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

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.

The Consequences of the Global Financial Crisis

“…As Martin andSwank (2004, 2012) argue elsewhere, cross-national variations in labor market coordination and the organization of the social partners contribute significantly to the different levels of defense against neoliberal invasion. Firms in a wellorganized business community are more likely to join coalitions to sustain welfare state spending and skills investments, and employers are crucial actors in determining distributive outcomes.…”

“…While these processes of collective political engagement, themselves, evolve when confronted with new challenges and do not always deliver functional solutions, nations' characteristic modes of engagement in social deliberation have a somewhat enduring quality. The Scandinavian mode-while battered and stressed-remains in evidence at this critical juncture (see also Martin and Swank, 2012).…”

“…While we might expect countries with large public sectors to be more pressured by deindustrialization and to endorse neoliberalism, countries with large and capacious public sectors have higher levels of employment. Low-skilled workers are more likely to avoid social assistance, and this reduces distributive conflicts between skilled and unskilled workers (Martin, 2004;Martin and Thelen, 2007). While a large public sector is feared to be a drag on private investment, high levels of public spending create higher levels of employment with a multiplier effect.…”

“…Despite some disorganization among workers and some penetration of neoliberal ideology, continuing high levels of labor market coordination prevented the soaring rise in inequality-so ubiquitous among other advanced countries-and strongly organized social partners negotiated comparatively solidaristic pacts in response to the challenges of globalization and deindustrialization (Martin, 2004). Yet after the crisis, countries faced a different set of challenges such as the reduction in global linkages and decline in major service sectors; and it was not certain a priori that the recipe for success before the crisis would be equally attractive or deliver felicitous outcomes thereafter.…”

“…I argue that nations' differential responses reflect, in part, the varying societal capacities of countries to adapt to new challenges-to arrive at and to enact new solutions to economic malaise. Scandinavian employers, in particular, diverged from their compatriots in liberal countries in the past by joining political coalitions to sustain welfare state spending, to invest in the human capital of marginal workers, and even to support redistribution (Martin, 2004). It is possible, of course, that the financial crisis would reduce support for solidaristic coalitions, because the rules of the game have changed with the recent economic upheaval.…”