Comparative Analysis of the Two Economic Models - Example

Rhine Model vs. Anglo-Saxon Model of the Institute Appears Here Appears Here Contents Contents 2 Introduction 2 Discussion 3 Conclusion 7 References 8 Introduction The concept of Rhine capitalism was proposed by the French economist Michel Albert in the year 1991 with his book ‘Capitalism versus Capitalism’. In the book, he presented this a model of capitalism as the "neo-American" model of the capitalist market economy in comparison to the economic models followed by the governments of Ronald Reagan and Margaret Thatcher. Albert (1991) presents the Rhine capitalism as a German version of the social market economy of social welfare institutions. Albert describes the Rhine economic model as fairer, more efficient and less violent. The economic model of Rhine Capitalism was compared to what was termed as Anglo-Saxon model of capitalism. The paper critically evaluates the argument of Albert (1991) that Anglo-Saxon model will ultimately outperform the superior Rhine model. The analysis of these arguments is carried out in the context of economic theories and precepts of both economic models. Discussion Rhine Capitalism Rhine capitalism (also known as the Rhineland social model) is one of four major modes of capitalism. The capitalism Rhine is characterized by an important role of large banks and a revitalization of the role of scholarship in corporate finance. Also, a long-term vision support funding and partnership with customers, suppliers and employees for creating a powerful partnership between unions and employers wage which limits both the labor disputes that direct government interventions in corporate life (Apeldoorn, 2002). The key distinguishing feature of Rhine economic system is a comprehensive social protection which highly developed and a policy of stable money which is managed independently from governments. At present, the economic model which is closest to the Rhine capitalism is the economic system of Germany. The German economic rests on cultural premises that a strong community spirit is supported and a sense of belongingness to a whole greater than its component parts inspires the spirit of partnership (Clarke, 2009). This cultural position of Rhine economic model is closer to the model of collectivism described by Hofstede which leads to find some features of Rhineland capitalism in other cultural contexts, whether Asian or North American. Rhine model of capitalism does not support American ideas of individualistic goals and ruthless corporate entities; rather it places great emphasis on strengthening social cohesion. Rhineland model believes in a harmonious collaboration between governments, workers and employers. Anglo-Saxon Model The Anglo-Saxon neoliberalism was coined in 1930s which appeared in contrast to the then prevailing Fabian socialism. Anglo-Saxon represents a neo-liberal social and economic model of democratic intervention in the economy. In Anglo-Saxon model, the planning of the economic process is assigned to the utopian social engineering. In Anglo-Saxon model government intervention leads to increasing restriction of individual freedom through authoritarian orders, prohibitions and regulations (Nobes, 2003). The restriction of economic freedom is not separable from the restriction of political freedom. Comparative Analysis of the Two Economic Models Albert (1991) is of the opining that major differentiation exists between two types of capitalism – the Anglo-Saxon capitalism and the Rhineland capitalism. The Anglo-Saxon capitalism is presented by Albert (1999) as extremely liberal, based only on criteria of supply and demand. The shareholders are the law firms, and they only want one thing: profitability. Whatever the means, the key is to maximize profits, even if only to see that in the short term. The Anglo-Saxon capitalism does not accommodate regulations that prevent companies have their way. That is why Margaret Thatcher and Ronald Reagan have both worked to deregulate the economy at all levels.  Saunders (1995), states in contrast to Anglo-Saxon model of US, the Rhine Model which is in place in Germany and Japan represents an economy which is capitalistic, but the state is more involved in the functioning of the economy and companies are managed in the interest of an ongoing dialogue with employees. In Germany, this is done through social dialogue with unions powerful which are both respected and considered responsible. In Japan, workers are part of quality circles to improve products and channels following feedback from the top, depicted by the model of the famous Toyota way. Banks are also influential in defining business plans, and they are ready to prefer longer-term objectives of the shareholders from the Exchange. Ultimately, Michael Albert takes the stance that the Rhineland capitalism is not only more socially just but also economically efficient. Contrasting Performance of the Two Capitalist Systems America seems to be affected by the triumphant liberalism brought by Ronald Reagan, while Germany and Japan have exhibited stunning economic performance. The trade balances of Germany and Japan are highly positive at the time when the U.S. trade balance is highly negative.  