Economy and Society in Europe
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Economy and Society in Europe

A Relationship in Crisis

Edited by Luigi Burroni, Maarten Keune and Guglielmo Meardi

While an economy is always ‘embedded’ in society, the relationship between the two is undergoing profound changes in Europe, resulting in widespread instability which is emphasised by the current crisis. This book analyses these changes, and in particular pressures of intensifying international competition, globalization and financialization within Europe.
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Chapter 9: Changing Varieties of Capitalism. Societal Consequences of Spatial and Institutional Fragmentation in Germany and Italy

Ulrich Glassmann


Ulrich Glassmann INTRODUCTION How do firms in coordinated market economies (CMEs) stay competitive in an international environment that favours liberal market practices, such as temporary contracts or other flexible forms of worker assignment? Although firms in CMEs traditionally follow quality oriented modes of production which limit intense forms of price competition, internationalized markets confront these enterprises with a strong imperative for higher productivity gains. This has led many CME firms at the beginning of the 1990s to pursue new strategies regarding supply chain management and in-house efficiency. The crisis that affected core sectors in the German economy at that time was highly reinforced by a subsequent reorganization of large firms in the automobile and machinery industries aiming at a reduction of their bloated cost base and stimulating process innovation (Töpfer 1998). In an effort to restructure inter-firm relations effectively, many large firms implemented new global sourcing strategies, which exaggeratedly pressured domestic supplier businesses and forced many German Mittelstand firms to file for bankruptcy (Glassmann 2007). These events represent a critical juncture for CMEs. Firms needed to develop effective counter strategies against severe price competition from low wage countries that endangered comparative advantages in established product markets. Quality production prevents an easy relocation of business activities. Instead, CME enterprises need to find a home-based solution to their problem. I will argue in this chapter that this was completed by domestic deregulation furthering a dual labour market (institutional fragmentation) and a policy shift towards exclusive regional support of traditional manufacturers (spatial...

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