Conceptualising capitalism in the twenty-first century: the BRICs and the European periphery^*

* We dedicate our work to Uwe Becker – dear friend, ever-encouraging mentor and a critical spirit who never stopped questioning.

ABSTRACT

The paper provides a conceptual framework of the Special Issue by theorising and analysing the evolving nature of capitalism in emerging economies and the European periphery today. The conventional conceptual tools of comparative capitalism provide a useful structure for the analysis but have not been up to the task of capturing the changing nature of capitalism in the globalised world, in particular the rise of the emerging powers as well as their current crises. Neither do the conventional tools allow one to capture the developments in the political economies of the European periphery since the Eurozone crisis and the advent of austerity policy. In order to adequately assess these developments we need to rethink the comparative capitalism framework in the global context. To do so, we propose a more dynamic conceptual approach better suited to capturing the changing nature of political economies in and beyond the OECD world. We build upon Uwe Becker's open Varieties of Capitalism framework, among other approaches. Our theoretical conceptualisation highlights five aspects: (1) the role of the state as a central force organising the market (2) patrimonialism, understood as a distinct structural mode of political-economic organisation based on clientelism, patronage and informal relations between actors (3) policies and political institutions (4) the role of ideas, and (5) pressures from globalisation and economic crises.

KEYWORDS:

• Comparative capitalism
• varieties of capitalism
• patrimonialism
• BRICs

Introduction

This Symposium Issue was first conceptualised at a time when the countries admiringly hailed as the emergent champions of the world economy, the BRICs (Brazil, Russia, India, and China), were riding high. It was also a moment when countries of the European periphery had plunged into major recessions as a result of harsh austerity and structural reform programmes (Portugal and Greece in formal programmes, Italy and Spain in informal self-imposed ones). By 2018, while the countries of the European periphery had emerged from their programmes, the BRICs had lost their shine. Economic downturns in Brazil, Russia and even China raise doubts about the ‘emerging’ character of the BRICs, while the still rapidly growing Indian economy confronts problems that threaten its long-term stability. Beyond the worrisome economic dynamics, in part reflecting falling global commodity prices, have been domestic issues pertaining to patrimonialism, corruption and informality. Given these divergent trajectories, the main question is whether we can find some common conceptual approach that would enable us to compare the BRICs to the European periphery as they moved into and/or out of crisis. This Special Issue serves to demonstrate that in order to be able to explain capitalism in the European periphery and the BRICs as well as to understand the crises that have affected them, we need to go beyond the framework of comparative capitalism (CC), which was developed for the advanced industrialised countries, and which posited either convergence to one model or binary divergence into two varieties.

In this introductory article, we therefore begin with a critique of classical approaches to CC and then, building on recent developments in the literature, propose a more encompassing theoretical analysis of the comparative capitalism of emerging economies and the European periphery in the wake of the crisis. In so doing, we draw on an open qualitative approach, pioneered by Uwe Becker (2009, 2014), by systematically integrating the state into the analysis (Schmidt, 2002, 2009), and by paying close attention to the role of changing ideas, policies and political institutions (Schmidt, 2008, 2009; Schmidt & Thatcher, 2013). We also introduce the concept of patrimonialism, meaning a political-economic configuration marked by clientelism, informal politics and corruption, the necessary added component to understanding capitalism in the European periphery and the BRICs (Becker, 2014; Becker & Vasileva, 2017).

The six papers in this special issue analyse different responses to crises by the states of the BRIC countries (the cases of Brazil, Russia, India and China), and the European periphery (using the emblematic case of Portugal) as well as respective dimensions of state-business interaction. The cases together demonstrate that our understanding of capitalist evolution must be opened up to include the role of the state, the character of international integration, leadership, informality and, last but not least, ideas and discourses. The findings contribute to theorising varieties of capitalism beyond the OECD world and to developing a dynamic theory of capitalist change in the face of pressures from globalisation and economic crises. The chosen political economies represent fascinating comparative cases that have the potential to generate theoretically innovative insights while enhancing our understanding of capitalism.

The special issue as a whole is dedicated to the memory of our colleague, friend and mentor, Uwe Becker, and brings together some of his collaborators on the changing political economies of the BRICs.

Conceptualising capitalism

Conceptualising capitalism in the twenty-first century is no easy task. If capitalism can best be understood as consisting of market-based economies in which business, labour, and the state are all major players, the differing relative power and interrelationships among these players serves to define different varieties of capitalism. In the comparative capitalism literature, around the turn of the twenty-first century, theorists first predicted a move from any number of varieties of capitalism to convergence to a single neo-liberal model (Cerny, 1994; Strange, 1996). This was followed by critiques of convergence. Some theorists insisted on divergence into two competing varieties of capitalism, one ‘liberal’ in which firms predominated, the other ‘coordinated’ between firms and labour (Hall & Soskice, 2001). Other theorists argued that there were at least three such varieties, where the state was also important (Coates, 2000; Schmidt, 2002, 2009), or more (Amable, 2003; Boyer, 2004; Whitley, 2005). While these first iterations focused mainly on advanced industrialised countries, including the US, European countries, and Japan, subsequent applications turned to less developed countries in Europe, including Central and Eastern European countries (Bohle & Greskovits, 2012; Drahokoupil & Myant, 2011; Nölke & Vliegenthart, 2009) and Southern Europe – Portugal, Spain, Italy, and Greece (Molina & Rhodes, 2007; Royo, 2008). Most recently, they moved to the ‘new kids on the block’, members of the BRICs (Brazil, Russia, India, and China) and their related regions, including Brazil (Boschi, 2014) and Latin America more generally (Schneider, 2013), Russia (Vasileva, 2014) and China (e.g. McNally, 2014).

All such approaches, although largely staying within the field of comparative political economy, increasingly had to take under consideration questions of international political economy, in particular with regard to the impact of globalisation and regionalisation on national capitalisms. This meant taking into account global and regional trends in terms of global and regional flows of investment and trade; global and regional actors and industries, including multinational corporations, international regulatory regimes and bodies; and the spillovers, encompassing migration flows, poverty trends, and most recently inequality.

