CONTEMPORARY INSTITUTIONAL DIVERSITY IN EUROPE: WHERE THE EUROPEAN POST-SOCIALIST COUNTRIES ARE HEADING Michal Mádr 1, Luděk Kouba 2

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1 CONTEMPORARY INSTITUTIONAL DIVERSITY IN EUROPE: WHERE THE EUROPEAN POST-SOCIALIST COUNTRIES ARE HEADING Michal Mádr 1, Luděk Kouba 2 1 Mendel University in Brno, Faculty of Business and Economics, Zemědělská 1, Brno, Czech Republic xmadr@mendelu.cz 2 Mendel University in Brno, Faculty of Business and Economics, Zemědělská 1, Brno, Czech Republic kouba@mendelu.cz Abstract: The main aim of the paper is to classify types of capitalism in European post-socialist economies and identify the principal strength and weakness factors of institutional organization in these countries. The paper used Amable s approach, which is supplemented by the influence of the political environment. The paper identified seven different capitalist clusters in the European area, three within the old EU member countries and four within the post-socialist states. Of the transition economies, there are two successful groups, Second rank market economies (six CEE countries) and Peripheral market economies (Latvia, Poland and Balkan EU members), which reach an almost equal level of institutional characteristics as part of the older EU members (Mediterranean countries), but they still have a lower standard of living and, in the second case, also a lower economic performance. On the other hand, the remaining countries are there that considerably fall behind, particularly Patrimonial capitalist economies. Keywords: Varieties of capitalism, complementarity of institutions, post-socialist countries, Europe, economic performance, market economy. JEL classification: O11, O52, P16, P Introduction In the European continent there is the high level of the institutional diversity, which is mainly given by historical, cultural and religious reasons. The diversity increased after the Second World War owning to establishing of the two blocks, capitalist and socialist. Whereas the Western block was developing within the functioning of a market mechanism, so in the post-socialist countries there are two other important facts, socialist organization heritage (informal institutions) and the transition process. If one aims at post-socialist economies, one can identify the Central European countries and the Baltic states, which successfully executed the transformation process and have converged with the old EU members in most of the institutional settings. On the other hand, post-soviet republics with a low quality of the institutional environment, which is associated with the authoritative regimes (e.g., Azerbaijan, Belarus, Russia), with the security risk areas (e.g., Abkhazia, Chechnya, Crimea, Nagorno-Karabakh, South Ossetia, Transnistria) or with the low standard of living (e.g., Armenia, Moldova, Ukraine). Countries of the third group, the Balkan states, are at a crossroads, both relatively successful (Bulgaria, Croatia, Montenegro, Romania) and relatively unsuccessful (Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Serbia). Since the fall of the Berlin Wall, twenty five years have already passed, which enable us to undertake an evaluation of the established institutional (capitalist) settings in the European post-socialist countries. The main aim of the paper is to classify the types of capitalism in the European post-socialist economies and identify the principal strength and weakness factors of the institutional organization in these countries. The first section comprises a survey of the individual approaches to varieties of capitalism, the method of cluster analysis, data sources, used proxies and a sample of observed countries. The main second section includes the results from the cluster analysis and a discussion about the institutional (capitalist) environment in the European post-socialist economies. The conclusion summarizes the major findings

