Revista de economía mundial 65, 2023, 71-92

ISSN: 1576-0162

DOI: http://dx.doi.org/10.33776/rem.vi65.7722

Post-Keynesian Financialised Growth Models as an alternative

to varieties oF caPitalisM: (in)stability, institutions and

taxonoMic Method

Modelos de creciMiento postkeynesiano financiarizado coMo

alternativa a las variedades de capitalisMo: (in)estabilidad,

instituciones y Método taxonóMico

Juan Barredo-Zurriarain

juan.barredo@ehu.eus

Universidad del País Vasco (UPV/EHU)

Jon Las Heras Cuenca

jon.lasheras@ehu.eus

Universidad del País Vasco (UPV/EHU)

Carlos Rodríguez González

carlos.rodriguezg@ehu.eus

Universidad del País Vasco (UPV/EHU)

Recibido: mayo 2023; aceptado: octubre 2023

abstract

This article evaluates the potential of the Post-Keynesian literature on

growth models to gain inﬂuence over the Varieties of Capitalism approach

within Comparative Political Economy. It shows that the future analytical

strength of the latter approach depends, primarily, on the ability to consolidate

macroeconomic principles consistent with a dynamic reality. On the other

hand, Post-Keynesian macroeconomic foundations allow ﬁnancialised growth

models to capture the importance of power struggles in long-term growth as

well as to integrate crises as recurrent and inherent phenomena to capitalist

economies. That said, Post-Keynesian challenge to become a beacon within

CPE lies on moving beyond country-based analyses towards the construction

of a systematic association between, on the one hand, the institutional aspects

shared between countries and, on the other hand, their classiﬁcation on growth

models.

Keywords: Comparative political economy, growth models, Varieties of

Capitalism, post-Keynesian economics, institutions.

resuMen

Este artículo evalúa el potencial de la literatura poskeynesiana sobre

modelos de crecimiento para ganar inﬂuencia sobre el enfoque de las Variedades

del Capitalismo dentro de la Economía Política Comparada. Muestra que la

fortaleza analítica futura de este último enfoque depende, principalmente,

de la capacidad de consolidar principios macroeconómicos consistentes con

una realidad dinámica. Por otro lado, los fundamentos macroeconómicos

poskeynesianos permiten que los modelos de crecimiento ﬁnanciarizados

capturen la importancia de las luchas de poder en el crecimiento a largo plazo,

así como integren las crisis como fenómenos recurrentes e inherentes a las

economías capitalistas. Dicho esto, el desafío poskeynesiano para convertirse

en un faro dentro de la EPC radica en ir más allá de los análisis basados en

los países hacia la construcción de una asociación sistemática entre, por un

lado, los aspectos institucionales compartidos entre los países y, por el otro,

su clasiﬁcación sobre modelos de crecimiento.

Palabras clave: economía política comparada, modelos de crecimiento,

variedades de capitalismo, economía poskeynesiana, instituciones.

JEL classiﬁcation / clasiﬁcación JEL: E02, E12, P51.

Revista de economía mundial 65, 2023, 71-92

1. introduction

There is a struggle to gain inﬂuence within Comparative Political Economy

(hereafter, CPE), understood as the study of ‘differences in institutions,

policies, and economic outcomes across countries’ (Stockhammer 2021, p.

2). The literature on Varieties of Capitalism (VoC), being the dominant view in

the last two decades, proposes a ‘ﬁrm-centred’ and ‘supply-sided’ perspective,

classifying countries as Coordinated (CME) or Liberal (LME) market-economies,

depending on the type of institutional coordination. In contrast, the Post-

Keynesian (PK) approach, which has built from Bhaduri and Marglin’s (1990)

demand-side wage-led (WL) and proﬁt-led (PL) taxonomy, demands more

attention (Stockhammer 2021, p. 3). During the last decades, the two

perspectives have evolved in parallel; yet in a context of critical interaction

between both approaches, theoretical and methodological debates have

intensiﬁed (Baccaro and Pontusson 2016; 2018; Hope and Soskice 2016;

Stockhammer 2021; Hein et al., 2020; Kohler and Stockhammer 2021;

Stockhammer and Kohler, 2022). The discussion has not so much revolved

around the two original taxonomies, but around the growth models developed

by some countries before and after the 2008 crisis. This exchange of views

comprises mutual acknowledgements, criticisms and vindications that have led

to an apparent stalemate.

The purpose of this article is to scrutinise the potential of each approach

to gain inﬂuence within the CPE. Despite the many commonalities, there are

marked theoretical divergences between the VoC and PK approaches. We

argue these to be residing in two fundamental areas: (i) in the macroeconomic

foundations – mainly the role of aggregate demand and system instability – and

(ii) in the understanding of institutions – as being the outcome of the efﬁcient

interaction of rational agents or as rules that materialise power struggles.

We show that are precisely these divergences that mark the major

challenges for each approach to gain dominance within CPE. In so doing, we

suggest areas of future work that both approaches must fulﬁl if they are to

cover existing substantial epistemological gaps. On the one hand, VoC literature

lacks an explicit macroeconomic fundament; its future in CPE depends on

consolidating macroeconomic principles consistent with a dynamic reality.

Some authors have favoured linking it to the 3-equation model (Carlin and

Soskice 2005), and yet the choice of this or another macroeconomic model

will determine the ability of the VoC approach to explain phenomena such as

74 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

endogenous ﬁnancial instability or long-term stagnation affecting both LME

and CME (or other secondary) types. As for now, VoC’s exegetical strength

remains truncated by the production of harmonious models that hardly explain

diversity of dysfunctional growth models and a crisis ridden economic system.

