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ROUTLEDGE FRONTIERS OF POLITICAL ECONOMY

Capitalist Diversity and

Diversity within Capitalism
Edited by
Christel Lane and Geoffrey T. Wood
Capitalist Diversity and Diversity
within Capitalism

The eco­nomic crisis that began in 2008 has underscored the impact not only of
embedded and as­sumed ways of managing the eco­nomy, but also that present
circumstances are the product of a long period of experimentation and bounded
diversity; it is understanding the nature of both that forms a central concern of
this collection. This book redefines, de­velops and extends the emerging liter­at­ure
on in­ternal diversity within varieties of capit­al­ism, and the extent to which such
in­ternal sys­temic diversity goes beyond mere diffuseness to represent the
coexist­ence of different logics of action within both lib­eral markets and more
cooperative varieties of capitalism.
The collection is based on new, fresh mater­ial, from leading scholars in the
field. The con­trib­utors come from a variety of per­spect­ives within the broad
socio-­economic liter­at­ure on institutions, and yet they all focus on the lim­ita­tions
of current institutional fixes, and the protracted and durable nature of the current
crisis, which, the editors suggest, reflect profound changes in input costs and the
utilization of tech­no­logy. What characterizes this common ground is an inherent
pragmatism, combined with an increasing sophistication in the usage of ana­lyt­
ical concepts; illustrating the pro­gression since the early work on comparative
capit­al­ism in the late 1990s and early 2000s.
This book should be an in­valu­able resource for students and researchers of
eco­nomic theory and philo­sophy as well as polit­ical eco­nom­ics and socio-­
economy.

Christel Lane is Emeritus Professor of Economic Sociology at the University of

Cam­bridge, UK.

Geoffrey T. Wood is Professor at the School of Management, University of

Sheffield, UK, and also Honorary Professor of the University of Witwatersrand,
South Africa.
Routledge frontiers of political economy

1 Equilibrium Versus 7 Markets, Unemployment and

Understanding Economic Policy
Towards the rehumanization of Essays in honour of
economics within social theory Geoff Harcourt, volume two
Mark Addleson Edited by Philip Arestis,
Gabriel Palma and
Malcolm Sawyer
2 Evolution, Order and
Complexity
Edited by Elias L. Khalil and 8 Social Economy
Kenneth E. Boulding The logic of capitalist
development
Clark Everling
3 Interactions in Political
Economy
Malvern after ten years 9 New Keynesian Economics/Post
Edited by Steven Pressman Keynesian Alternatives
Edited by Roy J. Rotheim

4 The End of Economics

10 The Representative Agent in
Michael Perelman
Macroeconomics
James E. Hartley
5 Probability in Economics
Omar F. Hamouda and 11 Borderlands of Economics
Robin Rowley Essays in honour of
Daniel R. Fusfeld
6 Capital Controversy, Post Edited by Nahid Aslanbeigui and
Keynesian Economics and the Young Back Choi
History of Economics
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Geoff Harcourt, volume one Essays in honour of
Edited by Philip Arestis, Pierangelo Garegnani
Gabriel Palma and Edited by Gary Mongiovi and
Malcolm Sawyer Fabio Petri
13 The Economics of Science 21 Subjectivism and Economic
Methodology and epistemology as Analysis
if economics really mattered Essays in memory of Ludwig
James R. Wible Lachmann
Edited by Roger Koppl and
14 Competitiveness, Localised Gary Mongiovi
Learning and Regional
Development 22 Themes in Post-­Keynesian
Specialisation and prosperity in Economics
small open economies Essays in honour of
Peter Maskell, Heikki Eskelinen, Geoff Harcourt, volume three
Ingjaldur Hannibalsson, Edited by Claudio Sardoni and
Anders Malmberg and Eirik Vatne Peter Kriesler

15 Labour Market Theory 23 The Dynamics of Technological

A constructive reassessment Knowledge
Ben J. Fine Cristiano Antonelli

16 Women and European 24 The Political Economy of Diet,

Employment Health and Food Policy
Jill Rubery, Mark Smith, Ben J. Fine
Colette Fagan and
Damian Grimshaw 25 The End of Finance
Capital market inflation, financial
17 Explorations in Economic derivatives and pension fund
Methodology capitalism
From Lakatos to empirical Jan Toporowski
philosophy of science
Roger Backhouse
26 Political Economy and the New
Capitalism
18 Subjectivity in Political
Edited by Jan Toporowski
Economy
Essays on wanting and choosing
David P. Levine 27 Growth Theory
A philosophical perspective
19 The Political Economy of Patricia Northover
Middle East Peace
The impact of competing trade 28 The Political Economy of the
agendas Small Firm
Edited by J.W. Wright, Jnr Edited by Charlie Dannreuther

20 The Active Consumer 29 Hahn and Economic

Novelty and surprise in consumer Methodology
choice Edited by Thomas Boylan and
Edited by Marina Bianchi Paschal F. O’Gorman
30 Gender, Growth and Trade 39 Methodology, Microeconomics
The miracle economies of the and Keynes
postwar years Essays in honour of
David Kucera Victoria Chick, volume two
Edited by Philip Arestis,
31 Normative Political Economy Meghnad Desai and Sheila Dow
Subjective freedom, the market
and the state 40 Market Drive and Governance
David Levine Reexamining the rules for
economic and commercial contest
32 Economist with a Public
Ralf Boscheck
Purpose
Essays in honour of
John Kenneth Galbraith 41 The Value of Marx
Edited by Michael Keaney Political economy for
contemporary capitalism
33 Involuntary Unemployment Alfredo Saad-­Filho
The elusive quest for a theory
Michel De Vroey 42 Issues in Positive Political
Economy
34 The Fundamental Institutions of S. Mansoob Murshed
Capitalism
Ernesto Screpanti 43 The Enigma of Globalisation
A journey to a new stage of
35 Transcending Transaction capitalism
The search for self-­generating Robert Went
markets
Alan Shipman
44 The Market
Equilibrium, stability, mythology
36 Power in Business and the State
S.N. Afriat
An historical analysis of its
concentration
Frank Bealey 45 The Political Economy of Rule
Evasion and Policy Reform
37 Editing Economics Jim Leitzel
Essays in honour of Mark Perlman
Edited by Hank Lim, 46 Unpaid Work and the Economy
Ungsuh K. Park and Edited by Antonella Picchio
Geoff Harcourt
47 Distributional Justice
38 Money, Macroeconomics and Theory and measurement
Keynes Hilde Bojer
Essays in honour of Victoria
Chick, volume one 48 Cognitive Developments in
Edited by Philip Arestis, Economics
Meghnad Desai and Sheila Dow Edited by Salvatore Rizzello
49 Social Foundations of Markets, 58 Structural Economics
Money and Credit Thijs ten Raa
Costas Lapavitsas
59 Macroeconomic Theory and
50 Rethinking Capitalist Economic Policy
Development Essays in honour of
Essays on the economics of Jean-­Paul Fitoussi
Josef Steindl Edited by K. Vela Velupillai
Edited by Tracy Mott and
Nina Shapiro 60 The Struggle over Work
The “end of work” and
51 An Evolutionary Approach to employment alternatives in
Social Welfare post-­industrial societies
Christian Sartorius Shaun Wilson

52 Kalecki’s Economics Today 61 The Political Economy of Global

Edited by Zdzislaw L. Sadowski Sporting Organisations
and Adam Szeworski John Forster and Nigel Pope

53 Fiscal Policy from Reagan to 62 The Flawed Foundations of

Blair General Equilibrium Theory
The left veers right Critical essays on economic theory
Ravi K. Roy and Arthur T. Denzau Frank Ackerman and
Alejandro Nadal
54 The Cognitive Mechanics of
Economic Development and 63 Uncertainty in Economic Theory
Institutional Change Essays in honor of David
Bertin Martens Schmeidler’s 65th birthday
Edited by Itzhak Gilboa
55 Individualism and the Social
Order 64 The New Institutional
The social element in liberal Economics of Corruption
thought Edited by Johann Graf Lambsdorff,
Charles R. McCann Jnr Markus Taube and
Matthias Schramm
56 Affirmative Action in the United
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A comparative perspective A chapter in economic
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S.N. Afriat
57 Global Political Economy and
the Wealth of Nations 66 Reduction, Rationality and
Performance, institutions, Game Theory in Marxian
problems and policies Economics
Edited by Phillip Anthony O’Hara Bruce Philp
67 Culture and Politics in 77 Clinton and Blair
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68 Modern Applications of
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Edited by Jürgen G. Backhaus Money and aggregate demand in a
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69 Ordinary Choices A.B. Trigg
Individuals, incommensurability, 79 The Core Theory in Economics
and democracy Problems and solutions
Robert Urquhart Lester G. Telser

70 Labour Theory of Value 80 Economics, Ethics and the

Peter C. Dooley Market
Introduction and applications
71 Capitalism Johan J. Graafland
Victor D. Lippit 81 Social Costs and Public Action
in Modern Capitalism
72 Macroeconomic Foundations of Essays inspired by
Macroeconomics Karl William Kapp’s theory of
Alvaro Cencini social costs
Edited by Wolfram Elsner,
73 Marx for the 21st Century Pietro Frigato and
Edited by Hiroshi Uchida Paolo Ramazzotti
74 Growth and Development in the 82 Globalization and the Myths of
Global Political Economy Free Trade
Social structures of accumulation History, theory and empirical
and modes of regulation evidence
Phillip Anthony O’Hara Edited by Anwar Shaikh

75 The New Economy and 83 Equilibrium in Economics

Macroeconomic Stability Scope and limits
A neo-­modern perspective Edited by Valeria Mosini
drawing on the complexity 84 Globalization
approach and Keynesian State of the art and perspectives
economics Edited by Stefan A. Schirm
Teodoro Dario Togati
85 Neoliberalism
76 The Future of Social Security National and regional experiments
Policy with global ideas
Women, work and a citizens’ Edited by Ravi K. Roy,
basic income Arthur T. Denzau and
Ailsa McKay Thomas D. Willett
86 Post-­Keynesian 96 The Economics of American
Macroeconomics Judaism
Essays in honour of Ingrid Rima Carmel Ullman Chiswick
Edited by Mathew Forstater,
Gary Mongiovi and 97 Critical Political Economy
Steven Pressman Christian Arnsperger

87 Consumer Capitalism 98 Culture and Economic

Anastasios S. Korkotsides Explanation
Economics in the US and Japan
88 Remapping Gender in the New Donald W. Katzner
Global Order
99 Feminism, Economics and
Edited by Marjorie Griffin Cohen
Utopia
and Janine Brodie
Time travelling through paradigms
Karin Schönpflug
89 Hayek and Natural Law
Eric Angner
100 Risk in International Finance
Vikash Yadav
90 Race and Economic
Opportunity in the Twenty-­First 101 Economic Policy and
Century Performance in Industrial
Edited by Marlene Kim Democracies
Party governments, central banks
91 Renaissance in Behavioural and the fiscal–monetary policy
Economics mix
Harvey Leibenstein’s impact on Takayuki Sakamoto
contemporary economic analysis
Edited by Roger Frantz 102 Advances on Income Inequality
and Concentration Measures
92 Human Ecology Economics Edited by Gianni Betti and
A new framework for global Achille Lemmi
sustainability
Edited by Roy E. Allen 103 Economic Representations
Academic and everyday
93 Imagining Economics Otherwise Edited by David F. Ruccio
Encounters with identity/difference
Nitasha Kaul 104 Mathematical Economics and
the Dynamics of Capitalism
94 Reigniting the Labor Movement Goodwin’s legacy continued
Restoring means to ends in a Edited by Peter Flaschel and
democratic labor movement Michael Landesmann
Gerald Friedman
105 The Keynesian Multiplier
95 The Spatial Model of Politics Edited by Claude Gnos and
Norman Schofield Louis-­Philippe Rochon
106 Money, Enterprise and Income 116 Economics, Rational Choice
Distribution and Normative Philosophy
Towards a macroeconomic Edited by Thomas A. Boylan and
theory of capitalism Ruvin Gekker
John Smithin
117 Economics Versus Human
107 Fiscal Decentralization and Rights
Local Public Finance in Japan Manuel Couret Branco
Nobuki Mochida

108 The ‘Uncertain’ Foundations 118 Hayek Versus Marx and

of Post-­Keynesian Economics Today’s Challenges
Essays in exploration Eric Aarons
Stephen P. Dunn
119 Work Time Regulation as
109 Karl Marx’s Grundrisse Sustainable Full Employment
Foundations of the critique of Policy
political economy 150 years later Robert LaJeunesse
Edited by Marcello Musto
120 Equilibrium, Welfare and
110 Economics and the Price Index Uncertainty
S.N. Afriat and Carlo Milana Mukul Majumdar
111 Sublime Economy
On the intersection of art and 121 Capitalism, Institutions and
economics Economic Development
Edited by Jack Amariglio, Michael Heller
Joseph W. Childers and
Stephen E. Cullenberg 122 Economic Pluralism
Robert Garnett, Erik Olsen and
112 Popper, Hayek and the Open Martha Starr
Society
Calvin Hayes 123 Dialectics of Class Struggle in
the Global Economy
113 The Political Economy of Work Clark Everling
David Spencer

114 Institutional Economics 124 Political Economy and

Bernard Chavance Globalization
Richard Westra
115 Religion, Economics and
Demography 125 Full-­Spectrum Economics
The effects of religion on Toward an inclusive and
education, work, and the family emancipatory social science
Evelyn L. Lehrer Christian Arnsperger
126 Computable, Constructive and 134 Wage Policy, Income
Behavioural Economic Distribution, and Democratic
Dynamics Theory
Essays in honour of Oren M. Levin-­Waldman
Kumaraswamy (Vela) Velupillai
Stefano Zambelli 135 The Political Economy of
Bureaucracy
127 Monetary Macrodynamics Steven O. Richardson
Toichiro Asada, Carl Chiarella,
Peter Flaschel and 136 The Moral Rhetoric of Political
Reiner Franke Economy
Justice and modern economic
128 Rationality and Explanation in thought
Economics Paul Turpin
Maurice Lagueux
137 Macroeconomic Regimes in
129 The Market, Happiness, and Western Industrial Countries
Solidarity Hansjörg Herr and
A Christian perspective Milka Kazandziska
Johan J. Graafland
138 The Political Economy of the
130 Economic Complexity and Environment
Equilibrium Illusion Edited by Simon Dietz,
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macro vitality Christine Oughton
Ping Chen
139 Business Ethics and the
131 Economic Theory and Social
Austrian Tradition in
Change
Economics
Problems and revisions
Hardy Bouillon
Hasse Ekstedt and Angelo Fusari

