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The chapter introduces the core arguments of part one. It outlines how the argument for creative action and recomposition in the postwar history of the steel industry in the US, Germany and Japan undermines the view, developed by the Varieties of Capitalism school of institutionalism, that countries have comparative institutional advantages in international industrial competition

This chapter examines how firms can compete despite comparative disadvantages of national antitrust legislation. It first studies whether pharmaceutical firms in Germany, Italy, and the UK develop different types of component standards to pursue strategies of radical product innovation, incremental product innovation, and product imitation, respectively. Since quantitative analyses of interviews with Quality Assurance managers show that firms differ in their standardization approaches according to the strategies they pursue, the chapter also looks at how national antitrust legislation affects these strategies. Contrary to the findings in the previous chapter, qualitative analyses of interviews suggest that national antitrust legislation constitutes neither a comparative institutional advantage nor a disadvantage. The chapter concludes with reflections on how these findings contribute to the resource-based view and the competitiveness literature, and on reasons why a Schumpeterian perception of firms as creative entrepreneurs may nevertheless help to explain how firms gain competitive advantages.

This chapter explores and explains: ‘what type of capitalism has emerged in post-communist Europe?’ and, ultimately, ‘does it work?’. It also critically examines the suitability and applicability of essentially Western neo-institutionalist theories of comparative capitalism for the study of post-communist phenomena. On the basis of empirical evidence and comparative analysis of the two largest neighbouring political economies of eastern Europe (Russia apart), it is argued that notwithstanding the world-wide neo-liberalising pressures, the changeable politics of post-communist transformation, and the unstable nature of eastern European institutions, both Polish and Ukrainian national variants of capitalism can be described as mixed- or ‘weakly’ coordinated market economies. In spite of the prevailing perceptions and popular media praise given to post-communist nations for adopting a deregulated, privatised, liberal type of capitalism, neither Polish nor Ukrainian political economy generally resembles the liberal market-based model. It is contended, however, that despite the apparent system-wise detachment of the eastern European economies of Poland and Ukraine from the ideal types of a coordinated-market economy (CME) and, especially, of a liberal-market economy (LME), the institutional structures of the two post-communist countries are not necessarily of a ‘low-level’, ‘dysfunctional’, or ‘suboptimal equilibrium’ type.

One of the less contentious issues surrounding MNCs is their significant and still increasing impact on international trade flows and policy. This trend is the result of increasing reliance by large manufacturing companies on FDI as an alternative to exporting to sell their goods and services to customers in other countries. This chapter surveys the data demonstrating the extent to which FDI has displaced exports as a marketing vehicle and altered the product composition of many countries' exports and imports. It presents several country case studies to provide more specific and detailed insight into changing national trade patterns. The other two topics discussed at length are the questions first, of the likely extent that the proliferation of FDI has decreased national exports and jobs, and second, of the extent to which FDI proliferation has rendered traditional trade theory largely or totally obsolete.

This introductory chapter gives an outline of the book. It develops the theoretical framework by combining insights from classical trade theory, the market-based view of strategic management studies, theories on national innovation systems, and the literature on varieties of capitalism. Interestingly, all these strands of the competitiveness literature agree in their expectation that firms within the same economy will respond to increasing competitive pressure by exploiting the comparative advantages of national institutions as they specialize in the facilitated competitive strategies. The chapter then presents the analytical approach and illustrates why a comparison of pharmaceutical firms in Germany, Italy, and the UK is particularly helpful for understanding how firms cope with increasing competitiveness. Since an initial comparison casts doubt on the specialization theory of the competitiveness literature, the chapter introduces the research question addressed throughout the book: how can firms compete despite comparative institutional disadvantages? It concludes with an overview of the findings obtained on functional institutional equivalents and links them back to theoretical debates on regional networks, strategic management views, and entrepreneurial creativity.

This chapter opens by contrasting two opposing theories on how firms respond to the increasing pressures of international competition: the resource-based view of strategic management on the one hand, and the competitiveness literature on the other. Given that contributors to the competitiveness literature offer more developed theories, the chapter proceeds by assessing their hypotheses on comparative institutional advantages. It thus analyses whether pharmaceutical firms in Germany, Italy, and the UK specialize in the pursuit of a strategy facilitated by national institutions. Since these micro-level analyses do not provide empirical support for the specialization idea, which is typically based on macro-level indicators, a higher level of data aggregation can lead to an overestimation of specialization trends. But if firms in different economies can pursue different competitive strategies, how can they compete despite comparative institutional disadvantages? This concluding question of the chapter is addressed in Part II, including Chapters 3, 4, and 5 of the book.

This chapter outlines the theoretical perspective behind a ‘varieties of capitalism’ approach to comparative political economy, emphasizing the central role of the firm as the agent of economic adjustment and the impact of the relationships it forms in the spheres of corporate governance, labour relations, skill formation, inter‐corporate relations, and employer–employee relations. It develops the distinction between liberal market economies, where firm endeavours are coordinated primarily by markets, and coordinated market economies, where coordination is more heavily strategic, and explores how the institutional complementarities in these economies give rise to distinctive forms of innovation as well as comparative institutional advantages that condition the response of firms and national governments both to globalization and to the dilemmas they face in the realms of economic and social policy‐making.