In this respect, the PK approach has clear theoretical advantages: its

proposal arises unambiguously from its own macroeconomic foundations; it

captures the importance of power struggle in the determination of functional

distribution which, in turn, is a fundamental factor of long-term growth. At

the same time, it understands crises as recurrent and inherent phenomena

to capitalist economies. That said, the possibility of establishing itself as an

epistemic alternative within CPE depends, to a large extent, on the ability to

embed the macroeconomic fundamentals within an institutional environment

and develop a systematic and explicit relationship between the possible

cultural, institutional and historical commonalities between countries, and

their classiﬁcation in relation to their growth model.

The article is structured as follows. The ﬁrst section locates the reader

by swiftly presenting both approaches as well as their contribution to CPE in

detail. Later, we study the macroeconomic rationale of each. The third section

contrasts the existing literature with the recent discussion between the leading

authors of each approach and thus evaluates the relevance and implication of

the coincidences and differences that have arisen among the multiple works.

Section 4 concludes by summing up the main ﬁndings.

2. a literature review on the PK and voc ProPosals

In recent years, Post-Keynesianism and VoC have converged in the literature

on growth models, coinciding in the main categories identiﬁed, the group of

countries that make up the object of study, or in the typiﬁcation of trade and

ﬁnancial relations between them. However, the theoretical path prior to the

identiﬁcation of growth models as well as the contributions to Comparative

Political Economy differ between the two schools.

oriGins and nature oF PK and voc Growth Models

The literature on ﬁnancialised growth models is based on the Post-Keynesian

current, and comes from the debate around the effects of a variation in the level

of wages on economic growth (eg; Rowthorn, 1981; Blecker, 1989; Bhaduri

and Marglin, 1990;Stockhammer, 2021). The shift of some of the attention

from these demand regimes to ﬁnancialised growth models, especially since

the 2010s, can be understood on the basis of an observation and the question

that follows from it. If, as several empirical studies show (see Oyvat et al. 2020

for a compilation), most developed countries are wage-led, but wage share has

been falling since the 1970s, how can we explain the relatively high growth

experienced by some of them in the 1990s and 2000s, as well as the strong

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revista de econoMía Mundial 65, 2023, 71-92

impact of the 2008 crisis? The answer lies in the profound transformation of

demand patterns through increasing debt levels.

In this context at least two opposite growth models have emerged: the debt-

led growth model (DLG) and the export-led model (XLG)1 that have allowed

wage-led countries to temporarily evade the contractionary effects of the fall

in the wage-share (e.g; Stockhammer 2009; Hein and Mundt 2012;). In the

DLG model, debt ﬁnances household consumption and even ﬁrms’ investment;

meanwhile XLG countries - like Japan, Germany, and other Eurozone core

countries - accumulate growing trade surpluses. They are opposite, but still

complementary models: the latter beneﬁts from the debt of the former to

increase its exports, while the endogenous debt expansion of the former is

reinforced by the inﬂows from the latter. In a nutshell: Post-Keynesian literature

considers that capitalist economies have signiﬁcant common features that,

depending on the country, lead to different growth paths (i.e. XLG, DLG).

In contrast to PKE, the VoC approach, based on Hall and Soskice’s (2001)

seminal work, proposes an agent centred classiﬁcation of national economies

comprising the supply side (Hope and Soskice 2016), where the ﬁrm’s internal

and external relations become the axis of analysis. It studies the different ways

in which the ﬁrms coordinate with other players based on certain analytical

dimensions.

Qualitative differences may crystallise into two stylised socio-economic

functional models: in the liberal market economies (LME), ﬁrms’ activities

and collective bargaining are coordinated via organizational hierarchies and

competitive market arrangements; in the coordinated market economies

(CME), ‘ﬁrms depend more heavily on nonmarket relationships to coordinate

their endeavours with other actors and to construct their core competencies’

(Hall and Soskice 2001, pp. 6-8). With the areas of study and the theoretical

groups deﬁned, the United States is the paradigmatic case of the group of

6 countries with features of an LME, while Germany would be the clearest

reference among the total of 10 CME countries. A third, less detailed ‘variety’

would be the Mediterranean Market Economies (MME), characterised by

non-market coordination in the sphere of corporate ﬁnance but more liberal

arrangements in the sphere of labour relations (ibid., p. 21).

Despite the multiple critiques and subsequent extensions to the original

scheme, there are still strong tendencies to maintain the theoretical beneﬁts

of problematizing the existing institutional variety to grasp a complex reality

and simplify it. The most obvious evidence of the still wide support for the

LME-CME taxonomy is the extensive literature of the last decade relating these

types and two main growth models: the ‘export-led’ model (Germany and other

‘Northern’ European countries) and the ‘domestic demand-led’ model (United

States, United Kingdom, Spain) ﬁnanced with foreign capital.

1 Hein and Mundt (2012) identify two other intermediate models: ‘domestic demand-led’ and the

‘weakly export-led’ types. For the simplicity of our study, we will only apprehend their two opposite

cases.

