Varieties of capitalism, varieties of philanthropy (part 2)

I’m picking up again after some time off. Good to be back to blogging.

I was wondering in a prior post about how the difference between Anglo-American (“liberal”) market economies and Continental-Japanese (“coordinated”) market economies, or “varieties of capitalism,” might map onto “varieties of philanthropy.”

One take on this question is to think about what types of activities/products/services each type of capitalism is “good at.” The primary activity on which Hall and Soskice, editors of the seminal “Varieties of Capitalism” volume (2001), focus is innovation: Anglo-American LMEs are set up for “radical innovation,” while Continental-Japanese CMEs create incentives for “incremental innovation.” This is because LMEs have fluid labor markets and little coordination among firms, while CMEs have more structured labor markets, with more overt coordination and cooperation between labor and management, and feature more coordination among firms (e.g., Japanese keiretsu).

In a prior post, I suggested that nonprofits in the U.S. operate in a kind of CME embedded within a broader LME, and wondered whether such a difference was sustainable, or whether convergence of nonprofits toward the LME of the broader economy was in some sense inevitable. The varieties of capitalism literature would seem to suggest that the emergence of social capital markets and the pooling of data about the production of social goods that we’re seeing all around are part of the convergence process. Across countries, differences between varieties of capitalism tend to reinforce themselves, so that countries gain “comparative institutional advantage” for being good at certain kinds of innovation. Within a country, the overall incentive structure pushes firms into certain types of arrangements.

How interesting then that U.S. nonprofits and their funding sources have managed to operate within a CME-type arrangement for so long within an overall LME structure. What about nonprofit capacity for innovation? Would we say that the U.S. nonprofit sector is characterized more by radical innovation or incremental innovation? Hall and Soskice:

The key distinction we draw is between radical innovation, which entails substantial shifts in product lines, the development of entirely new goods, or major changes to the production process, and incremental innovation, marked by continuous but small-scale improvements to existing product lines and production processes (pp. 38-39).

Sounds to me like nonprofits have tended to be better at incremental innovation, but that as part of the possible convergence to the LME model of the overall economy, nonprofit firms (pardon the oxymoron) are emerging that are embracing radical innovation that are introducing “major changes in the production process” of social goods: Kiva, DonorsChoose, etc. Well, perhaps not production per se, but financing. Harlem Children’s Zone might be more of an example of major change in the production process, so to speak. Point being, such radical innovations, if they are that, might be a harbinger of an overall convergence of the CME nonprofit economy to the overall LME economy. (Of course, this all assumes that nonprofits are good at any kind of innovation!)

There’s more to consider here. I’ll come back to this issue, and consider the relationships among firm governance, production, and the labor market in LMEs vs. CMEs, and keep trying to map those onto the “nonprofit economy,” with the nonprofit as the firm.

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One Response to “Varieties of capitalism, varieties of philanthropy (part 2)”

  1. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Is the answer “taxes”? Says:

    […] will care for the poor.” This speaks to varieties of capitalism, a topic I’ve considered at length on this blog. Motivations for giving in each type of system might be an interesting new […]

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