Varieties of Capitalism in the USA, Sweden, and Germany - Essay Example

of Your Lecturer of An Examination of the Varieties of Capitalism and its Application in USA, Sweden and Germany This paper examines the various types of capitalism that exist in the United States and some parts of Europe (namely Sweden and Germany). The research identifies various frameworks through which capitalism can be perceived. In doing this, three principal schools of thoughts are examined. Capitalism as an Interaction of Economic Interest Groups Roe (Political) states that capitalism can be construed as an interaction between different interest groups in a nation to determine economic trends in the nation. “Where social democracy is strong, the public firm was unstable and weak, and unable to dominate without difficulty; where social democracy is weak, ownership diffusion of the large firms could reign if other economic and institutional conditions prevailed...” (Roe, [Political] 21) In this definition, Roe seem to identify that nations that have strong traditions of social democracy like Germany have inefficiencies in their public institutions and structures. This include bureaucracy and some elements of inefficiency which plagues nations with strong public sector issues. However, in traditional capitalist states, dominant economic institutions and powerful corporate entities emerge to fill the gap and determine the distribution of wealth in the economy. Roe goes on to illustrate this point by examining the American model of capitalism into detail (Capital para1). He begins by recognizing that America differs from all socialist states because there is less intervention by the government. This leaves a strong vacuum for some kind of a 'moderator' to determine the distribution of income in the economy. Roe (Capital para 3) identifies that the American economy is strongly influenced by corporate entities. He goes on to state that America's laws put more power in the hands of the managers and directors of these corporate entities. This means that shareholders do not have a strong reason to push for capital oriented decisions that will solely be in the interest of their stocks and investments. This means that the people charged with governance are the actual controllers of power in America. The state's intervention is weak whilst the shareholders, who have the true capitalist interest are also kept in check by corporate governance laws which favor the managers and directors. Employees do not have much rights because these managers can hire and fire. Elsewhere in Northern Europe and Central Europe, the strength of the state is boosted because many state institutions act as moderators in the corporate world (Soskice 51). This means that the state has some kind of power to intervene in the distribution of wealth. Secondly, the states in these European nations have established strong negotiation systems that ensure that stakeholders like workers and shareholders negotiate to come to a consensus. This is very pronounced in Sweden. It is also quite dominant in Germany. However, what is common to all these capitalist systems is that there is debate and consensus building in all these jurisdictions. The parties involved in these debates determine the differences. On a further analysis of the American system, Roe (Capital 75) states that “for capital markets to function, political institutions must support capitalism in general and capitalism of financial markets in particular”. This means that the state must moderate in the various debates and interests of the capital markets and some elements of the society. He states that political economy shapes the capital markets by economic, political and legal institutions. This creates a mechanism where the corporate entities shape policy and policy shapes the corporate entities. In a practical analysis of what happens in America, Roe (Political 104) states that capitalism in America is made up of interest groups that converge in the form of corporate entities. Thus, the Republicans and Democrats make promises based on what they can give to each interest group via the corporate entities. Thus, the interest groups, take decisions through corporate entities and this determins who rules America in election years based on their promises to electorates through corporate entities. On analysis of trends on the other side of the Atlantic, Ingerbritsen (219) states that the size of an European nation determines the power of corporatism in the nation. He states that larger European states like Germany have weaker corporatism and stronger social and state intervention whilst smaller states like Sweden and the Scandinavian nations have stronger elements of corporatism. However, corporatism in Europe is on a bit of a different level than what exists in the United States and to a large extent the other Anglo-Saxon nation, United Kingdom. Thelen identifies that Sweden has a strong system of corporatism that is quite distinct from what exists in the United States. In the Swedish system, corporatism is institutionalized and recognized by the law (Teulings & Hartog 31). Corporatism is viewed in Sweden as an interaction of stakeholders in a corporate entities. This includes a strong balance between labor and capital. Thus, interest groups like employees, shareholders and suppliers undertake various forms of debates and discussions to determine the distribution of wealth in the economy. In relation to Sweden, America is seen as a non-corporatist capitalist nation. This is because Sweden sees corporatism as some form of democratic system through which income is distributed. America on the other hand has decentralized corporatism. Businesses identify their own opportunities and they are independent in how they treat their employees and other stakeholders. This gives businesses some kind of autonomy in America. However, in Sweden, the state ensures that the rights of all stakeholders in the corporate world are recognized by law and negotiations determine how income is distributed. This appears to be a form of social democracy. Germany on the other hand stands between the American system and the Swedish model. This is because the social democratic party has equal strength as the dominant capitalist party in parliament and thus, does not have absolute control over decisions. There is therefore a fair balance in Germany. Interactions of Stakeholders in Capitalist Nations Soskice & Hall state that the differences in capitalist systems and structures is actor-centered (6). This means that capitalism varies on the differences in the interactions of banks/investors, governmental institutions like ministers, education and employment. Thus, in this context, democracy varies according to the kind of co-ordination that exists in the economy. Soskice & Hall argue that capitalism involves division of power and authority by institutions of national production and distribution. It involves the interactions of labor, capital, supplier networks and corporate governance to determine the distribution of resources. In this model, the focus is on how the players interact in a general context. This differs from Roe's corporatism model which focuses more on the financial markets and corporate entities which puts