Capitalism and a Successful Economy
Introduction
Capitalism has been around for decades. The field of research which seeks to understand the concept of capitalism, has often been defined as the field of comparative political economy as a result of the focus on differences in institutional settings which determine economic outcomes (Regini, 2014). These differences are frequently seen not as products of business decisions but as legacies from various historical contexts. Today, notable differences remain in the industrial relations systems of several countries globally (McLaughlin and Wright, 2018).
Defining Capitalism
Definitions of capitalism have varied over the years since the 19th century. It has been used to characterise the emerging shape of the modern economy and the transformation of society as a whole. Capitalism is an economic system in which private individuals own property and operate according to their own interests, with supply and demand freely determining market prices in a way that can best serve society (Fund, 2017). In the twentieth century, the term “capitalism” became more frequently used to express political perspectives on the desirability and permanence of capitalism as opposed to socialism (Delanty, 2019).
Liberal Market Economies & Coordinated Market Economies
Liberal Market Economies (LME) and Coordinated Market Economies (CME) are two forms of capitalism that can be applied to both past and present theories of capitalism (Crouch, 2005). The concept of a liberal market economy, originally defined by Hall and Soskice, is characterised by the adoption of market mechanisms and agreements to manage relationships among suppliers and buyers. Additionally, they identify coordinated market economies, which are characterised by bargaining-based labour relations and arrangements that reflect employees’ longer-term commitments (Lansbury and Bamber, 2020). LME economies rely on labour markets that set wages through competition and typically have less regulation to protect employees and provide them with security (Crouch, 2005).
Social & National Factors in Relation to Market Economies
The developed world is often divided into liberal market economies (LMEs), such as the UK and USA, and coordinated market economies (CMEs), such as Japan and Scandinavian countries (Dibben and Williams, 2012). However, it is important to recognise that these approaches to capitalism have limitations and often do not account for differences in the social or political makeup of each country. Lansbury and Bamber (2020) highlighted that the institutional bases on which German and Japanese corporate governance arrangements are built, as well as the historical events that formed them, differ despite generating similar outcomes. This illustrates the importance of considering social and national influences on industrial relations based on the country in question. Despite pressures for convergence in industrial relations systems, Europe has maintained distinct national industrial relations systems (Black, 2005). Social and national factors are ultimately what must be taken into consideration when analysing national industrial relations systems (Lansbury and Bamber, 2020).
The Effect of External Forces on the Economy
Prices and wages typically take a while to adjust to the forces of supply and demand, with demand playing the largest role in determining economic growth (Hackemy 2017). The economy can transition between major phases of development and contraction through boom-and-bust cycles, which are a feature of economic growth (Hakemy, 2017). Today many multinational corporations are faced with the western style model of capitalism (Werhane, 2000). Businesses can pursue their ambitions competitively without the hassle of restrictions and undue regulations surrounding labour restrictions which can result in growth and economic good in every country (Werhane, 2000). It is important to remember that in this context, capitalist economies and industrial relations systems cannot be generalised for globally. The perception of what is good and beneficial to the employee and multinational corporations will vary from country to country based on the social and cultural norms (Werhane, 2000).
Conclusion
Capitalism can be useful in understanding the inner mechanisms of an economy. LME’s & CME’s illustrate than capitalism can be organised and function in many ways. Ultimately it is essential to consider the multitude of factors which can contribute to a successful economy including social, national and historical context.
Sources
Baran, P.A. (1963) ‘Review of Capitalism and Freedom’, Journal of Political Economy
Black, B. (2001) ‘National Culture and Industrial Relations and Pay Structures’, LABOUR, 15, pp. 257–277. Available at: https://doi.org/10.1111/1467-9914.00164.
Black, B. (2005) ‘Comparative industrial relations theory: the role of national culture’, The International Journal of Human Resource Management Available at: https://doi.org/10.1080/09585190500143980.
