Comparative Advantages in Co-ordinated and Liberal Market Economies

Abstract

The main and innovative claim of the varieties of capitalism framework is that different types of national institutional settings, which are categorized as either ‘liberal market economies’ (LMEs) or ‘co-ordinated market economies’ (CMEs) (or ‘unclassified’) (Hall and Soskice, 2001b: 19–21), will favour contrasting innovation strategies (either, respectively, radical or incremental). These different innovation strategies are, in turn, likely to lead to success in different product markets. Indeed, as the subtitle of the volume makes clear, Hall and Soskice contend that national economic institutions lay the foundations for comparative advantage. They argue, therefore, that these institutional differences will result in ‘cross-national patterns of [product] specialization’ (2001b: 38). (Cf. Bartle, 2002; see also Casper and Whitley, 2004; Hall, 2001; Soskice, 1999.) This chapter will seek to assess the validity of that main claim from which two broad expectations can be drawn: one, that LMEs, compared to CMEs, will tend to have a higher number of sub-sectors in which they have a comparative advantage in sectors characterized by radical innovation and, two, that CMEs should outperform LMEs in sectors characterized by incremental innovation.