Abstract This chapter outlines the theoretical perspective behind a ‘varieties of capitalism’ approach to comparative political economy, emphasizing the central role of the firm as the agent of economic adjustment and the impact of the relationships it forms in the spheres of corporate governance, labour relations, skill formation, inter‐corporate relations, and employer–employee relations. It develops the distinction between liberal market economies, where firm endeavours are coordinated primarily by markets, and coordinated market economies, where coordination is more heavily strategic, and explores how the institutional complementarities in these economies give rise to distinctive forms of innovation as well as comparative institutional advantages that condition the response of firms and national governments both to globalization and to the dilemmas they face in the realms of economic and social policy‐making.
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