Which model of capitalism best delivers both wealth and ... · Which model of capitalism best...

Which model of capitalism best delivers bothwealth and equality?

William Q Judge1,Stav Fainshmidt2 andJ Lee Brown III3

1College of Business & Public Administration, OldDominion University, Norfolk, USA; 2College ofBusiness, Florida International University, Miami,USA; 3School of Business & Economics,Fayetteville State University, Fayetteville, USA

Correspondence:WQ Judge, College of Business & PublicAdministration, Old Dominion University,2137 Constant Hall, Norfolk, VA 23529, USA.Tel: +001 (757) 683 6730;email: [email protected]

This manuscript benefited from ideas andfeedback provided from Professors JackBehrman, Peer Fiss, Michael Witt, JeffTimmons, Sven-Erik Sjöstrand, Konan SenyKan, and Cameron Guthrie; as well as theeditor, John Cantwell, and three anonymousreviewers. Earlier versions of this manuscriptwere presented within the InternationalManagement Division at the Academy ofManagement Meetings in August, 2013; aNordic corporate governance workshop atCopenhagen Business School in October,2013; and as a research presentation atToulouse Business School in December, 2013.

Received: 19 February 2013Revised: 14 February 2014Accepted: 14 February 2014Online publication date: 27 March 2014

AbstractCapitalism is the dominant economic system adopted throughout the globaleconomy, but there are many different models of capitalism practiced depend-ing on what the society decides “economic effectiveness” is. In this study, weassert that an effective economy simultaneously achieves two seemingly diver-gent outcomes: it (1) creates economic wealth efficiently, and (2) shares thatwealth equitably. Employing insights from Whitley’s national business systemsframework and fuzzy set analysis, we examine how national institutionscollectively configure with respect to the overall level of equitable wealthcreation within 48 developed and developing economies. We find that threeconfigurations are associated with relatively high levels of equitable wealthcreation, and another three are associated with relatively low levels. As such, ouranalysis supports the notion of equifinality – that there is no one optimal modelof capitalism. Furthermore, we begin to demonstrate that these models ofcapitalism are constantly evolving, but their evolution is generally slow evenwhen considering the practice of capitalism before and after the 2008 globaleconomic crisis. We discuss the implications of these findings for the study ofinternational business, with a special emphasis on considering a more holisticcontext for exploring how multinational enterprises interact with their institu-tional environment(s).Journal of International Business Studies (2014) 45, 363–386. doi:10.1057/jibs.2014.13

Keywords: capitalism; comparative capitalism; fuzzy set methods; institutional theory;equitable wealth creation; macro-level analysis

INTRODUCTIONCapitalism is the predominant economic system operating through-out the globe in the 21st century (Wallerstein, 2004). While defini-tions of capitalism vary, it is essentially a socio-economic system ofgovernance which emphasizes private ownership of capital, a rela-tively unrestricted market for labor, and the price signals are thedominant mechanisms used for allocating capital (Scott, 2009).However, there are many models of capitalism practiced throughoutthe world depending on a nation’s historical background andcurrent institutional makeup. For example, Hall and Soskice (2001)in their examination of the types capitalism adopted in developedeconomies demonstrated that there are liberal market economieswhich rely heavily on market forces to govern the economy, andcoordinated market economies which rely much more on non-market institutions to govern economic transactions.

Journal of International Business Studies (2014) 45, 363–386© 2014 Academy of International Business All rights reserved 0047-2506www.jibs.net

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The traditional argument for pursuing a liberalmarket economy is that it is more economicallyefficient by relying on decentralized decision-making and the self-regulating “invisible” hand ofthe marketplace (Smith, 1776). Since economicresources are scarce and national economies areall seeking comparative advantages, efficiency is ofgreat interest to policymakers and political econo-mists (Porter, 1990). It is well documented thatmarket-based capitalism has produced fairly steadyand rising standards of living and improved materialwell-being for those nations which adopted thiseconomic system since the industrial revolution inthe 18th century (North, 1990). For example, theUnited States, which is the prototypical liberal mar-ket economy, has grown over the past 230 yearsfrom being a British colony of modest means toa huge, industrialized, developed economy contri-buting more than 20% of the global economy withless than 5% of its population (United States TradeRepresentative, 2013).However, liberal market economies have also pro-

duced painful economic depressions and recessions,collusive and monopolistic competition, abusivechild and adult labor practices, hazardous productsand services, and pervasive environmental degra-dation (Wallerstein, 2004). Furthermore, these eco-nomic problems typically hit certain portions ofsociety much harder than others. Turning our atten-tion again to the US economy, we note that:

Between 1979 and 2007 (just before the financial crisis) thereal disposable income after taxes and transfers of the top1% of Americans more than quadrupled, a cumulative rise ofover 300%. Over the same period the bottom fifth’s incomerose by only 40%. The middle class shrank, both as a share ofthe population and geographically. Only 40% of Americanneighborhoods now have an average income within 20% ofthe national median, compared with 60% in the 1970s.(Economist, 2012: 53)

Alas, this growing economic inequality is notlimited to the US economy. “In OECD countriestoday, the average income of the richest 10% of thepopulation is about nine times that of the poorest10%” (OECD, 2011: 8). In some countries, the gap iseven more pronounced. For example, the income ofthe bottom 10% of earners has actually declinedwhile the income of the top 10% has increased. InIsrael, Turkey, and the United States, the averageincome of the top 10% is 14 to 1 compared with thebottom 10%. In Mexico and Chile, it is an astound-ing 27 to 1 (OECD, 2011).The relative effectiveness of a national economy’s

production system is heavily influenced by its

national political institutions (Acemoglu &Robinson, 2012; Roe, 2003). For those nations whichplace a higher value on economic equality overeconomic efficiency, there typically has been lessreliance on individual initiative and unfettered com-petition in the marketplace to govern economictransactions and heavier reliance on collectivewell-being and the “visible” hand of the state asa governance mechanism. For those nations empha-sizing more egalitarian forms of capitalism, coordi-nated market economies have emerged to challengethe liberal market economy (Hall & Soskice, 2001).And with the recent rise of the developing econo-mies eager to catch up economically to the devel-oped economies, state-led market economies haveentered the fray (Kang & Moon, 2012).The proponents of liberal market economies

underemphasize the importance of economic egali-tarianism while overemphasizing economic effi-ciency. In contrast, the proponents of coordinatedmarket economies underemphasize the importanceof economic efficiency while focusing on economicequality (Behrman, 1988). Clearly, empirical evi-dence is required to determine whether there is onemodel (or models) of capitalism that performs bestin terms of both economic efficiency and equality.This is particularly important for the internationalbusiness scholarship, since understanding environ-mental context and how it influences domesticand multinational firm behavior is one of thekey features of this field of study (Lundan, 2011;Meyer, 2007).While recognizing the institutionally embedded

nature of economies is a step forward, previousempirical studies have largely examined themcollectively within a single country over time(e.g., Kyriazis & Metaxas, 2011; Soh & Yu, 2010) ora single institutional dimension within multiplecountries (e.g., Cumming & Knill, 2012; Judge,Gaur, & Muller-Kahle, 2010; La Porta, Lopez-de-Silanes, & Schleifer, 2008). To the best of ourknowledge, no one has yet empirically examinedmultiple institutions operating within multiplenational economies while considering both eco-nomic efficiency and equality outcomes in a globallyrepresentative range of economies. While some pio-neering scholars have begun to examine the diver-sity of modern capitalism in developed economies(e.g., Amable, 2003; Esping-Anderson, 1999; Hall &Soskice, 2001; North, 1990), no one has yet exam-ined the diversity of modern capitalism in bothdeveloped and developing countries with respectto equitable wealth creation. This is remarkable in

Which model of capitalism best delivers both wealth and equality? William Q Judge et al364

Journal of International Business Studies

light of Lester Thurow’s (1981) argument severaldecades ago that the key issue confronting all econo-mies is how to grow equitably; and because thedeveloping economies now represent 40–50% of allglobal economic output (The Economist, 2013).In this study, we seek to understand how formal

and informal institutions collectively operate withina wide range of both developed and developingeconomies in order to create wealth equitably. Dueto rising concern for the absence of sufficient wealthcreation and growing inequities within nationaleconomies since the Great Recession (Schröder,2013), we develop a new economic outcome mea-sure which we call “equitable wealth creation” togauge the collective effectiveness of these institu-tional configurations. Earlier work in the IB field hasasserted that the state’s ability to balance economicefficiency with equality objectives determines itslegitimacy and that MNEs directly and indirectlyinfluence the pursuit of these objectives (Lenway &Murtha, 1994). Consequently, this study has majorimplications for international business scholarship.This paper makes several unique contributions.

First, by building upon Whitley’s (1999) nationalbusiness systems framework, we refine and extendthe comparative capitalisms literature. In so doing,we present an analysis that considers both formaland informal institutions that apply to both devel-oped and developing economies. And while Whit-ley’s framework has been previously used to explainother national-, sectoral-, and firm-level phenom-ena, our study make an important contribution byapplying Whitley’s framework to overall nationaleconomic outcomes.Second, by utilizing fuzzy set theory and analysis

(Fiss, 2007; Ragin, 2000), we show that there areseveral models of capitalism that are associated withrelatively high and low levels of national economiceffectiveness. This holistic, equifinal finding isimportant and relatively new, since the traditional“variance” paradigm for the social sciences assumesindependence amongst causal factors as well aslinear relationships with outcome measures. Nota-bly, a recent fuzzy set study by Kogut and Ragin(2006) demonstrated that when taking a nationalbusiness systems approach, the rule of law is notrequired for economic growth – counter to previousresearch findings using traditional theory andmethods. In that spirit, we believe that this studycan accelerate our understanding of how institu-tional configurations can influence national eco-nomic outcomes. Consequently, these findingshave considerable public policy implications.

