Varieties of Capitalism - Essay Example

?Topic: Varieties of Capitalism Affiliation: Introduction Economies and societies are two concepts that are closely related and work together towards the realization of a specific desired outcome. Variables that affect each of them portray similar characteristics, although the mechanisms through which the effects are realized are different. Benefits and costs are also two economic flows that any given society cannot do without. Economies are characterized by ownership of resources and the resource allocation decisions are made within the economy. Resource allocation can be taken at all levels, but resource ownership is a totally different aspect. Ownership of resources takes three forms: public ownership, private ownership or a mixture of the two in an agreed proportion. This is where capitalism comes in. Resources in an economy are managed through the employment of means of production, in a bid to satisfy the needs and wants of populations in societies through making economic decisions. Resources in an economy can be privately owned through an economic system referred to as capitalism. Income and/or profit earnings are the primary interest of individual or corporate capitalists. Interactions of all stakeholders in capitalistic activities are undertaken in a market environment that lacks government control. Varieties of Capitalism Hall and Soskice (2009, p.404) note that capitalist economies are of two types; that is liberal and coordinated market economies. These two types of market economies are crucial in highlighting institutional variations across the developed economies in bid to assess the applicability of capitalistic activities in the economies. In order to do so, the variables that define each of the two market economies are considered in terms of practice and aspects of application. Static vs. Dynamic Both liberal and coordinated market economies have their static and dynamic aspects. This is due to the fact they are defined by differentiated variables that although similar, they are unique to each of the two market economies. The underlying aspect of importance is the degree to which the political economy remains coordinated or not coordinated over time (Morgan, 2005, p.134). This has helped shape the static and dynamic properties in the context of varieties in capitalism. Static properties in the liberal market economies are seen in the hierarchy structure of institutions in the market, employment trends, level of wage bargaining and in the adoption of changes, especially innovation. Innovations are radically put in place even when they are readily available for the market. On the other hand, static properties in coordinated market economies are experienced in the relations between and among different stakeholders in the market. Non-market relations in this market economy hardly change over time. Dynamism is associated with the occurrence of changes and adoption of relevant changes that enhance the functionality of an economic system. Different political economists consider this aspect in numerous ways, but the underlying factor is that change is inevitable. In the case of liberal market economies, equilibrium point of the market keeps changing, and so are the institutional functions of competition and policy making (Crouch, 2002, p.239). On the other hand, the coordinated market economies are uniquely dynamic. Collaborative efforts between and among key stakeholders keep changing, and it is, therefore, dynamic in that regard. Innovation is highly incremental from time to time as deemed important. Equilibrium-based vs. Evolutionary The two market economies that make up capitalism are characterized by equilibriums. In the liberal market economies, forces of demand and supply play a fundamental role in the moving the market and the entire economy. Competition is high among individual firms and business entities. Policies in this market are more oriented towards deregulation and realization of tax breaks (Jackson, 2003, p.256). In the case of coordinated market economies, equilibrium is realized through firms interacting strategically, integral to other actors that affect that process. These types of market economies are also subject to niche production, while policies advocate for sharing of information and further encourage collaboration of firms in the industry. Functional vs. Mid-range theories Capitalism is built on specific structures that define both liberal and coordinated market economies. Functional aspects relate to the specific functions that each of the structure in capitalism play in the liberal and coordinated market economies. Mid-range theories, on the other hand, condense abstract entities into empirical phenomena and then use data to verify the underlying claims. Economic data are employed in the capitalist market economies to back up different trends realized in these market economies. Capitalism in specific countries context The differences between liberal and coordinated market economies are realized through the following channels: mechanism of operation, equilibrium factor, inter-firm relations, mode of production, legal systems, institutions’ functions, employment trends, wage bargaining, education and training, rate of unionization, distribution of income, innovation, comparative advantage and policies of operation (Matten & Moon, 2004, p.105). The combination of all the above factors highlights the distinct features of both market economies. In this regard, it is possible to explain specific economies of developed countries. Market economies that are coordinated operate non-market relations across firms and business entities. All