The Diversity of Socio-Economic Models
Bruno Amable
The current debate on the possibility of
existence of a specific European socio-economic
model1 of a knowledge-based economy is linked to
the issue of structural reforms and the question of
the possible convergence of modern developed
economies towards the ‘Anglo-Saxon’, ‘market-
based’, ‘neo-liberal’ model of capitalism.
According some analysts, this convergence would
be more than welcome since the most advanced
knowledge-based economy is considered to be the
US, and the source of its competitive and
innovative advantage is usually traced back to its
specific institutional structure.2
The most common discourse on Europe and its
current problems can be summarised as follows.
Europe in general, and France and Germany in
particular, are held to have fallen significantly
behind the United States, in terms of economic
dynamism and innovation, because of the presence
of institutions that would be not suited to the new
forms of capitalism, and particularly the
‘knowledge-based society’. More generally, the
‘new age of capitalism’, i.e. the ‘knowledge-based
economy’, would imply the end of the European
socio-economic model.
This is indeed predicted by many reports that
assess the ability of Europe in general, and the core
continental countries (France and Germany) in
particular, to fulfil the objectives of the Lisbon
summit, i.e. ‘to make Europe the most dynamic and
competitive knowledge-based economy in the world
capable of sustainable economic growth with more
and better jobs and greater social cohesion, and
respect for the environment’ by 2010 (Kok [2004]).
1
Use will be made of the term ‘model’ without any
normative implication.
2 3
OECD [2000].
What comes out of most of these reports3 is that the
institutions that characterise the European model
are supposed to be obstacles to the achievement of
the Lisbon strategy. The bad performance of
Europe in comparison to the US would be due to
the lack of adaptation of the European model to the
demands of contemporary capitalism. The
European model would only be the survival of a set
of institutions that may have been performing well
in the post-war period until the end of the 1970s,
but which would be obsolete now. The stability of
markets dominated by large oligopolistic firms
enjoying stable long-term financial relationships
with banks is held to be gone forever. What is
supposed to dominate nowadays is the primacy of
innovation and competition, demanding a rapid
adaptation capacity to fast-changing markets, and
the importance of flexibility in all markets. In this
respect, the ‘indispensable reforms’ would consist
in favouring the mobility of workers both within
the firm and across firms and industries, to foster
education and training and thus workers’
employability, to increase labour market flexibility,
to deregulate product markets and services, to
favour financing through markets rather than
intermediaries…
This alleged necessity of structural reforms
concerns nearly all institutional areas, not just the
labour and product markets. For the proponents of
‘reforms’, social protection has become impossible
to maintain at its current level. Sky-rocketing
medical costs would make it impossible to continue
financing the social security system. The ageing of
the population endangers the financing of state
retirement plans, given that the pathologies unique
See also Sapir [2003].
Actes du GERPISA n°39
to the European labour market are supposed to lead
to a limitation of the proportion of the actively
employed population able to contribute to public
pension plans. Labour market institutions of
Continental Europe are thus considered to prevent
several categories of the population from accessing
employment: women, low-skilled workers, young
workers, workers close to retirement age…. These
institutions are also accused of unfairly protecting
those already employed -- the insiders-- to the
detriment of those excluded from the labour market
-- the outsiders. Taxation, redistribution
mechanisms and labour unions' influence lead to
salary scale limitations. This is supposed to have
the double effect of making the least productive
workers unemployable while discouraging the most
qualified ones, those with high incomes, from
supplying their labour force.
The flexibility of the labour market is held to be
insufficient, hindering adjustments to employment.
This in turn weakens companies subject to adverse
supply or demand shocks, companies which would
then want to decrease their workforce,
discouraging them ex ante from hiring, and thus
from producing. Product markets are considered as
excessively regulated, slowing down the entry of
new firms and, consequently, reducing industrial
dynamism. Such market structures would guarantee
protected income and a peaceful existence, with no
need to innovate or improve productivity, for firms
already in the market, which would have in turn
negative consequences on that sector and
employment in general.
The education system is regarded as lacking
incentives, especially at the post-secondary level.
Here again, the lack of competition would promote
laziness (at the very least intellectual) in lecturer-
researchers and dishearten the best students…. The
same would apply to research, which is supposedly
lacking both public and private funding: public
because of heavy taxes and social spending; private
because of the lack of incentive to innovate,
deriving from the absence of competition in
industry, and again punitive taxes. Finally, the
organisation of financial systems in Europe would
not leave enough room for market mechanisms,
and legislation on the matter would overprotect
company managers to the detriment of
shareholders, hindering the latter from closely
monitoring the former.
The conclusions from the above appear almost
inevitable: the new age of capitalism demands a
new institutional model for Europe, and the new
model should very much resemble the neo-liberal
model such as the United States’. Therefore, any
8
delay in fulfilling the requirements of the Lisbon
agenda can be traced back to delays in
implementing the ‘indispensable reforms’.
However, some concerns are sometimes raised
regarding the social implications of these reforms.
It is taken for granted that pursuing a development
path toward the knowledge-based economy
demands the implementation of the structural
reforms mentioned above and that these will lead to
high economic performance in terms of growth and
innovation. It is nevertheless sometimes feared that
the social impact of these reforms may actually
jeopardise ‘social cohesion’. The question is
therefore whether it is possible to reconcile social
objectives with deregulated markets and the
generalisation of competition as the dominant
economic principle. More generally, the question is
that of the type of institutional forms suitable to
European societies, able to lead to both high
economic performance and social cohesion.
This problem is that of the type of socio-
economic model that would best fit the European
countries. In order to address such a problem, it is
necessary to possess analytical tools to characterise
the different economic models, so as to be able to
position the European model(s) vis-à-vis the
‘Anglo-Saxon’ variety of capitalism. The seminal
contribution of Michel Albert ([1991]) has stressed
the differences between the ‘Rhine model’ and its
‘neo-American’ counterpart. Many contributions
have used this dichotomy, while others have
criticised it for being too broad. On the other hand,
the reference to strictly national models is of little
use for thinking the European socio-economic
model.
Starting from the theoretical analysis of
institutional diversity and institutional
complementarity, this contribution will review the
diversity of socio-economic models and isolate the
main characteristics of the current socio-economic
models in Europe. It will then consider a series of
questions and problems linked with the methods of
comparative capitalism.
THEORETICAL TOOLS FOR A COMPARATIVE
ANALYSIS OF CAPITALISM
Institutional diversity
In order to analyse a socio-economic model, it
is necessary to go beyond the simple evidence of
the existence of national differences in various
institutional forms. The labour market may be more
‘regulated’ in France than in the US in the sense
that the rights and duties of each side of the
Actes du GERPISA n°39
employment relationship are more precisely
defined in the former than in the latter country; the
German financial system may be considered more
centralised than the US financial system, i.e. its
structure relies more on financial intermediaries
such as banks than on financial markets; and the
Swedish welfare state is probably more universal
and generous than its Italian counterpart. But one
may wonder on what basis the observation of
‘differences’ allow the analysis of their importance.
Institutions may be different and yet these
differences could be disregarded if institutions had
no influence on the economic evolution of nations.
If one believes that institutions have some
importance for the economy, there is a need for a
theory linking institutional differences and the
existence of differentiated socio-economic models.
The theory of institutional complementarity offers
a platform for the analysis of the role of institutions
in the economy and for explaining why
institutional differences lead to more or less
‘coherent’ models of capitalism.
The role of institutions in the economy is
nowadays largely accepted. Many academic
contributions, theoretical or empirical, have
analysed how the features of the education and
training systems, either public or private, as well as
firms’ internal training systems or more generally
any institutions that affect education and training
decisions of individuals will matter for growth. In
empirical work, such effects are usually accounted
for by the inclusion of one or more schooling
variables in growth regressions.1 Not only the level
of development of financial systems2, but also the
type of financial system,3 have an influence on the
level of investment, the rate of growth, the
characteristics of financing relationship or
corporate governance. Also, the links between
wage-setting institutions and employment
performance have been a major topic for research
in economics since the 1980s at least. The
traditional view is that real wage levels will be
higher the farther wage-setting institutions are from
perfect competition, i.e. the more centralised wage-
setting is. This institutional arrangement would
lead to less than full employment, and presumably
high inflation. The literature on corporatism
opposed this view and argued that centralisation of
wage bargaining would be a guarantee that wage
setters would take into account broader interests. It
would also favour the emergence of a consensus
among social partners, which would be beneficial
1
See Barro and Sala-i-Martin [1995] for instance.
2
Levine [1997].
3
Allen & Gale [2000].
9
to the employment level and would facilitate work
reorganisation. Thus, the more centralised wage
bargaining is, the higher employment and the lower
inflation should be. Calmfors and Driffill [1988]
proposed to take into account a non-monotonic,
hump-shaped relationship between centralisation of
wage bargaining and wage levels. Organised
interests are harmful when they are powerful
enough to cause major disruptions but not
sufficiently encompassing to internalise the costs of
their actions. In this perspective, wage moderation
can be achieved either through decentralisation of
wage bargaining or through all-encompassing trade
unions. In the former case, bargaining units would
be too small to have significant price or wage
setting power; in the latter case, unions would
recognise the possible adverse effects of wage
increases on inflation and employment. In the
intermediate case, unions would be strong enough
to exert wage pressure but would neglect the
macroeconomic consequences on inflation and
unemployment.
This last example raises a problem concerning
the number of possible ‘varieties of capitalism’. If,
following Calmfors & Driffill [1998], there are two
possible institutional configurations delivering
‘good performance’ in terms of employment, this
leaves open the possibility for two possible socio-
economic models, one with centralised wage
bargaining, the other with decentralised bargaining.
If one observes the same phenomenon in every
institutional domain, i.e. the existence of two
markedly different set of institutions that lead to
good performance, this means that the number of
possible varieties of capitalism is 2n, n being the
number of institutional domains. Even if one
considers a restricted number of such domains, this
opens the possibility of many different models. A
consequence would be that it would make little
sense to analyse models rather than simply national
cases. However, there are strong theoretical reasons
to believe that the possible diversity of capitalism
is much more limited than what the combination of
possible ‘local’ institutional forms would lead us to
believe.
Institutional complementarity (based on
Amable [2003])
The basic idea behind every theory of the
diversity of capitalism is that different models of
capitalism are not random collections of economic
institutions. In other words, there are structural
reasons opposing the simple idea that in order to
achieve the best economic performance, it would
suffice to take the ‘best’ institutional forms in
Actes du GERPISA n°39
every area (labour markets, financial systems,
education and training…) and combine them.
Supposing that an optimal solution exists in each
these areas, independently of the institutional
configurations that are present in any of the other
areas. The best institutional configuration for an
economy is therefore the one that is closest to the
sum total of these optimal local configurations.
This conception is very probably the driver behind
benchmarking efforts - and the basis of
international comparisons such as those that have
been carried out by the World Economic Forum
(Davos) or more recently by Lehman Brothers.1
The purpose of such studies is usually to classify
countries in terms of their competitiveness.
Towards this end, a certain number of categories
are defined, and countries are marked for their
performance in a given category. An overall mark
is then obtained by adding up the scores from each
area. The best model is the one that is closest to
the profile that has been defined as being the best
local configuration. Their findings can be
interpreted as follows: the ideal economy possesses
Denmark's educational system; Sweden's
technology and employment policy: the
competitive environment of Finland's high-tech
sector; and the entrepreneurial environment, wage
flexibility, (non)-protection of employment, fiscal
system, competitive environment, economies of
scale and productivity of the United States. It
remains to be seen whether this mixture of
American and Scandinavian institutions would be
viable. The answer is yes if one believes that it is
possible to play ‘institutional lego’. If one adapts a
view that encompasses inter-institutional
interactions, nothing is less certain.
Institutions’ influence on the economy should
not be considered independently from one another;
they exert a joint influence on the economy.
Institutions affecting one area of the economy (e.g.
the labour market) will have consequences beyond
that particular area, if only because of general
equilibrium effects. We can take the simple
example of wage bargaining: the outcome depends
on each party’s outside options. These outside
options are in turn dependent on the institutions
affecting other areas than the labour market. It can
be the alternative job for the worker, which may
depend on its skill level and hence on the
institutions concerning the education and training
system; the alternative option for the firm may
depend on its relocation possibilities, i.e. on the
regulatory environment, the liquidity of the
financial market… What is to be considered is
1 2
Edwards & Schanz [2001].
10
therefore how institutional forms in different areas
complement each other.
The notion of institutional complementarity was
first formulated by Aoki [1994], following an idea
found in Migrom and Roberts [1990] about
organisational complementarity within a firm. The
common definition of complementarity in
economics demands a ‘performance’ or an output
function, F(.,.). We consider two institutional
domains X and Y (labour market and financial
system for instance), respectively associated with
specific institutional forms x and y. If x and y are
continuous variables, and F is differentiable, the
definition of complementarity in economics is that:
∂ 2 F ( x, y )
≥0
∂x∂y
The notion of complementarity is not limited to
continuous variables. Complementarity in this
situation is associated with the notion of
supermodularity.2 The performance matrix of
Table 1 shows that x and y are complementary.
Moving from an institutional equilibrium
characterised by decentralisation and a low
influence of banks to an institutional configuration
where one institutional form only is modified is
costly in terms of performance; the same
conclusion applies to the case where the initial
situation is wage bargaining decentralisation and a
large influence of banks.
Table 1. - The performance matrix
Institutions x2 x1
y2 3 
y1 2 3
Source: Amable [2003]
Institutions and politics
Institutions are defined in Amable [2003] as
political economy equilibriums. Agents’ positions
in society are differentiated, which generates a
divergence of interests. Conflict of interests is
necessary for the existence of political constraints
and the effect of politics on economics stems from
the mechanisms with which conflicts are resolved.
Institutions, by fixing the ‘rules of the game’ are
one way of settling fundamental conflicts of
interest between agents. But institutional design
emerging out of an upper-tier or ‘meta’ game does
not abolish conflict in the sense that they would
Topkis [1998].
Actes du GERPISA n°39 11