132 The Practices of Happiness 140 Inequality and Power

Political economy, religion and The economics of class
wellbeing Eric A. Schutz
Edited by John Atherton,
Elaine Graham and Ian Steedman 141 Capital as a Social Kind
Definitions and transformations
133 The Measurement of in the critique of political
Individual Well-­Being and economy
Group Inequalities Howard Engelskirchen
Essays in memory of
Z. M. Berrebi 142 Happiness, Ethics and
Edited by Joseph Deutsch and Economics
Jacques Silber Johannes Hirata
143 Capital, Exploitation and 147 Freedom and Happiness in
Economic Crisis Economic Thought and
John Weeks Philosophy
From clash to reconciliation
144 The Global Economic Crisis Edited by Ragip Ege and
New perspectives on the critique Herrade Igersheim
of economic theory and policy
Edited by Emiliano Brancaccio 148 Political Economy After
and Giuseppe Fontana Economics
David Laibman
145 Economics and Diversity
149 Reconstructing Keynesian
Carlo D’Ippoliti
Macroeconomics Volume 1
Partial perspectives
146 Political Economy of Human Carl Chiarella, Peter Flaschel
Rights and Willi Semmler
Rights, realities and realization
Bas de Gaay Fortman 150 Institutional Economics and
National Competitiveness
146 Robinson Crusoe’s Economic Edited by Young Back Choi
Man
A construction and 151 Capitalist Diversity and
deconstruction Diversity within Capitalism
Edited by Ulla Grapard and Edited by Christel Lane and
Gillian Hewitson Geoffrey T. Wood
Capitalist Diversity and
Diversity within Capitalism

Edited by Christel Lane and

Geoffrey T. Wood
First published 2012
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Franci s Group, an informa business
© 2012 Christel Lane and Geoffrey T. Wood
The right of Christel Lane and Geoffrey T. Wood to be identified as
authors of the editorial material, and of the authors for their individual
chapters, has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilized in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Capitalist diversity and diversity within capitalism/edited by Christel Lane
and Geoffrey T. Wood.
p. cm. – (Routledge frontiers of political economy; 151)
1. Capitalism–Case studies. 2. Capitalism–Cross cultural studies. 3.
Comparative economics–Case studies. I. Lane, Christel. II. Wood,
Geoffrey T. III. Title. IV. Series.
HB501.C242452 2011
330.1292–dc22
2011013968
ISBN: 978-0-415-58344-2 (hbk)
ISBN: 978-0-203-80240-3 (ebk)
Typeset in Times
by Wearset Ltd, Boldon, Tyne and Wear
Contents

Notes on contributors xv

Preface xvi
C hrist e l L a n e a nd G e o f f r e y T . W o o d

1 Institutions, change, and diversity 1

G e o f f r e y T . W o o d a nd C hrist e l L a n e

2 A new epoch but still diversity within and between capitalisms:

China in comparative perspective 32
R obert B oyer

3 Institutional change and organizational diversity in Japan 69

M a ri S a k o a nd M a s a hir o K o t o s a k a

4 Internationalization and sectoral diversity: the roles of

organizational capabilities and dominant institutions in
structuring firms’ responses to semiglobalization 97
M a tth e w M . C . All e n a nd R ich a rd W hitl e y

5 Financialisation and models of capitalism: a comparison

of the UK and Germany 121
R ich a rd D e e g

6 The shareholder value concept of the corporation and

co-­determination in Germany: unresolved contradictions or
reconciliation of institutional logics? 150
M ich a e l F a ust
xiv   Contents
7 Regions, varieties of capitalism and the legacies of neoliberalism 189
R a y H uds o n

8 Rethinking the diversity and variability of capitalism:

on variegated capitalism in the world market 209
B ob J essop

Index 238
Notes on contributors

Matthew M. C. Allen is Senior Lecturer in Organization Studies, Manchester

Business School, The University of Manchester, UK.
Robert Boyer is eco­nom­ist at Centre Pour la Recherche en Économie et ces
Applications (CEPREMAP, Paris) and 2010–2011 fellow at Wissenschafts­
kolleg zu Berlin. He has intensively worked on the dy­namics of capit­al­isms
along Régulation Theory.
Richard Deeg is Professor and Chair (Head), Department of Political Science,
Temple University, USA.
Michael Faust is Senior Researcher at the Sociological Research Institute
(SOFI) at Göttingen University, Germany.
Ray Hudson is Pro-­vice Chancellor and Professor of Geography, Durham Uni-
versity, UK.
Bob Jessop is Distinguished Professor of Sociology, Lancaster University, UK.
Masahiro Kotosaka is a DPhil in Management Studies candidate at Saïd Busi-
ness School, University of Oxford, UK.
Mari Sako is Professor of Management Studies, Said Business School, Univer-
sity of Oxford, UK.
Richard Whitley is Professor of Organizational Sociology, Manchester Busi-
ness School, The University of Manchester, UK.
Preface
Christel Lane and Geoffrey T. Wood