This chapter examines the effects of shifts in wage-bargaining systems on the organization of firms in EMU member-states, and argues that the move to coordinated wage bargaining induced by the Maastricht criteria has led firms in EMU member-states to align their product market strategies with the existing institutional framework. Where wage bargaining became (or was) centrally coordinated, firms increasingly pursued high-end product market strategies, while firms in countries where wage bargaining followed a decentralised coordination path opted for low-end strategies. This argument is developed in three steps. First it assesses how firms in the most important export industries adjusted their competitive strategies in the course of the 1990s, and finds that companies increasingly pursued product market strategies which are supported by national labour-market institutions. It then examines how several key firm-level indicators of competitiveness and labour market organisation evolve and find that skill profiles, workplace cooperation, and career development were adjusted to reflect the dominant product market strategy. The chapter concludes by comparing the strategies of employers with regard to wage-bargaining in Italy and Spain over the 1990s.

This chapter discusses the microeconomic concepts of gains from trade and comparative advantage. It explains that gains from trade are particularly large when producers specialize in the goods in which they have a comparative advantage because they can produce at lower opportunity costs than others. The maximum feasible output of one good consistent with producing a specified quantity of another good is referred to as production possibilities frontier (PPF). Several relevant computational exercises and their solutions are provided.

This chapter examines the “revealed comparative advantage” (RCA) of the NICs. Balassa's thesis of “stages of comparative advantage” and measure of RCA is utilized to describe the relative trade performances and competitive abilities of the NICs. In the early period, the revealed comparative advantage of the Asian NICs lay in those product groups which are generally classified as traditional labor-intensive products. In the period after the 1970s, however, the NICs in East Asia have successfully upgraded their exports from labor-intensive and resource-based products to more technology-intensive products. As illustrated, the speed of dynamic shifts in comparative advantage is far from homogeneous across NICs. Further, although the NICs have been exporting roughly similar product groups in the OECD market, most of their export expansions are rather complementary than mutually competitive.

This chapter offers a critique of the claim that clustering is a key source of competitive advantage both for the firms involved and for the region where a cluster is located. The chapter examines the conceptual and empirical foundations for this argument. It outlines the key elements in Porter's theory of ‘clusters as drivers of competitiveness’. It then moves on to the question of whether the available empirical evidence supports the model: are firms inside clusters more competitive than their counterparts outside clusters? This discussion then turns to considering how the cluster model differs from other modern reinterpretations of comparative advantage. The chapter argues that the cluster approach can be subsumed within a more general dynamic comparative advantage perspective on regional competitiveness. Some implications for cluster-based regional policies rounds off the chapter.

This chapter outlines a broad historical interpretation of industrial policies in modern history, focusing on technological learning, synergies, and increasing returns. Throughout all experiences of catching up, successful strategies always involved a principle of emulation involving explicit measures explicitly aimed to acquire knowledge in increasing returns activities. Only later, after the success of industrialization, countries can effort forms of market governance relying on the principle of comparative advantage as they emerge from the dynamics of international specialization and trade.

This chapter explores how the resource‐base theory of strategy can be extended from the competitive advantage of firms to the competitive advantage of countries. A country's competitiveness will ultimately depend on three factors. The first is the strength of the competitive advantage of its individual firms. The second is the access to scarce resources that are available within a country. Most importantly, it will rely on the existence of supportive networks of firms and activities, which facilitate: speed, flexibility of response, and the construction of a base of tacit knowledge.

Argues that the poor performance of the Philippines in agriculture has been due more to weaknesses in the policy and institutional frameworks governing the sector than to real domestic and external market factors. It begins by describing the growth patterns of agricultural gross value added, foreign trade, measures of comparative advantage, and labor and land productivity. It proceeds to examine how price interventions and the public expenditure program failed to promote rapid growth of the sector. Institutional issues – specifically weaknesses in the property rights structure and the agricultural bureaucracy – and political economy explanations as to why the policy and institutional structures evolved in the way they did are explored and addressed.

Whatever national policies countries seek to pursue by way of procurement regulation or otherwise, their ability to do so effectively is increasingly coming into conflict with the reality of international economic markets. Economic distances between countries have decreased sharply with the reduction in the time and cost of transport and communications. At the same time, the benefits of increased international trade have been recognised by many governments who have sought means of harnessing its potential to maximise their own economic well-being. This has been not only an economic movement but also a political one. This chapter examines the economic principles underlying international trade in order to highlight some of the motivation for the policies sought to be achieved by the procurement regulator in an international context. It also discusses the theory of comparative advantage, competitive advantage, obstacles to international trade, regulation of international trade, and participation in international procurement and its associated incentives.

Explores the connection between the political economy and the public policies that governments produce, using the cases of labour market policy in the 1980s in West Germany and the UK. Governments will favour policies that reinforce the comparative institutional advantage of their economic institutions, because policy options are constrained by the different organizational capacities of employers in CMEs and LMEs. It examines the constitutional and political sources of state power in the Federal Republic and UK, a contrast that suggests significant variation in the expected stability of the two labour market policy regimes. Business–government relations and public policies are therefore systematically correlated with varieties of capitalism, as also a function of broader political arrangements that may vary ‘across type’.

This chapter analyzes the mechanics of failure and the secrets of economic success. Cesar Luis Menotti's strategy's main ingredients could serve as a metaphor for the basic argument in the chapter: any low-income country can achieve sustained and inclusive growth if it properly identifies its endowment structure and uses its most competitive factors to exploit its comparative advantage. The chapter starts with a presentation of the standard model of stabilization and structural adjustment, which has come to dominate development thinking and policy across the world and has survived several decades of critical research. It then explores reasons why the model has endured despite criticism from across the ideological spectrum, especially in the 1980s and 1990s. It also offers an analysis of why traditional policy frameworks derived from the standard model often do not yield results, and it stresses the need to focus growth strategies on coordination and externalities. The chapter ends with a discussion of one of the main side effects of the standard model and its growth prescriptions: the extreme dependence on foreign aid by many low-income economies, especially those in Africa.