make the sources of interests’ divergence
disappear. For instance, employed workers may be
content with a certain wage-bargaining structure
which gives market power to trade unions. It may
be a guarantee of high real wages or employment
stability. The unemployed on the other hand might
prefer another wage bargaining structure, which
would be favourable to employment growth, even
at the expense of lower wages. Employers might
also prefer a more decentralised bargaining
structure, which would give them a larger
bargaining power. If they are unable to change the
bargaining rules, they may still express their
discontent and try to obtain some compensation.
Divergences in economic interests are conveyed in
the political sphere, where agents will express a
demand for the implementation of a policy that
affects the payoffs to their benefit. There is thus
scope for a policy intervention, even within a fixed
institutional frame, modifying the payoffs
associated with one or the other strategy. Policy
choices are also the equilibrium strategy of a
particular agent, the government, seeking political
support; implementing a particular policy must thus
constitute an equilibrium strategy for the
government. This theoretical framework is
represented in Figure 1. To a relative proximity of
interests corresponds a clustering of agents in
different social groups: workers, firms’ managers,
farmers, pensioners

Political coalition

Dominant social bloc

Institutions
(rules of the game)

Socio-political Group Socio-political

Group

Polity

Social Group Social Group Social Group

Ideas

Incentives
Agents with heterogeneous interests

Organisations

Strategies Strategies

Economic dynamics

Figure 1. - Institutions as a political economy equilibrium. Source: Amable [2003].

