Varieties of Capitalism, Varieties of Capitalism, Competitiveness, and LaborCompetitiveness, and Labor

Jeffrey HartJeffrey Hart

February 26, 2013February 26, 2013

Books on Varieties of Books on Varieties of CapitalismCapitalism

Andrew Shonfeld, Andrew Shonfeld, Modern Capitalism Modern Capitalism (1966)(1966) John Zysman, John Zysman, Government, Markets and Growth Government, Markets and Growth (1978)(1978) Peter Katzenstein, ed., Peter Katzenstein, ed., Between Power and Plenty Between Power and Plenty

(1978)(1978) Peter Gourevitch, Peter Gourevitch, Politics in Hard Times Politics in Hard Times (1986)(1986) Herbert Kitschelt, Herbert Kitschelt, Continuity and Change in Continuity and Change in

Contemporary Capitalism Contemporary Capitalism (1999)(1999) Peter Hall and David Soskice, eds., Peter Hall and David Soskice, eds., Varieties of Varieties of

Capitalism Capitalism (2001)(2001) Kathleen Thelen, Kathleen Thelen, How Institutions Evolve How Institutions Evolve (2004)(2004)

My books on this topic:My books on this topic:

Rival CapitalistsRival Capitalists (1992) (1992) Managing New Industry CreationManaging New Industry Creation (2002) (2002) Technology, Television, and CompetitionTechnology, Television, and Competition (2004) (2004)

Key Questions in Varieties of Key Questions in Varieties of Capitalism LiteratureCapitalism Literature

Identifying variance in the organization of Identifying variance in the organization of capitalist systemscapitalist systems

Explaining the varianceExplaining the variance Demonstrating the impact of variance on Demonstrating the impact of variance on

important outcomes (such as international important outcomes (such as international competitiveness)competitiveness)

Examples of Types of VarianceExamples of Types of Variance

Strong vs. weak statesStrong vs. weak states Countries with centralized governments and relatively weak Countries with centralized governments and relatively weak

business and labor are called “strong states” (e.g. Japan and business and labor are called “strong states” (e.g. Japan and France)France)

Coordinated vs. liberal market economiesCoordinated vs. liberal market economies coordinated market economies may also be called “corporatist” coordinated market economies may also be called “corporatist”

or “neo-corporatist”or “neo-corporatist” coordination is sometimes called concertation or tripartite coordination is sometimes called concertation or tripartite

(government, business, and labor) concertation(government, business, and labor) concertation Germany and the Scandinavian countries are in this group Germany and the Scandinavian countries are in this group

In my work, I use the concept of “state-societal In my work, I use the concept of “state-societal arrangements”arrangements”

State-Societal ArrangementsState-Societal Arrangements

Typical Causal ModelTypical Causal Model

External shocks

Variance in types of capitalism

Variance inOutcomes

Key questions in the study of Key questions in the study of international competiveness:international competiveness: What is the role of varieties of capitalism relative to What is the role of varieties of capitalism relative to

other factors in industrial growth and international other factors in industrial growth and international competitiveness?competitiveness?

Is it possible for governments to promote the growth Is it possible for governments to promote the growth and development of high-tech industries?and development of high-tech industries?

If so, when and where, and under what conditions?If so, when and where, and under what conditions?

Link between varieties of Link between varieties of capitalism and industrial policiescapitalism and industrial policies

The types of industrial policies available to the The types of industrial policies available to the government of a given country depend strongly on the government of a given country depend strongly on the variety of capitalismvariety of capitalism

In general, liberal market economies tend to avoid In general, liberal market economies tend to avoid industrial policies other than those associated with industrial policies other than those associated with macroeconomic policies (spending, taxation, and macroeconomic policies (spending, taxation, and subsidization of infrastructures and R&D)subsidization of infrastructures and R&D)

Coordinated market economies and strong states Coordinated market economies and strong states have a wider array of options for industrial policieshave a wider array of options for industrial policies

Industrial PoliciesIndustrial Policies

Includes a wide variety of policy Includes a wide variety of policy instruments that are intended to advance instruments that are intended to advance the international competitiveness of the international competitiveness of “national champion” firms, such as:“national champion” firms, such as: Investment subsidiesInvestment subsidies Public R&D expendituresPublic R&D expenditures Science parks and free trade zonesScience parks and free trade zones Export incentivesExport incentives

Causal Argument of Rival Causal Argument of Rival CapitalistsCapitalists

PossibleFeedbackLoop

What is an industry?What is an industry?

A set of firms that compete in the same market A set of firms that compete in the same market for goods and/or servicesfor goods and/or services

May or may not include upstream/downstream May or may not include upstream/downstream activitiesactivities

Boundaries with other industries may be fuzzy Boundaries with other industries may be fuzzy and may change over timeand may change over time

Often self-identified via lobbying efforts and the Often self-identified via lobbying efforts and the formation of industry associationsformation of industry associations

Sectors vs. IndustriesSectors vs. Industries

Sectors are at a higher level of aggregationSectors are at a higher level of aggregation In economics, primary=extractive, In economics, primary=extractive,

secondary=manufacturing, tertiary=servicessecondary=manufacturing, tertiary=services capital-intensive vs. labor-intensivecapital-intensive vs. labor-intensive import competing vs. noncompetingimport competing vs. noncompeting Industry studies provide more information Industry studies provide more information

about differences within “sectors” or about differences within “sectors” or similarities across “sectors”similarities across “sectors”

Key industry variables:Key industry variables:

Size, growth rate, market share, no. Size, growth rate, market share, no. employed, exports, imports, etc.employed, exports, imports, etc.