76 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

Unlike the PK classiﬁcation, however, each VoC type is linked to a growth

model: while CME countries tend to adopt an export-led strategy, LME and

MME countries would be prone to drive their growth with domestic demand

(Hope and Soskice 2016). From this perspective, therefore, an explanation of

imbalances - with special reference to the Eurozone - is offered by relating

a country’s demand patterns and the way its institutions are organised and

articulated. For instance, price competitiveness (Hancké 2013; Höpner

and Lutter 2014) and quality-based competitiveness (Iversen and Soskice

2012; Hall 2014; Iversen et al. 2016) appear frequently associated. The

CME countries have mechanisms for wage coordination between employers

and unions, vocational training systems and the implementation of inter-

ﬁrm research collaboration programs with which to promote high value-

added exports. Mediterranean countries (MME), however, do not have such

institutionalised collaboration. Moreover, unlike LMEs, they have strong trade

unions, but their large number prevents coordination as in CMEs (Hall and

Soskice 2001; Hancké 2013; Johnston et al. 2014; Hall 2014; Hope and

Soskice 2016). This divergence of models can be reinforced by the different

economic policies: CME’s less accommodative policies in response to adverse

shocks reafﬁrm agents’ commitment to wage moderation (Iversen et al. 2000;

Soskice 2007; Hope and Soskice 2016; Hall 2018).

contributions to coMParative Political econoMy

Three essential aspects that shed light on the extent to which each of

the two approaches contributes to CPE: a) the ability to translate complex

cultural, historical and institutional realities into a clear classiﬁcation, b) the

interaction of the two growth models, c) capacity to assimilate and incorporate

new patterns of the international economy, such as ﬁnancial liberalization or

monetary uniﬁcation, within their theoretical framework.

Before the rise of the literature on ﬁnancialised growth models in the

2010s, the PK contribution to CPE about demand regimes was already

notorious: taking the distributional conﬂict between classes as a key element

in the determination of aggregate demand, they proposed a dual classiﬁcation

applicable to any country. Based on this premise, several lines of research have

been opened, among them: a line in which the factors behind the observed fall

in the wage share from the 1980s in most developed countries are identiﬁed

(e.g; Jayadev 2007; Onaran 2009; Lavoie and Stockhammer 2013; Kohler et

al. 2019); a second one trying to determine empirically the demand regime

of different countries (cf. Blecker 2016; Stockhammer 2017); and a third

one suggesting characteristics – related to national culture, Welfare State

conﬁguration, ﬁnancial regulation…- that lead aggregate demand components

to react in a speciﬁc direction and amplitude to changes in functional

distribution (Dutt 2011; Lavoie and Stockhammer 2013; Kapeller and Schutz

2015; Setterﬁeld and Kim 2016; . Carvalho and Rezai 2016; Palley 2017;

Stockhammer, 2021).

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revista de econoMía Mundial 65, 2023, 71-92

The path subsequently opened in relation to the study of growth models

no longer proposes a classiﬁcation based on the complex calculation of the

effects on the level of output of changes in the functional distribution, but

directly classiﬁes the countries according to the superﬁcial observation of the

components of aggregate demand. However, it consolidates two key elements

of Bhaduri and Marglin’s (1990) proposal. First, it underlines the central

role of distributional conﬂict in the swings of aggregate demand, already

emphasised since Kalecki (1943). Second, contrary to VoC types, ﬁnancialised

growth models – as well as demand regimes - do not represent successful

forms of capitalism in which to classify a few countries, but groups identiﬁed

from the observation of patterns on the aggregate demand side, with which to

classify any national economy and in which crisis or stagnation are foreseen

phenomena.

This consolidation is achieved by introducing some elements. First, it

introduces key elements to understand growth in ﬁnancialised times. After all,

the contribution of changes in income distribution to growth is estimated to be

relatively modest (Stockhammer et al. 2009). Moreover, with most developed

countries being wage-led, the net contribution of wage share changes in recent

decades may have been negative. Besides, integrating ﬁnancialisation into the

analysis allows taking debt - frequently associated to wealth effects - as a key

driver of growth until 2008 (Zezza 2008; Stockhammer 2012; Hein and Mundt

2012; Hein 2017; Stockhammer and Wildauer 2016). Finally, it also raises the

problem of the unsustainability of the models when the ﬁnancial cycle is over,

as well as the characteristic interdependencies between countries before and

after the Global Financial Crisis (GFC).

Regarding Varieties of Capitalism, the original proposal by Hall and Soskice

(2001) does not include a detailed method to qualify the type of relationships

in each of the ﬁve analytical dimensions proposed. Nor does it provide

guidelines for ranking these dimensions in the event that the same institutional

conﬁguration and complementarity does not apply to all of them. The

theoretical corpus has been built inductively, from an appreciable difference

between continental European and liberal economies, and then applied tout

court. This poses problems especially when trying to classify non-Western

countries – like the case of China (Witt 2010; Fligstein and Zhang 2011), but

also Western paradigmatic cases (Streeck 2009; and Piore 2016 for Germany

and the United States). Perhaps because of this room for interpretation, the

VoC literature has shown ﬂexibility in integrating realities omitted from Hall and

Soskice’s original approach. In this respect, a number of authors have expanded

and nuanced the original LME-CME, mainly with the aim of integrating different

regions into the debate (e.g, Nölke and Vliegenthart, 2009).

The association with growth models has been a step forward for the VoC

literature. As seen above, it is now able to associate different sets of institutions

with demand patterns: CME with export-led growth and LME and MME with

domestic demand-led growth. In addition, interactions between countries

belonging to different models are clearer than in the original VoC proposal.

78 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

The VoC growth models were particularly relevant in explaining the 2008

crisis, describing the trade and ﬁnancial relations between the main Western

countries involved. More speciﬁcally, it offered a perspective on the uneven

relationship between the countries in the centre and the periphery of the

Eurozone. The VoC approach also integrates debt and ﬁnancial stress into

the dynamics between growth models before the crisis (Iversen and Soskice

2013; Johnston et al. 2013; Behringer and Van Treeck 2019) and draw a link

to the spiral of ‘over-exuberant’ borrowing of LME and MME countries (Soskice

2009; Hall 2014). In the case of the Eurozone, however, instead of focusing on

the new patterns of accumulation and the rise of debt (as the PK literature),

the severity of the crisis in the ‘South’ is mostly explained as a result of the

impossibility of depreciating the national currency due to the consolidation of

the monetary union (Johnston et al. 2013; Höpner and Lutter 2014; Johnston

and Regan 2016; Hall 2018).

