The World Market, Variegated Capitalism, and the Crisis of European Integration

 This on-line version is the pre-copyedited, preprint version. The published version can be found here:

‘The world market, variegated capitalism, and the crisis of European integration’, in P. Nousios, H. Overbeek, and A. Tsolakis, eds, Globalisation and European Integration: Critical Approaches to Regional Order and International Relations, London: Routledge, 91-111, 2012.

This chapter critiques world system theory and early work on varieties of capitalism and proposes an alternative account that ‘sublates’ both approaches.[1] Specifically, drawing on Marx, the regulation approach, and critical international political economy, this alternative posits the existence of a fractally variegated capitalism within a world market that is currently organized in the shadow of a finance-dominated neo-liberalism backed by imperial power. On this basis it further argues that, even in crisis, the distinctive dynamic of this form of neo-liberalism remains ‘ecologically dominant’ insofar as it continues to cause more problems for the other socio-economic regimes with which it is coupled[2] than they can cause for it. The fractal character of the ecological order constituted in and through the world market creates space for other regimes to develop their own regional hegemonies or dominance but their overall impact depends on their insertion into the world market. Two examples of ecological dominance are, first, the pathological co-dependence of the US and Chinese economies and their respective zones of influence and its cumulative repercussions on a global scale; and, second, the primacy of Modell Deutschland in the economic and political dynamics of European economic space and its contribution to the Eurozone crisis, its wider ramifications, and the associated crisis in crisis-management. This chapter illustrates the potential of the proposed alternative approach by analyzing the European Union’s development from the initial integration of six complementary ‘Rhenish’ economies to today’s relatively incoherent, crisis-prone variegated capitalist (dis)order. It also asks (without providing a conclusive answer) whether the Eurozone crisis can be solved through greater economic, fiscal, and political integration – the usual response to crises in the European Union – or involves a more lasting structural, perhaps terminal, incompossibility.


All those laws developed in the classical works on political economy, are strictly true under the supposition only, that trade be delivered from all fetters, that competition be perfectly free, not only within a single country, but upon the whole face of the earth. These laws, which A. Smith, Say, and Ricardo have developed, the laws under which wealth is produced and distributed – these laws grow more true, more exact, then cease to be mere abstractions, in the same measure in which Free Trade is carried out. … Thus it can justly be said, that the economists – Ricardo and others – know more about society as it will be, than about society as it is. They know more about the future than about the present.

(Marx 1976: 289, italics added).

One could add that Marx, too, knew more about our recent past, present, and immediate future than about his present. For he argued that ‘the most developed mode of existence of the integration of abstract labour with the value form is the world market, a place in which production is posited as a totality together with all its moments, but within which, at the same time, all contradictions come into play’ (Marx 1973: 227). While this was correct theoretically when Marx was writing Capital, capitalism was still being formed, production had not yet become a totality, and the world market was weakly integrated in terms of trade, production, and finance. Despite some reversals, its present level and form of integration make Marx’s analysis more relevant today than in the mid- to late nineteenth century. Indeed, the current crisis of a global economy organised in the shadow of neo-liberalism, with so many contradictions coming into play in such diverse, but interconnected, ways, seems to vindicate his deep-rooted, far-sighted analysis. For neo-liberal globalisation systematically privileges profit-oriented, market-mediated economic calculation at the expense of wider concerns with use-value, sustainable development, or social cohesion.

Marx emphasised that the world market ‘is directly given in the concept of capital itself’ because it constitutes the presupposition of social reproduction ‘as well as its substratum’ (1973: 163, 228). In analyses developed over four decades, he argued that the world market develops on the basis of foreign trade, the consolidation of big industry, the full development of the credit system, and the generalisation of competition. In this spirit, we can note that, while financial innovation has been especially significant in enabling the logic of capital to operate more completely than ever on a global scale, the rise of finance-dominated neo-liberalism in recent decades has greatly intensified its contradictions and brought them more visibly, more forcefully, and more disastrously into play.

The increased relevance of Marx’s analysis is often disguised by use of ‘globalisation’ to describe recent economic trends, especially when this implies qualitative differences from earlier periods of mercantilism, free trade imperialism, and imperialism based on territorial conquest and trade blocs. Increasing integration does not exclude uneven development across space and time, with some economic spaces leading the movement and others getting decoupled.  This is an inevitable feature of accumulation on a world scale but cannot obviate the true limits to capital accumulation, which, as Marx emphasized, reside in the capital relation itself rather than in short-term fluctuations, medium-term cycles and crises, and long-term waves of accumulation. Capital’s expanded reproduction has long constituted the most pervasive and powerful influence over the dynamic of the world market. But does this imply that the logic of capital operates at the level of the world market qua world system?

The formation of the world market must be seen as ‘doubly tendential’ on the grounds that, first, it is itself a tendential process, subject to leads, lags, and reversals; and, second, the world market, insofar as it is formed, provides the global context in which all the laws of capital accumulation and their overdetermination come to operate. Marx and Engels note both tendencies. For example, in The German Ideology (1845-46), they remark:

The movement of capital, although considerably accelerated, still remained, however, relatively slow. The splitting up of the world market into separate parts, each of which was exploited by a particular nation, the exclusion of competition among themselves on the part of the nations, the clumsiness of production itself and the fact that finance was only evolving from its early stages, greatly impeded circulation’

(Marx and Engels 1976: 56).

They add that this limitation was overcome in part by the rise of big industry, which ‘universalised competition, established means of communication and the modern world market, subordinated trade to itself, transformed all capital into industrial capital, and thus produced the rapid circulation (development of the financial system) and the centralisation of capital’ (Marx and Engels 1976: 73).

