Comparative Political Economy - Assignment Example

Comparative Political Economy Q #1 Do you think national economies in the OECD are converging in terms of their institutional structures? Although it is widely accepted that Capitalism championed by countries in the OECD emerged victorious after the end of the Cold War, the question about the convergence of the different institutions in these countries is still unclear. The key question has turned to the type of capitalism that will dominate, as well as the prospects of a divergence of OECD capitalist institutions and structures to form a new global capitalist model. This is especially so given the emergence of increasingly transnational nature of economic agents, as well as the multi-level nature of institutions that cross nation-state borders (Deeg & Jackson 154). In addition, there are more homogenous technologies, and a rapid globalization of financial and product markets. The pace of change is also being increased by the increasingly integrated nature of national economies and world markets, which has left less space for idiosyncratic economic policies and national institutions. Meanwhile, liberalization of corporate finance and governance, especially in Europe, as promoted by leftist parties (Deeg & Jackson 170) seems inevitable for countries wishing to remain competitive. From this viewpoint, it seems that OECD countries will be assessed on their willingness to accept convergence on a liberal economic principles-based dominant capitalist model. However, whether such broad and wholesale capitalist model convergence within the OECD is desirable or inevitable is in question, especially given the reasons for divergence in the past and the implications that continues to have. One of the most evident cases of divergence is related to labor market structures and social protection levels. While majority of OECD countries in continental Europe have maintained distinctive elements of their social models, such as generous welfare states, Anglo-American OECD countries have settled on Keynesian welfare states with international capital and trade controls (Vidal 80). The latter has incorporated flexible labor markets and reduced their rates of taxation to incentivize their citizens to look for employment. This divergence is basically dependent on varying political conceptions about social justice and economic efficiency trade-off, whereby the social market, liberal market, or a hypothetical third way offer varying trade-offs. However, these differences between national models in OECD countries are reflective of the wider variations regarding comparative advantages of the concerned economies. Most OECD countries have always sought a balance between individual self-interest and social values, between competition’s creative power and a pursuit for public goods, and between individual liberty and collective action. In business and economics, this search for balance has also been about achieving the most efficient capitalist model. However, as stated by Vidal (p.90), if the starting point for this process involves more than one distinctive capitalist model, it is hard to avoid reifying one’s own capitalist model, making convergence more difficult. This requires more than just the rule of law, property rights, and a market exchange system. Organizational structures also portend a significant impact on efficiency of economies, which is dependent on their ability to enable teamwork and cooperative innovation. Crouch et al (p.367) state that political processes and models have a critical role to play in the evolution of organizations. In the last half-century or so, various capitalist models have emerged in OECD countries seeking to achieve the balance between flexibility and commitment and between private and public goods. To some extent, their evolution has been reflective in institutional differences that were pre-existing, as well as political institutions and economic specializations. While many countries in the OECD have capitalist models that are distinguishable, the most evident examples of two divergent forms are the US and German models. While the former typifies an approach of liberalized markets common in Anglo-Saxon states, the latter conforms to coordinated market economies common in Sweden and Japan. In Japan, for example, Crouch et al (p.365) contend that this coordination of market economies locked their workforce into internal labor markets. This is in stark contrast to Anglo-Saxon OECD countries’ flexible labor markets. Although both models accept the role of independent monetary policy, product pricing determined by the markets, and free trade, they show fundamental institutional and structural divergence, rather than convergence. While the German model is reliant on welfare protection that facilitates state intervention in corporate non-market coordination (Höpner 340), the American model is widely reliant on economic market coordination and supplementation of market failures through additional market elements like patents. Therefore, Germany and other similar OECD countries have a successful system for vocational training that is supported by innovative cooperation. This occurs between employees and firms, between firms in standardization, through co-determination and collective wage bargaining, and between the education system and these social partners. Inter-firm collaboration is also significant in R&D, while companies and employees enter relationship-specific technology transfers and investments based on co-determined trust, committed cross-shareholdings, and long-term loans from banks like the “hausbankens” (Höpner 347). This is in stark contrast to the US and Anglo-Saxon countries in the OECD that emphasize flexibility of labor markets, competitive company relationships, general education, autonomy of management, capital market financing, and market-based standardization of technology. In place of the previous model, their