This book is about in­ternal diversity within specific national institutional config-
urations and their change. Despite protracted crisis, and the power of inter­na­
tional fin­an­cial institutions and associated ideo­lo­gies, there remains little
evid­ence of a convergence to homo­gen­eity. The world is neither becoming
coherently neo-­liberal in the ideo­logical sense of the world, nor are institutional
structures dissolving into a common postmodern liquid­ity (Sayer 2005; cf.
Bauman 2000). Yet, crises have dem­on­strated that clusters of institutions, at all
levels, are neither rigid, nor de­velop in a coherently linear dir­ec­tion (Lane and
Wood 2009). Bound up with institutional change is the issue of in­ternal diver-
sity. On the one hand, sys­tems that incorp­or­ate hybrid or diverse features are
likely to be more durable than purer forms (Crouch 2005; Boyer 2006). On the
other hand, al­tern­ative institutional mech­an­isms and associated practices that
coexist within a national institutional framework, may represent legacies of
dominant past para­digms, or incoherent experiments that may or may not
provide the founda­tions for a future institutional paradigm.
In the opening chapter, the editors revisit the existing liter­at­ure on compara-
tive capit­al­ism, common trends and dif­fer­ences; they move on to con­sider al­tern­
ative conceptualizations of in­ternal diversity. To the editors, the nature of such
in­ternal diversity is inherently bound up with crisis and change; they highlight
the extent to which much of the liter­at­ure on comparative capit­al­ism has come to
accept regulation theory’s as­sump­tion as to the tem­porally and spatially confined
nature of any set of institutions and associated patterns of accumulation.
Lane and Wood go on to highlight the very different starting points for under-
standing institutions, a key distinction being between those approaches that
prim­arily focus on institutions as pro­tectors of private prop­erty rights, and those
that see them as epicenters of embedded webs of social relationships. Whilst the
latter conceptualization is dominant in the socio-­economic liter­at­ure, the former,
despite being marred by preconceptions as to the nature of eco­nomic man, do
provide some im­port­ant insights as to the impact of formal regu­latory structures
on practice. However, the potentially greater im­port­ance of informal regulation
is neglected.
Within the socio-­economic liter­at­ure on comparative capit­al­ism, there has
been a move away from early dichotomous accounts to multi-­variety models;
 Preface   xvii
again, there has been a growing aware­ness as to the rel­at­ive im­port­ance of ‘form­
at­ive discontinuities’ that impose their stamp on sub­sequent institutional frame-
works within specific con­texts. Both these de­velopments serve to highlight the
persistent nature of diversity not only between con­texts, but also, potentially
within them. They then move on to the nature of social action. Here, they focus
both on the cognitive cap­abil­it­ies of the firm as a whole, and the nexus between
broader ob­ject­ive forces and the mediating inter­ven­tions by firms, indi­viduals
and asso­ci­ations. Lane and Wood argue for a new more complex and dynamic
concept of institutional complementarity, that enables a better understanding of
institutional heterogeneity and its effects.
The editors move on to interrogate different understandings of sys­temic
change, providing a synthetic tax­onomy of the different types of change pos­
sible. It is argued that whilst the nature of specific changes is much debated, the
mater­ial causes of change are under-­investigated. Turning to the state, Lane and
Wood note that the nation state is both less able (reduced auto­nomy and author-
ity) and less willing (due to ideo­logical constraints) to exercise its co­ordinating
function than in earl­ier post-­war decades.
Yet, even within ostens­ibly neo-­liberal settings, the state plays an active role
in mediating market excesses, and channeling resources to specific eco­nomic
inter­ests that have as­sumed an im­port­ant role; again, this is likely to make for
greater diversity within a specific national framework. This vests regional and
sectoral specific institutional frameworks with par­ticu­lar im­port­ance. Through-
out the opening chapter, the editors highlight the malleable, dynamic and spa-
tially and temporarily confined nature of institutions and of associated
complementarities, and the extent to which experimental or structured institu-
tional redesign is both gen­erally inherent and par­ticu­larly extensive under spe-
cific circumstances.
This is followed by a very rich and stimulating chapter by Robert Boyer
which utilizes an ana­lysis of China’s mode of de­velopment to raise challenging
theor­et­ical questions about capit­al­ism in gen­eral, about enduring diversity
between capit­al­isms and about how the Chinese model fits into a gen­eral typol-
ogy of capit­al­isms. Boyer adopts a regulationist theor­et­ical approach to critique
the Varieties of Capitalism (VoC) thesis by Hall and Soskice (2001). He dem­on­
strates the dynamic nature of China’s de­velopment and its pronounced institu-
tional diversity; makes evid­ent that dynamism and in­ternal diversity under gird
both China’s recent high eco­nomic growth and rel­at­ive macro level stability and
holds the potential to de-­stabilize Chinese capit­al­ism in the future. Boyer views
Chinese capit­al­ism as a model of capit­al­ism, with features diamet­ric­ally opposed
to those found in US capit­al­ism and which cannot easily be adopted by other
de­veloping countries.
Boyer’s regulationist ana­lysis, focused on com­peti­tion, labour conflict and an
accumulation regime that becomes the law of motion, suggests that China should
be regarded as a capitalist eco­nomy. He dem­on­strates that, although conven-
tional eco­nomic ana­lysis would diagnose the Chinese eco­nomy as being in dire
straits, in actual fact this is far from the truth. The Chinese brand of capit­al­ism
xviii   Preface
has de­veloped a very specific set of seemingly idiosyncratic complementarities
that have coalesced into a coherent accumulation regime. However, question
marks are being raised about the regime’s longer-­term stability.
The building blocks of this whole configuration are: first, local cor­porat­ist
states competing against each other for investment funds, tax rev­enue and
employment which are never­the­less in­form­ally co­ordinated by intense network-
ing between business, gov­ern­ment and the Communist Party. This has facilitated
an implicit compromise of a promise of better living stand­ards in exchange for
acceptance of the mono­poly of the Communist Party. Second, is the pol­itics/eco­
nom­ics and the local/national nexus in which the national state has been ‘mainly
the architect of a soph­istic­ated web of incentive contracts’.
Local state cor­porat­ism has been the sys­temic base which has given rise to a
very high degree of institutional and organ­iza­tional heterogeneity, of which only
brief in­dica­tions can be supplied here. First, diversity abounds in com­pany law
and also results from the fuzziness of prop­erty rights and is largely viewed as
bene­fi­cial for China’s trans­ition from command eco­nomy to a capitalist one.
Second, there has de­veloped a segmented and divided labour force and a diver-
sity of labour relations, depending on varying ownership forms and types of
owners. Third, there is geographical and sectoral diversity between coastal and
inner provinces and between urban and rural areas. Fourth, these hetero­geneous
con­texts have resulted in a widening of in­equal­ity, par­ticu­larly between 2001
and 2008, at both the personal and regional level. The Chinese growth régime,
Boyer concludes, ‘is not the expression of a homogenous macro-­institutional
configuration but the outcome of a con­tinu­ous readjustment of a variety of local
configurations’, endowing the Chinese eco­nomy with a lot of flex­ib­il­ity and
reactivity. In regulationist terms, this has resulted in a coherent and resilient sys­
tem, at least in the shorter run. It also influences the way in which China has
inserted itself into the inter­na­tional eco­nomy. However, this competition-­led
regime of accumulation also has introduced major imbalances which may come
to threaten social and eco­nomic stability in the longer run.
Boyer’s ana­lysis of Chinese capit­al­ism exposes some of the inadequacies of
the VoC approach. Overall, capit­al­isms are viewed to be both more varied and to
have greater plasticity than the VoC thesis allows for. Boyer concedes, how­ever,
that we may be dealing with a trans­itionary phenomenon and that ‘the impres-
sive heterogeneity of China is a permanent threat to its long run viability’.
Chapter 3, by Mari Sako and Masahiro, assess the substantial extent of insti-
tutional change which has occurred in Japan since the late 1990s and gauge its
impact on organ­iza­tional diversity. They chronicle change in two institutional
spheres, namely the fin­an­cial sys­tem and the employment sys­tem. They carefully
examine when change became signi­fic­ant and why, what forms it has taken and
who were the main agents of change. Last, they cau­tiously assess the impact of
the resulting institutional and organ­iza­tional diversity. In the fin­an­cial sphere,
they study the rise in demand by entrepreneurial start-­ups for venture capital and
the new (secondary) stock markets which de­veloped in response. The changes in
the domain of employment they study are the substantial hollowing out of the
 Preface   xix
shunto national wage bargaining round (a functional equi­val­ent of bargaining by
Olsonian en­com­passing organ­iza­tions which avoid free riding) and the signi­fic­
ant rise in flex­ible or atypical forms of employment.
In theor­et­ical terms, Sako and Kotosaka posit slow incremental change from
a ‘co­ordinated market eco­nomy’ towards a ‘lib­eral market eco­nomy’ and in both
cases capital/employers have been the main agents of change. They identify
mainly institutional layering in the fin­an­cial sphere, and functional conversion in
the employment sys­tem. In the fin­an­cial sphere, power­ful incumbents are identi-
fied as having prevented any drastic change. Overall, the layered nature and slow
pace of change so far have preserved the main features of the estab­lished Jap­an­
ese co­ordinated fin­an­cial sys­tem and the power of the corporate-­financial zaikai.
In the employment sys­tem, in contrast, power­ful large corporate employers,
who, during the 1990s recession, no longer saw the value of life-­time employ-
ment, have largely side-­lined labour. They have pushed through, with legal sup­
port from the state, a functional conversion of the nationally co­ordinated shunto
spring offensive. This allows more decentralized wage setting and has ushered in
signi­fic­ant wage dispersal. A sim­ilar emasculation of unions has occurred at
com­pany level, where the former institution of life-­time employment has been
ser­iously under­mined by the adoption of various forms of flex­ible employment.
Thus the danger of institutional displacement is much more acute in the employ-
ment than in the fin­an­cial sys­tem. Institutional and organ­iza­tional diversity thus
have increased signi­fic­antly, but in only one sub-­system has trans­forma­tion been
substantial, ushering in de-­stabilizing trends. Hence Sako and Kotosaka con-
clude that greater resulting organ­iza­tional diversity has become a defining
charac­ter­istic of the Jap­an­ese variety of capit­al­ism but does not indicate its
im­min­ent breakdown. These changes do raise questions though as to impacts on
existing complementarities – an aspect not covered by the chapter.
Chapter 4 by Allen and Whitley on ‘Internationalization and Sectoral Diver-
sity’ examines dif­fer­ences in firms’ co­ordination ac­tiv­ities between high-­
technology sectors – marine energy and biotech­no­logy – in the con­text of firms’
responses to inter­na­tional­ization. The authors focus on diversity both within and
between coun­tries. Drawing on both pri­mary and secondary data, they ex­plore
the connections between institutional regimes, sectoral dif­fer­ences and responses
to inter­na­tional­ization. Allen and Whitley study the extent to which firms in each
sector are able to rely for the cap­abil­it­ies needed to compete, i.e. human, fin­an­
cial and know­ledge resources, on the sup­port of their do­mestic institutional
envir­on­ment, or al­tern­atively, are obliged to look to inter­na­tional actors for sup­
port in one or more of these areas. They additionally study how do­mestic institu-
tional regimes encourage or discourage inter-­firm knowledge-­pooling networks.
Allen and Whitley are able to show that the degree of do­mestic institutional
sup­port to high-­tech industries differs between the three coun­tries – Britain,
Ger­many and Denmark – in ways partly predicted by comparative capit­al­isms/
business sys­tems theory. Only marine tech­no­logy firms from Denmark are able
to draw to a high degree on do­mestic resources and relationships, whereas
biotech­no­logy firms in Ger­many and marine tech­no­logy firms in Britain find the
xx   Preface
do­mestic institutional framework much less sup­portive. British biotech­no­logy
firms, due to their high to moderate degree of re­li­ance on inter­na­tional pro­vi­sion
of capital and skilled manpower respectively, constitute a somewhat ambiguous
in between case. The authors’ findings from the sectoral comparison within
Britain are more novel. This shows that, due to different capabil­ity requirements
and levels of appropriate risk in each sector, the inter­na­tional­ization strat­egies of
firms and their abil­ity to obtain the required resources vary even within Britain.
Biotech­no­logy firms fare signi­fic­antly better than those in the young marine
tech­no­logy industry. Firms in both industries are re­li­ant on foreign financiers
and know­ledge, but, due to a lesser ease of risk assessment in marine tech­no­
logy, firms in this sector are much less successful in gaining inter­na­tional sup­
port. Alternatively, firms are sometimes forced into less innov­at­ive and less risky
segments of a high-­tech industry as has been the case for German biotech­no­logy
firms.
In terms of diversity within coun­tries, the paper shows that firms in different
high-­technology sectors both interact differently with do­mestic institutional con-
figurations and de­velop diverse inter­na­tional­ization regimes. The authors argue,
for example, that certain institutional features, such as low availabil­ity of long-­
term know­ledge­able funding, may handicap one high-­tech industry more
severely than another. A further source of sectoral diversity is the abil­ity to
access inter­na­tional markets for highly skilled labour, with labour markets more
de­veloped for biotech than for marine energy firms.
In sum, Allen and Whitley show that high-­tech firms can partially overcome
the lack of sup­port gained from do­mestic institutional regimes by accessing
inter­na­tionally avail­able resources. Concerning likely effects on the do­mestic
institutional envir­on­ment, they predict that, with increasing inter­na­tional­ization,
business sys­tem diversity also will grow. It is implied that such diversity is bene­
fi­cial for firms and that decreasing organ­iza­tional homo­gen­eity does not de-­
stabilize the British business system.
In Chapter 5, Richard Deeg, ex­plores the im­plica­tions of the rel­at­ive domi-
nance of fin­an­cial capit­al­ism in Ger­many and Britain. In contrast to accounts that
depict it as a homogenizing – and homogenous – force, Deeg argues that it is
larger listed firms that have been most influenced by this pro­cess, a phenomenon
manifest in both these coun­tries. However, whilst the impact of this has – hardly
surprising – been more advanced in Britain, German SMEs have become more
de­pend­ent on fin­an­cial capital than their British counterparts. However, unlike
the case of German large firms, this has more shored up than under­mined exist-
ing relationship-­based banking practices. Hence, Ger­many SMEs may have been
more sustained than under­mined, with existing complementarities persisting.
This reflects the extent to which only a few larger commercial banks and
some Landesbanken adopted the investment banking model. And, their at best
partial success may have deterred other banks from fol­low­ing suit; indeed, the
losses incurred by the more ‘daring’ banks during the fin­an­cial crisis highlighted
the risks of fol­low­ing this model. More conventional banking models con­tinue
to serve German SMEs well. Meanwhile, whilst many larger German firms have
 Preface   xxi
not been adverse to ex­plor­ing finance driven sources of profits, they have tended
to play abroad, in centres such as New York or London. Even when large firms
have formally espoused the shareholder value maximization model, actual prac-
tices remain often more orientated to reinvestment. This shows the German
savings model to remain very different from the large institutional investor
model dominant in Britain. Finally, while ownership concentration and cross-­
holding in Ger­many have gradually unwound, they remain extensive. All this
points to the persistence of existing patterns of in­ternal dualism in the German
eco­nomy, between larger firms and SMEs. Within Britain, the rel­at­ive im­port­
ance of the fin­an­cial sector is bound up with the latter’s inter­na­tional­ization.
Whilst impacting on non-­financial firms small and large, the sector’s rel­at­ive
inter­na­tional­ization distinguishes it from many other do­mestic players. This
highlights the extent to which in­ternal diversity within national settings is not
just about re­li­ance on al­tern­ative types of locally specific institutions and associ-
ated relations, but also about rel­at­ive insertion in the global eco­nomy, and inter-
dependence with local and trans-­national players. Changes in corporate
governance and their impact on industrial relations in Ger­many’s co­ordinated
market eco­nomy now have been widely studied, as they are viewed, par­ticu­larly
by employers and shareholders’ representatives, as embodying conflicting prin­
ciples. As such, they are raising questions also among aca­demic analysts about
institutional complementarity and the con­tinued viabil­ity of this type of market
eco­nomy. Michael Faust’s study, in Chapter 6, of the inter­action between forms
of corporate governance and co-­determination at board level manages to throw
new light on this contested relationship and also offers a subtle in­ter­pretation of
the outcomes of recent changes. The empirical data utilized came from qualit­at­
ive inter­views with human resources managers and industrial relations special-
ists in eight listed com­panies with an avowed capital market orientation, as well
as with a number of external finance specialists, such as fin­an­cial analysts of
banks and fund managers. The research team ascertained evalu­ations, expecta-
tions and ex­peri­ences as to the compatibility or lack of it between the adoption
of the shareholder value concept and co-­determination and uncovered a very
complex and vari­able pic­ture. The inclusion in the study of external fin­an­cial
actors is par­ticu­larly helpful in its focus on mutual gaps in understanding and
varying in­ter­pretations of both shareholder value and co-­determination between
these external actors and rel­ev­ant management insiders.
The theor­et­ical framework adopted to understand how much and what kind of
institutional change has occurred emphas­izes the gradual but yet trans­format­ive
nature of change and highlights the various forms it has taken and the complex-
ity of resulting relationships. Rather than identi­fying ir­re­con­cil­able contra­dic­
tions between the two institutional spheres, Faust argues that mutual adjustment
has occurred and that, by and large, a modus vivendi has been estab­lished.
Although external actors, par­ticu­larly from lib­eral market eco­nom­ies, still raise
questions about whether co-­determination interferes with management agency,
in Ger­many co-­determination is no longer under polit­ical scrutiny. Moreover,
recent regu­latory changes even have enhanced the im­port­ance of the
xxii   Preface
co-­determination sys­tem and in some ways have strengthened the voice of
employee representatives. Faust additionally makes clear that, due to pre-­existing
divergences in the degree of firms’ ownership concentration, on the one side,
and type of relationship between employer and employee representatives at
board level (co-­determination), on the other, the impact of the shareholder value
concept also has been very diverse. Moreover, the influence has not been uni-­
directional but the kind of co-­determination practised also has shaped managers’
in­ter­pretation of the concept of shareholder value.
Faust suggests that, to understand recent changes in this relationship, the
concept of institutional re-­configuration is helpful. He additionally refers to insti-
tutional conversion and pro­cesses of translation by both in­ternal and external
actors. He stresses that the diversity in management in­ter­pretation of the share-
holder value concept depends on local circumstances re­gard­ing both ownership
structure and actual degree and kind of co-­determination practised.
Chapter 7 by Ray Hudson ex­plores the impact of neo-­liberal reforms on
regional de­velopment. Contrary to conventional wisdom, he argues that such
reforms did not make for homogenous outcomes; rather, their con­sequences are
uneven, making and reinforcing regional diversity. The 2008 depression has
greatly weakened the basis of many regional eco­nom­ies; this has affected both
highly mar­ginalized regions, and centres of prosperity. Moreover, this has wors-
ened the contra­dic­tions between the logics of ‘territorial de­velopment’ and cor-
porate ration­al­ity. At a theor­et­ical level, Hudson notes that the early Varieties of
Capitalism liter­at­ure neg­lected the possib­il­ities of regional distinctiveness; whilst
regulation theory (and, indeed, business sys­tems theory) did always recog­nize
this pos­sib­il­ity, writers from all three approaches now have drawn on and incorp­
or­ated per­spect­ives from other theories of space and scale, making for more
nuanced accounts.
In the early years of the industrial revolu­tion, moves towards free trade, more
wide-­ranging flows of capital and labour were counterbalanced by a degree of
closure and in­ternal coher­ence in regional eco­nom­ies, most notably in emergent
regions located on coal deposits. The sub­sequent emergence and persistence of
industrial districts was again characterized by a degree of closure and denser ties
between regionally based firms and other regional players. A common theme has
been the capa­city of some – but not all – regions to uniquely adapt and prosper
despite or because of external pressures. As the his­tor­ical basis of com­petit­
iveness of many regional eco­nom­ies has been under­mined through the pos­sib­il­
ity of lower cost production abroad, cheaper centres of production are de­veloping
their own basis of distinctiveness.
Why have regions retained unique features despite the homogenizing pres-
sures of neo-­liberalism? Hudson argues that, first, within some regions, his­tor­ical
legacies have imparted a certain durabil­ity to regional institutional frameworks.
Second, regional actors respond and capitalize on oppor­tun­ities and challenges
in different ways; more­over, regional and national gov­ern­ment responses to
trans-­national pressures are not wholly coherent, with dif­fer­ences in choices
remaking regional distinctiveness. Third, ‘ideo­logical distaste’ for central
 Preface   xxiii
gov­ern­ments has made the neo-­liberal pol­icy com­mun­ity not wholly hostile to
distinct pol­icy responses by local and regional gov­ern­ments. Fourth, the 2008
crisis has presented regional players with stark choices, which, in some cases,
has involved falling back on past legacies and approaches. On the one hand, the
rel­at­ive resources avail­able for regional counter movements may be limited in a
time of great austerity. On the other hand, there remains a crit­ical gap between
the rhet­oric and the practice of neo-­liberalism, with power­ful eco­nomic inter­ests
being able to rely on extensive regional and national state patronage; one
example is the extent to which the City of London district has been revitalized
after the 2008 shock, through the bank bailouts and other forms of ongoing gov­
ern­ment fin­an­cial support.
In the climate of the present crisis, Hudson ex­plores the possib­il­ities for
al­tern­ative regional de­velopment tra­ject­ories, centering on envir­on­mental
sustain­abil­ity. However, whilst the need for such al­tern­atives may have become
ever more pressing, the polit­ical will remains slight; elites are shown to be more
inter­ested in propping up aspects of the existing para­digm, rather than investing
in alternatives.
In the final chapter of this volume, Bob Jessop provides a critique of the ‘first
wave’ Varieties of Capitalism liter­at­ure, before moving on to the more recent
comparative capit­al­isms liter­at­ure. He argues that both these strands of thinking
on comparative capit­al­ism have weaknesses that ob­scure the possib­il­ities for a
more in­teg­rated and dynamic understanding of the con­tempor­ary socio-­economic
condition.
Jessop argues that a key distinction between the VoC and DoC liter­at­ure is
that the former tends to deal in parsiminous ideal types, in contrast to the latter
which recog­nizes the complexity, bounded diversity, and in some areas, outright
messiness of con­tempor­ary capit­al­ism. Again, whilst the former is founded on a
limited range of case study evid­ence, the latter – often within the broad his­tor­ical
institutionalist tradition – derives ana­lyt­ical cat­egor­ies from correlations existing
between specific sys­temic features. However, both models have weaknesses
when it comes to ‘variegation, compos­sib­il­ity, eco­lo­gical dominance, and the
world market.’ First, it is clear that deregulated markets cannot on their own
overcome the contra­dic­tions and crises inherent in capit­al­ism; in­vari­ably, the
state has to step in and mediate. Much of the liter­at­ure on comparative capit­al­
ism discounts the central im­port­ance of formal and informal regulation in
making growth pos­sible. Specific spatial tem­poral fixes sta­bil­ize an assembly of
diverse forms of accumulation. This variegation contrasts with the as­sump­tions
within much of the existing liter­at­ure on comparative liter­at­ure as to the domi-
nance of an archetypical ways of doing things within par­ticu­lar clusters of
national settings. However, all such fixes are linked to the world market, and
cannot be con­sidered to be totally discrete thereof. Reflecting its spatial and tem­
poral specificity, varieties of capit­al­ism are compos­sible, and co-­dependent.
Within the global socio-­economic eco­sys­tem, neo-­liberal finance led growth is
eco­lo­gically dominant, even if it is ‘pathologically co-­de­pend­ent’ on other types
of capit­al­ism. Given this, it is quite simply not pos­sible for a dominant model to
xxiv   Preface
become truly global; its survival depends on the co-­existence of al­tern­ative ways
of doing things both within and between national con­texts. Much of the liter­at­
ure on comparative capit­al­ism has failed to take account of this structural cou-
pling. A counter pressure is that national and regional institutional compromises
represent attempts to cope with external threats, be they from external competi-
tors or the biosphere itself. And, there are many mar­ginal or residual forms of
eco­nomic activity that co-­exist with more widely imprinted sets of practices.
However, as noted above, no mat­ter how in­ternally variegated, different forms
of capit­al­ism exist within a dominant eco­sys­tem and, in some or other manner,
are subordinated to it, even if the latter cannot survive without the persistence
and rel­at­ive auto­nomy of the former.
It is encouraging that, even though the con­trib­utors to this volume come from
different per­spect­ives within the broad socio-­economic liter­at­ure on institutions,
there is much common ground. All highlight the fol­low­ing features: the chang-
ing im­port­ance of different cat­egor­ies of investor; the challenges of adjustment
whilst retaining residual strengths; the dif­fer­ences between stated ideo­lo­gies and
the actual role of the state; the complexities of the linkages between different
institutional levels; the tem­poral and spatial confinement of any framework of
institutional medi­ation; and the deep and protracted nature of the present crisis.
Hence, the con­tri­bu­tions all focus on the lim­ita­tions of current institutional fixes,
and the protracted and durable nature of the current crisis, which, the editors
suggest, reflects profound changes in input costs and the utilization of tech­no­
logy. What characterizes this common ground is an inherent pragmatism, com-
bined with an increasing sophistication in the usage of ana­lyt­ical concepts; we
have clearly pro­gressed since the early work on comparative capit­al­ism in the
late 1990s and early 2000s. What remains to be done is to move beyond the
pess­im­ism that characterizes much con­tempor­ary thinking. Whilst much earl­ier
revolu­tionary op­tim­ism from the 1960s to the early 1990s proved profoundly
misplaced, there remains the challenge of more sys­temic comparisons as to what
institutional frameworks have provided better ob­ject­ive and sub­ject­ive outcomes
to different stakeholder cat­egor­ies through the crisis, and their rel­at­ive trans­
ferabil­ity within and between contexts.

