II VARIETIES OF CAPITALISM AND ITS CRITIQUE
II.1 THE VARIETIES OF CAPITALISM APPROACH
II.2 CRITIQUE OF THE VARIETIES OF CAPITALISM APPROACH
III. SOME NOTES ON POLITICAL ECONOMY IN COLONIAL AFRICA
IV THE SITUATION IN UGANDA
IV.1 UGANDA’S POST-COLONIAL ECONOMY AT A GLANCE
IV.2 UGANDA’S VARIETY OF CAPITALISM
V THE SITUATION IN THE DEMOCRATIC REPUBLIC OF CONGO
V.1 ‘CONGO-KINSHASA’S’ POST-COLONIAL ECONOMY AT A GLANCE
V.2 DEMOCRATIC REPUBLIC OF CONGO’S VARIETY OF CAPITALISM
Since the last decade scientific research on capitalism has experienced a noticeably grown attention among scholars as well as politicians. One of the most discussed approaches in this field of comparative analysis of political economy is the ‘varieties of capitalism’ theory1 developed by Peter Hall and David Soskice. Their approach basically focuses on how different actors may behave in a certain politico-economic state configuration and on how far this configuration can determine a national type or variety of capitalism as well as the economic success of a political economy.
This approach, though, has been designed with a view to the so-called ‘developed economies’, which are to be found in Western and Central Europe as well as in North America. In the era of globalization other economies have come into play, with their performances ranging from real success stories, as in several Asian economies, to considerable failure, as in most marginalized Sub-Saharan African economies.
After presenting Hall and Soskice’s approach and some of its criticisms in order to give a conceptual framework, this paper will provide a very brief overview of the political economy of colonialism, followed by a case-study analysis of the contemporary political economies of Uganda and the Democratic Republic of Congo (DRC).
The main research question is to identify to which extent varieties of capitalism imported from colonial powers have fashioned today’s economies in the chosen cases as ‘economic models’ or how far the empirically established colonial economic systems are responsible for post-colonial developments. The former colonial power in Uganda, Great Britain, will be considered as a Liberal Market Economy, whereas DRC’s colonial power, Belgium, will be assigned the Coordinated Market Economies2 type. In order to avoid analytical shortcomings, this paper also tries to take into consideration the discrepancy between those models and the colonial reality as well as postcolonial developments, which have evolved due to domestic characteristics or as a consequence of a globalizing political economy.
According to Hall and Soskice’s typology of market economies and under the precondition that it could be non-exhaustive, this paper seeks to assign the cases in question to certain varieties of capitalism and if found inappropriate, stress the need for the creation of new types as in the case of the so-called ‘mixed’ or ‘emerging’ market economies3.
II VARIETIES OF CAPITALISM AND ITS CRITIQUE
II.1 THE VARIETIES OF CAPITALISM APPROACH
The ‘varieties of capitalism approach’ of Peter Hall and David Soskice appears to be an “actor-centred”4 neo-institutionalist theory in the field of comparative political economy, motivated by the underlying assumption that a politico-economic system not only shaped by institutional a priori arrangements but by the involved economic actors as well. Hall and Soskice argue that firms and companies try to influence national economies with regard to their own interests.
Although the ‘varieties of capitalism approach’ emphasizes the firms’ position as “key agents of adjustment”5 other actors are not to be excluded from the analysis. Hence, one shall take into consideration their ability to develop technological competencies depending on whether they manage to establish relationships - “both internally, with its own employees, and externally, with a wide range of other actors”6. Such actors can include business partners like suppliers, stakeholders or similar, but also financial institutions like banks or investors, governmental institutions like ministries of economy, education or implementing agencies (i.e. employment offices) and societal actors like trade unions or business associations7. The overall economic performance of a firm is dependent on whether its “coordination problems”8, which arise due to the firms’ specific position in the national economy, can be solved by creating functional modes of interaction and coordination with the relating actors, respectively.
For the sake of analysis, Hall and Soskice propose a set of five institutional spheres in which firms have to find coordination mechanisms9. The sphere of “industrial relations”10 encompasses all issues of bargaining on the micro-level of a single firm as well as on the macro-level between superordinated organizations and associations. At this point coordination becomes relevant given that “wage and productivity levels”11 are determinants of the firm’s overall performance. Secondly, in the sphere of “vocational training and education”12 firms have to ensure their access to skilled workforce and in a wider framework a national economy as such has a vital interest in disposing of a skills reservoir to remain competitive on the global level.
