How resilient have the contrasting models
of capitalism in Germany, Britain and France proved to be
since the 1970's? Answer in terms of "state-industry-finance
relations"
Introduction
The models of capitalism followed in different countries in
Europe namely in Germany, France and UK during the previous
decades are inherently different form each other. Also known
as Anglo-Saxon' 'Rhineland model' and 'étatist' model.
The main ingredients of any social system are the state, capital
and the labour. The characterization of the states role is
deciding the other two factors have created the different
social and economic models and the Anglo-Saxon model is one
of them .The state's preferred model of economic development
offers the direction towards the state's policy towards industrial
development and the environment for the socio-economic development.
The discussion of the state's role is financing the industries
is also guided by this indicator for socio-economic development.
The state has the duty to ensure the best situation for the
economic development and not with an extensive social cost
as well the industries can work without much political or
social interference. 
The Anglo-Saxon capitalism or the UK model for capitalism:
It is quite apparent that capitalism is not a homogeneous
economic model but has got many forms depending on the parameters
of economic efficiency and social process. The trade off between
these two main attributes of the capitalism had led to the
different models of capitalism. The Anglo - Saxon model of
capitalism is based on several fundamental institutional characteristics.
The main institutional characteristics involve the state -social
interactions at the core of the model of capitalism. The UK
model of capitalism historically favours the market efficiency
of the economic system and to derive the social benefits of
the economic efficiency without less or no intervention .The
state in this model acts more like a supporter and creator
of suitable environment than a decider of the socio-economic
dynamics. In contrast to the German and the French model of
Capitalism, the UK model of capitalism has always preferred
less regulation for then industrial operations and their social
obligations. The Anglo-Saxon system also has a low and declining
rate of unionism compared to the other models of Capitalism.
At the same point of time the labour market in the Anglo-Saxon
capitalism is its poor internal flexibility due to a fragmented
training system and poor skills [1],
this however balances the benefits that arises out of the
reduced level of regulations of the state control on the socio-economic
dynamics of the country. The UK model of Capitalism encourages
the state financing in the industry for its creation and not
for its survival through state intervention. The success of
the industries in the UK model of Capitalism thus allows and
appreciates competition with a focus on creating a perfect
environment for competition and not influencing the business
decision.
The Continental model of capitalism: the German and the
French model of Capitalism:
The German and the French models of Capitalism is fundamentally
different from the UK or the Anglo - Saxon model of Capitalism
that is based on the minimum involvement of state in deciding
the socio - economic dynamics. The state's role is not only
included in the creation of the proper environment for the
industry through financing and creating the fair business
environment but also deciding the optimal socio-economic dynamics through state intervention in the industrial
development and the social regulations for transforming the
economic benefits of the industries to the social benefit.
The regulated environment of the German and French models
of Capitalism offers the state a role to play for the financing
of the Industry, offering protection in a competitive environment
as well as ensuring the survival needs of the industries in
times of the economic shock and through the required financing.
The business-labour forms of cooperation and information exchange,
in the German and the French model works with a more decentralized
form of regulation for the introduction of these forms of
state facilitated capitalism in the two countries.
The role of state interventions through the decentralized
process is quite visible in the fact that it is quite common
for banks in this model to own significant proportions of
shares in their portfolios as a way to control the economic
activities of their major clients [2].
The banks are often having strong representations in the industries
for the financial support and the corporate governance. The
close interactions of these decentralized sources of regulated
capitalism help the German and the French models of Capitalism
to offer the predefined level of socio - economic benefits.
The Comparison of the Anglo -Saxon, German and the French
model of Capitalism:
| Factors |
Anglo-Saxon |
Continental |
| Macroeconomic |
|
|
| Role of the state |
Minimal State |
Regulatory State |
| Cooperation between social partners |
Minimal Contact |
Extensive at national level |
| Labour organizations |
Fragmented and Weak |
Strong and centralized |
| Microeconomic |
|
|
| Shareholder Sovereignty |
Widely Dispersed |
Concentrated ownership |
| Employee Influence |
Limited |
Extensive & Co determined |
| Role of the stock exchange |
Strong role in Corporate Finance |
Reduced |
| Role of Bank |
Limited role in corporate ownership |
High in Corporate finance |
| |
|
Low in Corporate control |
Here we are trying to investigate from an empirical perspective
the main factors and determinants of the economic growth observed
in these countries since the 1970's with an emphasis on the
role played by these models of capitalism in UK, France and
Germany to improve the financial conditions of the industries
and the role of the state in the development of the industrial
conditions in the countries .The inherent differences in the
models of capitalism followed in these countries. In UK, the
model of capitalism is the Anglo- Saxon model of liberal market
.The German economy however has followed the so called "coordinated
market model " for its capitalism and France has used
more of an hybrid model with a socialistic approach. The main
models for capitalism have been the Anglo Saxon model and
the German model. Both the models have some common issues
like free trade, market determination of the price for products
and services and more importantly and autonomous monetary
policy for the industrial development. The UK model or the
Anglo-Saxon model largely depends on the market co-ordination
of the components of the economy and the economic agents and
the state intervention is more on the reduction of the failure
in the system and the required improvement .The German model
however involves a lot of non market co-ordination of the
economic agents and welfare protection along with strong policy
intervention of the state in the growth. The market determination
of the economic factors are much lower in the German model
and the economic factors are influenced by the system of co-operation
.The industries have a system of co operation in setting the
standards and the trade related issues. The collective bargaining
process is also a great feature of the German model of capitalism
and one of the biggest features in the French model of capitalism
.The industrial situations in the German and the French model
of cooperation has significant elements of the social and
collective bargaining that was missing in the Anglo -Saxon
model of capitalism in UK and lately is gaining some grounds
in the policy determination. The original Anglo Saxon model
had more of a concept of the "residual" welfare
state and put emphasis on competitive relations among the
partners in the industry than of a co-operation as evident
in the German model and followed to some extent in the French
model of capitalism. The model of capitalism in UK to some
extent allowed the industries to enjoy higher level of flexibility
in terms of the labour market and on the pricing of the services
and products and the of the standards. On the other hand the
collective and co-operative process of the German and the
French never allowed the industries to have these benefits.