References
Bauman, Z. (2000) Liquid Modernity. Cam­bridge: Polity Press.
Boyer, R. (2006) ‘How do Institutions Cohere and Change’, in G. Wood and P. James
(eds) Institutions and Working Life, Oxford: Oxford University Press.
Crouch, C. (2005) ‘Three Meanings of Complementarity’, Socio-­Economic Review, 3, 2:
359–63.
Hall, P. and Soskice, D. (2001) ‘An Introduction to the Varieties of Capitalism’, in P.
Hall and D. Soskice (eds), Varieties of Capitalism: The Institutional Basis of Competi-
tive Advantage, Oxford: Oxford University Press.
Lane, C. and Wood, G. T. (2009) ‘Diversity in Capitalism and Capitalist Diversity’,
Economy and Society, 38, 4: 531–51.
Sayer, A. (2005) The Moral Significance of Class, Cam­bridge: Cam­bridge University.
1 Institutions, change, and diversity
Geoffrey T. Wood and Christel Lane

Over the past 30 years, there has been growing inter­est in the effects of institu-
tions on what firms do, and indeed, on their con­sequences both in temporarily
securing growth and in ensuring bounded yet persistent diversity. Yet, there is
much debate as to what makes for con­textual diversity and change, and the
bounded yet, in some manners, open ended nature in which such pro­cesses
unfold. More specifically, there has been growing inter­est in the nature of
in­ternal diversity within national institutional settings, and its relationship to sys­
temic change (Lane and Wood 2009). This opening chapter seeks to both con-
solidate and de­velop this liter­at­ure, through ex­plor­ing the dy­namics, founda­tions
and likely tra­ject­ories of in­ternal sys­temic diversity and change.
Whilst the existing liter­at­ure on institutions remains a diverse one, within
the ‘relationship’ or socio-­economic liter­at­ure, there has been a convergence
of thinking on a number of key issues. First, there is a growing common
re­cog­ni­tion that specific institutional forms can only sta­bil­ize growth on a
spatially and temporarily confined basis, to be followed by a sustained period
of experimentation (Streeck 2009; Hall and Thelen 2009). During the latter,
dominant inter­ests will use the rel­at­ive strength their position affords to
reorder things in such a manner so as to secure and strengthen their rel­at­ive
ad­vant­age; should their solutions imposed not prove functional even to
in­siders, then further contestation and renego­ti­ation is pos­sible. This may
appear somewhat akin to the Polonyian (1944) notion of a double movement;
how­ever, the con­tempor­ary liter­at­ure is a lot more pess­im­istic as to whether
pro­gressive forces will prevail once unrestrained prop­erty owner inter­ests
have exhausted themselves.
Whilst the concept of a temporarily fleeting ‘growth regime’ is most advanced
in regulationist thinking, broadly sim­ilar as­sump­tions have infused his­tor­ical
institutionalism, and, indeed the more recent varieties of capit­al­ism, and business
sys­tems liter­at­ure. Second, there is a growing re­cog­ni­tion of the relev­ance and
im­port­ance of in­ternal diversity, and the relationship between specific institu-
tional sets and spatially confined eco­nomic performance on a sub-­national level.
Such diversity provides oppor­tun­ities for institutional redesign; at the same time,
institutional layering constrains the oppor­tun­ities for social action at subordinate
levels. Third, and related to this, is the distinction between institutional
2   G. T. Wood and C. Lane
frameworks that make growth and/or greater social well-­being pos­sible, and
residual institutional eco­sys­tems that provide bene­fits in terms of familiarity and
the limited functionality of specific sets of interests.
Three further issues emerge. The first is the sustain­abil­ity of competing orders
within an overall institutional framework. A national institutional framework
may be under­mined by contra­dict­ory trends at local and regional levels. Second,
the rel­at­ive definition of what constitutes a workable sub-­national order is debat-
able. Whilst unrestrained markets prefer more fun­gible assets, long term sectoral
com­petit­iveness may be contingent on less fun­gible assets that may be difficult
to ac­cur­ately value. However, during periods of crisis – and, more specifically,
those associated with energy trans­itions – the rel­at­ive position of fun­gible capital
is stronger.
Third, we need a better notion of the founda­tions of change. Social change is
a product of institutional ar­range­ments decaying as key players become no
longer convinced as to their worth, and as ‘tinkering’ or experimentation at a
range of levels becomes no longer reconcilable. At the same time, such pro­
cesses reflect external forces, which can include changes in tech­no­logy and
resource cost inputs, the latter of which are likely to favour the inter­ests of
owners of more fun­gible assets over less fun­gible ones. Owners of more fun­gible
assets have less of an inter­est in complex institutional medi­ations and trade-­offs;
in turn, this may weaken national level institutions, and force a greater re­li­ance
on more localized accommodations. The latter may prove unsus­tain­able, or, over
time, as­sume a greater macro-­systemic prominence.
A caveat is in order here. This distinction between owners of fun­gible
assets versus infun­gible ones is not as clear-­cut as the well-­established distinc-
tion between finance and productive capital suggests. For example, private
equity investors hoping for shorter term returns may, owing to changes in
external circumstances (most notably, the availabil­ity of debt), be reluct­antly
forced into a longer term role, if disposal of fin­an­cially reengineered assets
becomes more difficult. In other words, certain representatives of fin­an­cial
capital may be reluct­antly forced into the position of owning assets that are no
longer readily fun­gible; if they cannot exit, they are forced to run a firm in a
manner that is no longer excessively short-­termist. Again, private equity
investors may forge alli­ances with existing management, in sup­porting MBOs,
in order to gain a better understanding of, and more effect­ively utilize the
existing cognitive cap­abil­it­ies of the firm again, rather than private equity
funded MBIs, who inject fresh management teams that may be prim­arily con-
cerned with liquidating assets (Wood and Wright 2010; Aoki 2010). Hence,
not all segments of finance capital have an inter­est solely in highly fun­gible
assets. In other words, by accident or design, certain types of fin­an­cial capital
are more longer termist in beha­vi­our. Conversely, if subject to specific reward-
­incentives, managers in firms that ostens­ibly deploy productive capital, may
still behave irrespons­ibly, and exhibit beha­vi­our more akin to those managing
highly fun­gible assets, actively remodeling the firm so that its cap­abil­it­ies are
more readily liquidatable (Boyer 2009).
 Institutions, change, and diversity   3
Understanding institutions: actors, complementarity, and
change
The revival of inter­est in institutions has as­sumed many different forms. In less
crit­ical strands of the liter­at­ure, the rather broad, and, indeed, somewhat lazy
term ‘neo-­institutionalism’ is used, as if all writing about institutions can be
simply lumped in a single camp. Attempts to classify institutionalist thinking
include Thelen (1999), Peters (2005), Boyer (2006), and Goergen et al. (2009).
Thelen (1999) argues that a major divide is between rational choice, sociological
and his­tor­ical accounts. Echoing this, Peters (2005) as­sumes an essentially
discipline-­based per­spect­ive, and suggests that conceptualizations of institutions
partially cor­res­pond to the disciplinary bound­ar­ies between eco­nom­ics, soci­
ology and pol­itics. Boyer (2006) draws a distinction between rational hierarchi-
cal, transaction costs, evolutionary theories, and institutional complementarity
approaches. Goergen et al. (2009) focus prim­arily on drawing out the distinction
between rational hierarchical and relationship orientated approaches, the former
a de­velopment of the rational choice eco­nomic model, and the latter most associ-
ated with the broad liter­at­ure on comparative capitalism.
There is little doubt that there are many ways of categorizing con­tempor­ary
per­spect­ives on institutions. And, as with any such pro­cess, these cat­egor­ies are
by no means distinct and a con­sider­able overlap exists between them. Moreover,
specific approaches to institutions as­sume greater or lesser influence at par­ticu­lar
times, in line with changes in the global polit­ical eco­nomy and associated sys­
tems of ideas. A further complicating factor is that specific approaches have
been par­ticu­larly influ­en­tial in certain areas, and less so in others. For example,
Powell and DiMaggio (1991) view norms as emerging from the active choices
and inter­actions of indi­viduals and groups. Institutions are social constructions
that are made and sustained by indi­vidual inter­actions. This approach, rooted in
the in­ter­pretive sociological tradition, has been extremely influ­en­tial in compara-
tive organ­iza­tional soci­ology, and, indeed, strands of the management liter­at­ure
(Brewster et al. 2008). However, its influence in both the mainstream eco­nom­ics
and finance liter­at­ure, and the heterodox socio-­economic liter­at­ure has been
rather more limited. In this volume, we prim­arily seek to con­trib­ute to debates in
these latter areas, and accord par­ticu­lar attention to those per­spect­ives of par­ticu­
larly salience to them, whilst not discounting the relev­ance or value of al­tern­
ative approaches in other areas of enquiry.
More specifically, this means that this volume prim­arily brings together
accounts that view institutions as influ­en­cing and con­ditioning the outcomes of
stra­tegic inter­actions (Hall and Soskice 2001: 4). However, embedded in these
accounts are implicit or expli­cit critiques of those that see institutions as provid-
ers of incentives and disincentives to rational actors (Goergen et al. 2009). The
distinction between these two per­spect­ives is an im­port­ant one. What this sug-
gests is that institutions may be seen either more in ‘motion’ terms, as con­
ditioners and filters of actions that have specific causes and con­sequences at
par­ticu­lar points of time, or as providers of ob­ject­ive rules that have gen­eral
4   G. T. Wood and C. Lane
con­sequences, re­gard­less of time and setting. What does this mean? If we take
the former per­spect­ive, we as­sume that specific institutional effects are confined
to par­ticu­lar times and places; the effects of a par­ticu­lar set of institutional con-
figurations will vary between settings, and it cannot be as­sumed that specific sets
of embedded rules and norms will always have the same consequences.
The reasons behind the rise of these two different accounts were very differ-
ent. The rational-­hierarchical tradition was initially most associated with the
works of Douglass North (1990). What North sought to explain was that, why, if
all indi­viduals were rational profit maximizing indi­viduals, did it appear that on
a sustained basis many, apparently ‘wrong’ choices could be made. What North
(1990) suggested was that those institutions that were of pri­mary im­port­ance
were those that secured private prop­erty rights; if the latter were strong, indi­
viduals were more likely to make op­timal choices, making for superior eco­nomic
outcomes. What defines this approach is first the as­sump­tion that specific institu-
tional features are both ob­ject­ive and trans-­temporal; irrespective of setting,
strong prop­erty rights will have sim­ilar con­sequences. Second, and related to
this, this approach lends itself to benchmarking; one simply has to be able to
meas­ure prop­erty rights to be able to predict both beha­vi­oural patterns and
macro-­economic outcomes.
The hege­mony of neo-­liberalism both within the dis­cip­lines of eco­nom­ics and
finance, and the wider pol­icy com­mun­ity, in the 1990s and the early to late
2000s led to the proliferation of liter­at­ure that sought to both meas­ure and bench-
mark this. Most notably, La Porta and colleagues (1999) argue that it was legal
tradition that was the ultimate determinant of rel­at­ive prop­erty rights, and that
this would, in turn, mould national eco­nomic performance. Civil law legal tradi-
tions were associated with social compromises and weaker prop­erty rights, and
common law ones with strong prop­erty rights.
Notwithstanding its influence, there are many prob­lems with this approach.
First, it is a rel­at­ively select­ive account, that works best when taking into account
the eco­nomic basket cases of (civil law) Francophone Africa, and concentrating
on the evid­ence of the late 1980s and 1990s; it works rather less well when com-
paring and predicting national eco­nomic performance during the long boom
from 1950 to 1973 (see Deakin et al. 2007; Deakin and Sarkar 2008). Second,
and more directly salient to the present collection, such approaches as­sume that
there is one dominant set of institutional ar­range­ments that has sim­ilar con­
sequences right across a specific national setting; in other words, there is no
meaningful in­ternal diversity within nations. However, as Deakin et al. (2007)
note, coun­tries do not always have nationally homogenous legal sys­tems. For
example, within the United Kingdom, Scottish law incorp­or­ates civil law ele-
ments, in contrast to the purer form of common law encountered in England
(ibid.).
An al­tern­ative account, Pagano and Volpin (2005) ex­plore the effects of elect­
oral sys­tem. Proportional elect­oral sys­tems force compromise and coalition-­
building; such compromises, in turn, necessitate dilutions of prop­erty rights. In
contrast, in first past the post sys­tems, election outcomes depend on ideo­logically
 Institutions, change, and diversity   5
uncommitted swing voters, who are unsympathetic to pro-­working class agendas
leading to fewer co­ali­tions, and the polit­ical predominance of propertied inter­
ests (ibid.). And, it might be added, propertied inter­ests have the greater fin­an­cial
wherewithal to fund lavish elect­oral cam­paigns targeting such swing voters.
Once more, how­ever, this account pays limited attention to in­ternal diversity. If
the United Kingdom example is again con­sidered, it is worth noting that both the
Welsh and Scottish assemblies are elected via more proportional sys­tems. The
latter constitute ‘states’ within a ‘state’, but there are many coun­tries where
elect­oral rules vary according to the level of gov­ern­ment. For example, in South
Africa, local gov­ern­ment elections are less proportional than national gov­ern­
ment ones. Variations in elect­oral sys­tems can impact on the composition of
local elites, and their relationship with the centre.
Rational-­hierarchical accounts do all set aside the fact that key institutional
features are heavily embedded, and always yield the same outcome. For
example, combining both polit­ical science accounts that ex­plore the way in
which pol­itics may shape institutional outcomes (cf. Peters 2005: 21) and a
Northian emphasis on prop­erty rights, Roe (2003a) suggests that elect­oral out-
comes determine firm level beha­vi­our and eco­nomic growth. Right wing par­ties
are more likely to emphas­ize prop­erty rights, whilst left wing par­ties will coun-
tenance their dilution in pursuit of other agendas (ibid.). A lim­ita­tion of this
argument is that it as­sumes that polit­ical ideo­lo­gies are essentially ob­ject­ive phe-
nomena and readily scaleable. In the real world, what is ostens­ibly left or right
varies greatly; examples would include both New Labour in the United
Kingdom, and the gen­eral dif­fer­ences between the right wing in Canada and the
United States. Again, this distinction varies not only between, but also within
nations. This would include the dif­fer­ences between the English, Scottish and
Welsh Labour Parties, or for that mat­ter, between the right wing in Quebec and
the rest of Canada. And, as we have seen, this can translate into profoundly dif-
ferent pol­icies, and, indeed, de­velop­mental trajectories.
Whilst commonly depicting the state as more often a prob­lem than a solution,
it is signi­fic­ant that rational-­hierarchical accounts remain very nation state
centred. Moreover, they tend to see outcomes as a zero-­sum game between
players over a finite pool of resources avail­able at a given point in time. As such,
much of this liter­at­ure is dismissive of the pos­sib­il­ity of complementarity, that
specific rules and practices may yield a better set of outcomes than an ana­lysis of
their constituent parts would suggest (Goergen et al. 2009). From his somewhat
more synthetic starting point, Roe (2003b) does ac­know­ledge that complementarity
is pos­sible; how­ever, he sees this more as a purer pro­cess of building on sys­
temic strengths, rather than a compensatory pro­cess, that seeks to circumvent
sys­temic weaknesses, bringing together seemingly contra­dict­ory elements (see
Crouch 2005). As such, these approaches represent infertile ground for those
seeking to de­velop institutional ana­lysis to understand the bounded nature of
in­ternal diversity within national settings.
As Aoki (2010) notes, it is very difficult to ac­cur­ately cost the cognitive assets
and cap­abil­it­ies of firms and industries, and the types of investments and social
6   G. T. Wood and C. Lane
ties that make their accumulation pos­sible. This partially explains why rational
choice-­orientated per­spect­ives on institutions focus on common ob­ject­ively
meas­ur­able nationally rel­ev­ant relationships such as prop­erty rights, and a
limited range of macro-­systemic outcomes. In other words, such per­spect­ives
discount the relev­ance of social ties which are most concentrated at local firm,
asso­ci­ational and com­mun­ity levels, ties which, how­ever, represent a core
concern of the socio-­economic or ‘relationship’ literature.
However, the formers’ influence within the pol­icy arena is not to be dis-
counted. The World Bank’s Doing Business reports are heavily based on La
Porta et al. (1999); coun­tries that score poorly on owner rights and strongly on
worker rights according to the scales devised by La Porta et al. are condemned
as poor envir­on­ments to do business (Cooney 2010). These concerns are echoed
in IMF pol­icy prescriptions: hence, whilst there are clear theor­et­ical lim­ita­tions
to such approaches, they have impacted on institution design in practice.
Alternative, more socio-­economic relationship-­orientated accounts were
initially inspired by the export success of German and Jap­an­ese manufacturing
in the 1970s and 1980s, and the malaise of industry in lib­eral market eco­nom­ies
(Aoki 2010). Most notable accounts would include the pioneering work of
Lincoln (1990), and later de­velopments and exten­sions of this line of thinking by
Dore (2000). In the rather shrill heyday of neo-­liberalism that followed, this
liter­at­ure on comparative capit­al­ism sought to explain why convergence would
be unlikely (Hall and Soskice 2001: 54), and why different national models each
incorp­or­ated elements that were par­ticu­larly conducive to par­ticu­lar types of
eco­nomic activity (ibid.; Whitley 1999). In the 1990s and early 2000s, some of
the most influ­en­tial work was simply dichotomous, drawing a distinction
between lib­eral markets and more co­ordinated al­tern­atives (Hall and Soskice
2001; Dore 2000). However, it is worth noting that a 1999 volume produced by
one of the con­trib­utors to this book already identified some half dozen different
varieties of capit­al­ism in de­veloped eco­nom­ies, each the product of different
institutional traditions, the nature and actions of social col­lect­ives, and associ-
ated belief sys­tems. Whilst there are im­port­ant dif­fer­ences in the works of Hall
and Soskice (2001) and Whitley (1999) sur­round­ing the rel­at­ive role of the firm,
and the specific nature of corporate governance, both echo an im­port­ant feature
of Durk­heim’s work; that contractual relationships are contingent on embedded
formal and informal rules, and that what constitutes the respective underpinning
moral consciousness is likely to vary from setting to setting, with different forms
of social order being capable of persisting over sustained periods of time (Durk­
heim 1964; Giddens 1971: 78–80). We would add the caveat that much of the
current liter­at­ure on Varieties of Capitalism is very synthetic, and, at its weakest,
pays insufficient heed to the rigour of the sociological classics, a lacuna that has
been at least in part redressed in later work.
Later de­velopments of the liter­at­ure on comparative capit­al­ism sought to
inject a stronger his­tor­ical dimension, arguing choices made in the form­at­ive
years of a polity determine sub­sequent actions (Peters 2005: 21). This builds on
earl­ier work on his­tor­ical institutionalism, that seeks to ex­plore the ten­sions that
 Institutions, change, and diversity   7
exist between stability and durabil­ity on the one hand, and the disruptions of
such continuities through a polit­ical pro­cess of ‘inter­actions’ and ‘collisions’
(Thelen 1999: 397). Coinciding with the expansion of the liter­at­ure on compara-
tive capit­al­ism has been the de­velopment of regulationist thinking (Boyer 2006).
What sets regulationist thinking apart is that social order and associated eco­
nomic growth is seen as more temporarily and spatially confined, contested, and
inherently more fragile (Jessop 2001). Growth regimes can only hope to tempo-
rarily alleviate contra­dic­tions inherent in capit­al­ism, prior to a period of break-
down and experimentation, eventually followed by the emergence of a new
period of growth (Jessop 2001). In other words, at par­ticu­lar times, there may be
no coherent growth regime at all (ibid.). This does not mean, of course, that there
cannot be some form of under­lying eco­sys­tem (see Jessop, this volume), even if
the latter, in part, may potentially be pathological. Developments and exten­sions
of regulationist thinking have both pointed to the pos­sib­il­ity of many coexisting
national models (Amable 2003), and the pos­sib­il­ity of coher­ence and diversity
on both sub- and supra-­national lines (Boyer and Hollingsworth 1997). This
means that both spatial entities can follow distinct de­velop­mental and growth
tra­ject­ories (Hudson 2006), and, that, in specific areas, national institutional con-
figurations can be subordinated or realigned through trans-­national institutional
effects.

