industrial relations regimes or to exploit cross-national differentiation, certainly
poses new challenges.
Such mobility is facilitated by the liberalisation of cross-national invest-
ment and by the more general liberalisation of financial flows across borders.
Given the advances in information technology and telecommunications,
transactions in shares and currencies have become continuous and instanta-
neous. ‘Finance capital has forged its own instruments of expansion and a
momentum of accumulation that are increasingly independent of what is hap-
pening in the sphere of production’ (Burbach et al., 1997: 67). This destabilises
material economies and allows capital-holders to ‘punish’ economies and
governments whose policies fail to match the criteria of rectitude embraced in
financial markets. The corollary is that individual companies are increasingly
free – and given the pressures of competitiveness, are obliged – to escape the
regulatory force of national industrial relations systems and establish employ-
ment regimes which meet their distinctive market strengths and weaknesses
(Katz and Darbishire, 2000; Kochan et al., 1997). The result is that ‘bad’
economic systems (those with the least regulated social outcomes) drive out
‘good’ (the more socially regulated can no longer compete).
Crouch and Streeck (1997) have pointed to the paradox that theories of
institutional convergence developed in the early postwar years were disproved
by experience; and by the 1970s, academics and policy-makers alike came to
recognise that markets (including labour markets) functioned best within the
framework of institutional regulation which could take very different forms
according to national context. Yet after two decades in which the superior per-
formance of such ‘institutional economies’ as Germany and Japan was widely
recognised, the conventional wisdom of the 1990s was that dense social regula-
tion involves rigidities requiring a shift to market liberalism. With the reconfig-
uration of product competition and the organisation of production, ‘more open
economies of the Anglo-American kind that have long learned to operate with-
out the succour of an interventionalist state and in the absence of strong social
cohesion’ (1997: 14) appear to experience a new advantage. Does this spell con-
vergence towards market liberalism? Streeck himself suggests that this may be
the case, at least in Germany. The competitive success of the soziale
Marktwirtschaftrested on three foundations: a global market for quality produc-
tion; the capacity of firms to innovate ahead of the competition; and adequate
demand for skilled labour. But from the 1980s the pace of innovation in rival
economies accelerated, and the differentiation between cost and quality com-
petitiveness broke down, encouraging German firms to shift production else-
where and resulting in a surge in unemployment. While these challenges
pre-dated unification, within the enlarged Germany they have probably become
unmanageable. And because ‘the institutions which embed its economy and
shape its performance are politically negotiated and typically legally constitu-
tionalized’ (1997: 36), these are more visible and more open to deregulation
than the more informal and internalised arrangements of a country like Japan.
424 International Human Resource Management