Social scientists have produced a massive literature about transformations in the organization of economic activity from which we can identify five general theoretical traditions that seek to identify the key determinants of governance transformations. These enable us to specify more precisely the simple model of the governance transformation process that we presented at the end of Chapter 1. This model suggested that the transformation process occurs when pressures for change develop and cause actors to search within certain limits for an alternative combination of governance mechanisms, which we called a new governance regime. In this chapter, we describe these five theoretical traditions, or models, derive from them a new evolutionary model of governance transformation, and assess the new model in light of the evidence provided in our case studies. Finally, we explore the implications of this analysis for debates about the longterm institutional development of advanced capitalism.

FIVE MODELS OF GOVERNANCE TRANSFORMATION

Economic efficiency

Economists typically attribute governance transformations to shifting economic conditions, including variations in the supply and price of production factors, fluctuations in demand, and other things that inhibit firms operating efficiently, that is, maximizing output with a given set of inputs. Within this tradition, it is assumed generally that governance through markets is the norm (e.g., Alchian and Demsetz 1972), but that alternative governance mechanisms will develop when markets fail to operate efficiently.