Comparative Models of the Market Economy
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Transcript of Comparative Models of the Market Economy
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Comparative Models of the Market Economy
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Models of the Market Economy
• Market failure and social welfare function• Different priorities in the social welfare function• Three models: The Guided Market Economy (Japan, Korea,
France, Italy, Greece, Spain, Portugal, etc.) The Modified Market Economy (the U.S., the
U.K., Ireland, New Zealand) The Social Market Economy (Germany,
Denmark, Sweden, Norway, Finland, Estonia)
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The Guided Market Economy
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The Guided Market Economy
• Priority on resource allocation
• Direct government participation in resource allocation and industrial restructuring
• Long-term focus
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The Guided Market Economy
Industrial Policy a set of instruments and techniques designed to
promote economic growth on the basis of direct government participation in resource allocation and industrial restructuring
identification of key industries and promotion of their better access to resources and faster growth
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Business systems
distinctive configurations of firms and markets, which have been established, in a particular environment as the dominant ways of structuring economic activities.
Characteristics of the business system
The nature of economic
agents
Market organization
Work co-ordinationand control
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The Guided Market Economy
The Business System• A dual business structure • Domination of big businesses• Strong vertical and horizontal integration• Low rate of change of activities• Widespread subcontracting • Small share of the medium-size firms
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STUDENTS DEMONSTRATE AGAINST LABOR LAW – French students protest during a rally in Marseille, France, April 11 against a measure which would have allowed employers to fire young people under the age of 26 without giving a reason. The proposal was dropped by the government April 10 after large-scale protests in the country
High social tension and low labor and capital mobility
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The Guided Market Economy
The Keiretsu system – business groups of firms in all industries, linked through:
Interlocking directorates Stock cross ownership Financial support (provision of loans at favorable
rates) A built-in stable market for each other’s products Transfer of labor force Cooperation in the international expansion
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Firm “D” Firm “E”
firm “B” Firm “C”
firm “А”
The keiretsu system
Main bank
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The Guided Market Economy
Capital markets• The banking system serves as a major institution
of capital allocation• The “main bank”: Provides debt financing Raises capital for the industrial firms Monitors Guarantees firms’ debt Participates in executives turnover and shifts in
corporate strategy
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The Modified Market Economy
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The Modified Market Economy
• Motivation for efficiency• Main goals: to motivate private decision makers for efficient
use of resources to trigger higher living standards to moderate inequality to contribute to social integration to guarantee efficient administration
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The Modified Market Economy
• Core institution – capital markets
• The stock exchange:High capital mobilityHigh liquidity of fundsA wide set of financial institutions
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The Modified Market Economy
The Business System Short – term focus Mobile labor Easy hiring and firing High specialization of tasks, roles and skills High market contestability Strong antitrust attitude
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The Modified Market Economy
• Welfare goals: Free choice in consumption Free choice in occupation and education Greater purchasing power Widespread system of consumer credit Social support for the poor Equal opportunities to everyone High capital diffusion
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The Social Market Economy
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The Social Market Economy
• Priority on equity, social equality and full employment • Major features: Strong support of workable competition Promotion of asset formation among lower income groups Direct transfer payments Codetermination and regulation of the labor market Strong role of associations Extensive role played by local governments Social and welfare programs for everyone Faster increase in salaries than in profits Restrictive monetary policies
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The Social Market Economy
The Business System• Prevailing medium-size firms• Strong competition• High owner involvement in control• Codetermination in the big firms• Strong associations• Powerful cooperatives• Dependence on the financial decisions made by
the banking sector
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The Social Market Economy
Capital markets• The banking system serves as a major
institution of capital allocation• Excessive integration of the banking
institutions with the industrial enterprises in:
OwnershipDecision-making