**Abstract**

The aftermath of the global financial crisis marked another stress test for welfare states and varieties of capitalism. More than ever before, governments were forced to consider substantial reforms to welfare provision and enact flexibility-enhancing measures in order to improve financial solvency and economic performance. The crash, however, was not only a regionally uneven process in its origins but also led to makeshift or uneven policy responses. As a result, the socioeconomic effects of the downturn and political reactions to it varied considerably among countries. Nevertheless, there have been some common trends in outcome measures. These have served to blur the dividing lines between different welfare states and production systems, so vividly captured in the mainstream political economy literature.

**Keywords:** worlds of welfare, varieties of capitalism, crisis, recovery, outcomes, divergence, convergence

### **1. Introduction**

One of the most enduring areas of research in political economy has revolved around the clustering of developed countries into distinct political and economic systems. Commonly referred to as the 'worlds of welfare' and 'varieties of capitalism' approaches, these categorizations are based on the assumption that countries can be defined by the types and combinations of policies, institutions and ideologies they employ. The worlds of welfare approach focuses mainly on differences in the structures of welfare states by examining their extent of decommodification, social stratification and the roles of the state, market and family in defining and responding to social needs. The varieties of capitalism approach emphasizes how diverse systems of production offer different types of comparative advantages, which help sustain divergent models of capitalism. Both typologies, therefore, not only assume that developed countries can be categorized into different types of welfare regimes and production systems, but that each welfare or production model follows a qualitatively different development trajectory, producing different types and degrees of outcomes as compared to other models, even in times of economic crisis.

This chapter seeks to test divergent theories of welfare development and varieties of capitalism by examining the extent to which different types of welfare states and production regimes exhibit markedly different socio-economic outcomes in the face of external pressures. We seek to raise a series of questions about divergent theories of national development within the context of crisis management and recovery. According to the literature, distinct welfare arrangements and production systems should produce qualitatively different outcomes, even in times of crisis, but is there enough empirical evidence to support such claims? It is also postulated that countries categorized under the same type of welfare and production model should display similar outcomes, but can we expect to find any national outliers within any of the distinct regime-clusters? Moreover, were some welfare states and market economies better able to return to their pre-crisis levels more than others? Or did all countries move in a broadly similar direction and experience a general worsening of outcomes in the post-crisis period?

To answer these questions, we begin the following section with a discussion of path dependent development and continuity in national distinctiveness. These concepts correspond with two main arguments found in the literature about divergence in national models of welfare and capitalism. Next, the two path-dependent arguments that distinguish between different welfare production systems are described in some detail. This is a followed by a brief discussion of the theory of convergence, which stands in contrast to theories emphasizing national diversity. We then discuss the sample of countries, socio-economic indicators and time period included in our datasets. In what follows, we summarize and analyze cross-national data on nine indicators. Finally, we end with some concluding remarks about cross-national divergence and convergence in socio-economic outcomes and whether the type of welfare production regime various countries had made much of a difference in the way their economies performed during the recent crisis.
