Skip to main content
main-content
Top

About this book

A broad-ranging assessment of the complex changes in Europe's diverse and complex mix of national and European capitalisms as they respond to the challenges of globalization and from rising powers, of competitiveness, ageing populations and welfare sustainability compounded by the impact of financial, monetary and sovereign debt crises.

Table of Contents

Chapter One. Introduction

Abstract
Economies must be governed. The rights and responsibilities of socioeconomic actors and the rules determining their interaction must be defined, regulated, monitored and enforced. Complex legal provisions, regulatory standards, mechanisms of oversight and implementation must be established to structure the operation of economies, and to sustain certain forms of interaction between economic actors while prohibiting or inhibiting others. These arrangements are as much political as they are economic in their effects and their origins. Matters such as how firms are governed, how financial and labour markets are regulated, the nature and degree of social protection, when and how states intervene in the economy are all of pivotal importance for the distribution of power, wealth and opportunity in the economy. The particular governance arrangements that develop are the product of political contention and construction. Socioeconomic groups strive to shape institutions and policies to their own advantage. The ‘political economic’ systems that emerge inevitably reflect these struggles, embodying particular patterns of power relations and favouring/disfavouring particular distributive outcomes (Gamble et al. 2002, 2; Clift 2014, 1). While often discussed and justified solely in terms of functional efficiency, major changes to institutions and policies that govern economies invariably carry implications for the distribution of power and economic opportunity among socioeconomic actors and, in consequence, frequently generate conflict and controversy.
Dermot McCann

Chapter Two. Diverse Europe Under Stress

Abstract
An analysis of Europe’s political economy must begin with the recognition that, at least until very recently, it has been composed of highly diverse and essentially nationally based systems that differ significantly in their governance institutions. Across the continent, states have organised and governed their labour markets in very different ways; legal provisions concerning the constitution and governance of corporations have varied substantially from country to country; industrial relations practices have reflected very different operational principles; financial markets have been characterised by quite distinct structural features. Moreover, although the end of the Cold War saw the triumph of liberal democratic capitalism across the continent, it only added to this diversity of institutional form and policy. States in Central and Eastern Europe crafted a variety of distinct strategies as they sought to transform themselves from state-run to market economies and to insert themselves into wider regional and global structures of finance and trade, adding to the complex mosaic of governance arrangements that have long marked the continent.
Dermot McCann

Chapter Three. The Liberal(ising) State: Industrial Policies and Tax Competition

Abstract
The centrality of the state to the constitution and functioning of national political economies is difficult to overstate. The complex legal provisions, institutional arrangements, regulatory policies etc. that structure and govern economies are very substantially a product of its actions. Much of the political economic diversity explored in Chapter Three reflects the ‘contingency and historical specificity of individual (national) state adaptation processes’ (Clift 2014, 170–1). These contingencies and specificities are inscribed in the contrasting functions played by states in LMEs and CMEs and inform key aspects of the institutional distinctions between Nordic, continental, Mediterranean and post-Communist states. However, in recent decades many observers have perceived the occurrence of a generalised, liberalising shift in the role of states within Europe’s national political economies irrespective of their individual particularities. This shift is said to be manifest in three specific developments. Firstly, a far greater weight in the allocation of resources and the determination of investment choices within economies has been given to markets and market interactions across the continent. State policies are now much more deeply influenced by the belief that an increased role for markets in economic decision-making is the most effective way of making the national economy more competitive internationally. Reflecting these changes in view, states and state actors across Europe have voluntarily given up a range of crucial interventionist policy instruments (Cerny 1997, 269).
Dermot McCann

Chapter Four. Europe’s Money and the Crisis of Political Economic Strategy

Abstract
The single most transformative development in Europe’s political economy in the last two decades was the establishment in 1999 of a European Monetary Union (EMU) and the creation of the single currency, the euro. Initially composed of 11 member states, by 2015 this had risen to 19. The decision to embark on the creation of EMU was embodied in the Maastricht Treaty (1992). The general objective was to deepen the integration and interdependence of European states and economies with a view to stabilising political relations and enhancing prosperity. Specifically, the policy sought to achieve ‘the full liberalisation of capital circulation, the full integration of financial markets, the total and irreversible convertibility of currencies and, eventually, their institutionalisation in a single currency’ (Bartolini 2005, 195). Its realisation would transform the economic context within which national public and private actors pursued their objectives. By removing the capacity of states to devalue their currencies in order to gain competitive advantage, a common currency would buttress the functioning of the EU’s integrated ‘single market’. By eliminating exchange-rate risks and enhancing the comparability of prices and wages across the member states of the Union, it would greatly facilitate capital mobility, intensify price competition and pressurise firms to contain their labour costs (Dølvik 2004, 281). By deepening their economic interdependence, it would strengthen the political ties between the participating countries.
Dermot McCann