By raising the problem of crises, the VoC approach is now open to

reconsider that each variety is the result of (in)efﬁcient interactions (Soskice

2009). And it is implicitly acknowledged that the efﬁciency of a VoC depends

on the supranational regulatory framework; monetary union between CME and

LME countries, for example, would be particularly advantageous for the former

and detrimental for the latter (Hall 2018).

3. MacroeconoMic FundaMentals

Although succinctly, it can be seen that each approach underlies different

ways of understanding the role of demand, the possibility and origin of

crises and, ultimately, the growth drivers. In this section we show that these

differences derive from the macroeconomic model in which they are (or are

not) embedded.

VoC is micro founded and supply side focused, but it has not been built on a

clear macroeconomic foundation. A posteriori, it has often been associated with

the so-called 3-equation model (3EqM) (Carlin and Soskice 2005), consisting

of the IS curve, the Phillips curve and the Monetary Rule. For instance, Hope

and Soskice (2016) (being Soskice himself one of its co-developers) use the

3EqM explicitly. As Stockhammer (2021) suggests, the heads of VoC scholars

were turned towards that model probably because the institutional focus of

VoC can complement 3EqM’s supply-side focus. In short, although long-run

equilibrium is set from the supply side, the interaction of aggregate demand

and supply - with consequences for employment levels, wages, inﬂation, and

output, among others - is directly affected by the institutional setup of the

national economy. This can be seen in the three main implications of 3EqM for

VoC pointed out by Baccaro and Pontusson (2018):

“(1) monetary and ﬁscal policies can have signiﬁcant effects on the real

economy…but only in the short- to medium-run”: from the VoC perspective, for

a [long run] high level of employment should insist more in making structural

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revista de econoMía Mundial 65, 2023, 71-92

reforms of the liberal kind (i.e. a more ﬂexible labour market) than in expansive

monetary or ﬁscal policies.

“(2) there are important complementarities between aggregate demand

management regimes and production regimes”: in CME countries with few wage-

setters, for example, an expansionary policy would have lasting real effects

because of its ability to put downward pressure on real wages and, therefore, on

the long-run equilibrium level.;

“and (3) the different macroeconomic stances adopted by LMEs and CMEs

are interdependent and, for the most part, complementary: (Iversen and Soskice

2012; Carlin and Soskice 2015; Iversen et al. 2016)”. In this sense, the adoption

of inﬂation targeting in both LME and CME allows the emergence and

growth of bilateral trade imbalances. In LMEs, for example, if there is a

positive aggregate demand shock, this will tend to generate a current

account deﬁcit, but an inﬂation-targeting central bank is unlikely

to intervene by increasing interest rates so long as inﬂation remains

subdued. In the same light, if coordinated wage bargaining in CMEs

generates a depreciation of the real exchange rate and increasing

exports the central bank will keep rates constant even if current account

surpluses accumulate.

PKs’ opinion about the merit(s) of the 3EqM is not unanimous, probably

because it lies somewhere between New Keynesian (NK) and ‘traditional’

Keynesianism. In this regard, there seems to be some misunderstanding among

PKs when equating the 3EqM with a fully-ﬂedged NK model. It diverges from

the canonical NK model, in which all agents are considered forward looking

rational optimizers; the 3EqM is considered to be more ‘realistic’ and only

the inﬂation targeting Central Bank is a forward looking optimizer (Hope

and Soskice 2016, p. 583). Indeed, Lavoie (2015) admits that the 3EqM

model includes relevant PK ideas: money supply is endogenous, inﬂation is

the outcome of a distribution struggle between wages and proﬁts, hysteresis

effects as well as ﬁnancial cycles may be included.

Apart from these coincidental elements, almost the entire literature that

starts from ﬁnancialization and seen above to study growth models reﬂects

the fundamental elements of the PK theory (Lavoie, 2004). The clearest one

- in contrast to the New Keynesians and also to 3EqM - is the principle of

effective demand: aggregate demand is the main force determining output

and the level of employment, also in the long run. In fact, the classiﬁcation

between countries is made mainly on the basis of the observation of the

dynamism of the different components of aggregate demand, assuming a

gradual adjustment of supply. The way debt is treated and its importance in

the generation of demand - ﬁrst - and instabilities - later - is also strongly

consistent with two other basic principles of post-Keynesian economics. On

the one hand, the analysis of national economies is dynamic and far away

from any general equilibrium framework typical of the neoclassical school. On

80 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

the other hand, crisis phenomena are endogenous to the nature of capitalism,

intimately associated with the preceding ﬁnancial expansion (Lavoie, 2022).

Summing up, disequilibrium in VoC models depends on market failures

and institutional shortcomings rather than on intrinsic features of capitalist

economies. This in turn assigns different roles to ﬁscal and monetary policy,

considered to be stabilization instruments to dampen the business cycle for VoC

models versus the necessary instruments to grant growth for Post-Keynesian

models.

4. discussion: FroM eMPirical coincidence to diverGinG FundaMentals

The coincidence in the topics studied, in the categories used and even in

some theoretical premises but also the fundamental macroeconomic theoretical

divergences have served as an incentive for debate in recent years. In this

exchange, each approach recognises certain coincidences and merits of the other.

However, what underlies this ‘dialogue’ is the struggle for greater predominance

in CPE, with each contribution highlighting only the virtues of its own approach

over the others.

