Rhenish Capitalism

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A system of capitalism characterized by non‐market patterns of coordination by economic actors and extensive state‐regulation of market outcomes. The term Rhenish Capitalism was popularized by Michel Albert in his book Capitalism vs. Capitalism (1993) and is central to recent research on ‘varieties of capitalism’. Rhenish capitalism is associated with Northern European economies—most centrally Germany but also the Netherlands, Denmark, and Sweden—and has also been used to characterize Japan. Non‐market coordination refers to the engagement by firms, unions, and other social actors of a variety of associational bodies used to develop and renew economic institutions. Examples include collective wage bargaining, vocational training systems, technology transfer initiatives, and credit‐based financial systems with ‘stakeholder’ patterns of corporate governance. State regulation supports non‐market coordination through accepting many associational agreements as legally binding and through granting statutory bargaining rights to traditionally weak social actors, such as unions within collective bargaining law or employees within ‘codetermination’ or workplace representation law.

The varieties of capitalism literature has compared Rhenish and Anglo‐Saxon economies to develop the idea of ‘comparative institutional advantage’. According to this theory, differences in capitalism systems create different patterns of economic adjustment, particularly applied to patterns of commercial innovation. Deep patterns of non‐market coordination associated with Rhenish capitalism create competitive advantages in industries associated with ‘incremental’ innovation or ‘diversified quality production’ such as the machine‐tool or speciality chemical industries, but, through creating restraints on the short‐term reallocation of resources, create comparative institutional disadvantages in newly developing or ‘radically innovative’ industries such as biotechnology or computer software.

Political research on Rhenish capitalism draws on the literature on democratic corporatism, suggesting that forms of social democracy characterizing the small European economies also exist at the level of the firm. Proponents of Rhenish capitalism argue that strong state regulation creates ‘beneficial constraints’ on employers such as limits on employee dismissals that encourage the development of substantial firm‐specific training of employees and patterns of ‘workplace democracy’ that are lacking in Anglo‐Saxon forms of capitalism. Critics of Rhenish capitalism argue that long‐term employment norms limit the ability of firms to quickly adjust to technological and market changes and create labour market rigidities that contribute to higher unemployment than is typically found in Anglo‐Saxon economies. Other critics note that Rhenish capitalism produces cross‐class political coalitions between employers and skilled employees that exclude the unemployed and low‐skilled (particularly immigrants and, until recent decades, women) from meaningful political representation.


Subjects: Politics.

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