The continual expansion of comparative capitalism to more or different countries at differing levels of development in diverse regions also served to increase the numbers of factors to be considered. While theorists positing convergence toward one model focused on the neo-liberalising push of the financial markets, those insisting on divergence to two varieties put firms at the centre of analysis (Hall & Soskice, 2001). Moreover, those contending further differentiation to three varieties brought the state back in, meaning the role of government and its relationship to firms and labour (Schmidt, 2002), while those privileging even more models added labour, welfare state (Amable, 2003), and finally even politics (Beramendi, Häusermann, Kitschelt, & Kriesi, 2015). But it is only once the BRICs were brought in that other equally important factors – treated as aberrations in advanced industrialised societies and therefore not theorised – were added. These involve aspects of the state and its relationship to business and society that can be considered as determining factors of the variety of capitalism in question, including patrimonial relations, informality, and endemic corruption.

Patrimonial capitalism is based not on the market mechanism (as the liberal type of capitalism) or state regulation (as the statist type), but rather on informal clientelist relations between the state and business actors. This Special Issue treats patrimonialism as an alternative mode of socio-economic organisation and thus presents it as an additional ideal type of capitalism instead of treating it as a blemish on an otherwise well-functioning economy. Patrimonialism is not simply an incidental feature of certain social arrangements but rather a distinct structural principle of economic and social organisation that systematically affects the relationship between the state, business and labour (Becker, 2014; Becker & Vasileva, 2017).

The advantage of incorporating patrimonialism into the analysis is that it helps to better capture the empirical reality of emerging economies as well as the European periphery. These cases and their development cannot be adequately understood without systematic attention to this informal, particularistic dimension of their politico-economic organisation. Viewed from a normative perspective, this approach questions the negative connotation often automatically attached to informal aspects of economic interactions (the loaded notion of ‘corruption’ exemplifies this stance). By contrast, articles in this Special Issue demonstrate that patrimonialism can have both facilitating and detrimental aspects, which are addressed in more detail below with regard to their market enhancing or market hindering effects. For example, informal practices in state-business relations may on the one hand compensate for the deficiencies of the formal system, helping to cope with excessive regulations or get things done, and may thereby foster reciprocity, trust and even social cohesion. On the other hand, informal practices can also be subversive of the formal system as they may undermine formal institutions and the common good, promote particularism at the expense of universalism and entail exploitation of state resources for personal gain.

Beyond disagreements over substantive theories about how many varieties of capitalism there are and how many factors to consider, scholars have also split over methodological theories and their consequences for explaining change (or continuity). While proponents of binary divergence made their case through an equilibrium-focused combination of rational choice and historical institutionalism (Hall & Soskice, 2001), opponents raised questions about the static and functionalist presuppositions of such an approach along with its empirical applicability (e.g. Crouch, 2005; Schmidt, 2002). In light of such criticism, some comparative political economists posited further hybridisation and incremental change within rationalist and/or historical institutionalist frameworks (e.g. Deeg & Jackson, 2007; Streeck & Thelen, 2005). Others pushed for more agent-centred accounts focused on cultural frames, historical legacies, ideas, and discourse using sociological and discursive institutionalist frameworks (e.g. Campbell & Pedersen, 2001; Schmidt, 2002). And yet other scholars conceived of political economies as loosely ordered system-like configurations with relatively autonomous components open to change coming from a multitude of institutional, agent-centred and ideational sources (Becker, 2009).

Today, although the methodological splits remain, scholars seem to have come to agreement that capitalism is substantively more diverse than neo-liberal convergence or VOC dualism. Theoretical approaches now not only consider the role of the state but also for the most part add regional differences, complicated by policies, political institutions, and politics developing over time, mainly in response to neo-liberal ideas and the pressures of both globalisation and regionalisation, including Europeanisation (e.g. Beramendi et al., 2015; Fioretos, 2011; Schmidt, 2009).

The questions now focus on how to explain the transformations in all capitalisms, in particular in light of the economic crisis beginning in 2007/2008 and of the resilience of neo-liberal ideas. In this context, the state has returned to centre stage. This is because it has been the agent of neo-liberal resilience, in particular in Europe, through policies focused on enhancing markets while cutting back on public spending and social protection (Schmidt & Thatcher, 2013), or the agent of greater social cohesion, especially in emerging economies, by reining in the markets to promote greater equality and social justice, as in the case of Brazil (Boschi, 2014). But with the greater role of the state has also come different kinds of government-business relations, including the ambiguous role of informality and, more generally, patrimonialism, and the nature of state-society interaction.

Counting the varieties of capitalism

The ‘varieties’ of comparative capitalism literature dates back at least to the 1960s, when three models – liberalism, corporatism, and statism – were used to explain capitalist diversity in the postwar era (Shonfield, 1965). These held steady in the literature until the mid to late 1990s, when both corporatism and statism as explanatory categories increasingly lost out to theorists of liberalism. Scholars in international political economy in particular had come to agree that, like it or not, capitalism was converging on a single neo-liberal model in which the retreat of the state and the decline of labour in favour of unfettered markets – engineered via liberalisation, deregulation, and privatisation – spelled the end of any other models (e.g. Cerny, 1994; Strange, 1996). This neo-liberal model of convergence was itself challenged in the following decade by a model of binary divergence, in which liberalism had morphed into ‘liberal market economies’ and corporatism into ‘coordinated market economies’, leaving statism out in the cold (Hall & Soskice, 2001). That said, many theorists continued to critique not only unitary convergence by insisting on continued national diversity (e.g. Berger & Dore, 1996) but also binary divergence by arguing that national diversity made for more varieties of capitalism, including one based on statism (Boyer, 2004; Coates, 2000; Schmidt, 2002).

Are there only two varieties of capitalism?

In the early 2000s, the firm-centred approach to the varieties of capitalism (VOC) pioneered by Hall and Soskice (2001) took comparative political economy by storm. It divided capitalism into two main ideal-types: Liberal Market Economies (LMEs), applied mainly to the US and the UK as well as other Anglophone countries, and Coordinated Market Economies (CMEs), including Germany, many smaller countries in Continental Europe, Scandinavia, and Japan. These two varieties were differentiated mainly in terms of how firms coordinate with their environment, with coordination either market managed (LMEs) or non-market managed (CMEs). This approach, by combining historical institutionalist attention to path-dependent institutional rules and regularities and rational choice institutionalist concern with interest-based logics of coordination, produced an equilibrium model that predicted that instead of convergence to one neoliberal model, there would be persistent binary divergence into two ideal-typical varieties of capitalism. As for other advanced industrialised countries that fell outside the scope of the two varieties, they were put into the category of ‘mixed market economies’ (MMEs) and mainly treated as anomalies or, worse, as plagued by intra-system contradictions, misfits, and perverse spillovers (Hall & Gingrich, 2004; Molina & Rhodes, 2007).

