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Having recently proclaimed that Covid-19 has forced a rethink of macroeconomics, The Economist4 suggests in its 11 September edition that the pandemic is also testing the merits of different modes of capitalism.
Its article ‘Which market model is best?’ notes that the various taxonomies used to categorise models include those set out in the 2001 book “Varieties of Capitalism”, edited by political scientist Peter Hall and economist David Soskice. They distinguish between liberal market economies (LMEs) such as the US, Canada and the UK, and co-ordinated market economies (CMEs) such as Germany, the Nordic countries, Austria and the Netherlands.
For Hall and Soskice LMEs’ capitalism is “red-blooded, relying on market mechanisms to allocate resources and determine wages, and on financial markets to allocate capital”. CMEs, although capitalist, “are fonder of social organisations such as trade unions, and of bank finance”, while Western economies “tend to sit on a continuum” between the two. More recently, scholars have also tried to account for the authoritarian, state-driven capitalism of China and some other countries.
The magazine notes that CMEs such as Germany – and also Sweden – are seen as having applied a more coherent strategy in containing the spread of coronavirus. Those of the UK and the US appeared to many as “disjointed and even chaotic” however, as “swashbuckling LMEs” they are “more likely to be the source of the most transformative innovations in the pandemic: treatments and vaccines”. Of 34 vaccine candidates tracked by the World Health Organisation (WHO), four are in CMEs against 13 in LMEs and one (Anglo-Swedish drugmaker AstraZeneca) in both categories. By contrast China is innovative with 10 different vaccines at various development stages but whose “political capitalism” is regarded as suffering from “endemic corruption, self-dealing and lack of trustworthiness”.
The different models of capitalism are also seen in economic trends. LMEs are regarded as better placed to adapt to permanent structural change wrought by the pandemic. Anglo-Saxon firms have moved towards more home working with France and Germany more resistant, while liberal economies have also shifted faster to online retail.
While both LMEs and CMEs have propped up household incomes, China has shown that “under political capitalism the state’s lack of accountability to the public can lead to a disregard for individual welfare in the short term”. So stimulus has focused on promoting investment and construction, with poor households mostly left to fend for themselves.
Post-pandemic, the magazine suggests that every system will have some basis on which to claim victory. CMEs are on course to have lower death counts, China is enjoying a rapid economic rebound, but it is more likely to be an LME found behind the ultimate defeat of the virus. “Life under the liberal model of capitalism can be risky and scary; its failures no doubt cause suffering. But the rewards when things go well can be immense,” it concludes.