The varieties-of-capitalism approach provides an explanation of countries differences in institutional spheres, and hence their distinctive competitive advantages on global markets, based on the premises that there exists a cross-national divergence of production systems. Soskice (1990; 1994; 1999; Hall and Soskice, 2001) distinguishes four institutional spheres that organize production systems: the corporate governance sphere, the industrial relations sphere, the education/training sphere, and the sphere governing intercompany relationships. Similarly, Boyer (2003) differentiates five institutional spheres: the wage-labor nexus, the form of competition, the monetary regime, the state/society relations, and the insertion into the international regime. According to the representatives of this approach, the coherence (Boyer) or interlocking complementarities (Soskice) between the institutional spheres are the main preconditions for competitive advantages of production systems. In this regard, Hall and Soskice (2001) distinguish between two ideal types of production systems at the poles of a spectrum along which many countries can be arrayed: liberal market economies, best characterized by the US and UK, and coordinated market economies, best characterized by Germany. Liberal market economies are argued to rely on short-term company financing, monitoring by capital market participants instead of insiders, decentralized wage bargaining, lack of codetermination and industry-based apprenticeship systems, strong anti-collusion policies, and market-based standard setting. In contrast, coordinated market economies are characterized by long-term, patient capital and company monitoring, centralized wage bargaining systems and cooperative industrial relations at the micro level, cooperation of firms in education/training and standardization, and the important role of business associations. Some proponents of the varieties-of-capitalism approach view those two ideal production systems with their complementary institutional spheres as being relatively stable (cf. Soskice, 1996; Soskice and Hank, 1996). They are sceptical about liberal market economies, like the US or UK, to be turned into coordinated ones or coordinated market economies, like Germany, to be turned into liberal ones. However, in their latest presentation of their approach, Hall and Soskice point out that the varieties-of-capitalism approach is a dynamic one. Given the equilibrium in which institutional spheres are located, the theory still predicts stability rather than change. Still, the authors do not deny the possibility of changes in one sphere due to external pressures anymore (Hall and Soskice, 2001, p.51-52).
In building on this, I argue that of the various institutional spheres, it is the corporate governance sphere that exhibits a less prevalent collective goods character and therefore provides relatively more degrees of freedom for firm-level control of corporate governance arrangements. The German context serves as a case in point for the priority of firm-level control of corporate governance arrangements: since the second half of the 1990s, the logic of many firms formerly distinct German corporate governance arrangements has significantly changed, exhibiting a tendency towards convergence with Anglo-American corporate governance arrangements (Achleitner and Bassen 2000; Jackson 2001; Jürgens et al., 2000; Lane, 2003; Perlitz et al., 1997; Vitols, 2003). This suggests potential for firm-level research that specifically focuses on the corporate governance sphere, i.e. analyzes firm-specific associations of Anglo-American versus German corporate governance arrangements and competitive advantages. I suggest that this firm-level research takes a resource-based view of the firm, thus assuming that firms can be conceptualized as bundles of physical and intangible resources and capabilities, that those resources and capabilities are heterogeneously distributed across firms, and that differences in them can persist over time (Amit and Schoemaker, 1993; Mahoney and Pandian, 1992; Penrose, 1959; Wernerfelt, 1984). Though not gone unchallenged (e.g. Mosakowski and McKelvey, 1997; Priem and Butler, 2001; Williamson, 1999) the resource-based view is still seen as a significant theoretical framework for understanding how competitive advantages within the internal organization of firms is achieved and sustained over time (Barney, 1981; Eisenhardt and Martin, 2000; Penrose, 1959; Peteraf, 1993; Prahalad and Hamel, 1990; Teece et al., 1997; Wernerfelt, 1984). The fact that Anglo-American and German corporate governance arrangements coexist in the same national context would enable a research design that takes into consideration the coherence or interlocking complementarities idea of the varieties of capitalism approach. It allows for focusing on the corporate governance sphere while setting constant the spheres of industrial relations, education/training, and intercompany relationships without precluding major confounding variables. The findings of such firm-level research could inform institutional-level research by contributing to a better understanding of the varieties-of-capitalism approachs explanation of countries differences in institutional spheres, and hence their distinctive competitive advantages on global markets. After all, the variety-of-capitalism approach can benefit from firm-level evidence on how differences in institutional spheres connect to distinctive competitive advantages.
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