Marx also examines uneven development in diverse remarks on differences in the national intensity and productivity of labour, the relative international values and prices of goods produced in different national contexts, the relative international value of wages and money in social formations with different degrees of labour intensity and productivity, the incidence of surplus profits and unequal exchange, and so on (e.g., Marx 1967: 317-325). Such issues still retain their full significance today, as evidenced in, inter alia, the Eurozone crisis.


Wallerstein developed an innovative analysis of the modern world-system, i.e., a world economy integrated through the market rather than a world empire organised by a dominant political centre. He posits a single, internal logic of capital based on the reproduction of a unitary world-system with a single division of labour but multiple political and cultural systems. Moreover, within this system, capitalist powers compete economically and militarily to capture surplus produced through the global division of labour. Wallerstein regards exploitation as occurring at a world scale, based on the division of the world economy into a centre, semi-periphery, and periphery. The centre comprises economies associated with independent (or ‘free’) states: the economies are technologically advanced, produce capital-intensive goods and advanced services, and enjoy a relative monopoly in the export of these goods and services to the semi-periphery and periphery. The semi-periphery comprises industrialised economies that have significant urban areas (such as Brazil or South Africa) but have significant areas of rural poverty and, more generally, lack the power and dominance of the core economies. In turn the periphery provides raw materials, primary products, and cheap labour power to the semi-periphery and the core. While this threefold division is fixed, positions therein are not. Economic and social formations can move in this hierarchy (albeit typically in single steps). Mobility is shaped by the overall logic of the system plus players’ strategies. It involves military as well as economic competition and, because the strength of core states depends on weakness elsewhere, peripheral formations are vulnerable to intervention through war, subversion, and diplomacy. Wallerstein added that some economies, thanks to their reliance on internal commerce, might stay outside this system and escape its logic of dependency and underdevelopment (Wallerstein 1975, 2000; see also Goldfrank 2000).

World system theory is often presented as superior to more methodologically nationalist political economy and/or modernisation theories because it seeks to explain the development of a given national or regional socioeconomic formation in terms of how it fits into an overall global logic and, hence, rejects a unilinear conception of modernising catch-up and convergence on the most advanced economic, political, and socio-cultural model. The fate of individual economies depends on the scope for favourable integration into (or, sometimes, de-coupling from) a stratified world system and, especially in the case of the periphery, on their vulnerability not only to economic exploitation and dependent (under-)development but also to military domination and diplomatic divide-and-rule strategies. This theoretical advance presupposes the relative constancy of the logic of the world system rather than seeing it as emergent and variable. Yet, while there may be a broad direction to capital accumulation, it does not entail a specific, pregiven threefold division of international labour. This would involve a crude a priori simplification relative to Marx’s more nuanced view that, although the world market is the ultimate horizon of capital accumulation and must be posited at the beginning of an analysis of capitalism, it could only be fully understood in all its complexity at the end of his analysis when all its multiple determinations have been included.[3]

Referring to the world market in Marxian terms implies that capital accumulation can be commensurated and even integrated on a world scale. It does not entail a single, generic, unified mode of production. Wallerstein justified the existence of the world system in terms of a logic of exchange rather than production. If we begin with the latter, however, we must recognize that there is ‘no production in general’ or ‘general production’: production is always a ‘particular branch of production’ or it is the ‘totality’ of production (Marx 1973: 86, italics in original). Moreover, particular production is always associated with ‘a certain social body, a social subject’ (ibid). While world trade might connect different branches and their respective social bodies, the diversity of production relations and their social bodies is analytically prior to exchange. An institutionalist version of this insight has led some to investigate competing varieties of capitalism (VoCs) and their interaction within a global economy. But is this more pluralistic approach actually superior to the theory of a singular world system with a pregiven dynamic?


This term covers a range of approaches that address the variability of capitalism tout court (Bohle and Greskowits 2009). These include work on varieties of capitalism, the diversity of capitalism, cultures of capitalism, national business models, national systems of innovation, and so on. Space constraints rule out a critique of all approaches so I will focus on the best-known account: the initial varieties of capitalism approach inspired by Hall, Soskice, and their collaborators (Hall and Soskice 2001). However, while this approach highlights the plurality of logics in capitalism, there are four grounds for rejecting it.

First, the VoC approach is overly concerned with distinct (families of) national models of capitalism, treating them as rivals competing on the same terrain for the same stakes. This is, of course, a form of methodological nationalism in which national states and their frontiers define the scope of different models. This invites explanations of international crises (such as that in the Eurozone) in terms of ‘good’ versus ‘bad’ national models (e.g., Germany versus Greece). This focus on territorial logics also clearly conflicts with the logic of the space of flows associated with the world market (cf. Harvey 2003) and its role in crisis dynamics.

Second, these supposed varieties of capitalism are often studied in terms of their respective forms of internal coherence on the assumption that they exist in relative isolation from each other. This cannot be justified, although the attempt has been made, by noting the key role of national states in shaping institutional and regulatory frameworks for all players in a national economy. For state apparatuses on other scales – along with networked international regimes – have gained important roles in these frameworks and in efforts to steer the insertion of national economies into more encompassing sets of economic and political relations.

Third, and relatedly, this approach tends to study the temporal rhythms and horizons of VoC as internal, specific, short- or medium-term, unrelated to capital’s long-term global dynamic.

And, fourth, the VoC approach tends to assume that all varieties are equal and, if one is more ‘productive’ or ‘progressive’, it could and should be copied, exported, or even imposed elsewhere. Some versions of the VoC claim that self-consistent models (liberal market or coordinated market economies) are more stable than hybrid models (Hall and Soskice 2001).

