University of London Varieties of Capitalism Paper I HAVE ATTACHED THE INSTRUCTIONS IN THE ATTACHMENTS BELOW PLEASE READ THEM AND I WILL UPLOAD THE LECTURE

University of London Varieties of Capitalism Paper I HAVE ATTACHED THE INSTRUCTIONS IN THE ATTACHMENTS BELOW PLEASE READ THEM AND I WILL UPLOAD THE LECTURE AFTERWARDSWORDS 1750 QUESTION
Required:
You are required to write a 2000 words (+10%) essay on one of the following topics:
1) Critically analyse the Varieties of Capitalism (VOC) approach and discuss its strengths
and limitations within the context of employment relations.
NOTE: Your answer should include related key concepts, issues, theories, examples and
research evidence.
You need to discuss:
• The Varieties of Capitalism approach
• Its main features and examples of countries
• Implications for employment relations and HR
• Strengths and advantages
• Its limitations
You must provide examples to support and illustrate your arguments. For
example, the USA and UK are examples of LMEs
• What are the main features of these economies
• How does this affect employment relations systems in these countries
• What are the implications for companies wishing to invest in these
countries.
What about CMEs such as Germany
• What are the main features and implications for employment practices
and MNCs wishing to invest in Germany
• How helpful is the analysis of these economies for businesses
• What are the limitations etc
Varieties of Capitalism:
• Two types of economy;
• CME (Coordinated Market Economy) such as Germany
• LME (Liberal Market Economy) such as the US and the UK
Convergence
• As capitalism develops, the economies of different countries tend to
become more similar
• Because…..over time countries naturally select the models which yield
the best results
• Globalisation pushes for convergence between counties
• But, Hall and Soskice argue institutional differences in different
countries limits this convergence and pushes more for divergence
Divergence
• Hall and Soskice in identifying different Varieties of Capitalist economy
argue that different economies are generally ‘path dependent’. i.e. the
changes they adopt over time are likely to be shaped by their own
particular models.
• Hence, far from converging, European economies are actually
becoming more different
For example: changes both in the UK and Germany but still differences
The UK
Since 1979, the IR system has experienced substantial change from a
voluntarist system to one of increased state intervention
Despite increased juridification, there is still not a strong and centrally
regulated IR system. This has resulted in employer autonomy to pursue
either a:
– low-road/contract approach of cost-minimisation (majority approach)
– high-road/status approach of high-commitment
Germany
Traditional highly integrated, highly regulated, ‘dual system’ is eroding.
Since 1990s, changes to the key institutions and procedural rules have
led to greater variation in ER practices and an increasing resemblance
to the Anglo-American model, though complete convergence is
unlikely
Decentralisation –balance of power between unions and employer
associations, and employers and works councils has shifted as the
scope of negotiations at the enterprise level has broadened
The Core Difference between CMEs and LMEs
• CME institutions are there to encourage cooperation between
economic actors,
• LME institutions are there to encourage competitive market-based
relationships between economic actors
• However, the important thing is the nature of the relationships
between firms and other economic actors
Five Actors
Five areas in which these relationships are needed:
1. Industrial relations (i.e. bargaining mechanisms)
2. Vocational training and education
3. Corporate governance
4. Inter-firm relations
5. Employees (i.e. participation, consensus-building, etc)
In each of these categories, firms must find ways to coordinate to maximise
their capabilities, but they find very different ways of doing so
LMEs
• Tend not to provide for collective bargaining
• More decentralised, adversarial and voluntarist industrial relations
systems
• Likely to appeal to governments to enhance managerial power over
unions in the workplace
• Highly generalised systems of education and weak apprenticeship
programmes and little commitment to enable industry-specific or firmspecific training schemes.
• Transferable skills rather than industry specific
• There are strong hierarchies in LME corporate governance answerable
to shareholders
LME
• There is little effort to coordinate with others to develop mutually
beneficial industry norms.
• There is very rarely any encouragement towards employee
participation and consensus-building
• Power is more likely to rest unilaterally with the CEO
• Inter-firm relations are competitive
CME
• Key issues are more likely to be addressed through non-market based
coordination
• Centralised bargaining regimes- perhaps on the national level (e.g.
Sweden) or else on the sectoral level (e.g. Germany)
• More likely to coordinate their training expectations in the longer term
e.g. employers in a CME engineering sector might collaborate to
develop a list of skill requirements, and then cooperate with
government in developing specific training programmes geared
towards these priorities
CME
• Firms are expected to cultivate corporate governance that furthers
these norms; managerial unilateralism in pursuit of shareholder value
is frowned upon. Financial investments in companies tend to be more
‘strategic’.
• A strong reliance on employers’ associations and dialogue between
firms; cooperation between firms to develop industry-wide
standardisation
• An emphasis on employee consensus e.g. German Works Councils
which have responsibility for various issues of work organisation at
shop floor level
So VoC’s
• Are interested in the reciprocal relationships and expectations that
develop between firms and the state/organised labour for strategic
purposes.
• Are concerned with how institutions can encourage the kinds of
strategic interaction appropriate for the type of economy. A key
question is why firms would buy into the kinds of coordination
discussed above with CMEs (or in the case of LMEs, why they
wouldn’t).
