------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (November 2005)
Kathleen Thelen, _How Institutions Evolve: The Political Economy of
Skills in Germany, Britain, the United States, and Japan_. Cambridge:
Cambridge University Press, 2004. xv + 333 pp. $30 (paperback), ISBN:
0-521-54674-5.
Reviewed for EH.NET by Thomas N. Maloney, Department of Economics,
University of Utah.
Kathleen Thelen, Professor of Political Science at Northwestern
University, has written a very ambitious book, examining institutions
related to skill development in four countries, tracking changes in
these institutions in one country over the course of a century, and
embedding this analysis in a rich theoretical context. She wants to
understand how these institutions came to be and how they have
evolved over time. The American Political Science Association named
this book a co-recipient of the 2005 Woodrow Wilson Foundation Award,
given to the best book published in the previous year on a topic in
government, politics, and international affairs, and I am not going
to take a contrarian position in this review. This is an excellent
piece of scholarship. It adds substantially to our understanding of
labor markets and of economic and political institutions in general.
In the first chapter, "The Political Economy of Skills in
Comparative-Historical Perspective," Thelen lays out her expansive
agenda. She provides a very clear and useful discussion of the
Beckerian framework of "general" and "specific" human capital
investment. She then emphasizes the concrete institutional
arrangements that are required to make this system work, including
forms of skill certification that make investment in general human
capital appealing to young workers. Thelen also examines theories of
institutional development and change: "Functionalist" theories that
intuit the origins of institutions from the purposes those
institutions currently serve, and "path dependent" theories that
focus on institutional formation in specific historical episodes,
leading to positive feedback and "lock in." Her empirical work
exposes weaknesses in both of these approaches to understanding
institutions.
That empirical work is of two types: a cross-national comparison of
training institutions in Germany, Britain, Japan, and the U.S. in the
late 1800s and early 1900s, and a "longitudinal" analysis of the
evolution of German training institutions through the twentieth
century. The cross-national comparisons are presented in chapters two
(Germany), three (Britain), and four (Japan and the U.S.). Each of
these case studies is densely detailed and clearly written. After
immersing us in this detailed discussion, though, Thelen reliably
pulls our attention back to the larger issues of institutional
evolution and the operation of labor markets.
In the German case, the Handicraft Protection Law of 1897 created a
system of compulsory artisanal "chambers," which regulated
apprenticeship and skill certification. This law largely removed
these issues from the realm of negotiation between firms and workers
and was in fact, according to Thelen, intended to thwart the
development of unionism around these issues. The law also made
participation in apprenticeship appealing to workers by giving them
confidence that they would receive useful training that they could
demonstrate to potential employers. These chambers were limited to
traditional craft skills, though, and the developing industrial
sector struggled to create an analogous system of training and
certification.
None of the other three countries examined developed such a formal
system of human capital investment. In the British case, firms would
take on apprentices without much commitment to train them in any
particular skills. This led to young workers forgoing apprenticeship
for initially better-paying unskilled jobs. In Japan, skilled masters
(oyakata) controlled training. They and their apprentices were highly
mobile across firms, and employers sought to develop new institutions
that would rein in this mobility. Their strategies included internal
job ladders, seniority-based promotion, and company unions. U.S.
labor markets were always characterized by relatively weak craft
traditions. In addition, employers' imperatives for mechanization and
control of the shop floor were greater in the U.S. due to the scale
of the market, leading to the "deskilling" of production and reliance
on internal labor market policies to develop worker loyalty and
reduce turnover.
Thelen's discussion of these four cases is quite informative and
forces us to think more rigorously about how textbook models of human
capital investment play out in the world. One thing lacking in her
presentation, though, is evidence on the relative performance of the
industries she examines. Did Germany's more formal system of skill
certification give it a productivity advantage over other nations, or
were these simply alternative methods of organizing work and
training, without a clear ranking in terms of performance? In the
preface and introduction, Thelen motivates her investigation by
noting the persistence of a spectrum of types of economic
institutions, from "coordinated" to "liberal market," even in the
context of highly mobile capital. This seems to suggest that we
should understand these various forms of skill development as
alternatives that are qualitatively similar in terms of their
performance. However, in the body of the book, the failure of
Britain, Japan, and the U.S. to develop formal skill certification
mechanisms as Germany did seems to be treated as just that, a
"failure." Some discussion of economic performance would clarify
these conflicting impressions.
These cross-national comparisons, then, give us a sense of the
variety of possible training frameworks and the relationship of these
frameworks to the political and economic history of each country. The
longitudinal examination of the German case (in chapter 5) develops
more fully the theme of institutional evolution. Thelen describes how
the Nazi era increased the government's role in skill standardization
and certification and extended these practices beyond the traditional
crafts. This standardization was important for the flexible
allocation of labor during wartime, and the formality of these labor
market institutions was useful for incorporating political
indoctrination and monitoring into training mechanisms. After the
war, the occupying forces saw apprenticeship and training as
important tools for keeping young people economically engaged and
hopeful, though the Allies also wanted to decentralize power and so
promoted the return of the control of training to private
organizations.
Thelen's primary point here is that the tremendous crises of the Nazi
era, the war, and postwar reconstruction left the basic mechanisms of
skill training in place. Though we might typically expect such events
to cause discontinuous change in economic institutions, Thelen argues
that people might actually prefer to maintain existing institutional
forms in times of crisis as a means of promoting security and order.
This is not to say that Germany's training institutions were rigid
and inflexible. Rather, the important changes that did occur were
incremental.
This issue of the cumulation of incremental change, though, could use
some additional development. Thelen repeatedly emphasizes that the
German training system came to be associated with the goals of
organized labor even though it was created for the purpose of
circumscribing the influence of unions. However, those of us who are
not familiar with the German case are left with only a vague sense of
this transition.
Thelen's concluding chapter is not merely a recapitulation of her
findings but rather provides important new insights on her topics,
especially the broader issues of institutional evolution. She
examines how the various institutions in an economy, all shaped by
different political and historical contingencies, might come to be
complementary over time. She also contrasts evolution in the
political context with evolution in the market context. In markets,
"losers" will ultimately exit, and positive feedback effects will be
preeminent; in politics, individuals who "lose" in the formation of
institutions may stick around to help reshape those institutions
later on, so positive feedback effects are less dominant.
While all of this work is of very high quality, the theoretical
discussion in chapters one and six and the long-term examination of
Germany are the most engaging and informative. Though Thelen is not
herself an economist, she cites economic historians and labor
economists thoroughly and presents penetrating insights on their
work. Researchers focused on specific issues of human capital
investment, as well as those interested in very large questions about
the nature of institutions, will find this book to be a provocative
read.
Thomas N. Maloney is Associate Professor and Director of
Undergraduate Studies, Department of Economics, University of Utah.
His most recent publication is "Ghettos and Jobs in History:
Neighborhood Effects on African-American Occupational Status and
Mobility in World War I-Era Cincinnati," _Social Science History_
29:2 (Summer 2005).
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Published by EH.Net (November 2005). All EH.Net reviews are archived
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