The divergence of the models for capitalism in UK, France
and Germany can be characterized by the prevalent different
political conceptions of the optimal trade-off between economic
efficiency on the one hand, and social justice on the other
- with liberal market in the UK, social market in France,
or managed markets of Germany, the conceptions offering different
trade-offs depending on the optimum situations for economic
efficiency and the social scenario.
The choices of the different models of capitalism by the UK,
Germany and France have got significant effects on the features
of the economy. These are the three largest economies in the
European Union and have strong impact on the European monetary
integration. The UK model of the traditional liberalism in
terms of the Anglo-Saxon model of capitalism, the German corporatism
and the French leftist capitalism have led to the British
Market Capitalism, French State Capitalism and to the German
managed Capitalism .The effect of these different pathways
have led to the strong economic growth in these countries
with different social and political consequences and with
different level of state finance in the industrialization
of the economy.
The effect of the models of Capitalism on the economy:
The state directed market economy of France has been the biggest
supporter of the state support and finance for the industry
over the post war period and since the 1970. The German Social
market economy also has some strong state features in the
creation and support for the industry. The liberal market
economy of UK has allowed the industries to grow in an competitive
environment that supported the creation of the industries
and offered them the support to survive and to be competitive
without the state intervention as well as without much state
intervention in the creation and financing the industries.
The present discussion of the level of flexibility of the
different models in promoting the industries in the state
or creating an environment that is conducive for the industries
and policies to finance the industrial initiative in the state
is gaining higher level of importance in the present situation
of the global economic recession .The ability of the different
models of Capitalism followed in UK, France and Germany over
the past decade to react to economic shocks, technological
changes and the internationalization of capital markets. In
France and Germany higher level of state social protection
and intervention in the financing of the industries in the
state for the growth of capitalism appears to have created
labour rigidities and strong demand for the state finances
for the industries in the period of economic shocks .The extensive
state financing in the industries and the state shareholdings
in the industries, long-term bank finance, and the process
of co-determination of the industrial policies at the organizational
level (the very features that have helped underpin a long-term
approach to investment and innovation ) have created a situation
where the industries in these countries to proper use of the
resources and finances for the industries and that may have
created the present financial crisis in these economies. The
state co-operation in the financing and supporting the industries
under the German and the French model has created a situation
where the state financing of the industries has become more
of a critical support to continuity of the industries under
the situation of the economic shock than the support for the
creation of a competitive industrial environment The UK model
of capitalism or the Anglo Saxon model of Capitalism always
having the feature of the lack of the state financing process
compared to the other countries and the source of financing
has been the private financing , the state support for the
seed investment and the capital markets .The UK model allows
the industries to react to the economic shocks at a faster
pace as the social hindrances and the state controls are less
and thus the UK industries have the requires high degree of
flexibility to react to the product market and to the economic
shocks.
The role of state financing industries in Germany and France
has created a situation where in this era of globalization,
there can be significant financing in the industries of the
two countries that may result in the reduction of some of
the features of the state cooperation aspects of the German
and French models of capitalism. There can be some severe
reductions in the state and social intervention in the industry
.The optimum trade of between the flexibility of the industries
and the state intervention may be lacking in the German and
the French model of Capitalism and there may be some requirement
to redefine some aspects like state financing of the industry,
the level of sate financing, the cause of the financing and
the expected effect of state financing in the industry. The
present era of globalization is creating a situation where
the best model for capitalism will survive the test of time.
The flexibility of the model to absorb the economic shocks
will determine the future of the model.
Conclusion
The model of capitalism in UK with its institutional framework
for industrial financing through the capital markets, venture
capital firms and flexible labour laws in the 1970's suits
the current economic condition of economic shocks and typically
helpful for the industries with new technologies and global
operations. At the same time the German and the French model
of capitalism with their social protections and cooperation
is more suitable for an environment with stimulators for growth
and definitely have the potential for long term investments
and for the custom made products and service. The sources
of comparative advantage under the different models of capitalism
will lead to specializations of the economies and the state
financing need to take into account of this factor for industrial
financing. The future for these different models of Capitalism
may be determined in the future on the basis of the ability
of the particular model or models to survive not only the
economic shocks but also the change in nature of the global
trade. The present UK system of non interfering in the competitive
environment may include the social parameters of the French
and the German models of Capitalism to state financing of
the industries to overcome the economic shocks as well as
the protective nature of the German and French model of Capitalism
may include some of the competitive features of the Anglo-Saxon
model of the Capitalism to survive the globalization of the
economies and the threats to the closed or protective economies
and to become more competitive and can survive with reduced
social and state dependence.
- Rhodes, M and van Apeldoorn,
B (1997) 'Capitalism versus capitalism in Western Europe'
[Return]
- Dittus, P. and Prowse, S. (1996)
'Corporate Control in Central Europe and Russia: Should
Banks Own Shares?'[Return]
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- Brookings Institution
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in Central Europe and Russia:
- Should Banks Own Shares?', in Frydman, Roman, Gray,
Cheryl and Rapaczynski
- (eds) Corporate Governance in Central Europe and Russia,
vol 1, CEU Press,
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