Question

advantage and disadvantage of

- the Anglo-Saxon model of capitalism,

- the European model of capitalism and

- the Asian model of capitalism?

Answer 1

* The Anglo-Saxon model of capitalism :

Advantage

As we all know one of the differences between the Anglo-Saxon variant of capitalism and others such as Rhineland such is the way in which economic activity is financed. They tend to use banks to finance both the debt and equity portions of a business; we tend to use markets to do so. For us large companies tend to issue shares, bonds, commercial paper, and even small companies don't get their equity from banks, only their debt financing.

As an aside it has hugely amused me the way in which recent events have had everyone spitting at the banks, insisting that they be cut down to size. And then the very same people (yes Mr. Hutton, we're looking at you) insist in the next breath that we must have Rhineland capitalism, the one in which the banks loom even larger in the financing of industry.

Advocates of the Anglo-Saxon economic model claim that it encourages entrepreneurship because it makes conducting business easier given the reduced level of government involvement.

This ease of doing business purportedly allows companies to focus on the interests of the shareholders rather than its employees.

Additionally, it is said to lead to market competition. This competition fuels innovation which results in increased wealth generation. According to this model, private companies that are not able to work creatively and efficiently will go out of business, making more opportunities for new ventures.

Disadvantage

Opponents of this capitalist model claim that it focuses too much on earning profit as quickly as possible, and therefore does not place enough emphasis on long-term planning and sustainability.

Critics claim that the focus on ease of business and reduced government interference results in job insecurity, reduced social services, and increased social inequality. This is because the Anglo-Saxon model focuses on the interests of private businesses, which is believed to lead to a healthy economy.

Other critics suggest that, due to the fact that the interests of shareholders are more important, it promotes inequality among employees and other stakeholders. This inequality, in turn, results in higher levels of poverty.

One theory even suggests that the liberal economics of the 1970’s contributed to the 2008 global economic crisis. Others oppose this argument because not all of the countries with Anglo-Saxon economies were affected in the same manner

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* European model of capitalism

Advantage

Capitalism, as we are aware, is an economy where resources and firms are privately owned in free markets. Normally, this usually involves some government intervention to regulate certain aspects of the economy and protect private property [9] . Several advantages are included within a capitalist economy.

Foremost as Government intervention is kept at a limited level several issues that generally arise with government intervention including corruption, lack of a self-interest push force and poor circulation of information within the market is prevented allowing individual incentives to work as hard as possible to achieve as much as possible.

As the capitalist economy is dependent on the push factor of individuals, there is no limit to the level of wealth an individual can accumulate through progression within the economy.

Capitalism allows individuals choice both in commodity purchase and employment opportunities. It allows resources to be distributed according to consumer choice rearing the market in a more productive consumer friendly range.

Profit maximization is a main priority within the capitalist’s state; this can be produced via meeting consumer wants. This causes large suppliers of goods and services that are similar diversification in brands allow for customer distinction and individuality, catering for the necessary changes in desire for certain goods among the lower and higher income classes.

Disadvantage

Within the capitalists state the consumer has all the power in the economy because some people will always be able to work harder, achieve more and eventually achieve dominance above others in the economy. Along with a lack of Government welfare and human nature several disadvantages would eventuality occur within the economy.

As dominance within the economy is formed by the elite few, wealth is recycled in this small percentage who has gained a monopoly through limited Government control.

This normally occurs through construction of rules that limit the flexibility of the money flow between classes. Leading to exploitation in labor resulting in revolt and strike within the market negatively affecting the entire economy by halting and disrupting production.

Due to market being profit and demand driven, negative externalities such as pollution are generally ignored until they become a serious issue within the economy. This leads to a necessity to reduce the money supply in the economy to resolve these issues.

Firms that have been able to gain monopolies early within market development, pushes out smaller firms from entering due to the high level of competition where they may not be able to produce.

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* Asian model of capitalism

Advantages:

1. Centralised tight planning-- hence no wastage of resources or output.

2. Monopolies in the private domain are absent. the state has a monopoly.

3. Emergency situations can be better managed due to central control on production.

4. Price is not determined by the market unlike free market economies but by government dictat..Hence better price control...which is important in some situations.

5.Unlike private entrepreneurship which is driven by greed or selfish desire of the entrepreneur or investor...the state economy managers are more altruistic...hence notionally no one person can actually gain over another.

Disadvantages

1. Since the views of the people are not always taken into account and production is based on a centralized decision making process..this can lead to excess production of some stuff and underproduction of other stuff...based on faulty data of the requirements.

2.China has witnessed large famine several times under communist rule.This is because rather than take care of the needs of the people, production has been oriented for other reasons of the state policy...In India post independence there has been no incidence of famine..on a large scale.

3. As production is centralized and may not be in tune with the specific needs of its people...there is a large thriving underground black market in China...the estimation of wealth siphoned off to foreign tax havens is much more in the case of China as compared to India. Likewise there is a huge environmental cost ...where production has been achieved at the cost of damaging the environment.

4.For decades China followed a one child policy...social fabric of society in many ways has been destroyed.....there is an enormous cost to be paid by the current Chinese population to support the social and economic needs of a very large number of aged citizens. In contrast India has a huge population of youth who can be productive for a long time.