Coordinated Market Economies Research Articles

Domestic Institutions and Global Value Chains: Offshoring in Germany's Core Industrial Sectors

AbstractDo domestic institutions affect industrialised countries’ positions in global value chains? A key insight from literature on global value chains is that a firm's decision to offshore depends on the trade‐off between price competitive gains and coordination costs. The role of domestic institutions in this decision has largely been neglected in global value chains analyses. However, a core insight from literature on varieties of capitalism is that the outcome of this trade‐off differs depending on the national institutions in which firms are embedded. National economies vary in terms of the importance of non‐market institutions for firms’ production decisions. This article integrates insights from both literatures, resulting in the hypotheses that for firms in coordinated market economies offshoring has lower gains and higher costs than for firms in liberal market economies and that this will translate in a different importance and/or geography of global value chains. We empirically test these hypotheses by focusing on Germany. We find that Germany is intensively integrated in international value chains, but that its core sectors have made relatively more use of ‘near shoring’, as this allows them to retain comparative institutional advantages. This has permitted Germany to maintain and even expand output and employment in industry.

La red corporativa española en el largo plazo. Evidencia de una economía de mercado influenciada por el Estado

En las últimas décadas se ha popularizado la literatura sobre variedades de capitalismo, que estudia comparativamente las distintas formas en las que cada país organiza su economía. Los especialistas han distinguido inicialmente dos modelos puros y antagónicos: las economías liberales de mercado (LME), y las economías coordinadas de mercado (CME). Posteriormente, se han añadido nuevas categorías, como las economías de mercado influenciadas por el Estado (SME). En este artículo se defiende que la red corporativa es una dimensión más que puede considerarse para clasificar una economía en una variedad determinada de capitalismo. El análisis de la red española desde 1917 hasta la actualidad señala la importancia de las empresas públicas en su configuración, compartiendo protagonismo con la banca privada. Esta constatación y la comparación de los indicadores de la red española con las de otros países de su entorno, confirman la inclusión de España entre las SME.

Institutions of Coordination in Mixed Market Economies: The Gatekeeper Role of the State in Labour Relations

According to the Varieties of Capitalism (VoC) approach, the gatekeeper role of the state is a key feature in the Mixed Market Economies (MMEs) coordination channel. Relying upon the ICTWSS dataset, the article investigates how this role was concretely deployed in the labour relations dimension. Special consideration is given to ground how this role took place before the path towards the EMU was set as well as to sketch out the dynamics of change that followed afterwards. A close inspection of the coordination channel allows, indeed, completing the picture about the juxtaposition between Mixed and Coordinated Market Economies that the distributive costs stemming from the Euro-crisis has made extremely salient.

Varieties of capitalism and East Asia: Long-term evolution, structural change, and the end of East Asian capitalism

Literature on varieties of capitalism (VoC) argues that capitalist economies can be classified into several types, which include liberal and coordinated market economies. The present study revisits such an argument in light of the trend of increasing globalization and inequality, which may be a force toward the convergence of different varieties of capitalism. This study conducts cluster analysis to analyze the dynamic evolution of economies using the criteria of GDP growth rate, employment rate (employed/population), and top 10% income shares. The analysis first identifies four important types of capitalism: Anglo-Saxon (i.e., low growth and high inequality), Continental Europe (i.e., low growth, low inequality, and low employment), Nordic Europe (i.e., medium growth, low inequality, and high employment), and East Asia (i.e., high growth and low inequality). East Asian economies converged to either the Anglo-Saxon or European capitalism, which may be attributed to its short history. However, many European countries did not converge to Anglo-Saxon capitalism, which supports the VoC hypothesis on the stability of capitalism varieties.

Defence is the Best Offence: Horizontal Disintegration and Institutional Completion in the German Coordinated Market Economy

The article considers how (new) forms of horizontal disintegration, like onsite subcontracting, challenge and change the industrial relations institutions of the German coordinated market economy (CME). Focusing on firm-level co-determination practices, it analyses how works councils respond to strategies of onsite subcontracting and what effects their responses have for the employment system. Based on evidence from 12 case studies, it is argued that although onsite subcontracting might prompt institutional erosion, this does not pass uncontested. Rather, practices of network-oriented employee representation on the part of works councils might bring about an ‘institutional completion’, in this case, the institutionalisation of the network as an additional point of reference for employee representation. This may stabilise and even extend the scope of existing CME institutions through a process of ‘institutional upgrading’. In some areas of the economy, however, management and works council practices are mo...

Foundations in Germany: A Portrait

The article presents the findings of a research project on the roles and positioning of foundations in Germany, with a focus on the fields of education, higher education, social services, and arts and culture. Results show that fields as well as differences in size and mode of operation are key to understanding the roles and positioning of foundations. Germany is a coordinated market economy with a conservative welfare regime and a corporatist nonprofit sector. However, especially the latter of the two characteristics is gradually changing, and foundations are moving away from a state orientation toward a greater civil society focus.