2 2. Methodology Differences of the individual capitalist economies are given by institutional organization. Within the research of the models of capitalism, there are two crucial works, Hall and Soskice (2001) and Amable (2003). Hall and Soskice (2001) provide a very general classification based on the level of coordination within market economies, which defines two basic models Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs). Amable (2003) uses five dimensions (Product market, the Wage-labour nexus, the Financial system, Social Protection and Education) and distinguishes among five models of capitalism: Market-based, Continental European, Social-democratic, Mediterranean and Asian. The other important contributors, Esping-Andersen (1990) and Becker et al. (2011), also describe advanced economies, or more precisely, OECD countries. Esping-Andersen (1990) distinguishes three types of European welfare state in his seminal work (Liberal, Conservative-corporatist and Social-democratic), which were supplemented with another type, Southern model (Ferrera, 1996). Becker, et al. (2011), following two key features (the relation between capital and labour and the relation between politics and the economy), specify five basic types (Liberal, Statist, Corporatist, Meso-communitarian and Patrimonial). Summarizing these models of capitalism, only in the OECD states, five distinct types of general institutional settings can be identified: 1. Liberal or Anglo-Saxon (Australia, Ireland, the United Kingdom, the USA) 2. Continental or Corporatist (Austria, Benelux, France, Germany) 3. Nordic or Social-democratic (Denmark, Finland, Norway, Sweden) 4. Mediterranean or Southern (Greece, Italy, Portugal, Spain). 5. Asian or Meso-communitarian (Japan, the Republic of Korea) If one includes research of developing states, one can consider Baumol et al. (2007) and Pryor (2005) for pivotal contributions. Baumol et al. (2007) distinguish four types of capitalism (State-guide, Oligarchic, Big firm and Entrepreneurial), according to the role of enterprises and state in economy, both in developed and developing countries. Meanwhile Pryor (2005) constructed classification for developing economies, which are divided according to five dimensions (Market institutions, Labour market, Enterprise and production, Government and Financial System) into four groups (Business oriented, Labour oriented, Statist and Traditional). This paper is aimed at the European transition countries; therefore, the next paragraph describes the main contributions dealing with the region, Myant and Drahokoupil (2010) used an unusual evaluation of transition economies because they placed an emphasis on integration into international trade in six parts (export-oriented FDI in complex sectors, export-oriented complex sectors without FDI, simple manufacturing subcontracting, commodity exports, dependence on remittance and aid, dependence on financialised growth), and differentiate between five models, FDI based (second rank) market economies (Visegrad group), Peripheral market economies (Balkan and Baltic states), Oligarchic or Clientelistic capitalism (Ukraine), Order states (Azerbaijan, Belarus), and Remittance- and aid-based economies (Moldova). The approach of Hall and Soskice (2001) was used by Knell and Srholec (2007) and Schweickert et al. (2013), LMEc (Bulgaria, Estonia, Latvia, Lithuania and Slovakia) and CMEc (Croatia, Czech Republic, Romania and Slovenia). Also Schweickert et al. (2013) contrast Slovakia (a successful transformation) with Hungary (a problematic transformation). Meanwhile, Fenger (2007) applied the approach of Esping-Andersen (1990) and identified three new types of post-socialist welfare state, the Former USSR type (the European CIS countries), the Post-communist European type (Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Slovakia) and the Developing welfare states type (Georgia, Moldova, Romania). King and Szelenyi (2005) place an emphasis on the influence of political institutions (polity, bureaucracy) and after supplementing of the other social-economic areas (social classes, foreign capital and income -337-

3 inequality), they identify three basic groups, Capitalism from without (Baltic states, the Visegrad Group), Capitalism from above (the Patrimonial system; Balkan, CIS) and Capitalism from below (China, Vietnam). For the other important contributions, we consider Farkas (2011) and Lane (2007). Classification of the models of capitalism is executed using cluster analysis, specifically, Ward s method. For identification, the paper uses comparative and graphical analysis. The selected proxies have a varied range; therefore, the paper uses a formula for the normalization of the index values to preserve the equal impact of all indices, in the manner of Rozmahel et al. (2013). Where I is the value of the index in time period t. MAX(I T ) ((MIN(I T )) represents a maximal (minimal) value of the index during the whole time span T. N it returns the value of each index within the range of 0-1. For the classification and evaluation of the models of capitalism, the paper determines six dimensions, Product markets, Labour market, the Financial System, Welfare state, Education and Political environment. The first five areas proceed from Amable (2003; basic approach) and Farkas (2011; employing on the European transition economies) 1. Compared to the noticed works, this paper adds the area of the political environment in the manner of King and Szelenyi (2005) and McMenamin (2004). Most of the approaches to the models of capitalism suppose the occurrence of a political environment is implied and does not comprise such as separated areas, Jackson and Deeg (2006) for more details. The paper s selected dimensions respond to the three-levelled concept of the modern capitalist economy according to Scott (2011). The first level is called Economic markets, where price coordinates supply and demand. This degree consists of products markets and factor markets (labour and capital). The second level Scott calls Institutional foundations 2, which comprise of institutions (laws), economic policy makers, and physical (roads, railways) and social infrastructure (education, welfare state). The third level, Political and social foundations, has responsibility for the institutional foundations of capitalist system. This degree includes political institutions (e.g., democratic or authoritative regimes), political authorities (executive, legislative and judiciary branches) and informal institutions (culture, religion). The first degree is represented by three dimensions (Product markets, Labour market and Financial System), the second level by two dimensions (Welfare state and Education) and the third level by dimension (Political environment). Each dimension consists of five proxies, which are compiled basing on Amable (2003), Farkas (2011), Fenger (2007) and Knell and Srholec (2007). Owing to the availability of data for Balkan and post-soviet republics, the paper prefers databases with a worldwide range, mainly the Heritage Foundation, the United Nations, the World Bank Group and the World Economic Forum, instead of OECD or Eurostat databases. Within the dimension Product markets, the first variable represents the enforceability of the property rights, which means the fundamental condition for the working of the market mechanism. The second and third indicators evaluate the quality of regulation, in general, and by the protection of the minority investors. The fourth proxy is used for the depiction of the integration into the international trade and the last variable is chosen for emphasizing the importance of the tax area using the indicator from the Doing business concept. The proxy, Labour freedom, is an aggregated indicator of various aspects of the legal and regulatory framework. Another two indicators represent the flexibility of the labour market, determination of wages and the rate of the cooperation in an employee-employer relation. The remaining two proxies are used for the assessment of the structure (1) 1 Farkas also uses dimension Research and development, innovation, which we incorporate into dimension Education. 2 Within our paper we proceed from the New institutional economy, which considers all three levels to be institutions