Social action
For over a century, a central concern within the sociological and socio-­economic
liter­at­ure has been the interrelationship between social action and structure, as a
theor­et­ical starting point for conceptualizing diversity. It is im­pos­sible in a single
book chapter to do full justice to all the nuances of this complex and diverse
liter­at­ure. For the purposes of this introduction, we are focusing on three specific
sets of issues that are likely to impact on bounded diversity: first, the relationship
between firm level social action and sys­temic outcomes; second, conceptual
understandings of the relationship between ob­ject­ive circumstances and sub­ject­
ive rein­ter­pretations; and third, active choices by key players.

Change within the firm and systemic outcomes

In a recent book, Aoki (2010) argues that the firm has a life­span that potentially
is greatly in excess of that of indi­viduals. Features of this en­com­pass both the
abil­ity to de­velop and endow ways of doing things and pro­cesses that go beyond
the choices of a single person (ibid.). Individuals act in concert in what Aoki
(2010) calls asso­ci­ational cognition. Hence, human cognitive cap­abil­it­ies can
as­sume a group and organ­iza­tional dimension (Aoki 2010). On the one hand,
specific practices that are perceived to be bene­fi­cial are likely to diffuse across
industries, in the inter­ests of lowering transaction costs and predictabil­ity
(Marsden 1999). On the other hand, firms recombine and rein­ter­pret practices
according to specific organ­iza­tional histories, embedded rules and the in­ternal
8   G. T. Wood and C. Lane
balance of power. If firms have distinct cognitive personalities, this will preclude
flat outcomes in institutional overcoding. What this means in prac­tical terms is
that the diffusion of perceived best practices is likely to be bounded, and that
some firms will found their com­petit­iveness in terms of rel­at­ively unique cap­
abil­it­ies, even if these appear sub-­optimal in terms of overall sys­temic realities.
This does not mean that every firm is unrecognizably unique. What it does
mean is that vari­ations in cognitive cap­abil­it­ies between organ­iza­tions will lead
to an uneven takeup of practices that are apparently com­plement­ary within a par­
ticu­lar setting. Firm and indi­vidual strat­egies will make for co-­evolution (Aoki
2010). This is a bounded pro­cess in that at societal level, firms in par­ticu­lar
regions and sectors constitute distinct organ­iza­tional fields that ‘cluster and
compete’. Changes within organ­iza­tions may be initiated exogenously or en­do­
genously. The former takes place through the inculcation of external rules and
norms. Meanwhile, the latter emerges through in­ternal conflicts and value dif­fer­
ences between constituent indi­viduals and groups, the outcomes being deter-
mined by power imbalances (Hinings and Malhotra 2008).
There are, of course, bene­fits to being par­ticu­larly distinct, transaction costs
not withstanding: specialist market niches may be ex­ploited owing to unique
organ­iza­tional cap­abil­it­ies (Aoki 2010). But, organ­iza­tions are not diffusely
diverse; Aoki (2010) argues that social setting shapes cognitive and beha­vi­ourial
orientations. As Hinings and Malhotra (2008) note, the organ­iza­tion must, of
necessity, comprehend and in­ternalize feedback from the external envir­on­ment.
Firms are both societally embedded yet must retain an auto­nom­ous capabil­ity to
generate and sustain rules to compete and survive (Aoki 2010).
The articulation between firm-­level social action and societal outcomes is
multi-­facetted; firms do not only play an eco­nomic, but also polit­ical and social
roles, even where there are no formal obli­ga­tions and the impact on profits is
unlikely to be direct and pos­it­ive (ibid.). This does not mean that in­ternal organ­
iza­tional changes are the same as those that alter the external envir­on­ment
through the introduction of routinized and patterned external facing ac­tiv­ities
(e.g. par­ticu­larly innov­at­ive new products, new recruitment policies).
The extent to which firms accord workers a say in running things will affect
the nature of know­ledge flows; where workers are more empowered, micro-­
knowledge of the productive pro­cess is likely to be assim­il­ated, and will mould
what organ­iza­tions do (Aoki 2010; cf. Whitley 1999; Brewster et al. 2007). Fur-
thermore, organ­iza­tions de­velop broad ‘cognitive frameworks’, in other words, a
basic organ­iza­tional architecture will mould conceptualizations of what is
accept­able, what is fixed and what is malleable. As noted earl­ier, fun­gible prop­
erty inter­ests will devote less time and energy into costing the worth of such
frameworks; rather complexities are seen as imperfections on efficient exchange
relations, with firms facing a choice between simpler and leaner forms or
oblivion (Jensen 2003). The resultant pressures may impel organ­iza­tions to seek
an ever greater re­li­ance on their own and local sys­temic cap­abil­it­ies, or reduce
re­li­ance on specificalities that are incompre­hens­ible to the wider investor
community.
 Institutions, change, and diversity   9
Subjective and objective
Within the broad sociological liter­at­ure, there have been many approaches aimed
at reconciling structure and social action. This would include Parsons (1951) in
his writings on the cultural sys­tem, Norbert Elias (1991) and more recently,
Anthony Giddens’s structuration theory. Although Giddens (1984, 1990)
ac­know­ledges that sys­temic reconsti­tu­tion is not a foregone conclusion, all these
theories prim­arily concern themselves with the medi­ation of beha­vi­our on a pat-
terned basis. In contrast, Simmel’s writings on the sub­ject­ive/personal and
ob­ject­ive/societal nexus were expli­citly concerned with conceptualizing diver-
sity and change.
Simmel (1977) argues that groups that have apparently sim­ilar forms and
ob­ject­ives can have real dif­fer­ences in actual con­tent. Similar to Aoki’s concept
of organ­iza­tional cognition, Simmel argues that organ­iza­tions constitute the
interplay between indi­vidual life ex­peri­ences and sub­ject­ive rein­ter­pretations
thereof and ob­ject­ive meanings, such as the modern exchange eco­nomy (Simmel
1981). Whilst the modern eco­nomy is about ab­stract exchange relationships,
these relationships are mediated by sub­ject­ive reconceptualizations (Simmel
1959). This reflects indi­vidual concerns for identity and meaning, and the
manner in which groups ameliorate and amplify this, vis-­à-vis ‘great sys­tems’
such as those that comprise modern im­per­sonal exchange relations (ibid.: 57;
Simmel 1959; cf. Simmel 1977). Through ‘sociation’, the quality of certain
overall inter­actions, patterns emerge, ‘. . . the form in which indi­viduals grow
together’ (Simmel 1959: 315). Specific patterns of inter­est may coalesce within
and across groups and organ­iza­tions, making for a complex and contested pro­
cess of change that incorp­or­ates both a mater­ial/resource alloca­tion dimension
and desires for meaning and ful­fil­ment in the face of ab­stract pro­cesses. The
latter may incorp­or­ate pro­gressive or regressive dimensions; it is signi­fic­ant that
the present eco­nomic crisis has led to the rise of an un­deni­ably bitter and back-
ward looking pol­itics, around an ima­gined reality and past. Examples of the
latter would range from the Tea Party movement to various forms of religious
funda­mentalism. Whilst this may be indeed conducive to specific vested eco­
nomic inter­ests, it means that sys­temic change may be unpre­dict­able, and result
in greater dysfunctionalities.
What does this mean in terms of in­ternal diversity? As Ferguson (1990: 17)
notes, structures are multi-­layered and polyvalent. Economic structures and
inter­ests are intermeshed with other social and cultural structures and relation-
ships in a manner that is neither uniformally functional in eco­nomic terms, nor a
combination of working com­pon­ents and dysfunctional his­tor­ical legacies (ibid.:
17). Segments of national and local elites may have very different inter­ests to the
mainstream, and may work to thwart or redirect the inter­ven­tions of even very
power­ful actors. Local institutions and actors may de­velop their al­tern­ative
‘working mis­under­stand­ings’ of national level inter­ven­tions, altering the course
of the latter to suit their own specific concerns making for very different out-
comes to those origin­ally intended by dominant players (Ferguson 1990).
10   G. T. Wood and C. Lane
Walter Benjamin (1978) argued that the ‘angel of his­tory’ advanced, leaving
wreckage and debris behind. Whilst past institutional ar­range­ments may be
reconstructed or reactivated at local or national level, they will never as­sume the
same role as in the past. The angel’s path is neither linear nor of a constant
velocity. Episodic periods of crisis are more likely to shake estab­lished institu-
tional ar­range­ments, yet also make the design of new structures more difficult.
Given this, it is likely that actors will either seek shelter in the remaining ‘rubble’
of the structures, or rebuild the latter as best they can, in a manner that will make
for diversity. It is harder to reconstruct en­com­passing structures than ones
focused on a specific purpose or ambit, whilst the finite amount of ‘rubble’ pre-
cludes complete diffusion.