VOC posited that in LMEs the market coordinates interactions among socioeconomic actors. Firms depend upon the financial markets for capital, and therefore focus on short-term profits, while inter-firm relations tend to be competitive and contractual. Management-labour relations tend to be market reliant, with radically decentralised labour markets and low levels of job protections leading to bifurcated wage structures between highly paid, highly skilled workers and low-paid, low skilled workers (Hall & Soskice, 2001). The ‘liberal’ state, if considered at all, plays at most a supportive role in creating a positive regulatory environment, acting as an agent of market preservation by locating decision-making power in companies while limiting the power of organised labour (King & Wood, 1999). The resulting system is posited as highly responsive to changing market conditions. It was seen as having a comparative advantage not only in areas where radical innovation is the key to market dominance, such as biotechnology, the new economy, and high-end financial services, but also in low-end services and low-tech industries, in which workers’ low wages, low skills, and minimal vocational training makes for competition on the basis of price rather than quality.

For CMEs, VOC presented socioeconomic actors as engaging in non-market coordination. Here, firms tend to be less exposed to financial market pressures because of the more long-term investment view of providers of finance and of the higher concentration of share-ownership through strategic investors, which also helps protect against takeover. Moreover, inter-firm relations tend to be network-based, with close, mutually reinforcing relations with suppliers, subcontractors, and customers, while labour-management relations tend to be trust-based and cooperative, ensuring that corporate governance tends to be more driven by ‘stakeholder’ values rather than ‘shareholder’ ones. This is reinforced by an employment system with highly skilled, highly paid labour with high levels of employment protection and long-term employment (Hall & Soskice, 2001). Finally, the state, again if considered, plays an understated ‘enabling’ role by facilitating collaborative inter-firm relations and cooperative labour management relations. The resulting system, although slower to respond to changing market conditions, has a comparative advantage in sectors such as high-precision engineering and high-value-added manufacturing, which depend upon a more stable long-term investment environment where highly paid, technically skilled workers ensure the incremental innovation necessary to the production of high-value-added, high-quality products.

Although this binary division of capitalism has been highly attractive because of its parsimony, and has since generated a veritable cottage industry of scholarship, it has been the subject of numerous critiques. The most pervasive criticisms are that a binary division into ideal-types tends to be too reductive, overly functionalist, and highly static because equilibrium-focused, making for too much path-dependence and an inability to account for institutional change – particularly in light of the very real disaggregating forces coming from globalisation pressures and neoliberal policies (see Becker, 2009; Crouch, 2005; Schmidt, 2002, Ch. 3; and Hancké, Rhodes, & Thatcher, 2007). Scholars have also been concerned that VOC has been unable to deal adequately with country cases that do not fit well into either ideal-type or, more damning yet, that it does not even apply to the countries that it purports to describe. For example, empirically, it turns out that the data taken across a number of years (rather than VOC’s narrower sampling) do not support the assumptions about the radical nature of innovation in an LME such as the UK or the incremental nature of innovation in Germany’s CME (Taylor, 2004).

In this context, Uwe Becker (2009, 2014) put forward a forceful critique of the lack of an adequate distinction between ideal types and empirical cases. Becker views ideal types as theoretical models based on comparative empirical knowledge that represent alternative modes of socio-economic organisation. Ideal types do not circumscribe normative ideals (and are not conceived as the best performing configurations) but rather represent a tool to facilitate comparative analysis. Becker strictly distinguishes ideal types from empirical cases – real-life political economies, which only approximate ideal types and can contain elements of several of them. This approach has two advantages: first, it allows one to systematically integrate emerging economies into the comparative capitalism debate rather than treating them as cases sui generis; second, by viewing empirical political economies as dynamic mixes containing elements of several ideal types this approach is better suitable for capturing change. Herein lies the main difference from the bulk of VOC scholarship that traditionally classifies countries as representatives of one or another ideal type and thus often has difficulty grasping and explaining social change. In this way Becker's approach is particularly suitable for the analysis of dynamically changing political economies of the BRICs and European periphery.

From three to more varieties of capitalism

Some comparative political economists from the very beginning argued that the binary approach to VOC pushed to the margins a number of countries with equally distinctive patterns, but in which the state has traditionally played a larger role in the economy. This is why scholars have argued that there are at least three varieties of capitalism (e.g. Coates, 2000; Schmidt, 2002, 2009), differentiable along lines of development from the original three postwar models (as identified by Shonfield, 1965). They argue that liberalism, corporatism, and statism have given way not just to ‘liberal market economies’ and ‘coordinated market economies’ but also to ‘state-influenced market economies’ (SME) (Schmidt, 2009).

This third variety of capitalism includes all countries in which the state plays and has played a much more active role than in the ideal-typical LME or CME. In the postwar period, SMEs encompass state-influenced models such as France’s ‘state-led capitalism’ (Schmidt, 2002, Ch. 3, 4), also seen as a ‘centralised market economy’ (Fioretos, 2011) or as an ‘entrepreneurial state’ (Thiberghien, 2007) similar to the ‘developmental states’ South Korea and Taiwan or even Japan (Weiss, 2003; Woo-Cumings, 1999). Today, SMEs include France’s ‘state-enhanced capitalism’ or Italy’s ‘state-hindered capitalism’ (Schmidt, 2002, Ch. 3, 2012), also termed ‘public neo-capitalism’ (Barca, 2010) and ‘dysfunctional state capitalism’ (Della Sala, 2004); and Spain’s ‘state-influenced mixed market economy’ (Royo, 2008). This focus on the state in SMEs and its contrast with the different ways in which the state works in LMEs and CMEs also builds on the recent theoretical literature on the continuing importance of the state (e.g. Leibfried & Zürn, 2005; Levy, Miura, & Park, 2006; Schmidt, 2009, 2012; Weiss, 2003).