4 of the labour market. The unemployment rate of youth is a very current topic in Europe and services are the most important economic sector nowadays. Table 1. Dimensions Product and Labour markets 3 Variable (Product markets) Unit Source Property rights <0; 100> Heritage Foundation (2015) Quality of regulations <-2.5; +2.5> World Bank Group (2015c) Strength of minority investor protection index <0; 10> World Bank Group (2015a) Merchandise trade % GDP World Bank Group (2015b) Total Tax Rate* % World Bank Group (2015a) Variable (Labour market) Unit Source Labour freedom <0; 100> Heritage Foundation (2015) Flexibility of wage determination <1; 7> World Economic Forum (2015) Cooperation in labour-employer <1; 7> World Economic Forum (2015) Unemployment rate, youth (ILO)* % World Bank Group (2015b) Employment in services % World Bank Group (2015b) Likewise, within the Financial system, the research places an emphasis on the quality of regulations, the degree of the legal protection of borrowers and lenders rights and the degree of the supervisor of securities. In the context of the recent crisis, the paper incorporates the indicator representing the financial soundness of the domestic banks. The fourth and fifth proxies are used as the expression of the availability of financial services, generally in all the economy and in the case of the provision of the specific financial capital for enterprises. The welfare state is represented by the level of income inequality, the size of the government s budget, the general quality of public services, including public goods, physical and social infrastructure, and two indicators expressing living standards and the quality of the health services. Table 2. Dimension Financial system and Welfare state Variable (Financial system) Unit Source Legal rights index <1; 10> World Economic Forum (2015) Regulation of securities exchanges <1; 7> World Economic Forum (2015) Soundness of banks <1; 7> World Economic Forum (2015) Domestic credit provided by financial sector % GDP World Bank Group (2015b) Venture capital availability <1; 7> World Economic Forum (2015) Variable (Welfare state) Unit Source GINI index* <0; 100> World Bank Group (2015b) Government spending* <0; 100> Heritage Foundation (2015) Public services* <0; 10> Fund for Peace (2015) Life expectancy at birth, total (years) World Bank Group (2015b) Infant mortality rate (1,000 births)* World Bank Group (2015b) The first two proxies are used for the evaluation of the quality of the whole educational system, in relation to the needs of a competitive economy and according to the duration of schooling. The third indicator describes the amount of government expenditure on education as a share of government budget, and the fourth, the structure of secondary enrolments. The last variable represents the area of research and development, which Farkas (2011) uses as a separated dimension. Using the dimension of the political environment is our contribution to the discussion about models of capitalism. The political environment is divided into three parts; polity, level of democracy and political instability. The proxy, Polity, evaluates the type of the political regime (democracy, authoritarian) and its 3 Proxies marked with (*) have a changed value during the normalization due to the higher value representing a more flexible and higher quality regulated Product and Labour markets, developed Financial system, extensive Welfare state, high-quality Education and a high-quality level of Political environment