If the initial VoC approach risks reducing world market dynamics to a mechanical juxtaposition and interaction of ‘varieties of capitalism’, could we synthesise the world system thesis and its apparent VoC antithesis? A possible sublation is offered by the concept of ‘variegated capitalism’. Understood as a synthesis, this would highlight how changing patterns of institutional and strategic interaction in an increasingly integrated world market tend to create a single variegated capitalism rather than reproducing a more or less enduring set of national varieties thatfill potentially independent niches (cf. Becker 2009). This has four advantages compared to the VoC approach.

First, rather than describing and interpreting different forms of capitalism as if each occupied a separate silo within a segmented world market or world society, variegated capitalism highlights the scope for rivalry, competition, antagonism, complementarity, or co-evolution across different forms (cf. Crouch 2005) and their spatio-temporal fixes within a global division of labour.

Second, a focus on internal coherence ignores the extent to which comparatively successful performance in certain economic spaces depends on external as well as internal conditions and – crucially – on a given model’s ability to offload its negative externalities. This includes the ability to displace or defer contradictions, conflicts, and crisis-tendencies to other places and times (on such spatio-temporal fixes, see Jessop 2002, 2006). In other words, zones of relative stability are typically linked to instability in or beyond national spaces in a complex ecology of accumulation regimes, modes of regulation, and spatio-temporal fixes. Lest this gives the misleading impression (associated with mainstream VoC work) that competition among different models is essentially pacific because it is market-mediated, one should note that differential accumulation also occurs via predation, structural domination, and military might. Spatio-temporal fixes are rarely purely pacific but usually also involve have conflictual and/or coercive geo-economic and geo-political bases.

Third, the methodological nationalism in much VoC research raises two problems. National economies often have quite varied sectors and/or regions that may be integrated into divisions of labour that transcend national frontiers, casting doubt on the validity of the national economy as an analytical unit. In addition, if this holds when national states have a key role in accumulation, it matters even more when the primacy of the national scale has been lost or is being challenged by other scales of political intervention. In addition, a focus on national economies ignores other socio-spatial patterns such as emerging supranational blocs, global city networks, or global commodity chains. Thus, whereas the VoC literature privileges the relatively short duration (in world-historical terms) of the primacy of the national scale, work on variegated capitalism highlights the historically variable inter-scalar articulation of accumulation and its dependence on government and governance at scales above, below, and transversal to the national.

Fourth, concern with varieties of capitalism may lead to neglect of the market-mediated competitive pressures and political initiatives that encourage convergence among them, whether through European integration and harmonisation and/or US-sponsored expansion of networked, world market-friendly international economic regimes. In this context, neo-liberalism is not just one variety among others that has proved more or less productive and progressive (or more or less inefficient and exploitative) and could be adopted elsewhere with the same results, as if the whole world economy could be organised along these lines. An emphasis on ‘horizontal’ comparisons and/or competition among varieties of capitalism diverts attention from the ‘vertical’ relations between core and periphery (Radice 2000; Wallerstein 1975) and ignores important asymmetries in the capacities of different VoCs to shape the world market.In short, to paraphrase Orwell (1945), while all varieties of capitalism are equal, some are more equal than others. We must reject claims about the suprahistorical superiority of one or another disembedded model of capitalism that could then be adopted elsewhere. The dominant model cannot be universalised.For example, not all economies can establish their national money as the world currency and run massive and growing trade deficits, not all national states can be military masters in a unipolar world, and so on. This is not just a matter of logical compossibility. It also concerns discursive-material, spatio-temporal compossibility, i.e., the substantive fit (or otherwise) among varieties of capitalism. This involves not only the economic competitiveness of a given economic regime but also the capacity of its corresponding political order to promote this regime by re-articulating the relations among places, interscalar relations, and networks within and beyond its territorial borders.

In sum, to re-interpret the world market in terms of ‘variegated capitalism’ improves on the claims that: (a) there is a single world system that, operating through the logic of capitalist competition, pushes all capitals and their associated ‘space economies’[4] to converge on a single model of capitalism; or (b) there are only separate varieties of capitalism that co-exist within an inevitably heterogeneous world economy. The growing integration of the world market makes it especially inappropriate to study ‘varieties of capitalism’ as distinct, self-sufficient forms that engage in external competition. Expressed in terminology developed elsewhere (Jones and Jessop 2010), this involves exploring variegated capitalism in terms of the structural coupling, co-evolution, and mutual complementarities-compossibilities as well as the contradictions and mutual exclusivities among varieties and stages of capitalism and their implications for the future dynamic of accumulation on a world scale. In short, ‘variegated capitalism’ offers an important theoretical and practical horizon for studying the capital relation. This casts new light on Marx’s emphasis on the world market. He did not refer thereby to a singular logic operating with singular directionality at the global level (the mistake in crude versions of world system theory) but to an emergent, tendential, and synthetic logic. Such analyses can be found in more nuanced versions of world system theory (such as Arrighi 1994, recently revisited by Robinson 2011) and in recent attempts to expand the analysis of varieties of capitalism or, better still, to disclose the diversity of capitalism (for recent reviews on these lines, see Hancké, Rhodes and Thatcher 2007; Jessop 2011; and Streeck 2010).


A dialectical analysis need not stop with the first synthesis – this would be too easy and limit its critical potential. The move from a ‘world systems’ thesis and a ‘varieties of capitalism’ antithesis to a variegated capitalism sublation risks reproducing the assumption that all varieties are equal even though casual observation and theoretical first principles suggest otherwise. I have already criticized this assumption in the preceding section and will now develop my critique in three steps. First, I introduce the argument, new only in the present context, that the world market is not an exclusively capitalist reality. Second, I elaborate my earlier claim that variegated capitalism on a global scale is currently organised in the shadow of finance-dominated neo-liberalism. And, third, in a subsequent section, I emphasize the fractal nature of variegated capitalism, i.e., the fact that variegation is not just a property (presupposition, result, and horizon) of the structural coupling and co-evolution of varieties of capitalism at the level of the world market but exists at many other scalar and interscalar levels of analysis. This step is already implicit theoretically in the preceding critique and will be illustrated through variegated capitalism in European economic space.