State-influenced market economies have a more influential state and a more state-driven or hierarchical logic of interaction between firms, labour, and the state than in financial-market-driven, liberal market economies like that of Britain or the non-market managed, coordinated market economies like that of Germany (Schmidt, 2002, Ch’s 3 and 4, 2009). In SMEs, although the state now also seeks to create and preserve market institutions, much as in liberal market economies, this does not stop it from continuing to intervene strategically where it sees the need. Firms, however, are nonetheless much more autonomous than in the past, as business has been privatised and deregulated, and as it has increasingly turned to the financial markets for capital. But this has not therefore made the financial markets the drivers of corporate strategy. CEOs remain much more autonomous than in both LMEs, because their more concentrated family- or share-ownership reduces takeover risks, and in CMEs, because they are less constrained by boards of directors, networked relationships, or employees (Schmidt, 2009).

But are three types of capitalism sufficient to analyse the full empirical variety of capitalism, especially if we include emerging economies? Other scholars have argued for even more varieties of capitalism, once one considers additional variables and geographical regions. Thus, some have argued that we need four varieties of capitalism, with Asian countries constituting another category (Boyer, 2004; Whitley, 2005). Yet others see five models of capitalism, adding welfare regimes to the mix of empirical variables (Amable, 2003), leading again to geographical differentiation.

More useful when considering emerging economies and peripheral European economies is a fourth variety, recently added to the European mix: the dependent market economies (DMEs), in particular the Visegrád countries of Poland, Czech Republic, Slovakia, and Hungary. These are defined as largely driven by outside forces, primarily capital through foreign direct investment (FDI) (Nölke & Vliegenthart, 2009; Bohle & Greskovits, 2012; Orenstein, 2013), although one might also want to add the regulation coming from global as much as European sources (Schmidt, 2013). Outside Europe and beyond advanced industrialised countries, moreover, newer and different varieties of capitalism have also been cropping up. For example, Latin America recently had its own variety of capitalism identified, hierarchical capitalism. Here, an interventionist state is seen to combine with multi-national businesses and low skilled and segmented labour markets to make for a very different dynamic that the SMEs of advanced industrialised countries (Schneider, 2013).

For the BRICS, a five-fold model adds to the liberal, statist, and corporatist varieties generally identified with European countries a meso-communitarian type more characteristic of the networked firms of Asia, and Japan specifically, and, crucially, a patrimonial type (Becker, 2014). The goal of this typology is to encompass all relevant aspects of empirical political economies, especially the state-business-capital relations, without losing parsimony. In such a typology, national capitalisms can be seen as evolving dynamic mixes combining elements of several ideal types. We draw upon Becker's typology because it explicitly includes patrimonialism, crucial for understanding emerging economies but also the European periphery. Another advantage is that this conceptualisation allows us to trace change as a result of its rigorous distinction between ideal types and empirical cases.

For example, Russia could be seen as a changing mix of state capitalism and patrimonialism – where oligarchs are prominent, but less strong than at the beginning of Russia's post-communist transformation, given the reassertion of state authority by an increasingly authoritarian president (Robinson, 2011; Vasileva, 2014). China could be found to be another variant of state capitalism, in a system with a strong state that, similar to the postwar French model of state capitalism, maintains a high degree of economic control at the same time that its largely unregulated approach to capitalist enterprise and the interpenetration of business and Communist leadership makes it into a more ‘state-permeated capitalism’ (Nölke, ten Brink, Claar, & May, 2015, May, Nölke, & ten Brink, 2018). Such capitalism combines top-down statism and bottom-up entrepreneurialism, which allowed China to forge a coalition for growth pursuing flexible local policy experimentation and introduction of successful policies on a national level (McNally, 2014, McNally, 2018).

Brazil, conversely, represents a variant of state capitalism with democracy and strong elements of corporatism, which allowed the state, in consultation with business and labour, to pursue social democratic inclusive policies (such as Bolsa Familia) since the 2000s that radically reduced poverty and helped the country weather the 2008 financial crisis (Boschi & Pinho, 2018). In both India (Mazumdar, 2014) and Portugal (Evans, Matos, & Santos, 2018) the formerly statist capitalist countries have undergone profound liberal reforms that, however, have as yet done little to tackle the continued, underlying practices of patrimonialism, clientelist politics, and the fusion of the state and business at the expense of poorer parts of the population. In both such countries, the contrast with France is instructive: whereas the state in France’s state-influenced market economy can be seen as ‘market enhancing’, in Portugal and Italy it is more likely to be ‘market hindering’, given higher levels of corruption and lower levels of state capacity, such as in tax collection or public administration (Schmidt, 2012).

Overall, the country cases presented in this Special Issue can be seen to follow a form of state capitalism – in which the state may serve to enhance or hinder the market economy – combined with a degree of patrimonialism. The state is strong but nevertheless has a limited capacity, and business is weakly organised. In this context the character of state-business relations is crucial as it can serve to enhance economic development, as in China and, to a lesser extent, India and Brazil (at least up until the 2015 Petrobras corruption scandal), or rather to hinder it, as in Russia or Portugal. If state elites subordinate entrepreneurs to their whims, the dynamism of the system can be destroyed (the Russian case). Conversely, penetration of the state administration by business elites can lead to excessive exploitation, corruption and state capture (the case of Portugal).

The ambiguous role of patrimonialism: market enhancing or market hindering

Patrimonialism is a key unifying characteristic for the BRICs and the European periphery, and thus warrants closer analysis. We prefer the classical Weberian term ‘patrimonialism’ to ‘neo-patrimonialism’, coined by Eisenstadt (1973) and defined by the co-existence of legal-rational and patrimonial elements. Following Becker's typology, it is empirical cases that are mixed while ideal types are pure (for a detailed discussion of both terms, see Becker & Vasileva, 2017).