5 stability. The second and third variables describe the level of democracy, specifically the quality of political rights, civil liberties and the rate of participation in the selection of government. Political instability is the third part, in which the paper differentiates between the elite (non-violent) and non-elite (violent) forms of political instability. 4 Table 3. Dimensions Education and Political environment Variable (Education) Unit Source Quality of Education <1; 7> World Economic Forum (2015) Education index <0; 1> UNDP (2015) Expenditure on education (Government) % World Bank Group (2015b) School enrolment, secondary % World Bank Group (2015b) Research and development expenditure % GDP World Bank Group (2015b) Variable (Political environment) Unit Source Polity <-10; 10> Marshall et al. (2014) Freedom in World* <1; 7> Freedom House (2015a) Voice and Accountability <-2.5; +2.5> World Bank Group (2015c) Government majority in the Lower House % Keefer (2013) Political Stability and Absence of Violence <-2.5; +2.5> World Bank Group (2015c) The observed countries, one can divide into the European post-socialist economies (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine) and the other states of the European Economic Area (Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Luxemburg, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom) Results According to the results of the dendrogram, one can divide the European countries into two basic clusters, the first group is comprised of most of the former post-socialist states and the second contains the old EU member countries and the most successful CEE economies. In the first cluster, one can identify three subgroups and in the other four sub-clusters, which implies there are seven institutional diverse wholes. 4 For more details, Grochová and Kouba (2011). 5 The term is not exact because Switzerland is not a member of the EEA. And, on the contrary, Lichtenstein is a member, but is missed out due to data availability and the total size of the country

6 Fig. 1. Clustering in the period Source: Freedom House, 2015a; Fund for Peace, 2015; Heritage Foundation, 2015; Keefer, 2013; Marshall et al., 2014; UNDP, 2015; World Bank Group, 2015a,b,c; World Economic Forum, This paper starts the classification of the models of capitalism with the old EU member states. Amable (2003) identified four basic types, Market-based, Continental European, Social-democratic and Mediterranean. For Market-based, one can consider cluster 2b, which contains the expected countries (Ireland, UK), but concurrently even economies, which are usually classed in other groups (Cyprus, Denmark, Iceland and Malta) 6. On the other hand, one can unequivocally see the Mediterranean (Southern; Ferrera, 1996) model comprising of the southern states of the EU (Greece, Italy, Portugal and Spain) and France. Within the classification there is questionable cluster 2c, which consists of countries of the Continental (Corporatist) and the Nordic (Social-democratic) systems. If one takes into consideration that the observed period is almost similar to the duration of the recent crisis, thereafter one can construe that as the consequences of the financial (debt) crisis are bringing northern EU countries closer, it means reducing the differences between these two systems, and simultaneously, on the other hand, this paper bears out the dissimilarity of Mediterranean economies to the Continental state. By reason of this, the paper called these countries Continental Northern Europe capitalism. If one turns to the post-socialist countries, there are successful CEEC economies, which one can term Second rank market economies 7, in accordance with Myant and Drahokoupil (2010), and, on the other hand, most of the post-soviet republic with 6 The results are significantly influenced, leaving out the typical OECD liberal states (Australia, Canada, New Zealand and the USA). 7 Despite the paper s expectation, Belgium is classed as these countries, according to the results of the cluster analysis. If one compares Belgian characteristics with the groups Second rank market economies and Continental Northern Europe capitalism, one can see that Belgium occurs between. In the areas of product market, financial system and the political environment, it is closer to Second rank market economies and in the rest of areas to Continental Northern Europe capitalism

