User:Stuffisthings/varieties of capitalism

Varieties of Capitalism (VoC) is a political economy approach used primarily in European studies which focuses on regulatory regimes and strategies of coordination between firms to describe different "models" of capitalism. It draws primarily on the neo-corporatism, neo-institutionalism, and particularly New Institutional Economics. The theory was originally developed by Peter Hall and David Soskice in a 2001 volume by the same name.

In the tradition of New Institutional Economics, the VoC approach attempts to incorporate economic sociology, game theory, and the microeconomics of information into a coherent macroeconomic theory. Because of its focus on coordination between firms, it suggests that institutional arrangements (such as regulation, industrial relations, and technical and vocational education systems) in developed countries, though different, are relatively stable. It is notable for providing a defense of the state's role in the economy that is compatible with mainstream neoclassical economic theory.

Looking primarily at Western Europe, the VoC approach places countries along a spectrum from Liberal Market Economies (LME) such as the United States and the United Kingdom, where coordination is provided by the market, and Coordinated Market Economies (CMEs) such as those found in Germany or Sweden, where the state plays the coordinating role. The key argument is that both models A) have particular advantages and disadvantages and B) these differences lead economies to specialize in different ways, giving rise to the concept of comparative institutional advantage. In this view, a country's comparative advantage in producing certain goods could be said to stem from its institutional makeup.