Third, by examining and identifying a compre-hensive set of models of capitalism operatingthroughout the global economy, we provide a moreholistic context for exploring how multinationalenterprises (MNEs) interact with their institutionalenvironment(s). Hence, research on the institution-ally embedded relationship between the MNE andits surrounding institutional environment canproceed in a more rigorous and systematic fashion(Buckley, 2014). For example, by considering theoverall institutional context rather than a singleinstitutional variable, scholars are in a better posi-tion to understand MNE strategies such as institu-tional avoidance, institutional adaptation, andinstitutional co-evolution (Cantwell, Dunning, &Lundan, 2010; Regnér & Edman, 2014). Further-more, by identifying the various models of capital-ism operating in the global economy, samplingdesigns can be improved and generalizability ofresults refined. As a result, future international busi-ness research may be able to accumulate morequickly by relying on a theoretically derived andempirically tested taxonomy of various modelsof capitalism.

THEORETICAL DEVELOPMENT

Equitable Wealth CreationThe most common indicator of an economy’s suc-cess is its ability to create economic wealth fora nation’s citizens. Typically conceptualized as theoverall economic output per capita, this notion hasincreasingly been criticized by scholars for over-emphasizing efficiency while ignoring fairness(Hansen, 2012; Ostrum, 2005; Sen, 2009; Stiglitz,2012). Furthermore, many observers have noted thatgrowing economic inequality even in economieswhere wealth is being created often leads to eco-nomic inefficiencies and instabilities over time(Galbraith, 2012; Keynes, 1973; OECD, 2011; Stark,2006). Indeed, Haggerty and Veenhoven (2003)showed that national happiness is a function of bothnational economic wealth and equality in a study of21 developed and developing countries over time.Development economics has long been interested

in the relationship between economic wealth crea-tion and economic equality. Kuznets (1955), a semi-nal thinker in economic development, argued thateconomies experience an inverted U-shaped rela-tionship between economic growth and incomeinequality whereby initial stages of growth lead toinequitable distributions of wealth but over time thisdistribution returns to a more equitable level. More

Whichmodel of capitalism best delivers both wealth and equality? William Q Judge et al365


recent studies have demonstrated that the Kuznetshypothesis is not empirically supported (Booth,1999; Navqui, 1995; Tisdell, 2001). Nonetheless,scholars have long emphasized the need to focus onboth economic outcomes (e.g., Bequele & Van derHoeven, 1980; Bhalla, 2004; Johnson, 2011), ascountries with similar levels of economic wealthexhibit heterogeneous inequality levels and viceversa (Frazer, 2006). Notably, Summers, Kravis, andHeston (1984) demonstrated that economic inequal-ity between economies is much greater than eco-nomic inequality within economies for their studyof 127 nations.The recognition that economic equality can be as

important as economic efficiency has challengedinternational aid agencies to consider both wealthcreation as well as economic equality in its approachto economic policy (International Monetary Fund,1998). One reason for raising concern is that grow-ing gaps between the rich and the poor in aneconomy leads to political instability, violence, andpossibly revolution, even when the economy isgrowing economically (Knack & Keefer, 1995). Byway of explanation, Karayalcin and McCollister(2005) demonstrated that when economic inequal-ity becomes too large, the economic elites oftenco-opt the political system and public investment islowered. Finally, Bhalla (2004) showed that povertydeclines fastest in those economies that grow as wellas distribute that growth equitably.In this study, we argue that the proper and legit-

imate role of an economy is to create wealth for all ofa nation’s citizens, and to do this in an equitablefashion. Therefore, it is not enough for an economyto just generate wealth because in many countriesthat wealth is sometimes captured and controlledprimarily by its economic elites, as is currently thecase in the global economy’s two leading nation-states: the United States and China. However, it issimilarly problematic to focus exclusively on eco-nomic equality since communistic economies havefailed in efficiently generating new wealth, as wasthe case in the former Soviet Union and is currentlytrue for Cuba and North Korea. In sum, economiesmust simultaneously address two primary functions:(1) create wealth, and (2) do so equitably; althougheconomists have long observed that there are impor-tant tradeoffs in achieving these objectives (Okun,1975). We refer to this combined outcome as equi-table wealth creation. From that perspective, themodel of capitalism that works best is the one thatgenerates economic wealth and distributes orredistributes that wealth equitably, and it is less

successful when it fails to generate wealth and/orexclusively channels wealth to a privileged group ofeconomic elites.

Models of CapitalismIt is well established in the international businessliterature that “institutions matter” (North, 1990),but how they influence either national- or firm-leveloutcomes remains a hotly contested question(Jackson & Deeg, 2008). While the majority of pre-vious empirical work on institutions has attemptedto identify which specific national institution mat-ters most (e.g., Bowen &De Clercq, 2008; Ioannou &Serafeim, 2012), recent work has begun to focuson national configurations of institutions whichmay collectively influence outcomes of interest tothe field of international business (e.g., Amable,2003; Esping-Anderson, 1999; Hall & Soskice, 2001;Redding, 2005; Witt & Redding, 2013). A centraltheoretical assertion of this comparative capitalismapproach is that various models of capitalism displaystrong institutional complementarities within eachother, and that they evolve slowly over time ina path-dependent fashion. In other words, the for-mal and informal institutions constitute the eco-nomic “rules of the game,” and this literature arguesthat they co-evolve along a historical path intodistinct configurations.In this study, we utilize Whitley’s (1991, 1999)

“national business systems” approach to identifythe institutions that matter. Because Whitley’sframework was one of the first systematic explora-tions of national configurations operating withinboth developing and developed economies, andbecause it has subsequently been empirically vali-dated and extended by other institutional scholars(e.g., Bowen & De Clercq, 2008; Dobbin & Boychuk,1999; Ioannou & Serafeim, 2012; Redding, 2005;Witt & Redding, 2013), we chose this framework forour study. In the majority of his work, Whitley isprimarily interested in explaining why certainindustrial sectors succeed or fail within a particularmodel of capitalism. Specifically, his central thesisis: “the organization of world-wide industrial sec-tors is the outcome of competition between nationalmodels of economic organization and their asso-ciated institutions” (Whitley, 1999: 255). While hedoes not deny that transnational as well as subna-tional forces influence national-, industry-, andfirm-level behaviors, he argues that the nationalconfigurations of institutions are dominant, andthey change very slowly over time.



Other scholars using Whitley’s framework havedemonstrated that it can yield new understanding ofother economic outcomes, such as national allocationof individual-level entrepreneurial effort (Bowen &De Clercq, 2008); firm-level outcomes, such as cor-porate social responsibility (Ioannou & Serafeim,2012); and industry-level outcomes, such as industrysuccess (Redding, 2005). In this study, we attempt torefine and extend Whitley’s framework to explainnational economic success, which we conceptualizeas equitable wealth creation. Indeed, Amable (2003:29) argues that “institutions define incentives andconstraints that will lead agents to invest in certainassets, acquire certain skills, cooperate, or be oppor-tunistic. These individual decisions will affect themacroeconomic performance” (emphasis added).Whitley emphasizes that nonmarket entities, such

as “the state,” have a major influence on the overalleconomy. Specifically, he focuses on two fundamen-tal institutional areas that the state can and doesinfluence the economy: (1) state expenditures, or thedegree to which the state is directly involved withthe economy, and (2) regulatory quality, or the effi-cacy of formal regulation operating within the mar-ketplace. The first area is concerned with the extentto which businesses depend on the state for invest-ment and consumption. The second area is con-cerned with the effectiveness by which product,capital, and labor is regulated by the state. As Heand Cui (2012: 357) noted, “excessive political inter-vention in a country’s economy results in lowregulatory quality …, with high regulatory qualityin a country, the rules of the game in industries arewell defined and government intervention in theeconomy is infrequent.”However, the institutions of the state do not

operate in a vacuum according to Whitley. Thesecond institutional dimension of the model ofcapitalism advanced by Whitley is the “financialsystem.”He notes that each model of capitalism usesdifferent processes by which financial capital ismade available and priced. Specifically, he notedthat some models emphasize equity-based financialsystems which mobilize and distribute capitalmainly through large and liquid equity markets. Incontrast, credit-based financial systems rely on banksand/or the state to allocate capital through adminis-trative processes. Each financial system requiresdifferent types of information, and different typesof financial intermediaries. Furthermore, Whitleyobserved that each form of financing is not mutuallyexclusive, and economies may exhibit simultaneousstrength or weakness in both.

Whitley’s third institutional dimension focuses onhow human capital is created and managed withinan economy. He calls this the “skill developmentand control system.” The skill development elementfocuses on the creation and certification of compe-tencies and skills derived from the education andtraining system. The control element focuses on suchthings as the strength of organized labor and tradeunions. In sum, the focus in this dimension is onthe human capital available to the producers withina national economy.Finally, Whitley emphasized that the national

cultural norms associated with trust and authorityrelations are crucial and complementary becausethey influence exchange relationships between thestate, business partners, employers, and employees.Whitley conceptualizes trust primarily as the hori-zontal ability of social actors to rely on impersonalinstitutionalized procedures when making businesscommitments. Equally important, he argues thatauthority norms deal with the vertical institutionalpatterns of social interaction. In sum, these culturalnorms collectively interact to influence the socialcapital available within an economy.Overall, Whitley identified four major dimensions

which collectively interact and eventually coalesceto form the model of capitalism, or national businesssystem, operating within a national economy. Eachdimension influences and is influenced by other insti-tutions, so that they eventually coalesce over timeinto holistic configurations, which in turn influenceeconomic behavior and outcomes. Unfortunately,Whitley did not explore how these configurationsmight relate to national economic outcomes(Casson & Lundan, 1999).1 As a result, we next turnto fuzzy set theory to explore how these modelsmight relate to equitable wealth creation.