First, recognition of variegated capitalism can only be an initial, albeit important, step to analyzing the world market in terms of an uneven and combined development that integrates not only particular branches of capitalist production but also diverse pre- or non-capitalist forms of production and their respective social bodies. The totality of production includes subsistence production, petty commodity production, household production, informal productive and reproductive labour and, a fortiori, their dynamic interrelations with capitalist production in all its variety. These modes of production and forms of labour are unified, to the extent that they are, through the increasing global ‘ecological dominance’ of capital accumulation. Indeed, the more tightly integrated is the world economy, the more strongly do capital’s contradictions come into play on a world scale. This has positive and negative effects. Uneven development can drive world market integration forward and also fetter it. How this works out will depend not only on the relative strength of different circuits of capital and their articulation to so-called varieties of capitalism but also on the forms, extent, and intensity of resistance that this generates from the local to the global scale.

Second, ecological dominance refers to the capacity of one system or institutional order within a complex self-organising ecology of systems or orders to cause more problems for others than they can cause for it. It can be understood in terms of the relative weight of varieties of capitalism and/or the relative impact of different circuits of capital. Thus one can ask about the uneven development and structural coupling of different capitalist regimes in a regional or global division of labour (e.g., the Rhenish, Nordic, and liberal market models in European economic space or the dominance of the liberal market model in the global economy); or about the relative dominance of commercial, industrial, or financial capital within circuits of capital on different scales. These aspects are typically inter-related. Thus one could argue that the ecological dominance of neo-liberal market coordination reflects the relative predominance of finance-dominated accumulation in neo-liberal economies in the world market and of the relative ecological dominance of financial capital within the global circuits of capital in an emerging world society.

The logic of financialisation (wherever it occurs) transforms the role of finance from its conventional, if always crisis-prone, intermediary function in the circuit of capital to a more dominant role oriented to rent extraction through financial arbitrage and innovation. This mode of differential accumulation weakens the primacy of production in the overall logic of capital accumulation and eventually runs up against the limits of a parasitic, rather than intermediary, role. In contrast with the relative structured coherence of Fordism and the alleged coherence of the once widely-heralded post-Fordist ‘knowledge-based economy’, the finance-dominated regime that developed after the crisis of Fordism works against the long-term stability of accumulation and its regulation. In particular, it weakens the spatio-temporal fixes in and through which regimes based on the primacy of productive capital (such as Fordism or a knowledge-based economy) produce zones of relative stability by managing general and regime-specific contradictions between fixity and motion.

This can be seen in the impact of financialisation not only in Atlantic Fordism or the failure of the EU’s Lisbon project to transform the European Union into the most competitive knowledge-based economy in the world; but also in the export-oriented economies of East Asia, the viability of import-substitution industrialisation strategies in Latin America and Africa, and the problems in several post-socialist economies in Central and Eastern Europe. The destructive impact of financialisation is reinforced through neo-liberal accumulation through dispossession (especially the politically-licensed plundering of public assets and the intellectual commons) and the dynamic of uneven development (enabling financial capital to move on when the disastrous effects of financialisation weaken those productive capitals that have to be valorised in particular times and places). It is also supported by the growing markets opened for the ‘symbionts and parasites’ of the ecologically dominant fractions of capital in their heartlands – associated in turn with their own forms of uneven development on regional, national, and global scales (for further indications, see Jessop 2007).


The gradual formation, enlargement, and integration of the European Union reflects efforts by economic and political forces to restructure national states and economies in the hope of solving long-standing structural ‘problems’ of competitiveness within regions, national economies, and wider European economic space. The resulting policies, their sequencing, and recurrent crisis-tendencies show that not everything that is possible is compossible. To understand this, we should examine the scope for incompatibility, antagonism and contradiction within and between VoCs in their (compossible) articulation in specific socio-spatial contexts, including their associated zones of (in)stability. The following remarks on European economic and political integration within a changing world market indicate the potential of such an analysis; they do not yet amount to a robust case.

The six founding members of the European Economic Community (EEC) had modes of growth and regulation belonging to what first wave ‘varieties of capitalism’ scholars would classify as ‘coordinated market economies’ (with Germany as the prime exemplar) or as hybrid cases with strong elements of coordination. They have also been described as ‘Rhenish’ economies (Albert 1993) or as comprising a mix of corporatist, dirigiste, and, for Italy, hybrid models – with none conforming to the liberal market model (see Schmidt 2000). Specific labels apart, they can certainly be described as variants of regulated rather than liberal capitalism and as having conservative-corporativist or, in Italy’s case, a clientelist Mediterranean welfare regimes (cf. Hantrais 2000; Ruigrok and van Tulder 1996). Italy’s depiction as an ‘outlier’ in these typologies hints at future problems, especially when other Southern European or non-Rhenish economies joined the European Union (see below).

The initial steps towards European integration aimed to establish the conditions for peaceful co-existence among former belligerents and to integrate Western Europe into Atlantic Fordism (Cafruny and Ryner 2007; Milward 1992; van der Pijl 1984).The ‘Monnet mode of integration’ was concerned to create a ‘Keynesian-corporatist’ (sic) form of statehood on the European level favourable to various national Fordist modes of development (Ziltener 1999). Market integration was expected to have spillover effects that would consolidate regulated capitalism on a wider scale and promote deeper political integration. Thus the early stages of integration enabled the European Communities to develop as relatively compatible instances of variegated regulated capitalism based on institutionalised compromise between capital and labour and reflected in social or Christian democratic Keynesian welfare settlements.

