THREE DIFFERENT SYSTEM OF NATIONAL ECONOMY MODELS: AMERICAN MARKET-ORIENTED CAPITALISM, JAPANESE DEVELOPMENTAL CAPITALISM, AND GERMAN SOCIAL MARKET CAPITALISM ACCORDING TO ROBERT GILPIN

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THREE DIFFERENT SYSTEM OF NATIONAL ECONOMY MODELS: AMERICAN MARKET-ORIENTED CAPITALISM, JAPANESE DEVELOPMENTAL CAPITALISM, AND GERMAN SOCIAL MARKET CAPITALISM ACCORDING TO ROBERT GILPIN

Introduction

Robert Gilpin (1930-2018) was a famous American political scientist known for his extensive publications in international political economy. Gilpin was a Professor of Politics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University where he held the Eisenhower professorship. Gilpin’s 2001 work Global Political Economy: Understanding the International Economic Order was an influential work in terms of categorizing different systems (models) of successful national economies. In this work, Gilpin tried to analyze and compare American, Japanese, and German economic models, three different but successful examples of capitalist system. In this piece, I will try to summarize Gilpin’s thoughts on threse three models of capitalism.

Robert Gilpin

According to Robert Gilpin, while national systems of political economy differ from one another in many important respects, differences in the following areas are worthy of particular attention: (1) the primary purposes of the economic activity of the nation, (2) the role of the state in the economy, and (3) the structure of the corporate sector and private business practices. Although every modern economy must promote the welfare of its citizens, different societies vary in the emphasis given to particular objectives; those objectives, which range from promoting consumer welfare to pursuit of national power, strongly influence and are influenced by such other features of a national economy as the role of the state in the economy and the structure of that economy. As for the role of the state in the economy, market economies include the generally laissez-faire, noninterventionist stance of the United States as well as the Japanese state’s central role in the overall management of the economy.

Global Political Economy: Understanding the International Economic Order

1. The American System of Market-Oriented CapitalismThe American system of political economy is founded on the premise that the primary purpose of economic activity is to benefit consumers while maximizing wealth creation; the distribution of that wealth is of secondary importance. Despite numerous exceptions, the American economy does approach the neoclassical model of a competitive market economy in which individuals are assumed to maximize their own private interests (utility), and business corporations are expected to maximize profits. The American model, like the neoclassical model, rests on the assumption that markets are competitive and that, where they are not competitive, competition should be promoted through antitrust and other policies. Almost any economic activity is permitted unless explicitly forbidden, and the economy is assumed to be open to the outside world unless specifically closed. Emphasis on consumerism and wealth creation results in a powerful proconsumption bias and insensitivity, at least when compared with the Japanese and German models, to the social welfare impact of economic activities. Although Americans pride themselves on their pragmatism, the American economy is based upon the abstract theory of economic science to a greater degree than is any other economy. At the same time, however, the American economy is appropriately characterized as a system of managerial capitalism. As Adolf Berle and Gardner Means pointed out in their classic study of American corporations, the economy was profoundly transformed by the late 19th century emergence of huge corporations and the accompanying shift from a proprietary capitalism to one dominated by large, oligopolistic corporations. Management was separated from ownership, and the corporate elite virtually became a law unto itself. Subsequently, with the New Deal of the 1930s, the power balance shifted noticeably away from big business when a strong regulatory bureaucracy was established and organized labor was empowered; in effect, the neoclassical laissez-faire ideal was diluted by the notion that the federal government had a responsibility to promote economic equity and social welfare. The economic ideal of a self-regulating economy was further undermined by passage of the Full Employment Act of 1946 and the subsequent acceptance of the Keynesian idea that the federal government has a responsibility to maintain full employment through use of macroeconomic (fiscal and monetary) policies.

2. The Japanese System of Developmental Capitalism: G. C. Allen, the distinguished British authority on Japanese economic history, tells a story that provides an important insight into Japanese economic psychology. At the end of World War II, American occupation officials advised the Japanese that they should follow the theory of comparative advantage and hence concentrate on labor-intensive products in rebuilding their economy. Japan’s economic and political elite, however, had quite different ideas and would have nothing to do with what they considered an American effort to relegate Japan to the low end of the economic and technological spectrum. Instead, the Japanese Ministry of International Trade and Industry (MITI) and other agencies of the Japanese economic high command set their sights on making vanquished Japan into the economic and technological equal, and perhaps even the superior, of the West. At the opening of the 21st century, this objective has remained the driving force of Japanese society. In the Japanese scheme of things, the economy is subordinate to the social and political objectives of society. As the distinguished Japanese economist Ryutaro Komiya has written, ever since the Meiji Restoration (1868), Japan’s overriding goals have been “making the economy self-sufficient” and “catching up with the West”. In the pre–World War II years, this ambition meant building a strong army and becoming an industrial power. Since its disastrous defeat in World War II, however, Japan has abandoned militarism and has focused on becoming a powerful industrial and technological nation, while also promoting internal social harmony among the Japanese people. There has been a concerted effort by the Japanese state to guide the evolution and functioning of their economy in order to pursue these sociopolitical objectives. These political goals have resulted in a national economic policy for Japan best characterized as neomercantilism; it involves state assistance, regulation, and protection of specific industrial sectors in order to increase their international competitiveness and attain the “commanding heights” of the global economy. Despite the imperative of competition, the Japanese frequently subordinate pursuit of economic efficiency to social equity and domestic harmony. Many aspects of the Japanese economy that puzzle foreigners are a consequence of a powerful commitment to domestic harmony; and “over-regulation” of the Japanese economy is motivated in part by a desire to protect the weak and defenseless. For example, the large redundant staffs in Japanese retail stores developed from an effort to employ many individuals who would otherwise be unemployed and discontented. This situation is also a major reason for the low level of productivity in nonmanufacturing sectors, and it accounts in part for Japan’s resistance to foreign direct investment by more efficient foreign firms. The Japanese system of lifetime employment has also been utilized as a means to promote social peace; Japanese firms, unlike their American rivals, are very reluctant to “downsize” and lay off thousands of employees. At the opening of the 21st century, however, Japan’s economic problems are causing this situation to change. Nevertheless, the commitments to political independence and social harmony are major factors in the Japanese state’s determination to maintain firm control over the economy. Ever since the 1868 Meiji Restoration, the Japanese state has assumed the central role in the economy. Following Japan’s defeat in World War II, the ruling tripartite alliance of government bureaucracies, the governing Liberal Democratic Party (LDP), and big business began to pursue vigorously the goal of catching up with the West. To this end, the elite pursued rapid industrialization through a strategy employing trade protection, export-led growth, and other policies. The Japanese people have supported this extensive interventionist role of the state and believe that the state has a legitimate and important economic function in promoting economic growth and international competitiveness. The government bureaucracy and the private sector, with the former frequently taking the lead, have consistently worked together for the collective good of Japanese society.