The trigger of the debate was the defence made by Baccaro and Pontusson

(mainly 2016 but also 2018) of the necessity to include aggregate demand as a

key analytical element to CPE literature. Applying their study to four countries

- United Kingdom (LME), Sweden (CME), Germany (CME), and Italy (MME) -

Baccaro and Pontusson consider that depending on institutional and structural

factors, each country replaced the ‘Fordist’ pro-labour and productivity-seeking

institutional arrangements until the 1970s by growth models driven by one (or

more) of the components of private aggregate demand. Germany is considered

a straightforward example of an export-led economy, the UK an economy which

is debt-ﬁnanced household consumption-led, Sweden is a ‘hybrid’ model able to

combine internal and external demand thanks to the low price-sensitivity of its

exports. Finally, the Italian case shows a failed model with persistent stagnation.

Baccaro and Pontusson’s efforts have been recognised by leading authors of

both streams of thought and they have even led to a degree of self-criticism on

‘each side’ (Hope and Soskice 2016; Stockhammer 2018; Stockhammer and

Ali 2018; Hein et al. 2020; Stockhammer and Kohler, 2022). However, small

concessions aside, each approach has been insisting on the analytical superiority

of its method. This section is intended to contrast the controversies raised in the

debate and their implications for the possibility of the PK gaining dominance

and consolidating its position within CPE. Four aspects will be considered,

starting from shared commonalities in empirical observation to ﬁnally expose

their fundamental theoretical differences.

classiFyinG Growth Models

Recently, Hein et al. (2020) acknowledged the effort of Baccaro and

Pontusson (2016) as ‘an interesting attempt to introduce the PK notion of

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macroeconomic demand and growth regimes into the CPE literature’. However,

they also criticise such an ‘attempt’. First, when talking about the evolution of

wage-share during ‘Fordist’ and ‘post-Fordist’ periods, Baccaro and Pontuson

(2016) ‘have not clearly followed the distinction between wage- or proﬁt-led

demand and growth regimes, on the one hand, from pro-labour or pro-capital

distributional policies and the resulting economic developments, on the other

hand’ (Hein et al. 2020, p. 4). Second, and related to the ﬁrst point, Baccaro and

Pontusson (2016) – and later Hope and Soskice (2016) – are confusing growth

models with demand regimes (Hein et al. 2020; Stockhammer 2021, p.3)2.

Third, Hein et al. (2020) criticise Baccaro and Pontusson’s empirical method

to claim that Sweden and Germany follow different models. Interestingly, an

alternative estimate leads Hein et al. (2020) to the same conclusion as VoC

authors Hope et al. (2016) a few years earlier in their own response to Baccaro

and Pontusson (2016): a more correct estimate shows that Sweden is, like

Germany, a clear export-led case with high non-price competitiveness.

This coincidence between Hein et al. (2020) and Hope et al. (2016)

regarding the classiﬁcation of Sweden is striking. However, equally remarkable

is the divergence found in the classiﬁcation method between Kohler and

Stockhammer (2021) and Hein et al. (2020), both Post-Keynesians. The

latter point out that, after the 2008 crisis, there was a general trend in OECD

countries from ‘debt-led private demand boom models’ towards more export or

weakly-export-led models. In contrast, according to Kohler and Stockhammer

(2021), the improvement in the net ﬁnancial position and trade balance of

some countries is not a sign of a change of model, but the reﬂection of the

contradictions of the debt-led pre-crisis growth model.

We should note two points regarding these coincidences and discrepancies.

First, the export and debt-led models and their representative countries are

found in more than these two currents (Stiglitz, 2007; Sinn, 2012; Flassbeck

and Lapavitsas, 2013). Second, there is no concrete and consensual method to

determine which country follows a debt-led, export-led or other intermediate

model. Even the combined analysis of sectoral ﬁnancial balances and the

components of aggregate demand, as Hein does (Hein and Mundt 2012;

Hein et al. 2020; Hein and Martschin 2020), could lead to ambiguous cases

(Barredo-Zuriarrain 2019). Thus, the general observation of growth patterns

or sectoral balances of a country or region may lead to coincidences between

currents as well as to divergences within the same school (see Table 1 below,

ﬁrst row). In controversial cases, the coincidences or discrepancies are more

related to the years, indicators and context analysed than to the theoretical

approach employed itself.

One of the key contributions of Kohler and Stockhammer (2021) is the

emphasis on growth drivers rather than growth components, so that we can

‘broaden the theoretical foundations of growth models’. These growth drivers

2 When referring to both growth models and demand regimes, Hein et al. (2020) use slightly different

names.

82 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

– competitiveness, asset price inﬂation, ﬁscal policy, etc. - are ultimately

the factors that inﬂuence the growth of demand components. In this sense,

Stockhammer (Stockhammer and Ali 2018; Kohler and Stockhammer 2021;

Stockhammer 2021) criticised VoC for overemphasizing price-competitiveness

and neglecting debt as a determinant of imbalances and growth in the

Eurozone. However, it is worth noting that the PK literature provides examples

of authors who have integrated price-competitiveness (Stockhammer 2012;

Bibow 2013; Hein and Mundt 2012) and non-price competitiveness (e.g.

Simonazzi et al. 2013; Gräbner et al. 2020) when explaining the Eurozone

crisis. Here again there are points of coincidence not only between the PK and

the VoC perspective, but also with others (e.g. Flassbeck and Lapavitsas 2013).

Notwithstanding particular coincidences, in PK literature, the key factor

that marks pre-crisis growth and post-crisis stagnation is debt. In this sense,

the difference - apparently of a minor order - between the VoC denomination

of the ‘domestic demand’ model and the PK ‘debt-led’ is eloquent. For PK

it is not just a matter of comparing the growth of the demand components,

but of pointing to debt as an identifying feature explaining the difference and

complementarity of two opposite models. How both approaches incorporate

the role of debt in determining a growth model is not anecdotal because, as

we show below, it poses a fundamental difference in how long-term stability is

explained (see Table 1, second row).