These groups correspond to an expression of
individual interests under a collective form. This
expression depends on the perception of agents
with respect to their own interests, their situation in
society and their relation with other ‘similar’
agents. This perception is mediated by the system
of representations that individuals have, i.e. by
ideas and theories about the state of society.1
Socio-political groups represent a collective action
1
Palombarini and Théret [2001].
for the expression of a common political goal.
Their formation is made under the influence of the
political process. They are political constructions,
and at this stage, institutional rules governing
polity influence the gathering process of actors,
their mode of interaction and the form of their
representation. The representation of social and
socio-political groups with respect to state
decision-making, either policy choices or
institutional change, can take several forms: formal
negotiation among and formal representation of
Actes du GERPISA n°39
groups, voting and delegation of power,
hierarchical representation, etc. These
characteristics have some bearing on the weight
that interest groups will have in policy making or
institutional change, and thus on the sensitivity of
the institutional structure to the political demand of
socio-political actors.
A coalition expressing the common political
demand of a group of agents will represent a socio-
political block, i.e. a de facto alliance of socio-
political groups possessing different interests
rendered compatible by a compromise over a broad
political strategy. These coalitions should not be
considered as ‘naturally’ pre-existing, they are
formed under the influence of political action. A
government strategy is a way to reach an
agreement on a series of institutional and policy
decisions which satisfies the political demands of
the dominant socio-political bloc. See Palombarini
[2001].
Beyond performance
(taken from Amable [2003])
The comparison of institutional configurations
in terms of global performance of the economy
should not conceal the fact that institutions result
from choices. They do not emerge as the result of a
welfare-maximising or growth-maximising
process; they are the outcomes of a political
process. Besides, the whole set of institutions is not
chosen all at once, by agents possessing a clear
view of all the interdependencies between
institutions concerning all areas of the economy.
Table 2. - Payoffs for the wage-bargaining game
If y = y1 (banks)
managers
strategies 1 2
workers 1 4, 3 2, 1
2 1, 2 1, 1
Source: Amable [2003].
Regarding the other game, the outcomes are that
agents opt for a bank-based system if there is
centralised wage bargaining and a financial
12
We can illustrate the interdependencies of
institutions by considering the following case,
taken from Amable [2003]. Agents play two games
in an uncoordinated way. The first game concerns
the choice of bargaining procedure (x), the second
game is the choice of financial systems (y). In each
game, agents have a binary choice of strategy, 1 or
2. Institution x1 (x2) establishes itself if agents
choose strategy 1 in the first game; a similar
structure applies for the second game. The payoff
functions in each game depend on the institutional
configuration established in the other game.
Besides, agents payoffs are given in each game as
separable functions, i.e. total agent’s payoffs are
the sum of the payoffs they obtain in each game.
One could alternatively suppose that the two games
are played by different agents, or by the same
agents having different social functions. For
instance, one may think that the first game is
played between workers and managers, and the
second between savers and investors. Workers
(managers) and savers (investors) may be the same
group of agents, but they are for the moment
assumed to behave as if they were different agents.
The payoff matrices for each game are given
below. For each game, there are two matrices,
according to the prevailing institution in the other
game. One can see that if the financial system is
bank-based (y = y1), agents choose to adopt a
centralised bargaining procedure (strategy 1),
whereas they favour wage bargaining
decentralisation if the financial system is more
financial markets-based. There is thus a
complementarity between institutions.
If y = y2 (markets)
managers
strategies 1 2
workers 1 1, 1 1, 2
2 2, 1 2, 3
markets-based system otherwise. There is a
symmetric complementarity between financial
systems and wage-bargaining procedures.
Actes du GERPISA n°39
Table 3. - Payoffs for the financial systems game
If x = x1 (centralisation)
investors
strategies 1 2
savers 1 1, 1 1, 0
2 0, 1 0, 0
Source: Amable [2003].
The game structure exposed above gives two
possibilities for the overall institutional
arrangements: {x1,y1} and {x2,y2}, i.e. the
combination of a bank-based financial system with
centralised wage bargaining and a combination of a
financial markets-based system with decentralised
wage bargaining. In the numerical example above,
the two institutional equilibriums are not Pareto-
comparable. The bank-centralisation configuration
is more favourable to workers whereas the
markets-decentralisation arrangement favours
savers and investors, managers are indifferent
between the two equilibriums.
From the example above, different political
coalitions would lead to different institutional
equilibriums. A coalition of workers and managers
could support the ‘centralised-banks’ equilibrium.
A coalition of savers and investors would prefer the
other equilibrium.
Institutional hierarchy
The institutional configuration of an economy
depends on the formation of a stable dominant
social bloc coalescing different socio-political
groups prone to support a coalition with a certain
political strategy. Implementing this strategy will
lead to institutional change in a direction that is
(meant to be) beneficial to the dominant social
bloc. However, this bloc itself is a coalition of
different and sometimes diverging interests; the
institutional structure that will result from the
political strategy that it supports will therefore be a
compromise. Because social actors do not generally
possess a perfect vision of all interdependencies
and complementarities between institutions, the
compromise does not apply to all the institutions of
an economy, but has to be re-established as
changes in the economic environment modify
agents’ options and strategies.
Institutional change may jeopardise the interests
of some groups within the dominant bloc. Because
of the complementarity between institutions,
13
If x = x2 (decentralisation)
investors
strategies 1 2
savers 1 0, 0 0, 1
2 1, 0 2, 2
institutional design in one area depends on the
institutions prevailing in other areas. This leaves
the possibility of considering a hierarchy among
institutions. Institutions reflect the socio-political
equilibrium of a society, and the costs and benefits
associated with institutional change affect
individuals differently. A political coalition will
seek to stay in power by finding support with the
dominant social bloc; to that effect, it will seek to
implement those institutional changes that favour
some or all of the socio-political groups that
constitute the dominant bloc and try to prevent
change that is detrimental to the bloc,1 in response
to the political demands addressed by the different
socio-political groups.
Therefore, the areas where institutional change
will be implemented more easily are where the
groups of the dominant bloc have little interest. On
the other hand, change will be implemented more
cautiously in domains where the most powerful
socio-political groups have vested interests. This
definition of institutional hierarchy is therefore
made with reference to a specific socio-political
equilibrium and a specific dominant bloc. Changes
in the institutional structure of the economy can
then be related to political changes and
modifications of the dominant bloc.
Palombarini [2004] elaborates further this
concept of institutional hierarchy by distinguishing
two notions. The first hierarchy is that of the
government, which aggregates the dominant social
bloc. On top of the hierarchy are those institutions
which stabilise the most the social bloc which
provides political support to the government. One
may also consider the hierarchy stemming from the
demands addressed by the groups that form the
bloc itself. These groups do not necessarily
integrate the preservation of the bloc in their own
strategies, contrary to the government. Therefore,
1
All this is conditioned by agents’ rationality!
Actes du GERPISA n°39
the demands that the groups address may reflect a
different hierarchy.
complementarity, compatibility, and
coherence
Given the above notions of complementarity
and hierarchy, what can be said about the notions
frequently associated with complementarity?
Complementarity is by no means synonymous with
institutional isomorphism, i.e. the fact that one
finds ‘common principles’ in every institutional
area. Institutional isomorphism and
complementarity are totally independent notions,
which may or may not coincide given the case
considered. Overemphasis on ‘common principles’
presumably comes from a generalisation of the
mechanisms found in some models: the State was
supposed to be active in every institutional area in
France, hence France was considered as a ‘Statist’
model; free markets and competition (are supposed
to) prevail everywhere in the US, hence the ‘logic’
of the US model is a free markets logic and so on.
These particular configurations are not the general
pattern of institutional complementarity. There may
exist cases of complementarity where very
different ‘logics’ are applied according to the
institutional area. One could envisage for instance a
free market logic on the labour market coupled
with a very comprehensive and de-commodified
social protection, together with some other
‘complementary’ institutions. The apparent lack of
‘coherence’ is no weakness, except for the social
scientist who believes that agents would be so
disturbed by the coexistence of free market logic
on labour markets and a logic of de-
commodification for social protection that they
would become schizophrenic. In fact, imposing
isomorphism could very well destabilise a model.
The notion of compatibility is more rarely used
but may appear in discussions related to
hybridisation of models. The question is then
whether some changes to an institutional form will
be possible when one considers the rest of the
institutional structure. Institutions x and y can be
said to be compatible when their coexistence does
not set in a process of institutional change such
some political forces would like to keep x and
change y or the other way round. Therefore,
institutions x and y are not compatible when there
is no stable (and this does not mean eternal!)
institutional equilibrium including both x and y.
When one looks at the whole institutional set-up
of a country (or model), the idea of coherence can
be used. Whereas compatibility is a concept
relating some institutions, coherence concerns the
14
whole institutional structure of an economy. It is
therefore related to the stability of the political
coalition supporting the model. A model defined by
its institutional structure (x, y, z) is coherent if
there is a stable political equilibrium supporting it.
Once again, coherence should be thought totally
independently form ‘common principles’ or
‘identical logics’. In most cases, there is no single
‘logic’ that is able to reflect the set of institutional
complementarities and hierarchy of a given
economic model.
With the help of these theoretical elements, one
may now turn to the issue of the observable
diversity of economic models.
COMPARATIVE ANALYSIS OF CAPITALISM
The Rhine model /
neo-American model dichotomy
From a European point of view, the most
interesting opposition between two types of socio-
economic models is found in Michel Albert’s
[1991] book. M. Albert’s concern is the type of
economic model that could be implemented in the
European Union. The EU is characterised by
institutional diversity and it could be
understandable to think in terms of national
specificities or national socio-economic models.
Indeed, many institutional economic papers are
keen to emphasise the differences between France
and Germany, two core European countries (Boyer
[2004] for instance).
But Albert’s point of view is to take seriously
the objective of a European Union as a political
entity. The aim is to make the European Union
more than just a large free trade area. It must have
its specific set of institutions. This raises the
question of which set of institutions could be suited
to Europe. The model that would be close to what
Albert thinks is the European model is the so-called
‘Rhine’ model of capitalism, opposed to the ‘neo-
American’ model. The first model characterises of
course Germany, but also other non-European
countries such as Japan. The neo-American model
represents mostly Anglo-Saxon countries, the US
and, within Europe, the UK. This model is
characterised by several features: an emphasis on
individual achievement, the importance of short-
term financial benefits, or reversibility and
flexibility of commitment. The Rhine model rests
on long-term commitments, collective
achievements and consensus.
Although Albert thinks the Rhine model is on
many counts ‘superior’ to the neo-American model
Actes du GERPISA n°39
and in any case better suited to European societies,
he does not believe that it will win in a free
competition among varieties of capitalism, where
superior forms of organisation would just win
partisans over by the sheer power of their
attractiveness. If the most appealing aspects of the
Rhine model are to spread across Europe, it will be
through a political process of European integration.
For Albert [1991], there exists no strictly
‘European’ model because of the diversity of
countries within the Union. For instance, Italy is
considered nearer to the Chinese model than to the
Rhine model. But, as Albert [1991] (p.23) points it
