Lec 8- institutions and political economy Flashcards
multiple equilibira
capitalism is the only system that produces wealth but there are many capitalisms and they get to the same place that is that different polities with contrasting institutions produce comparable levels of wealth
germany/ U.S. coparison
began with observation that both are very wealthy
US: largest economy in the world and 2nd largest exporter
Germany: 4th largest economy and 3rd largest exporter
both have high standards of living and high productivity but the two are v different
unionization and collective bargaining levels comparison by country
U.S. 12.1%
Germany 54%
canada 20.2%
france 98%
inequality: % of income going to the top centile
germany: 11%
U.S. 40%
market relationships
LME USA: defined by hierarchies, competition, and arms-length relationships b/w firms, unions, and banks
interactions are transactional motivated by immediate profit, commitment is low
CME germany: defined be greater collaboration, exchange of private information, informal arrangements
thw view of profit is long term and commitments are higher
vocational training
firms only have an incentive to invest heavily in occupational training if they are confident that other firms will not poach their talent
LME USA: firms invest little in training, they rely on general skills and such trainings as there is occurs on the job
CME germany: firms invest heavily in training
german apprenticeship model
found in all sectors: manufacturing, the trade, postal services, and sales and retail services
can be from 1-5 years; standard model is 3
most apprentices enter the system after high school, but there are other entry points
dual system combines a course at a training college with an apprenticeship
around 1.5 million in apprenticeships in any given year
companies take pride in their training programs, are very hostile to lowering standards, and hire most of those whom they train
for the customer… comapring both
CME germany:
staff are highly trained and highly competent
consistent standards and a more predictable price structure. tradespeople will offer broadly similar standard of service
LME US:
in retail workers have a service culture but little in-depth knowledge of the products they are selling
with a few exceptions, quality and price vary widely, the buyer must very much beware and word of mouth rather than credentialization ensures quality and reliability
for the worker for germany
more secure pathways to work
higher prestige; there is no sense in germany that its a univeristy degree or nothing
better pay
lower youth unemployment
for the economy in Germany
mittlestand:stands for middle class
companies with fewer than 50 employees
make up over 90% of all german companies
employ 60% of german workers
are distributed across the country, avoiding the wealth concentration seen around paris and london/southeast
finance: LME US
capital has little knowledge of firms’ operations
rely on publicily available information, above all balance sheets
take a short-term view of profit with little interest in companies’ long-term viability
companies are highly reliant on public listings (stock market) for capital, driven squarely by earnings
finance: CME germany
investors are much closely linked to firms over a longer period
they have much more inside knowledge of firms and pay attention to much more than balance sheets
view of profit is long term
many of germany’s largest comapnies are not publicly listed
as of 2018 germany had 450 publicly listen companies, down from 760 in 2008
US, three times the size of germany, has 4,266 publicly listed companies
unions in LME US
devastated: held responsible for 1970s inflation. Reagan’s sacking of PATCO workers set a trend
faced an onslaught of management conslutants and labor lawyers designed to prevent unions
labor rights are weakly enforced by the national labor relations board
rent seekers
adversarial relationship with companies
no representation with company governance structures
more likely to pursue high wage demands that brings short-term success but long-term job losses
CME Germany UNIONS
council has to be consulted on:
start and end of working hours, including breaks
reducing or increasing working hours
leave plans and defined leave for individual employees
introduction of procedures or instruments to monitor the conduct or performance of employees
health and safety measures, accident prevention measures
introduction of specific pay systems
regulations governing additional pay and bonuses
introduction of group work and consolidation of work groups
result for germany based on strong unions
german workers are in a collaborative relationship with employers
they view themselves as part of the productive process
have a say in and care about productivity, product/service quality, innovation
workers are being respected so they are more likely to respect their companies in return and cooperate in accepting temporary restrictions - reduced work, flexible hours - to secure long term profitibaility
covid and varities of capitalism US
exposed ill-health, obesity, chronic conditions among americna working class
40 milion workers lsot thier jobs
unemployment increased from 4.4%-14.7%
intervention required congressional payments to workers
cost: $900 billion in unemployment insurance