Crucially, it is a great step forward to go from observing macroeconomic

variables – growth components – to asking what drivers have led each one

to evolve, as Kohler and Stockhammer (2021) propose, in a certain way.

However, it is also worth asking why in each country one driver or another

Growth drivers and triggers.

table 1. Grounds For (dis)entanGleMent between PK and voc aPProaches

Grounds for (dis)entaglement

 Post-Keynesian Varieties of Capitalism

Classifying

method of

growth models

No universally accepted method.

Both inductive & a prioristic.

Similar clustering of certain countries.

Internal discrepancies.

No systematic relation between demand regi-

mes and growth models.

General correlation CME&Export-led vs

LME/MME&Domestic demand led.

Growth and

imbalances

drivers

Empirical observation of similar drivers.

Debt as a crucial growth fuller.

Growth as a global process.

Country-by-country studies on institutional

determinants of growth models.

Priority to the study of competitiveness

Debt is one of many possible drivers.

Ability to relate types of institutional com-

plementarity and drivers.

Instability and

institutional

efﬁciency

No institutional efﬁciency presupposed.

Institutions subject to internally driven conﬂicts.

Growth drivers may be inherently unsustanable.

Debt as cronic global destabiliser.

Institutions tend towards

efﬁciency & complementarity.

Instability derived from mis-management.

Crises as external shocks or ‘pathological’

national coupling.

Long-run

policies

Hysteresis and long-run effects of pro-labour

income-distribution policies.

Financial regulation & anti-mercantilist policies

reduce instability.

Supply-side long-run equilibrium undermi-

nes effective policy making.

Macroeconomic policies to reduce output

gap & combat business-cycles.

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revista de econoMía Mundial 65, 2023, 71-92

has been ‘activated’ or not. What has led Spain, the United States or Ireland,

for example, to base their growth during the ﬁrst decade of the 21th century

on leverage and not on export promotion? Why have households in Germany,

affected by the same growing trend of inequality and ﬁnancial liberalization as

the former countries, not boosted their spending by means of increasing debt?

In short, what are the triggers, institutional or others, that favour a growth

driver to emerge in a number of countries and not in others?

From the VoC perspective, a systematic answer to these questions is

provided by describing presupposed institutions of CME (export-led) and

LME/MME (domestic demand-led) countries. A country is more likely to follow

an export-led model if institutional coordination allows for it. In Iversen and

Soskice (2012) and Johnston and Regan (2016), inter alia, political support

for ﬁrms’ mercantilist strategy depends, to a large extent, on the coalitions in

power. On the other hand, also from the VoC, the possibility that households

resort to debt in response to pressure on wages and rising inequality rests

on different hypotheses, such as the type of regulation, the conﬁguration of

the Welfare State, workers’ prospects (Carlin and Soskice 2009; Iversen and

Soskice 2012; Behringer and Van Treeck 2019).

The PK approach does not differ much from VoC in terms of identifying the

different triggers of growth drivers; all the factors outlined above are collected

in the recent PK literature (e.g. Detzer and Hein 2014; Kapeller and Schutz

2015; Detzer 2016; Kohler and Stockhammer 2021). However, two points

should be noted regarding the PK proposal. First, as their underlying theory is

focused on aggregate demand and not on institutional analysis, the association

between the growth model and institutional characteristics is not made on the

basis of pre-established taxonomies but on the basis of country-based analysis.

Only a few recent attempts point in the direction of linking the grouping of

countries on the basis of common institutional characteristics with the type of

growth models (e.g; Hein et al. 2020; Cárdenas et al. 2021). For instance, Hein

et al. (2020) link Hay and Wincott’s (2012) welfare-based taxonomy to growth

models, ﬁnding a clear and differentiated relationship before the 2008 crisis

between a country’s welfare system and its growth model. Second, for most of

the PK studies, the mention of growth drivers are not detailed investigations

but brief references to other studies - some from the VoC perspective - which

largely focus on the United States and Germany (e.g. Giavazzi and McMahon

2008; Van Treeck and Sturn 2012; Kumhof et al. 2012).

This is surely the great challenge for PK to consolidate as an alternative

within CPE. The classiﬁcation and subsequent comparison of countries should

not be based merely on the relative weight of the components of aggregate

demand; not even on the speciﬁc study of the growth triggers of an isolated

country. The comparative potential in terms of political economy will depend,

to a large extent, on the ability to relate, on the one hand, growth patterns to,

on the other hand, institutional, historical or cultural factors shared by groups

of countries.

84 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

Such a challenge is complex, especially in a volatile context as the current

one, where national political realities change and periodic crises abruptly

break apparently stable growth patterns. However, the very characteristics of

such a challenge encourage us to think that a three-phase organization of such

an endeavor is possible (see Table 2).

In a ﬁrst stage, – (1) in Table 2 – empirical studies should keep further

developing the relationship between growth models and growth drivers (in

Table 2, column 1 and 2 respectively); that is, to deepen our understanding

of the factors (such as real estate prices, export sophistication, monetary

and ﬁscal policy, price competitiveness, etc.) that explain the dynamism of

the different components of aggregate demand in each country. The existing

theoretical research and case studies mentioned above must be accompanied

by a line of work that is capable of linking growth drivers and components with

groups of countries in speciﬁc periods.

Second – see (2) in Table 2 –, these drivers cannot appear in the analysis

as exogenous elements, which may or may not be activated by chance in

different countries, but must be studied as probable endogenous results of

socioeconomic or heterogeneous cultural factors and institutional forms

shared between countries. In other words, the association between these

growth triggers (column 3 in Table 2) and growth drivers should be explored.