7 underdeveloped markets are there and with an authoritarian or oligarchic environment, for which there is the applicable term Patrimonial capitalism (Becker et al., 2011; King and Szelenyi, 2005). There are two clusters between the extreme cases, mainly the Balkans. Cluster 1c corresponds with the type Peripheral market economies, which is defined by Myant and Drahokoupil (2010) 8. Countries in the cluster have developed democratic institutions, among others, all economies are EU members, but simultaneously they lag behind the Second rank market economies in most of the institutional dimensions. The last group (cluster 1b ) is comprised of the small relative democratic states of the Balkan Peninsula (Albania, Bosnia and Herzegovina, Macedonia and Serbia) and the post-soviet area (Armenia and Georgia), which are republics omitted in the empirical literature. King and Szelenyi (2005) class these states as Patrimonial capitalism, but in comparison with countries in cluster 1a, one can see a higher rate of a carried-out transformation process in the economic and institutional areas. Therefore, the paper calls it Hybrid capitalism, in the manner of Lane (2007; economic view) and Freedom House (2015b; a range of the institutional reforms according to the Nations in Transit concept). Table 4. Clusters and countries Cluster Type Countries 1a Patrimonial capitalism Azerbaijan, Belarus, Moldova, Russia, Ukraine 1b Hybrid capitalism Albania, Armenia, Bosnia and Herzegovina, Georgia, Macedonia, Serbia 1c Peripheral market economy Bulgaria, Croatia, Latvia, Montenegro, Poland, Romania 2a Mediterranean (Southern) France, Greece, Italy, Portugal, Spain 2b Market-based (Liberal) Cyprus, Denmark, Iceland, Ireland, Malta, United Kingdom 2c Continental Northern Europe Austria, Finland, Germany, Luxemburg, the Netherlands, Norway, Sweden, Switzerland 2d Second rank market economies Belgium, the Czech Republic, Estonia, Hungary, Lithuania, Slovakia, Slovenia Source: Freedom House, 2015a; Fund for Peace, 2015; Heritage Foundation, 2015; Keefer, 2013; Marshall et al., 2014; UNDP, 2015; World Bank Group, 2015a,b,c; World Economic Forum, 2015; Authors calculations. The following analysis has the aim of answering how are the strength and weakness factors of the individual European capitalist system, with a focus on the post-socialist countries. In table 5, are the average normalized values of the individual dimensions in the observed period 2008 to In accordance with exceptions, countries of the Continental and Market-based models achieve the highest results. The Market-based capitalism has more flexible product and labour markets and a simultaneously lower level of welfare state and quality of education. If one compares the Mediterranean countries with the Second rank market economies, one can see that CEE countries do not reach the standard of living of Mediterranean states, except for Greece and Portugal, but, on the other hand, they have similar levels of education, financial system and political environment, and more flexible product and labour markets. Southern economies have a more extended welfare state, namely the size of government expenditures and the quality of human development (e.g., mortality, life expectancy). Peripheral market economies lag behind the Second rank market economies, but in comparison with Mediterranean countries, they have the same level of product, labour and financial markets, which is associated with the adoption of EU rules. The remaining two groups have low values in general (with the exception of the labour market in the first group). One can consider the development of the financial system and the quality of education for the main weaknesses. Table 5. Individual dimensions according to clusters Product markets Labour market Financial system Welfare state Education Political environment 1a Farkas (2011), King and Szelenyi (2005) and Myant and Drahokoupil (2010) class Poland as a successful CEE country

8 1b c 0, a 0, b c d Source: Source: Freedom House, 2015a; Fund for Peace, 2015; Heritage Foundation, 2015; Keefer, 2013; Marshall et al., 2014; UNDP, 2015; World Bank Group, 2015a,b,c; World Economic Forum, 2015; Authors calculations; Legend: Institutional dimensions have a normalized range 0 to 1, where 1 means flexible and quality regulated Product and Labour markets, a developed Financial system, an extensive Welfare state, quality Education and a quality level of the Political environment. The previous results are supplemented by two outputs of the graphical analysis. The first graph describes the relation between the average level of the capitalist organization and the standard of living between 2008 and As an indicator of the standard of living, the paper uses proxy Gross National Income per capita according to the evaluation of the World Bank Group (2015b). It is obviously evident that states within the Continental Northern and Market-based models reach the highest standard of living. Simultaneously, the Second rank market economies move to the Mediterranean states in the standard of living and they have, on average, a higher level of institutional organization. Peripheral market economies comprise of a notional transition between successful (Second rank market economies) and unsuccessful (Hybrid capitalism, Patrimonial capitalism) countries, both the institutional environment and the standard of living Fig. 2. Institutional organization and the standard of living NOR 1a ITA IRL FRA BEL ISL GBR ESP GRC PRT SVN CYP SVK CZE RUS HRV MLT LVA SRB GEO HUN AZE EST ARM MKD BLR ROM POL LTU BiH 0 ALB UKR BGR MNE MDA 0,3 0,35 0,4 0,45 0,5 0,55 0,6 0,65 0,7 0,75 0,8 Source: Freedom House, 2015a; Fund for Peace, 2015; Heritage Foundation, 2015; Keefer, 2013; Marshall et al., 2014; UNDP, 2015; World Bank Group, 2015a,b,c; World Economic Forum, 2015; Authors calculations; Legend: axis X arithmetic mean of the six dimensions; axis Y GNI per capita (current $). Whilst the first graph delineates the current situation, the second graph is aimed at dynamics, specifically, the development of the economic performance (GDP per capita, PPP, constant DEU AUT SWE LUX NLD FIN CHE DNK 1b 1c 2a 2b 2c 2d