• Is it the role of the state to facilitate and encourage the appropriate
kind of interaction between firms?
• Should the state provide incentives for interaction between firms?
Employer Associations
• Extremely important actors in this analysis
• Their role can be massively different in different economies e.g. The
CBI or IoD in Britain wanted trade unions to be crushed, and have
lobbied MPs to this end.
• However, CME equivalents play an integral role in developing training
programmes, standardisation regimes, employment norms, industry
strategies, etc.
• What about Employer Associations in other countries?
Complementarity and Comparative Advantage
• LMEs and CMEs have their own systems and their own advantages
• LME: better economic performance may demand policies that sharpen
market competition
• CME: may benefit more from policies that reinforce the capacities of
actors for non-market coordination
• State strategies and firm strategic interests are bound together in a
reciprocal and self-reinforcing way
• Distinction here is between ‘radical innovation’ (LME) and ‘incremental
innovation’ (CME)
LME
In LMEs, companies are more responsive to unilateral managerialism so:
• They don’t bother so much about taking risks with employees’ jobs,
• They don’t have to plan in advance what kind of skills they are going to
need,
• They don’t have to cooperate with other firms over standardisation
regimes
Hence, they are suited to a ‘radical innovation’ model in which it is relatively
easier to begin new projects which are disconnected from things that have
gone before.
CME
The reverse is true in CMEs. Because:
• They need to get employees on board
• They need to adhere to standards and training regimes, etc
Eg The Japanese model of Total Quality Management in which shop-floor
employees are a key part of the quality control process
Hence CMEs are more inclined to the gradual improvement of the quality of
existing products and ‘Incremental Innovation’
Institutional Complementarity
1. The co-existence of two or more institutions enhances the functioning
of each institution
2. A situation of interdependence among institutions
3. The degree of institutional diversity that can be observed across and
within socio-economic systems, and its consequences on economic
performance
Institutional Complementarity
• Hall and Soskice argue that rather than there being one “best” set of
institutions, there are certain sets of institutions in the economic and
the political realm that fit together better than others – they form
“institutional complementarities”.
• They distinguish “liberal” from “coordinated” market economies in
which mutually related mechanisms reign with regard to areas such as
industrial relations between employers and employees (or unions),
institutions for vocational training and education, corporate
governance, or inter-firm relations
• Institutions: the market, state, MNCs…
Criticisms of V0C
Over simplified and Generalised:
• Divides the world into two models
• LMEs and Radical Innovation: future focused industries?
• CMEs and Incremental Innovation: declining industries?
• Marginal differences between radical and incremental eg. new
products or improved products
What problem do economic systems solve?
• Lack of coordination
• Industrial relations: tendency to compete for workers => wageprice spirals
• Vocational training and education: why invest if other firms will
just poach
• Corporate governance: how to ensure that finance goes to right
places
• Inter-firm relations: risk of exploitation in R&D, technology
transfers, standard setting
• Employees: how to get them to cooperate
Which is Better?
Be careful of generalizing current trends:
• 1950s-1970s: Germany and France strong, US and UK sluggish
• 1980s-1990s: US and UK grow quickly, France and Germany
sluggish
• Does this mean liberal model is better?
• Or coordinated model?
Liberal Market Economy
Fundamental principle: Market relations between firms and between
workers and firms
• Raising investments: international and domestic capital markets
• Corporate governance: outsider control, shareholders
• Industrial relations: pluralist, few collective agreements
• Education and training: general skills, high spending on R&D
• Transfer of innovation: markets & contracts, movement of
workers
Logic of LMEs
Privilege creative destruction, innovation, and flexibility
• General skills means that workers can be quickly redeployed
• Weak unions and pluralist labour relations restrains wages and
maintains flexibility
• Stock market and takeovers discipline firms
Problems of a Coordinated Market Economy
Firms depend on highly skilled labour force and long-term plans
• But this creates dangers:
• Other firms can poach workers after trained
• Workers can hold management hostage because hard to replace
• Workers will only invest in specific skills if guaranteed a job
• Other firms can steal projects while being developed
• Investors get cold feet
Solutions in CMEs
Long-term relations with banks
• Firms don’t have to change path with daily changes in stock
market – can retain skilled workers even in downturn
• Financers have access to inside information, not just public
reports
Long-term job contracts, publicly subsidized training, industry-wide wage
settlements & work councils
• Little incentive to poach workers – wages same
• Workers willing to invest in skills – guaranteed jobs
YOU NEED TO READ THE INSTRUCTIONS FILE AND READ THE FOLLOWING INSTRUCTIONS TO
ANSWER THE ESSAY ABOUT VOC
YOU WILL NEED TO USE EXAMPLES AND THEORIES WHICH CAN BE FOUND IN THE GIVEN
LECTURES AND PDF RESOURCES IT IS NOT COMPLOURSRY TO USE ALL OF THE PDF BUT IT IS
COMPULSORY TO USE ALL OF THE LECTURE SLIDES
YOU HAVE TO GIVE IN DEPTH ANALYSIS ASWELL AS CRITICAL THINKING PLUS REFERENCING
(HARVARD STYLE)
2000 WORDS
THANK YOU !!!!!!!!

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