Strategies for Growth and Employment Creation in a Services-Based Economy

This chapter focuses on the role of skill formation, wage-setting, and public service provision in shaping different national growth strategies in a post-industrial context, taking the cases of Germany, Sweden, and the UK as detailed examples and making use of data from the EU-KLEMS Growth and Productivity Accounts Database (2008). It highlights the role played by skills policy in shaping patterns of specialization in high productivity, traded sectors, which are important engines of growth even in “consumption-led” regimes. It shows that Sweden’s ability to compete in less price-sensitive, high-end services (and manufacturing) markets rests on the availability of a workforce with high levels of tertiary skills. Germany’s reliance on more traditional manufacturing sectors is rooted in its well-established system of firm-based vocational training and its limited tertiary sector. In the UK, the expansion of domestic demand has, in part, been debt-driven, although it has also, as in the Swedish case, been facilitated by rising real wages. Nevertheless, a key driver of rising real wages in the UK has also been productivity growth and the expansion of trade in high-end, ICT-intensive services. The chapter confirms that welfare state policies (including the protection of relative wages, public service provision, and, above all, strategies of skill formation) are critical to the outcomes observed in the context of deindustrialization and technological change. The development of sustainable strategies for growth and employment creation in a context of deindustrialization, and of revolutionary changes in ICT, rely on the creation of a capacity to expand into ICT-intensive, high value-added sectors, and especially in dynamic services sectors.

Transitions to the Knowledge Economy in Germany, Sweden, and the Netherlands

The advanced economies are experiencing a set of shared challenges in the transition to a new “knowledge economy” characterized by rapid technological innovation and associated with a heightened premium on higher education. Yet individual countries are charting rather different courses as they navigate this transition. This chapter examines divergent trajectories of change in three coordinated market economies—Germany, Sweden, and the Netherlands. It argues that differences in the organization of business and labor, and in the institutions that structure their interactions with each other and with the state, have produced different coalitional alignments and led these countries onto divergent paths toward the knowledge economy today.

Always a Winning Strategy? Wage Moderation’s Conditional Impact on Growth Outcomes

Wages and wage bargaining institutions are foundational components of comparative capitalism research. Supply-side comparative capitalism research has often assumed that wage moderation—facilitated through highly coordinated wage-setting institutions—produces beneficial growth outcomes. This supposition stems from the logic that restrained unit labor cost growth causes firms to increase employment and output. However, through its demand-side perspective, new growth model literature questions the virtues of wage moderation, because the restraint of wages can be detrimental to growth via its suppression of domestic consumption. This chapter empirically tests under what conditions will wage moderation produce economic growth. Using a first-difference, distributive lag panel analysis of eighteen OECD countries from 1970 to 2015, its findings largely resonate with predictions within the growth model literature. In the presence of wage restraint, countries with larger export shares and highly coordinated wage-setting institutions realize higher growth and lower unemployment than countries with smaller export shares and uncoordinated wage-setting institutions. In contrast, wage inflation produces better growth outcomes for countries with uncoordinated wage-setting, relative to those with highly coordinated wage-setting institutions. These results suggest that wage restraint is not a winning strategy for all growth models. Rather, wage moderation is associated with better growth (and unemployment) outcomes only for countries with export-led growth strategies.

European Growth Models Before and After the Great Recession

This chapter summarizes and elaborates on the “growth models perspective” proposed by Baccaro and Pontusson (2016). In addition, the chapter updates the previous analysis of post-Fordist growth trajectories in Germany, Italy, Sweden and the UK. With growth models operationalized in terms of the contributions of different components of aggregate demands to GDP growth, the analysis shows that the growth models that these countries adopted in the period prior to the crisis of 2008–10 have by and large persisted into the 2010s. Exports remain the driver of German economy while household consumption remains the key to British economic growth and Italy continues to be mired by economic stagnation. Sweden is the one case for which one observes a shift in growth dynamics in the wake of the crisis, with domestic consumption playing a more important role relative to net exports.

Tracking the Transformation of Growth Regimes in Advanced Capitalist Economies

The chapter aims at building the theoretical framework to understand the evolution of growth regimes in advanced capitalist economies. It starts by recalling the main questions, approaches, and current debates on the dynamics of capitalist development in the comparative political economy literature. In a second step, it revisits the terms of the various approaches considered (Regulation School, Varieties of Capitalisms, Growth Models), defines growth regimes and growth strategies, and emphasizes the role played by welfare systems in these. Third, it presents the main economic challenges capitalist economies have been confronted with (deindustrialization, financialization, and the rise of the knowledge economy) and underlines the fact that, despite common challenges, the economies have remained distinct. Fourth, it provides an overview of five main ideal-typical growth regimes that have developed in advanced capitalist economies: the dynamic services export-led growth regime, the high-quality manufacturing export-led, the FDI-financed export-led, the finance-based domestic demand-led, and the public-financed domestic demand-led ones. Finally, the chapter summarizes the main contributions of the other chapters of the book.

