Introduction Since the 1990s advanced economies had to face the new challenges brought about by globalization. Comparative studies have focused on different paths of development followed by various countries to deal with these tensions. One of the most important theoretical and empirical contributions in this field was provided by the “Varieties of Capitalism” (VoC) approach (Hall and Soskice 2001; Hall and Gingerich 2004). As is well-known, this strand of literature has its main focus on the national dimension: a coherent set of national institutions shapes the organizational architecture of firms and the governance of the economy. Peter Hall and David Soskice (2001) identified two ideal types of capitalism: the Coordinated Market Economies (CMEs) (Austria, Germany, Japan and Nordic European countries) and the Liberal Market Economies (LMEs) (including Anglo-Saxon capitalism). As Hall and Soskice acknowledge, this typology is less effective in classifying countries such as Italy, Spain and France and for this reason more recent empirical and theoretical contributions have focused on the so-called “Mixed-Market Economies” model (MMEs), including cases of Mediterranean capitalism and of Central and Eastern Europe (Hancké et al. 2007). According to these authors, the Mediterranean variety of capitalism has hybrid features and combines market and non-market forms of coordination with an important role played by the state. Molina and Rhodes (2007) underline that MMEs are characterized by limited social protection and high employment protection for some social groups (public employees and workers in large firms). As for the production regime, “lower competitive pressures due to high levels of product-market regulation and state intervention help maintain stable bankindustry relations and contain the growth of financial market” (p. 226). These two features promote an industrial specialization based on small-scale firms that – according to these authors – compete mainly on low price, low quality goods. Other contributions underline that these mixed models lack the institutional architecture able to support their competitiveness. Amable (2003), for example, showed that MMEs do not have a coherent system that triggers the emergence of valuable and effective “institutional complementarities.” Hall and Gingerich emphasized that pure systems – such as LMEs or CMEs – perform better than

mixed cases (Hall and Gingerich 2004). Moreover, in MMEs this suboptimal competitive architecture will be retained by the action of strong actors – including the state – interested in maintaining the status quo (Hancké et al. 2007). However, this literature focuses on mixed models with idiosyncratic institutional features, but it is not able to give a satisfactory explanation of some national cases, such as Italy or Spain for three main reasons. First of all, mixed models – as the Hall and Soskice’s original contribution – refer to the national level and therefore are not well equipped to take account of deep internal diversities in economic organization. Second, they strongly rely on the idea of institutional complementarities that may lead to overlook tensions and contradictions between different institutions at the national level, but also between center and periphery. These tensions and lack of integration can hinder the overall economic performance, but can also open up chances for adjustment and change. In the case of Italy, for instance, an analytical frame strongly based on the national level and on the assumption of institutional complementarities would face difficulties in explaining the remarkable and long-standing performance of some Italian industrial districts and local productive systems, and their contribution to economic growth. Third, the role of the state and politics has usually been overlooked by the VoC approach (see Hancké et al. 2007), with a consequent lack of research on the relationships between types of political regimes and types of capitalism. From this point of view, Italy represents an interesting case: since the beginning of the 1990s many reforms modified the Italian electoral system and at the same time, other reforms changed some of the pillars of Italian capitalism. Thus, looking at the Italian case can help to shed light on the complex link between politics and mode of capitalism. We will start by focusing on the main features of Italian variety of capitalism before the 1990s. Then we will point to changes that modified both the electoral and political system and influenced a series of economic and social reforms affecting the structure and performance of the Italian economy. Our main hypotheses are the following. First, changes in the electoral rules and in the party system were not able to trigger a coherent set of economic and social reforms. The Italian polity came closer to a bipolar and competitive system with the formation of two coalitions (center-left and center-right) and their alternation in power. However, both coalitions were very fragmented. A high degree of internal political contentiousness affected their action. This may explain why the major economic and social reforms were carried out by “technical” governments1 at the beginning of the 1990s in a period of strong economic and political crisis (the old party system was in disarray). In the ensuing period, the new political coalitions were formed. But governments were not able to pursue ambitious policies: only incremental changes took place (with two major exceptions: labor market regulations and the decision to join the euro). This led to what can be defined as “incomplete reformism,” which was not able to promote institutional complementarities. Second, these reforms introduced significant changes in the Italian model of political economy but they were not able to shift the Italian VoC toward either a

liberal or a coordinated model. The Italian case continues to show a hybrid set of national institutions, with some similarities with the CME model (such as the high level of labor market rigidities or the weak role of the stock market), and other features that are closer to the LME model (such as the pluralist system of interests representation with many fragmented collective organizations). In addition, regional differences both in institutional and productive organization continue to play a strong role. Third, the “incomplete reformism” had both positive and negative outcomes: for example governments promoted the reduction of inflation and unemployment and fostered financial stability; but at the same time, the “incomplete reformism” exacerbated some of the weaknesses of the Italian systems, such as the inefficiency of the public administration or the high costs for services. However we will also show that despite these constraints, private firms and their networks started a process of restructuring that led to a partial but encouraging economic recovery. Fourth, by relying on the Italian case we will underline strengths and weaknesses of the VoC approach in explaining economic performance. In particular, we will show how the Italian case has been characterized by a “divergent” performance between the macro and the micro level: on the one hand, during the 1980s and the 1990s Italy performed badly in term of labor market, GDP, financial stability and inflation; this can be related to the absence of institutional complementarity that endangered the functioning of macro political economy. But on the other hand, some Italian regions performed particularly well during the 1980s and interesting signs of regional and local development can be found also in the last years, despite the widespread economic crisis. Therefore, the Italian case suggests that relying only on national institutions, and on their contribution to the operation and performance of firms, can be too restrictive. Failures of the national governance can be offset – to some extent – by local and regional adjustments, especially in some cases with strong regional diversities. This, in turn, may reduce the rigidity of the VoC model and may allow to recognize more sources of change and adjustment (see for example Crouch et al. 2001, 2004).