Patrimonialism can come in a wide range of forms. All forms of patrimonialism can be detrimental for economic development if and when they compromise property rights, decrease predictability and deter investment. That said, the rapid growth of the BRICs over the past decades suggests that patrimonialism may co-exist with economic development (May et al., 2018). In some ways patrimonialism (and, more broadly, informality) may even enhance economic processes and compensate for the shortcomings of the formal system, for instance if it helps companies to overcome excessive bureaucracy or creates trust in market transactions. This is another difference from the notion of ‘neo-patrimonialism’ that increasingly came to be associated with predatory and corrupt forms of politics (Bach, 2011). The country cases of this Special Issue demonstrate the ambiguous role of patrimonialism. Thus, although state involvement in patrimonial relationships with business is generally considered by the advanced capitalism literature as market hindering (i.e. undermining competition and universalist principles), it may very well be market enhancing (i.e. compensating for the deficiencies of the formal system) in a wide range of cases of emerging economies and peripheral European economies.

For example, in China the dominant form of coordination in capitalism is based on informal personal relations and shared social or family backgrounds between firm representatives and state managers at different levels of administration. State-business relations are thus grounded on closely interwoven networks of reciprocity (guanxi), which go beyond harmful corruption and rent-seeking by serving to reduce uncertainties in the dynamic economic environment. Moreover, close relations with state officials provide firms with access to resources such as credit, land or market access. In return entrepreneurs have been offering political elites their loyalty and support in the reform process. This public-private informal alliance for growth is largely responsible for the rise of China (May et al., 2018; McNally, 2018; see also Zhu & Zhang, 2017).

India has been traditionally characterised by a symbiotic, crony relationship between the state and corporations. Liberalisation of the Indian economy in the past three decades has not fundamentally changed this state-business nexus but rather has taken it to a different level. Capital has been able to increase its influence over policy-making at the same time that the state's autonomy has been restricted as a consequence of that very liberalisation, in particular as a result of the pressures associated with the opening up of the economy to global competition (Mazumdar, 2014). Given this limited state capacity and the existence of a vast informal (agrarian) sector, interpersonal relations embedded in kinship networks between state officials and large companies provide some stability for Indian capitalism without degenerating into state capture. However, such mutual patronage occurs at the expense of inclusive social development, as politics has failed to respond to the grievances of large sections of the poverty-stricken Indian society (May et al., 2018; Mazumdar, 2014; see also Corbridge, 2013).

Brazil’s political economy is dominated by informal relations and has traditionally had dense ties between capitalists and the state. However, compared to other Latin American countries, in the liberal era under president Cardoso the government managed to pursue relatively autonomous policies in the interest of the entire bourgeoisie without degenerating into clientelism. This served as a powerful motor for growth (May et al., 2018). The advance of state-led capitalism under the Labour party (Lula and Roussef administrations in the 2000s) has led to more selective coalitions between state agencies and individual companies in order to support their global expansion. The recent revelation of a giant corruption scandal involving top political elites and the country's major company (Petrobras) may be indicative of a tipping point between market enhancing and market hindering patrimonialism (Boschi & Pinho, 2018; see also Bresser-Pereira, 2017).

Powered by rising commodity prices, Russia seems to have grown not because of patrimonialism but rather despite it. Contrary to the other BRIC countries, the level of Russia's patrimonialism has been actually increasing over the past two decades. It hindered the rise of market enhancing state capacity and undermined both Russia's liberalisation in the 1990s and the turn to state capitalism in the 2000s (Becker & Vasileva, 2017). Patrimonialism stifles business activity as state officials extensively use public resources for private enrichment, while many companies deploy informal practices, some of them illicit, and thereby fall into the informality trap, which undermines the security of their property in the long run (Vasileva-Dienes & Schmidt, 2018; Vasileva, 2018; see also Robinson, 2013).

In the case of Portugal (but also Greece, Italy and other countries of the European periphery), patrimonialism has been an important element of the political-economic system and has been corrosive for development. In Portugal closely-knit informal state-business networks became entrenched through appointments of politically loyal businessmen in state administration and, visa versa, placement of politicians on corporate boards. This led to policy capture, as the process of privatisation since the 1980s demonstrates: old economic groups from the authoritarian age acquired large stakes in the financial sector thanks to their privileged ties to decision makers and thus were able to shape the further course of privatisation (Evans et al., 2018). This process closely resembles privatisation in Russia after the demise of the Soviet Union (Vasileva, 2014). Notably, the continuity of market hindering patrimonialism persisted despite a major institutional change – liberalisation of the economy – and was not decisively influenced either by the economic opening or by external pressure for regulatory reform or massive financial assistance from the European Union in the course of Portugal's EU accession.

How to explain the differences in the impact of patrimonialism? One factor may be the cultural roots of informality. For instance, a survey of managers in 35 different countries finds that informal practices in Russia are rooted in an individualistic culture (understood as a prime orientation to the self) and tend to be exclusive, opportunistic and exploitative. Conversely, in Brazil, India and China informal practices are rooted in a communitarian culture (understood as a prime orientation to common goals) and are therefore less instrumental (Trompenaars & Hampden-Turner, 1998). They can actually fulfil an important coordination function in the economy (on the role of culture in economies of the emerging countries, see May, 2014). For example, the Chinese practice of guanxi is based on kinship ethics and the Confucian tradition with its emphasis on the individual as part of a bigger system with long-term relationships and avoidance of ‘losing face’. This makes guanxi more predictable and less prone to manipulation, as compared to the Russian use of personal connections (Ledeneva, 2008; McNally, 2014).

Indian cronyism is grounded in strong interpersonal relations and mimics the coordinating qualities of reliable family and friendship ties, which reduce costs and uncertainty. After all, 99% of Indian firms are family-controlled. In the context of a state with limited ability to positively influence the real economy, cronyism provides an effective mode of economic coordination the Indian capitalism (May et al., 2018). Similarly, in Brazil, support for state policies is often ‘bought’ with provision of jobs in the bloated public sector. Such patronage generates networks of mutual dependency and reciprocity, makes the behaviour of major actors calculable, and thus has a stabilising effect on Brazilian capitalism (May, 2014). In this context, anti-corruption campaigns such as the operation ‘Lava-Jato’ may actually aggravate economic recession and increase unemployment by destroying some of the established reciprocity networks (Boschi & Pihno, 2018).

