Institutional Change after the Great Recession

European Growth Models at the Crossroads

Luis Cárdenas del Rey, Javier de Arribas Cámara, Luis Cárdenas del Rey, Javier de Arribas Cámara

• Publisher: Routledge
• Year: 2021
• eBook ISBN: 9781000391336
• Edition: 1
• Topic: Economics
• Subtopic: Comparative Economics
• Index: Economics

This book combines demand-led growth models and the institutionalist approach, in order to explain the macroeconomic performance of the main European countries in recent years followed by which a coherent explanation of the institutional change since the Great Recession, including the economic policy response to the economic and financial crisis (2008) and to the debt crisis (2010) is provided.

A "Comparative Political Economy" (CPE) analytical framework and provide an institutional base to the different European growth models is built, in general terms over the period 1995-2018. The results allow us to link diverse growth dynamics to the changes of the institutional framework as a consequence of the economic and financial crises. In each chapter for country case studies (France, Germany, Italy, Spain, Greece, Sweden, UK and Poland) there;'s an ntroduction with a general characterization of the country and the most relevant changes that have occurred subsequently (main legislative milestones or changes in the behaviour of social agents) especially the process of dualization or deregulation of European economies. In addition, an analysis of the macroeconomic evolution and the situation of the labour market before and after the crisis from a demand-side perspective is included, concluding with the linkages between both issues and the characterization of the growth model.

This book is of special interest to all the students and university professors who will use this book to be able to follow a multitude of subjects from Applied Economy to International Economic Structure but can also be useful for researchers, doctoral students and teaching staff who want to expand knowledge in the fields of comparative political economy, institutions and the European Union. In general, this book is aimed at anyone interested in expanding their knowledge of the evolution of Europe today.

1 Introduction

Javier Arribas and Luis Cárdenas

COMPLUTENSE UNIVERSITY OF MADRID AND REY JUAN CARLOS UNIVERSITY

DOI: 10.4324/9781003020585-1

1 Introduction

This book combines demand-led growth models and the institutionalist approach, in order to explain the macroeconomic performance of the main European countries in recent years. It then sets out a coherent explanation of institutional change since the Great Recession, including the economic policy response to the economic and financial crisis (2008) and the debt crisis (2010).

Our analysis includes the reaction of the European institutions and case studies covering eight countries. Chapters 2 and 3 devoted to the analysis of supranational European institutions will provide an explanation of the fiscal and monetary policies implemented since 2008, respectively. Additionally, in each chapter covering a country case study, there will be an introduction with a general description of the country and the most relevant changes that have occurred subsequently (main legislative milestones or changes in the behavior of social agents). Every chapter also includes an analysis of the macroeconomic evolution and the position of the labor market before and after the Great Recession from a demand-side perspective before concluding with the links between both issues and the characterization of the growth model.

We build a “comparative political economy” (CPE) analytical framework and provide an institutional foundation for the different European growth models, in general terms and for the period 1995–2018. In the last few decades, the CPE field has been focused on the comparison of the different types of capitalism, in what is known as the comparative capitalisms (CC) approach. This field of research (Nölke, 2019) goes back to the early works by Polanyi (1944), Shonfield (1965), Olson (1982) and Albert (1993). Unlike other approaches, such as global (international) political economy (GPE), which analyzes the role of states on the global stage, CPE, and in particular CC, are based on the differences between different types of capitalism.

Institutions are understood as the legitimate rules of behavior of social agents in different countries (especially in the West), focusing on the way in which social and political variables influence the functioning of various economic areas and, therefore, influence the economic results of different countries (Block, 2007; Jackson & Deeg, 2008; 2012). Thus, this literature has studied the diversity of institutions and the change in their comparative forms (Aoki, 2001; Beramendi, Häusermann, Kitschelt, & Kriesi, 2015; Berger & Dore, 1996; Coates, 2000; Crouch, 2005; Mjøset & Clausen, 2007) while essentially focusing on how social and political variables influence the functioning of various economic spheres and thus influence the economic performance of different countries (Block, 2007; Hay, 2019; Jackson & Deeg, 2008). Complementarily, the liberalization processes of advanced societies have been widely studied within CPE from a historical institutionalism perspective. This branch of the literature will be used in order to analyze the causes of institutional change.

