Financial Crisis and Varieties of Capitalism

The “varieties of capitalism” approach provides a fresh perspective in thinking of the political economy. This approach is actor-centered and views the political economy filled with many different types of rational actors who try to “advance [their] interests in strategic interaction with others” (Hancke). Among the relevant actors include governments, producers, and individuals, but the main actor in this model is the firm. Aggregated together, their activities ultimately determine the overall performance of an economy.

In order for a firm to stay competitive in a highly competitive market, it must develop and utilize its core competencies, which can be understood as its “capacities for developing, producing, and distributing goods and services profitably” (Hacke). In order to maximize profitability, the firm must consider the relationships it develops internally with its employees and externally with actors like suppliers, stakeholders, or governments. A firm is able to differentiate itself in the way it coordinates these relationships with all relevant actors. In the varieties of capitalism approach, firms distinguish themselves in the way it resolves coordination problems in five different spheres. These five spheres are:

1) Industrial relations

2) Vocational training and education

3) Corporate governance

4) Inter-firm relations

5) Employee relations (Hacke)

Two distinct political economies emerge from this view. On one side of the spectrum, there are liberal market economies that “coordinate their activities primarily via hierarchies and competitive market arrangements” (Hacke) and on the opposite side are coordinated market economies that “depend more heavily on nonmarket relationships to coordinate their endeavors with other actors and to construct their core competencies” (Hacke).

The recent and ongoing global financial crisis was felt more severely felt in some countries than others. This paper briefly examines some of the...