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12 of 12 people found the following review helpful
5.0 out of 5 stars A political economy classic, 28 April 2006
Sp Coulter (London, UK) - See all my reviews
This review is from: Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Paperback)
Varieties of Capitalism poses a key question: why aren't all modern capitalist states the same? Haven't globalisation's cheerleaders been telling us for years that all economies will inevitably converge around the Anglo-Saxon deregulatory model? Actually, no. Germany, for instance, remains the world's top exporter and other states have found ways to thrive economically that don't involve aping the US.

Their secret, according to Hall and Soskice, is that they play to their institutional strengths. Institutions, in political economy terms, are the unwritten rules and signals that govern actors' behaviour, and they vary widely between different states. The institutions that underpin, for instance, the highly co-ordinated German economy produce a particular economic outcome, one that is very different from those at work in liberal market economies like the US. Moreover, these institutions reinforce each other. For instance, the German governments' commitment to worker training means firms are able to pursue product strategies based on high value goods. The hausbank system, whereby firms are controlled through interlocking shareholdings of banks, reinforces this long-term outlook.

Contrast this with the equity-finance structures of UK and US firms, which produce a more short-termist outlook that is better at innovation but necessitates product strategy based on lower quality, price-sensitive goods - the "pile 'em high, sell 'em cheap" approach of a lot of manufacturing there.

The essays in Varieties of Capitalism, together with the excellent and clearly written introduction by Hall and Soskice, explore these institutional linkages in all their complexity. Standout chapters include Kathleen Thelen on labour markets, Bob Hancke on large firms and institutional restructuring in France, and Orfeo Fioretos on the implications of VoC for multilateral agreements such as EMU. The rational choice institutionalist method that Hall and Soskice pursue may put off some, but it's all done very sensibly and un-dogmatically. Empty formalising is conspicuous by its absence.

Varieties of Capitalism has sparked a huge debate in political economy. It's main weakness is its economic determinism - do these institutional co-ordinations really work so smoothly? However, anyone interested in modern societies cannot afford to ignore this book.
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