The third sphere highlights “corporate governance”13, where firms have to make sure that they attract investments by guaranteeing returns to their funding partners. In the sphere of “inter-firm relations14 ” which is the fourth mentioned by Hall and Soskice the position of a firm within the whole process of production is at stake: Both the supply and the demand side shape the invidual firm’s success whereas on the other side firms are embedded in a specific economical environment including their business partners in which each single one holds a partial responsibility for others. Coordination in that respect can evolve into collective gains. When it comes to research and development, firms have to establish an equilibrium between useful coordination and the need to remain competitive.
The fifth sphere in which coordination has to be established points out firms relations with their own “employees”15. Here, firms face the problem of ensuring general development through every single employee’s skills and abilities as well as their mutual cooperation between each other and the management.
As there are several ways and strategies to overcome the listed coordination problems, Hall and Soskice built two ideal types of national political economies, “liberal market economies and coordinated market economies”16 which are framing an analytical spectrum to range empirical cases.
A liberal market economy (LMEs) is mainly based on competition, not meaning that coordination is absent, but rather emphasizing market-based mechanisms. LMEs are characterized by an “arms-length-exchange of goods”17. Firms coordinate and compete on the basis of supply and demand factors delivered by market institutions and exchange rates of products. In coordinated market economies (CMEs) relations are shaped by “non-market relationships”18. Firms are likely to interact in a more collaborative way and coordination happens based on partnership and institutionalized mechanisms.
Hence, LMEs and CMEs both provide a certain setting for economic actors, in which they have to organize their relationships to other involved actors. Hall and Soskice presume that depending on the specific mode of coordination proposed by a national economy, firms tend to align to one of the two ideal types19 considering that both offer opportunities of economic success and non-acceptance may not be feasible at all or associated with unaffordable transaction costs.
Institutions do matter in both ideal varieties of capitalism, but following the definition they are rather a - possibly abstract - “set of rules”20 than to be located in a certain building in the administrative city, otherwise this assumption may cause problems. The ‘varieties of capitalism approach’ considers institutions and organizations as crucial to both types of economies whereas the latter are seen as “durable entities”21. Hence, markets become real institutions in the varieties of capitalism framework. They constitute ways of competitive relationships under differently strict legal circumstances. LMEs rely stronger on market mechanisms and the establishment of economic hierarchies, while in CMEs firms benefit from institutions and organization providing the soil for collective action and minimizing uncertainty.
As institutions do not secure the achievement of institutional equilibrium Hall and Soskice suggest that cultural practices and historical path dependency have to be taken into account. They are considered as ladder step to balanced action in form of “shared understandings”22 and a sense of appropriateness and may contain a higher aim, like ‘economic freedom’ or ‘social security’. The relevance of cultural issues tends to become visible through different possibilities that national economies and single firms have in responding “to a similar shock”23 thanks to particular institutional features.
The concept of “institutional complementarity” lies in the core of the varieties of capitalism approach. Complementarity in this case is given, “if the presence (or efficiency) of one [institution] increases the returns from (of efficiency of) another”. An example would be that an educational system with special emphasis on technical education enforces a political economy’s ability to emerge as an important producer of manufactured high- quality goods instead of mass production. As in the mentioned scenario complementarities are likely to be found across “different spheres of the political economy”24. Hall and Soskice add another example by showing the relation of corporate finance and labour markets in OECD countries25.
If one takes a closer look at the construction of the CME ideal type, it becomes visible that company needs are fed by an institutional structure that relieves them from problems of financing and high investments in human capital, while inter-company relations are encouraged as well as inner-firm relations26. Respectively, in LMEs general skills education replaces special vocational training and high flexibility dominates the spheres of corporate governance and labour markets. Instead of tied inter-company relations competition regulates the economy27.
Going along with empirical results28 one can argue that there are no significant differences between the two types when it comes to the “level of long-run performance”29 but examining which are the driving assets of economic success, respectively, one experiences a strongly different distribution. Using the number of patents per sector, Hall and Soskice find that LMEs heavily profit from new technologies emerging from “radical innovation”30 facilitated by flexible arrangements and provoked by strong competition. Contrarily, CMEs tend to specialize on “incremental innovation”31 resulting from traditions grown over time and based on typical consensus-oriented economic policies.