Cross-National Variation in Growth Models

The chapter presents a new framework for categorizing economic growth models and applies it to twenty-eight OECD countries from 1995 to 2016. The framework draws on three fundamental ways in which economies can benefit from additional demand: the private sector (households and companies) can spend more than its income, the public sector can spend more than its revenues, or the economy sells more abroad than it imports. The empirical section uses fuzzy-set ideal type analysis to identify the combinations in which advanced economies used these three ways of boosting demand in three subperiods between 1995 and 2016. The results show that most economies use at least one of the three sources of extra demand to tackle the era of low growth. At the same time, there are clear differences in growth models between groups of countries. These are in line with clusters that the literature commonly identifies due to their institutional similarities. The growth models in this chapter are therefore outcomes of differences in growth regimes.

How Growth Strategies Evolve in the Developed Democracies

This chapter charts the shape and movement of the growth strategies of the developed democracies since 1945 across three periods: an era of modernization, one of liberalization, and an era of knowledge-based growth, with an emphasis on the relationship between developments in the political economy and changes in the character of electoral politics. It argues that economic policy-making always entails assembling coalitions for policy in both the arenas of electoral politics and of producer group politics. Accordingly, economic policy responds, not only to secular economic developments, but also to shifting political conditions and notably to changes in the cleavage structures underpinning electoral politics, which are themselves influenced by preceding economic developments. Growth strategies are conditioned by how an evolving “economic gestalt” portrays the problems of the economy and by processes of coalition formation in the electoral arena. The chapter devotes special attention to the growth strategies of the UK, France, Germany, and Sweden.

Forced Structural Convergence in the Eurozone

The euro crisis has been a consequence of the structural divergence between the export-oriented growth models of Northern political economies and the domestic-demand oriented growth models of Southern political economies. In response to the crisis, the Monetary Union has established a regime of compulsory structural convergence on the Northern model that has asymmetrically imposed huge economic and social costs on its Southern member states. In economic terms, enforced structural transformation may perhaps work, but its distributional asymmetry that cannot be democratically legitimated undermines the regime’s political sustainability.

Fighting Youth Unemployment

The chapter stresses that the transition to a post-industrial society has consequences on the life course, and especially on the transition from childhood to adulthood. However, this transition varies significantly between countries, because of different institutional arrangements. Accordingly, the chapter analyzes these different arrangements of socio-economic institutions, including education, labor market policies, and welfare policies (with student support), by presenting the typology of “youth welfare citizenship regimes.” The second part of the chapter proceeds to four “typical” case studies showing how different growth regimes presented in the first chapter shape these youth welfare citizenship regimes (France, Germany, Sweden, and the United Kingdom). Then it analyzes how growth strategies (the reforms implemented by governments in order to boost growth and job creation) have recently been influencing the evolution of youth citizenship regimes, especially through reforms of active labor market policies (ALMP) that aim to fight youth unemployment. The argument here is not causal but rather contextual and systemic, and the objective of the case studies is therefore to present the coherence between a growth regime and the way socio-economic institutions structure the entry into adulthood, leading to a specific youth welfare citizenship regime, and how reforms inspired by a specific growth strategy contributes to transform youth welfare regime.

Housing Finance Between Social Welfare and Growth Strategies

Housing and mortgage markets sit at the intersection of growth regimes and the welfare state, as they are engines for economic growth and fulfill important social functions. This chapter shows how the different linkages between housing finance, the welfare state, and growth regimes shape the ways in which policy-makers utilize housing finance policies as growth strategies. In demand-led economies relying on credit and consumption, such as the United States and the United Kingdom, policy-makers can utilize fiscal, off-budget, and monetary policies as “financialized” growth strategies to stimulate housing demand, credit, and consumption. Countries based on export manufacturing, such as Germany, are complementary to conservative housing finance policies that restrain housing and domestic demand to secure cost competitiveness. To illustrate these arguments, the chapter details the contrasting political developments of housing finance policies as growth strategies in the United States and Germany since the 1970s.