This document discusses whether a single European model of capitalism will emerge. It summarizes that the UK and Germany have undergone some incremental changes in their market economies but are unlikely to dramatically change and converge into a single model due to factors like path dependency, political processes, and time lags between changes in political and economic institutions. While some characteristics of liberal and coordinated market economies have been adopted in each country to improve economic performance, their core models will persist due to these "non-convergent" changes.

1. WILL A SINGLE EUROPEAN MODEL OF
CAPITALISM EMERGE?
Varieties of Capitalism
Session 7
Presented by:
Dini L Silveira and Kenjiro Taniguchi

2. OVERVIEW
p Review of key VoC elements
p Equilibrium in VoC and changes in the European ideal cases
p Explanation of “non-convergent” changes between UK and
Germany
p Conclusion and Final remarks

3. Key elements in VoC
• Institutions: “the humanly devised constraints that shape
interaction. In consequence, they structure incentives in
human exchange, whether political, social, or economic.”
North (1990, 3).
• Institutional Complementarities: “institutions can be said to
be complementary if the presence (or efficiency) of one
increases the return from (or efficiency of) the
other.” (Aoki, 1994, in Hall and Solskice, 2001)
• Strategic Interactions amongst actors supported by
national institutions create equilibria in LMEs and CMEs

4. Institutional Complementarities and
Subsystems

5. No change à a requirement to sustain equilibria within
Market Economies
… but changes have been observed!
U.K. Germany
• Some CME strategies… • LME strategies**
- Introduction of policies to - firms held down wages to
address employment issues increase competitiveness
- Application of Keynesian - Looser wage coordination
macroeconomic policies to - German banks reduced their
increase economic growth domestic investments
- Reduced social benefits
• …and some LME strategies* - Development of a dual labor
- Shift towards empowering market (low-wage and part-time
employers individually jobs, no wage collective
- Employees’ power in training bargaining)
and unemployment
negotiations were undermined • **Incremental changes=less
• * Inconsistency = uncertainty uncertainty

6. Possibilities of Incremental Changes
• Between the “equilibriums”
LME à CME
CME à LME
• Beyond the “equilibriums”
LME à X
CME à Y
• Perspective of public policy
– “ideological, political, and electoral” pressures
– compromise among actors with different interests and values
– competition between two major parties

7. Single European Model (X=Y) ?
Explanation of incremental changes
1. Path Dependency
2. Constitutional & Political Differences
3. Time Lags
All leads NOT to
X = Y,
but to
LME à LME’
CME à CME’
(“non-convergent” changes)

8. 1. Path Dependency
• For example, in Germany…
“They show distinctly that […] reform steps were taken in the
traditional incremental manner that keeps existing institutions intact
and adapts their functioning to a new environment.” (Hassel 2007)
• The reasons for path dependency
• Political power: “existing institutions continue to provide rents for those
actors that have a political voice” (Hassel 2007)
• Uncertainty: “none of the actors have had a vision on how a radically
different institutional setting would look like and work” (Hassel 2007)
• Costliness: “both the learning curve and the opportunity cost of new
learning make it very likely that actors will persist with familiar forms of
action after these have ceased to produce rewards, and may even
prevent actors finding alternative paths when these are in principle
available” (Colin Crouch and Henry Farrell

9. 1. Path
Dependency
“On the whole, however,
there is little indication
that the training efforts
of private firms have
substantially diminished
because of a lack of
interest by firms in
vocational training”
(Hassel 2007)

10. 2. Constitutional & Political Differences
U.K. Germany
(Strong Government)
(Highly Constrained Government)
• Constitutional Constraints • Constitutional Constraints
• First-past-the-post system • Bicameralism with PR
• Parliamentary sovereignty • Para-public institutions
• Weak court • Federal Constitutional Court
• Centralized government • Federalism
• Political Constraints • Political Constraints
• Single-party government • Coalition government
• Centralized party • Decentralized party
organization
organization
à Unsustainable Equilibrium
à Sustainable Equilibrium

11. 3. Time Lag
• Distinction between…
• Political Organization
• Productive Coordination
• Time Lag
• “Convergence”
• “Divergence”
• “Non-convergence”
“even if the organized, nonliberal capitalism of the postwar
era will finally be gone—which it likely already is—there will
always be enough differences between countries, produced
by time lags and tradition” (Streeck 2009)

12. Final remarks
• Main conclusion: it is unlikely that Germany and the UK will
promote dramatic changes to their market economies in order
to convert into a single model due to path dependency, political
processes and the “non-convergence” time lag. Additionally,
they may adopt some LMEs or CMEs characteristics to ensure
healthy national economic performances.
• “Institutional change can relax the tightness of coordination or
shift its equilibria without eliminating strategic or market
coordination altogether.” (Hall, p. 29)
• Germany and the EU: even though the formation of the EU
may cause changes in the complementarities system, the CME
model will nevertheless remain present in Germany