Is a concept developed by political scientist, Peter A. Hall, and economist, David Soskice. It expresses the belief that the capitalist economy does not assume a single, universal form but varies across nation states. Hall and Soskice identify two main types of capitalist economy. The liberal market economy is exemplified by the case of the USA, though Britain, Ireland, Canada, Australia, and New Zealand have also been described as liberal market economies. Germany is the paradigm case of the coordinated market economy but this label has also been applied to Japan and the countries of northern Europe. The distinguishing feature of each type is that they solve problems of ‘coordination’ (between the firm and its financiers, employees, suppliers, and customers) in different ways. In liberal market economies (LMEs), coordination occurs primarily through market mechanisms, whilst in coordinated market economies (CMEs) formal institutions play a much more central role in governing the economy and regulating firm relations with stakeholders. For example, in LMEs, wages are set by market forces, whilst in CMEs, they are determined through industry-level collective bargaining between employers' associations and trade unions. The concept of varieties of capitalism has been very influential in recent years in the field of comparative industrial relations and is often viewed as the basis of a counter-argument to the belief that globalization is leading to the convergence of national systems of industrial relations. Although influential, the concept has also been subject to critique. Critics have suggested that Hall and Soskice's theory cannot explain innovation or change within national systems, fails to acknowledge the extent of variation in forms of capitalism within national economies, and takes insufficient account of the differences between economies that are placed within each broad category (i.e. fails to consider the significant differences between British and American capitalism).
Subjects: Human Resource Management.