The situation changed as the European Community expanded to include members with different modes of growth, regulation, and welfare. Initially the United Kingdom was relatively isolated as a liberal market economy (an anomaly behind de Gaulle’s earlier veto on UK membership) but nonetheless helped to spread the influence of de-regulated international finance into the Continental heartland. The problematic co-existence of different varieties of capitalism was aggravated by the differential impact of the emerging crises of Atlantic Fordism and contrasting responses within and across national models in Europe. Since crisis has been an important mechanism in driving forward European integration, these developments were not fatal. They would certainly have made it harder to re-scale demand management and indicative planning from the national to the European level and/or to establish a tripartite Euro-corporatism (on Euro-corporatism, see Falkner 1998 and Vobruba 1995; on its limits, Streeck 1995). But this project was marginalized in favour of a neo-liberal turn based on radical neo-liberal regime shifts in some economies and neo-liberal policy adjustments in others, thereby increasing the economic and social heterogeneity among member states (on types of neo-liberalism, see Jessop 2007).

In this context the Monnet mode of coordinated market integration was replaced by the more liberal internal market project, which involved different kinds of adaptation in neo-liberal, neo-corporatist, and neo-statist regimes without ensuring mutual convergence towards a single variant of capitalism. Rather, despite the prescriptive, ‘hard law’ nature of the internal market project at this stage, there were different national responses (Menz 2005) and variegation was reproduced in new forms. Eastwards expansion further increased the heterogeneity of the EU and reduced the scope for a concerted EU-wide coordinated market economy approach, especially as new member states were largely committed to the neo-liberal project. This effect was not accidental but promoted by neo-liberal forces both within the European Union (notably the United Kingdom) and beyond it (notably transnational capital and international agencies dominated by US imperialist interests that saw post-socialist states as potential economic, political, and security allies).

The increasing variegation of European economic space contributed to the search in the 1990s for another mode of integration. This is seen in the turn from policies of harmonisation in economic and, to a lesser extent, social policy towards negative rather than positive integration. Measures to eliminate restrictions on ‘the four freedoms’ (the free flow of goods, services, capital, and labour) tend to weaken the coherence of the respective national cores of coordinated market economies and to advantage mobile capital (on the neo-liberal bias of negative integration, see Altvater and Mahnkopf 2007; Scharpf 2010; van Apeldoorn 2002). Governance methods also became more flexible. Movement toward Economic and Monetary Union (EMU), for example, set convergence criteria but allowed member states to decide within limits on the measures (including, it turns out, deception) required to meet them. Still more flexible is the open method of coordination (OMC), which was introduced stepwise in several policy areas and then officially consolidated in the Lisbon agenda. The OMC involves neither a rescaling of Westphalian sovereignty nor an advanced form of liberal intergovernmentalism. Instead it emphasises efforts at continuing collibration in a changing equilibrium of compromise that depends on ‘super-vision’ and ‘supervision’, i.e., a relative monopoly of organised intelligence plus overall monitoring of agreed governance targets procedures across diverse fields (Willke 1997). This combination of ‘super-vision’ and supervision of decentralized measures to realize agreed targets helps to mediate the increasing variegation in European economic space, with its different modes of growth and regulation and different modes of insertion into the European and wider world markets, without imposing a one-size-fits-all economic and political programme or relying purely on negative integration. In principle, it does this by allowing states to pursue different approaches to shared EU objectives, thereby facilitating the extended reproduction of a variegated capitalism through a co-evolutionary dynamic of structural coupling.

But these new forms of governance can only compensate partially for the problems of economic and political incompossibility in an expanding EU that is itself located in an increasingly heterogeneous world market and polity. The OMC is not (and could never have been) a purely technocratic fix that would harmoniously integrate European economic and political space. Rather, reflecting the complex position of the European Union within a variegated capitalism that is not confined to European economic space but extends to the world market, EU collibration and meta-governance have become another site on which conflicting economic strategies, political projects, and hegemonic visions have been pursued – not only by competing interests within that space but also by outside forces with a more or less strongly interiorised presence inside the EU, other international bodies, and key transnational agencies and forums (cf. Bieling 2010; van Apeldoorn 2002; Ziltener 2000). Thus in addition to struggles among member states over the overall strategic direction and/or specific economic and social policies, the emerging system of ‘multi-scalar metagovernance in the shadow of post-national statehood’ has also been a vector for American neo-liberal pressures to redesign the world order. Rather than providing an adequate institutional architecture for governing the European Union, then, negative integration plus more flexible methods of coordination have created a variegated free market that lacks strong governance capacities, especially in periods of crisis. This structural flaw was partially hidden during the ‘Great Moderation’ (the NICE years of non-inflationary continuing expansion) and the initial boost to growth (especially in the Southern periphery) consequent on the introduction of the Euro[5] but failure to address it in the good times has made crisis-management harder in periods of crisis, as is amply illustrated by the continuing travails engendered by the global financial crisis, the Eurozone crisis, and issues of sovereign debt.