Another factor that may be partly responsible for the differences in the extent and impact of patrimonialism regards different incentives of state officials. For example, regional officials in China are promoted based on the economic performance of their region and thus have a stake in its economic development. The resulting regional competition between state-business alliances works as a corrective against corruption (May et al., 2018). By contrast, the most important promotion criterion for Russian regional officials is political loyalty in the form of election outcomes for the ruling party (Rochlitz, Kulpina, Remington, & Yakovlev, 2015). The highly centralised tax system in Russia (only a small percentage of taxes collected locally remain in the region) may be a further disincentive for Russian governors to show initiative in the economic affairs of their region, and does not prevent rent-seeking and corruption. Similarly, in Portugal, the entrenched practice of public job compensations for political loyalty of businesses, reinforced by a revolving door system, has lead to detrimental clientelistic networks between public office and powerful corporations (Evans et al., 2018).

Finally, external pressures and developments on the global market may matter, too, particularly in highly rent-dependent economies like Russia or Brazil. The decrease of prices for natural commodities may prompt competition for dwindling resources among the elites and promote predatory behaviour along with other detrimental aspects of patrimonialism. Massive corruption scandals that engulfed Brazilian politics since 2015 and lead to the displacement of President Dilma Rousseff in 2016 (Boschi & Pinho, 2018) as well as the tightening of bureaucratic pressure on business in Russia since the onset of the economic slump in 2014 may be indicative of patrimonialism in this respect (Vasileva-Dienes & Schmidt, 2018). However, legal institutions, which are stronger in Brazil than in Russia, may play a mitigating role.

Harnessing market-enhancing aspects of patrimonialism may be challenging because of its ambiguous nature. Curbing the dysfunctional implications of patrimonialism is difficult without also jeopardising its functional potential for society, mainly by weakening the various kinds of social cohesion that enable the society to work more effectively. This kind of change appears to be a matter not only of the will and capacity of the political elites but also of the bottom-up forces of society at large, as Vasileva-Dienes’ contribution demonstrates with regard to the Russian companies’ widespread informal practices, deployed to the detriment of the safety of their property rights.

Explaining change over time in the many varieties of capitalism

How to explain the politico-economic transformations and adjustments following the economic crisis that began in 2007/2008 poses another set of theoretical challenges, in particular when we add the effects of Europeanisation and globalisation as well as the resilience of neo-liberalism. We have already seen that the traditional VOC dichotomy is ill-suited for capturing institutional change (e.g. Crouch, 2005). Subsequent scholarship has sought to remedy this. A number of scholars use the same historical and rational-choice institutionalist explanatory frameworks of the binary VOC approach. Some innovate on the historical institutionalist side, by positing incremental change in policies (e.g. Streeck & Thelen, 2005) or evolutionary change in national political economies (Steinmo, 2010). Others emphasise the rationalist side, through ‘modified historical institutionalism’ (Fioretos, 2011). Yet others zoom in on the complexity of institutional change by opening up capitalist systems to a wider range of historical, rationalist, and structural factors (Becker, 2009, 2014). Another set of scholars have instead moved to sociological and discursive institutionalist frameworks by emphasising sociological institutionalist concerns with the role of cultural norms and societal mechanisms (Fligstein, 2001; Campbell, 2004) or discursive institutionalist considerations of the role of the substantive content of ideas and the discursive processes of interaction that enable agents to reconceptualise interests, reshape institutions, and reframe culture (Schmidt, 2002, Ch.s 5 and 6, 2008, 2009; Campbell & Pedersen, 2001).

Scholars who engage with the VOC tradition have responded in various ways to the challenge of addressing change. Some scholars have sought to inject more dynamism into VOC by positing incremental change in the institutional components of loosely connected, historically evolving varieties of capitalism (leaving open however many there might be). These change at different rates in different ways through different processes, whether through layering on of new elements, conversion through reinterpretation, drift, or even exhaustion (Streeck & Thelen, 2005). Such second wave scholars have also sought to reintroduce agents of change to make up for their absence, by identifying different categories of actors, from ‘insurrectionaries’ through to ‘parasites’ (Mahoney & Thelen, 2009).

Other scholars have attempted to counter the functionalist bias of the VOC approach. They posit open rather than closed systems, with different patterns of interdependence in different subsystems (Deeg & Jackson, 2007), differing systemic patterns of consolidation or specialisation (Fioretos, 2011) or relatively autonomous components and multilayered reference frames, subject to political and ideological contestation (Becker, 2009). For our purposes, the open approach by Uwe Becker (2009, 2014) is especially helpful. By positing the openness of political economies (as opposed to functional stability) Becker emphasises political economies’ constant adaptation to various pressures and possibility of development in various directions. Change is thereby conceived not simply as a matter of deliberate political design but as a process that involves societal trial and error, contestation, compromises and constant adjustment.

For Becker, change may therefore be driven by a multitude of factors. These include structural forces; conflicting ideas about contradictory ‘reference frames’, or macro-societal goals such as international competitiveness, prosperity or social inclusion, discussed in the next section. Change also stems from the agency of relatively autonomous actors such as companies with their own reference frames as well as the unintended consequences of action, accidental or even lucky circumstances (think of rising commodity prices). At the same time, forces of path continuity limit the scope of change, including the transformation costs, dominance of given norms, inertia of action in large ministerial bureaucracies, disagreement among policy makers, or power relations (Becker, 2009, 2014). Notably, open systems or incremental evolution create hybrids that contain elements of a number of ideal types, as discussed earlier. Chinese local experimentation with reforms, the EU's handling of the Eurozone crisis, and the radical liberal ‘shock therapy’ in Russia can all serve as empirical illustrations of the open approach to political economic change.

The importance of policy and polity for explaining change

Many scholars have also gone beyond the primary focus on political economic institutions to show that policies and polities (i.e. political institutions) also matter for the explanation of change. For one, the actual policies of countries do not always fit what the VOC literature might predict. LMEs’ ‘liberal’ states may be more interventionist than expected, as in the UK with its ‘steering state’ (Moran, 2003), or Ireland with its institutionalisation of social pacts in the late 1980s. CMEs’ ‘enabling’ states may institute policies that diminish coordinative ability, as in German capital gains tax reform in the early 2000s, which reduced structural incentives for business-bank networks. And SMEs’ ‘influencing’ states may actually promote more non-state coordination between business and labour, as in the social pacts of Southern European countries (Schmidt, 2009, 2013). In SMEs like Italy and Spain, labour market reform was successfully engaged in the 1990s through social pacts (Della Sala, 2004; Royo, 2008). Subsequent to the Eurozone crisis, however, social pacts have largely died, as in Ireland (Regan, 2012), or have lost their meaning when all labour unions can do is accept massive reductions in wages and loss of job protections (Armingeon & Baccaro, 2013).