covid and varities of capitalism GERMANY
unemployment increased by 5-5.8%
10 million workers went to reduced hours, staying in their jobs but working less with the state making up the difference
result: far less of an employment hit, and workers were still in their jobs when growth picked up again
EU unemployment: increased overall much less than american
was only possible because of the interlocking institutions that characterize the german economy
conclusion for US and Germany
both generate high levels of wealth
US provides higher salaries for skilled workers and more opportunities for middle class wealth acquisition via asset price inflation, above all in housing
US has a much more bifurcated wage structure. in the US, the average CEO earns 300 times as much as the average worker; in Germany, the figure is 136
Germany has a large low-wage sector but its pool of secure, well-paid workers is much larger than the US
CMEs find it relatively difficult to incorporate migrants into the labor market
Germany capitalism is more socially just, but it would be impossible to transform American capitalism into German because the latter rests of a dense set of institutions that do not exist in North America
Japan
genuine if one party democracy since 1945
enjoyed staggering postwar economic growth; economy increased 55-fold from 1946-1976
stagnated since; good example of the weaknesses of cultural explanation
ministry of international trade and industry (JAPAN)
oversaw the whole process. inspired by german neo-mercantilism
japan was a developmental state, as distinct from a regulatory state, which focuses on the ruels of economic competition
a developmental state sets strategic economic goals
most talented graduates went into MITI as well as Finance, agriculture, constructiona nd economic planning. they made the key decision on the budget and all economic policy innovation
at retirement, around age 50-55 they went into private enterprise, banking, and public companies; thus a tight link between bureaucracy, the government, and private enterprise
going for growth (JAPAN)
civil service above all MITI intervened directly at the micro-level: the state intruded on the detailed operations of individual enterpirse, used tax and spending to encourage and close down particular sectors, and set targets for growth
until the 1960s, high tarrifs, stringent ownership rules, and capital controls nurtured domestic industry
degree of intervention made japan closer to planned socialist economies of EE than france or west germany; US military would be the closest NA analogy
model delivered staggering economic growth until the late 1980s; then Japan entered a longer period of stagnation
Korea
model of authoritarian development
park chunghee ruled from 1961-1979
built an export-based economy based first on cheap labor, through state intervention. the state traded subsidies for firms with performance standards that the firms need to meet. it would also close and transfer ownership of unviable firms
the state owns all commercial banks; it limits the number of firms in a field; controls commodity prices; limits capital flight, and uses taxes to invest heavily in infrastructure
accent has been on export led growth and industry protected by tariffs. cheap domestic labor helped keep exports competitive
relatively little innovation but rather incremental improvements in and capture of market share in fields previously dominated by others: shipbuilding, electronics automobiles
singapore
authoritarian capitalism
are elections but candidates are chosen by the state on the basis of academic merit. salaries are high, and there is zero tolerance for corruption
economy is highly open to trade is highly open to trade but run by technocrats. government used tax policy to attract foreign capital, set up an innovation fund to support high tech investment, and spends heavily on R and D
life is highly regulated. singaporeans accept limitations on freedom in exchange for wealth and public health care blah blah
brexiters’ dream of london become a singapore on the Thames is ludicrous
china
another model of state-directed capitalism
communist party kept formal commitment to Mao and communism but introduced market mechanism, starting in the coastal cities
state sets growth and production targets, maintains tariffs, and controls capital, and limits internal migration
state subsidies, and controls, strategic industries: machinery, automobiles, technology, construction, and iron and steel
taxes and subsidies encourage foreign investment and export led growth; china is the world’s leading exporter
like korea, little innovation but rather market share capture
economic success supported by a massive domestic market and abundant cheap domestic labor
over 40 years, the state lifted hundreds of millions of people out of poverty
conclusion
very different models of capitalism produce similar results: high GDP and GDP per capita
institutions determine the difference. in Japan, korea, and singapore it is the state that played a definitive role in supporting firms, targeting and nurturing sectors, subsidizing exports, controlling capital, and limiting imports
in germany sub national institutions the firm and its dense network of relations with unions and banks underpin its particular model fo capitalism