Concentration of ownership/controlConcentration of ownership/control Regulated vs. self-regulated vs. unregulatedRegulated vs. self-regulated vs. unregulated High-tech vs. low-techHigh-tech vs. low-tech Kitschelt: loosely vs. tightly coupled; simple Kitschelt: loosely vs. tightly coupled; simple

vs. complex; specific vs. general assetsvs. complex; specific vs. general assets Extent or type of globalizationExtent or type of globalization

MethodsMethods

Collection of empirical and especially Collection of empirical and especially quantitative data on key variablesquantitative data on key variables

Elite interviews with managers and public Elite interviews with managers and public policy officialspolicy officials

Site visits to major facilitiesSite visits to major facilities Archival researchArchival research

Global MarketShare Data

Figure 4. Production Shares of TFT LCDs by Location, Figure 4. Production Shares of TFT LCDs by Location, 1993-2005, in percentages1993-2005, 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 SubstratesGenerations 1-7 of Glass Substrates

Source: Samsung Corning Precision, http://www.scp.samsung.com/content/en/product/generation.asp.

Generation 7-8 TFT LCD Plant Generation 7-8 TFT LCD Plant in Paju, S. Korea (LG)in Paju, S. Korea (LG)

Tianma LCD Factory in Tianma LCD Factory in Shanghai (formerly SVA-NEC)Shanghai (formerly SVA-NEC)

Theoretical approaches:Theoretical approaches:

Neoclassical (industrial policy is bad and Neoclassical (industrial policy is bad and counterproductive)counterproductive)

Regulatory State (regulation necessary for Regulatory State (regulation necessary for markets to work properly, but industrial markets to work properly, but industrial policy is still bad)policy is still bad)

Developmental State (industrial policy is Developmental State (industrial policy is useful for catching up)useful for catching up)

Competition State (industrial policy has to Competition State (industrial policy has to take globalization into account)take globalization into account)

The Developmental State vs. the The Developmental State vs. the Regulatory StateRegulatory StateDevelopmentalDevelopmental RegulatoryRegulatory

Type of Type of BureaucracyBureaucracy

Elite, InsulatedElite, Insulated Transparent, Transparent, AccountableAccountable

Support for New Support for New IndustriesIndustries

ExtensiveExtensive LimitedLimited

Use of State-Use of State-Controlled BanksControlled Banks

ExtensiveExtensive LimitedLimited

Stance w/regard Stance w/regard to Private Firmsto Private Firms

TutellaryTutellary RegulatoryRegulatory

The Impact of Globalization on The Impact of Globalization on National Economic StrategiesNational Economic Strategies

Greater volatility in global financial markets Greater volatility in global financial markets requires changes in financial market regulations requires changes in financial market regulations in all countriesin all countries

To remain internationally competitive, firms have To remain internationally competitive, firms have adopted global production strategiesadopted global production strategies

Even regulatory states have to compete for Even regulatory states have to compete for inflows of foreign direct investmentinflows of foreign direct investment

Developmental states cannot succeed with pure Developmental states cannot succeed with pure national champion strategiesnational champion strategies

Example of GM in ChinaExample of GM in China

2010 sales of 2.3 million vehicles in China2010 sales of 2.3 million vehicles in China World-class production facilities (joint World-class production facilities (joint

venture with SAIC)venture with SAIC) Modified Buick as a chauffeur-driven Modified Buick as a chauffeur-driven

luxury carluxury car Not competing with low-end national Not competing with low-end national

champions like Geelychampions like Geely

Example of LG LCD ProductionExample of LG LCD Production

Joint venture with PhilipsJoint venture with Philips Only major competitors Only major competitors

globally are Samsung and globally are Samsung and SharpSharp

Production facilities use best Production facilities use best materials and tools from global materials and tools from global suppliers (e.g. Corning and suppliers (e.g. Corning and Canon)Canon)

Have to worry about ChinaHave to worry about China

Important findings:Important findings:

Major impact of globalization of the world Major impact of globalization of the world economy on manufacturing location decision in economy on manufacturing location decision in high-tech industrieshigh-tech industries

Changing view on what needs to be studied: e.g. Changing view on what needs to be studied: e.g. industries vs. “value chains”industries vs. “value chains”

Role of government policy varies over time and Role of government policy varies over time and across industries as technologies changeacross industries as technologies change

Creation and diffusion of technology is a key Creation and diffusion of technology is a key variable in determining shifts in international variable in determining shifts in international competitivenesscompetitiveness

Problems:Problems:

Research is costly and difficultResearch is costly and difficult Difficulty of aggregating across industriesDifficulty of aggregating across industries Possible selection biases in industries Possible selection biases in industries

studiedstudied Confusing/complex nature of the role of Confusing/complex nature of the role of

the statethe state