The Relationship between Models of Capitalismand Equitable Wealth CreationFuzzy set theory and research, with its focus onderiving typologies among cases, provides someinsights as to how a particular model of capitalismmight influence equitable wealth creation. Fiss(2011: 393) explained that typologies are a uniqueform of theory building in that they are complextheories that describe the nonlinear, causal recipes ofpredictive factors, thus offering configurations thatcan be used to explain an outcome of interest. Forexample, Pajunen (2008) used fuzzy set analysis todemonstrate that national configurations of institu-tions collectively influenced overall inward foreigndirect investment within a national economy in



47 host countries. Similarly, Greckhamer (2011)used fuzzy set analysis to reveal the configurationsof institutions which influenced national compensa-tion levels and inequality for 44 developing anddeveloped economies. And most pertinent to thisstudy, Vis, Woldendorp, and Keman (2013) recentlyemployed fuzzy set analysis to show that politicalinstitutions are not independent of each other,and that they systematically influenced macroeco-nomic outcomes in 19 developed economies. Takentogether, fuzzy set theory provides theoretical basisand an empirical method for ascertaining howWhitley’s four institutional dimensions collectivelyinfluence national economic outcomes, or morespecifically, equitable wealth creation.Fuzzy set theory also argues that configurations

can and do influence outcomes in equifinal ways. Inother words, there often is no one optimal config-uration but multiple ones which can lead to desir-able outcomes. In contrast, the law and financeperspective argues that liberal market, laissez-fairecapitalism is the most effective model of capitalism(La Porta, Lopez-de-Silanes, Schleifer, & Vishny,1998; La Porta, Lopez-de-Silanes, & Schleifer, 2008),while other observers challenge the empirical sup-port for this assertion (Aguilera & Williams, 2009).Furthermore, some scholars concede that while lib-eral market economies may be more efficient, theysometimes are not very equitable (Dunning, 2003;Rajan & Zingales, 2006). Hence, these debates illus-trate limitations of the variance paradigm and raiseopportunities for alternative theoretical approaches,such as fuzzy set theory (Kim, 2013).Using a more historical approach, Aoki (2013)

recently demonstrated how different national insti-tutional configurations in China, Korea, and Japanall led to macroeconomic success following separatehistorical and institutional paths. And Avdagic andSalardi (2013) recently showed that comprehensivelabor rules deregulation is not a universal solutionfor addressing national unemployment within a widevariety of economies. Both of these studies suggestthat there may not be a single best model of capital-ism. Therefore, fuzzy set theory and research with itsability to explore equifinal paths to desired out-comes is particularly well positioned to help usexplore if there is one model or multiple models ofcapitalism that are both efficient and equitable.Fuzzy set analysis is a relatively new theoretical

and methodological approach for both quantita-tively and qualitatively exploring how configura-tions of variables might influence outcomes ofinterest (see Fiss, Cambre, & Marx (2013) for a more

detailed discussion; Ragin, 2008). In this study, wedeductively utilizeWhitley’s four dimensions to iden-tify various institutional configurations, yet weinductively seek to understand how these dimen-sions configure and, in combination and equifinalways, relate to the outcome of interest – equitablewealth creation. In sum, fuzzy set analysis isuniquely qualified to address our research questionand advance our understanding of various models ofcapitalism. This literature and logic all lead to thefollowing theoretical assertion:

Core Proposition: Whitley’s four institutionaldimensions will collectively influence nationaleconomic outcomes, such that multiple institu-tional configurations will yield higher and lowerlevels of equitable wealth creation.

METHODOLOGY

Sampling DesignPrior to data collection, we generated a list of nationsaround the world and their respective gross domesticproduct (GDP) per capita for the year 2010, basedon the World Bank (2012).2 Following the extantliterature, we refer to GDP per capita as “economicwealth” (Diener, Ng, Harter, & Arora, 2010; Hansen,2012). We then collected the GINI coefficient foreach nation. GINI measures the economic incomeinequality in a certain population and rangesbetween 0 and 100, where 0 representing perfectequality (Gini, 1921). Thus, to arrive at equalityscores, we subtracted the GINI score of each countryfrom 100 and created an inverse GINI statistic so thatinterpretation would be a more intuitive measureof “economic equality.”We obtained GINI coefficients from the World

Bank (2012) and, when data was missing, from var-ious CIA World Factbook (2012) and the WorldCompetitiveness Yearbook (Garelli, 2008). If GINIdata existed for 2010, we simply entered that valuein our database. However, in some instances dataregarding GINI coefficients of countries in our sam-ple was not published on a consistent annual basis.Since some macroeconomic outcomes, such as GINIcoefficients, change incrementally over long peri-ods of time (Bourguignon & Morrisson, 2002), weapproximated the value using linear interpolation ofthe available two most proximal years to the year inquestion (e.g., Delmestri & Wezel, 2011; Liu, Feils, &Scholnick, 2011; Madhavan & Iriyama, 2009). Wheninterpolation was not possible due to missing data in2011 and 2012, we obtained the most recent statistic



available from the above-mentioned sources ina few rare instances. This procedure resulted in aninitial sample of 82 nations for the study period of2010. However, missing information regardingnational institutions resulted in a final sample of48 developed and developing nations. Notably,these 48 countries accounted for 91.1% of the globaleconomy in 2010.

Analytical ApproachFuzzy-set qualitative comparative analysis (fsQCA)is an innovative analytic technique based on Boo-lean algebra that allows for a configurational exam-ination of the causal relationship between a groupof causal conditions and a related outcome (Ragin,Drass, & Davey, 2006; Ragin, 2000). FsQCA appliesa set theoretic perspective to understanding realityand is therefore rooted in Boolean rather than linearalgebra (Ragin, 2000). Recent articles in pertinentmanagement and international business journalshave demonstrated the analytical strengths andusefulness of fsQCA for macro-social and interna-tional strategy research (e.g., Crilly, 2010; Fiss, 2011;Pajunen, 2008; Schneider, Schulze-Bentrop, &Paunescu, 2010), especially as a tool to advance thestudy of comparative capitalisms (Jackson & Deeg,2008; Schneider et al., 2010).The main advantage of fsQCA is that it allows for

a description of cases as combinations of causalconditions, whereby each case is assigned a group-membership score in every causal condition. Casescan be full members, full nonmembers, or partialmembers in a causal condition, hence the term“fuzzy-set.” This methodology also allows for equi-finality to be explored and identified (Fiss, 2007).The possibility of achieving a certain outcome withdifferent causal configurations is central to this studydue to the historical biases and politics associatedwith certainmodels of capitalism. Nevertheless, whileclassic regression analysis requires a normal prob-ability distribution, fsQCA makes no such assump-tion, making it more suitable for smaller samples.Finally, fsQCA allows for asymmetric causality,

meaning that the causal combination resulting inhigh levels of an outcome may be completely differ-ent from the one leading to low levels of an outcome(Fiss, 2011; Ragin, 2008). That is, it is important toexamine configurations that lead to an outcome andthe negation of an outcome separately (Crilly, 2010;Fiss, 2011) because the association of a certainconfiguration with a desired outcome does notnecessarily mean the absence of this particularconfiguration is associated with the negation of

the outcome. Our interest in deriving nationalinstitutional configurations and their effect on equi-table wealth creation in a concerted manner, there-fore, makes fsQCA the most appropriate analyticalapproach (Ragin, 2000, 2006; Vis, 2012).Due to our relatively small sample size, it is crucial

that we utilize a selective approach when choos-ing causal conditions. Because fsQCA deals withcombinations of conditions, each additional causalcondition increases computational complexity expo-nentially. In essence, the possible number of config-urations is 2k, where K represents the number ofcausal conditions. Thus, “as a rule of thumb, 10 orfewer causal conditions (i.e., 1024 possible combina-tions) is not a problem” (Ragin, 2006: 6). On top ofour outcome, equitable wealth creation, our selec-tion therefore includes eight causal conditions, dis-tributed equally across the four dimensions (i.e., twocausal conditions for each of Whitley’s dimensions)for the year 2010. Although our selection is notexhaustive, we believe it captures a wide spectrumof institutions and a substantial portion of thenational business system governance domain asadvanced by Whitley (1999).

MeasurementOur outcome of interest, Equitable Wealth Creation, isa factor score based on economic wealth (i.e., GDPper capita) and economic equality (i.e., invertedGINI coefficient). The bivariate correlation betweeneconomic wealth and equality was positive andsignificant (r=0.47; p0.80), which explained about 74% of thevariance. As can be seen in Figure 1, these twomacroeconomic outcomes generally exhibit a posi-tive relationship, yet with outliers. For instance, theUnited States (USA), Hong Kong (HKG), andSingapore (SGP) have all achieved relatively highlevels of wealth, but this wealth appears to be muchmore inequitably distributed amongst their citizenscompared with other rich countries. In contrast, thecountries of Ukraine (UKR), India (IND), and Bul-garia (BGR) are relatively poor countries, but theirwealth is distributed in a relatively equitable fashion.While most national economies, on average, havegreater economic equality as they become wealthier,it is important to note that because fsQCA doesnot assume a specific probability distribution, out-liers are not as much of a concern compared withregression analysis (Fiss, 2011; Hair, Anderson,Tatham, & Black, 1998; Vis, 2012).



