Stimulating Employment and Growth : Do we need an Anglo-Saxon or a Nordic Model?

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Stimulating Employment and Growth Do we need an
Anglo-Saxon or a Nordic Model?

• Frank McDonald

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National Business Systems

• Countries have different national business
  systems determined by their institutional systems
  and norms of behaviour
• National business systems largely determine the
  rules of the game for business transactions

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National Business Systems

• These systems are path determined by history and
  normally they change slowly.
• They however can experience rapid change in
  periods of crises eg the UK in the 1980s or with
  radical change in the views of elities eg China
  in the 1990s

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Types of national business systems in the EU

• Anglo-Saxon
• Nordic
• Rhenish
• Issue of the emerging national business systems
  in new member states

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Anglo-Saxon Model

• National business systems geared towards open
  economies (active participation in globalisation
  process), emphasis on extension of internal
  market of the EU based on social protection at
  minimal level, and flexible labour markets - UK
  and to a lesser extent Ireland

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Anglo-Saxon Model
Strong market based reforms
Business friendly policies
Economic stability
Increased growth and employment
Social model conditions largely determined by
needs of competitiveness
Open to globalisation process
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Anglo-Saxon Model - Benefits

• High growth and low unemployment relative to
  Rhenish model countries
• Conducive to high levels of inward foreign direct
  investment from outside of the EU
• Fast adjustment to process of globalisation

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Anglo-Saxon Model - Benefits

• High proportion of population economically active
  
• Some internationally competitive sectors eg
  financial business services in London,
  Pharmaceuticals

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Anglo-Saxon Model - Problems

• Growth and unemployment not better than Nordic
  model countries
• Low level of labour productivity compared to both
  Rhenish and Nordic model countries
• Large income inequalities - regionally and across
  types of jobs

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Anglo-Saxon Model - Challenges

• Improve labour productivity
• Reduce problems of low income for labour with low
  or the wrong skills
• Reduce regional inequality
• Keeping up with fast pace of change caused by
  technological change and globalisation

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Nordic Model

• National business systems geared towards
  globalisation process and development of high
  employment (with reformed social benefits
  systems) founded on knowledge-based industries,
  labour markets geared towards encouraging high
  productivity with high wages the Scandinavian
  countries and the Netherlands

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Nordic Model - Benefits

• High growth and low unemployment
• High labour productivity
• High social welfare benefits

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Nordic Model - Problems

• High proportion of GDP is accounted for by the
  state
• Low proportion of population are economically
  activity
• Not as attractive as the UK and Ireland for non
  EU based inward foreign direct investment

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Nordic Model - Challenges

• Maintaining high proportion of GDP accounted for
  by the state
• Dealing with low proportion of population that
  are economically activity
• Creating enough high wage/high productivity jobs
  in the face of increasing international
  competition

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Rhenish Model

• National business systems concerned to protect
  social benefits system (or to have slow pace of
  reform of this system) and to protect and
  encourage national (European) champions in key
  industries, major concerns about the
  globalisation process, and strong emphasis on
  protecting employment conditions France and to
  a lesser extent Germany, Italy and Spain

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Rhenish Model
Slow market based reforms
Business policies geared towards European
champions
Social model conditions determined by strong EU
laws and policies to enhance social cohesion
Increased growth and employment
Economic Stability
Cautious approach to globalisation process
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Rhenish Model - Benefits

• High labour productivity especially France and
  Germany
• High social welfare benefits
• Some leading international companies VW, EADS,
  Siemens, Thales

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Rhenish Model - Problems

• Low growth and high unemployment compared to
  Nordic and Anglo-Saxon models
• High proportion of GDP is accounted for by the
  state
• Low proportion of population are economically
  active

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Rhenish Model - Problems

• Not as attractive as the UK and Ireland for
  non-EU based inward foreign direct investment
• Many of the large internationally competitive
  companies in France are strongly connected to the
  State
• For advanced economies have a relatively large
  share of GDP in basic manufacturing

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Rhenish Model - Challenges

• Boosting growth and reducing unemployment
• Adjusting to the decline in manufacturing jobs
• Increasing proportion of the population that are
  economically active

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Rhenish Model - Challenges

• Maintaining high proportion of GDP accounted for
  by the state
• Creating enough new jobs in high wage/high
  productivity work in the face of increasing
  international competition and technological
  change

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Emerging Models

• Emerging national business systems with an
  evolving orientation towards social benefits
  systems and the globalisation process
• Challenge what kind of national business system
  will help them to catch up to the labour
  productivity levels of the richer members of the
  EU and to maintain international competitiveness
  

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Nirvana Model
High welfare benefits
High growth and low unemployment
High productivity
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Nirvana Model - requirements

• Business system which can deliver high
  productivity in the face of increasing
  international competition and technological
  change by overcoming problems of inappropriate
  characteristics in labour force, eg low economic
  activity, low or the wrong skills, low adjustment
  capacity, poor levels of education

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Realistic models

• Countries with high degree of consensus about
  social norms and highly educated populations
  versions of the Nordic model
• Countries with diverse and conflicting views on
  social norms and high proportion of unskilled or
  wrong skilled labour with high proportion of
  poorly educated labour versions of the
  Anglo-Saxon model

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Realistic models

• Countries with diverse and conflicting views on
  social norms and highly educated populations with
  appropriate skills versions of the Rhenish
  model
• However, it is not clear if even France and
  Germany have the conditions necessary to sustain
  Rhenish models

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Role of the EU

• Flexible social and economic policies that permit
  development of different national business
  systems that can tackle the different challenges
  that face the member states
• A flexible EU with inner-core members in some
  areas and peripheral members in many areas
• Problems of labour migration within the EU from
  low to high income countries

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Role of the EU

• Creation of a nirvana model by strong and uniform
  social and economic policies with large scale
  transfer of income to help poorer member states
  to compete with high social costs
• Systems that generate sufficient high wage/high
  productivity jobs to finance high social welfare
  benefits
• A very difficult project to create, implement and
  sustain