The Lisbon Agenda had strong support from the EEC’s founding members and from Austria, Denmark, Portugal, and Sweden. It combined a commitment to international competitiveness (based on promoting a knowledge-based economy) with retention of the European social model and reflected a compromise between neo-liberal and social democratic variants of capitalism. In this sense, the Lisbon project was closely tied to the shift from a Keynesian-welfarist mode of integration to a more Schumpeterian-workfarist mode (cf. Ziltener 2000). From one viewpoint, given the ecological dominance of neo-liberalism on a world scale from the 1980s onwards (cf. Jessop 2007), the pursuit of neo-liberalism within the EU might have appeared as the line of least resistance given the co-existence of several ‘varieties of capitalism’ with their complex contradictions.[6] But one-sided pursuit of neo-liberalism has its own contradictions and pathologies that, following the familiar phases of neo-liberal roll back of earlier accumulation regimes and modes of regulation and roll-forward of new institutional arrangements to consolidate and reinforce the resulting shift in the balance of forces and the momentum of neo-liberal transformation, have now produced neo-liberal blowback as these contradictions and pathologies have matured.

Yet, paradoxically, the current economic crisis has reinforced calls to further entrench neo-liberalism within the European framework. This can be seen in the still evolving, hotly contested set of immediate emergency measures, short-term crisis-management, medium-term crisis-mitigation, and longer-term crisis-avoidance policies. There are significant differences between the economies that undertook the most marked neo-liberal regime shifts (Eire, Iceland, the UK, Spain, the Baltic Republics, and Eastern and Central Europe) and those that inclined more towards neoliberal policy adjustments (notably the Benelux economies, France, Scandinavia, Germany, Austria, and Switzerland). This reveals basic limits to their compossibility within current constitutional, institutional, and meta-governance arrangements. And it is reflected in disputes about the most appropriate way to resolve the crisis in the Eurozone and its integration into the world market.


The recent and continuing global financial crisis has finance-dominated, neo-liberal accumulation at its core; it was made in the USA and first broke out there, spreading via a mix of contagion and endogenous crisis-tendencies to other parts of the world market, even when these had not undergone neo-liberal regime shifts or had even taken defensive measures against the effects of neo-liberalism. Yet the ecological dominance of neo-liberalism in the world market has survived the global financial crisis and its ramifications. This reflects the global weight of the American economy, the continued dominance (despite declining hegemony) of the US federal state in the world political order, the lobbying power of financial interests in an increasingly corrupt US legal and political system, and the ecological dominance of the world market within world society. In other words, the crisis in global neo-liberalism originating in the USA is causing more problems for other forms of economic organisation at scales from the urban and regional through the national to supra-regional economies than their dynamics (and crisis-tendencies) can cause for neo-liberalism. This is exemplified by the pathological co-dependency of the US and Chinese economies and its global ramifications. In turn, the overall logic of the world market, organised in the shadow of neo-liberalism, causes more problems for other systems and everyday life than they can cause for it.

Here, however, I turn to another form of ecological dominance that is instantiated mainly on a European scale but is also central to the global dynamic of variegated capitalism. This is the ecological dominance of Modell Deutschland as an export-led accumulation regime that, despite significant neo-liberal policy adjustments, has remained firmly inside the ‘co-ordinated market economy’ camp – partly because of the continuing need to coordinate complex material interdependencies in the German space economy[7] and partly because of the legacies of Ordoliberalism. Nonetheless, reflecting the ecological dominance of the US on a global scale, even Germany’s ecological dominance in shaping European integration is constrained. As Cafruny and Ryner state:

The EU’s aspiration to build a monetary union to promote competitiveness, sustained growth, regional autonomy and social cohesion is self-limiting because the Maastricht design of the EMU is inherently connected to a neo-liberal transnational financial order that displaces socio-economic contradictions from the US to other parts of the world, including Europe. Europe’s subordinate participation within this order pre-empts the possibility of resolving structural problems of post-industrial, or as we prefer post-Fordist, society in a manner consistent with Europe’s social and Christian-Democratic accords. Economic stagnation, uneven development, and the widening gap between new forms of governance and social citizenship amplify legitimation problems and political conflicts, with adverse effects on the EU’s political ability to mobilize as a counterweight to the US.

(Cafruny and Ryner 2008: 60).

Germany’s ecological dominance (or, phrased differently, the asymmetrical co-dependence of the German and other EU economies) is especially notable in the operation of the highly variegated Eurozone. A long-term deflationary bias in economic policy was not just a reaction to hyperinflation in the years of the Weimar Republic but was also crucial for Germany’s capacity to renew its export competitiveness in capital goods and diversified quality production after post-war reconstruction (cf. Cesaratto and Stirati 2010; Porter 1990; Simonis 1998; Streeck 2009). This has been coupled with a neo-mercantilist approach by German capital and its state to foreign economic policy and European integration (Bellofiore, Garibaldo and Halevi 2010; Lapavitsas et al., 2010; Schlupp 1980). Thus, as EU integration has encompassed more member states and been deepened, conditions considered essential for Germany’s export-competitiveness have been imposed on, or otherwise affected, the economic resilience and potential for growth of other economic spaces in Europe.

Other Rhenish economies in Northern Europe are closely linked to the German model. For example, alongside its own export strengths, the Netherlands provides important commercial and business services that support Modell Deutschland; Austria and the new, post-socialist member states in Central Europe also fit into this accumulation regime. The French economy has different specializations in the world market and different growth dynamics, which depended more on dirigisme than neo-corporatism and, until common currency policies developed, more on competitive devaluation than deflation (Aglietta 1982; Deubner et al., 1992; van der Pijl et al., 2011). While it has long been a geo-political rival to Germany, certain complementarities in their growth dynamics have enabled a Franco-German axis to promote a shared approach to European economic strategy and state-building.