Chapter Five. Financial Systems: From Fragmentation to Crisis

Abstract
The financial system lies at the heart of a capitalist economy. It encompasses ‘the interaction between the supply of, and demand for, the provision of capital and other finance-related services’ (Schmidt et al. 2001, 1). Its particular form and operation has profound implications for both the general health of the economy and the distribution of power within it. Thus, a poorly functioning financial system will undermine investment and growth as capital may be misallocated or mispriced. Its structure will affect substantially the specific opportunities open to different economic actors and the relationships between them. Thus, the terms of finance that it provides to firms will influence their productive strategies. The pattern of corporate ownership and control, and the manner of its transference, will be profoundly influenced by the nature and range of sources of finance that are available, by how investments are monitored and by the ease with which capital can be withdrawn and shifted elsewhere. The behaviour of economic actors in fields such as wage bargaining will be affected significantly by the intensity of the pressures on corporate management exercised by the financial system. More broadly, the structure of finance has important consequences for the financing of the state and the macroeconomic management of the economy. How financial systems are organised and governed has fundamental implications for the general political economic order.
Dermot McCann

Chapter Six. Corporate Ownership, Control and Governance: Shareholders, Stakeholders and Liberal Transformation

Abstract
The corporation lies at the heart of modern European capitalism. The continent’s prosperity is deeply dependent on the performance of the firms that produce and trade within it, and on their capacity to meet the competitive challenges of the changing global economic order. At the same time, the wealth and power of socioeconomic actors is greatly affected by their ability to exercise influence over corporate behaviour. Who owns, controls and governs the activities of corporations and on what terms? What are the relative powers of shareholders, managers and employees and what legal protections are afforded their respective interests? Comparative political economic analysis has identified very marked differences across economies in how corporations are structured in relation to corporate financing, ownership and governance. These deeply embedded and interconnected differences have major implications both for the productive strategies that corporations adopt and for the capacity of different socioeconomic groups to realise their objectives. In Europe, there are two dominant modes of corporate ownership, control and governance, each of which embodies a quite distinct set of corporate relationships and priorities. In the first, the ‘shareholder-oriented mode’, the overriding responsibility of management is to protect and advance shareholder interests by maximising dividends and share values (Hansmann and Kraakman 2002, 58).
Dermot McCann

Chapter Seven. Labour Markets and Social Models: The Triumph of Liberalisation?

Abstract
The structure and operation of the labour market is of pivotal importance to the functioning of political economic systems. A poorly performing labour market will inhibit efficiency and growth. Firms will not find appropriately skilled labour at an affordable price and/or workers will not find employment at acceptable wages (Adnett and Hardy 2005, 45). The particular character of labour-market institutions will also strongly affect the distribution of power among socioeconomic actors and the form of their interaction. Thus, the conduct and outcome of wage negotiations will be shaped substantially by the nature of collective bargaining rules and the organisational strength of trade unions and employers’ associations. In addition, the labour market’s functioning will both influence and be influenced by the wider structures of the welfare state. The terms of social security programmes have major implications for the cost of hiring labour and the willingness of workers to strike. The level and type of social transfers set a wage floor that conditions wage negotiations. Training regimes will affect the availability and cost of appropriately skilled labour (Pierson 2001b, 5; Dølvik and Martin 2015b, 4). Conversely, the model of employment relations, the structure of bargaining systems, rules of employment protection, etc. fundamentally influence welfare-state institutions and policies (Wood 2001, 368).
Dermot McCann

Chapter Eight. Conclusion

Abstract
In the final decades of the 20th and early 21st centuries, Europe’s political economic systems have undergone major liberalising institutional and policy change. Across the continent the role of markets in coordinating economic activity and shaping the distribution of economic resources has been greatly enhanced. The capacity and propensity of states to intervene in the economy has been substantially curtailed. A large subset of European states has chosen to integrate into a regionally based liberal governance regime, the European Union. This body has introduced a raft of measures designed to remove or marginalise national institutions and policies that create obstacles to cross-border economic integration. In combination, these developments have precipitated major liberalising reforms across many key economic domains. Thus, financial market regulation has been significantly Europeanised and banks and securities-market actors have become much more open and internationalised in their operations and orientation. The unrestricted movement of capital across borders has grown enormously. States’ ability to direct the flow of credit has been greatly restricted. Major efforts have been made to enhance corporate mobility and to create an open market for corporate control across the continent.
Dermot McCann
Additional information