To validate our outcome measure we collecteddata from the United Nations on overall inequalityadjusted human development within a country – anindex attempting to more holistically capture overallnational well-being (United Nations, 2012). Wefound that our measure of equitable wealth creationwas highly correlated with the Inequality-adjustedHuman Development Index (r=0.91, p

secondary education for each nation using UnitedNations data (2013). This index measures second-ary enrollment rates, regardless of age, expressed asa percentage of the population of official secondary

age. Second, we collected the education subcom-ponent of the Human Development Index (HDI),which was also provided by the United Nations. Thisscore is measured by mean of years of schooling for

Table 1 Listing of national economies and their associated economic outcomes in 2010

Country Country Code Economic Wealth Economic Equality Equitable Wealth Creation

Argentina ARG 9,124 55.5 −0.93Australia AUS 51,629 69.7 1.17Austria AUT 44,916 73.7 1.22Belgium BEL 43,007 72.0 1.06Brazil BRA 10,993 46.2 −1.45Bulgaria BGR 6335 71.8 −0.01Canada CAN 46,212 67.9 0.90Chile CHL 12,640 47.9 −1.30China CHN 4433 52.2 −1.27Colombia COL 6186 44.1 −1.72Czech Republic CZE 18,910 69.0 0.18Denmark DNK 56,486 75.2 1.65Estonia EST 14,062 68.7 0.02Finland FIN 43,864 73.2 1.16France FRA 39,170 67.3 0.66Germany DEU 40,164 73.0 1.04Greece GRC 25,832 67.0 0.26Hong Kong HKG 32,374 46.4 −0.82Hungary HUN 12,863 75.3 0.39India IND 1397 66.6 −0.48Indonesia IDN 2952 63.2 −0.64Ireland IRL 45,873 66.1 0.78Israel ISR 28,522 60.8 −0.05Italy ITA 33,787 67.7 0.53Japan JPN 43,063 62.4 0.47Korea, Rep. KOR 20,540 58.7 −0.41Malaysia MYS 8691 53.8 −1.05Mexico MEX 9128 51.7 −1.17Netherlands NLD 46,623 69.1 0.99New Zealand NZL 32,407 63.8 0.25Norway NOR 85,443 75.0 2.47Peru PER 5283 51.9 −1.27Philippines PHL 2140 57.0 −1.04Poland POL 12,303 65.9 −0.20Portugal PRT 21,358 61.5 −0.21Romania ROM 7670 68.4 −0.18Russia RUS 10,447 59.1 −0.68Singapore SGP 41,987 52.1 −0.20South Africa ZAF 7272 36.9 −2.13Spain ESP 29,956 68.0 0.44Sweden SWE 49,360 77.0 1.55Switzerland CHE 70,573 70.4 1.76Thailand THA 4614 60.0 −0.79Turkey TUR 10,050 59.8 −0.64Ukraine UKR 2974 73.6 0.00United Kingdom GBR 36,238 60.0 0.13United States USA 46,612 55.0 0.12Venezuela VEN 13,658 59.8 −0.54

Mean 26,044 62.7 0.00



adults aged 25 years and expected years of schoolingfor children of school entering age. Ultimately, wecalculated a factor score for our Training Systemmeasure based on secondary enrollment and HDIeducation index. Indeed, both loaded strongly ona single factor (loadings>0.90), which explainedabout 90% of the variance.The extent of labor-market regulations can also

influence a nation’s economic outcomes. Notably,Whitley (1999) argues that “the extent to whichbargaining is centralized” plays a major role in theeconomy by facilitating or thwarting collabora-tion between economic actors. Consequently, weobtained data on how centralized the collectivebargaining process was for each nation, followingother scholars who have used the Whitley frame-work (Dobbin & Boychuk, 1999). Specifically, weobtained this 2010 measure from the EconomicFreedom of the World Database (Gwartney, Lawson,& Hall, 2012). Collective Bargaining is based on theGlobal Competitiveness Report question: “Wagesin your country are set by a centralized bargainingprocess (=1) or up to each individual company(=10).” This is a single item measure evaluated bymultiple executives and experts.Finally, we collected two variables to approximate

the cultural dimensions highlighted by Whitley(i.e., trust and authority relations). Previous litera-ture and logic suggests that high levels of publicTrust, as captured by societal members’ confidencein national institutions, have a positive influence ona country’s overall economic prosperity (Dakhli &De Clercq, 2004). Several macro-level studies havelinked “generalized trust” in countries with relevantphenomena, such as economic growth and corrup-tion (Bjørnskov, 2006). A corrupt nation-state suffersfrom a lack of transparency and regulations in theformal institutional structure which underminesrelational factors, such as trust, needed in exchangeamong societal members (Muethel & Bond, 2013).For example, Bowen and De Clercq (2008) arguedand recently found that the institution of corruptionwas a good proxy for Whitley’s notion of trust.3

Thus, we utilize a national measure of corruption torepresent the inverse of trust in our study. Weobtained this 2010 data at the TransparencyInternational (2013) website, which Judge, McNatt,and Xu (2011) argued was the most popular andvalid measure of national-level corruption.Following Ioannou and Serafeim (2012), we used

the power distance cultural norm to proxy for ourAuthority Relations measure.4 The power distancedimension of national culture is considered by cross-

cultural psychologists to be a fundamental driverof cultural differences across societies, and a majorinfluence on authority relations (Triandis, 2001).Crossland and Hambrick (2011) noted that socie-ties with relatively low power distance operatewith authority figures who can be challenged byentities inside and outside of their respective organi-zations. In contrast, societies characterized byrelatively high power distance are less likely toquestion authority figures. Whitley (1999: 52) notesthe importance of the extent to which “authorityrests upon widespread and diffuse appeals to com-mon interests as opposed to highly specific andnarrow agreements” as a key distinguishing featureof many economies. Consequently, the power dis-tance scores provided by Hofstede’s (2012) culturaldatabase served as our proxy for this informalinstitution.

Data CalibrationPrior to conducting analyses, data must be calibratedper fsQCA requirements (Ragin, 2008). Calibrationis done by transforming raw data into member-ship scores of each case in a causal condition. Basedon raw data, we created a quartile split of oursample (Schneider et al., 2010) and assigned groupmembership to each country in each causal condi-tion following Crilly’s (2010) technique: fullmember (1.00), mostly a member (0.66), mostly anon-member (0.33), and full non-member (0.00).For instance, countries that fell into the highestquartile of power distance were assigned the scoreof 1 for this causal condition, third-quartile econo-mies were assigned a 0.66 membership score and soforth. Consistent with Bell, Filatotchev, and Aguilera(2013), we used the sample median as the crossoverpoint from membership to non-membership as itpertains to institutions. Table 2 shows the calibratedmembership scores for each country and theirrespective causal conditions.Once calibration is complete, it is necessary to

specify which configurations of the 2k possibilitiesare relevant. For small samples, a frequency cutoff of1 or 2 is usually advised (Ragin, 2008). To increaserobustness and generalizability, we employed 2 asthe frequency cutoff.5 Next, it is important to clas-sify remaining combinations as either exhibiting theoutcome or not. This is done according to a consis-tency score, which measures the degree to whichmembership in a configuration is a subset of mem-bership in the outcome. A minimum of 0.75 is gen-erally required, yet recent studies have used a morestringent threshold of 0.85 (Crilly, 2010; Ragin,



2008; Schneider et al., 2010). It is also helpful toexamine gaps in the upper range of consistency asthe split-point. In our case, 0.95 for high equitablewealth creation and 0.92 for low equitable wealth

creation were employed because the truth tableexhibited substantial gaps at those consistencylevels, and to be consistent with prior studies(Pajunen, 2008).