stakeholders collaborate and engage in credible commitments so that these market economies work towards a common goal of economic growth and development. Liberal market economies are an absolute opposite of the coordinated markets. Firms and other stakeholders in the market interact in competitive manner. These market economies are also characterized by formal contracting (Blyth, 2003, p. 117). This means that forces of demand and supply primarily determine major operations in these economies. As a result, price signalling is inevitable, especially with demand and supply operations. The United Kingdom and the United States run liberal market economies. On the other hand, Germany and Japan run the coordinated market economies. There are different explanations of these economies under the capitalism context. Although these explanations vary from time to time, there is the fact that capitalism and especially liberal economies in the U.S and U.K, as well as coordinated economies in Germany and Japan still apply today. Firms’ behaviour in the contemporary business environment is dynamic and responds to various changes within the economy as they occur. Investment patterns also vary just like firms’ behaviour, due to institutional complementarities experienced in the liberal market economies (Goyer, 2002, p.47). As a result, radical innovation is integral to firms that operate in liberal markets. This is due to the presence of labour markets that are fluid, stock market capital that is easily accessible and imperative profits. In a nutshell, the centrality and diversity of the markets in these economies makes assets switchable and can therefore be employed in more than one use. Germany and Japan highly observe a coordinated market economies. These economies are employment strategies that are long term in nature, behaviours are rule-bound and durable ties between firms and banks (Chapple and Gond, 2006, p.78). As a result, these economies are said to be characterized by incremental innovations unlike the liberal market economies. These innovations are specifically experienced in industries that deal with machine equipment and tools and capital goods. The value of assets that are either specific or co-specific is dependent on activities of other stakeholders in these economies and the cooperation among the various stakeholders must be active if the desired outcome is to be realized. Currently, this scenario is most applicable to Japan. Although Germany is gravitating to a more Anglo-Saxon model in banking and employment relations aspects, the model has caused more harm than good, especially in regard to laissez-faire free market philosophies (Culpepper, 2003, p.193). This model is characterized by little or no government regulations in the markets and low tax rates. This means that the services expected from the government are fewer than in other capitalist models. Financial mechanisms that require regulation do not get any attention, a situation that negatively affects the welfare of the economy. For Germany, this model is not better than the coordinated one and therefore its applicability is subject to challenges and questionable concepts. In the context of developing economies, both liberal and coordinated market economies are employed in different ratios depending on the decisions made by the central authorities and the economic outcome that ought to be realized. Capitalism in the context of leading emerging economies which include Brazil, Russia, India, China and South Africa, takes the liberal and coordinated phenomena (Howell, 2011, p.103-124). However, Anglo-Saxon model is less likely applicable in these economies since the government plays a major role in economic decision making especially allocation of resources. The incorporation of property rights into the capitalism practice is yet to receive full integration into these economies. However, different countries address property rights differently and therefore the role played by these rights in the economies vary. On the same note, the complexity and sophistication associated with contemporary capitalism theories and models make them less applicable in developing economies and less adopted in developed economies. References Blyth, M. (2003). Same as It Never Was: Temporality and Typology in the Varieties of Capitalism, Unpublished manuscript, Johns Hopkins University. Chapple, W. & Gond, J. (2006). Varieties of Corporate Social Responsibility and Varieties of Capitalism, Paper prepared for the International Centre for Corporate Social Responsibility (ICCSR) Annual Symposium, Nottingham. Crouch, C. (2002). Institutions within Which Real Actors Innovate, Frankfurt and New York: Campus Verlag. Culpepper, P. (2003). Creating Co-operation: How States Develop Human Capital in Europe, Itacha: Cornell University Press. Goyer, M. (2002). The Transformation of Corporate Governance in France and Germany: The Role of Workplace Institutions, MPIfG Working Paper 02/10 Max Plank Institute for the Study of Societies. Hall, P. & Soskice, D. (2001). Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, New York: Oxford University Press. Howell, C. (2011). Varieties of Capitalism: And Then There Was One? Comparative Politics, 36:1, pp.103-124. Jackson, G. (2003). Corporate Governance in Germany and Japan: Liberalization Pressures and Responses during the 1990s, New York: Cornell University Press. Matten, D. & Moon, J. (2004). Implicit and Explicit CSR: A Conceptual Framework for Understanding CSR in Europe, Italy: Springer. Morgan, G. (2005). Institutional Complementarities, Path Dependency, and the Dynamics of Firms, New York: Oxford University Press. Read More