In this ﬁeld, of course, the PK literature can continue to draw on VoC research

that relates forms of institutional complementarity and growth impacts. But

the PK literature has its own institutionalist line that makes key contributions

around forms of regulation and socio-cultural factors, on the one hand, and

their impact on decision making, on the other (e.g; Eichner, 1985; Seccareccia,

1991; Lee, 1996, Prasch, 2005; Weller, 2015; Zalewski, 2018) Moreover, this

institutionalist branch incorporates uncertainty and instability as elements

speciﬁc to the international economy (Minsky, 1982; Whalen, 2020) and may

therefore constitute a more consistent starting point than VoC research.

The simultaneous development of these ﬁrst two phases or even their

permanent dialogue from early stages would be advisable. Finally, the

contributions resulting from both would allow, in a third phase – (3) in last row

in Table 2), to consolidate the PK contribution as an alternative in the CPE,

grouping countries based on the relationship between, on the one hand, the

growth triggers - including the existing institutional diversity - that they share

and, on the other hand, their classiﬁcation in growth models.

instability and institutional eFFiciency

As we move from empirical observation to explanation and interpretation,

coincidences give way to clear divergences. This is again evident when it comes

to explaining the GFC. We have seen in the previous point Stockhammer’s

(2021) criticism of VoC for underestimating debt as the growth driver of

domestic demand-led countries. In the same way Stockhammer adds that, to

the extent that VoC is based on New Keynesian macroeconomics, it neglects

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debt as a crisis driver and ﬁnancial instability. On this point, a clariﬁcation must

be made: both debt and ﬁnancial instability do already appear at the centre of

the VoC interpretation of the GFC (Hall 2012; Hancké 2013). Indeed, Iversen

and Soskice (2012, p. 42) draw on Minsky to explain how risks in the ﬁnancial

sector carry over into the ‘real’ sphere. However, the VoC explanations on the

global crisis and especially that of the Eurozone, steer far from taking instability

as an endogenous feature of the ﬁnancial system. Although in each study there

is no explicit mention of the macroeconomic principles on which it is based,

there is a recurrent reference to ‘inadequate regulation’ and ‘market failures’

(Soskice 2009, Iversen and Soskice 2012; Hall 2014), which are traditional

New-Keynesian postulates.

From the PK approach, just as debt was the main determinant for growth

and pre-crisis imbalances, it is also the main explanatory factor for the crisis.

This approach offers an explanation in which expansion and leverage are

essentially endogenous phenomena attracting large gross ﬂows of foreign

capital (Barredo-Zuriarrain 2019). Unlike in the VoC literature, for Post-

keynesians imbalances are a logical and relatively minor consequence –

compared to the volume of debt – of the interaction between opposite growth

models. Despite the disagreement between Kohler and Stockhammer (2021)

and Hein et al. (2020) about the classiﬁcation method, both articles agree on

something fundamental: debt-led expansion brings with it the conditions to

end up in a debt-burdened recession or stagnation.

This leads us to a fundamental question about the nature of institutions.

Institutions do not mean the same thing for each approach. In the VoC

literature, institutions appear as a ‘set of rules’ that help solving coordination

problems among ﬁrms (Hall and Soskice, 2001, p.9). Thus CME and LME are

both successful models of institutional complementarity. It is therefore difﬁcult

to explain severe recession phenomena from the VoC perspective (Bruff 2011;

Jessop 2011). This is also why supranational regulatory elements are alluded

Growth drivers and triggers.

table 2: three-staGe worKinG ProPosal For a consistent PK contribution to cPe

Literature Growth models Growth drivers Growth triggers

Main examples in the

litterature

Dynamism of Consump-

tion/ Investment/State/

Net-exports

Real Estate & Financial

assets inﬂation/ Debt/

Price&non-price competiti-

veness/ Fiscal policy (…)

Wage bargaining model/

Welfare State provision/

Financial regulation/

Inequality and inter-class

consumption patterns/

Central Bank policy rigidity

(…)

Method

Statistical observation

of Agreggate Demand

Components

Macroeconomic study

Research on socioecono-

mic, cultural and institutio-

nal factors

Preliminary stages

(1) Associate common

growth patterns in coun-

tries to common drivers

(2) How the cultural/regulatory/historical(...) framework

inﬂuences the activation of one driver or another other.

Subsequent stage (3) Systematic association between institutional/cultural/historical characteristics

common to countries and long/very long term growth patterns

86 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

to, to say that the ‘symbiotic’ relationship between two VoC types becomes

‘pathological’ in the framework of a monetary union (Hall 2018). As opposed

to VoC, the PK literature on growth models starts from ﬁnancialisation and

its effects on capital accumulation (see Table 1, third row). Far from taking

efﬁcient models, it integrates the changing character of national economies as

well as institutions arising from power struggles, which is a vision compatible

with North’s (1990) institutionalism or with the Regulation Theory, with which

some PK scholars have already engaged into closer debate (e.g. Jäger and

Springler 2015).

anti-crisis and lonG-run Growth Policies

Baccaro and Pontusson’s (2016) proposal to draw on PK economics for

the sake of incorporating aggregate demand into CPE was replicated shortly

thereafter by Hope and Soskice (2016). They consider the ‘growth models

approach as supporting recent developments in varieties of capitalism rather

than undermining them’ (ibid, p. 3). Moreover, they add that in order to include

aggregate demand in CPE it is not necessary to resort to the PK approach; they

remind that the 3EqM already incorporates demand and the ﬁrst equation

(the IS) shows precisely how important it is in determining output but in the

short run. Besides, they point out that Post-Keynesian and neo-Kaleckian

literature on growth regimes does not integrate either the interrelationship of

wage demands with inﬂation – the Phillips Curve equation – or the importance

for stabilization of macroeconomic policies (especially monetary policy) in the

face of shocks – the Monetary Rule equation. In fact, to ﬁnd references to the

importance of demand policies from the VoC perspective, it is not necessary to

resort to the 3EqM. Especially when studying the causes of and remedies to the

Euro-crisis, several followers of VoC (e.g. Hall 2012; Iversen et al. 2016) refrain

from disparaging the important role that a ﬁscal union and an expansive ﬁscal

policy can play to overcome that crisis, nor do they minimise how important a

banking union and the role of the central bank as lender of last resort is.

