Varieties of capitalism and privatization in a globalized world: How trade integration shapes the relation between type of capitalism and privatization

Abstract

There is disagreement in the varieties of capitalism (VoC) literature about whether a large public sector is an institutional complementarity of coordinated market economies (CMEs), and hence, whether the type of capitalism makes a difference for privatization policies. This article introduces an interaction argument to reconcile both views: if a CME is relatively shielded from the world market, then a large public sector is an institutional complementarity, because it facilitates coordination. If a CME is integrated into world trade, a large public sector is a liability, because a cleavage between the export-oriented sector and the public sector over wage restraint emerges. A quantitative analysis of privatizations in the western OECD world corroborates the interaction argument: CMEs have privatized fewer sectors and sold smaller proportions of their shares in infrastructure companies than liberal market economies (LMEs). However, this only holds if CMEs are not highly integrated into world trade. If they are highly integrated into world trade, then the relation is reversed and CMEs privatize even more than LMEs.