Capitalism in Europe

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Economic Institutions and Policies in the US and the EU: Convergence or Divergence?1

Élie Cohen (*) and Jean Pisani-Ferry(**) This Version : 16 February 2006

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Thus paper was prepared for the Second Annual Berkeley-Vienna Conference on The US and European Economies in Comparative Perspective, Berkeley, 12-13 September 2005. An earlier version of this paper was presented on 11-12 April 2002 in the Harvard-WIIW Conference on EU-US relations. We thank the participants in both conferences as well as Barry Eichengreen and Jonah Levy for their remarks and criticisms on earlier drafts.

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CNRS-Sciences Po and Conseil d’analyse économique, Paris. Bruegel, Brussels and Université Paris-Dauphine. E-mail: jpf@bruegel.org

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1. Introduction Once upon a time, there were national varieties of capitalism. There were a German (or Rhineland) model, a Gallic model, a Scandinavian model, a British model, etc.., as well as, outside Europe, a Japanese model or a Korean model. Some of these models were more distant from the US model of a modern market economy and some were closer, but each was specific. As recently as a quarter of a century ago, the common belief in academic as well as business and policy communities was that these idiosyncrasies were here to stay. This belief was based on the view that Transatlantic differences were primarily rooted in dissimilarities in the functioning of capital markets, as regards, for example, corporate ownership and governance structures; financing patterns; the regulatory framework; and relationships between states and markets. Goods markets and labour markets were part of the picture, but less essential. This is why the emphasis was put on alternative models or varieties of capitalism. In the view of this school of thought, complementarity between key features of those patterns, as well as between them and social ones made the model self-reinforcing and led to the belief that it would survive the transformations of the...