Differences in political institutions help explain why policies may differ even among countries with close resemblances in terms of variety of capitalism. This depends in large part on where countries sit on a continuum between ‘simple’ polities, in which governing activity is channelled through a single authority (via unitary states, majoritarian representation systems, or statist policymaking processes), and compound polities, in which governing activity is dispersed through multiple authorities (via federal or regionalised states, proportional representation systems, or corporatist or pluralist policymaking – Schmidt, 2009). For example, despite both being classified as LMEs in the VOC literature, the compound US has consistently been less able to impose radical reform than the simple UK, largely because of its institutional complexity. This was most in evidence in the 1980s, with British Prime Minister Margaret Thatcher’s much more radical reforms by comparison with those of American President Ronald Reagan, despite similar electoral programmes (King & Wood, 1999; Steinmo, 1994).

In emerging economies, institutional arrangements of the state and their relationship to society is of key importance. In this context regime type matters: the possibility of change by democratic elections is what distinguishes Brazil, India and Portugal from China and, currently, also Russia, where election results seem to be pre-determined. In this context, the type of polity – democratic or authoritarian – as much as the type of political coalition in power, has a decisive impact on the direction of reform. For instance, Brazil is the only democratic country dealt with in this Special Issue where organised labour played an important role in the recent processes of change (strong tradition of corporatism, dating from the dictatorship in the 1930s, which later developed into a democratic one, aided by the unions) (Boschi, 2014). Brazil's socio-democratic trajectory since the Labour Party came to power in 2003 stands in contrast to most industrialised democracies, including the European periphery (e.g. Portugal, Greece and Italy), and India, where different political coalitions adhered to neo-liberalism and have been pursuing the politics of liberalisation and state retrenchment. By contrast, the authoritarian governments of China and Russia managed to retain (or regain) tight control over society and economy. However, the direction of reform was different: while Chinese communist leaders steered the country towards economic opening, Putin's rule in Russia heralded a turn to statism, including nationalisation of the commanding heights of the economy.

The importance of the politics of ideas and discourse for explaining change

Politics also matter, in particular when explaining institutional change. Some scholars take up the challenge of explaining institutional change by examining politics through the lens of the ideas and discourses that help alter perceptions of interests, build political coalitions, persuade policymakers of the need to construct new programmes via a ‘coordinative’ policy discourse, and convince publics of the necessity and appropriateness of such programmes through a ‘communicative’ political discourse (Schmidt, 2002, Ch. 5 and 6, 2008, 2009). Such politics may explain change through the appearance of a new ideational ‘paradigm’, as in the case of Thatcher’s switch to monetarism in the UK (Hall, 1993). They may also explain change through political leaders’ communicative discourse about a ‘reference frame’ such as the economic imperatives of globalisation, whether in efforts to legitimate neoliberal policies in individual countries, such as Portugal (Evans et al., 2018), France, Spain, and Italy (Schmidt, 2013), in the EU more generally during the economic crisis (Blyth, 2013; Schmidt & Thatcher, 2013), or India as exemplified by the ‘Shining India’ campaign of 2004. Conversely, Brazil under the rule of the Labour Party embraced socio-democratic and Keynesian ideas to underpin the shift to social inclusion to fight poverty and counter-cyclical economic policies to fend off the repercussions of the 2008 crisis (Boschi & Pinho, 2018).

In authoritarian polities among the BRICs, ideas can be used as a means of legitimation of the existing politico-economic model and thus as a mechanism of regime survival. For example, after the Cultural Revolution the Chinese Communist Party shifted the base of its legitimacy from revolutionary Maoism to economic performance that promised greater prosperity to citizens. More recently, this ideational shift got expression in Xi Jinping's precept of the ‘China Dream’ (McNally, 2018). In Russia, it is rather the rhetoric of greatness and nationalist-patriotic sentiments as well as the designation of internal and external enemies that underpinned the turn towards increased statism under president Putin and enable authoritarian state survival. However, it is also the stickiness of certain taken-for-granted ideas in the society (such as normality of informality) that help explain Russia's drift towards statist-patrimonial capitalism and contribute to the functioning and endurance of the system from the bottom up (Vasileva-Dienes & Schmidt, 2018). In this sense emerging economies generally have different ‘reference frames’ than advanced industrialised ones, as their economic systems are much more socially embedded through widespread informality and networks of kinship, loyalty and reciprocity (May et al., 2018).

The focus on ideas and discourse may additionally help explain institutional continuities as well as misperceptions of reality. For example, in the European Union during the sovereign debt crisis beginning in 2010, the problems involve not only economics and market pressures but also mistaken ideas about the causes of the crisis and how to respond. These include the (mis)framing of the crisis as one of public debt, inappropriately generalised from the case of Greece; the (mis)diagnosis of the problem as behavioural – as a failure to follow the stability rules – rather than as structural – from the way the euro was set up; the lack of adequate solutions, such as Eurobonds or other forms of shared risk; and the chosen remedies, centred on pro-cyclical policies of ‘sound’ money instead of counter-cyclical policies focused on generating growth (Schmidt, 2015; see also Blyth, 2013; DeGrauwe & Ji, 2012; Scharpf, 2011). All of this suggests problems with the underlying ideas for crisis solution that combined an ordo-liberal philosophy focused on the need to impose austerity in order to ensure stable money and sound finance via rules-based governance with a neo-liberal philosophy focused on ‘structural reform’ of labour markets and welfare states as the answer to problems of growth (Blyth, 2013; Schmidt & Thatcher, 2013).

Importantly, these ideas and discourse were used to impose austerity and structural reform on member-states in trouble, in particular those in the Eurozone periphery subject to the conditionality administered by the ‘Troika’ (Commission, ECB, and IMF) such as Portugal, Greece, and Ireland. Portugal’s experience is notable not while it was in the programme but subsequently. Since 2015, we have seen a shift in government policy by the centre left/radical left coalition, which broke with the ordo-liberal orthodoxy even as it managed to ameliorate the government’s budgetary outlook and promote economic growth through a mix of progressive policies. Notably, the BRICs have not suffered the same fate because in one way or another they avoided the international equivalent of Eurozone policy, meaning the ‘Washington consensus’ on how to emerge from crisis.