9 th International Scientific Conference international dollar) between 1990 and In all seven clusters, one can see the long-term increasing economic performance before 2008 and also the impact of the transformation process in the 1990s in the post-socialist countries. The Continental Northern model has kept the highest productivity and the long-term margin from the other groups with an average growth rate of real GDP by about two per cent. The other two models of the European developed economies (Market-based and Mediterranean) had a similar economic level at the beginning of the1990s, but the general development, and particularly the economic crisis, indicated unequivocally the better productivity of the first system. Moreover, the weak performance of the Mediterranean economies is the reason why the Second rank market economies accomplish similar productivity (both groups grew by around one per cent a year) 9 and one can suppose gradual outperforming of the southern economies. The Peripheral market economies and the Hybrid capitalist states also offer an interesting comparison because they had a similar position after the fall of the Communist bloc. The Peripheral market economies executed transformation reforms and improving the quality of the institutional environment (besides other things, the influence of the integration into EU structures) far before and therefore they have achieved about a three per cent growth, whereas the Hybrid capitalist states only just under two per cent. On the other hand, it is more than in the case of the Patrimonial capitalist state of which performance depends on natural resources Fig. 3. Economic performance a 1b 1c 2a 2b 2c 2d 0 Source: World Bank Group, 2015b; Authors calculations; Legend: axis Y GDP per capita (PPP; constant 2011 international $). 4. Conclusion The European continent is still heterogeneous, particularly in institutional diversity. On the basis on Amable s approach to the models of capitalism, we executed a cluster analysis (Ward s method). We analysed the six dimensions of the modern capitalism (product and labour markets, financial system, 9 The results are affected by the inclusion of Belgium. Without Belgium, the economic performance is about twenty-five thousand $ (compared to twenty-seven thousand $) and the average economic growth is around two per cent

10 welfare state, education and the political environment) and identified seven different institutional wholes, which one can divide into two clusters, EU-15 countries (Continental Northern Europe, Market-based and Mediterranean models) and the most successful CEE economies (Second rank market economies) and, on the other hand, the rest of the post-socialist countries (Hybrid capitalism, Patrimonial capitalism and Peripheral market economy). The paper does not identify significant differences between the Continental and Social-democratic system, which can mean that both models come closer as the consequence of the financial (debt crisis), but, meanwhile, there are larger variances to Mediterranean countries, therefore the paper uses the term Continental Northern European capitalism. If one aims at the transition countries, one can see a persisting gap between Second rank market economies and Peripheral market economies, on the one hand, and Patrimonial capitalist states on the other. The Hybrid capitalistic countries (most of the Balkan states) have the special position amongst the post-socialist models because they are in transition in all the dimensions (markets, education, welfare state, political institutions). One can class Second rank market economies as advanced countries, they have an equal or better level of individual institutional characteristics than Mediterranean states, with the exception of the range of the welfare state, but simultaneously they do not reach their standard of living. A similar situation is in the case of the Peripheral market economies; the only difference is the standard of living is higher. One can consider the level of the product and labour markets and the quality of the political environment to be the main strength factors of these two systems, but, on the other hand, there is the underdeveloped welfare state and low quality of education, in the case of the second group. According to the results of the economic performance, Second rank market economies will overtake Mediterranean countries in the foreseeable future. Simultaneously, Peripheral market economies are well on the way to convergence of the advanced economies because they carried out the main reforms of the institutional and economic environment. The paper is the basis for future research, which will be aimed at a comparison of the institutional (capitalist) organization of post-socialist countries with neighbouring regions (Central Asia, the Middle East and Northern Africa). Simultaneously, the comparison will proceed from the approaches of Amable (2003; used in the paper) and Pryor (2005; the general classification for developing countries). 5. Acknowledgement This article was supported by IGA MENDELU 51/2015. References [1] Amable, B The Diversity of Modern Capitalism. Oxford: Oxford University Press. [2] Baumol, W. J Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity. New Haven: Yale University Press. [3] Becker, U. et al The Changing Political Economies of Small West European Countries. Amsterdam: Amsterdam University Press. [4] Cernat, L Europeanization, varieties of capitalism and economic performance in Central and Eastern Europe. Basingstoke: Palgrave Macmillan. [5] Djakov, S. et al., The New Comparative Economics. NBER Working Paper No [6] Esping-Andersen, G The three worlds of welfare capitalism. Princeton: Princeton University Press

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