EsPing-Andersen Welfare State - Assignment Example

Political Economy Q 2 EsPing-Andersen Welfare Esping-Andersen defines the welfare as the administration that takes care of the material wellbeing of the citizens (Coates, 2007). The welfare state provides the citizens with material that may be in cash or in kind to help them endure diseases, poverty, and harsh economic times. The materials that the administration may provide to the citizens in kind include housing, education, and healthcare. Esping-Andersen argues that there are three regimes of welfare state that include social-democratic, liberal, and conservative (Coates, 2007). The researcher differentiates these three regimes based on the institutions that take part and the de-commodification, which is the ability to decrease the dependence on the market. Liberal Welfare State The liberal welfare state is the one that tends towards commodification more than de-commodification. This means that this form of administration offers benefits that are market dependence and that may not be described as the rights of the citizens. In liberal welfare, the government provides well-being using means the means-tested basis; this is a basis that uses only techniques that are known to promote economic growth and development. The liberal welfare system considers benefits to be means of safety rather than sources of income to the public (Coates, 2007). This welfare regime provides the citizens with benefits based on the actions they undertake in the market. For example, the state provides pension, health insurance, and subsidies on savings accounts for the citizens who are eligible; these are the individuals who undertake jobs that are covered by these benefits. This means that there are no benefits for the poor people in the society in this welfare state system. The lack of benefits for the non working individuals in the society causes high income inequalities in this regime (Hall, & Soskice, 2001). The act of the liberal state of not giving out benefits with no returns disciplines the market making it to develop ideas and opportunities that promote growth and development. For example, in the United States, the government sets low taxes on the wealth of individuals. This strategy helps individuals to formulate investment ideas that help them to generate higher wealth in consecutive periods. The US liberal welfare state also advances self-independence among the citizens thus reducing dependence on the state. Japan, Switzerland, and United Kingdom governments assume the liberal welfare system (Coates, 2007). Conservative Welfare State The conservative welfare state is the second and medium safety state among the three benefit regimes proposed by Esping-Andersen (Coates, 2007). Conservative welfare states provide social insurance to both the poor and the middle class members of the society. However, the social benefits given to the employed individuals in the society depend on their earnings. Thus, it is hierarchical meaning that the government provides social benefits on a scale from high to low. Some benefits provided to the citizens are regarded as rights that they are entitled to receive from the state. The conservative welfare state takes care of both the poor and the middle and middle income earners because it aims at preserving both social status and citizenship rights. States provide the poor with the welfare so that they may enjoy their citizenship while it boosts the income earners so that they may preserve their social status. The government intervenes in providing for the poor only when they try all means of taking care of themselves and fail (Coates, 2007). Thus, the conservative system promotes moderate social discipline and self-independence. Germany, France, and Italy are examples of conservative welfare governments proposed by Esping-Andersen (Coates, 2007). These states achieve stability from their moderate expenditure on social welfare and their ability to foster economic growth by encouraging independence among the citizens. For example, Germany has achieved stability since the 1970s when it started giving its citizens moderate social benefits. The state achieved stability more than the United States and Sweden, which preferred low and high social benefits respectively. Germany provided its citizens with moderate health insurance and pensions and it set medium taxes on personal and business wealth (Coates, 2007). Social-democratic Welfare State The social-democratic welfare state is the most de-commoditized of the three social wellbeing systems. The social-democratic system is the most successful in redistributing wealth from the rich to the poor (Hall, & Soskice, 2001). This is because this structure provides high benefits to the income earners and non-income earners regardless of the level of income they earn. For example, the government provides public education and health insurance to all individuals. The government also takes the responsibility of taking care of children, the aged, and the unemployed, for example, by giving them unemployment allowance. The benefits that social-democratic welfare provides to its citizens are considered to be the rights of the citizens. This means that individuals may take action to ensure that they get the benefits that they are entitled to from the state. Sweden, Finland, and Netherlands are examples of social-democratic welfare states that boost of high income equality. Between 1980 and 1993, Sweden increased its social spending on health and social security transfers by 16.4% and 54.6% (Coates, 2007). These increases in social expenditure contributed to Sweden’s alleviation of income inequality in the country from that time until today. The state is also a critical player in the Swedish economy meaning that the most successful reforms in the country have to be formulated by the state. This welfare system does not promote self-independence and private investment like the previous two; instead it encourages overreliance on the government. Criticisms of the Welfare State The welfare state regimes such as the social-democratic and the conservative system have weaknesses in that they promote over reliance on the government (Hall, & Soskice, 2001). The public may relax and get used to being provided by the government because they