Complementarity
The concept of institutional complementarity (IC) is widely regarded as central
to any understanding of modern capitalist polit­ical eco­nom­ies, taken as distinc-
tive wholistic institutional formations brought about by inter­action between two
or more separate, but com­plement­ary institutional domains. As such it is closely
tied to an understanding of the nature of institutions and the role of actors in
configuring and re-­configuring them over time. The wide and intense debates on
IC since the early 2000s have drawn in scholars from several dis­cip­lines and dif-
fering theor­et­ical approaches to the comparative study of capit­al­isms. In trying
to estab­lish the precise nature of complementarity, as well as any causes and
con­sequences it may or may not have, there has occurred a distinct shift in the
understanding of IC and a more careful speci­fica­tion of the limits it poses when
trying to understand his­tor­ical causation and change. After docu­menting this
shift, the main ob­ject­ive of this section is to enquire what con­sequences different
definitions of IC and assessments of its wider ramifications have for heterogene-
ity in institutional functionality, as well as for institutional diversity more gen­
erally. Although many fine and often consequential shades of argument in this
wide-­ranging debate may be identified, for the current purpose a somewhat over-
simplified distinction between two basic para­digms will be the starting point.
One approach, associated prim­arily with the founda­tional work of Hall and
Soskice (2001), but also attributed to that of Whitley (1999), Aoki (2001), and
Amable (2001), defines IC in isomorphic terms and equates complementarity
with coher­ence. Institutions, supplying incentives to actors or orienting their
actions via the posing of oppor­tun­ities and constraints, are conceived in some-
what rigid terms and as­sume a ‘designed’ quality. Social actors, as far as they
are con­sidered in this para­digm, are mainly business elites. Moreover, this
approach connects inter­action between isomorphic institutions with bene­fi­cent
performance outcomes, and vice versa, posits sub-­optimal performance in polit­
ical eco­nom­ies which lack such a coherent institutional structure. IC is further
said to result from conscious stra­tegic design of institutional domains, thus posit-
ing performance con­sequences as the cause of IC, i.e. advancing a functionalist
definition. The tight linkage between institutions implied by this para­digm also
 Institutions, change, and diversity   11
suggests that institutional change is difficult and therefore a rare occurrence.
However, change is not ruled out and, if it does occur in one institutional
domain, there is likely to take place a ‘snowball’ effect in other domains,
ushering in rad­ical institutional trans­forma­tion. Last, although rel­at­ively tight
coupling between institutions is implied for any variety of capit­al­ism, there
never­the­less is an as­sump­tion that co­ordinated market eco­nom­ies (CMEs),
where stra­tegic inter­action is im­port­ant, are more tightly coupled than lib­eral
market eco­nom­ies (LMEs) where firms’ co­ordination ac­tiv­ities occur via the
market.
The im­plica­tions of this theor­et­ical approach for institutional diversity are
clear. Given the as­sump­tion of isomorphous institutions and of bene­fi­cent eco­
nomic con­sequences of institutional coher­ence, institutional heterogeneity is the
exception, rather than the rule. Challenge from below of institutional ar­range­
ments which no longer cor­res­pond to given institutional actors’ inter­ests receive
low or no emphasis. However, when, due to external influences, the functional
logic of one institutional sphere does change, the resulting heterogeneity is
regarded as an irritant which must remain temporary and exist only until a new
equilibrium becomes established.
The second conceptualization of IC, associated mainly with the names of
Crouch (2005 and 2010); and Streeck and Thelen (2005), views institutions as
resources which constantly are used by actors to modify and adapt institutional
ar­range­ments in a mainly bottom-­up pro­cess. They additionally are viewed as
flex­ible, constantly evolving constructs. The flex­ib­il­ity and dynamism attributed
to institutions becomes reproduced in their dynamic concept of IC which also is
in a constant pro­cess of reconfiguration. ‘If institutions are constantly evolving,
so are complementarities (Deeg and Jackson 2007: 168). Such re-­configuration
can take several forms, and one that receives wide attention is institutional con-
version (Streeck and Thelen 2005) where actors adapt an institutional construct
to a new purpose which allows the maintenance/restitution of IC. Equally
im­port­ant, for these authors IC does not as­sume isomorphism, but complementa-
rity also can exist between opposed institutions which compensate for one
another or result from a pro­cess where different institutional complexes come to
enhance one another over time (Crouch 2005). Moreover, the action involved is
not merely geared to maintain the discrete whole but institution-­building also
involves conflict, upheaval and inefficiencies (Crouch 2005: 130). In sim­ilar
vein, the exist­ence of constant ten­sion and contra­dic­tions between institutions,
side by side with IC, also is emphas­ized by Regulation theory. Neither structural,
nor functional institutional coher­ence can be as­sumed but con­tinu­ally must be
restored, redefined and defended against all sorts of dis-­organizing forces
(Streeck 2001: 30–1).
The his­tor­ical institutionalist approach, based on careful his­tor­ical study of
institutional evolution, points out that neither institutions nor their con­sequences
have emerged from grand designs but have gradually evolved from the ac­tiv­ities
of many different actors (Streeck 2001). Unlike the Varieties of Capitalism
approach, these authors do not presume bene­fi­cent outcomes of IC and urge that
12   G. T. Wood and C. Lane
the causes and con­sequences of IC must be studied separately from the latter.
Given the as­sump­tion of a much looser coupling between institutional spheres,
gradual change is seen as much more pre­val­ent than dramatic ‘snowball’ effect
change. Last, as their rejection of a functionalist concept of IC makes these
authors very reluct­ant to predict performance outcomes in situ­ations where IC
prevails, the concept has acquired rather limited im­port­ance, except for ex post
speci­fica­tions of its exist­ence, adaptation or re-­establishment. This is less applic­
able to Regulation theorists, as well as to where resilience and performance of
institutional forms still is an issue.
The im­plica­tions of this approach for institutional diversity within capit­al­isms
are diamet­ric­ally opposed to those of the VoC approach. No polit­ical eco­nomy is
believed to be completely institutionally coherent (Hoepner 2005a), and institu-
tional heterogeneity is viewed as a social constant. Thus Deeg and Jackson
(2007: 171) suggest that ‘most polit­ical eco­nom­ies are to some degree mixtures
of institutions ascribed to different ideal-­typical varieties of capit­al­ism, i.e. are in
a period of hybridization’. Diversity within capit­al­isms hence becomes quite
unexceptional and unremark­able. It de­velops not only en­do­genously but is addi-
tionally held to be due to importation and assimilation of ‘foreign’ institutional
templates. Empirical study therefore prim­arily becomes focused on the dynamic
pro­cess in which institutional structures, through adaptation, come to gradually
enhance each other and become com­plement­ary in a new way, often with a con­
sider­able time lag. Moreover, as the extensive study of the German and Jap­an­ese
eco­nom­ies by Streeck (2001), Jackson (2001) and others (e.g Hoepner 2005a;
Deeg and Jackson 2007) has shown, such a dynamic re-­fashioning of institutions
and IC has become exceedingly common also in CMEs.
This endemic institutional diversity is not neces­sar­ily viewed as an irritant but
as offering oppor­tun­ities for in­nova­tion and institutional entre­pren­eurship. The
concept of IC therefore allows not only the viabil­ity of social wholes operating
with opposed institutional logics but even stresses their potentially pos­it­ive
trans­format­ive effect. It leaves room for divergent institutional ar­range­ments at
lower spatial levels or in specific industrial sectors or types of firms (Deeg’s
model within a model) where actors experiment with and challenge the institu-
tions that govern them (e.g. Deeg and Jackson 2007: 161). Resulting ar­range­
ments eventually may provide a new model for institutional rules. It is less clear
whether this approach also admits the durable co-­existence of opposed logics in
major institutional domains at the macro level.
A number of other parti­cip­ants in this debate, who have inspired and been
inspired by the work of Crouch (2005) and Streeck and Thelen (2005), adopt
im­port­ant parts of this ‘reigning para­digm’ but subtly diverge on some aspects or
seek to combine elements of the two approaches. There has occurred a wide
acceptance in the field of polit­ical eco­nomy of the fol­low­ing elements: stress on
the fluidity of institutions viewed as resources and dynamically re-­adjusting
complexes, including the greater complexity and dynamism of IC; on actors’
role in institutional reconstruction; the rejection of the notion of a ‘grand
his­tor­ical design’ of current institutional configurations and an emphasis instead
 Institutions, change, and diversity   13
on experimenting and ambiguity; and a whole-­hearted dis­avowal of the notion
that institutions fulfil par­ticu­lar sys­tem functions.
However, some concern is being expressed that em­brace of this ambiguity
and fluidity of institutions is in danger of losing the essence of what is an institu-
tion, as well as failing to recog­nize signi­fic­ant and potentially trans­format­ive
changes in sys­tem logics. Furthermore, the emphasis on institutional co-­
evolution through bottom-­up trial-­and-error activity leads to some perplexity as
to what role is left for stra­tegic inter­ven­tion in the formu­la­tion and changing of
institutional rules. Thus Deeg and Jackson (2007: 161) suggest that admission of
greater institutional fluidity and actor voluntarism must stop short of denying the
institutional consistency which permits co­ordination of actors in different insti-
tutional spheres. Although dis­avowing the functionalist approach, Hall (2005:
373) remains concerned to distinguish between macro eco­nomic­ally bene­fi­cent
and harmful effects of different types of IC and reaffirms the im­port­ance of man-
agerial stra­tegic action for institution cre­ation, thereby shifting the focus some-
what from bottom-­up to top-­down intervention.
The regulationist concept of institutional hier­archy, advanced by both Amable
and Boyer and not opposed by his­tor­ical institutionalists, is not fully com­pat­ible
with the strong emphasis on a bottom-­up approach. The concept of hier­archy, intro-
duced in the wake of substantial fin­an­cialisation of polit­ical eco­nom­ies during recent
decades (see Deeg, this volume), underlines the notion of elite power. It posits a top-
­down trans­forma­tion of the institutional order by fin­an­cial elites, often sup­ported by
polit­ical ones. While the top-­down and bottom-­up approaches may coexist, further
clarification is neces­sary of the con­sequences of each form of engagement.
Some are wary of in­ter­preting functional and ideo­logical change in one institu-
tional domain, often referred to as institutional conversion (Streeck and Thelen
2005), as gradual change which does not under­mine the traditional logic. In other
words, they do not neces­sar­ily view institutional heterogeneity as one structure
compensating for the shortcomings of the other, but regard existing ten­sions as
more subversive. (The example usually given is the trans­forma­tion of German
industrial relations.) They caution that such conversion, focused on mere structural
con­tinu­ity in IC, may mask signi­fic­ant change in functionality and ration­al­ity of
action. They therefore prefer to speak of hybridity – a state of signi­fic­ant diversity
in institutional logics at macro level, often as a con­sequence of importation of
institutional rules. The latter does not rule out functional convergence.
It is further pointed out that study of institutional conversion takes only a his­
tor­ical snapshot and therefore fails to con­sider that ‘conversion’ in the domain of
industrial relations may be a more transitory stage, to give way to convergence
in the future. ‘Institutional change manifests itself only in the long run. Apparent
stability would only reflect the built-­in inertia of institutional sys­tems’ (Boyer
2005: 369). Such an ana­lysis is much less prepared to admit the viabil­ity and
bene­fi­cent effects of the coexist­ence of opposed logics and sees such funda­
mental heterogeneity as a dysfunctional contra­dic­tion and as something actors
will want to elim­in­ate, if a change in power relations should provide them with
an oppor­tun­ity to do so.
14   G. T. Wood and C. Lane
In conclusion, the concept of IC, now minimally defined as ‘interdependen-
cies within broader configurations’, con­tinues to be em­braced by analysts of
comparative capit­al­isms as ‘helpful for understanding the in­ternal logic of insti-
tutional configurations’ (Hoepner 2005b: 387). A focus on the new more
complex and dynamic concept of IC invites us to study the resulting institutional
heterogeneity and its effects. There is as yet no consensus on whether this fluid-
ity also permits durable diversity of institutional functionality at macro level, or
whether actors perceive the resulting opposed rationalities for action as irritants
or even ten­sions, preventing effect­ive actor co­ordination across domains. In the
longer his­tor­ical run, it is implied that such opposing logics may be elim­in­ated
to re-­establish institutional and thus cognitive and value coher­ence. Thus, it is
not clear whether the signi­fic­ant impact in recent decades of global com­peti­tion
and neo-­liberal change also on co­ordinated or or­gan­ized market eco­nom­ies has
under­mined the notion of discrete and distinctive national institutional configu-
rations, or whether the posited plasticity of institutions has absorbed these influ-
ences in a pro­cess of reciprocal adaptation to preserve distinctive varieties of
capit­al­ism. In other words, there con­tinues to be ambiguity about what type and
how much institutional heterogeneity can be accommodated at what levels and
with what effects.

Systemic change
As Lane and Wood (2009: 533) note, change enhances diversity, and diversity
may precipitate change; the two are inherently linked. Probably the most influ­
en­tial approach to institutional trans­forma­tion – as opposed to incremental
de­velopment – has been regulation theory. Much of what the regulationists have
argued for many years has now been taken on board by both leading writers
within the Varieties of Capitalism camp, and other his­tor­ical institutionalists
(Streeck 2009). It is hence appropriate to review precisely what regulation theory
is all about, what has been taken on board in the broader liter­at­ure on compara-
tive capit­al­ism, and what has not.

Regulation theory and systemic change

As Lipietz (2001: 213) argues, the origins of regulation theory lie in attempts to
understand the crisis of the early 1970s within broad sys­temic terms; the theory
sought to move beyond rad­ical structuralism through focusing not only on the
reproduction of capitalist relations, but also the rel­at­ively fragile pro­cess of
medi­ation that made sys­tems of production pos­sible (ibid.: 216). On the one
hand, the dominant group will seek to impose rules of the game to its own bene­
fit; to impost hege­mony. On the other hand, the ‘creativity or dissatis­fac­tion of
indi­viduals and social groups’ and their rel­at­ive cap­abil­it­ies for inde­pend­ent
action will encourage them to seek to propose or demand new rules of the game
(ibid.: 216). To this Boyer (2006) adds the pos­sib­il­ity of serendipity; new ways
of doing things reflect not only conscious design, but also fortuitous discovery.
 Institutions, change, and diversity   15
This auto­nomy would make for sectoral and spatial variabil­ity, with dominant
institutional compromises potentially being more conducive to one set of par­ties
than others; indeed, we could add, that specific sets of inter­ests may seek partial
decoupling as a rem­edy for the unpalatable patterns imposed by other, more
dominant players.
Contestations and compromises lead to a temporary, con­tentious, yet interre-
lated modification of norms, making up a mode of regulation (Lipietz 2001:
217). Institutional forms that help constitute the latter rely on medi­ations (e.g.
money), and networks that make them pos­sible (ibid.: 218). It should be emphas­
ized that relations represent the outcome of struggles; how­ever, the outcome of
the latter are not predictable (Lipietz 2001: 219). Not every potential mode of
regulation proves stable, and indi­vidual players always retain some auto­nomy;
the latter can include inter­ven­tions seeking to adjust sys­temic real­it­ies, or simply
the pos­sib­il­ity to act differently to the dominant way of doing things.
Hence, specific institutional frameworks sup­port periods of rel­at­ive stability
and growth. However, there is no smooth passage from one period of expansion
to another (Jessop 2001: xix). An in­ternal pro­cess of creative destruction and
external pressures make change inev­it­able. These pro­cesses involve spatial vari­
ations in institutional cover­age resulting in emerging incompatibilities, class
conflicts, techno­lo­gical advances, shifts in the availabil­ity and distribution of
resource inputs, etc. In turn, this will lead – after an unstable trans­ition phase –
to a new growth regime. In other words, regulation theory draws both on con-
ceptualizations of long waves, and rad­ical polit­ical eco­nomy; it is about both
periods of growth and rel­at­ive order, and it illuminates the ‘improbable nature of
capitalist accumulation’ (Jessop 2001: xix).
A further issue is a broader conceptual one; when can a set of institutional
configurations be said to ‘work’, and for what purpose, and where and for whom
within a national framework? Predictions of inev­it­able trans­itions to coherent
new orders have many times proved to be over-­hasty (Jessop 2001: xix). Finally,
is there some mech­an­ism whereby institutional orders inev­it­ably ‘reset’ them-
selves, making for new forms of coher­ence and viable outcomes? Regulationists
post two caveats here, first, that prob­lems relating to the regu­latory capacities of
the state are not neces­sar­ily solved at state level (Jessop 2001: xx; Lipietz 2001).
Second, social pro­gress is neither linear nor inev­it­ably upward (Hollingsworth
2006); new growth regimes may work better or worse than their preceding vari­
ant, with long wave patterns not neces­sar­ily being planar or predictable in dura-
tion. Systems may be functional in serving specific sets of in­sider inter­ests, but
dysfunctional as a whole, at least in terms of yielding stable growth. This has led
Wolfson (2003) to posit the gen­eral absence of coherent growth regimes since
the crisis of the 1970s; rather one is seeing a sustained period of tinkering and
experimentation, out of which new growth regime(s) will ultimately emerge,
underpinning a new long boom.
In summary, regulation theory is a theory both of con­tinu­ity and change.
Despite contra­dic­tions inherent in capit­al­ism, it has proven pos­sible to construct
forms of institutional medi­ation allowing for the social and eco­nomic compromises
16   G. T. Wood and C. Lane
that make sustained growth pos­sible. Such institutional ar­range­ments will evolve
in a coherent and incremental manner, until external and in­ternal shocks lead to
a breakdown. This is likely to be followed by a trans­itional phase of incoherent
experimentation, out of which a new growth regime will eventually arise.