Table 2 Calibration table for fuzzy set analysis

Country EWC STE SRQ EQM CRM SDS CBS TRS ARS

Argentina 0.00 0.33 0.00 0.00 0.00 0.33 1.00 0.00 0.33Australia 1.00 0.33 1.00 1.00 0.66 1.00 0.66 1.00 0.00Austria 1.00 0.66 0.66 0.00 0.66 0.66 1.00 0.66 0.00Belgium 1.00 1.00 0.66 0.33 0.66 1.00 1.00 0.66 0.66Brazil 0.00 0.66 0.00 0.66 0.33 0.33 0.66 0.33 1.00Bulgaria 0.33 0.33 0.33 0.00 0.33 0.33 0.33 0.33 1.00Canada 1.00 1.00 1.00 1.00 1.00 0.66 0.00 1.00 0.33Chile 0.00 0.00 0.66 1.00 0.00 0.33 0.00 0.66 0.66China 0.00 0.33 0.00 0.66 0.66 0.00 0.33 0.33 1.00Colombia 0.00 0.33 0.00 0.66 0.00 0.00 0.33 0.33 0.66Czech Rep. 0.66 0.66 0.66 0.00 0.00 0.66 0.33 0.33 0.33Denmark 1.00 1.00 1.00 0.66 1.00 1.00 0.66 1.00 0.00Estonia 0.66 0.66 0.66 0.00 0.33 1.00 0.00 0.66 0.33Finland 1.00 1.00 1.00 0.33 0.33 0.66 1.00 1.00 0.00France 0.66 1.00 0.66 0.66 0.66 1.00 0.33 0.66 0.66Germany 1.00 0.66 0.66 0.33 0.66 1.00 1.00 0.66 0.00Greece 0.66 0.33 0.33 0.00 0.66 0.66 1.00 0.33 0.66Hong Kong 0.00 0.00 1.00 1.00 1.00 0.33 0.00 1.00 0.66Hungary 0.66 1.00 0.66 0.00 0.33 0.66 0.33 0.33 0.33India 0.33 0.00 0.00 0.66 0.33 0.00 0.33 0.00 1.00Indonesia 0.33 0.00 0.00 0.33 0.00 0.00 0.66 0.00 1.00Ireland 1.00 0.66 1.00 0.00 1.00 1.00 0.66 1.00 0.00Israel 0.33 1.00 0.66 0.66 0.33 0.66 0.33 0.66 0.00Italy 0.66 0.66 0.33 0.00 0.66 0.66 1.00 0.33 0.33Japan 0.66 0.66 0.33 0.66 1.00 0.66 0.00 0.66 0.33Korea, Rep. 0.33 0.33 0.33 1.00 0.33 0.66 0.33 0.33 0.66Malaysia 0.00 0.00 0.33 1.00 0.66 0.00 0.00 0.33 1.00Mexico 0.00 0.00 0.00 0.33 0.00 0.00 0.66 0.00 1.00Netherlands 1.00 1.00 1.00 0.66 1.00 1.00 1.00 1.00 0.33New Zealand 0.66 0.66 1.00 0.33 0.66 1.00 0.00 1.00 0.00Norway 1.00 1.00 0.66 0.33 0.33 1.00 1.00 1.00 0.00Peru 0.00 0.00 0.33 0.33 0.00 0.00 0.00 0.33 0.66Philippines 0.00 0.00 0.00 0.66 0.00 0.00 0.66 0.00 1.00Poland 0.33 0.33 0.33 0.33 0.00 0.33 0.33 0.33 0.66Portugal 0.33 1.00 0.33 0.33 1.00 0.33 0.66 0.66 0.66Romania 0.33 0.33 0.33 0.00 0.00 0.33 0.66 0.33 1.00Russia 0.33 0.33 0.00 0.33 0.00 0.33 0.66 0.00 1.00Singapore 0.33 0.00 1.00 1.00 0.33 0.00 0.00 1.00 1.00South Africa 0.00 0.66 0.33 1.00 1.00 0.33 1.00 0.33 0.33Spain 0.66 0.66 0.66 0.66 1.00 1.00 1.00 0.66 0.33Sweden 1.00 1.00 1.00 1.00 0.66 0.66 1.00 1.00 0.00Switzerland 1.00 0.00 1.00 1.00 1.00 0.33 0.00 1.00 0.00Thailand 0.00 0.00 0.00 0.66 0.66 0.00 0.66 0.33 0.66Turkey 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.33 0.66Ukraine 0.66 0.66 0.00 0.00 0.33 0.33 0.33 0.00 0.66United Kingdom 0.66 1.00 1.00 1.00 1.00 0.66 0.00 0.66 0.00United States 0.66 0.33 0.66 1.00 1.00 1.00 0.00 0.66 0.33Venezuela 0.33 0.00 0.00 0.00 0.00 0.00 0.66 0.00 1.00

Notes: EWC= Equitable Wealth Creation; STE= State Expenditure; SRQ= State Regulatory Quality; EQM= Equity Markets; CRM=Credit Markets;SDS= Skill Development System; CBS=Collective Bargaining Strength; TRS= Trust Relations in Society; ARS=Authority Relations in Society.



RESULTSResults of the fsQCA analyses are presented inTable 3. Our analyses yielded a total of six con-figurations in 2010: three for relatively high equita-ble wealth creation and three for low equitablewealth creation. We present the intermediatesolution because it is most suitable for theoreticalinterpretation (Fiss, 2011).6 Further, causal con-ditions within each configuration may have aweaker or stronger impact on the outcome variable.Such differential effects are possible to deriveby examining differences between the most parsi-monious solution and the intermediate solution.FsQCA uses the Quine–McCluskey reductionalgorithm, which allows for a distinction betweencore and peripheral causal conditions of eachconfiguration (Fiss, 2011; Ragin, 2008). FollowingRagin (2008), we denote the presence of a condi-tion with black circles (“●”) and the absence of acondition with slashed circles (“Ø”). A large circlerepresents a core condition while a small circlerepresents a peripheral condition. Finally, blankspaces denote a “doesn’t matter” condition, whichmay be either present or absent in a particularconfiguration.

The three configurations of relatively high equi-table wealth creation exhibited very high levels ofoverall solution consistency (0.99) and solution cov-erage (0.47). While our causal combinations seem tocover a substantial portion of variability in equitablewealth creation, results also point to a significantrandom portion. Similarly, the three configurationsof relatively weak equitable wealth creation alsoexhibited a strong overall solution consistency (0.98)and an even higher solution coverage compared withthe effective configurations (0.55). These relativelyrobust results show that the six configurations play amajor role in explaining equitable wealth creation. Infact, the consistency score for each configuration wasalways equal to or higher than 0.97, indicating thatthese configurations are indeed subsets of the out-come. The emergence of several robust institutionalconfigurations for our outcome variable points toequifinality of causal combinations, as suggested byfuzzy set logic (e.g., Fiss, 2011; Ragin, 2000). Thus,these results lend considerable empirical support forour core proposition as well as Whitley’s (1999)national business systems framework. We now turnour attention to interpret the results of each causalconfiguration.

Table 3 Fuzzy set analysis of varieties of capitalism and equitable wealth creation in 2010

High Equitable Wealth Creation Low Equitable Wealth Creation

Institutional Characteristics Configuration 1 Configuration 2 Configuration 3 Configuration 4 Configuration 5 Configuration 6

Representative Economy(s): Finland Czech Republic Canada Mexico China Chile & Singapore

Role of the State:State Expenditures ● ● ● Ø Ø ØState Regulatory Quality ● ● ● Ø Ø ●

Financial System:Equity Market Ø Ø ● Ø ● ●Credit Market Ø ● Ø Ø

Skill & Control System:Skill Development ● ● ● Ø Ø ØCollective Bargaining ● Ø Ø Ø Ø

Societal Norms:Trust Relations ● Ø ● Ø Ø ●Authority Relations Ø Ø Ø ● ● ●

Raw Coverage: 0.31 0.11 0.18 0.40 0.28 0.12Unique Coverage: 0.21 0.04 0.12 0.24 0.07 0.04Consistency: 1.00 0.99 1.00 0.97 1.00 1.00

Solution Coverage 0.47 0.55Solution Consistency 0.99 0.98

Notes:● – Core condition present; Ø – Core condition absent; ● – peripheral condition present; Ø – peripheral condition absent. N=48.



More Effective Models of CapitalismAcross our relatively effective configurations (i.e.,1, 2, and 3), lower power distance, better trainingsystems, and higher state expenditures were coreconditions consistently associated with relativelyhigh equitable wealth creation. Higher levels ofregulatory quality were also generally consistentacross the three configurations, yet only in Config-urations 1 and 2 does it function as a core condition.Notably, Configurations 1 and 2 exhibit lowerlevels of equity markets as a core condition, whileConfiguration 3 is characterized by higher levels ofequity markets, though only as a peripheral condi-tion. Credit markets were lower in Configuration 2,higher in Configuration 3, and of no importance inConfiguration 1. Interestingly, while Configurations1 and 3 exhibit higher levels of trust, higher equita-ble wealth creation is possible with lower levels oftrust as well in Configuration 2. Collective bargain-ing was lower and a core condition in Configura-tions 2 and 3, though high in Configuration 1.These results indicate that collective bargaining

and equity markets may substitute for each other,as demonstrated in Configurations 1 and 3. Further,results point to potential complementary effects.For instance, high equitable wealth creation is morelikely to occur when state expenditure, training sys-tem, and regulatory quality are higher and powerdistance is simultaneously lower. The coverage ofthese configurations and the solution were consis-tent with and at times higher than previous studiesemploying fsQCA (e.g., Fiss, 2011; Crilly, 2010).

Less Effective Models of CapitalismWith respect to the less effective configurations(i.e., 4, 5, and 6), these models of capitalism exhib-ited acceptable consistency and coverage statistics aswell. Interestingly, core conditions were similar forall three configurations, including lower state expen-ditures, weaker training system, and higher powerdistance. These empirical results suggest that thesethree are necessary conditions associated with rela-tively low levels of equitable wealth creation.Further, in Configurations 4 and 5, regulatory qual-ity and trust were rated as relatively low, whileConfiguration 6 exhibited higher levels of trust andregulatory quality. Interestingly, two of the lesseffective configurations (5 and 6) exhibited higherlevels of equity markets and lower levels of collectivebargaining, both of which are commonly foundin the laissez-faire models of capitalism. Finally,weaker levels of credit market were conducive to

lower levels of equitable wealth creation in Con-figurations 4 and 6.Overall, it appears that lower state expenditures,

weak training subsystems, and higher power dis-tance in concert are the core drivers of lower equi-table wealth creation. However, the opposite is notnecessarily true. Higher state expenditures, strongertraining subsystem, and lower power distance mustbe complemented with other institutions such ashigh regulatory quality and at times low collectivebargaining and equity market to achieve higherlevels of equitable wealth creation. These asym-metric findings provide support for the need to focuson the intersection of political economy with socie-tal norms to understand how developing economiesactually function (Galbraith, 2012; Ostrum, 2005;Sen, 2009; Stiglitz, 2012).

