Comparative Institutions and Globalization Anne Wren (Stanford University) With critique by Tom Kenyon (Princeton University & IFC)

Varieties of Capitalism (VOC) Can use VOC literature to derive policy preferences of firms and workers VOC predicts existence of ‘complementarities’ across national economic sub-systems Distinguishes two principal variants (coordinated and liberal market economies)

Institutional Complementarities Liberal Market EconomiesCoordinated Market Economies Corporate governance & finance ‘Arms-length’ rules, equity finance ‘Insider’ rules; bank finance Labor mkt. organizationDecentralized, low union density; high labor mobility Centralized, high union density; low labor mobility Product mkt. competitionArms-length relations, strict competition enforcement Inter-firm cooperation, relational contracting Social protectionFew restrictions on hiring and firing, investment in general skills Stringent restrictions on hiring and firing, investment in firm specific skills

Institutions and Specialization Different institutional environments favor different types of industrial specialization: CMEs: favor long-term investment in skills and incremental innovation (autos, capital goods, engines) LMEs: favor flexibility and radical innovation (software, biotech, telecoms)

Policy Preferences - Firms CME-type firmLME-type firm CME institutional environment Favor openness (e.g. German auto- maker) Lobby/outsource (e.g. German software company) LME institutional environment Lobby/outsource (e.g. US auto-maker) Favor openness (e.g. US software company)

Policy Preferences – Workers Favor opennessFavor protection/compensat ion CME institutional environment Skilled & unskilled workers, employers Women – less heavily invested in existing institutions LME institutional environment Skilled workersUnskilled workers

Operationalization? How do we tell what a CME/LME-type firm looks like? How do we measure ‘radical’ vs. ‘incremental’ innovation (Taylor 2004) Sector, technological/skill intensity or stage of product cycle? How do we tell what a CME/LME economy looks like?

Data – Variables and Indicators VariablesIndicator Corporate governanceMinority shareholder protections; equity market development, takeover activity Ratio of equity market cap. to banking sector deposits (Global Financial Data, IMF) Labor market regulationLegal restrictions on union membership & activity, wage bargaining structures Union density (Golden, Lange & Wallerstein), degree of wage bargaining coordination (OECD) Prod. market regulationBarriers to entry, competition enforcement Composite indicator for 7 industries (OECD) Social protection & trainingUnemployment insurance, employment protection, active labor market policies Employment protection index (OECD), decommodification index (Scruggs)

Cluster Analysis Groupings 123 Australia post-1990 Canada France post-1996 N. Zealand post-1988 Sweden post-1997 UK post-1980 US Belgium Denmark Finland post-1985 Germany post-1990 Ireland post-1996 Netherlands New Zealand to 1987 Sweden to 1997 Switzerland UK to 1979 Australia to 1989 Austria Finland to 1984 France to 1995 Germany to 1989 Ireland to 1995 Italy Japan Norway

Grounds for Skepticism CME/LME distinction questionable: H&S categories do not hold up: countries switch over time & by organizational sub-type (e.g. Ireland) H & S overstate extent of complementarities, see trend away from coordination since 1980 Need alternative indicator of coordination: continuous? by institutional sub-grouping?

To Sum Up VOC approach promising, but problematic to operationalize Trade-off between theoretical sophistication and cross-national scope of application Think more carefully about underlying complementarities outside OECD Develop cross-national core and regional modules? (e.g. WB ICA)