the managers and directors of companies at the forefront of the discussion. Soskice and Hall are however interested in a more general interaction rather than a critical observation from the standpoint of one unit of the economy. Soskice identifies that the Anglo-Saxon model of capitalism is based on developed financial markets, share-based financing, deregulation of labor markets, limited focus on education and employment, competitive corporate sector and arms length negotiations (219). This describes the United States' system where the economy is based on shareholders and deregulated markets. America's economy is steeped in the interaction of demand and supply and everything is based on legal appropriateness since there is a strong legal system to handle corporate disputes and disagreements. Elsewhere in Europe, Soskice states that the national economies are based on stakeholder interactions (219). He states that stakeholder interactions are extremely strong in Sweden whilst they exist in moderate forms in Germany. The Swedish model s based on the following key elements (Soskice, 220): 1. Long-term financing of companies 2. Substantial employee participation in management 3. State's responsibility to ensure high employment rates and cut unemployment 4. Effective training in corporate entities. This means that the Swedish model of capitalism is more focused on some stronger elements of social democracy. Sweden is a welfare state that is steeped in the longer term interest of the community as whole, as opposed to the American system which is based on rational choices and strong elements of demand and supply. Germany falls in-between the two extremes because their political system has a balance of pure capitalism and social democracy. Capitalism and its Ability to Redistribute Wealth Pontusson on the other hand seem to judge capitalism in relation to its ability to redistribute wealth. Although redistribution of wealth is part of Soskice's criteria for examining the different types of capitalist models, it is not the primary focus. Pontusson views the different capitalist models on the basis of their ability to redistribute wealth. Roe does not seem to be concerned with this idea in his model. Pontusson & Reuda (1) identify that some capitalist models lead to serious wage inequalities. He states that America's wage inequalities are much larger than Sweden's. Using Roe's model, it can be construed that the institutionalized and centralized corporatism model that exists in Sweden ensures that there are negotiations and people are given their due even if they are not powerful and dominant in the society Puntusson and Reuda illustrates his point with the 90:10 rule. In their study in 1995, the 90:10 rule showed that people in the average bottom of the top 10% of the wealthiest people in America are 4.6 times richer than the top-bottom 10% of the poorest people in America. In other words, a person who ranks 10% in the list of all income earners in America is 460% richer than a person who ranks at 90% on the same list. However, in Sweden, the top bottom 10% were only 2.2 times richer than the people at the top-bottom of the 10% of the poorest. This shows clearly that the income gap in America is somewhat wider than Sweden. In other words, the gap between the rich and the poor is wider in the American capitalist model than the Swedish capitalist model. Soskice & Iversen (1) identify that the reason why the Swedish capitalist system ensures better redistribution of wealth than America is that there is proportional representation. This implies that the various interest groups in the nation are encouraged to take part in negotiations for better options and opportunities. In America, these negotiations are limited because of the relatively independent nature of the corporate world. Businesses in America are allowed to pursue their interest with little regards for the demands of weaker groups like employees. From my personal experience, I think that this difference is what has fueled the Occupy-Wall-Street-Campaign. Most of the protestors demanded better elements of social democracy in America's economy. Soskice & Iversen identify that center left governments ensure better distribution of wealth. Sweden has a political system where the structures of the center-left is the norm rather than the exception. All political parties honor principles of center-left governance and social democracy. It is the basis of the Swedish constitution. In Germany, the center-left exists as a part of the political system. This means that they can influence power to a limited extent. In America, although the democrats attempt to seek social democracy, the foundations of America is titled more towards rational choices, free enterprise and independence of corporate entities. This leads to a system where individuals can make a lot of money whilst the less privileged get little support from state institutions. Conclusions Capitalism can be viewed as an interaction of different groups with economic interest in a nation. In this quest, capitalism is defined by a system where corporate entities are the dominant figures in a nation and their structures determine the trends of the nation's economy. Thus, the American system is one where managers and directors run affairs in the economy. On the other hand, the social democracy model in Sweden is one that supports bargaining by interest groups. Another way of construing capitalism is on the basis of the interaction of stakeholders. In this sense, capitalism is judged by the key actors. America is seen as a nation where corporate entities dominate. However, Sweden and Germany are seen as nations where stakeholders' interests are primary. Yet another approach is to view income distribution within a capitalist nation. In this model, America is seen as one that does not primarily support the equal distribution of income. Under this criteria, Sweden is a capitalist model where the demands of different people in the economy are recognized and honored. Germany lies in-between the Swedish model and the American model in these three analyses. Works Cited Ingerbritsen Christine. Small States in International Relations. University of Washington Press. 2006. Print. Pontusson Jonas & Reuda David. Wage Inequality & Varieities of Capitalism. Web. 2008. Roe Mark. How Capitalist is America. Web. 20th June 2011. …............. “Capital Markets & Financial Politics: Preferences & Institutions” Oxford Handbook on Capitalism. 2011. Print. …............ Political Determinants of Corporate Governance. Oxford University Press. 2003. Print. Soskice David. “Stakeholding, Yes: The German Model, No” Stakeholder Capitalism. New York: Palgrave Macmillan. Soskice David & Iversen Torben. “Electoral Institutions, Parties & The Politics of Class: Why some Democracies distribute more than others” Web. 2011. Soskice David & Hall Peter. Varieties of Capitalism: The Constitutional Foundations of Competitive Advantage. Oxford University Press. 2001. Print. Teulings Coen & Hartog Joop. Corporatism or Competition? Labor Contracts, Institutions & Wages. Cambridge University Press. 2005. Print Thelen Kathleen Ann. Union of Parts: Labour Politics in Post War Germany. Oxford University Press. 2008. Print. Read More