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On the basis of the literature that is available on the Anglo-Saxon economic model and Rhine Capitalism, this research paper compares the two models and distinguishes the model that would be superior in the light of the current economic performances. In addition, the paper identifies the factors other than market forces that have been causal in explaining economic development. According to the literature, Rhine capitalism is a contemporary economic order that is quite popular in the western parts of Europe. The capitalist economic model was first adopted by the Americans and Europeans under the leadership of the US President Ronald Reagan and the UK Prime Minister Margaret Thatcher. In this model, global finance should have a closer correlation with banks that they should have with the stock market. In addition, it champions for a closer working relationship between banks and public or private companies. Moreover, it advocates for a better social partnership that will ensure good relations between employers and workers unions. On the other hand, the Anglo-Saxon model is widely practiced in the English-speaking nations, like the United States and Canada. The model largely draws from the sociological opinions expressed in Marx Webber’s theory (Michel 1993).
The Anglo-Saxon economic model is regarded as being more liberal as it allows for free market system that is prohibited by some capitalist economies. The basic features that distinguish the various forms of the Anglo-Saxon economy are the nature of their expenditure and the rates of taxation. According to the literature available, the United Kingdom has a much higher rate of taxation that other European countries or even the United States. Notably, the country also spends relatively more funds on welfare than any other state in Europe. However, a few countries on the continental Europe have adopted a macroeconomic model that largely borrows from the Anglo-Saxon model. This model is referred to as Rhine capitalism and is popularly practiced in France, Italy, and Germany. Over the years, legislators from the European countries have been debating which one of the two systems to adopt fully. This debate always revolves around social inequality, job insecurity, and quality of social services. The popular belief in Europe and beyond the Old World is that Anglo-Saxon economic model promotes general national prosperity. On the other hand, the Rhine Capitalism is thought to stifle national productivity. However, there is a school of thoughts that believes that the Rhine Capitalism promotes social equality and reduces the levels of poverty (Scott 2005).
Anglo-Saxon was used to refer to a predominant social culture in Britain that strongly believed in and practiced Capitalism and Protestantism. This belief was largely influenced by the sociological theory of Marx Webber, who postulated that capitalism was a creation and fruit of the Protestantism. Ideally, this model is based on the premise of economic competition and social conflicts that dominated the British political and economic systems. The driving force behind this cutthroat competition is the fact that the winner will take everything as the formation of coalitions is not a political option. In terms of economics, the system advocates for an absolutely free market capitalism where individual firms are left to battle it out. The idea that business organizations work for the common good of their nations does not hold in this economic model as the main focus is what portion of the market a firm can get hold of. According to sociologists, this is a typical social Darwinism where nature selects the strongest from the weak. Thus, the system is characterized by slow but sure changes as the society moves towards social and economic progress (Michel 1993).
Role of the State
The Anglo-Saxon model of economy tends to thrive best in countries of average size, like Ireland and the United Kingdom. Generally, these countries care about the welfare of the society and attempt to raise people’s incomes. However, the general welfare of the public remains way below those of Scandinavian countries and continental Europe. This economy is characterized by great economic inequality with the greater majority living below the poverty line. In order to cater for the poor majority, the states provide free healthcare as demanded universally and attempts to redistribute national income by giving people a periodic stipend. On the other hand, the Rhine capitalist model is common in relatively large countries, like the United States and Germany. In addition, these countries boast of large economies where almost everyone is in a permanent employment, unlike in the Anglo-Saxon model. Although the government significantly intervenes in the economic system, this intervention is limited to the creation of the favorable environment. It basically focuses on ensuring that the economy is up and running. Indeed, that is why political leaders would stop at nothing to ensure that government institutions or institutions where the public interest is quite big do not collapse. For instance, these countries believe that they have a moral duty to ensure that financial disasters do not cause a total collapse of financial institutions. This is quite different from the Anglo-Saxon model where government intervention is very limited (Walberg 2001).
The labor market in Anglo-Saxon model is quite competitive, and it is difficult to get permanent employment. Thus, the economy requires that the work force should be flexible enough to accept and fit into any job markets where opportunities arise. In addition, the model advocates for regular re-training of personnel and increasing their levels of regional awareness as this prepares them for any eventuality in terms of relocations. In most cases, the model encourages against taxations due to the fact that taxations put an extra expense on the cost of hiring staff. The low cost of hiring staff is ideally supposed to encourage new entrepreneurs into the market in order to perpetuate the Anglo-Saxon model that is based on competition. In addition, the model does not put any ceilings on the minimum wages as this would scare away new investors. On the other hand, the Rhine capitalism, also called social democracy, advocates economic competition. However, the kind of competition it advocates is quite different in the sense that it does not disadvantage the poor or those who are socially underprivileged. According to the literature, this is a typical kind of capitalism that preserves a human face. Thus, it promotes social competition, but to acceptable levels such that it does not work against the less fortunate in the society (Michel 1993).
The system tries as much as possible to keep a free market so as to retain the competitive nature of the model. According to the literature, the system would cease to be competitive if the governments would put regulatory measures on business operations or entry into the market. Although there are certain regulations that cannot be avoided, the states always hold an interest in ensuring that the economic consequences that may arise due to these controls are avoided. Generally, the system only accepts regulations that are not geared towards market solutions as these would stifle the competition. In addition, this system has a lot of skeptics towards government interventions. According to financial analysts, government intervention would stifle competition considering that the government institutions would not be competing on a fair ground. In light of this fact, the general quality of products would be tremendously reduced if the government finally establishes a monopoly. On the other hand, the Rhine capitalism model has lots of means of the government interventions that are aimed at leveling the playing ground for all business persons. For instance, the government through the central bank can control or manipulate the bank rates so as to promote or discourage people from taking loans from the bank. Ideally, the government treats the market players as puppets that it controls indirectly. This is never obvious. They do not want people to go on the rampage due to the fact that they may not understand the economic dynamics (Scott 2005).