out, the terminology ‘Anglo-Saxon model’ versus
‘German-Japanese model’ is only useful when one
looks at things from a distance. Indeed, to assess
what the ‘right’ distance to look at socio-economic
models is is not so obvious. To large a distance
makes every country belong to a general category
of ‘market economies’. Looking at models at too
close a distance makes it appear that each country
is ‘different’ and even ‘very different’ from another
country. This trite observation is of course of no
help to analyse the problem we are faced with. All
the more that the search for differences has no end,
within each country, regions or industries are ‘very
different’ from each other when one looks close
enough.
Albert [1991] does not propose a fully-fledged
typology of capitalism as such, but his ideas have
been used in this direction. The Germany-USA
dichotomy has become a classic feature of
comparative analysis of capitalism and is
analytically presented in the various works of
David Soskice and Peter Hall.1 The starting point
of their analyses is the relational firm, defined as an
actor seeking to develop dynamic capabilities, and
the institutional framework within which it
operates. They use five spheres in which firms
develop relationships to resolve coordination
problems central to their core competencies:
industrial relations, vocational training and
education, corporate governance, interfirm
relations and the coordination problems firms have
with their own employees, i.e. ‘internal’
coordination. They compare two different
production regimes, the liberal market economies
(LMEs) and the coordinated market economies
(CMEs). This dichotomy is the basis for the
consideration of one fundamental dimension
separating the different national production
systems, namely coordination. In a LME,
coordination is based on market mechanisms,
1
The most recent contribution is Hall and Soskice
(Eds) [2001].
15
favouring investment in transferable assets. In a
CME, it is mainly achieved through non-market
means −the so-called strategic coordination−,
favouring investment in specific assets. LMEs are
thus characterised by short-term finance,
deregulated labour markets, an emphasis on
general education, and strong product market
competition. CMEs are characterised by long-term
finance, cooperative industrial relations, high levels
of vocational training, weakened product market
competition, and strong information exchanges
through more or less formal professional
associations favouring the establishment of
common industrial standards. The differences
extend to the patterns of innovation and
technological change as well as industrial
specialisation, the so-called comparative
institutional advantage. LMEs have a comparative
advantage in industries where radical innovation
leads to market stealing benefits and where
competitiveness stems from a fast adaptation to
changing market conditions. CMEs are competitive
in industries where competitiveness is based on
cumulative accumulation of knowledge and
company-specific skills and where incremental
innovation matters.
Hall and Soskice’s binary classification of
economies between Liberal Market Economies and
Coordinated Market Economies leaves a certain
number of national cases occupying ambiguous
positions since they do not clearly rest on market-
based coordination principles nor possess strong
and organised interest groups upon which non
market coordination could be based. France and
Italy are examples of such intermediate countries.
Not being clearly identified as belonging to any
type, these countries are considered as somewhat
deficient and are expected to have lower
macroeconomic performance.
One is then facing a double-problem. Forcing
countries into one or the other category is running
the risk of ignoring fundamental differences
between them, thereby emptying the classification
of its meaning. Too broad categories tell very little
about what brings countries together in a specific
group. On the other hand, having as many types of
capitalism as there are countries is little more than
performing a series of country case studies, and
cannot represent a comparative analysis of
capitalism.
Actes du GERPISA n°39
Beyond dichotomy
Schmidt [2002]1 identifies three distinct ideal-
typical models: market, managed, and state-
enhanced capitalism, respectively exemplified by
the UK, Germany and France. The advantage of
such a threefold classification is to give a specific
existence to a group of countries usually classified
as intermediate between CMEs and LMEs. A
consequence is that by finding an identity as well
as a ‘logic’, i.e. a mode of coherence between the
specific institutional forms of the model, the
countries belonging to this model are no longer
automatically condemned to have inferior
macroeconomic performances. This classification
also provides a supplementary factor of
international differentiation. The State is the major
agent of differentiation among the types and
explains why one has a distinct third type in
addition of the traditional market (LME) and
managed (CME) types of capitalism: the liberal
state gives a large autonomy to economic actors in
market capitalism and acts as an arbiter; the
enabling state encourages associational governance
and negotiation among private actors in the
managed capitalism, and acts as a facilitator; the
interventionist state directly coordinates and
intervenes in private activity in state-enhanced
capitalism, and acts as a leader. Other institutional
features derive from this characterisation: business
relations are driven by the market in market
capitalism, managed outside the market in
managed capitalism, and organised by the state in
state-enhanced capitalism. Likewise, the structure
of industrial relations is respectively market-reliant,
coordinated or state-controlled in the three different
types of capitalism.
Rhodes and van Apeldoorn [1997] have thus
identified a third group in addition to the traditional
dichotomy: a Latin brand of capitalism, where
Spain and Italy would be joined by France. If the
countries concerned are more or less those of
Schmidt [2002], the reasons for putting them
together in a specific category are largely different.
The supplementary institutional area taken into
account for the comparison is here the structure of
corporate governance appreciated by the role of
banks versus that of stock markets, the type of
firms’ owners, the structure of management boards,
and the role of employees in firms’ management.
The external environments of firms are also
considered: the role of the state, co-operation
between social partners, industrial relations,
training, labour markets, and innovation systems.
1 2
Schmidt [2002].
16
Ebbinghaus [1999] bases his own typology of
capitalism on the consideration of the welfare state
and distinguishes four models within Europe:
Nordic, Centre European, Southern European, and
Anglo-Saxon. The four types of capitalism are each
characterised by a specific type of welfare state,
with a classification in this area taken from Esping-
Andersen [1990]. The Nordic model differs from
Germany's Centre European model by its
universalist welfare state, which allows for a higher
labour force participation. Sweden offers very
different types of benefits and criteria for
distribution from Germany's conservative welfare
state, where welfare is more closely linked to
occupational stratification.2 Labour unions are
stronger and play a much more important role in
the Nordic, Centre, and Southern varieties than in
the Anglo-Saxon model. The idea of an
institutional hierarchy is explicit in Boyer’s [1997]
classification of capitalism in four types according
to the distinctive form of the labour market, or
more precisely the wage-labour nexus. This
hierarchy is totally in line with the régulationniste
analysis of Fordism. The institutional
characteristics defining the four types are entirely
derived from the specificities of their labour
markets and industrial relations. The market-
oriented capitalism exhibits decentralisation and
external mobility of the labour force; trade unions
have a non important role to play. On the other
hand, the corporatist model is characterised by a
significant role of trade unions, and occupational
labour markets. The social democratic model relies
more on a tripartite agreement between labour
unions, firms’ management and the government.
Unions are strong and play a major role, not only in
determining wage levels, but also in the process of
definition of skills and training. There is a fourth
model, the statist one, where the government plays
a central role in the definition of rules affecting
economic activity, and most particularly the labour
market, and where internal labour markets are
dominant. The US, Canada and the UK are
examples of market-oriented capitalism, Germany
and Japan are classified as corporatist countries,
Sweden and Austria belong to the social
democratic model, and France and Italy are
considered as ‘statist’ countries.
Social Systems of Innovation and
Production (SSIP)
In a theoretical analysis and international
comparison, Amable et. al. [1997] highlighted four
Jackson [2002].
Actes du GERPISA n°39
main types of “capitalism” or Social Systems of
Innovation and Production (SSIP):
9 the market-based SSIP (the United States,
Great Britain, Australia and Canada);
9 the social-democratic SSIP (the
Scandinavian countries)
9 the mesocorporatist SSIP (Japan);
9 the “European” SSIP (France, Germany,
Italy and the Netherlands).
SSIP’s should be seen as ideal-types, instead of
as more or less stylised descriptions of the main
characteristics of a given country. This obviates the
need to come up with an exact identikit creating a
match between a given SSIP and the group of
countries that best embodies it. Identifying SSIP
involves both theoretical elements (i.e., an
expression of the institutional complementarities
that are at work in the countries comprising these
SSIP) and empirical elements (through the
processing of a large base of statistical indicators
covering these 12 countries – the data being
analysed in such a way as to identify country
typologies). Devising a theoretical underpinning
for the typologies derived from this empirical
analysis1 is not necessarily the same thing as
“naming” the model or SSIP that has been
discovered. It is not always possible to come up
with a name that can correctly summarise the SSIP.
Take for example the “market-oriented” SSIP that
is linked to the Anglo-Saxon countries. The
descriptor “market-oriented” does not at first
glance appear to cause any conflicts with
traditional writings in this field. It is an indication
that the basic principle underlying the SSIP in
question is a ‘market’ logic, characterised by the
significance of price-driven regulation, by
competition between the agents, by flexible
arrangements, by speedy reactions to price signals,
etc. It is however generally difficult to see a model
as nothing more than the expression of a single
logic - especially when this logic has to be
expressed with simplicity. Several interrelated
logics are involved in the coherency of any given
model. These logics are sometimes local inasmuch
as the mechanisms involved only affect a limited
number of institutions and areas. This does not
necessarily infer the existence of a single unifying
principle, active throughout the economic model in
question. Describing one and the same model as
‘Anglo-Saxon’ might be less risky than using the
term "market-oriented". One can always contest
the pre-eminence of market mechanisms in these
economies, but it is difficult to deny that these are
1
Principal components and cluster analyses.
17
the so-called Anglo-Saxon countries. The problem
with this labelling is that it is not very explicit
about whatever it is that the countries in this model
share; and it does not express any economic theory
for this model. It does however infer a number of
things: the role of history, a common culture, etc.
These inferences need to be rendered explicit and
justified at a theoretical level - after all, "culture" is
utilised as a last resort argument in many
comparative studies.
New analyses were made in Amable and Petit
[2001] which led to a refined typology of SSIP.
Extending the empirical analysis to 21 countries2
and updating it to consider the end of the 1990s, six
SSIP were distinguished:
9 the market-based SSIP
9 the social-democratic SSIP. The
mesocorporatist SSIP, with Korea now
joining Japan.
9 The “European integration” (or “public”)
SSIP. This includes the countries that
already belonged to this SSIP (France,
Germany, the Netherlands), minus Italy, but
now including Belgium and Ireland.
9 An “Alpine” variant of the preceding SSIP,
comprising Austria and Switzerland.
9 A “Mediterranean” variant of the European
SSIP, comprising Spain, Italy, Greece and
Portugal.
Besides the differentiation of the European
SSIP into three variants, the main results reported
in Amable and Petit [2001] were that there did not
seem to be any general pattern of convergence
toward the market-based SSIP, but the advance of
some market mechanisms in specific areas (mostly
the financial system), and that ‘globalisation’
affected SSIPs in a differentiated manner. The
market-based and ‘Mediterranean’ SSIPs were
unaffected as a grouping of countries by the
empirical analyses on data related to the new
pattern of internationalisation.3 Other groupings of
countries were reshuffled, indicating that a process
of recomposition of the variety of SSIP could be
taking place.
2
the United States, Japan, the United Kingdom,
Canada, Australia, Italy, Spain, Portugal, Greece,
France, Belgium, Denmark, Norway, Sweden, Finland,
Germany, Austria, Switzerland, the Netherlands,
Ireland, and Korea. The empirical data considered
related to scientific and technological fields, economic
structure, the educational system and the labour market.
As such, this is an extended innovation system
conception.
3
Data on foreign direct investment, international
trade and the evolution of the financial systems.
Actes du GERPISA n°39 18