have the right to be taken care of; this may cause a government to spend too much on social welfare instead of development projects. Welfare state also has a weakness in that it ignores the inefficiencies of the public sector. The inefficiencies in the sector may delay the provision of social benefits to the public. Q 3 National Financial Systems A national financial system is a structure that facilitates transactions between various players in the market. This system, for example, facilitates the flow of capital from businesses to suppliers and the flow of goods from suppliers to businesses. National financial systems are useful in political economies because they enable investors to spend on manufacturing businesses that in turn create goods for use in an economy (Boyer, & Saillard, 2002). The systems are also useful in that they help firms in determining their profitability from producing various goods and services. There are two main national financial systems that include credit-based and market based structures; credit-based system is further sub-divided into institutionalist and statist systems. Capital Market-based Financial System The capital market-based financial system is the one that operates in liberal market economies. Liberal market economies are the ones that advocate for minimal or no government intervention in the economic activities that take place in a country. This means that the market-based financial system may be described as the one where market actors conduct their businesses without the intervention of the government. Zysman argued that the market-based financial system like that one of UK offers the government minimal functions. In fact, the government’s role is to facilitate the market to conduct its activities efficiently rather than intervene in the activities (Hall, & Soskice, 2001). In a market-based financial system like the one of the United Kingdom, banks do not have functions to play in corporations. However, banks may provide organizations with short term capital that has to be repaid within utmost one year. Corporations, thus, conduct their activities independently and they are recognized as separate legal individuals. This means that all the activities that an organization conducts are put in the name of the corporation instead of the names of the owners of the firm. Corporations in this system aim at maximizing the wealth of shareholders. Shareholders in the organizations also receive dividends and they use share price to determine whether their wealth has increased or decreased (Boyer, & Saillard, 2002). In the United Kingdom, the Limited Liability Act protects shareholders by stating that in case an organization collapses or becomes bankrupt; shareholders are required to contribute funds that are equal to the shares they own (Coates, 2007). This means that shareholders may not be coerced to contribute funds that exceed the number of shares they own in a corporation. The market-based financial system is effective because it allows economic actors to trade on their own terms without imposing barriers through the state or bank intervention. Credit-based Statist National Financial System The credit-based national financial system is the one where banks have a major role to play in providing organizations with long-term capital (Boyer, & Saillard, 2002). The provision of organizations with capital enables companies to expand rapidly with the help of finances from lenders. This is unlike firms in market-based financial system that have access to short term capital only; this may hinder them from expanding and growing rapidly compared to those in capital-based economies. In statist capital-based financial system, the state plays the major role of setting prices of goods and services in the economy. The government does this by regulating the minimum and maximum prices that firms may set for their goods and services. The government in this financial system raises capital by selling bonds and buying them when it wants to reduce the funds flowing in the economy. The state also uses interest rate to regulate the amount of funds that circulate in the economy. France has a statist credit-based financial system that is insider dominated meaning that firms in the country involve all their stakeholders in making decisions (Beland, & Cox, 2011). The stakeholders of one organization also happen to be the same stakeholders in various other organizations in the country. This causes a situation where stakeholders of various firms know and consult each other when making decisions. Thus, there is cooperation and collusion among employees, managers, and shareholders of various organizations in the country. Credit-based Institutional Financial System The credit-based institutional system is similar to the credit-based statist structure, but it is dominated by large organizations that influence most of the activities in the economy (Beland, & Cox, 2011). The large institutions in the financial system collude and influence prices and interest rates in the economy. This means that the major large institutions in the economy are banks and they are the ones responsible for providing loans to corporations in the country. The large banks in the economy coordinate their activities with the government and most of the times they get support from the state. Germany is an example of a country with a credit-based financial system that is led by major banks in the country. The banks include Deutsche bank, Dresdner, and Commerz bank. These institutions are responsible for providing most organization with capital in Germany and they collude in setting interest rates for their loans. This leads to high economic growth and expansion in Germany; in fact, Germany has the most developed manufacturing organizations that produce electronics and pharmaceuticals. The owners of these organizations also collude in that some owners of Dresdner Bank also have shares in Deutsche Bank. The institution-based credit system faces high risks in case the colluding organizations make the wrong decisions and predictions about the economy. For example, the financial crisis in Germany was caused by the decision of numerous banks to purchase large quantities of ABS (Boyer, & Saillard, 2002). A financial system is a structure that facilitates