To What Extent Are France and Hungary Coordinated Market Economies - Essay Example

To what extent are France and Hungary coordinated market economies? Introduction Since the incidence of globalization and liberalization, degrees ofintegration of modern economies have significantly improved. Most of the economies in the current era are governed by strict open door policies, where economic activities in each nation are conducted on the basis of their competitive advantages. Due to high integration of modern economies, scopes of business internationalization of nearly all giant companies have remarkably increased. Nevertheless, it should be noted that there are certain advantages and disadvantages of such strong amalgamation of these economies. This essay will study the extent to which market economies of France and Hungary are coordinated with each other. However, the concept of market economy must be clear before proceeding towards the analysis. A market economy according to the theory of economics is an economic system, where intervention of the government is minimal. In addition, pricing and economic decisions of such economies are settled through continuous interaction between the buyers and sellers in the market. In the contemporary scenario, economies of France and Hungary are considered to be market economies. Even so, there are several differences in the nature of these two capitalistic market economies, in terms of industrial relations, trade unions, collective bargaining, work councils and employments. The book named “Varieties of Capitalism” written by Peter A. Hall and David Soskice had claimed that capitalistic economics are generally of two types (Frege and Kelly, 2003). These two types are Liberal Market Economies (LME) and Coordinated Market Economies (CME). LME is actually a free market economy where market experiences high degree of competition and prices of the goods and services are determined by free forces of market demand and supply curves (Frege and Kelly, 2003). In short, in a LME, all prices of products are settled at the market equilibrium. On the contrary, in a CME, there exists a high share of non-market institutions in company relations governance. Peter A. Hall and David Soskice advocated that unlike competitive Liberal Market Economic system; in a CME, market equilibrium takes place through a strategic interface between firms and other actors on a collaborative basis. This paper will analyze the extent to which France and Hungary act as CMEs. It is highly rational to examine such an issue, given that the worth or value generated by coordinated market economies are always debatable in the current era. The entire context of the paper will compare and contrast features of these two CMEs (France and Hungary). Economy of France and Hungary France is a highly developed nation and is considered to be the leading economy among all nations of the European Union. The country is a member of United Nations Security Council, G-20, G-8 and many other international communities. Unlike France, economy of Hungary was governed by kingship until 1990. The first multiparty election in Hungary was held in 1990 and had henceforth become a free market economy. The country has become a member of the European Union a few years back, post-1999. So, initially, it can be claimed that the extent of market liberty is higher in France than that in Hungary. This is because mixed economic norms of the market system governed by active participation of public and private authorities were practiced in France since 1958 (establishment of fifth French Republic), but were incorporated in Hungary only from 1990 (OECD, 2009). The economy of France is highly developed in all industrial segments and most of its economic sectors are partially or wholly privatized. Air France and Air Telecom are such strategic business segments that are privatized in the nation. However, certain sections of the economy such as, power, transport and defence, are controlled by the public authorities in the nation. The tourism sector of the country is highly developed and generates large proportion of the aggregate income. Though the highly privatized economy of France operates with the essence of capitalistic principles, yet existing inequalities are rectified through unilateral payments that are bestowed on basis of the nation’s social equity. The economy of Hungary has recently transformed its nature from a centrally planned to a free market one. The economic sectors of the nation are not as developed as that of France. Furthermore, since incidence of the global financial crisis, negativities of recession have generated worse catastrophic effects in Hungary than in France. The levels of exports, capital formation, investments and domestic spending in Hungary have fallen to a greater extent due to the recent recession, compared to France. Therefore, from the above information, it can be suggested that Hungary has a weaker economic base than France. Economic Performance Comparison of France and Hungary The following table will provide some quantitative macroeconomic data of France and Hungary, on the basis of which industrial base of both the market economies can be compared. Factors France Hungary Implication Gross Domestic Product (GDP in terms of U.S. $) 2.273 trillion (2013) 196.6 billion (2013) Domestic productivity of France is more than Hungary GDP per capita 35700 (2013) 19800 (2013) Per person income level in France is more than Hungary Exports ($ in 2013) 570.1 billion 92.98 billion The exports earnings of France are more than Hungary Imports ($ in 2013) $640.1 billion $89.52 billion The imports spending of Hungary is less than France Government and Household Consumption (as % of total spending) 82.7 (2013) 75.9 (2013) The government and household spending of France is more than Hungary Contribution of Industrial and service sector to GDP (%) 98.1 96.7 The industrial and service sector income in France is more than Hungary Unemployment Rate (% in 2013) 10.5 10.5 The rate of unemployment is same in France and Hungary Inflation Rate (% in 2013) 1.1 2 The inflation rate in France is less than Hungary Exchange Rate Euro to U.S. (.76) HUF to U.S. (222.7) The currency value of Hungary is weaker than that of France (Source: CIA, 2014) From the context of the above table, it can be claimed that the extent of economic transactions in France is much more than Hungary. The magnitude of international trade in France, measured in terms of imports and exports is much more than Hungary. Thus France is a bigger and more complex market economy than Hungary. Perhaps this is the reason for which the value of currency of France is much more than that of Hungary (CIA, 2014). Trade Union in France and Hungary With rise in scope and complexities of commercial activities, in the recent years, both public and private corporations are found to demand for more skilled workers. Even so, in many developing and developed nations of the world, the extent of frictional unemployment is substantially high. Such unemployment occurs when the demand and supply of different labour forces are not clear in the market. Due to such circumstances, bargaining powers of the skilled, semi-skilled and unskilled labourers in an economy have significantly increased. This has given rise to many trade unions in nations. However, since the last few years, scarcity of jobs in the European markets has lowered the membership count of various trade unions as well as weakened the bargaining powers of workers in the labour market. The trade unions of France and Hungary are dissimilar. French Democratic Confederation of Labour (CFDT), General Confederation of Labour (CGT) and General Confederation of Labour – Force Ouvrière (FO) are the different formally registered trade unions of France (FedEE, 2014a). On the other hand, the well-known trade unions of Hungary are Confederation of Hungarian Trade Unions (MSZOSZ) and Autonomous Trade Union Confederation (ASZSZ) (FedEE, 2014a). Since trade unions of the two countries are different, policies and agendas of these unions are also separate. Figure 1: Trade Union Density (Source: Jensen, 2004) From the above chart, it can be claimed that the number of trade unions in Hungary is higher than France. Therefore, on basis of the same, it can be stated that labour market imperfections and problems persist with greater intensity in Hungary than France. Though trade unions were present in most nations in the European Union for a long period of time, yet the nature of unionism has significantly differed among the member states. The Industrial Relations Systems (IR systems) of different nations in the European Union, like, France and Hungary, are dissimilar. The labour market claims of France are way more organized than of Hungary. The labour unions in France are found to organize only 10% of the total labour force; but, this small percentage of organized labourers possesses the power to influence the entire legal and institutional arrangement of the nation’s labour. Unlike the case of France, large number of trade unions in Hungary with a substantial proportion of labour force is not powerful enough to manipulate legal and institutional agreements of the country’s labour market. The trade unions in European nations are not only introduced for bargaining issues of pay and working conditions, but also to establish greater civil, political and societal rights in the economies. Thus, unlike France, higher prevalence of trade unionism in Hungary signifies greater class based societal dominations in the nation. Since trade unions in the European nations are formed on the basis of societal class segmentations, prevalence of unions is often inversely proportional to the degree of industrialization in these nations. As analyzed in the above context, extent of industrialization is France is higher than in Hungary; and prevalence of unionism in the latter is much lesser than the former (Tucker, 2010). Furthermore, unlike the case of Hungary, trade unions of France are encouraged in the formal corporate market as they simply aim to lower the degree of free riding in the labour market of France (Jensen, 2004). Hence, from the above context, it would be correct to conclude that prevalence of trade unionism in France is lesser than Hungary. Even so, the existing union of France aim to organize and stabilize labour market regulations and lower the degree of free riding in this market of the country. Unlike France, excessive trade unionism in Hungary is primarily caused due to societal class diversions and is often unable to influence the norms of its organizational labour market (Casson and Wadeson, 2012). Collective Bargaining in France and Hungary According to the theory of economics, bargaining power of the labourers or trade unions is often represented through the term, collective bargaining. In the modern corporate labour market, wage, working hour, training, health, grievances and overtime related claims of the trade unions are accomplished through collective bargaining in the form of collective agreements (Mankiw, 2011). The collective bargaining process of the trade unions are interactive