Table 5. - Four types of Social Systems of Innovation and Production

Market-based Meso-Corporatist European Social-democratic

integration / Public
Implications For
Science Research system based Important in-house Public basic research Importance of social
on competitions research largely disconnected from needs in the
between researchers and disconnected from the new products definition of research
between research academic world development objectives
institutions
Technology Importance of Importance of tacit Importance of public Gradual evolution
intellectual property knowledge and in-house impetus for private towards advanced
rights protection, patents innovation research technologies and new
and copyrights as sectors: from natural
incentives to and resources
protection of innovation exploitation to
information
technology
Competence Highly segmented Homogenised general External rather than Egalitarian ideals in
and skills labour force, innovation education; specific skills internal mobility of education and wage
and skills on one side, developed within the the labour force setting. Limits to the
low skills and corporation, but labour adverse
production on the other. market dualism consequences of
technical progress
through public action
Labour Decentralisation of Wage compromise within Strong Centralisation of
markets wage bargaining, the large corporation but institutionalisation of wage bargaining
individualised wage and synchronising of wage employment rules, under the external
labour market rises working hours and competitiveness
segmentation social protection constraint
Competition Limits to concentration Strong competition on Once moderate Small number of
by legal action; internal product markets competition because large
constant evolution of between large firms of public intervention internationalised
oligopolistic or business firms and networks
competition associations has of small local
intensified within the suppliers
single market;
concentration of
capital
Finance Market-based finance Stable long-term Importance of banks. Bank-based financial
and sophistication of relationships between the Relatively low system, no
financial services. Main Bank and a sophistication of sophistication of
Financial innovation, keiretsu. Strong financial services financial services
strong influence of involvement of public
shareholders authorities (MOF and
Central bank) in private
banking
Products Important product Adaptation of products Slow adaptation to Importance of
innovation and processes in the market changes quality, services and
catching up phase, fast differentiation
product innovation after
Actes du GERPISA n°39 19