Stability of ConfigurationsRecent research has questioned the stability of insti-tutional configurations over time (e.g., Schneider &Paunescu, 2012). Therefore, we considered an alter-native time period earlier than 2010. Specifically,we collected and analyzed data for our 48 countriesin 2005 to ensure that the results are relativelyconsistent five years earlier. In general, results fromthis analysis support our main findings, and wepresent results for the year 2005 in Table 4. However,several differences between 2005 and 2010 are note-worthy. While the solution for less effective config-urations is similar to our main results, a weaker creditmarket is now a core condition. Further, in Config-uration 4, lower levels of equity market and trustcombined with higher levels of collective bargainingare now core conditions as well. While this does notchange the typology or the direction of the condi-tions’ effect, it may imply that the role the institu-tion of credit markets plays in low equitable creationwas more central in earlier years. As for the moreeffective configurations, we only found two config-urations where higher state expenditure and lowerpower distance were core conditions. Interestingly,both of these configurations exhibited higher levelsof reliance on equity markets.In sum, these findings from 2005 indicate that:

(1) new models of effective capitalism may emergeover time as institutional systems evolve (i.e., theaddition of Configuration 2 in 2010 comparedwith 2005), (2) the role of equity markets in theinstitutional system may exhibit considerable cycli-cality, and thus have a major influence on thoseconfigurations dependent on this source of finan-cing, and (3) credit markets may be more central to



equitable wealth creation than what our preliminaryresults have shown. It could be that the globalfinancial crisis in 2007–08 affected the way in whichcredit and equity markets interact with other institu-tions to affect equitable wealth creation as suchevents may change the way economic actors viewand engage in financial markets.

DISCUSSION AND CONCLUSIONSIn this study, we sought to better understand howvarious models of capitalism were associated withoverall economic effectiveness. Specifically, we uti-lize Whitley’s (1999) framework to deductivelydetermine which institutional dimensions are mostrelevant, and fuzzy set analysis to inductively deter-mine how these institutional dimensions, in concertand equifinal ways, relate to equitable wealth crea-tion in both developed and developing economies.Previous comparative capitalism studies have largelytaken a conceptual approach to developing theirmodels of capitalism, and have generally focused ondeveloped economies (e.g., Esping-Anderson, 1999;Hall & Soskice, 2001; Schröder, 2013; Weimer &Pape, 1999). Utilizing data on 48 developed anddeveloping economies, we find that there are six

distinct models of capitalism associated with equita-ble wealth creation, three conducive to higher levelsof equitable wealth creation, and three conducive tolower levels of equitable wealth creation. As such, weempirically demonstrate that there is no one optimalmodel of capitalism, consistent with the equifinalitytenet of fuzzy set theory.The “Washington Consensus” has dominated pro-

posals for economic reforms within developing andtransition economies, under the assumption thatthe Anglo-American model of laissez-faire capital-ism works best (Schramm, 2004). However, thisapproach has generally ignored the institutionaldifferences that exist within these transition coun-tries, such as in Russia, and hence the economicoutcomes have generally been disappointing(Tisdell, 2001). Emphasizing the importance of inclu-sive institutions, transition countries starting withsimilar institutional profiles to other developedeconomies (e.g., Czech Republic) have experiencedmore favorable economic outcomes (Izyumov &Claxon, 2009).In other developing economies, the institutions

that can lead to equitable wealth creation are alsoa central focus of scholars and policymakers. For

Table 4 Fuzzy set analysis of varieties of capitalism and equitable wealth creation in 2005

High Equitable Wealth Creation Low Equitable Wealth Creation

Institutional Characteristics Configuration 1 Configuration 2 Configuration 3 Configuration 4 Configuration 5

Representative Economy(s): Finland Canada Indonesia Venezuela Chile & Singapore

Role of the State:State Expenditures ● ● Ø ØState Regulatory Quality ● ● Ø Ø ●

Financial System:Equity Market ● ● Ø ●Credit Market ● Ø Ø Ø

Skill & Control System:Skill Development ● ● Ø Ø ØCollective Bargaining ● ● Ø

Societal Norms:Trust Relations ● ● Ø Ø ●Authority Relations Ø Ø ● ● ●

Raw Coverage: 0.33 0.39 0.35 0.36 0.10Unique Coverage: 0.04 0.10 0.13 0.18 0.04Consistency: 0.96 0.97 1.00 1.00 1.00

Solution Coverage 0.43 0.57Solution Consistency 0.97 1.00

Notes:● – Core condition present; Ø – Core condition absent; ● – peripheral condition present; Ø – peripheral condition absent. N=48.



example, economic wealth creation and equality arethe two central economic issues confronting sub-Saharan Africa and Latin American economies(International Monetary Fund, 1998). And in EastAsian economies, it has been shown that somepolicymakers focus exclusively on efficiency, whileothers consider both efficiency and equality (Jeon,1995). This dual consideration of both economicefficiency and equality has received increasing atten-tion from scholars and policymakers since the lackof economic growth and/or growing economicinequality leads to political instabilities, particularlyin democracies, but also leads to revolutions inautocratic regimes (Burke, 2012).However, the focus on which model of capitalism

works best is not limited to developing economiesseeking to catch up with developed economies.While the United Kingdom pushes the Anglo-American form of laissez-faire capitalism within theEuropean Union (EU), continental Europe is hesi-tant to adopt this model. As Estes (2004) notes, theEU has a long tradition of commitment to equitablewealth, but that commitment is under severe strain.As a result, EU nations are experimenting withthe Anglo-American model, but they are troubledby its non-egalitarian nature. Furthermore, the suc-cess of the Scandinavian model of capitalism ingenerating wealth equitably has economists fromall over the world flocking to better understand howthis model of capitalism works (Johnson, 2011;Schröder, 2013).Even in the bastion of the laissez-faire model of

capitalism, the United States, a rising tide of discon-tented citizens are increasingly concerned aboutthe inequitable wealth creation that is manifested.Using economic history as a guide, Acemoglu andRobinson (2012) conclude that the primary reasonwhy nations fail is that a nation’s political institu-tions become focused on society’s elites (i.e., extrac-tive institutions) which leads to inefficiencies andinequality, and this leads to economic decline overtime. And the Nobel-prize-winning economist, JosephStiglitz (2012: 83), argues that “widely unequalsocieties do not function efficiently, and theireconomies are neither stable nor sustainable in thelong term.” He goes on to implore policymakers toabandon their “macroeconomic policy and centralbank by and for the 1 percent” within the UnitedStates (2012: 238), once again highlighting thecritical need to establish inclusive institutions,especially by the country’s political leaders andeconomic elite, for achieving more equitable, sus-tainable growth.

Representative Economies for Each ConfigurationAs previously discussed, our analysis identified sixdifferent configurations for our 2010 data. In orderto make our findings more concrete, it is instructiveto identify and describe specific economies thatrepresent each configuration.7 While fsQCA doesnot automatically group the national economiesinto common configurations similar to cluster ana-lysis, it is possible to qualitatively determine whicheconomy is a representative member of the config-urational profile by comparing the state of eachcausal condition with the overall institutional con-figuration derived through fuzzy set analysis.Configuration 1 is a highly effective constellation

of institutions which leads to equitable wealth crea-tion. Within our array of 48 countries, Finland fitswithin this configuration. As a representative ofthe social democratic form of capitalism operatingwithin Scandinavia (Esping-Anderson, 1999),Finland provided a relatively high GDP per capita of$43,864 and was among the highest in terms ofeconomic equality with an equality score of 73.20.Culturally, Finland operates with very low powerdistance norms (33) and relatively high levels oftrust (9.20). These informal institutions are asso-ciated with relatively high levels of state expendi-tures (24.73%) and regulatory quality (99.04),extensive use of credit markets (101.28) and consid-erable emphasis on skill development (0.62) coupledwith relatively strong collective bargaining (3.88).In sum, this configuration appears to represent thehighly developed and relatively equitable socialdemocratic form of capitalism (Schröder, 2013).Configuration 2 is another relatively effectivemodel

of capitalism, represented by the Czech Republic.This configuration represents middle-income coun-tries which are successfully moving into developedeconomy status. In 2010, the Czech Republic hada moderate level of GDP per capita of $18,910 anda relatively high level of economic equality (69.0).The relatively high level of corruption in this coun-try stifled trust (4.60), but its relatively low powerdistance norms (57) appears to be enabling it to chal-lenge corrupt elites. The state within Czech society isheavily involved in the economy (21.25%), and itsregulatory quality is fairly good (85.65). While itsfinancial institutions are still underdeveloped,the Czech Republic does emphasize credit markets(62.46) over equity markets (21.64). Similarly, itsskill development system is moderately developed(0.18), but its collective bargaining approach isrelatively weak (6.97). The Czech Republic is parti-cularly interesting as it emerged from the Soviet