This structural coupling of EU economies has been reinforced through the adoption of the formally demanding Stability and Growth Pact and the introduction of the EMU, innovations that were expected to produce convergence in economic performance through effective political action to extend (hypothetically) efficient free markets. Serious doubts on this score prompted four German professors to petition the German Constitutional Court in 1998 to get the Euro declared unconstitutional on the grounds that its certain failure (given the inability of its prospective members, including Germany, to meet the fiscal requirements for entry) would invalidate EMU and require further unconstitutional measures to rescue it (see Hankel et al., 2010). There were other grounds for scepticism too. In particular, the scope of EMU membership did not meet the standard neo-classical criteria for a common currency zone (indicating that less competitive economies would sooner or later be forced into recession and deflation) and there were no credible institutional arrangements to enforce long-term fiscal discipline, compensate for uneven development and economic performance, or coordinate crisis-management in a situation where conventional crisis responses such as devaluation were ruled out. Although the successes of the Eurozone and the status of the Euro as a world currency were being celebrated (prematurely) 10 years after the EMU was introduced (e.g., Pisani-Ferry and Posen 2009), structural incompatibilities and institutional design flaws were already quite evident by 2009 and had become acute in 2010-2011.

Even disregarding the deceptions practised by several sovereign states to meet the convergence criteria and the deliberate fudges introduced to allow Italy and Belgium (and others through the principle thereby established) to sidestep the national debt-to-GDP hurdle, the fiscal austerity and other measures taken by Eurozone members to produce convergence led to structural weaknesses (hidden public debt, cuts in vital infrastructure spending) and to reduced expenditure on education, health, and welfare.More generally, future structural problems were inscribed into the Eurozone at its inception because of the inherent tensions among member states originating in incompatible accumulation regimes, patterns of insertion into European and world markets, modes of regulation, and governance capacities. Yet these tensions were overlooked in the assumptions and operations of the European Central Bank, which largely derived its policy paradigm from the German model and placed undue faith in the capacity of market forces to produce upward convergence in economic performance from this next step towards market completion. This led Heise (2005) to argue that Germany’s impact on the EMU governance regime is so great that the term ‘Germanic Europe’ would seem appropriate. Because member states cannot legally use exchange rate adjustments and/or lax domestic fiscal policy to mitigate the deflationary impact of shocks, the operation of the Stability and Growth Pact and EMU has locked the Eurozone economies into a politics of disinflation and competitive deflation. The European Central Bank has policed this lock-in and, in general, has served the interests of Modell Deutschland and transnational financial capital (cf. Lapavitsas et al., 2010).

These remarks indicate that the Eurozone crisis is not primarily a liquidity crisis or rooted in state insolvency but originates in what Dadush and Stancil (2011) term, euphemistically, ‘misaligned economic structures and lost competitiveness’. This misalignment is reflected in a wide range of micro- and macro-economic divergences in productivity, unit labour costs, competitiveness, trade surplus and deficit positions, and other imbalances (e.g., European Commission 2010; Lapavitsas et al., 2010).Indeed, it seems that each new shock highlights further the structural incoherence within the Eurozone as well as the contagious interconnections with crisis-tendencies and crisis dynamics elsewhere in the world market, making it harder to rely on fisco-financial ‘extend and pretend’ (more politely called reprofiling) and/or on political ‘muddling through’. This has produced a crisis of crisis-management on many scales with open fights among financial officials and government ministers over how to rescue the Eurozone and the European project. There are wider struggles over the balance of sticks and carrots, the distribution of gains and losses, and the best way to manage political fallout. It has also underlined the contrasting interests of different fractions of capital, of centre and periphery, of deficit and surplus economies, of capital and workers, of insiders and outsiders, in Europe’s variegated capitalism. It has also intensified the institutional crises in European governance structures and undermined the legitimacy of the European project.

These deeper structural flaws motivated the hotly disputed Franco-German draft proposal in February 2011 for a ‘competitiveness pact’ based on coordinated austerity measures, real wage cuts, mandatory public debt and spending limits, corporate tax reform, and investment in education, R&D, innovation, and infrastructure to enable the EU to compete its way out of recession (Merkel and Sarkozy 2011). This prompted a counter-proposal from the Party of European Socialists for a ‘European Employment and Social Progress Pact for Fair Growth’ that combined modest austerity with a financial transactions tax, fair carbon tax, and the issue of Eurobonds with receipts from all three invested in education, green technologies, infrastructure, and social policy (Party of European Socialists 2011). Another response came from Jean-Claude Trichet, President of the European Central Bank, who demanded deeper integration based on the introduction of an EU ministry of finance with powers to monitor national fiscal and competitiveness policies, a veto over specific spending decisions, and supervision of the EU’s integrated financial sector (Trichet 2011).

These three examples (from many) illustrate how divisions in Europe’s variegated capitalism are reflected in continuing struggles with important economic and political stakes over how best to solve the Eurozone crisis. One proposal is separation between a strong Northern European bloc centred on Germany and a weaker ‘Club Med’ bloc centred on France; another is the expulsion or self-exclusion of Greece as the ‘weakest link’ in the EMU chain; a third is a unilateral return to the Deutsche Mark by Germany. An occasional sub-plot is that exit from EMU should be temporary, with member states rejoining after economic restructuring, labour market reform, fiscal austerity, and longer-term welfare retrenchment have returned them to robust neo-liberal good health and realigned them with the stronger economies. Contra-indicating all three proposals is the dense web of bank loans and credits that makes it hard to disentangle any concerted European action to assist some sovereign states to manage their respective fiscal and sovereign debt crises from the efforts of some member states to reduce or defer the risks of insolvency of their respective private and public financial institutions. The reaction of the mighty bond markets and rating agencies as well as the risks of contagion, speculation, and moral hazard are also frequently invoked sources of constraint. Thus, although devalorization is a normal mechanism of crisis recovery in capitalism, there are still intense struggles over how this should be achieved, over which time horizon, and at whose cost. On balance, market forces and political pressures have discouraged weaker member states from exiting the Eurozone even though partial default and competitive devaluation might provide some relief from savage austerity measures and facilitate restructuring. With or without withdrawal, the weaker economies could well take measures that would trigger or reinforce debt-deflation-default dynamics (Rasmus 2010) with contagion effects within and beyond the Eurozone.

