Enlarging the Varieties of Capitalism: The Emergence of Dependent Market Economies in East Central Europe

TLDR

The dependent market economy (DME) type, defined by reliance on foreign capital and situated in post‑socialist Central Europe, emerged after the collapse of state socialism and has become a relatively successful model of capitalism in countries such as the Czech Republic, Hungary, Poland, and Slovakia. The article expands the varieties of capitalism literature by identifying a third basic type—the dependent market economy—that differs from liberal and coordinated market economies, and by outlining its key elements and their interactions. Its key elements include institutional complementarities among inexpensive skilled labor, technology transfer within transnational enterprises, and capital provision through foreign direct investment. DMEs enjoy comparative advantages in assembling and producing relatively complex and durable consumer goods.

Abstract

This article enlarges the existing literature on the varieties of capitalism by identifying a third basic variety that does not resemble the liberal market economy or coordinated market economy types. The dependent market economy (DME) type, as it is named by the authors, is characterized by the importance of foreign capital for the socioeconomic setup and is located in postsocialist Central Europe. Since the collapse of state socialism in the late 1980s, the Czech Republic, Hungary, Poland, and the Slovak Republic have introduced a rather successful model of capitalism when compared with other postsocialist states. This article identifies the key elements of the DME model and discusses their interplay. DMEs have comparative advantages in the assembly and production of relatively complex and durable consumer goods. These comparative advantages are based on institutional complementarities between skilled, but cheap, labor; the transfer of technological innovations within transnational enterprises; and the provision of capital via foreign direct investment.