Calayton S. Rose and Rebecca Henderson (2018) Note on Comparative Capitalism – Technical Note – Faculty & Research – Harvard Business School, Harvard Business School. Available at: https://www.hbs.edu/faculty/Pages/item.aspx?num=48459 (Accessed: 7 May 2023).
Crouch, C. (2005) ‘Models of capitalism’, New Political Economy, 10(4), pp. 439–456. Available at: hTps://doi.org/10.1080/13563460500344336.
Crouch, C., Schröder, M. and Voelzkow, H. (2009) ‘Regional and sectoral varieties of capitalism’, Economy and Society, 38(4), pp. 654–678. Available at: https://doi.org/10.1080/03085140903190383.
Delanty, G. (2019) ‘The future of capitalism: Trends, scenarios and prospects for the future’, Journal of Classical Sociology, 19(1), pp. 10–26. Available at: https://doi.org/10.1177/1468795X18810569.
Denis, A. (2004) ‘Two rhetorical strategies of laissez-faire’, Journal of Economic Methodology, 11(3), pp. 341–357. Available at: https://doi.org/10.1080/1350178042000252983.
Dibben, P. and Williams, C.C. (2012) ‘Varieties of Capitalism and Employment Relations: Informally Dominated Market Economies’, Industrial Relations: A Journal of Economy and Society, 51(s1), pp. 563–582. Available at: hTps://doi.org/10.1111/j.1468- 232X.2012.00690.x.
Feldmann, M. (2019) ‘Global Varieties of Capitalism’, World Politics, 71(1), pp. 162–196. Available at: hTps://doi.org/10.1017/S0043887118000230.
Fund, I.M. (2017) Back to Basics: Economic Concepts Explained. International Monetary Fund.
Gollan, P. and Patmore, G. (2013) ‘Perspectives of legal regulation and employment relations at the workplace: Limits and challenges for employee voice’, Journal of Industrial Relations, 55, pp. 488–506. Available at: hTps://doi.org/10.1177/0022185613489392.
Hakemy, S. (2017) An Analysis of Milton Friedman’s Capitalism and Freedom. CRC Press. Hancké, B. (2009) Debating Varieties of Capitalism: A Reader. OUP Oxford.
Hughes, S. (2005) ‘The International Labour Organisation, New Political Economy, 10(3), pp. 413–425. Available at: hTps://doi.org/10.1080/13563460500204324.
Kano, L., Tsang, E.W.K. and Yeung, H.W. (2020) ‘Global value chains: A review of the multi- disciplinary literature’, Journal of International Business Studies, 51(4), pp. 577–622. Available at: https://doi.org/10.1057/s41267-020-00304-2.
Kollmeyer, C. (2021) ‘Post-industrial capitalism and trade union decline in affluent democracies’, International Journal of Comparative Sociology, 62(6), pp. 466–487. Available at: https://doi.org/10.1177/00207152221086876.
Lansbury, R.D. and Bamber, G.J. (eds) (2020) International and Comparative Employment Relations: National regulation, global changes. 6th edn. London: Routledge. Available at: https://doi.org/10.4324/9781003116158.
McLaughlin, C. and Wright, C.F. (2018) ‘The Role of Ideas in Understanding Industrial Relations Policy Change in Liberal Market Economies’, Industrial Relations: A Journal of Economy and Society, 57(4), pp. 568–610. Available at: https://doi.org/10.1111/irel.12218.
Regini, M. (2014) ‘Models of Capitalism and the Crisis’, Standing, G. (2008) ‘The ILO: An Agency for Globalisation?’, Development and Change, Available at: https://doi.org/10.1111/j.1467-7660.2008.00484.x.
Werhane, P.H. (2000) ‘Exploring Mental Models: Global Capitalism in the 21st Century’, Business Ethics Quarterly, 10(1), pp. 353–362. Available at: https://doi.org/10.2307/3857720.
Yang, I. (2015) ‘Positive effects of laissez-faire leadership: conceptual exploration’, Journal of Management Development, 34(10), pp. 1246–1261. Available at: https://doi.org/10.1108/JMD-02-2015-0016.
About the author