Attempts at crisis-management are further complicated by political crises at different scales, including splits in national and transnational power blocs, representational and legitimacy crises, loss of temporal sovereignty, and problems of institutional integration. This leads in turn to continued ‘muddling through’ reflected in a chaotic sequence of ad hoc and poorly coordinated emergency measures, taken in response to successive shocks and declining confidence, aggravated by divergent national interests and the growing delegitimation of the European project. In any case, there can be no ‘one-size-fits-all’ solution because each member state has its own problem mix.[8]Adopting the terms of the prevailing economic and political discourse, ‘painful adjustments’ are just as necessary in strong economies, whether in or out of the Eurozone, as they are in those liable to financial collapse and sovereign default. Up to the time of writing (mid-June 2011), however, no plan for such mutuality of sacrifice plan has been able to unify transnational capital, secure majority backing from member states, and galvanize the key European state agencies into action.


This chapter has highlighted the potential for incompatibility, antagonism and contradiction within and between different varieties of capitalism considered in their (not always durably compossible) articulation in specific socio-spatial contexts, including their associated zones of (in)stability. It has also highlighted two examples (among many) where this potential is being realized with dramatic effects. First, the global financial crisis has reinforced the loss of US political hegemony (witness the rise of political paralysis at home and unruly multipolarity abroad) and the decline of American economic dominance (witness the continuing fiscal, budgetary, and trade deficits in the US economy). But the US still retains its costly (and increasingly unaffordable) capacity for military domination and (destructive) power of ecological dominance. The latter is related to the continuing pathological co-dependence of the US economy and other major economies (especially China) such that ‘global imbalances’ (a euphemism for global contradictions and uneven development) continue to threaten the stability of the world market and world society. This ecological dominance is so great, indeed, that the blowback effects of American policies and strategies are more damaging to the USA’s economic future than policies and strategies associated with other varieties of capitalism. This is not because other varieties do not impact the USA but because finance-dominated neo-liberalism and the overstretch resulting from attempts to extend its global reach make the USA more vulnerable to their policies and strategies than hitherto. This is one of the more interesting features of variegated capitalism on a world scale. Nonetheless, in so far as variegation has a fractal nature, analogous phenomena occur on other scales and sites of interscalar articulation.

Second, as this chapter has suggested, similar problems of pathological co-dependence are seen in the manner in which the global financial crisis it has exposed and reinforced the structural weaknesses, fiscal fragility, and pathological co-existence of a variegated ‘Eurocapitalism’. Thus the problems of ‘Club Med’ economies in the Eurozone are partly related to the impact of the German model within European economic and political space and Germany’s room for manoeuvre in the crisis is limited in turn by the path-dependent effects of its ecological dominance. The current impasse (as of June 2011) reflects these problems and it is unlikely that ‘muddling through’ can preserve this increasingly fractured and fractious arrangement. While some capitalist forces seek salvation in deeper fisco-financial and political integration, others seek more nationalist solutions, and both are facing popular resistance. But neither approach will resolve the tendential incompossibilities at the heart of the European project that reflects, fractally, the ‘impossibility’ theorem that Rodrik has proposed for the global economy. He argued that electoral democracy, national sovereignty, and global economic integration cannot all be fully realized at the same time: only paired combinations, with the third term being neglected or negated, are feasible (Rodrik 2011: 184-207). In our case, the trilemma is more complex on each dimension: democratic principles are supposed to operate on at least three scales (local, national, and European); there are multiple tensions between EU governance mechanisms and the sovereignty of member states; and competing European integration projects co-exist with the neo-liberal aim to create an unfettered world market. In this context it is hardly surprising that it is proving hard to solve the deep-rooted problems of ‘actually existing’ variegated Eurocapitalism and that most, if not all, its contradictions are coming into play. How they get resolved, if at all, will depend on politics, not markets alone.


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[1] This chapter has benefitted from insights and comments from Leo Bieling, Alex Callinicos, Martin Jones, Bastiaan van Apeldoorn, and the editors. The usual disclaimers apply.

[2] The extent of this dominance depends on the structural coupling between finance-dominated neo-liberalism and other economic regimes: where coupling is weak (whether through crisis-induced reversals in world market integration and/or because of efforts at decoupling), this dominance will be reduced. Decoupling in the Great Depression enabled growth in the semi-periphery in the 1930s and we find similar efforts to create space for post-neo-liberalism in contemporary Latin America.

[3]Thus the theme of the world market and crisis were the intended topics of the final volume of the six book plan for Capital and as such constitute one of its three ‘missing books’.

[4] The term ‘space economy’ is compatible with local, metropolitan, regional, supranational, or cross-border as well as nationally-scaled economies.

[5] Eurozone membership temporarily boosted demand in peripheral economies through lower borrowing costs and investment flows and benefitted German exports in Europe from higher demand and globally because the Euro traded below the DM rate.

[6] One indicator of this is the changing strategic orientation of the European Round Table, which is an important site of compromise between contending fractions of capital and a major vector of the interiorisation of external constraints as well as intra-European conflicts and contradictions (cf. van Apeldoorn 2002; see also Macartney 2010).

[7] This is not confined to Germany’s national borders but extends beyond them through various commercial, industrial, and financial linkages.

[8]Eichengreen (2010) puts this pithily: the economics [of the eurozone crisis] is really quite simple. Greece has a budget problem. Ireland has a banking problem. Portugal has a private-debt problem. Spain has a combination of all three’.

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