Still South European Capitalism? the Divergence of Corporate and Labour Relations in Italy and Spain

Italy and Spain have always presented a puzzle within the Varieties of Capitalism literature. No label coined to define them – e.g. ‘Mixed Market’, ‘Mediterranean’, ‘South European’ or ‘State-led’ economies – is fully satisfactory. In order to fill this gap in the literature this paper has two objectives. First, identify the long-standing common features of the Italian and Spanish models. Second, trace the evolution of Italian and Spanish capitalism over the last two decades. By comparing labour and corporate relations the paper highlights how the trajectories of the two countries show increasing divergence. While Spain moved towards the Liberal model, with growing flexibility of labour relations and the implementation of some Anglo-American corporate practices; Italy’s pattern resembled that of a Coordinated market economy with labour market dualization and the persistence of Continental corporate features. I argue that this divergence is due to partisan and coalitional explanations. The partisan explanation focuses on the difference between the preferences of the Right-wing parties in the two countries. While the Spanish Partido Popular implemented a neo-liberal economic policy centred on labour market liberalisation and full-fledged privatisations; Berlusconi’s Centre-Right coalition failed to translate its pro-market rhetoric into concrete reforms. The coalitional explanation takes into account the relative strength of trade unions in the two countries, and the different identity of corporate insiders – large banks in Spain and manufacturing blockholders in Italy.