That said, it is true that the structural changes and interventions needed

to overcome the GFC consequences (not only in the Eurozone), to minimise

the probability of a ﬁnancial crisis recurrence and to promote long run growth,

differ considerably between both approaches. Coherently with the causes of

the business and ﬁnancial cycles, VoC followers advocate the implementation

of counter-cyclical macroeconomic policies to combat the business cycle

consequences and micro and macro prudential policies to avoid the occurrence

of ﬁnancial cycles (Iversen and Soskice 2012). Because any kind of crisis is

due to exogenous shocks disturbing a stable long run equilibrium, there is no

need for any other type of major changes in the economic system. Fiscal and

monetary policy are, in any case, valid to close the output gap if efﬁciently

managed but ineffective in moving output above its potential or unemployment

below the NAIRU (Hope and Soskice 2016, p. 11). As for making the long run

equilibrium grow in a sustainable way, this depends on productivity growth,

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technological upgrading and ultimately on the right institutional setup. The

labour market is where the equilibrium level of employment (and its growth)

is determined and therefore the rules and incentives governing the functioning

of the labour market are of paramount importance. VoC scholars advocate for

supply side (structural) policies making the labour and product market work

with higher degrees of freedom and competition (Hall 2012, p. 365; 2014, p.

1234).

There is a coherence already highlighted in section 3, regarding the analysis

of the role of demand in the short-medium term between VoC and 3EqM.

This has been made clear by the work in recent years of leading authors in

both ﬁelds, such as Carlin and Soskice who are aware of the need to provide,

albeit ex-post, a macroeconomic approach to the VoC perspective. However,

the consolidation of such a link is a pending challenge for VoC, especially if

it is intended to be predominant in the CPE. In any case, if such a link with

3EqM is afﬁrmed, the treatment of aggregate demand is much closer to New

Keynesianism than to the PK literature on demand regimes and ﬁnancialised

growth models.

Stockhammer (2018) self-critically acknowledges the ‘shortcomings of

PK economics’ in routinely incorporating the interventions of different social

classes, as well as monetary and ﬁscal decisions, into the models. However,

the author claims (Stockhammer 2018; 2021), in agreement with Lavoie

(2015) (also Blyth and Matthijs 2017; Schwartz and Tranøy 2019) that the PK

approach gives more adequate macroeconomic foundations to CPE than New

Keynesian economics. First, in PK, conﬂicts on factor distribution change the

composition of GDP and affect inﬂation, but also have an impact on the level

of aggregate demand. Second, aggregate demand does not ‘only’ affect the

short run equilibrium level of output but it also stimulates economic growth in

the long-run. Third, aggregate demand should be encouraged in a sustainable

way. Allowing the ﬁnancial system to keep the economy growing through

debt ﬁnanced consumption and mercantilist export-led growth models is not

sustainable. Contrary to VoC, for which an ´artiﬁcial´ increase in wages (not

driven by productivity growth) will have detrimental effects on short and long-

run growth, the PK way to achieve healthy long-run growth is by implementing

internationally coordinated pro-labour and redistributive policies which will

keep demand growing along with output (Hein 2012; Kaufman 2012).

5. conclusion

CPE is full of similarities between the VoC and PK proposals, more than

the respective scholars involved recognise: the identiﬁcation of ideal-type

growth-models, the reference countries of each model, the identiﬁcation of

growth and imbalance drivers and even the call for an expansionary ﬁscal and

monetary policies in periods of crisis. But they differ markedly on fundamental

issues, most importantly the underlying macroeconomic model as well as in

the understanding of institutions. It is these divergences that highlight the

88 Juan Barredo-Zurriarain · Jon Las Heras Cuenca · Carlos Rodríguez González

contribution to the CPE and from which challenges arise for each of the two

approaches.

The future performance of the VoC approach within CPE depends to a

large extent on the ability to associate its classiﬁcatory logic with a consistent

macroeconomic model. If the proposal to support it in the 3EqM consolidates,

so will the shortcomings pointed out by the PK economists, such as the

difﬁculty to explain potential phenomena of endogenous ﬁnancial instability

or long-term stagnation. In this context, an opportunity opens for the PK

literature on ﬁnancialized growth models to consolidate itself within the CPE:

it has a clear macroeconomic foundation, capable of integrating the role of

demand as an engine of short and long-run growth, and the unstable nature

of capital accumulation. That said, this is not a sufﬁcient condition to establish

itself as an alternative in CPE. It is true that the theorization of ﬁnancialisation

integrates institutional and regulatory aspects, where change and conﬂict are

deﬁning elements. However, in order to consolidate itself as an alternative in

the CPE, the great challenge now for PK economics is to move from a country-

based analysis to a proposal for a systematic association between, on the one

hand, institutional aspects shared between countries and, on the other hand,

their classiﬁcation in relation to their growth model. We have proposed a three-

phase work as good support point for such endeavour. The ﬁrst two phases

would consist of further developing the relationship between growth drivers

and growth models; and to integrate these drivers as endogenous probable

results of socioeconomic, cultural or institutional factors that we call growth

triggers. Moving these research lines from a country-by-country study to a

cross-country comparison would allow, in a third phase, to consolidate the PK

contribution to CPE by grouping countries sharing grow triggers, drivers and

similar growth patterns.

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