II.2 CRITIQUE OF THE VARIETIES OF CAPITALISM APPROACH
Although the ‘varieties of capitalism approach’ has proven its applicability in many empirical cases, especially those, which draw near the ideal types, it still appears vulnerable to various critiques to some extent. Some of the problematic points likely to become virulent in the analysis of African market economies shall be presented in this chapter. Nevertheless any critique has to be formulated taking into consideration Hall and Soskice’s notion of their theory being the starting point of a new research field.
Among the various contestations published in scientific literature, the complexity of reduction to a pair of (ideal) types is one of the most prominent. This problem has been lessened by the introduction of emerging market economies (EMEs) sometimes described as mixed market economies (MMEs) into the concept. In his analysis of East European market economies, Mykhnenko exemplarily showed how to include a group of political economies in the ‘varieties of capitalism approach’, which could not be allocated neither to the LME nor to the CME group32.
Given the fact that in the aftermath of the fall of the Iron Curtain, capitalist production modes spread over a huge part of the world they had not touched long a considerable period of time before, lots of new of capitalist systems emerged, which certainly cannot be put in the same basket of EMEs or MMEs. A ‘varieties of capitalism approach’ should therefore be designed to analyse and identify more than just North American or European varieties of capitalism.
Yet the existence of a mixed type (like the Ukraine in Eastern Europe33 ) performing well in many aspects challenges the general importance of institutional complementarities, although not their important function in the ideal types. Other relevant factors, such as “underlying power structures”34 must not be overlapped by the paradigm of complementarities. Historical and contemporary reality both show, that social networks and personal relations of power are significant determinants of economic systems, not even only in African economies. Neo-patrimonial systems seizing institutional arrangements in a political economy often develop other logics of distribution35, which cannot be grasped by purely institutionalist analysis.
A third point is varieties of capitalism’s scarce attention to exogenous shocks occurring in multiple ways in a globalizing world. For example, Bayart et al. identify “external economic policies”36 and “economic exploitation and insertion into the international system”37 as relevant issues for Sub-Saharan African political economies, not to mention other forms of pressure economic blocks such as the EU or the U.S. put on weaker elements in the global economy. Structural adjustment by Bretton Woods institutions inhibited very own economic development by outlining compulsory economic behaviour in a not necessarily compatible landscape, additionally WTO rules and bilateral agreements such as the Lomé and Cotonou treaties between the EU an the ACP countries further strengthened foreign influence existing since colonialism in most newborn national economies.
1 Cp. Hall, Peter/Soskice, David (Eds.): Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford University Press, Oxford 2001.
2 See table 1.
3 Cp. Mykhnenko, Vlad: Strengths and Weaknesses of ‘ Weak ’ Coordination: Economic Institutions, Revealed Comparative Advantages, and Socio-Economic Performance of Mixed Market Economies in Poland and Ukraine, in: Hancké, Bob; Rhodes, Martin; Thatcher, Mark (Eds.): Beyond Varieties of Capitalism. Conflict, Contradictions, and Complementarities in the European Economy. Oxford University Press, Oxford 2007, pp. 351-378.
4 Hall, Peter/Soskice, David: An Introduction to Varieties of Capitalism, in: Hall, Peter/Soskice, David (Eds.): Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford University Press, Oxford 2001, p. 6.
7 Cp. Ibid.
10 Ibid, p. 7.
16 Ibid, p. 8.
19 Cp. ibid.
20 Ibid, p. 9.
22 Ibid, p. 13.
23 Ibid, p. 16.
24 Ibid, p. 18.
25 See table 1.
26 See table 2.
27 See table 3.
28 See table 4.
29 Hall/Soskice 2001, p. 21.
30 Ibid, p. 44.
31 Ibid, p. 41.
32 Cp. Mykhnenko 2007.
33 Ibid, p. 376.
34 Hancké/Rhodes/Thatcher 2007, p. 7.
35 Cp. i.e. Chabal, Patrick/Daloz, Jean-Pascal: Africa works. Disorder as a political instrument (African Issues). James Currey. Oxford 1999, p. 99 et sqq.
36 Bayart, Jean-François/Ellis Stephen/Hibou, Béatrice: The Criminalization of the State in Africa (African Issues). James Currey. Oxford 1999, p. 4.
37 Ibid, p. xvii.
- Quote paper
- Christoph Vogel (Author), 2009, Are there varieties of capitalism in African political economies?, Munich, GRIN Verlag, https://www.grin.com/document/181553