This brings us to a final comment, linking policy ideas back into the material factors affecting market economies more generally, in particular with regard to the European periphery. The latest innovation in the literature on the comparative capitalism of advanced industrialised countries adds a focus on ‘growth models’ (e.g. Baccaro & Pontusson, 2016; Hay & Smith, 2013). Scholars who take this approach argue that countries with export-oriented growth in manufacturing need institutions able to repress wages and hold down domestic demand, which fits perfectly the CMEs of Northern Europe, with their coordinated wage bargaining between business and labour. Countries with consumption-led growth have to allow wages and credit to expand, as in the SMEs of France and Southern Europe as well as the LME of the UK (Baccaro & Pontusson, 2016; Hay & Smith, 2013).

So what happens to countries that traditionally depend on consumption for growth when they impose austerity policies that hold down wages and structural reforms that favour the export-oriented growth models? Where they do not have a large export sector, they will be unable to offset the worst effects of austerity and wage devaluation on domestic demand, and thereby will be at pains to generate growth (Baccaro & Pontusson, 2016; Scharpf, 2011, 2013). The countries in the periphery under formal conditionality such as Portugal or informal conditionality such as Italy and Spain all saw their economies contract and their debt to GDP ratios rise, although the comparative variations in outcomes also depended upon other factors, including politics and policy specificities (Perez & Matsaganis, 2018). Only Ireland was able to emerge quickly from the crisis, due to its exceptionally large export sector, based on hi-tech FDI (Regan & Brazys, 2018).

An agenda for comparative capitalism research

Recent developments in state-influenced political economies of the BRICs and the countries of the European periphery present an interesting case for the Comparative Capitalism scholarship, traditionally focused on advanced industrialised political economies. Despite a wave of liberalisation, the BRICs are still much less liberal and much more patrimonial than the industrialised countries (cf. Becker, 2014, p. 47). Informality and patrimonial relations play a prominent role in emerging countries but also countries of the European periphery, leading to different reference frames and a different degree of social embeddedness of the economies. Notably, patrimonialism may have market hindering or market enhancing effects, depending on the character of state involvement, its relationship with business and predominant ideas, among others. Finally, differences in regime type matter, especially if we compare the authoritarian political economies of China and Russia to the democratic ones of Brazil, India, Portugal or Italy.

Today emerging economies but also countries of the European periphery are facing multiple crises. Portuguese economy faces a double crisis of austerity and clientelism. Similarly, Brazil is responding to an endogenous crisis with austerity in the context of political reverberations after the Petrobras corruption scandal. Russia comes close to exhaustion of the growth model based on hydrocarbons and is plagued by bureaucratic interference with property rights, which puts a severe obstacle for the development of business. Even the rapidly-growing India exhibits contradictions of growth trajectory, especially related to social inequality and poverty, and suffers political instability generated by popular discontent. Finally, the slow-down of growth in China indicates a looming exhaustion of the growth model based on exports of cheap-labour-manufacturing.

We need to adapt our analytical tools to be able to capture these rapid dynamics that do not seem to fit into the traditional Comparative Capitalism theories. Contributions collected in this Special Issue offer such an attempt, drawing in particular on the Open Varieties of Capitalism approach pioneered by Uwe Becker (2009, 2014). They also show that there are so many varieties of capitalism, often linked to geographical location in a given region, or to political system, such that any generalisations become difficult. This is why we began by analysing the conceptual trajectory of the Comparative Capitalism literature, as it began with three models in Europe, moved to two varieties in advanced industrialised economies, then expanded to three and more, especially once developing economies were added. The lessons to be taken from this exercise suggests that rather than continuing to fight battles over how many varieties of capitalism there may be, we do best to ask which factors or attributes help define different countries’ capitalisms. What this Special Issue has sought to show is that in addition to considering the formalised interrelationships of the firm, labour, and the state, we also should examine more closely the informal interrelationships, where patrimonialism along with networks of families and ‘friends’ are equally important.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Alexandra Vasileva-Dienes (née Vasileva) is a research fellow at the Political Science Department at the University of Amsterdam, where she completed her PhD in 2017. She has published on continuity and change in Russian capitalism in New Political Economy (2018), Journal of Eurasian Studies (2017) and The BRICs and Emerging Economies in Comparative Perspective (ed. by Uwe Becker, Routledge, 2014) and wrote on informal Russian business practices for the Global Encyclopaedia of Informality (ed. by Alena Ledeneva, UCL press, 2018) and Russian journals. Alexandra's current research focuses on regional integration and trade in Central Asia, connecting to her 2012 documentary film about trade barriers in Central Asia on behalf of the German Development Cooperation (GIZ). Alexandra works at a foreign policy think-tank of the Friedrich-Ebert-Stiftung called FES Regional Office for Cooperation and Peace in Europe, based in Vienna.

Vivien A. Schmidt is Jean Monnet Professor of European Integration and Professor of International Relations and Political Science in the Pardee School of Global Studies at Boston University, and Founding Director of BU’s Center for the Study of Europe. Professor Schmidt has published widely in European political economy, institutions and democracy, as well as on neo-institutional theory (discursive institutionalism). Recent books include Democracy in Europe: The EU and National Polities (Oxford, 2006), named in 2015 by the European Parliament as one of the ‘100 Books on Europe to Remember’, Resilient Liberalism in Europe’s Political Economy (Cambridge, co-edited with M. Thatcher, 2013), and the forthcoming Europe’s Crisis of Legitimacy: Governing by Rules and Ruling by Numbers in the Eurozone (Oxford 2018). She has published twelve books and over 180 chapters in books and articles in journals, including the Annual Review of Political Science, Review of International Political Economy, Governance, Perspectives on Politics, West European Politics, Journal of Common Market Studies, and Journal of European Public Policy.

Notes

* We dedicate our work to Uwe Becker – dear friend, ever-encouraging mentor and a critical spirit who never stopped questioning.