sessions conducted with the employers of respective organizations or industries. Nevertheless, in a formal labour market, bargaining process is executed through negotiations. The workers’ employment rate in an economy significantly depends on its collective bargaining viability. The impact of collective bargaining of these trade unions on employment opportunities in a nation is measured in terms of coverage rate. Since the trade union led labour market of France is highly formal and organized, workforce market of the economy experiences a coverage rate of 90%. This signifies that effective collective bargaining conducted by the trade unions in France are responsible for procuring appropriate collective agreements by virtue of which, approximately 90% employment opportunities are created in the French economy. On the contrary, the relatively unorganized labour market trade unions of Hungary create lesser employment opportunities in the nation through collective bargaining (Mankiw, 2011). Figure 2: Collective Bargaining Coverage Rates (Source: OECD, 1992) The above table shows a list of the countries with maximum coverage rates. Thus, through collective bargaining, the trade unions of France are able to generate more employment opportunities than in Hungary. Furthermore, France falls in the group of old European member states and Hungary in that of new European member states (OECD, 1992). Multi-layer bargaining institutions exist in the collective bargaining process of France. Hence, the effectiveness of intersectoral bargaining in the nation generates high coverage rates, unlike the case of Hungary. In addition, the legal acts governing the collective bargaining process of France and Hungary are also different. Figure 3: Legal Acts Governing Collective Bargaining (Source: Schulten, 2005) The above chart shows that the legal acts governing the collective bargaining of France and Hungary are different. Figure 4: Parties Involved in Collective Bargaining Process (Source: Schulten, 2005) Form the above chart, it can be claimed that entities who are involved in the collective bargaining process of France and Hungary are similar. The National documentation and registration of collective agreements are done by different governing parties in France and Hungary. In France, on completion of the process of collective bargaining, registration is obligatory. The Ministry of Employment, Labour and Social Cohesion publishes the annual report on collective bargaining in the nation. In Hungary, similar to France, registration is obligatory; but, the regular data relating to collective agreements is provided by the Ministry of Labour of the country (Schulten, 2005). Though the multilayer collective bargaining system of France helps to generate large employment opportunities in the nation, yet it should be noted that influence of tripartite concentration and wage bargaining does not exist. Even so, in Hungary, giant company bargaining is found to be dominant (Frumkin, 2006). Finally, from the above context, it can be claimed that in France, company and sectoral bargaining exists on a parallel basis. Yet, there is no significant dominance of bargaining level in the country. An intersectoral agreement only exists in certain issues. On the other hand, in Hungary, company bargaining dominates sectoral bargaining. Moreover, only certain minimum standards are provided by intersectoral agreements (Mankiw and Hakes, 2011). Industrial Relations and Work Councils in France and Hungary It is a multi-disciplinary field that helps to estimate employment relationships in a nation. It is also commonly known as employment relations. This relates to the nature of human resource management system and trend in a nation. There are basically three faces of industrial relations, namely ethical, problem solving and science building. This concept assumes that labour market in a nation is not perfectly competitive and that an employer in the market possesses higher bargaining power than the employees (McEachern, 2012). In France, freedom of an association is assured by the constitution. Multi-level collective agreements cover approximately 90% of the workforce in the country. However, only 8% of the workforce is members of trade unions. There exist high legal regulations that help to protect interests of the economic entities against discriminations of the union members. The unions are active in the nation and possess the right to strike, which is utilized frequently. The minimum working age of the country is 16. Till the age of 18 years, there are numerous regulations imposed on young individuals working (FedEE, 2014b). The government of the country has also established a statuary level of wage rate for workers. In general, the standard limit of per week working hours of the country is 35 hours. In a year, over time working can be imposed on each worker up to 220 hours (FedEE, 2014b). The employees are also given 25 annual holidays, besides public holidays. Nevertheless, at times through certain collective bargaining, workers are offered more holidays and compensations. The French government has also introduced a special law under the regime of which any company in the nation with at least 50 employees needs to maintain a work council. The members of the work council in each of these companies are elected representatives and these elections are conducted at an interval of 2 years. It is noted that activity and role of the institutional labour force in France is greater than its numerical strength. The government authority of the country always consults with the trade