Other characteristics
Public Fragmented in a series Furnishes collective Important public Many forms of public
Intervention of agencies and services and acts as a co- intervention (central intervention with
monitoring institutions. ordinator. Small size but state or local financial transfers
Strong limits to public significant role authorities): firms, and extensive
intervention, political regulation, public regulation
competition spending, social
security,…
Importance of large No large public programs Large variability Largely open
public research of the ‘mission’ type among the different economies
programmes countries concerned
(defence,…) which
supplements private
research
International Adherence to free trade Economic development Regionalism (EU) Small countries,
regime principles. Status and conditions all choices in favoured over strong external
autonomy of nations terms of international multilateralism. constraint
depends on size (US vs. trade Political will for
UK…) european integration
conditions economic
integration
Consequences for
Innovation Schumpeterian waves of Ability to imitate, Both ‘mission’-type Innovation linked to
(radical) innovations. transfer and transform projects of large size solutions to social or
Importance of patents technology starting with and incremental, economic problems
and individual rewards incremental innovation quality innovation
to innovation
Industrial Sectors linked to Sectors where Sectors linked to Sectors linked to
specialisation ‘radical’ innovations: coordination is necessary public infrastructures social demand
information technology, and where competence is (France,…) and/or (health, security,
aerospace, localised and cumulative where competence environment) or
pharmaceuticals, : automobile, electronics, rests on a skilled exploiting natural
finance… robotics labour force: resources
aerospace,
mechanics,
automobile
Source: Amable [2000]
.
Five types of capitalism of a socio-economic model is not so much the
The previously exposed mechanisms suggest institutional forms than the complementarities
that a variety of institutional complementarities is between them. The institutional complementarities
possible, generating a diversity of models of of each ideal-type of capitalism are given in Table
capitalism. Based on previous results on the 6.
diversity of SSIPs and other contributions to the Product market competition is an important
literature surveyed in this chapter, the possible element of the market-based model. Intense
existence of five different models of capitalism product market competition makes firms more
may be taken into account: sensitive to adverse demand or supply shocks.
9 the market-based economies a.k.a. liberal When price adjustments cannot fully absorb
market economies or the Anglo-Saxon shocks, quantity adjustments matter, particularly
model; concerning the labour force. Therefore, product
9 social-democratic economies; market competition leads to a de facto flexibility of
9 Asian capitalism; employment. Competitive market pressure
9 Continental European capitalism; demands that firms react quickly to changing
9 South-European capitalism market conditions and modify their business
strategies. This is made possible by quickly
It is possible to associate institutional reacting financial markets, which favour a fast
specificities to each type, but what forms the basis restructuring, itself facilitated by flexible labour
Actes du GERPISA n°39
markets. This economic model favours fast
adjustment and structural change and therefore
entails a high degree of risk for specific
investments. Risk-diversification for financial
investments is guaranteed by sophisticated
financial markets, but specific investments are
particularly at risk in this model since social
protection is underdeveloped. Therefore there is
little incentive to invest in specific skills since
these skills would not be protected either by the
welfare state or by job security and a rapid
structural change would devalue them. Competition
extends to the education system. A non
homogenised secondary education system makes
competition among universities for attracting the
best students and among students for entering the
best universities more crucial.
The social democratic model is organised
according to very different complementarities. A
strong external competitive pressure requires some
flexibility of the labour force. But flexibility is not
simply achieved through lay-offs and market
adjustments; retraining of a highly-skilled
workforce plays a crucial role in the adaptability of
workers. Protection of specific investments of
employees is realised through a mix of moderate
employment protection, a high level of social
protection, and an easy access to retraining thanks
to active labour market policies. A coordinated
wage bargaining system enables a solidaristic wage
setting which favours innovation and productivity.
A centralised financial system enables firms to
develop long-term strategies.
The Continental European model possesses
some features in common with the social
democratic model. The latter combines a high
degree of social protection with a moderate
employment protection, the former is based on a
higher degree of employment protection and a less
developed welfare state. Here again, a centralised
financial system facilitates long-term strategies and
does not compel firms to respect short term profit
constraints. Wage bargaining is coordinated and a
solidaristic wage policy is developed, but not to the
same extent as in the social democratic model.
Retraining of the work force is not possible to the
same extent as in the social democratic model,
which limits the possibilities for an ‘offensive’
flexibility of the workforce and fast restructuring of
industries. Productivity gains are obtained by
labour-shedding strategies elaborated in
complementarity with social protection, as with the
early-retirement policy. The South European or
Mediterranean model of capitalism is based on
more employment protection and less social
20
protection than the Continental European model.
Employment protection is made possible by a
relatively low level of product market competition
and the absence of short term profit constraints due
to the centralisation of the financial system.
However, a workforce with limited skills and
education level does not allow for the
implementation of a high wages and high skills
industrial strategy. Increased product market
competition may pressure for an increase in the
flexibility of the labour market, for instance by a
marked dualism of the workforce. Employees of
large firm would still benefit from job security
while young workers or employees of small firms
would have more flexible labour contracts.
The Asian model of capitalism hinges upon the
business strategies of the large corporations in
collaboration with the state and a centralised
financial system, which enables the development of
long term strategies. Workers’ specific investments
are protected by a de facto rather than de jure
protection of employment and possibilities of
retraining within the corporation. Lack of social
protection and sophisticated financial markets
make risk diversification difficult and render the
stability provided by the large corporation crucial
to the solidity of the model. No single developed
economy is accurately described by any of the five
models of capitalism, which are comparable to
ideal-types. They may possess characteristics
which makes them close to one or the other model,
without being fully identifiable with the model
itself. For instance, a strict market-based economy
organised following the institutional
complementarities documented in Table 6 may
never exist. It is nevertheless useful to keep the
reference of these ideal-types in order to
understand the institutional mechanisms upon
which the coherence of the various developed
economies is based. Moreover, the models of
capitalism allow us to go beyond the apparent
dissimilarities between two economies and to
identify their common structural traits.
It is worth emphasising the difference between
this representation of the diversity of capitalism
and the ‘variety of capitalism’ approach of Hall and
Soskice [2001]. As mentioned before, the latter
approach is based on a distinction between two
basic types of capitalism: liberal market economies
(LME) and coordinated market economies (CME).1
The coordination dimension is crucial for
understanding the pattern of differentiation among
1
Recent contributions (Hall [2004]) seem to open
the door for a third type, close to what is the South-
European model in Amable [2003].
Actes du GERPISA n°39
countries. In LME, coordination among actors is
made primarily through market signals whereas
non-market relationships dominate in CME. Thus,
countries can be arrayed along a continuum
reflecting the extent of non-market coordination.
This dimension is present in many areas of the
economy: wage bargaining, financial system…
Being one-dimensional, the partition of
countries of Hall and Soskice cannot easily
distinguish more than two models of capitalism.
Also, if the distinction between some blatant LME
such as the US or the UK and some typical CME
such as Sweden or Germany is clear, the position
of some other countries is more ambiguous. France
and Italy for instance cannot clearly be identified as
either CME or LME by Hall and Soskice [2001].
Being intermediate cases, they are also assumed to
be less competitive than any of the pure types, and
thus condemned to join one or the other club
sooner or later.
The consideration of more than two types of
capitalism is possible if one considers more than
one dimension for differentiation, as is made
possible by the institutional complementarities
between the various institutional forms of Table 6.
In order to check the empirical relevance of the 5-
type partition, an empirical analysis is performed in
Amable [forthcoming], using variables
characterising the institutional areas taken into
Asian
Capitalism
Market-based
capitalism
Deregulated
markets Continental European capitalism
Social-democratic
economies
Figure 1. - The five types of capitalism in two dimensions. Source: Amable [2004]
21
account previously. A cluster analysis broadly
confirms the existence of five to six types of
capitalism, according to whether one distinguishes
Switzerland and the Netherlands as a separate
group apart from the rest of Continental European
countries. The outcome of the cluster analysis can
be represented as in Figure 1, where two
dimensions describe the most fundamental
oppositions between the different models.
A first basic dimension is that of the regulation
of markets. On one end of the spectrum, one has
deregulated markets and few obstacles to
competition, and regulated markets and limited
competition on the other end. This dimension does
not so much oppose LME to CME as Hall and
Soskice [2001], but rather LME (or market-based
economies, or ‘North-Atlantic’ capitalism) to
South-European capitalism.
The second dimension is that of social
protection, and separates Social-democratic
countries from Asian capitalism. Continental
capitalism might be considered as intermediate
between market-based capitalism and South-
European capitalism when one considers the
dimension of competition and regulation of
markets. Continental capitalism also possesses
some features of the social-democratic model,
particularly a less extensive social protection
system, as is shown in Figure 1.
South-
European
capitalism
Social
protection
Actes du GERPISA n°39 22

