Revista de economía mundial 65, 2023, 71-92
ISSN: 1576-0162
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
Universidad del País Vasco (UPV/EHU)
Jon Las Heras Cuenca
Universidad del País Vasco (UPV/EHU)
Carlos Rodríguez González
Universidad del País Vasco (UPV/EHU)
Recibido: mayo 2023; aceptado: octubre 2023
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
Keywords: Comparative political economy, growth models, Varieties of
Capitalism, post-Keynesian economics, institutions.
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
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
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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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
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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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
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
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
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
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
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.
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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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
Dynamism of Consump-
tion/ Investment/State/
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
Statistical observation
of Agreggate Demand
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.
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
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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