Southern European political economies: In search of a road to development

Within both the «Varieties of Capitalism» and the «European SocialModel» streams of literature, very few contributions have discussed the features andprospects of Southern European (SE) economies as a specific type of capitalism.Some early works maintained that such features as the high proportion of SMEsin the production system, a wide diffusion of the hidden economy, a strong roleof the family in welfare provision, a trade union division along political-ideologicallines, the distinctive role of the state, characterised a type of political economy, ormodel of capitalism, which was typical of Southern Europe. But more recent literaturehas shown that Italy, Spain, Portugal and Greece started to diverge on mostof these dimensions already in the mid-1990s and that they have continued to doso even during the Great Recession. One aspect that has made these SE economieslook similar, however, was their inability to provide viable answers to the challengeof globalisation. The paper shows that Mediterranean countries lacked instead theinstitutional conditions to follow the high road of Nordic Europe or the low roadof Central and Eastern Europe consistently: their political economies were too heavilyregulated to successfully compete on price with Eastern Europe and with thedeveloping economies, but, on the other hand, they were not equipped for a typeof growth based on highly-skilled human capital, innovation and high social cohesionas in the Nordic model. We will show that this low capability to grow is related toa low degree of investment in R&D and highly skilled human capital, which hindersthe ability to innovate and to follow a «high road» to competitiveness.