Varieties of Capitalism: Locating Singapore's State-Led Model

USP Undergraduate Journal | 36 between firms, labor and capital relations, and Varieties of Capitalism: institutional determinants of behavior to explain capitalist market economies, leaving little room to Locating Singapore’s explore the role of the state. Secondly, and possibly State-Led Model related to the above, is the difficulty with which VoC proponents have tried to examine the economies With its emphasis on firm behaviour, of countries such as France, Italy and Spain. VoC the “Varieties of Capitalism’” approach situates national economies along a spectrum ranging seems to neglect the role of state poli- from more liberal forms of the market economy tics with its emphasis on firm behavior. to coordinated models which feature non-market elements in their economy, and many countries Does Singapore’s successful state- (including Singapore) continue to resist the efforts of dominated economic development VoC scholars to compartmentalize them according to make a convincing case for bringing this logic. ‘politics’ back into the study of polittical economy? A last charge that has often been laid against the existing VoC body of literature is that it is imbued with a large degree of Euro-centrism, drawing primarily Lim Aik upon empirical examples from Continental, Central and Eastern Europe. There are relatively fewer works on non-European examples, and while this is not a In recent decades, scholars of political economy problem in itself, useful insights can be drawn from have made use of various conceptual tools in trying the developmental trajectories of Asian economies, to explain the similarities and differences between particularly the successful adoption of the capitalist national political economies. Among them, the free market in the Tiger Economies – Taiwan, Hong Varieties of Capitalism approach (henceforth referred Kong, South Korea and Singapore. Numerous to as “VoC”), made prominent by Peter Hall and scholars have already written works on the former David Soskice in their work Varieties of Capitalism: The three economies, and this paper shall contribute to Institutional Foundations of Comparative Advantage the discussion by examining the relatively neglected (2001), stands out as a robust framework that throws Singaporean capitalist economy. light on the economic success of various capitalist countries, especially those belonging to the advanced That being said, it is important for us not to deem capitalist member-states of the Organization for the above three concerns as inherent flaws of VoC but Economic Co-operation and Development (OECD). to recognize that Hall and Soskice’s VoC framework Situating individual firms at the center of analysis, is not an ossified structure of received wisdom – it is VoC examines the role of both market-based and non- simply a coherent set of ideas meant to reinvigorate market institutions within an economy to identify debate on the academic analysis of national economies. the determinants of economic efficiency. Under this The absence of the state is more a matter of “heuristic emphasis” and not strictly an intrinsic deficiency in analytical framework, most successful economies are 1 categorized into one of two types of market economies the framework. – liberal market economies, which are more reliant on market-based institutions, and coordinated market The paper will begin by briefly summarizing economies, which depend on non-market mechanisms the fundamental ideas of VoC in order to establish to coordinate strategically. a common understanding of its implications and nuances, while the second section will attempt This paper will argue for a need to expand the to expand the current VoC framework to better analytical scope of VoC in order to improve its accommodate the role of the state and state politics. explanatory capacity, especially by integrating politics Following that, we will make use of the economic into its firm-level analysis of market economies. Using structure of Singapore as a case study to test the VoC the example of Singapore, the paper will explore a approach empirically against an Asian model of a third dimension of categorization – state intervention relatively successful market economy. The last part – on top of the traditional liberal/coordinated binary. concludes by arguing for a return of politics to VoC Such an approach will address the following three discourse in order to render it applicable to the state- concerns which have often been raised in criticism of led models of the market economy that is prevalent the VoC approach. in Asia. Firstly, by placing an emphasis on the firm as its The Explanatory Framework of VoC unit of analysis, VoC theorists seem to neglect the “political” in “political economy”. The VoC approach Of the earlier theories on advanced industrial relies largely on the analysis of strategic interaction economies, three perspectives on institutional Volume 3, Issue 1, August 2010 | 37 variation have come to dominate the analytical study of market forces, hierarchial relationships and of comparative capitalism:2 firstly, the modernization competition. The United States, Australia, Ireland, approach, which explains economic capacity in terms and the United Kingdom have often been used as of the institutional leverage that states hold over private prime examples of LMEs which employ a market- firms in directing modernization efforts; followed by based approach to, inter alia, firm interaction, wage neo-corporatism, a framework that focuses on the determination and corporate governance. “capacity of a state to negotiate durable bargains”3 with both employers and trade unions; and lastly a On the other end of the spectrum, firms within newer approach that Hall and Soskice term as “social coordinated market economies (CMEs) rely on non- systems of production,” which employes sociological market solutions to these same coordination problems. ideas in assessing the behaviorial interaction between This entails a high density of strategic relationships, a institutions and firms. large degree of collaboration (instead of competition), and regulated interaction between firms and other The “Varieties of Capitalism” approach intends to financial entities. The market economies of the go beyond all three in providing a new framework of Scandinavian social democracies, Germany and, ideas to make sense of institutional variations across to some extent, Japan serve to exemplify such an OECD capitalist economies, and this section gives arrangement of economic institutions. an overview of the VoC approach. VoC literature places the firm at the center of analysis, examining Institutional Complementarities & the strategic interaction between firms and economic Comparative Institutional Advantage institutions in order to derive insights about the nature of a particular market economy. Firms inevitably encounter coordination problems in their operation, VoC theory argues that in both CMEs and LMEs, and VoC focuses on five spheres in which firms have the configuration of economic institutions confers to deal with issues of coordination in order to operate benefits on firms that operate within each respective efficiently. market economy. These benefits are engendered by the inherent congruity within each system, and are First of all, firms in a market economy must solve manifested in various complementary features that problems in the sphere of corporate governance, which can be found operating within both CMEs and refers to the method firms employ to secure capital LMEs. Hall and Soskice term them institutional and the resultant relationship with the institutions complementarities, defined as a situation between two and investors who provide funding. The second sphere institutions in which “the presence (or efficiency) of is industrial relations, where macro-level negotiations one increases the returns from (or efficiency of) the between labor organizations and employer associations other.”4 are needed to coordinate wages and the provision of good working conditions. In the area of inter-firm For example, most firms in Germany rely on relations, issues of technology transfer, collaborative long-term bank credit for what VoC academics have initiatives and supplier-client relationships must be termed “patient capital,” and this disposes them resolved between different enterprises, both within and to favor long-term projects. Corporate planning is beyond specific industries. Fourthly, both companies therefore done with a long time horizon in mind, and and workers face problems in the coordination of this fits nicely with the German labor culture which vocational training and education, having to decide favors long tenures for workers and specialized skills on the allocation of resources for the skills training of training (something that would prove unfeasible in a the workforce. A last sphere in which firms encounter fluid labor market where workers often job-hop). In difficulties would be in the internal relationship with turn, the availability of disciplined and highly-skilled their employees, as the careful calibration of employee workers contributes to the overall efficiency with competencies and character dispositions is important which longer-term projects are pursued. in advancing a firm’s interests. This leads to the last concept that is crucial to VoC Two Different Conceptions of Market analysis: that of comparative institutional advantage, a term Hall and Soskice (2001) use to refer to the Economies notion that the “institutional structure of

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