American automakers are brought to its knees by competition from Japanese cars in the U.S. However, it must be kept in perspective that the economic performances of Germany and Japan have been much worse, or even very bad. The two countries have gone through serious crises during nineties. Unemployment during that period rose sharply while economic growth was sluggish. Meanwhile, America was experiencing a strong period of growth during nineties with low unemployment (Cox and Lee, 1997). It was at that time that Germany and Japan resolved to borrow elements of Anglo-Saxon capitalism despite the economic downturn, which was symbolized by some deregulation in recent years in Germany, or the arrival of foreign CEOs at the head of Japanese companies.  The thesis of Michel Albert that capitalism would be more efficient with Anglo-Saxon model was quickly invalidated. The Rhineland capitalism appears attractive as seeming less violent than Anglo-Saxon. Albert (1991) theorizes that the Rhine capitalism is more efficient and equitable than the Anglo-Saxon model; however the latter will prevail, because it appears more attractive and presents influential classes of society with several advantages. The Anglo-Saxon system distributes individual risks to a community (Crouch and Streeck, 1997). The Rhineland model has a different vision of economic organization, other financial structures and a different form of social balance. Above all, it has different ideas about what goods and services as a commodity could be traded. In both models, the idea of non-tradable goods is the same. Significant differences, however, lay in the assessment of the tradable and the mixed goods. Companies are in the Anglo-Saxon model are widely seen as the common property. Public transport is indeed regulated in the United States certainly, but is more of a free good as a mixed good. Media in the U. S. is traditionally commercial. While in Germany and Japan a movement took place to promote free good in the U.S. exactly opposite tendency was observed. The education system was subject to American Anglo-Saxon market rules. Health and law under Rhine Model is designed to protect the members of society from need, so they can move freely and are unselfishly devoted to serving the public. Moral Superiority Associated with Rhine Model In the population there is a consensus on values ​​of an egalitarian society and the perception of common interests. The economic superiority of the Rhineland model was exhibited when Japan and Germany rose rapidly after the complete ruins of Second World War II. The Rhine countries had their own economic culture, which is designed with the first the propensity to save public interest rather than private interest. Moreover, in the Rhine countries, the importance of the economies of the population is better understood. The social superiority of the Rhineland model defines the following criteria for making measurable social superiority: (i) Degree of safety for the citizen against risks as illness seeking unemployment, etc. (ii) Reducing social inequality and openness of social stratification. United Kingdom has, for example, a tax-funded health care which is run with unprecedented efficiency. With 7% of GDP allocation, UK have the cheapest health care system in the world and, paradoxically, United States with 11% allocation of total GDP has the most expensive healthcare system among all industrialized countries. Additionally, in US a significant proportion of the population does not own health (Dore, 2000). Anglo-Saxon model’s impact on US society is visible from the fact in the U.S., social mobility is part of the founding myth and a dream fueled by the real possibility of becoming rich quick. Albert (1999) makes two arguments against each other, which encourages the reader to decide where their preferences are. The rhetoric of Rhine model is given as fixed charges (taxes, fees, social contributions, etc.) which hamper national competitiveness, expressed by Clarke (2009) as, “to punish companies to take the momentum of Individual Effort"(p. 162). Criticisms of the excessive taxation of corporation and individuals are also legitimate, but the implementation has already gone too far. Give a correlation between tax burden and performance of an economy, a simple comparison of GDP and tax burden of the major industrialized countries show a backward evolution of the Rhine model (Huber, 1999). Given the proven economic and social superiority of the Rhineland model, it is surprising that Anglo-Saxon model is considered by Albert (1999) as superior than the Rhine model. Hidden Downsides of Rhine Model of Capitalism The progress of individualism finds expression in the demographic decline of the Rhine countries. The consequences were disastrous for the economy in every way and it destroys the basis of social solidarity and community. Under Rhine model of capitalism, governments are