The role of the concept of innovation for the Varieties of Capitalism Approach

Term Paper (Advanced seminar) 2005 20 Pages

Sociology - Work, Profession, Education, Organisation




I The Varieties of Capitalism Approach
1 Introduction to the VoC approach
2. The building blocks

II Innovation
1 Definition

III Analysis of the meaning of innovation for the VoC approach
1 Forms of Innovation
2 The role of innovation for institution building

IV The Network concept

V Conclusion



What has happened to the „European Dream“ - the dream of becoming a plural unity with one constitution? After the debris, following the French “NON!“ and the Dutch „NEE!“ on the EU-referendum we can see clearly, how national preferences in instiution making diverge. Now, alternative plans are taken out of the drawers. Attempts to mobilize and to change EU-citizens opininons are being made. An interesting political process to watch. For this paper, I am going to analyse the character of the relationship between the basic concept ofinnovationand its role in the Varieties of Capitalism (VoC) approach worked out it detail in Hall and Soskice´s „Varieties of Capitalism „. Orfeo Fioretos, one of the participating authors, aims to analyze and to exemplifynational preference buildingon another level, a more dynamic one by shifting attention to how agreements in (multilateral) institutional decision making come about. The accelerated processes of structural change often referred to as „the globalization processes“, and often understood as a neoliberal breakthrough to „all areas of life“ forces us to take a look at the situation of labour markets. In this case at the German labour market, where the discussion about the „Standortvorteil“ has become important, and where thelack of innovationis often made responsible for the misère of close to 5 mil. unemployed. So how are the these concepts linked? What does innovation have to do with national preference buidling? What is innovation? How can this be described best? These will be the leading questions.

In the first step, I am going to summarize shortly the essence ofoneelement of the VoC approach, that is, „The domestic sources of multilateral preferences“ elaborated by Orfeo Fioretos. I will do this with regard to the constituent building blocks that accumulate to national preference building.This will set the basis for understanding the complexity of preference building in national states, the set of actors, and structures that partially predetermine the shape of their market economy, and how countries aim at maintaining their relative advantages.

In the second step, I will give an outline about the construct and idea of innovation in general. This crucial construct shows that the main problem, whilst studiying this topic, lies in its communicative imprecision . After providining a rather general definition, I am going to point out the problems that may occur when using the term, which are implicit to its nature.

In the third step, I am going to analyse the meaning of innovation for the VoC approach. What role does innovation play for institutional and national decision making in knowledgee based societies? Is it a reliable factor to take into account?

In the fourth chapter I am going to point at the Network concept by Manuel Castells, that might be useful for understanding the character of complex sets of actors and relations in a more precise manner.

Finally, I will conclude with some thoughts about the main subject of the seminar: „Arbeitsmärkte / Arbeitspolitken“ where I will ask the question, what important role innovation plays in the German labour market.

I The Varieties of Capitalism Approach

1 Introduction to the VoC approach

The overwhelming complexity, consistency and speed of everyday change make it seem impossible to analyse precisely, and even more impracticable to forsee the processes that lead to structural change in political economies. Since the VoC approach contains numerous dimensions of (advanced) comparative capitalism studies and off-topics, that go beyond the feasability to summarize here, I will concentrate especially on the findings of Orfeo Fioretos. Fioretos presents us helpful insights in his study about national preference making, which are crucial to understand institution building on a multilateral level. He exemplifies this with the development and presence of diverging national positions that have led to the Maastricht Treaty within the dimensions of monetary, social and industrial policy. He shows how, and why differences in national preferences exist. In this case between the ideal types of a liberal market economy (GB) and a coordinated market economy (GER).

His primordial hypothesis is, that:

„the underlying determinant of a country´s preferences over the structure of

multilateralism is the composition of its market economy. If this is correct, then

we should observe that individual countries´ preferences internally constitute

a coherent and internally consistent strategy across areas, and that there are

distinct differences between countries´ multilateral choices if their market

economies differ.“ (Fioretos, 2001, p.228)

Susanne Lütz classifies this theory as an actor-theoretical (game-theoretical) approach, as well as a normative theory, based on „Strukturdeterminismus“ because it supposes that national market-actors are seeking comparative market-advantages in general and that these national economies seek to reproduce or at least to maintain the core of their institutional framework. (see Lütz, 2005 p.37) Keeping this in mind, I present a short excourse:

The more „globalised“ world economy gets, the more it becomes difficult to differ between causes and effects – in other words – to find out, which role which element plays. This is especially the case, when we talk about reciprocal processes. The discussion about the decline (or even defeat) of national states´ power to multinational corporations (MNC) reveals, that recently even countries or national economies have to „apply“ to these MNC´s in terms of the best advantage of location (Standortfaktor). We will see later in this work, that these assumptions are only true to a certain extent. It would be another interesting task to weigh up the power balance between institutional frameworks of a national state and the power(s) of capital-investing MNC´s.

To come back to the VoC approach: The clear distinction within economic actors and institutions containing their individual preferences can be very helpful in reducing complexity as I said before, even though they exist in interdependency. The VoC approach looks at its topic from a firm-centered view:

„The relevant actors may be individuals, firms, producer groups, or governments.

However, this is a firm-centered political economy that regards companies as the

crucial actors in a capitalist economy. They are the key agents of adjustment in the

face of technological change or international competition whose activities aggregate

into overall levels of economic performance.“ (Hall Soskice 2001 p.6)

One of the strengths of the VoC approach, as for a sociological approach, is that it attempts to include as many analytical lenses and the abilty of seeing preferences not as given, nor as static (over time) but as rooted in its institutional framework and also in its socio-historical background.

2. The building blocks

The VoC approach

„(...) starts from the premiss, that countries exhibit distinct, historically determined,

national institutional equillibria that tie together a number of building blocks such as

the industrial relations, financial, corporate governance, and vocational training

systems in a coherent fashion that defines particular and differentiated market

economies (...);“ (Fioretos, 2001, p.219)

Such a determination of constituent elements or building blocks may now help to cope with the complexity of a nexus of actors and institutions not only in, or for national economies, but also for understanding multilateral institutions or „superstates“ such as the European Union.

Following Hall and Soskice, Fioretos further states that:

„The sum of the building blocks is greater than its parts, and (that it) shapes the behaviour of

economic agents in ways that transcend the limits and possibilites of an economy´s

constituent units.“ (Ibid. 2001, p. 219)



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Institution / College
University of Hamburg – Institut für Soziologie
Varieties Capitalism Approach Oberseminar Arbeitsmärkte Arbeitspolitiken Länder-Vergleich



Title: The role of the concept of innovation for the Varieties of Capitalism Approach