Varieties of Capitalism,Competitiveness, and Labor Jeffrey Hart February 26, 2013
Books on Varieties of Capitalism Andrew Shonfeld, Modern Capitalism (1966) John Zysman, Government, Markets and Growth (1978) Peter Katzenstein, ed., Between Power and Plenty (1978) Peter Gourevitch, Politics in Hard Times (1986) Herbert Kitschelt, Continuity and Change in Contemporary Capitalism (1999) Peter Hall and David Soskice, eds., Varieties of Capitalism (2001) Kathleen Thelen, How Institutions Evolve (2004)
My books on this topic: Rival Capitalists (1992) Managing New Industry Creation (2002) Technology, Television, and Competition (2004)
Key Questions in Varieties of Capitalism Literature Identifying variance in the organization of capitalist systems Explaining the variance Demonstrating the impact of variance on important outcomes (such as international competitiveness)
Examples of Types of Variance Strong vs. weak states Countries with centralized governments and relatively weak business and labor are called “strong states” (e.g. Japan and France) Coordinated vs. liberal market economies coordinated market economies may also be called “corporatist” or “neo-corporatist” coordination is sometimes called concertation or tripartite (government, business, and labor) concertation Germany and the Scandinavian countries are in this group In my work, I use the concept of “state-societal arrangements”
Typical Causal ModelExternal shocks Variance in types of capitalism Variance in Outcomes
Key questions in the study ofinternational competiveness: What is the role of varieties of capitalism relative to other factors in industrial growth and international competitiveness? Is it possible for governments to promote the growth and development of high-tech industries? If so, when and where, and under what conditions?
Link between varieties ofcapitalism and industrial policies The types of industrial policies available to the government of a given country depend strongly on the variety of capitalism In general, liberal market economies tend to avoid industrial policies other than those associated with macroeconomic policies (spending, taxation, and subsidization of infrastructures and R&D) Coordinated market economies and strong states have a wider array of options for industrial policies
Industrial Policies Includes a wide variety of policy instruments that are intended to advance the international competitiveness of “national champion” firms, such as: Investment subsidies Public R&D expenditures Science parks and free trade zones Export incentives
Causal Argument of Rival Capitalists Possible Feedback Loop
What is an industry? A set of firms that compete in the same market for goods and/or services May or may not include upstream/downstream activities Boundaries with other industries may be fuzzy and may change over time Often self-identified via lobbying efforts and the formation of industry associations
Sectors vs. Industries Sectors are at a higher level of aggregation In economics, primary=extractive, secondary=manufacturing, tertiary=services capital-intensive vs. labor-intensive import competing vs. noncompeting Industry studies provide more information about differences within “sectors” or similarities across “sectors”
Key industry variables: Size, growth rate, market share, no. employed, exports, imports, etc. Concentration of ownership/control Regulated vs. self-regulated vs. unregulated High-tech vs. low-tech Kitschelt: loosely vs. tightly coupled; simple vs. complex; specific vs. general assets Extent or type of globalization
Methods Collection of empirical and especially quantitative data on key variables Elite interviews with managers and public policy officials Site visits to major facilities Archival research
Figure 4. Production Shares of TFT LCDs by Location, 1993-2005, in percentages Source: Thomas Murtha, Stefanie Lenway and Jeffrey Hart, Managing New Industry Creation (Stanford, Calif.: Stanford University Press, 2001) updated.
Generations 1-7 of Glass SubstratesSource: Samsung Corning Precision,http://www.scp.samsung.com/content/en/product/generation.asp.
Generation 7-8 TFT LCD Plant in Paju, S. Korea (LG)
Theoretical approaches: Neoclassical (industrial policy is bad and counterproductive) Regulatory State (regulation necessary for markets to work properly, but industrial policy is still bad) Developmental State (industrial policy is useful for catching up) Competition State (industrial policy has to take globalization into account)
The Developmental State vs. the Regulatory State Developmental RegulatoryType of Elite, Insulated Transparent,Bureaucracy AccountableSupport for New Extensive LimitedIndustriesUse of State- Extensive LimitedControlled BanksStance w/regard Tutellary Regulatoryto Private Firms
The Impact of Globalization on National Economic Strategies Greater volatility in global financial markets requires changes in financial market regulations in all countries To remain internationally competitive, firms have adopted global production strategies Even regulatory states have to compete for inflows of foreign direct investment Developmental states cannot succeed with pure national champion strategies
Example of GM in China 2010 sales of 2.3 million vehicles in China World-class production facilities (joint venture with SAIC) Modified Buick as a chauffeur-driven luxury car Not competing with low-end national champions like Geely
Example of LG LCD Production Joint venture with Philips Only major competitors globally are Samsung and Sharp Production facilities use best materials and tools from global suppliers (e.g. Corning and Canon) Have to worry about China
Important findings: Major impact of globalization of the world economy on manufacturing location decision in high-tech industries Changing view on what needs to be studied: e.g. industries vs. “value chains” Role of government policy varies over time and across industries as technologies change Creation and diffusion of technology is a key variable in determining shifts in international competitiveness
Problems: Research is costly and difficult Difficulty of aggregating across industries Possible selection biases in industries studied Confusing/complex nature of the role of the state