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Soskice: Divergent production regimes

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Soskice. Divergent production regimes: Coordinated and uncoordinated market economies in the 1980s and 1990s. In Continuity and Change in Contemporary Capitalism, ed.s Kitschelt, Lange, Marks, and Stephens, pp. 101-135.

Class notes:

  • There are two kinds of economies [see handout to make this easier!]: coordinated market economy and liberal market economy. There are five key characteristics that differentiate these two regimes: production regime, financial system, industrial system, education/training, and intercompany system. In a liberal market economy (LME), supply and demand determine everything. Financiers have short-term profit horizons, thus high risk taking; companies don't cooperate in technological standards, instead competition determines whether we'll have VHS or Beta; education provides only general training for employees; and labor markets are deregulated. In a coordinated market economy (CME), on the other hand, production is coordinated; companies coordinate technological standards; financing has a long-term focus; employers and labor are both represented in collective bargaining organizations that span entire industries with their bargaining(rather than firm-by-firm bargaining, as in US); education provides vocational and skills-based training rather than general education; etc. LME: USA, UK; CME: Germany, Switzerland.


There are two critical exogenous shifts that push for the need to change institutional frameworks. First, the liberalization of external markets increases government's dependence on the private sector to deliver good economic performance. Government, first, can no longer protect domestic companies, and, second, Keynesian polices have been made less easy by the openness of financial export markets without government assistance. The second exogenous shift is the technological paradigmatic shift as a result of the microprocessor. Hierarchical Fordist-type production of goods and services becomes uncompetitive.

CME-type frameworks allow actors to engage in long-term relationships in which two or more actors behave cooperatively together in the absence of strong monitoring systems. To be effective, companies have to accept three conditions, absent a powerful system of business organization. First, companies have to be prepared to engage in the transfer of information about their technological and skill requirements and competence. Second, the institutional framework has to protect companies from the adverse consequences of making investments co-specific assets. Third, the institutional framework continuously undertakes tasks in standard setting, rule setting, and sanctioning behavior.

The organization of business determines the organization of labor. Organized business leads to organized labor. Less organized business leads to less organized labor.