3. The German System of Social Market CapitalismThe German economy has some characteristics similar to the American and some to the Japanese systems of political economy, but it is quite different from both in other ways. On the one hand, Germany, like Japan, emphasizes exports and national savings and investment more than consumption. However, Germany permits the market to function with considerable freedom; indeed, most states in Western Europe are significantly less interventionist than Japan. Furthermore, except for the medium-sized business sector (Mittelstand), the nongovernmental sector of the German economy is highly oligopolistic and is dominated by alliances between major corporations and large private banks. The German system of political economy attempts to balance social concerns and market efficiency. The German state and the private sector provide a highly developed system of social welfare.  The German national system of political economy is representative of the “corporatist” or “welfare state capitalism” of continental Europe, in which capital, organized labor, and government cooperate in management of the economy. This corporatist version of capitalism is characterized by greater representation of labor and the larger society in the governance of corporate affairs than in Anglo-Saxon shareholder capitalism. Ever since Chancellor Otto von Bismarck took the first important steps toward the modern welfare state in the late 19th century, the German state has assumed a major role in providing public welfare for every citizen. This national commitment to advance the overall welfare of the German people has rested on the extraordinary efficiency of German industry. In the modern era, pairing industrial efficiency with public welfare has been made manifest in the concept of the “social market”. Germany emphasizes the values of domestic harmony and community. Worker benefits include a greatly reduced workweek, unemployment insurance, health care, and lengthy vacations. By one reckoning, the cost of benefits is equal to about 80 percent of a worker’s take-home pay. The nation’s high rate of productivity growth has enabled the German nation to provide these generous social welfare benefits, but these especially generous welfare programs have imposed a large burden on German business. The most important contribution of the German state to the economic success of their economy has been indirect. During the postwar era, the German federal government and the governments of the individual Lander (states) have created a stable and favorable environment for private enterprise. Their laws and regulations have successfully encouraged a high savings rate, rapid capital accumulation, and economic growth. Germany has a highly developed system of codified law that reduces uncertainty and creates a stable business climate; the American common law tradition guides U.S. business, and the Japanese bureaucracy relies on administrative guidance. At the core of the German system of political economy is their central bank, or Bundesbank. The Bundesbank’s crucial role in the postwar German economy has been compared to that of the German General Staff in an earlier German domination of the continent. Movement toward the European Economic and Monetary Union has further increased the powerful impact of the Bundesbank. Although the Bundesbank lacks the formal independence of the American Federal Reserve, its actual independence and pervasive influence over the German economy have rested on the belief of the German public that the Bundesbank is the “defender of the mark” (euro) and the staunch opponent of dreaded inflation. Indeed, the Bundesbank did create the stable macroeconomic environment and low interest rates that have provided vital support to the postwar competitive success of German industry. The role of the German state in the microeconomic aspects of the economy has been modest. The Germans, for example, have not had an activist industrial policy although, like other advanced industrial countries, the government has spent heavily on research and development. The German government, however, has not intervened significantly in the economy to shape its structure except in the support it has given through subsidies and protection to such dying industries as coal and shipbuilding and the state-owned businesses such as Lufthansa and the Bundespost (mail and telecommunications). The German system of corporate governance and industrial structure has noteworthy parallels to the Japanese system. As in Japan, powerful national organizations such as the Bundesverband der Deutschen Industrie and the Deutscher Industrie-und Handelstag represent the interests of business in national affairs, and labor is also well organized at the national level. IG. Metall, an organization that represents the auto and metal workers as well as other industries, can speak for German labor in a way that the American Federation of Labor/Congress of Industrial Organizations cannot for American workers. Japanese organized labor, on the other hand, is fragmented into company unions and has almost no influence on either company or national affairs. The system of codetermination at the level of the firm has made German labor a partner, albeit a junior partner, in corporate governance. German industrial organization has certain noteworthy features. One element is the prominent role played in the economy by medium-sized, privately owned firms, called the Mittelstand. Despite the international prominence given to Germany’s large corporations, such as Siemens or Daimler-Benz, the Mittelstand constitute an important reason for German economic success.

Assoc. Prof. Ozan ÖRMECİ

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