Is There an Institutional Base of Thenew Economy?
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4 Is there an institutional base of the new economy? Bruno Amable Introduction The phenomenon of the new economy possesses many interrelated aspects that affect the micro, meso and macro levels. The basic idea behind the concept is that “something new” is happening in the fields of technology, internal organization of firms, macroeconomic policy, pattern of public intervention and economic geography (see Amable et al. 2002). A wide-spread thesis assumes that: (i) the new economy defines a new long-term growth trajectory based on a few “generic” technologies—mainly information and communication technologies (ICTs) but also biotechnologies and more generally the “weightless” economy1; (ii) associated with this new trajectory are an array of institutions that are capable of stimulating the technical change and structural changes which are needed to launch the technological trajectory that the new economy has defined; (iii) lastly, as would seem to be indicated on the one hand by the United States’ advance in the new ICT-related fields and on the other hand by its superior macroeconomic performances during the 1990s, one has to adopt American institutional characteristics in order to be successful. The example of the United Kingdom allegedly represents the confirmation of this thesis, as well as the proof that it is possible to overcome Euro-sclerosis. In sum, changes in modern capitalism are supposedly leading the developed countries toward an “Anglo-Saxon” model, replete with deregulated financial markets, “flexible” labor markets, technologically dynamic and newly created firms, greater competition in the product markets, etc. All in all, a situation that is relatively distant from the trajectory followed by the Continental European economies in the aftermath of the Second World War. Underlying such a thesis is the idea that certain ideal institutional infrastructures correspond to a set of given technological and economic constraints. Since the new economy seems to have redefined the bases for growth and competitiveness, it is recommended that countries should adopt the institutions that appear to warrant the best possible adaptation to the requirements of the new economy. Thus, there is a need for institutional change 66 BRUNO AMABLE in areas such as labor markets, finance, scientific systems and education. Since the weightless economy seems to be based on ICT and since ICT favors relocation and reorganization of the value chain, institutions that promote change and flexibility are best suited to the full exploitation of the benefits of the new technologies. An extreme version of this thesis is that there exists one best way to achieve the most satisfying economic performance regardless of the historical period, the dominant technological paradigm or the international regime. The new economy thesis referred to above does not require such a starting point. On the one hand, the institutional features of Continental European countries might have been instrumental in achieving a high degree of economic stability and growth in the post-war period, but they might no longer be suited to the new growth trajectory for a variety of reasons. On the other hand, the institutions of the Anglo-Saxon economies appear to favor entrepreneurship and investment in ITC and hence the emergence of the “new” economy. Therefore, if there is an ideal economic model at the present time, it would appear to be the US system. This statement questions the existence of institutional diversity among developed economies. Diversity is a fact that can be easily observed, but the interpretation of this diversity is a matter of debate. Should diversity be interpreted as heterogeneity of countries with respect to the process of adaptation to the ideal model? However, several researchers argue that diversity should not be understood in such a way (see Hall and Soskice 2001). In fact, diversity reflects the fact that there is no single one-best-way for a modern capitalist economy. Moreover, several varieties of capitalism may coexist. Each one of these may possess its own strong and weak points, reflected among other things in its pattern of trade specialization2 or its innovation system.3 The purpose of this contribution is to briefly analyze the diversity of capitalism and attempt to assess whether one particular type of capitalism is particularly suited for the new economy trajectory. The first section of the chapter analyses the diversity of capitalism with the help of the concept of institutional complementarity. The second section proposes a typology of modern capitalism based on identified complementarities. The third section suggests an empirical analysis and a typology of countries with respect to the production and diffusion of ICT and compares the results with the “varieties of capitalism.” The fourth section offers some tests of ICTs’ effects on economic growth. The fifth section provides a conclusion. Institutional complementarity Globalization and institutional diversity The current debate about transformations affecting contemporary economies is often centered on globalization and the consequences of new ICTs. As a result of IS THERE AN INSTITUTIONAL BASE OF THE NEW ECONOMY? 67 the deregulation of international trade and increasing competition on the product markets, globalization brings about an intensification of international economic relationships. The liberalization of financial activities facilitates international investment flows and tends to generalize the principles of market-based corporate governance worldwide. These include the provision of attractive incentives to high-ranking executives and the necessity of takeovers in order to achieve an efficient market for corporate governance. Capital has become more mobile, leading to an extension of the sphere within which private companies can act. As a result, the possibility for public intervention in the economy decreases. Firms have centered their strategies on the global market rather than national or “regional” spheres. This has increased the firms’ outside options and more generally their bargaining position vis-à-vis labor and the state. A consequence of this trend is increased competition between national territories that define their competitiveness in terms of their “factor endowment,” infrastructure, but also (and above all) local economic institutions. These regulations affect the functioning of factor markets (labor and capital) as well as the efficiency of the educational and training systems. The implications of this increased competition can be understood intuitively. If countries do not wish to fall behind in terms of their international competitiveness, countries experiencing economic difficulties need to align themselves with current best practices. But how can a country recognize these best practices? A rapid comparison of growth and unemployment performance over the 1990s would lead to the conclusion that the institutions of the USA and more generally “Anglo-Saxon” economies come very close to best practices. The USA was able to explore the new growth trajectory commonly understood as the new economy. The notion of a new economy is composite (see OECD 2000). The effect of this intensification of technical progress has been to raise productivity gains wherever they had been stagnating (in the United States). Technical progress has been concentrated in certain technologies and sectors, especially those involved in information and communication technologies. Innovation and technological dynamism played a greater role in the definition of competitiveness, both for firms and for countries as a whole. If ICTs define a new technological paradigm, it is tremendously important to adopt and perhaps produce these technologies in order to benefit from the productivity advances that they will make possible. Besides, technological dynamism at the onset of a technological cycle is seen as being dependent on small innovative firms. In order to develop efficiently, these firms need a favorable environment that includes flexible labor markets, facilitation of company forming and splitting, the availability of qualified personnel and easy access to venture capital. Market-based institutions, which are supposed to favor flexibility and entrepreneurship, play an important part in this story. As a result of the combination of globalization and the new economy, one might expect to observe a disappearance of national institutional specificities. Such specificities are the main preoccupation of a more or less homogenous 68 BRUNO AMABLE school of thought that focuses on the varieties of capitalism. This diversity is not seen as something that is accidental or temporary, but rather as the consequence of mechanisms that can be grouped under the generic title of institutional complementarities (see Aoki and Dore 1994; Aoki 2000, 2001; Amable 2000; Amable et al. 2000a). In this view, economies basically diverge in terms of the institutions that characterize them, depending on the particular aspect of the economy that is being studied. Thus, the labor market can be more or less regulated too, wage bargaining more or less centralized and the financial systems more or less reliant upon the banks or on the freedoms they have extended to the financial markets. In general, education is organized quite differently from one country to the next, with more or less close ties to the industrial sector, varying levels of university independence and different intensity of competition between private companies.