Alternative accounts: varieties of capitalism

It is fair to say that much of the liter­at­ure on comparative capit­al­ism has been
cau­tious in taking on board regulation theory’s implicit critique of the capitalist
mode of production per se, and its focus on class in­equal­ity and struggle. A
further dif­fer­ence is that the Varieties of Capitalism – and indeed, im­port­ant
strands of his­tor­ical institutionalism – tended to exaggerate the coher­ence, inter-
connected nature and complementarity encountered in co­ordinated markets
during the long boom of the 1950s and 1960s (Hollingsworth 2006: 70). In other
words, a weakness of the former is a lack of attention to in­ternal diversity. Regu-
lationists would be more scep­tical as to the extent to which any manifestation of
capit­al­ism could operate in a rel­at­ively op­timal manner, without in­ternal dif­fer­
ences, and indeed, dysfunctionalities, even in periods of gen­eral growth.
Hall and Thelen (2009: 9–10) argue that what defines the Varieties of Capi-
talism approach is that it is both firm-­centred and broadly ration­al­istic, with
competing actors seeking ways of advancing their inter­ests and to make ‘institu-
tions work for them’. Whilst this may make for diversity or even dis­order, a
number of factors provide pressures towards stability. First, institutional inter-
connectedness means that challenging or transforming one institution may result
in other institutions posing challenges (ibid.: 12). Second, present institutions are
known, and the con­sequences of pos­sible al­tern­atives can never be fully pre-
dicted (ibid.: 12); in other words, actors will often opt for the proverbial devil
they know, in fear that the al­tern­ative may emanate from an even darker circle of
hell. Third, institutions con­trib­ute to the maintenance of a balance of power; this
means that feedback effects are likely to deter those seeking to challenge a
present institutional order (ibid.: 13). All these arguments, and par­ticu­larly the
latter one, would suggest pri­or­ity for coher­ence within specific national institu-
tional orders.
But, what about in­ternal diversity? Hall and Thelen (2009: 17) argue that a
firm-­centred view nat­urally as­sumes that there are ‘mul­tiple agents of adjust-
ment’; gov­ern­ments do not just set pol­icies in response to pressures by various
inter­ests groups, but also have to respond to strat­egies already adopted by com­
panies. Moreover, even if formal institutional structures remain intact, the
manner in which they work for different players may change. And, as Carlin and
Soskice (2009: 94) note, just because eco­nom­ies are co­ordinated does not mean
that there cannot emerge a lower stratum characterized by more flex­ible institu-
tions and labour stand­ards than is normally associated with the model. Repre-
senting a de­velopment and exten­sion of broad regulationist thinking, Amable
and Palombarini (2009: 124) argue that the Varieties of Capitalism liter­at­ure
con­tinues to over-­privilege the role of the firm and the potential for firms to have
 Institutions, change, and diversity   17
a broader impact in furthering their inter­ests, whilst according insufficient atten-
tion to polit­ical pro­cesses. They argue that the Varieties of Capitalism approach
deals with institutions in terms of their supposed function, when neither inter­
ven­tions or the outcomes will inev­it­ably have their intended con­sequences (ibid.:
124). The final impact of the institution may, indeed, be completely distinct from
the ori­ginal design that made the institution possible.

Historical institutionalism
Historical institutionalism both ac­know­ledges the dif­fer­ence between purpose
and outcome of institutional design and as­sumes institutions are both constantly
created and reconstituted (Streeck and Thelen 2005: 16); in other words, institu-
tion redesign does not neces­sar­ily take place only at periods of great crisis. The
con­tinued viabil­ity of institutions is contingent on what can be pos­sibly done
through them. When actors change from one logic of action to another, then
funda­mental change takes place; the latter can be con­tinu­ous and gradual or not
(ibid.: 18). An example would be the dif­fer­ences between the changes that took
place in Europe as a result of the two world wars, and the more incremental, but
potentially as im­port­ant changes, that constitute the broad pro­cess of
lib­eralization across the world eco­nomy (ibid.: 6). In other words, change may
be both linear and non-­linear (cf. Hollingsworth 2006).
In prac­tical terms, this means that institutions are likely to be quite resilient in
de­veloping whilst retaining core features up until a certain point, when a forced
rupture or breakdown results in a major departure. Hence, Sorge (2005: 241)
argues that soci­eties have a surprising capa­city to ‘decouple and recombine insti-
tutional and cultural facets’; yet, paradoxically, specific institutions may be
remark­ably resilient (ibid.: 242); virtues in one area may compensate for ‘sys­
temic pathologies’ in another (ibid.: 245).
What this suggests is that binding new orders are the result of, and are bedded
down, through trauma. This would both explain the extent to which institutional
edifices erected across North-­Western Europe in the aftermath of the great
depression and the Second World War, were able to largely sustain themselves,
even in the face of the initial shocks of the crisis of the early 1970s (Traxler
2001). At the same time, as the traumas of the past fade into more distant
memory, actors who perceive that their inter­ests will be better furthered by their
aban­don­ment are likely to be more aggressive in pressing for change.
Within the last decade or so, a number of writers have accordingly raised the
notion that institutional ar­range­ments have a definite ‘shelf life’, requiring reor-
dering or replacement. More specifically, the broader liter­at­ure on comparative
capit­al­ism has become increasingly concerned with sys­temic crises, the manner
in which institutional ar­range­ments decay, and pro­cesses by which institutions
may be revitalized or sub­sti­tuted (see Streeck and Thelen 2005; Thatcher 2007;
Aoki 2010; Fligstein 2008: 131).
Again, as Sorge (2005) reminds us, his­tor­ical watersheds have different regional
im­plica­tions, both at the time, and in sub­sequent rein­ter­pretations; his­tor­ical lega-
18   G. T. Wood and C. Lane
cies do not have uniform effects across a nation. Historical evolution – whether
about con­tinu­ity or discon­tinu­ity – does not take place smoothly. It is worth noting
that this pro­cess can be associated with self-­reinforcing feedback loops (Sztompka
1990). In his classic work on disparities in regional de­velopment, Myrdal (1957)
points to both ‘trickle down’ (in regions that were prosperous at key stages) and
‘backwash’ (self reinforcing decay in mar­ginal areas).

Forms of change
Both Streeck and Thelen (2005) and Boyer (2006) provide extremely use­ful
typologies of institutional change, summar­ized below, that we relate to in­ternal
diversity.
Let us con­sider first the related pro­cesses of displacement and recombination.
They are not, strictly speaking, the same, in that the first involves changes in the
nature of specific structures, and the second in the manner in which they fit
together to constitute a sys­temic whole. But, any change in either the substance
of, or the links between, institutions will alter which groupings bene­fit from the
sys­tem. Some regions, industries and asso­ci­ations will be winners and others
losers. For example, the increased abil­ity and institutional sup­port provided to
patent specific genetic codes has allowed for the enclosure of what was previ-
ously commons. The winners have been large corporations with specific links to
par­ticu­lar polit­ical players, and losers have been smaller agricultural producers
and poorer nations.
With a pro­cess of institutional drift, entire regions or social groupings may
become partially decoupled. An obvious example would be the present

Table 1.1 Alternative accounts of social change

Streeck and Thelen Boyer

Displacement. New models emerge and diffuse, and Recombination. The links between
challenge established ways of doing things. institutions are changed in such a
Displacement by defection involves the reactivation manner as to change systemic
of dormant/old elements outcomes
Layering. Institutions become more elaborate, with Sedimentation. Adding new
increases in vested interests. Newer layers may be institutions to old can
more easily dismantled, or their relative importance incrementally, yet fundamentally
increased to drain away support from the core change their role in the system
Drift. Unless institutions are properly resourced,
they will decay, loosing relevance to actual reality
Conversion to new goals Conversion. ‘New arrangements
within the same institution’
Exhaustion. Behaviours gradually undermine the
institution

Source: Streeck and Thelen 2005: 18–30; Boyer 2006: 47–9.

 Institutions, change, and diversity   19
challenges posed to the United Kingdom wel­fare state, with large numbers of the
poor being written off at best, incarcerated at worst; in the United States, where
the wel­fare state was always weaker, the pro­cess has been even more brutal. In
the case of both layering and sedimentation, formerly core elements may become
subsumed into a new order, or pro­gressively discarded, again resulting in
winners and losers. A sim­ilar pro­cess will be at play in the case of institutional
conversion.
Institutional exhaustion is a par­ticu­larly inter­esting case. As a wide range of
writers from Adam Smith to Kant have noted, the human con­dition involves
drives in two dir­ec­tions, towards personal betterment and towards social solid­
arity. An emphasis in recent decades on the former in both the United Kingdom
polity and in the cultural ap­par­atus, has greatly under­mined sup­port for institu-
tional features that promote equity, compromises between competing groups,
and mutual betterment.
Whilst the pro­cess of evolution may, as we have seen, involve specific quasi-­
dormant features assuming greater im­port­ance, past ar­range­ments can never be
wholly reconstituted. As Hollingsworth (2006) notes, the pro­cess of sys­temic
evolution is a non-­linear pro­cess, and involves both incremental de­velopment
and rupture, the latter partially prompted by external shocks.

Causes of change
In understanding the origins and nature of long trans­ition periods, the pro­cess of
causality is a complex one. In his classic writings in polit­ical eco­nomy, Polanyi
(1944) points to a ‘double movement’ pro­cess with swings between a pri­mary
orientation towards unrestrained markets and greater regulation; excess in one
area leads to a counter-­movement in the second. A further lim­ita­tion of long
wave approaches is whilst they highlight funda­mental shifts in the global eco­
nomy, they do not explain rel­at­ive diversity in outcomes; in any global down-
turn, there are winners and losers, both within and between nations. For example,
whilst much of (then Western) German manufacturing coped a great deal better
with the crisis of the 1970s and the 1980s than their Liberal Market counterparts,
certain areas of German manufacturing (sectors and regions) fared very much
better than others. Winners included auto­mo­biles and ma­chine tools, and losers
were the photo-­optical and steel industries.
The liter­at­ure on polit­ical eco­nomy points to the increasing im­port­ance of the
rentier class in both the 1920s and from the 1980s onward, having the effect of
crowding out more productive segments of capital (Krippner 2005). What this is
about, quite simply is a conflict between owners of assets which can be more
readily realloc­ated, and those which cannot be readily switched between sectors
(Thatcher 2007: 21). The latter are more re­li­ant on active state pol­icies (ibid.)
and, indeed, on negotiated and institutionally mediated compromises between
players, whilst the former can simply exit from investments deemed sub-­optimal
in favour of al­tern­atives appearing more productive. What makes the ac­tiv­ities
of owners of trans­ferable/fun­gible assets or rentiers par­ticu­larly dangerous is that
20   G. T. Wood and C. Lane
their de­cisions are based on perceptions of imme­diate market worth, which may
be inac­cur­ate; in a desire for ever higher returns they are likely to over- or under-
­value assets, rapidly and unpre­dict­ably changing their assessments in either dir­
ec­tion (Boyer 2009).
But, whilst the causes of change are un­deni­ably complex and interconnected,
both the 1920s and the present con­dition were also associated with changes in
tech­no­logy and, most notably, in the nature of energy inputs. Changes in tech-
nologies and the rel­at­ive costings of specific resource inputs are likely to affect
owners of less fun­gible assets par­ticu­larly severely, and strengthen the rel­at­ive
hand of owners of more fun­gible prop­erty; new technologies and changes in
resource input costs will profoundly under­mine existing capital allocations.
As Aoki (2010) notes, the uneven diffusion of tech­no­logy, and the extent to
which specific new ideas, pro­cesses and non-­human ‘cognitive tools’ (i.e.
in­forma­tion tech­no­logy) mould the viabil­ity of sectors and regions. Technology
can thus be seen in both mater­ial terms, and as a social force. As Ebner (2008:
14) notes, institutions may sup­port some technologies and make others unvi­able;
yet, the evolution of al­tern­ative institutional frameworks and associated sets of
ideas proceeds erratically.
Both the crises of the late 1920s and the 1970s coincided with funda­mental
changes in energy usage and prices; the former being the shift from a pri­mary
emphasis on coal to oil, and the latter the increased price of oil and moves to
seek al­tern­atives. Whilst oil in the 1920s was certainly cheap, the switchover
involved substantial investment and costs. Whilst the oil price dropped in the
1980s away from the peaks of the 1970s, in the 2000s oil has become un­pre­ced­
en­tedly costly, and the energy mix is slowly and very un­evenly shifting towards
al­tern­atives (Lipietz 2010). This does not mean that the crises of the 1920s and
late 2000s (which, may, in fact, be the exten­sion of the 1970 one) were only, or
even largely, to do with energy; they also, as we have seen, coincided with the
rise of the rentier class, and great imbalances between productive and consump-
tive capacities. But, the mixed and interwoven nature of causal elements is likely
to result in great vari­ations in outcomes between groupings and regions, which
may further impel coterminous de­velop­mental tra­ject­ories within and between
settings.
In summary, it can be seen that key downswings have followed on changes in
the global energy mix. From 1914 to 1945, there was a long downturn, which
coincided with the rise of oil (cf. Kelly 1998 and Grubler 2007). From 1973, oil
became rel­at­ively more expensive, temporary downturns in the oil price notwith-
standing. This period was associated with a gradual move to a greater usage of
al­tern­atives (nuclear, hydro, renew­ables), even as demand for oil increased
(Grubler 2007), and, of course episodic and unstable growth interposed with
recession (Kelly 1998), now leading to depression. Since 2000, the proportion of
oil in the global energy mix has declined (Grubler 2007). In the case of the earl­
ier crisis, the trans­ition followed on a techno­lo­gical in­nova­tion; the invention of
the in­ternal combustion engine (Jensen 2003). However, whilst there has been
great techno­lo­gical pro­gress over the past 40 years (most notably in the area of
 Institutions, change, and diversity   21
electronics), this has not directly coincided with changes in energy use.
However, it is worth noting that such in­nova­tions have greatly facilitated leaner
production (Jensen 2003), en­ab­ling greater cost-­cutting in hard times.
In con­sidering dif­fer­ences between con­texts, Mediterranean capit­al­ism has
been gradually lib­eralizing. Most of the Mediterranean eco­nom­ies have faced
painful forced adjustments as a result of the fin­an­cial crisis. However, the major
investments by Portugal and Spain in renew­able energy in a time of di­min­ishing
oil reserves, will have long term im­plica­tions in terms of rel­at­ive balance of pay-
ments deficits, and hence, the degree of dependence and im­port­ance assigned to
fin­an­cial circumstances. In contrast, the UK Government has remained wedded
to a re­li­ance on oil and gas for the bulk of the energy mix, despite the abovemen-
tioned decline of the North Sea fields. Essentially, what is at work here are dif­
fer­ences in capa­city, ideo­logy, and hence, a willingness to resort to active
industrial pol­icies. In short, while coming closer to lib­eral market eco­nom­ies in
some ways, Spain and Portugal are becoming more different in others; this will
further set them apart from other Mediterranean coun­tries such as Greece.
Bounded in­ternal diversity exists within both nations and capitalist archetypes.
However, in straightened fin­an­cial ser­vices, it is quite likely that regional gov­
ern­ments will be given less room for such experimentation in the future. In short,
whilst such experimentation has become more im­port­ant, it has also become
more difficult.

