In their bold and important book, Lucio Baccaro and Chris Howell offer a sweeping reinterpretation of the evolution of Western European industrial relations from the late 1970s until the present. In so doing, they also challenge the dominant framework in comparative political economy (cpe), developed most of all by Peter Hall and David Soskice under the banner of “Varieties of Capitalism” (VoC). The VoC framework was introduced at the turn of the century in a landmark volume edited by Hall and Soskice and has inspired a veritable mountain of research by leading scholars in the field.¹ Its popularity is no doubt partly attributable to the moment when it was launched. VoC appeared when many observers thought that the relentless, unstoppable forces of neoliberal globalization were flattening the world, with dire consequences for social solidarity. As Margaret Thatcher famously declared, “There Is No Alternative” to deregulation, welfare-state retrenchment, the weakening of trade unions, and a leaner, meaner social and economic model.

By contrast, VoC’s overarching message is institutional diversity and resilience. Rather than accepting the Thatcherite teleology, Hall and Soskice suggested that contemporary capitalism had stabilized around distinct institutional models — Liberal Market Economies (lmes) such as the United States and the United Kingdom on the one hand, and Coordinated Market Economies (cmes) such as Germany and Sweden on the other. In each VoC, national-level institutions shape firm-level strategy, promoting market coordination in lmes and nonmarket coordination in cmes. While each of these models shared certain structural features, they were nonetheless appreciably different in their institutional features, and in how they faced market pressures. In addition, coordinated market economies were able to sustain the redistributive and egalitarian thrust of the welfare states. Finally, the VoC framework implied that each model had an obduracy, a staying power, because each one generated stable political coalitions around it. So while cmes and lmes generate comparable levels of economic performance, the kinder, gentler, more egalitarian versions of capitalism were capable of resisting the drift toward the neoliberal American model.

One of the central mechanisms for the predicted stability of each institutional form of capitalism is the political support of elites. Hall and Soskice argue that institutional complementarities and comparative institutional advantage generate disincentives against radical change. Whereas most observers had previously agreed that powerful trade unions and social-democratic parties were indispensable for sustaining expansive welfare states, compressing income inequality, and supporting institutions of workplace and industrial democracy such as codetermination and works councils, VoC suggests that capitalists themselves have an interest in sustaining these institutions once they are in place. In Germany, for example, institutions of skill formation such as vocational education and training, as well as coordinated wage bargaining and employment protection support and reinforce export-oriented manufacturers’ competitive strategies, which are based more on quality and incremental innovation than on price. By contrast, lmes provide strong support for radical innovation. VoC views cmes and lmes as being in a self-sustaining equilibrium, which makes a convergence of cmes and lmes highly unlikely. Recent VoC-inspired literature concedes that liberalization is occurring in all advanced capitalist economies but continues to make a case for divergence by stressing that it is pushing countries onto different tracks.² VoC implies that even if social democracy’s institutions go into crisis, employers should support the ensemble of institutions associated with cmes.

Baccaro and Howell attack this conventional wisdom and articulate a bold argument for neoliberal convergence. It is a challenging task because as the authors readily acknowledge, the form of industrial relations institutions has not converged:

We are not making a coarse argument for institutional convergence. There is little evidence of convergence as identity, a glacial flattening of the institutional landscape to an identical topography. We are not arguing, in other words, that industrial relations in Sweden or Germany today resemble in some clear-cut sense those in Britain, that the cme category has been emptied so that the advanced capitalist world is populated solely by varieties of lme.³