institutional structures enhance legal liability, social audits, and shareholder activism to align corporate with wider social goals. In the recent past, increased focus has been laid on the flexibility of institutional structures in the different national economic models in response to capital market globalization, technological advances, and economic shocks. For Germany and similar countries in the OECD, firms arising in the recent past like biotech companies have been reliant on public funding and foreign venture capital markets (Crouch et al 667). In addition, co-determination, long term finance from banks, and extensive cross-shareholding have prevented rapid reallocation of resources and capital to radical technologies as is the case in the US and other Anglo-Saxon OECD countries. This is in stark contrast to the Anglo-Saxon OECD countries that have internalized flexibility through reliance on capital markets for finance. Due to the nature of their institutional structures that are dependent on short-term returns, companies in the latter group of countries require high flexibility in order to react rapidly to technological and product-market developments. Thus, their institutional structures are highly dependent on management autonomy (Crouch et al 666) and an increase in flexibility needs increases the market for corporate control. This raises the question of what convergence will mean if markets for corporate control and global capital market financing spread to OECD countries like Germany. To most, it would seem that this model is no longer representative of optimal institutional structure trade-off, which Heyes et al (p.226) contend involves minimal welfare states, flexible labor markets, and individualized wages. As finance become internationalized, unemployment rises, and technology becomes more radical, it seems that, Germany and similar OECD countries need a new institutional structural mix that increases flexibility in the labor market but retains vocational training. Such thinking visualizes a new institutional structure compromise that adopts the best of these models, i.e. convergence of institutional structures among OECD countries. However, this is unlikely, especially since it would ignore the interdependence of each model’s institutional structures, which makes it difficult to change some aspects and not others without resulting in institutional structure inconsistency. The independence of the features present in each capitalist model in Germany and US and similar countries in the OECD and their institutional structures, as well as their varying functional requirements in each model’s specialization area, make prescription in complete convergence difficult. Not only do their institutional structures represent political and historical compromises and social values, they are also representative, as stated by Heyes et al (p231.) of the comparative advantages endowed by varying institutional constellations. Convergence of institutional structures in OECD national economies is also questionable on the basis of historical institutionalism. Instead, this view emphasizes that alternative forms of organization are correlated historically and geographically with movements that helped consolidate capitalist models and fix their distinctive paths (Schneiberg 65) most countries will find it important to retain country and case-specific features. This is based on the assumption that once institutions are founded, they can only be redefined or changed at high costs both socially and financially, as well as under specific circumstances like during critical institutional events or critical junctures. In addition, it is vital to identify key decisions and pivotal turning points in the genesis of these institutional structures in order to understand the way they function and the reasons why the current convergence reform debate is underway. Structural characteristics of institutional arrangements also restrict acceptable and possible changes, which makes alternative institutional structure alternative options limited to incremental changes along a specific reform corridor. This point of view is also overlapping with sedimentation concepts in sociological institutionalism, as well as with the normative institutionalism model that emphasizes value systems and routine limiting the options in institutional reform. Therefore, it is difficult to anticipate convergence of institutional structures built on specific and purposeful programs of reform. Rather, one would expect elaboration of new capitalist forms and new paths alongside the more dominant paths of OECD capitalism, in this case the US and Anglo-Saxon economies (Schneiberg 67). Works Cited Crouch, Colin. Schröder, Martin. & Voelzkow, Helmut. "Regional and Sectoral Varieties of Capitalism." Economy and Society. 38.4 (2009): 654-678. Print. Crouch, Colin. Streeck, Wolfgang. Boyer, Robert. Amable, Bruno. Hall, Peter. & Jackson, Gregory. "Dialogue on institutional Complementarity and Political Economy." Socio-economic Review. 3.2 (2005): 359-382. Print. Deeg, Richard. & Jackson, Gregory. "Towards a More Dynamic Theory of Capitalist Variety." Socio-economic Review. 5.1 (2007): 149-179. Print. Heyes, Jason. Lewis, Paul. & Clark, Ian. "Varieties of Capitalism, Neoliberalism and the Economic Crisis of 2008-?" Industrial Relations Journal. 43.3 (2012): 222-241. Print. Höpner, Martin. "What Connects Industrial Relations and Corporate Governance? Explaining Institutional Complementarity." Socio-economic Review. 3.2 (2005): 331-358. Print. Schneiberg, Marc. "What's on the Path? Path Dependence, Organizational Diversity and the Problem of Institutional Change in the Us Economy, 1900-1950." Socio-economic Review. 5.1 (2007): 47-80. Print Vidal, Matt. “Incoherence and dysfunctionality in the institutional regulation of capitalism,” in Marco Hauptmeier and Matt Vidal (Eds.) Comparative Political Economy of Work, Palgrave Macmillan. Print. Read More