Union as a relatively poor country in 1989. In sum,this configuration appears to represent the middle-income rising emerging economies (Whitley, 1994).Configuration 3 is our third relatively effective

model of capitalism, represented by Canada. Witha 2010 GDP per capita of $46,212 coupled with anequality index of 67.90, this Anglo-American econ-omy achieved the second highest level of equitablewealth creation amongst the three effective config-urations. Canada enjoys a cultural environment ofrelatively high trust (8.90) and low levels of powerdistance (39). In addition, it features a large presenceof the public expenditures in the economy (21.76%)and relatively high levels of regulatory quality(95.69). Canada relies much more on its financialsystem through both its equity (136.98) and credit(177.60) markets. Finally, Canada’s skill develop-ment system is relatively developed (0.54), but itscollective bargaining system is not (7.43). In sum,this configuration appears to represent the classicalliberal market economy (Hall & Soskice, 2001).Recall that the remaining three configurations

were associated with relatively lower levels of equi-table wealth creation. Configuration 4 is representedby the Mexican economy. In 2010, Mexico is amiddle-income economy providing an average GDPper capita of $9128. However, that economic wealthwas highly skewed toward a relatively small portionof the population to yield a relatively low level ofeconomic equality (51.72). Mexico is largely a patri-archal society which in our study is characterized byrelatively low levels of trust (3.10) and high levels ofpower distance (81). State expenditures are fairly low(12.19%), and regulatory quality is also low (59.81).Its financial system is also underdeveloped with anequity market/GDP ratio of 43.89 and a credit market/GDP ratio of 45.11. There are some protections forlabor, especially in large state-owned enterprises(6.41), but its skill development system and invest-ment in education needs considerable improvement(−0.75). In sum, this configuration appears to repre-sent the middle-income developing economy strug-gling to transcend its colonial past (North, 1990).China is representative of an economy operating

within our fifth configuration. While China hasexperienced dramatic economic growth over thepast three decades, it started from a very low baseand hence its GDP per capita is still relatively low at$4433 in 2010. Furthermore, its economic wealth isincreasingly concentrated leading to relatively loweconomic equality (52.20). According to our analy-sis, these economic outcomes can be explained bythe relatively low levels of trust operating within the

society (3.50) coupled with the relatively high levelsof power distance norms (80). State expenditures inthe economy are relatively low (13.29%) and regula-tory quality is the weakest of all configurations(44.98). Its financial system relies primarily on itscredit markets (146.28), but its equity marketsappear to be rising in importance (80.31). Its skilldevelopment system is very underdeveloped (−1.42)and the collective bargaining system is largelyinconsequential (7.10). In sum, this configurationappears to be representative of the state-led, low- ormiddle-income developing economy (Kang &Moon, 2012).Interestingly, both Singapore and Chile are well rep-

resented within the sixth configuration. Singapore isa relatively high-income country achieving $41,987per capita in 2010; while Chile is a middle-incomecountry achieving $12,640 per capita. However,neither of these countries does much to address thegrowing inequality within their respective econo-mies. Specifically, the equality coefficients of 52.05in Singapore and 47.94 in Chile hinder the overalleconomic effectiveness of this configuration. WhileSingapore and Chile both operate with relativelyhigh levels of trust (9.30 and 7.20 respectively), theyboth are hindered by relatively high levels of powerdistance norms (77 and 63 respectively). NeitherSingapore nor Chile has much direct state involve-ment in the economy (10.52% and 12.00%), buttheir regulatory quality is relatively high due to theirefficiency-oriented policies (98.56 and 92.34). Botheconomies rely much more on their equity marketsfor financing (173.63 and 157.92) than on theircredit markets (83.96 and 66.03). And finally,neither economy is invested sufficiently in its educa-tional system (−1.32 and −0.38), nor is either veryprotective of collective bargaining rights (8.30 and7.57). In sum, this configuration is relatively new tothe literature, and it appears to be a unique nicheoccupied by relatively small economies led byefficiency-driven governments.Interestingly, three of the four dominant econo-

mies operating in 2010 (i.e., United States, Germany,and Japan) are all relatively high in equitable wealthcreation but their unique institutional makeup ren-dered them single-country configurations, and thusnone fits exactly within the first three effective con-figurations. That being said, the United States mostclosely fits with Configuration 3 with its only majordeviation being relatively low state expenditures inthe overall economy. Similarly, Germany is a rela-tively close fit within Configuration 1, as exempli-fied by Finland. Finally, Japan’s economy most



closely fits with Configuration 3, except that itsoverall regulatory quality is relatively low.

Implications for the comparative capitalisms literatureWe believe that this study has at least three majorimplications for the comparative capitalisms litera-ture. First, at the time of conducting this study, weare not aware of a comparative capitalism study thathas attempted to compare national economies basedon normative macroeconomic outcomes. Previousresearch has sought to describe and explain firmbehavior with respect to employee training andproductivity (Hall & Soskice, 2001), industrial sectorsuccess and innovation outcomes (Whitley, 1999),and national welfare state investments (Schröder,2013). Furthermore, Amable (2003) theorized thatthe variety of capitalism practiced influences eco-nomic growth, but he did not empirically explorethis impact. As such, we believe that this study is oneof the first to systematically explore various config-urations of institutions and their relationship witha relatively new and important macroeconomicconstruct – equitable wealth creation. As such, ourfinding that there is no superior model of capitalismwith respect to equitable wealth creation is signifi-cant and new.Our results challenge the proponents of both

“authoritarian” capitalism currently practiced inChina (McGregor, 2012); as well as proponents of“free market” capitalism as practiced in the UK(Mokyr, 2010) and the USA (Heilbroner, 1986).Furthermore, it raises some important new researchquestions such as: What is the long-term cost ofeconomic inequality? Can the efficiency gains fromauthoritarian capitalism be sustained based on EastAsian ideologies? Do economies always becomeefficient first and then focus on economic inequal-ities, or can nations pursue both objectives simulta-neously? Clearly, these are important researchquestions with major geopolitical implications.Second, by operationalizing Whitley’s national

business systems framework as sets of integratedinstitutional configurations, we respond to recentcalls to compare and contrast national economiesbased on integrated, and complementary sets of insti-tutions, rather than a loose assortment of nationalinstitutional indicators (Aoki, 2013; Jackson & Deeg,2008; Pajunen, 2008; Vis et al., 2013; Witt &Redding, 2013). In so doing, our research begins todemonstrate some of the potential complementari-ties between informal and formal national institu-tions, and begins to look at the overall economy asa holistic system (Buckley, 2014). For example, in

the relatively effective models of capitalismidentified, there are relatively high levels of trustand lower levels of power distance. This culturalmilieu may permit the electorate to trust the statewith considerable resources to make the economymore efficient and fair. While these ideas are spec-ulative, there is ubiquitous anecdotal evidence thatlower levels of public trust and authoritarian govern-ments breed the extractive institution of corruption,which repeatedly has been shown to limit an econo-my’s overall effectiveness (Judge et al., 2011).One of the intellectual founders of capitalism,

Adam Smith, emphasized that an economy is acomplex adaptive system that must be both efficientand benevolent (Buckley, 2014). Perhaps mostimportantly, by explicitly considering both eco-nomic efficiency as well as economic equality, webelieve that we have made previous implicit assump-tions and values more explicit in the comparativecapitalisms literature. When there is a single objec-tive function such as wealth creation, it is mucheasier to argue for a single model of capitalism, suchas the laissez-faire or authoritarian models. However,when there are multiple objective functions beingsought, such as wealth creation and economic equal-ity, convergence to a single economic model isharder to envision. Furthermore, since the “cuddly”capitalism practiced by the Scandinavian economiesmay benefit from the “cut throat” capitalism prac-ticed in the USA (Acemoglu, Robinson, & Verdier,2012), we begin to take a more global perspectiveand start to understand some of the interdependen-cies operating in the global economy.

Implications for the international business literatureSome have argued that the “big” question in inter-national business (IB) research is: “What determinesthe international success and failure of firms?”(Peng, 2004: 106). Taking this as a starting point,IB theory and research has clearly demonstratedthat the environmental context in which multi-national firms operate matters (Cantwell et al.,2010; Hoskisson, Wright, Filatotchev, & Peng,2013). If context matters, the field needs to clearlyspecify what the most theoretically relevant contextmight be in order to move to theories that are moreparsimonious, accurate, and generalizable to theglobal economy (Buckley, 2014). We discuss severalpioneering and recent studies below to illustrate thisstudy’s implications for international businessscholarship.First, previous case study research has illustrated

that MNEs influence national economies in distinct



ways, but these insights have often not beenassembled into a coherent perspective. For example,McGregor (2012) reveals that while Chinese state-owned enterprises have been internationalizingrapidly, their primary role is to carry out politicalparty policies that often inhibit or reverse domesticinitiatives to enhance national economic efficiencyand/or equality. This example illustrates the impor-tance of understanding how institutions configureto produce macroeconomic outcomes, as a steptoward understanding the role Chinese state-ownedenterprises and foreign MNEs play in this economicdevelopment process. In addition, Kenney andFlorida (1995) illustrate how Japanese manufacturersoperating in the rural regions of the United Kingdomdirectly and indirectly influenced the economicwell-being of British citizens outside of major cities.Therefore, both domestic and foreign multinationalfirms influence national economic well-being inboth developing and developed economies operat-ing with different models of capitalism. Our studyoffers a framework for accumulating these insights.Second, Klaus Meyer’s (2007) critique of Lyles and

Salk’s pioneering study of organizational learning inHungary provides another specific illustration of thepotential relevance of our study to future IB research.Meyer argued that the insights generated from thissingle-country study may only be generalizable toeconomies undergoing radical change where state-owned firms predominate. If this is the case, thenour study offers guidance to researchers who mightwant to refine and extend the organizational learn-ing literature by examining this same phenomenonwithin the context of the model of capitalismemployed by economies emerging from centralizedstate control into market capitalistic systems, such asthose identified in Configurations 2 and 5 in ourstudy. In other words, we can develop more repre-sentative theories of IB phenomena by taking thetaxonomic approach suggested in this study.Third, Flores, Aguilera, Mahdian, and Vaaler