union leaders regarding all possible social and economic issues. Yet, it should be noted that the joint work councils of several companies in the country are sometimes highly influential in the labour market, even if the concerned industries are not unionized (FedEE, 2014b). In Hungary, unlike France, freedom of an association is guaranteed by the Labour Code. The percentage of workforce for whom collective agreements are applicable in Hungary is only 40%, much less than that of France. However, a greater proportion of workforces in Hungary (23%) are members of trade unions. Similar to the case of France, legal protection is provided to the workers in Hungary. The union in the country possesses the right to strike, but cannot exercise the power to control working of military and police in the nation. The minimum age of working in the country is 16 years (FedEE, 2014b). Nonetheless, unlike the case of France, some young workers of 14 to 15 years old are also allowed to work in short contracts in the nation. There exists a statutory minimum wage rate in the country. Weekly standard working hour limit in Hungary is more than France by almost 5 hours. The employees in the country are legally allotted with 20 days of holidays (30 days for senior workers), along with national holidays. The collective bargaining rights of the trade unions in Hungary are set by Labour Code of the nation. Collective bargaining exists on both industry and enterprise levels in the nation. The wage rates of the private sector of the nation are settled by The National Interest Reconciliation Council (FedEE, 2014b). The employment laws in the nation are enforced in the labour courts and parties who oppose the decisions of the labour seek justice in civil courts. Hence, from the above context, it can be claimed that the small proportion of trade unions in France is way more effective than large strength of the same in Hungary. This is because majority of workforce in France enjoys the benefits of collective bargaining, unlike in the case of Hungary. In general, compensations and benefits that the labourers obtain in France are greater than that given in Hungary (FedEE, 2014b). Employments in France and Hungary There are various differences in the pattern of employments generated in France and Hungary. Figure 5: Employments in European Nations 2012 (Source: Eurostat, 2013) The above graph shows that annual employment generation in France (FR) is higher than Hungary (HU), as recorded by EuroStat in 2012. In France, the annual fertility rate is much higher than that in Hungary. This is because equal employment opportunities are provided to women both before and after child birth in France. On the other hand, in Hungary, women are expected to stay at home after they become mothers (Makay, n.d.). Figure 6: Employment Scopes in France and Hungary (Source: Eurostat, 2013) From the above statistics, it can be claimed that both full and part-time employment opportunities in France (FR) are much better than Hungary (HU). Moreover, percentage of skilled organized labour force in France was recorded as 45% in 2012, more than that of Hungary (35%) (Eurostat, 2013). Thus, from the above information and data, it can be claimed that employments scopes are wider in France than in Hungary. Better performance of France compared to Hungary, in terms of employment generations, is solely dedicated to higher efficiency of former’s trade unions that are able to create greater employment opportunities in the nation. Conclusion There exists a great diversity in terms of capitalistic governance among nations of the European Union. It is true that liberal market economic system is the most superior outcome of macroeconomic stability in a nation, where net social welfare of the country becomes highest. However, in reality, it is found that competitive market forces in the economy are often dominated by existence of market failures or information asymmetry. In most of the market economies in the contemporary world, there naturally exists a high imperfection in labour markets. Such present imperfections in workforce market justify the existence of trade unions and work councils (Pettis, 2013). Thus, owing to certain degree of unionization, each and every market economy in the contemporary world is a Coordinated Market Economy to an extent. Trade unions in such economies manipulate wage rates and employment thresholds in the industry level. However, it should be noted that the degree of collaboration or coordination in these market economies across various nations differs significantly. The economic base of France is better than that of Hungary and hence, productivity of the economy along with employment generation opportunities is higher in the former. Even so, it would be correct to conclude that Hungary is a more coordinated market economy than France. This is because the extent of unionization in Hungary is more than that of France. Pay or wage bargaining is also more dominant in Hungary than in France. In this sense, it can be claimed that France is more inclined towards market liberalization compared to Hungary. The welfare generated for existing employees in the labour market of France is also much higher than that in Hungary, through compensations and allowances. It should be noticed that in the present scenario, the ultimate key to success for any nation is competition and not collaboration (Pugel, 2007). Reference List Casson, M. and Wadeson, N., 2012. The economic theory of international business: A supply chain perspective. 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