The changing role of the nation state and institutional

diversity
The nation state is an institution that has been centrally involved in building
other major eco­nomic institutional domains and con­tinues to shape them. The
state also works in a com­plement­ary fashion with other macro level institutions
to facilitate the co­ordination of eco­nomic actors. Different national states have
exercised these functions in divergent ways and thereby have con­trib­uted to the
cre­ation of different varieties of capit­al­ism. This is summed up by Whitley
(2005) as ‘the structures and actions of national states have been crucial influ-
ences on the sorts of market eco­nom­ies that became institutionalized in contrast-
ing ways in the twentieth century’ (ibid.: 191). States may be active and
influ­en­tial at various spatial/polit­ical levels. Although the national level gen­
erally has been the main focus of research, other levels working in concert with
or against the nation state also merit attention. Any change in state structure and
capa­city brought about by pro­cesses of lib­eralization and global eco­nomic inte-
gration therefore will affect the institutional landscape of modern polit­ical eco­
nom­ies and, it will be shown, the degree to which institutional heterogeneity will
proliferate.
The liter­at­ure on comparative capit­al­isms perceives the state’s eco­nomic role
and the changes affecting it in diverse ways, and different theorists also privilege
different sets of state functions as fulfilling the two basic roles outlined above.
Hall and Soskice (2001) famously claimed that, to understand the way firms
22   G. T. Wood and C. Lane
co­ordinate their ac­tiv­ities, we no longer need to con­sider the influence of the
state. However, most other theorists of comparative capit­al­isms have challenged
this stance and have reaffirmed the state as a pivotal institution in the eco­nomy.
A case for the crucial im­port­ance of the state as one governance institution
among several, vital to the co­ordination of eco­nomic actors, was made by Holl-
ingsworth et al. (1994). Whitley (1999), from a different theor­et­ical per­spect­ive,
also singled out the state as being ‘among key institutional features structuring
business sys­tems during the 20th century’ and incorp­or­ated it into his typology
of business sys­tems. Amable (2003), too, in his construction of an expanded
typology of capit­al­isms expli­citly includes the state as one of the major
co­ordinating institutions, albeit con­sidering mainly its ‘wel­fare pro­vi­sion’ func-
tion. Finally Hancke et al. (2007), in their introduction to ‘Beyond Varieties of
Capitalism’, in dialogue with both Hall and Soskice (2001) and Schmidt (2002),
strongly reaffirm the im­port­ance of the polit­ical in eco­nomic life and ‘view the
state as one element among several in the pro­cess of co­ordination and one that is
present everywhere . . . in different forms, with different functions and to differ-
ing degrees’ (2007: 15).
Concerning state functions, Whitley pointed to the fol­low­ing three functions
as instrumental in the pro­cess of institutional structuring: 1. degree of state dom-
inance and willingness to share risks with firms; 2. degree of tolerance of/antag-
onism towards col­lect­ive intermediaries, such as business asso­ci­ations and
unions; and 3. the regulation of markets, including the imposition of constraint
on some eco­nomic actors to the bene­fit of others (Whitley 1999: 48). In his 2005
work, he further elaborates on the regu­latory function by pointing out that, by
being the pri­mary agent governing the definition and enforcement of private
prop­erty rights, the state crucially shapes corporate governance ar­range­ments
across nations. Amable (2003) adds a fourth to the three state functions singled
out by Whitley (1999), namely the activity of compensating labour for market
commodification and redis­tribu­tion of resources between classes.
While all the state functions set out above must be con­sidered im­port­ant, special
emphasis often is put on the state’s ac­tiv­ities ded­ic­ated to the regulation of firms
and markets. Streeck and Thelen (2005), in setting out their notion of institutions,
view the regu­latory and compensatory functions as in­teg­ral to their very idea of
what is an institution. According to them, we can talk of institutions when ‘third
par­ties predictably and reli­ably come to the sup­port of actors whose institutional-
ized and therefore legitimate, norm­ative expectations have been disappointed’
(ibid.: 3). While this enforcement of obli­ga­tions can occur also via col­lect­ive
action by intermediary organ­iza­tions, the role of the state in this endeavour surely
is equally, if not more im­port­ant. Streeck (2001) also is credited by Hoepner
(2005a: 343) as viewing the state as centrally involved in institution-­building in
exceptional his­tor­ical ‘polit­ical’ moments. This, of course, is not meant to convey
that the state is the only or even always the main constructor of institutions as bot-
tom-­up institution-­building and re-­construction also is thought crucial.
Both the comparative capit­al­isms liter­at­ure and the polit­ical eco­nomy liter­at­
ure more gen­erally in recent years have thrown some doubt on the con­tinued
 Institutions, change, and diversity   23
centrality of the state in eco­nomic life and/or on its viabil­ity as a coordinator of
eco­nomic actors. Increasing co­ordination of the latter via the market, growing
global eco­nomic integration and intensified com­peti­tion (Streeck and Thelen
2005), together with the rise to dominance of giant global firms and their partial
displacement of the state (Crouch 2010), have all worked to weaken the state’s
auto­nomy and authority and hence its effect­iveness as a co­ordinating institution.
However, there still exist huge dif­fer­ences between different authors in their
in­ter­pretation of the impact of these de­velopments on the state. While some see
the state replaced by the market (Ohmae 1990; Stopford and Strange 1993),
others merely see its role transformed and point to some hollowing-­out of state
capa­city while recognising that there is as yet no sub­sti­tute for the nation state
and its co­ordinating activity (Held et al. 1999; Leibfried and Zuern 2005; and
Bandelj and Sowers (2010). Yet a third group, despite admission of some trans­
forma­tion, view the state’s role as quite undi­min­ished (e.g. Weiss 1998).
Our own position is the second which admits some weakening in state
co­ordinating capa­city but, at the same time, recog­nizes its indispensabil­ity, par­
ticu­larly of its regu­latory and compensatory ac­tiv­ities. Hence changes in the role
of the state lead us to re-­examine the degree to which central co­ordination of
eco­nomic actors remains feasible and effect­ive. This, in turn, demands a reas-
sessment of the extent and the ways in which the various functions of the state,
outlined above, are now exercised. If, as shall be argued, exercise of these func-
tions has been made more difficult, we need to ask what this has meant for the
institutional unity or, conversely, in­ternal heterogeneity of different capitalisms.
While a signi­fic­ant attenuation of some functions, such as risk sharing with
firms, has occurred in most capitalist eco­nom­ies, the weakening of others, such
as regulation of capital, goods and labour markets has proceeded at different
speeds and to a varying extent in different types of capit­al­ism. Also re-­regulation
often has occurred. De-­regulation has impacted with some delay on both the pre-
viously tightly-­regulated and the directed eco­nom­ies. But once it started to take
place, its impact has caused more disruption of complementarities than in lib­eral
market eco­nom­ies. In both CMEs and more étatist capit­al­isms, like France and
Korea, this has opened up space for the adoption of a variety of firm strat­egies,
greatly increasing organ­iza­tional diversity. Strong ideo­logical sup­port for de-­
regulation of markets and the cessation of enforcement of unitary stand­ards for
the beha­vi­our of eco­nomic actors has given greater rein to diverse market beha­
vi­our of firms, par­ticu­larly between firms in sheltered and inter­na­tionally
exposed markets.
Additionally, privatization of formerly state-­owned firms has often changed
industrial relations regimes and has given rise to more diverse ways of conduct-
ing them. In coun­tries like Britain and France, where the repres­enta­tion of labour
and col­lect­ive bargaining were shored up by active state inter­ven­tion (France) or
tacit sup­port (UK), reduced state capa­city and the ideo­logical discrediting of col­
lect­ive prob­lem res­olu­tion also have under­mined central col­lect­ive bargaining.
This has resulted in more highly diversified practices of bargaining at com­pany
level and in the cre­ation of large union-­free zones. In Ger­many, where the state
24   G. T. Wood and C. Lane
only provides a legal framework for the conduct of industrial relations, institu-
tional structures in this field have remained more uniform, while functional
diversity never­the­less has risen at firm level. With the state less able and less
willing to compensate those dis­advant­aged in the labour market, diversity of
pay, social insurance and pension ar­range­ments also has widened income
in­equal­ity in most advanced societies.
This diversity in firm beha­vi­our is further amplified by extensive inward and
outward FDI and the opera­tion of firms in several markets. It has opened up the
pos­sib­il­ity for firms of choosing from mul­tiple sys­tems of regulation, as well as
accessing institutional and fin­an­cial resources and techno­lo­gical know­ledge held
in foreign coun­tries. (See the example of the German biotech industry de­scribed
by Allen and Whitley, this volume). Hence practices of corporate governance,
management and competence cre­ation learnt in foreign locations may be intro-
duced also do­mestically. Although they are often adapted to the do­mestic con­
text, managers may also press national states to transform do­mestic regulation
along the lines of the foreign practices. Regarding inward investment by foreign-­
owned firms, the much increased necessity for states to attract such investment
has been accompanied by the loosening of constraints by states on firms making
large investments. Hence firms in different sectors and localities and under
divergent national ownership can be expected to de­velop more varied patterns of
organ­iza­tion, com­peti­tion and collaboration than was common in earl­ier decades
(Allen and Whitley, this volume). Global de-­regulation of investment banking
has greatly diversified the ownership structures of firms, resulting in varying
forms of corporate governance between widely-­held firms and firms with owner-
ship concentration, par­ticu­larly in co­ordinated market eco­nom­ies (see Deeg, this
volume). This has further magnified the already existing divergences between
large and small, national and inter­na­tionally operating firms.
Sectoral regimes, which have always differed to some degree due to divergent
techno­lo­gical requirements and target markets, also have become more institu-
tionally and organ­iza­tionally diverse in recent decades. At least in part this is
due to the loosening of constraints by the nation state on the opera­tion of capital
and labour markets. Financial institutions and states, for the first time have pro-
moted ‘rad­ical in­nova­tion’ industries, such as biotech­no­logy, also in co­ordinated
market eco­nom­ies and thereby have brought about greater diversity in
co­ordination mech­an­isms between industries. In lib­eral market eco­nom­ies, like
the UK, where, according to Hall and Soskice (2001), rad­ical in­nova­tion is insti-
tutionally well sup­ported, different high-­tech industries, such as thera­peutic
biotech and marine energy (Allen and Whitley, this volume), varying in the mag-
nitude of risk-­sharing required by investors, also are differentially sup­ported by
existing do­mestic fin­an­cial institutions.
Different sectors also de­velop divergent industrial relations practices. Thus,
whereas firms in the estab­lished German core industries largely maintain co-­
determination structures, industries such as new media and privatized utilities
have de­veloped both more flex­ible work and employment practices and more
often than not dispense with unions and works councils. Whether the coexist­ence
 Institutions, change, and diversity   25
in one polit­ical eco­nomy of such radic­ally different employment and IR prac-
tices can be contained by sectoral bound­ar­ies, or whether over time it will under­
mine regimes also in the estab­lished core industries, remains to be seen.
As the state’s function of risk-­sharing has become more difficult to exercise
in globally open markets and a free-­trade regime enforced by the WTO, indus-
trial pol­icy by the central state, i.e. direct sup­port to specific firms or industries,
is now less frequently encountered, notwithstanding the highly-­exceptional
recent bailing out of banks even by states with tradi­tion­ally hands-­off stances.
However, lower-­level polit­ical powers, such as regional and local states, in some
cases have taken up the slack. Even if direct sub­sidies now are forthcoming only
in exceptional circumstances, sup­port in the form of de­velop­mental regional
pol­icy still occurs, even though the fin­an­cial scope for this has narrowed. Thus
in the UK, the Scottish and Welsh local states have used their circumscribed eco­
nomic inde­pend­ence to eco­nomic­ally de­velop their regions, giving rise to diver-
gent institutional practices at central and regional state level. The exist­ence of
such regional dif­fer­ences then may provide scope for actors to subvert and
change central state pol­icy (see Hudson, this volume). This tend­ency for multi-­
level practice of the function of risk-­sharing is par­ticu­larly pronounced in polit­
ical eco­nom­ies with a federal polit­ical structure, such as Ger­many and the US. In
the latter, to gain elect­oral sup­port, the federal state, despite its ad­vo­cacy of free
markets, frequently is forced to aban­don its negat­ive pol­icy stance on risk-­
sharing and bails out ‘lame ducks’ (e.g. the sup­port to the Ford motor com­pany
by the Obama administration) or provides resources indirectly (e.g. the huge
subsidization of bio-­medical research and of cotton farming). Additionally, indi­
vidual state gov­ern­ments vary in their tax regimes and the degree of de­velop­
mental pol­icy they practice.
The 2008 fin­an­cial crisis has greatly weakened the capa­city of many states for
inde­pend­ent action. Most notable are those coun­tries that have fallen vic­tim to
‘bond vigilantes’, representatives of owners of par­ticu­larly fun­gible capital, and
been forced to turn to the IMF, and its ‘one size fits all’ neo-­liberal pol­icy pre-
scriptions. Yet, this pro­cess is not without irony in that the ongoing availabil­ity
of speculative capital has been greatly bolstered by state actions, including direct
bank bailouts, and quantitative easing. Indeed, the response of many ostens­ibly
neo-­liberal gov­ern­ments to the crisis has been profoundly statist: a con­tinued
focus on defence and secur­ity; ever greater restrictions on the movement of
labour (supposedly simply another commodity) across national bound­ar­ies;
direct or indirect fin­an­cial sup­port for the fin­an­cial ser­vices industry; active
meas­ures promoting research and de­velopment in other polit­ically influ­en­tial
industries, such as pharmaceutics; and the enclosure of biological and intellectual
commons. However, with the pos­sible exception of defence and pharmaceutics,
these inter­ven­tions have again been prim­arily in the inter­ests of owners of more
fun­gible assets.
In sum, we cannot yet discount the state as either prominently involved in
institution-­building, or as a vital institutional co­ordinating body. At the same
time, it has been widely noted that the nation state is both less able (reduced
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