(2013) provide a third illustration of the relevanceof our study to IB research. In essence, they arguethat the primary ways in which the IB field examinescontext enveloping the MNE is by considering howit is embedded within geographic, cultural, or tradeflow boundaries. While these boundaries add to ourunderstanding, our study provides a different con-textual frame – one focusing on the model ofcapitalism in which the MNE operates – both athome and abroad.8 Because the model of capitalismconsiders geography, socio-economic institutions,and macroeconomic outcomes, it may be a more

holistic approach to contextualizing firm-levelbehavior and outcomes.Fourth, Doh and Lucea (2013) emphasize the

neglected role of nonmarket forces in influencingdomestic and international firm behavior andoutcomes. Specifically, they argue that electedgovernments and emergent political movementsincreasingly influence MNE behavior, decisions,and outcomes. For example, the “Arab Spring” inthe Middle East, the “Occupy Movement” in theUnited States, and the anti-nuclear energy rallies inGermany and Japan coupled with the government’sresponses all alter MNE strategic options in dramaticways. Rather than looking at a single political indexsuch as the freedom of the press, or a single culturalmeasure such as individualism to describe andexplain the context in which MNEs operate (e.g.,Zheng, El Ghoul, Guedhami, & Kwok, 2013), ourstudy offers the prospect of considering the overalleconomy from a more holistic perspective to betterunderstand the effects of these political movementson MNEs. The IB literature has for too long some-what ignored the role of the state (Lenway &Murtha, 1994), and our configurational taxonomybrings the state firmly back into the picture.Our fifth and final example of how this study

might be used by IB researchers builds upon recentinsights generated by Lundan (2011) who exploredtwo related themes: (1) how institutions change, and(2) the moral underpinnings of contemporary capit-alism. Lundan criticized IB scholarship as being toofocused on the firm-level of analysis, and operatedwith overly deterministic assumptions concerningthe nature of institutional context. She argued thatfuture IB research should consider the value-ladennature of MNE activities, and how multinationalfirms and national-level institutions jointly influ-ence each other. For example, MNEs not only areinfluenced by their institutional environments, butthey also can fill institutional voids in order to beable to operate properly in developing host coun-tries. This configurational taxonomy can provideguidance for scholars who might want to exploresuch things as the antecedents and effects of MNEefforts to combat corruption and/or deficient regula-tions in host economies which lack the formalinstitutions to limit these problems. In so doing, wemight begin to understand how MNEs and institu-tional environments co-evolve over time (Cantwellet al., 2010).Overall, this research provides a framework for

making sense of previous research, and it raises someimportant new questions regarding the role and



impact of MNE behavior in future research such as:(1) Do different models of capitalism explain MNEdiversification and internationalization trends oroutcomes?; (2) How do different models of capital-ism attract or repel FDI?; (3) Does the MNE have aneconomic and/or moral imperative to help an econ-omy achieve equitable wealth creation?; and (4) Arethere any universal best practices for MNEs, or dothey vary by the model(s) of capitalism in whichthey operate?

Implications for public policymakersThere are also several implications of this researchwhich may interest public policymakers. First,because the model of capitalism adopted by a nationrepresents historical choices and deep-seated ideolo-gies embedded within its citizens and culture as towhat the “rules of the game” are (North, 1990), itwill not be easy or fast to change one’s institutionsto facilitate desirable economic outcomes. However,joining a regional trading block, as several of theEastern European economies are doing within theEU, appears to be one way to challenge informalnorms and accelerate development of one’s institu-tions (Izyumov & Claxon, 2009). Further, the com-mitment to abolish or effectively control corruptionmay enhance levels of trust in society, resulting inincreased social capital that is associated with higherequitable wealth creation. Nonetheless, considerabletime must be allocated to accelerate the institutionaldevelopment along a more economically desirablepathway due to the weight of history and ideologicalembeddedness of institutions.9

Second, this study demonstrates that public policythat is based on some other country’s model ofcapitalism may fail since its current institutionalcontext and history may be quite different. Further-more, it highlights the limitations associated witha focus on just one institution since institutionsbundle together into an integrated system (Buckley,2014). As such, our research may help to explainwhy there is such a tenuous link between labor mar-ket institutions and overall unemployment levels(Avdagic & Salardi, 2013). Clearly, formal institu-tions are much more under the control of publicpolicy leaders and that is the easiest place to start forinstitutional reform. However, previous research hasdemonstrated that decoupling occurs when thenational formal institutions clash too directly withthe organization’s values and norms (Westphal &Zajac, 2001). Therefore, public policy should takea historical, holistic, political economic approachto institutional reform, and not an ahistorical,

piecemeal, classical economic approach as was doneby Harvard economists in Russia in the 1990s(Florio, 2002).Third, previous research has asserted that most

nations first pursue economic efficiency and thenmove to matters of economic equality (Okun, 1975).Unfortunately, there is not yet any systematic studyof this progression, and anecdotal evidence suggeststhat this is not always the case. For example, thesocial democratic model of capitalism practicedby Norway, with a long-standing commitment toeconomic equality during the previous century, hasonly recently begun to wrestle with enhancingeconomic wealth creation (Milne, 2013). As such,this suggests that it is possible for public policy-makers to emphasize one economic objective ata time, but when efficiency or equity gaps grow toolarge the country is often forced to reform its institu-tions in order to retain the legitimacy of the state(Lenway & Murtha, 1994).Finally, our study suggests that public policy-

makers can learn as much if not more from smallcountry experiments and macroeconomic outcomesas from large ones, since two of our three effectiveconfigurations are best represented by relatively smalleconomies. As Frankel (2012) argues, most publicpolicy prescriptions are derived from larger econo-mies. However, smaller economies are experiment-ing all the time and many of these experiments yieldfaster and clearer results than those conductedin larger economies. Therefore, public policymakersshould consider multiple models of capitalism toemulate or avoid, not just one model to guide theirreform efforts.

LimitationsDespite these new insights, our findings should beconsidered as tentative for several reasons. First, theissue of endogeneity plagues all comparative capital-ism research (Deeg & Jackson, 2007). Specifically,we do not know if equitable wealth creation leadsto these types of institutional configurations, or viceversa. While it is highly unlikely that certain eco-nomic outcomes create certain cultural values due tothe seminal nature of informal institutions (Cantwellet al., 2010), and even though we found that somerelatively “poor” countries may still achieve higherequitable wealth creation and vice versa, it is possi-ble that the formal institutions, whether moreinclusive or extractive, are a result of prior equitablewealth creation outcomes. Similarly, simplisticallyextrapolating our results into the future is unlikelyto be productive given the dynamic nature of the



global economy. As such, future research shouldexamine changes in these institutional configura-tions over longer periods of time. Recent research byHak, Jaspers, and Dul (2013) provide some guidancehow this might be achieved using fuzzy set analysis.Of course, longitudinal comparative case studyresearch could complement this work and advanceour understanding of how these institutional config-urations are related to equitable wealth creation overtime.A second major limitation of this study is that it

relies primarily on archival data collected by othersfor other purposes. While this helps to more clearlyseparate the observer from the observation, it doesnot guarantee reliable data (Jackson & Deeg, 2008;Redding, 2005). Furthermore, we rely heavily onarchival proxies for Whitley’s four dimensionswhich in some cases may lack construct validity.10

Hence future research should be conducted in thefield to refine and extend our tentative taxonomyof institutional configurations. Specifically, fieldinterviews with national politicians and multina-tional executives yielding “thick descriptions” ofthe representative countries listed in Table 3 shouldbe conducted and analyzed to refine and extendthese insights (Redding, 2005).A third limitation of this study is that it theoreti-

cally assumes that institutions are largely homoge-neous within an economy and relatively distinctacross economies. However, recent work has dem-onstrated that there can be a “multiplexity” ofinstitutions operating within an economy (Witt &Redding, 2013). Similarly, others have noted thattransnational institutions can and do influencenational institutions, particularly within regionaltrading blocs such as the EU (Allen & Aldred, 2011).As pointed out by an astute reviewer, each model ofcapitalism is likely to adapt and evolve as therelevant features of the global or local environmentshift over time, and this evolution may well includeelements of imitation of other models of capitalismthat create institutional crossvergence. Hence itwould be fascinating to better understand the degreeto which institutions vary within and across variousforms of capitalism so that these assumptions couldbe tested.

ConclusionsDespite these limitations, we believe that this studyprovides valuable new insights for IB scholars andpractitioners throughout the world. As Dunning(2003) observes, globalization is under attack. Pro-ponents of globalization tout the wealth creation

and efficiencies associated with globalization;however, detractors of globalization argue that glo-balization leads to unfair economic displacementand inequities. As Wallerstein (2004: 88) argued:“The key element of the debate is the degree towhich any social system… will lean in one directionor the other on two long-standing central issues oforganization – liberty and equality – issues that aremore closely intertwined than social thought in themodern world-system has been willing to assert.”While many executives and policymakers argue thatone model of capitalism is better than others, ourstudy reveals that there are multiple models asso-ciated with equitable wealth creation. This findingregarding the equifinality of national institutionalsystems and their associated economic outcomes hasimportant implications for the theories andmethodsutilized by IB scholars; and this empirical taxonomyof the models of capitalism operating in today’sglobal economy raises important new questions andopportunities for IB scholarship.

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