the activities of production and manufacturing by providing capital and setting prices of products. The three financial systems described by Zysman include market-based, credit-based led by institutions, and credit-based led by the government. The two credit-based financial systems are more effective than the market-based system in providing organizations with long term capital. However, the market-based system has an advantage in that it allows economic players to conduct activities freely without experiencing barriers that may be in the form of government or bank participation. Q 5 Coordinated and Liberal Market Economies Political economies are divided into coordinated and liberal market economies that are differentiated based on how they resolve issues in the market. The main difference between the two market economies is that the coordinated system depends on non-market factors to relate with other actors and to develop their competitiveness (Beland, & Cox, 2011). The non-market actors coordinate activities that take place in the market and facilitate trade using regulations. The liberal market systems, on the other hand, depend on various market arrangements to achieve their competitiveness and associate with various stakeholders in the market. Another point of difference is that liberal markets achieve equilibrium through the market forces and supply and demand (Hall, & Soskice, 2001). This means that market players do not have a role to play in determining the amount of goods and services or the prices at which they are sold. Sellers of goods and services take the price that the market determines by equilibrating the available demand and supply. Coordinated markets, on the other hand, achieve stability based on the strategic relationships between various actors in the market. The market forces are not critical in achieving stability in coordinated market structures. Strategic actors in the market agree on the price at which they sell their products and the conditions under which they do so. The actors also regulate the market by setting standards that all involved parties must adhere to for them to thrive in the market. Liberal market economies are concerned with shareholder capitalism while coordinated market structures focus on stakeholder capitalism (Hall, & Soskice, 2001). Shareholder capitalism is a system that aims at achieving the main goals of shareholders while it ignores other players in an organization such as employees. The lack of intervention in the liberal market economies causes the labor market to be flexible. This means that employees may move from one firm to another in search of better pay, training, and good working environments. Stakeholder capitalism is concerned with the interests of all stakeholders who have various interests in an organization. The management of coordinated market economies involve the stakeholders with various interests in the decision making process so that they may give their ideas (Coates, 2007). The involvement of workers in the decision making process of coordinated market economies leads to the rigidity of the labor market in this system. Liberal market economies offer education and training on a voluntary basis while coordinated administrative systems organize vocational trainings for their workers (Hall, & Soskice, 2001). The offering of voluntary trainings in liberal markets causes employees to seek as much training as they may afford to enable them get employed in well-paying firms. However, the workers who may not afford paid trainings are disadvantaged because they are unable to acquire numerous skills that are essential for the market. The act of coordinated market structures of organizing trainings, on the other hand, leads to a highly skilled labor market with workers who may be able to work in any organization. However, the fact that trainings are vocational means that they may not be enough to equip workers with latest skills in the market. The study of the differences between coordinated and liberal market economies is essential because it helps in understanding how various economies conduct their activities. For example, these differences have helped in understanding that the United States is a liberal market structure. The US organizations aim at achieving the goals of shareholders to the extent that they allow hostile take-over (Hall, & Soskice, 2001). This takes place when an organization performs poorly consistently, for example, by making huge losses that decrease the share price. Companies in this economy are answerable to shareholders and they pay them dividends, which are mainly part of or all of the retained earnings of a financial period. The labor market in the United States is flexible and it allows employees to seek employment from any organization they want; workers also seek high levels and quality of training so that their services may be competitive in the market (Coates, 2007). The study of coordinated and liberal market economies helps in the understanding of the differences between various economies, for example, the United States and Germany. While the US is a liberal administration, Germany is coordinated and the key players in the German economy are large institutions. Companies in Germany organize themselves by forming unions in various sectors such as pharmaceutical and banking sector. For example, the pharmaceutical sector in Germany coordinates its activities by forming a large association of all organizations in this division. The association of firms in this sector helps them to set average wages for workers in the market. Organizations also conduct vocational trainings for their workers in unison to reduce cost and to equip all employees with the necessary skills in the market (Hall, & Soskice, 2001). This leads to the stability of the labor market in the German pharmaceutical industry. References Béland, D., & Cox, R. H. (2011). Ideas and politics in social science research. Oxford: Oxford University Press. Boyer, R., & Saillard, Y. (2002). Regulation theory: The state of the art. London: Routledge. Coates, D. (2007). Varieties of capitalism, varieties of approaches. Basingstoke: Palgrave Macmillan. Hall, P. A., & Soskice, D. W. (2001). An Introduction to Varieties of Capitalism. Oxford: Oxford University Press. Read More