almost always afraid of being misunderstood and insecure in the face validity of the measures coming into question. Along with the influence of individualization, there are losses caused by trade unions and collective bargaining. According to Albert (1993), this economic model produces less productivity because it is characterized by traditional career plans in favor of clear success-oriented career opportunities following the American example of the young graduates. In the opinion of Huber (1999), loss of productivity is associated with Rhine model because of economic existing barriers that speculative takeovers of companies in the Rhine area so far prevented or would be difficult. On the other hand, Anglo-Saxon model of capitalism is characterized by the development of information technology which has lowered the transaction costs in financial markets by 98% (Porcano, 1998). These innovations were not developed in Rhine economic models due to lack of individual rent seeking behavior since such societies are oriented towards collectivism. Huber (1999) states Saxon products have quickly grown in the financial world because they were based on individual payoff and individual motif with considerably lower regulation. To stay in the race, the other stock exchanges were forced to follow. Thus, deregulated financial markets developed as the main and overwhelming support of the propagation of ultra-liberal model. Iankova (2001) say that his assessment of the economy and German society seems overly negative. Contrary to his assertions, the gap in income and wealth is not higher in Germany than in most other European countries and certainly lower than in the U.S. which in his opinion is neither justice nor effectiveness. Iankova (2001) further alludes to the superior results of U.S. and UK economies for growth and employment, partly because of greater flexibility and lower taxes with the emergence of brutal competition from Asia, have given some preponderance to the so-called Anglo-Saxon model from the Rhine model (Koen, 2004). But everyone knows that these economies also have weaknesses of concern, including an external deficit and debt for growing and dilapidated public services for each other, while the Asian countries will eventually have to consider their round of inflationary costs of their extreme growth and social and ecological costs of unbridled capitalism. This is, in the opinion of Iankova (2001), one of the major explanations of the current gap in growth rates between the U.S. economy and the euro area. Conclusion The paper critically evaluated the argument of Albert (1991) that Anglo-Saxon model will ultimately outperform the superior Rhine model. The analysis of these arguments is carried out in the context of economic theories and work of other prominent economists and researchers. It is concluded that Rhine model has been traditionally supported by thinkers because it stands on a moral high ground making it necessary for the society to look after the interest of the individual and to provide safety framework for weaker components of the society. Yet, Anglo-Saxon model is found to outperform Rhine model due to individual drive and motivation for gaining personal benefits. Thus, the thesis of Albert (1991) is supported by contemporary economic research and it is found that Anglo-Saxon model is anticipated to outperform Rhine model. References Albert, M. (1993) Capitalism against capitalism, Ohio: Whurr Publications. Amable, B. (2003) The Diversity of Modern Capitalism, New York: Oxford University Press. Apeldoorn, B. (2002) Transnational Capitalism and the Struggle Over European Integration, London: Routledge Publications. Clarke, T. (2009) European Corporate Governance: Readings and Perspectives, New York: Taylor & Francis. Cox, A. and Lee, S. (1997) The Political Economy of Modern Britain, United Kingdom: Edward Elgar Publishing. Crouch, C. and Streeck, W. (1997) Political economy of modern capitalism: mapping convergence and diversity, California: Sage Publications. Dore, R. (2000) Stock Market Capitalism: Welfare Capitalism : Japan and Germany Versus the Anglo-Saxons, New York: Oxford University Press. Huber, E. (1999) Models of Capitalism: Lessons for Latin America, New Jersey: Penn State Press. Iankova, E. (2001) Eastern European Capitalism in the Making, New York: Oxford University Press. Koen, C. (2004) The dialectics of globalization: what are the effects for management and organization in Germany and Japan, Research in International Business and Finance, vol. 18, no. 2, pp. 173-197. Lynch-Fannon, I. (2003) Working Within Two Kinds of Capitalism: Corporate Governance and Employee , Oregon: Hart Publishing. Nobes, C. (2003) On the myth of “Anglo-Saxon” financial accounting: a comment, The International Journal of Accounting, vol. 38, no. 1, pp. 95-104. Porcano, T. (1998) Relationship of tax and financial accounting rules in Anglo-Saxon countries, The International Journal of Accounting, vol. 38, no. 4, pp. 433-454. Saunders, P. (1995) Capitalism: a social audit, New Jersey: Open University Press. Read More