Market Institutions in Europe
2.5 Conclusion and Discussion
In the FIRES project, using the Varieties of Capitalism framework, we presented how the different institutional constellations with regard to finance, knowledge, and labor market institutions support different forms of entrepreneurial activity (Dilli et al. 2019; also discussed in Elert et al. 2019and Herrmann2020). This chapter provides a long-term perspective on the historical evolution of such institutions. By using a historical perspective, the aim of this chapter is to distinguish between those institutions that change over time versus those that are more resistant to change. This enables us to identify which institutions can be more easily altered versus which are hard to change via policy tools. Overall, while change is visible in all three institutions over the twentieth century, the VoC typology is relevant in understanding the extent and the direction of the institutional change European countries have experienced.
34 S. Dilli A historical perspective on the financial institutions with a focus on the banking structure in Europe indicates that banks were more diversified in the past than today and provided different possibilities for entrepreneurs to have access to finance.
Historically, rather than getting finance from large banks, the challenges in accessing finance were solved in many cases through local and private initiatives. Today in Europe, Eastern and Mediterranean economies face the largest constraints in financial institutions (Dilli et al. 2018). Given the historically strong family ties in these contexts, stimulating informal family funding can provide an alternative source of finance. In the Northwestern European countries, the introduction of more small-scale formal funding options, which were historically an important source of finance for entrepreneurs, can be an alternative solution. In Germany, for instance, cooperatives historically were an important source of finance for entrepreneurs. Such organizational forms can provide alternative sources of formal finance especially in continental European countries. Moreover, platform-based financial intermediation such as through crowdfunding and Fintech are modern-day examples of such institutions.
In terms of knowledge institutions, the LME economies have a clear advantage in tertiary level educational attainment, which stimulates general education compared to occupation and firm specific training in the CMEs. In terms of research and development, the continental European economies are performing as well as the LME economies, but potentially with a slightly different focus. This chapter illustrates that the differences in the knowledge outcomes, which have been highlighted in the VoC framework, have been visible already in the beginning of the twentieth century.
The twentieth century also witnessed important progress in closing the gender gap in tertiary education, but the gap remains in STEM education today and presents a challenge for women’s involvement in more innovative entrepreneurial activity (Dilli and Westerhuis 2018b). In the case of the UK, the academic environment has managed to attract researchers from abroad. Continental European economies compensate by stimulating research and development via governmental expenditures such as in the case of Germany. This may provide an alternative for contexts where research and development remain limited.
The historical cross-national differences in labor market institutions also change noticeably on the surface, but there is also clear path dependence and deeply rooted elements that clearly persist over time. The LMEs, for instance, always had the least regulated labor market institutions, whereas the tightly regulated labor market institutions have been characteristic for the Mediterranean and the continental economies over the same period. Therefore, from a historical viewpoint, deregulation in labor market institutions to stimulate entrepreneurship would likely face challenges in contexts where labor markets were historically tightly regulated. Overall, the historical analysis shows that elements of the institutional framework in Europe have deep roots that should be carefully considered when contemplating reforms. In line with this conclusion, in Sanders et al. (2020a,b,c), an objective is to let careful historical analysis precede the formulation of reform proposals.
2 A Historical Perspective on the Evolution of Finance … 35
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