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Is there a "winner-take-all" politics in the affluent democracies of Northern Europe? We explore this question through a comparison of two cases of "regulated capitalism," Sweden and Germany, asking whether these institutions continue to produce equitable outcomes in the face of globalization and financial crisis. Both countries have experienced significant increases in income inequality since 1990, and their labor markets have begun to display signs of dualism, demonstrating the weakened capacity of regulated capitalism to secure equality. Despite these broad similarities, inequality and labor market dualism have increased more in Germany than in Sweden. We argue that the shift to the right, even among social democratic parties, is an important cause of increased inequality in both countries. Our analysis also emphasizes the political effects of decades of welfare state building in both countries: the popularity of the welfare state and other institutions of regulated capitalism among the electorate constrain the ability of governments to pursue a radical liberalization agenda. We attribute Sweden’s superior performance relative to Germany in protecting low income groups to the interaction of industrial relations institutions and the electoral system. Swedish corporatism has retained much of its encompassingness compared to Germany, and proportional representation in Sweden creates incentives for the Center-Left to include the interests of low-income groups in their electoral and governing strategies. In contrast, German industrial relations are increasingly marked by segmentalism, and the electoral system generates few incentives for the Center-Left to include low income groups in their electoral coalition.
What do the recent trends in German economic development convey about the trajectory of change? Has liberalization prepared the German economy to deal with new challenges? What effects will liberalization have on the co-ordinating capacities of economic institutions? This article argues that co-ordination and liberalization are two sides of the same coin in the process of corporate restructuring in the face of economic shocks. Firms seek labour co-operation in the face of tighter competitive pressures and exploit institutional advantages of co-ordination. However, tighter co-operation with core workers sharpened insider–outsider divisions and were built upon service sector cost cutting through liberalization. The combination of plant-level restructuring and social policy change forms a trajectory of institutional adjustment of forming complementary economic segments which work under different rules. The process is driven by producer coalitions of export-oriented firms and core workers’ representatives, rather than by firms per se.
This paper investigates the causes of, and reactions to, the Eurozone crisis, focusing in particular on the institutional foundations of the four Southern European Eurozone countries that have encountered an acute sovereign debt crisis. Applying the basic arguments featured in the Varieties of Capitalism literature, the paper aims to show how the interaction of the institutional set-up of coordinated and mixed market economies, with the effects of the common currency area, can explain both the evolution of the crisis, as well as the reactions to it. This paper interprets the sovereign debt crisis in the Eurozone as the combination of two features: firstly, the architecture of the common currency area, which instituted a common interest rate for widely heterogeneous regional economies, and secondly, the specific institutional foundations of two types of economies participating in the Eurozone, namely coordinated market economies and mixed market economies. Understanding these two factors and their interaction not only helps to explain why the Southern European countries were particularly vulnerable to exploding public debt, but also why, during the on-going resolution of the Eurozone crisis over the last two years, policy makers have persistently preferred austerity over the mutualisation of debt. The compensatory role of the state in mixed-market economies thereby undermines the effectiveness of financial bail-outs for economic growth strategies.