Research Article

The State and Coordinated Capitalism: Contributions of the Public Sector to Social Solidarity in Postindustrial Societies

Cathie Jo Martin^a1 and Kathleen Thelen^a2*

^a1 Boston University, thelen@northwestern.edu.

^a2 Northwestern University, cjmartin@ bu.edu.

Abstract

This article investigates the politics of change in coordinated market econo\mies, and explores why some countries (well known for their highly cooperative arrangements) manage to sustain coordination when adjusting to economic transformation, while others fail. The authors argue that the broad category of “coordinated market economies” subsumes different types of cooperative engagement: macrocorporatut forms of coordination are characterized by national-level institutions for fostering cooperation and feature a strong role for the state, while forms of coordination associated with enterprise cooperation more typically occur at the level of sector or regional institutions and are often privately controlled. Although these diverse forms of coordination once appeared quite similar and functioned as structural equivalents, they now have radically different capacities for self-adjustment.

The role of the state is at the heart of the divergence among European coordinated countries. A large public sector affects the political dynamics behind collective outcomes, through its impact both on the state's construction of its own policy interests and on private actors' goals. Although a large public sector has typically been written off as an inevitable drag on the economy, it can provide state actors with a crucial political tool for shoring up coordination in a postindustrial economy. The authors use the cases of Denmark and Germany to illustrate how uncontroversially coordinated market economies have evolved along two sharply divergent paths in the past two decades and to reflect on broader questions of stability and change in coordinated market economies. The two countries diverge most acutely with respect to the balance of power between state and society; indeed, the Danish state—far from being a constraint on adjustment (a central truism in neoliberal thought)—plays the role of facilitator in economic adjustment, policy change, and continued coordination.

Cathie Jo Martin is a professor of political science at Boston University and currently holds a fellowship at the Radcliffe Institute for Advanced Study. She serves on the strategic advisory council of the Danish National Institute for Social Science Research and holds a visiting scholar position with the Copenhagen Business School. She is the author of Stuck in Neutral: Business and the Politics of Human Capital Investment Policy (2000), Shifting the Burden: The Struggle over Growth and Corporate Taxation (1991), and articles appearing in numerous journals. She conducts her research in the areas of employers and social policy. She can be reached at cjmartin@ bu.edu.

Kathleen Thelen is a professor of political science at Northwestern University. She is also a permanent external member of the Max Planck Institute for the Study of Societies in Cologne, Germany, and a senior research fellow at Nuffield College, Oxford University. She is the author of How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States and Japan (2004). She is also coeditor, with Wolfgang Streeck, of Beyond Continuity: Institutional Change in Advanced Political Economies (2005). She is currently working on two projects: a book on the politics of coordination in coordinated market economies and an edited volume, in collaboration with James Mahoney, on historical-institutional approaches to institutional change. She can be reached at thelen@northwestern.edu.

* The authors extend special thanks to Peter Hall, Torben Iversen, and John Stephens for extensive and insightful commentary on the paper. In addition, they benefited tremendously from input from Lucio Baccaro, John Campbell, Tom Cusack, Frank Dobbin, Martin Hopner, Richard Locke, Sara Jane McCaffrey, Paul Osterman, Ove Kaj Pedersen, Britta Rehder, Wolfgang Streeck, Duane Swank, Christine Trampusch, and the participants in seminars at the Copenhagen Business School, the Institute for Policy Research at Northwestern University, the Sloan School of Management at MIT, and the Center for European Studies at Harvard University. Martin thanks the Radcliffe Institute for Advanced Study (Harvard University), the German Marshall Fund, and the Danish Social Science Research Council; Thelen thanks the Institute for Policy Research (Northwestern University), the working group on “Institutional Complementarities and Institutional Change” at the Max Planck Institute for the Study of Society in Cologne, and the Max Planck Gesellschaft for support, financial and otherwise. Sebastian Karcher provided valuable research assistance.