Coordination, inclusiveness and wage inequality between median- and bottom-income workers

What explains cross-national variation in wage inequality? Research in comparative political economy stresses the importance of the welfare state and wage coordination in reducing not only disposable income inequality but also gross earnings inequality. However, the cross-national variation in gross earnings inequality between median- and low-income workers is at odds with this conventional wisdom: the German coordinated market economy is now more unequal in this type of inequality than the United Kingdom, a liberal market economy. To solve this puzzle, I argue that non-inclusive coordination benefits median but not bottom-income workers and is as a result associated with higher – rather than lower – wage inequality. I find support for this argument using a large N quantitative analysis of wage inequality in a panel of Western European countries. Results are robust to the inclusion of numerous controls, country fixed effects, and also hold in a larger sample of OECD countries. Taken together these findings force us to reconsider the relationship between coordination and wage inequality at the bottom of the income distribution.

CSR perception as a signpost for circular economy

Purpose This paper aims to identify managerial implications for multinational corporations (MNCs) with regard to circular economy (CE) by using data on corporate social responsibility (CSR) perception in different types of market economies owing to diverse institutional contexts. These managerial implications can contribute to the linking of CSR and CE strategies for MNCs. Design/methodology/approach This is an empirical study with a mixed-methods approach using both quantitative and qualitative research elements. The varieties of capitalism (VOC) approach with its two kinds of market economies – liberal market economy (LME) and coordinated market economy (CME) – builds the theoretical foundation. Findings All three guiding hypotheses of the quantitative research part are confirmed, which are: there is a differing perception of CSR in the two kinds of VOC; LME corporations adopt a shareholder value perspective; and CME corporations adopt a stakeholder values perspective. Furthermore, the qualitative research part has identified several key success factors for strategically conducting CSR in nexus with CE. Practical implications The mentioned key success factors become managerial implications for MNCs aiming at strategically conducting CSR. Due to several crossing points between (strategic) CSR and CE, those implications are largely also eligible for CE. Originality/value The paper helps to propel empirical findings into a more up-to-date discourse of debate. By emphasizing that the institutional background is likely to have an effect on how CSR is perceived in different kinds of market economies, the research offers a proposition how to use CSR perception as a signpost for CE and fuel future research into this direction.

The Global Financial Crisis and the Euro Crisis as Contentious Issues in German-American Relations

This article examines the impact of the 2008–09 global financial crisis on the dynamics of transatlantic relations. The financial crisis has revealed systemic weaknesses in the governance of the eurozone and fundamental divisions between national governments in the EU on how these should be addressed. In the context of German domestic politics the financial crisis has resulted in increasing scepticism towards US-style liberal market capitalism. Germany managed to maintain its strong economic standing under the adverse circumstances of the financial crisis. Domestically the post-crisis political consensus has hence emphasised the strengths of Germany’s coordinated market economy in contrast to the liberal model of the US. This article offers a comparative analysis of how the crisis was perceived and how it has been addressed in Germany and the US. It argues that the financial crisis has significantly changed the parameters of the bilateral relations between Germany and the US in the context of wider EU–US transatlantic relations.

Using Expatriates for Adapting Subsidiariess Employment Modes to Different Market Economies

Because the extent to which multinational companies (MNCs) benefit from foreign subsidiaries depends on how effectively MNCs manage their foreign subsidiaries’ workforce, the international management literature has long focused on how MNCs transfer Human Resource Management (HRM) practices. However, the literature has only vaguely dealt with institutional differences between host and home countries, often simplifying these differences under the umbrella of institutional or cultural distance. This article investigates how MNCs use expatriates to adjust subsidiaries’ employment modes to different market economies. We define employment modes as bundles of HRM and industrial relations (IR) practices implemented at the firm level and examine the employment modes of 76 subsidiaries of U.S. MNCs in a coordinated market economy (Germany), a hybrid market economy (Switzerland), and a liberal market economy (United Kingdom). Our results reveal substantial differences in the expatriation strategies of MNCs that depend not only on the international focus of the MNC but also on the differences in IR between the parent and subsidiary’s environment. Our findings qualify the role of expatriates in adjusting subsidiaries’ employment modes to different market economies and highlight the boundary conditions of integrating HRM with IR practices in the management of foreign subsidiaries.