ADDRESSING SOME CRITICISMS permanent. One can illustrate the possibilities

opened by the method by looking at the possible
The ideal-typical method versus the transformations affecting the Continental European
consideration of ‘differences’ model.
This model has experienced substantial changes
Like any comparative approach of capitalism,
during the past decade (Amable [2003] chapter 6).
the institutional complementarity and hierarchy
It is possible to analyse the evolutions of the model
approach is sometimes considered too ‘static’ to be
with the help of institutional complementarities. In
able to produce a meaningful analysis of
fact, the Continental European model would most
institutional change. This criticism is based on a
probably be impossible to ‘reform’ with a
misunderstanding of the method used. The
simultaneous action in every institutional domain,
socioeconomic models identified by the theory of
if only because of te political opposition that such
institutional complementarity are tools used to
reforms would provoke. O the other hand,
analysed reality. This is why the question of
incremental changes in a limited number of areas,
whether a particular country really belongs to one
affecting some institutional complementarities,
or another model or even whether a particular
may make the model slowly crumble, by a
model really exists is of limited interest. The
significant weakening of the overall coherence of
socioeconomic models ‘exist’ only within the
the model. New complementarities may appear,
particular political economy analysis performed. If
that may lead to the emergence and stabilisation of,
they are not useful to address some particular
for instance, a Continental version of the neo-
questions of comparative economy, some other
liberal model. We may illustrate this point with a
theoretical tools are then required. Socioeconomic
few examples.
models, as ideal-types, are reproductions of reality
but rather ‘ideas’. « On obtient un idéal-type en
accentuant unilatéralement un ou plusieurs points Financial deregulation questioning the stability
de vue et en enchaînant une multitude de of the bank-industry relationship
phénomènes donnés isolément, diffus et discrets, Many pages have been written to stress the
que l’on trouve tantôt en grand nombre, tantôt en importance of the stable bank-industry relationship
petit nombre et par endroits pas du tout, qu’on for the ‘Rhine model’ of capitalism, or more
ordonne selon les […] points de vue choisis generally for the Continental European socio-
unilatéralement, pour former un tableau de pensée economic model. Firms have the possibility, with
homogène. On ne trouvera nulle part the help of what has sometimes been called ‘patient
empiriquement un pareil tableau dans sa pureté capital’, to devise and implement long-term
conceptuelle : il est une utopie. » (Max Weber)1. industrial strategies, free from the short-term
pressure of financial markets. Within the firm,
Static versus dynamics agents have the possibility to invest in specific
assets and the firm may offer its employees a
A related recurring criticism concerns the
certain degree of employment stability. The
possibility of analysing capitalism with models
questioning of this patient financing and
considered as ‘fixed’. The use of such ‘a-temporal’
governance pattern and the emergence of a more
models would be precluded in any comparative
short-termist financing relationship, insisting more
dynamical analysis of capitalism. By ‘freezing’ the
on liquidity, should threaten these arrangements
reality, the institutional complementarity and
and push the firm toward new types of investment,
hierarchy approach would be unable to understand
to industrial restructuring, and should diminish the
an ever-changing reality whose true nature would
possibility to offer a stable employment
be historical. The institutional complementarity
relationship. Other complementarities are involved
approach would not only consider a world that no
too. For instance, the German company law
longer exists, but more fundamentally a world that
specifies that the board should not have obligations
never existed. Once again, this criticism is a deep
to shareholders only, but to other stakeholders too:
misunderstanding of the ideal-typical approach and
employees and creditors. Besides, the existence of
a disregard of a very simple idea, whose origins
a public pay-as-you-go pension system hinders the
can be traced to Aristotle: one can only analyse
expansion of a markets-based financial system.
change when one starts by considering what is
Any weakening of these two characteristics would
have consequences on the bank-industry financing
1
Essais sur la théorie de la science, Traduction de relationship.
Gesammelte Aufsätze zur Wissenschaftslehre, Pocket,
Paris 1992. Éditions originales 1904-1917, pp.172-173.
Actes du GERPISA n°39
The introduction of a market-based corporate
governance is likely to threaten
codetermination
This point is a subject of controversy regarding
the case of Germany. As mentioned before, a larger
importance given to the interests of shareholders
should lead to a decrease in the role of
stakeholders. Therefore, the association of
employees to the management of the firm, as in
German codetermination, should be questioned by
the evolution of corporate governance. On the other
hand, increased ‘transparency’, a demand of
external capital owners, could also benefit non
managing stakeholders such as employees and
unions. The prominence of the managing board, to
the detriment of the supervisory board, could then
be attenuated by the application of transparency
principles (Höpner [200x]). However, the validity
of this interpretation of the consequences of the
evolution of corporate governance in Germany
depends crucially on the recognition, not only de
facto but also de jure, of the role of stakeholders
such as firms’ employees.
Increasing product market competition leads
to labour market flexibilisation
This complementarity is now acknowledged in
the ‘standard’ economics literature but is almost
always presented in the following way. Increasing
product market competition should shift out the
labour demand curve and raise the benefits brought
by labour market deregulation, making the latter
more acceptable politically. This is why both
recommendations for deregulation are presented as
complementary. This complementarity is held to
influence positively the level of employment,
which is not certain if the increase in product
market competition makes firms’ labour demand
more sensitive to the business cycle, thereby
raising employment insecurity for workers, and if
labour markets possess characteristics that make
workers lower their work effort when job
insecurity is increased and the real wage stays
constant. Maintaining a competitive level of effort
will thus imply a raise in real wage which will
ceteris paribus lower labour demand (Amable et
Gatti [2004a]).
Increased job insecurity raises demand for
social protection
The combination of a decrease in job security
following the increase in product market
competition and a dismantling of legal employment
protection is likely to increase the level of ‘social
insecurity’. This should provoke an increase in the
23
demand for social protection at the time when
current reforms are leading to a welfare state
retrenchment. It will then be up to individuals to
turn to private insurance schemes. The
development of insurance activities should also
favour the development of markets-based finance.
Decreasing tax rates threatens the financing of
the welfare state
The decrease in tax rates may be due to the
implementation of policies decided independently
at the local or national level, following the
demands of the social base of the coalition in
power, or be the result of the intensifying of fiscal
competition in Europe. In any case, the outcome is
sill a shrinking of the tax receipts and an increase
in the difficulty to finance welfare state spendings
and redistribution.1
Labour market flexibility discourages
investment in specific assets
Labour market flexibility makes workers more
dependent on individual abilities to find a job. If
the choice is between the acquisition of specific or
general competences, the increase in labour market
flexibility biases the choice toward the former type
of competence. The same applies to every type of
assets specific to a particular employment
relationship.
Structure versus actors’ freedom
Informal versus formal institutions
Effective institutions depending on informal
practices rather than formal institutions (laws), then
the politics of institutional change plays out in
other places than legislations and elections
(Culpepper [2005]): ‘This was certainly the case of
the radical changes that took place in the French
financial system during the 1990s. While French
governments made important policies that
attempted to shape institutions of industrial
relations and education, the incremental changes
that we observe in those institutions in the end
resulted less from public policy than from the
choices of, and negotiations among, private actors.’
A political view of institutional
complementarities rather than a mere
‘technical’ view
As stressed in Section 2 the definition of
institutional complementarities adopted in our
approach is based on political equilibriums and not
1
Amable et Gatti [2004b].
Actes du GERPISA n°39
on a macroeconomic performance function.1 Of
course, the two elements are not unrelated.
Institutional political economics has to identify the
interrelations between economic dynamics on the
one hand, i.e. the evolution of macroeconomic
variables such as GDP, inflation or unemployment,
and the evolution of political forces equilibriums
on the other hand. This implies that reducing
institutional change to strictly economic
determinants would be a mistake.
Agents try to influence the evolution of the
economic system, i.e. economic policies and
institutions, in a way that benefits them most.
Policies and institutional design are made at the
initiative or at least under the control of the
government. The political power of agents will
then be measured with their capacity to influence
collective choices or to prevent that their own
private initiatives be barred by collective decisions.
This capacity is a function of the political support
that the agents are able to provide, in a logic of
political exchange (Pizzorno).
This point of view has consequences for the
analysis of the dynamics of socio-economic
systems. These systems evolve under the influence
of the regulation of socio-political conflicts. This
means that institutions do not change endogenously
in a spontaneous way, through an evolutionary
process where economic performance would be the
fitness criterion. They change under the influence
of political action. Therefore, relating the survival
of this or that type of capitalism to its ability to
guarantee a high rate of growth or a fast pace of
innovation or to deepen ‘comparative advantages’
is, at best, a short-cut that bypasses the crucial
political determinants of the dynamics of
institutions.
The economic evolution has of course some
influence on the possibility that agents have to
provide political support to the government, and on
the possibilities that governments have to
implement policies in the direction of obtaining
such support. But there is no one-to-one
correspondence between economic well-being
measured with macroeconomic variables and the
stability of a given socio-economic model. As
experienced in the past, during the fordist period, in
OECD countries or at the moment in fast
developing countries, a fast pace of economic
development may destabilise the structure of
interests and lead to a reshuffling of socio-political
alliances up to a break-up of the dominant social
1
See Palombarini [2004] and Amable & Palombarini
[2005]
24
bloc. A high rate of growth is not necessarily a
guarantee of political or institutional stability.
Another consequence is that no agent is in
charge of the ‘optimal’ functioning of the
economic system. Adopting a political economics
point of view implies this statement, but it can be
developed further. For many economists, this is
conceived as a deficiency of the economic system.
The economists know that there exists a social
optimum but they also know that it is impossible to
reach it for political economic reasons. This
position can give rise to technocratic tendencies
where the expert would substitute for the
democratic process unable to reach the optimum.
From the point of view developed here, the
situation is different. There is, in general, no
optimum to consider because of the impossibility
to reconcile diverging interests in a single social
surplus function. The differentiation of social
demands is too high to allow for the definition of a
unified social objective.
Socio-political equilibrium versus firm-centred
view
Adopting a socio-political approach to
institutional change such as exposed above is
different from the ‘firm-centred view of Hall &
Soskice [2001]. This view makes the firm the
central actor of the analysis. However, the
institutional architecture of the economy
determines the behaviour of the firm by shaping
strategic interaction. How to reconcile the micro
(firm) and macro (institutions) level? By supposing
that institutions evolve according to a principle of
adaptation to economic demands (institutional
comparative advantage). Direct link between firm
performance and macro performance. Prediction:
reinforcement of characteristics of LME and CME,
no convergence towards a single model.
Hall & Soskice neglect the origins of the
institutions they consider (Hall [2004] : Hall and
Soskice (2001) make no attempt to explain the
origins of the core institutions of the political
economy on which they focus. These undoubtedly
lie in a complex politics worthy of investigation but
beyond the scope of that volume. Their
observation that liberal market economies cannot
readily become coordinated market economies
implicitly acknowledges the complexity of the
politics. Institutional change for Hall & Soskice:
shocks (tastes and technology) firms respond by
modifying their practices so as to sustain their
competitive advantage. (Comment: this freezes the
intra-firm agreement). Much of the adjustment
process will be oriented to the institutional
recreation of comparative advantage.
Actes du GERPISA n°39
Sources of change
Three sources of institutional change may be
distinguished: micro/meso, macro, and supra-
national.
Firm-level compromises
This is basically the level favoured by VoC
(narrowly defined), which is a ‘firmcentred’
approach. Of course, macro-level compromises
influence the formation of firm-level compromises,
but actors participating to the micro/meso «
compromises » are not the same as at the national
level, and the logic of compromise-building is also
different. Contradictions between different
compromises may destabilise the overall pattern of
institutional complementarity and set off
institutional change at the national level.
A firm’s management may want to implement a
new pattern of work organisation which may have
negative effects for workers’ welfare. Workers may
either try to bargain with the management, with
firms’ unions or call for a change in labour
regulations that prohibit or limit the change
implemented in the first place. The outcome of
bargaining, if it takes place, or the choice of the
level of action, depends on the institutional
environment. Whether workers’ demands will be
satisfied depends on the balance of power between
the different socio-political groups. If the political
weight of the actors concerned is negligible, no
consequences will follow and the outcome of the
initial institutional (or organisational) change will
be limited to some distributional consequences. If
on the other hand actors have a certain political
weight, especially if they are within the dominant
social bloc and can put forward their demand,
several options are open.
The government, seeking political support, may
try to implement a certain policy change, or
instigate further institutional change. Some
redistributive measures may be implemented,
trying to lessen the effects of the initial institutional
change. On a larger scale, negotiation among the
dominant social bloc may lead to further
institutional change in order to compensate the
actors involved.
National social bloc-level compromises
One may define the political crisis as the
impossibility to renew the dominant national
compromise, based on a given alliance between
certain socio-political groups, with unchanged rules
of the game, for instance because the mediation
space between dominant interests is shrinking. In
other words, the political conflict spreads to a
25
conflict over institutions. This conflict may be such
that it leads to a recomposing of socio-political
groups, which will then try to elaborate political
strategies that will directly concern institutional
‘reforms’. In this process, one may then observe
the « conservatism » of dominated groups, which
may be the ones who lose in the process of
recomposing alliances.
Adaptation to international ‘constraints’
The so-called international « constraints »
(international treaties, European Union rules,
liberalisation in trade of goods and services…) are
the outcome of games at several levels. Some
actors can have some influence in the supra-
national games: governments of course, but also
firms, lobbies, etc. Governments are likely to
promote at the supra-national level those
institutions that reinforce their stability at home, or
to facilitate reforms in situations of political crisis
at home, building cross-national alliances in order
to overcome the limits imposed by the national
political game. One may take into account the
differences in the political influence of
governments and states. The social blocs of
«weak» (small) countries may be destabilised by
the strategies implemented by more powerful
governments. Including the supra-national level in
a theory of institutional change would mean
investigating the strategies of actors that wish to
influence public decisions in a way that parallels
their social demands: socio-political groups that are
more easily organised at the supra-national level.
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Bruno Amable
(CEPREMAP- Paris)
 Actes du GERPISA n°39
Product markets
Product
markets
Labour market Decentralised labour markets
favours firms’ adjustment to
competitive pressure and make
structural change less costly
Financial Sophisticated financial markets
system enable a quick reaction to
opening markets and favour
industrial dynamism
Social Minimal public-funded social
protection protection, hence no need for
high tax levels
Education Labour force with general
system skills favours structural change
Table 6. Institutional complementarities
Institutional complementarities of the neo-liberal model
Labour market
Intense product markets
competition generates
employment flexibility
Short-term constraints prevents
the establishment of a high
level of employment protection
Liberal welfare state does not
protect against unemployment.
Liquid labour markets are
necessary.
Minimal safety net against
poverty favours the existence
of a low wage labour market
Low specific skills
investments, hence no hold-up
problem. less need for high
employment protection
Financial system
Competitive markets pressure
has firms wanting quickly-
reacting financial markets
A flexible labour market
allows quick adjustment of the
labour force and maintenance
of short-term profits
Low degree of public-funded
social protection calls for
market-based means of risk
diversification through private
insurance
Pension funds provide an
institutionalised voice for
shareholders in a system of
corporate governance
A private higher education
system requires an easy supply
of credit to students
27
Social protection
Liquid labour markets
diminish unemployment risks
and lower the demand for
social protection
A financial markets-based
system favours instantaneous
risk diversification and lowers
the need for a public-funded
system of welfare
No strong demand for specific
skills protection
Education system
Fast structural change requires
a labour force with flexible
skills
Weak employment protection
and important structural
change are incentives to invest
in general skills
Shareholders’ protection, not
stakeholders’, hence low
incentives to invest in specific
skills
No protection for specific
skills investment, hence
incentives for individuals to
acquire general skills in order
to move from job to job and
make retraining easier
Actes du GERPISA n°39 28