Within CC, the most common approach is the Varieties of Capitalism (VoC) paradigm, introduced in the early 2000s by Hall and Soskice (2001). VoC is characterized by offering an institutional supply side theory, i.e. focused on how institutions affect the inputs for the production of goods and services, such as the characteristics of the supply of labor, capital, innovation, etc. Together, these socially integrated institutions produce a specific logic of action at the national level to the extent that there is complementarity between them, and they thus configure the different taxonomies of capitalism. In turn, VoC proposes a taxonomy with three types, namely, coordinated market economies (CME), liberal market economies (LME) and mixed market economies (MME), which can be associated with the productive features of national economies and their different comparative institutional advantages (Molina & Rhodes, 2007; Reale, 2019; Schneider & Paunescu, 2012; Witt & Jackson, 2016).

As various authors have pointed out (Becker, 2009), VoC fails to take into account disruptive institutional change or systems. It also omits the elements of class and the characteristics of capitalist economies (Becker & Jäger, 2012; Bruff, 2011) and, therefore, there is a need to move toward broader approaches (Bruff & Horn, 2012). An example of this is the analysis of the Great Recession (Ryner, 2015) carried out from the VoC perspective, which is based mainly on exogenous shocks. This is probably its main analytical weakness when used to analyze the responses to the economic crisis and the weakening of the position of workers that this implied (Heyes, Lewis & Clark, 2012). All these shortcomings underlie the functionalism that characterizes most jobs in the VoC tradition and that ignores the power relationships between social agents.

Likewise, CC scholars emphasize the study of institutional change and how it varies with different types, in a literature that can be grouped under the term “varieties of liberalization.” This literature is framed within “historical and sociological institutionalism,” which is characterized by the analysis of broad contexts and processes that interact and shape public policy design. It places a special emphasis on long-term processes, such as path dependence or “critical junctures,” which are characterized by sequences of transformations in macro contexts and with the combined effects of institutions and processes. Thus, institutional change processes are analyzed from a dynamic perspective that emphasizes conflict and negotiation among social agents.

Recently, and especially after the financial crisis of 2008 that led to the Great Recession (Tooze, 2018), there has been increased interest in the macroeconomic aspects that led to the crisis and in the outcome of the economic policies implemented (Lallement, 2011), along with the institutional architecture of the European Union (Iversen, Soskice & Hope, 2016; Jessop, 2014; Johnston & Regan, 2015). There is also work that incorporates other elements of CPE, such as “labor process theory” (Hauptmeier & Vidal, 2014).

Traditionally, CPE has focused on an exclusively supply-side approach. However, there is a growing branch of literature within CPE, arguing that the socio-institutional analysis can be improved by the incorporation of a Kaleckian (demand-led) perspective (Baccaro & Pontusson, 2016). We believe that expanding that theoretical framework offers better research prospects. For example, by including wages as a relevant variable in determining the volume of consumption and investment, the usual recommendations for wage restraint do not necessarily have a positive effect on economic growth. On the contrary, since the main European economies are wage-led, wage restraint has negative effects on economic growth. Therefore, by including demand-side issues, we will be able to have a better understanding of the consequences of institutional change in Europe.

In fact, Regulation Theory (RT), in its French (Boyer, 1990), Englis...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Acknowledgments
• Abbreviations
• 1. Introduction
• 2. Foundations of a growth model perspective
• 3. Institutional reform and changes in the economic governance of the European Union after the economic crisis
• 4. France: Low inequality despite poor economic performance in a debt-financed consumption-led model
• 5. The mechanics of German capitalism: Dualism and inequality in an export-led economy
• 6. The impact of the institutional change on the economic growth path in Greece
• 7. Italy and the global financial crisis: The fallacy of debt-led growth through moderation, austerity, and populism
• 8. In the eye of the storm: The “success” of the Spanish growth model
• 9. This time was different: The crisis that went past Sweden
• 10. Financial services industry power and labor market polarization in the UK debt-led growth model
• 11. Financial and economic crisis within the EU: Consequences for the Polish banking institutional system
• 12. Conclusion
• Index