Using expatriates for adapting subsidiaries employment modes to different market economies: a comparative analysis of US subsidiaries in Germany, the UK and Switzerland

Because the extent to which multinational companies (MNCs) benefit from foreign subsidiaries depends on how effectively MNCs manage their foreign subsidiaries' workforce, the international management literature has long focused on how MNCs transfer Human Resource Management (HRM) practices. However, the literature has only vaguely dealt with institutional differences between host and home countries, often simplifying these differences under the umbrella of institutional or cultural distance. This article investigates how MNCs use expatriates to adjust subsidiaries' employment modes to different market economies. We define employment modes as bundles of HRM and industrial relations (IR) practices implemented at the firm level and examine the employment modes of 76 subsidiaries of US MNCs in a coordinated market economy (Germany), a hybrid market economy (Switzerland) and a liberal market economy (UK). Our results reveal substantial differences in the expatriation strategies of MNCs that depend not only on the international focus of the MNC but also on the differences in IR between the parent and subsidiary's environment. Our findings qualify the role of expatriates in adjusting subsidiaries' employment modes to different market economies and highlight the boundary conditions of integrating HRM with IR practices in the management of foreign subsidiaries.

The Mirror Effect: Corporate Social Responsibility, Corporate Social Irresponsibility and Firm Performance in Coordinated Market Economies and Liberal Market Economies

AbstractWe investigate the classic management debate of agency versus institutional pressures through the application of the varieties of capitalism literature. In particular, we examine corporate social responsibility (CSR), corporate social irresponsibility (CSiR) and their relationships with firm performance in two types of capitalist systems: coordinated market economies (CMEs) and liberal market economies (LMEs). We note that while the CSR literature has tended to develop a balanced view on the influence of agency and institutional pressures, the CSiR literature has tended to emphasize the influence of agency. The latter appears to be a result of the fundamental attribution bias, where irresponsible corporate behaviours are attributed to individual managers or organizations, rather than the institutional environment. Our results, which include five years of data across 16 countries, show significantly greater CSR and significantly lower CSiR in CMEs compared with LMEs. Further, we find a positive relationship between CSR and firm performance in CMEs but not LMEs, and a negative relationship between CSiR and firm performance in LMEs but not CMEs. Overall, our results demonstrate the influence of the institutional environment, suggesting that corporate behaviours mirror the external environment.

Conceptualization of energy security in resource-poor economies: The role of the nature of economy

This paper studies how energy security is conceptualized in four resource-poor, advanced island economies: Singapore, South Korea, Japan, and Taiwan. It is found that the energy security conceptualization of the four economies in effect returns to the very original and conventional one: stable and reliable energy supply. However, these economies are different in the level of stability and reliability demanded. Why are they similar in energy security conceptualization whereas different in the level of stability and reliability demanded? Adopting documentation analysis, comparative study, and the varieties of capitalism theory, we find that the nature of economy constitutes the decisive factor that shapes energy security conceptualization. The coordinated market economies (CMEs) are more concerned about energy supply disruption than the liberalized market economies (LMEs). The paper demonstrates that despite numerous energy security concepts in the literature, resource-poor economies still adopt the original and conventional one in practice. The findings suggest that security of supply is the top measure for resource-poor economies to improve their energy security and creating a joint petroleum and LNG market would be desirable for the four economies in this study.

Why Did the Labour Market in Germany Perform So Well during the Great Recession?

The economic crisis that hit the United States and Europe in 2007 had a considerable impact on employment. While unemployment has grown throughout OECD’s countries, the only exception was Germany, where actually unemployment decreased between 2008-2009. The main reasons lay on the country’s adjustment mechanism through internal numerical flexibility, as well as on its coordinated market economy system.

Economic outcomes in New Zealand: a varieties of capitalism lens

ABSTRACTThis article situates New Zealand in the Varieties of Capitalism literature and then uses this theoretical framework to provide a critical analysis of the country’s recent economic under-performance. It argues that while New Zealand is rightly assumed to reflect a near pure example of a free-market Liberal Market Economy, its historical trajectory has been rather more mixed. This has led some analysts to assume that a shift from a ‘Coordinated’ to a ‘Liberal’ Market Economy has occurred, yet the state played a much heavier-handed role in creating and overseeing such apparently cooperative mechanisms than is the case in true coordinated market economies. When the state removed such support structures as the results of pro-market reforms in the 1980s and 1990s, there was a lack of ‘coordination’ altogether in the New Zealand political economy. Businesses, either on a collective or an individual basis, did not step in to perform functions previously delivered by the state. This analysis is applied specifically to the fields of skills formation, or vocational education and training, and research and development, as illustrative examples of this broader critical line of argument.

Who are the Regulators of Occupational Safety and Health Standards in Advanced Industrial Economies?