Institutional complementarities of the Social-democratic model

Product markets Labour market Financial system Social protection Education system
Product Competitive pressure requires Firms’ long-term Strong competition implies risk for Foreign competitiveness
markets some labour flexibility strategies require patient wage earners, which calls for social requires a highly-skilled work
capital protection in the absence of force
sophisticated financial markets
Labour Centralisation of wage Employment protection Labour flexibility augments the Competitive pressure and
market bargaining and corporatism calls for the absence of demand for social protection employment protection calls
favours ‘coordination’ among short-term constraints for some skills flexibility.
firms Need for constant retraining
Centralisation and
coordination favour the
definition of useful specific
skills
Financial Patient capital allows long-term No short-term constraints The financial system cannot
system strategies enables employment provide individual risk
protection diversification
Social High welfare expenditures High levels of social A highly developed Allows protection of specific
protection imply high tax levels and protection allow workers to be welfare state lowers the skills investment
distortions on domestic markets flexible. demand for market-
based means of risk
diversification and social
insurance
Education High levels of education and Demand for specific skills Demand for specific skills
system skills make sophisticated protection, i.e. employment protection even with a high
consumers on the domestic protection competitive pressure; hence the
market Skill levels allow for need for the welfare state
(offensive) flexibility
Actes du GERPISA n°39 29

Institutional complementarities of the Asian model

Product markets Labour market Financial system Social protection Education system
Product markets Long-term corporate Protection against foreign Corporate and competitive Efficient Corporate training
strategies allow de facto investment does not provide structure allows a certain requires a good level of
employment stability incentives to develop highly protection for workers secondary education
sophisticated corporate without a fully-developed
governance welfare system
Labour market Corporation-based labour Corporation-based market De facto employment De facto employment
markets favour internal calls for insurance against stability lowers the need for stability enables investment
structural change short-term demands from formal social protection in specific skills
financial markets
Financial Absence of short-term No short-term constraints for Lack of sophisticated
system constraint enables long-term the large corporation allows financial markets would
strategies and intra- de facto employment stability create a demand for social
corporation restructuring protection
Social Low welfare expenditures Low levels of social Lack of public social Lack of protection deters
protection imply low taxes protection make wage-earners protection implies the from investing in too specific
more dependent on the developpment of private skills
corporation welfare funds which provide
a large volume of resources
available for the supply of
‘patient’ capital
Education A highly educated workforce An efficient secondary A workforce with general
system makes sophisticated education system provides an skills does not need so much
consumers homogeneous labour force a high level of welfare
ready to acquire specific expenditures
skills within the corporation
Actes du GERPISA n°39
Institutional complementarities of the Continental European model
Product markets Labour market
Product markets Moderate internal
competitive pressure enables
a relatively high degree of
employment protection, but
external pressure demands
important productivity gains
Labour market Employment protection
prevents fast structural
change
Financial Absence of short-term Lack of short-term
system constraint enables long-term constraints enables
strategies employment stability
Social Welfare expenditures imply Social insurance schemes
protection high taxes linked to occupation;
organised labour play in
important role in their
administration. Social
protection reinforces
differentiation across social
groups
A high level of social
protection leads to high non-
wage labour costs, which is
detrimental to employment at
the lower end of the skill
scale
Education Labour force with specialised Demand for specific
system skills allows to follow stable investments’ protection
industrial strategies
Financial system
Moderate competitive
pressure allows the
establishment of stable
finance-industry relations
Employment protection puts
a limit to the respect of a
strict short term profit
constraint
High welfare expenditures
lower the need for individual
risk diversification
30
Social protection
The quest for productivity
gains implies labour-
shedding strategies which are
politically sustainable only
with social protection
Employment protection
permits a moderately high
degree of social protection
Weak individual risk
diversification possibilities;
hence a need for social
protection
High demand for specific
skills protection
Education system
Quality-based competition
demands a workforce with a
high level of general
education.
Slow structural change
favours the acquisition for
specialised skills
Employment protection is an
incentive to invest in specific
skills
Centralisation and
coordination favour the
definition of useful specific
skills
A relatively high level of
social protection enables
specialised skills acquisition
Actes du GERPISA n°39
Product markets
Product markets
Labour market Formal employment
protection prevents fast
structural change (large
firms)
Financial Underdeveloped financial
system markets and stable bank-
industry relations slow down
structural change
Social Low welfare expenditures
protection imply lower tax distortions on
the domestic market
Education The skill level of the work
system force prevents to engage in
high-tech activities
Institutional complementarities of the South European model
Labour market
Low competitive pressure
allows employment stability
(large firms)
Lack of short-term
constraints enables
employment stability
The education system does
not allow a large highly-
skilled workforce
Financial system
Low competitive pressure
allows the establishment of
stable finance-industry
relations
Employment stability
demands a lack of short-term
constraints
Low welfare expenditures
would increase the demand
for individual risk
diversification
31
Social protection
De facto employment
stability lowers the demand
for social protection
Weak individual risk
diversification possibility
would imply a higher level of
social protection
Low specific investments
lower the demand for
protection
Education system
Industrial specialisation and
structure (small firms) do not
require a highly skilled
workforce
Stability of employment does
not require a constant
upgrading of the competences
of the workforce
Low levels of social
protection deter from
investing in specific skills