stock market o Level of wage co-ordination: 3 national, 2 intermediate 1 firm o Degree of wage co-ordination: 3 coordinated 1 uncoordinated o Labor turnover - Please see the Fig 1. On p. 456 for the diagram of their model (two factors / six observed variables) - Then they have some numbers and very nice graphics. - Then they feel bad (I guess) about ignoring other aspects of political economy. So they come up with a new hypothesis. - H4: Institutionalized practices extending across the spheres of the political economy identified here, including those associated with firm strategies, vary systematically such that the practices associated with market coordination are present in multiple spheres of political economies classified as LMEs and practices associated with strategic coordination are present in multiple spheres of political economies classified as CMEs. - Please see fig on p. 464 for the model. - (Guys, I’m sorry but I have no idea what are their conclusions. I am totally lost here) - H5: When there are higher levels of market co-ordination in sphere of labor relations or corporate governance, rates of economic growth increase as the level of market coordination in the other sphere increases. - H6: Rates of economic growth should be higher in nations where levels of market coordination or levels of strategic coordination are high across spheres of the political economy but lower in nations where neither type of coordination is so well-developed, or market and strategic coordination are combined. ** Conclusion: ** - Concepts of market-oriented and strategic coordination reflect an underlying dimension of distinguishing practices across countries in the spheres of labor relations and corporate governance. - Labor-market deregulation is likely to produce larger economic gains only in nations where financial markets are correspondingly fluid. - As a policy recommendation, when proposing a reform for labor or capital markets, look at data considering all spheres, instead of just that one simple sphere. -
 * Main point: ** Based on the other Hall reading view, they apply new economic of organization to the macroeconomy and suggest that ‘nations cluster into identifiable groups based on the extent to which firms rely on market or strategic models of coordination’.