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A Tale of Two Federations: Policy Reform in Canada and Germany

This paper investigates the impact of internationalization pressures on institutional aspects of policy reform in two domains (labour market policy and electricity market regulation) in Canada and Germany, as two ‘most different’ systems, along both a public-private and a territorial axis (international/subnational). Canada’s liberal market economy, interstate federalism, and asymmetrical bilateral relationship with the US under NAFTA contrasts with Germany’s coordinated market economy, intrastate federalism, and highly institutionalized EU regional integration context. The paper engages with the neo-institutionalist literature on path dependency and change. It confirms that institutions do mediate the pressures of internationalization but finds that institutional dynamics are more complex than is suggested by path dependency and punctuated equilibria approaches. Policy reforms result in hybrid institutional arrangements that combine layers of legacy with layers of cumulative change, as hypothesized in more recent institutionalist thinking designed to overcome the juxtaposition of agency (rare, exogenously-driven change) and structure (deterministic institutional paths).