This paper provides an insight for how occupational safety and health (OSH) standards are regulated by the State, and social partners, in five advanced market economies. It argues that historically, within the field of OSH regulation, the role of the State as regulator of OSH standards changes but yet key in regulation. Depending on which type of market economy in focus, the social partners or just the employer actively partake in various ways as co-regulators of OSH standards. With a historical and comparative approach, regulatory patterns of coordinated market economies (CMEs) and a liberalised market economy (LME) are analysed, to show that the former is corporatist and allows more active participation of the social partners in regulation, while the latter is pluralist, hence in the later system, employers play much more dominant role than employees as co-regulators. In conclusion it is argued that i) the role of the State in CMEs is merely complementary to the fulfilment of OSH goals, but the role of the State in the LME is quite central to the realisation of envisaged OSH goals; and ii) employees in the CMEs of Denmark, Germany, Netherlands, and Sweden, due to their more powerful roles as co-regulators, tend to enjoy higher OSH protection standards than employees in the LME system of the US.

Reconstructing resistance and renewal in public service unionism in the twenty-first century: lessons from a century of war and peace

This special issue uses the occasion of the centenary of the Whitley Commission Reports to illuminate the contemporary crisis in public service industrial relations from a historical perspective. In all six countries studied—Britain, France, Germany, Italy, Sweden and the USA—public service employment is labour intensive and quantitatively significant in the overall economy. Public services have also been major targets of neoliberal reforms, starting in the UK and the USA at the turn of the 1980s and in the other countries about a decade later. In addition, the relatively high union density and the political dimension of public services and public union strategies have been major targets of new public management and more latterly austerity. However, the regressive period has had a differential impact in different countries. In the liberal market economies of the UK and the USA, the neoliberal turn has destabilised traditional patterns of public sector industrial relations to greatest effect. While in the more coordinated market economies, traditional arrangements and values have been more resistant to austerity and neoliberal reforms. We attempt to shed light on these differential impacts through a critical analysis of the historical evolution of public sector industrial relations in each country.

Context, market economies and MNEs: The example of financial incentivization

This is a study of the relative utilization of reward systems within and between capitalist archetypes: the study includes not only a closer focus on diversity within and between coordinated market economies, but pays specific attention to the Japanese case, and a systematic comparison of the reward practices adopted by multinational enterprises vis-à-vis their local peers. The study uses the most recent (at the time of writing) wave of the Cranet international survey of HRM. We found clear, firm-level evidence that share schemes and performance related pay exhibit significant differences both within and between varieties of capitalism, highlighting the extent to which key features of reward system continue to vary according to institutional setting, and whether an organization is multinational or not.

One-size-fits-some! Capitalist diversity, sectoral interests and monetary policy in the euro area

ABSTRACTIn the comparative capitalism literature, the European Central Bank's (ECB's) ‘one-size-fits-none’ monetary policy played a key role in the widening of trade imbalances in the euro area (EA) by being overly restrictive for the region's coordinated market economies (CMEs) and overly expansionary for the region's mixed market economies (MMEs). According to this literature, wage setting institutions mediated how the ECB's monetary policy re-distributed resources between the traded and non-traded sectors in these varieties of capitalism. By examining three separate transmission channels of the ECB's monetary policies (wage and price setting in labor and product markets; nominal exchange rate of the euro; funding costs and bank credit), this paper goes beyond the traditional emphasis on wage setting institutions and draws attention to those institutions that underpin the non-price competitiveness of traded sectors. Overall, the paper explains how the institutional infrastructure of the CMEs bolstered the adaptability of their traded sectors to the ECB's single monetary policy and its three transmission mechanisms – both during the pre-crisis era of widening imbalances and the period of asymmetrical trade rebalancing since the outbreak of the euro crisis.

Tax avoidance, value creation and CSR – a European perspective

PurposeThis paper aims to answer how corporate governance and corporate social responsibility (“CSR”) affect the relationship between value creation and tax avoidance. This study further analyses the impact of the institutional environment, i.e. whether a country is rather a liberal or a coordinated market economy, on the relationship between CSR and tax avoidance.Design/methodology/approachThe empirical analysis comprises a panel data set of 7,924 observations for the years from 2005 to 2014 for European companies. The relationship between value creation and tax avoidance is tested by grouping the sample in high and low CSR performers. Similarly, the impact of the type of market economy is analysed for the firms.FindingsThe research design does not find evidence that tax avoidance is creating value. The empirical findings reveal that there is a positive relationship between value creation and the effective tax rate for firms with low social and environmental characteristics. Further, this analysis could show that stronger corporate governance is associated with a lower effective tax rate in both coordinated and liberal market economies. The analysis identifies social strengths being associated with a higher effective tax rate for coordinated market economies.Practical implicationsIt is proposed to encourage CSR disclosure. The creation of incentives for social strengths could increase tax revenue. Firms should reconsider whether the engagement in tax avoidance is worth it and pursue social responsibility to achieve higher value creation for their stakeholders.Originality/valueThe paper challenges the intuitive expectation that tax avoidance creates value. It is suggested that the governance and CSR culture, as well as the tax legislation in Europe, is different to the USA. Conclusively, tax avoidance is not generating value for the European sample.