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Home , Mixed economy

Economic Growth & Systems

Jean Monnet Chair in European Integration Studies Prof. PASQUALE TRIDICO International Comparative

Varieties of and performances

welfare economics

comparative economics Introducing Economics

Economic Systems Classifying economic systems

Totally Totally planned free- economy economy Classifying economic systems

Mid 1980s

N. Korea UK Hong Cuba Poland France USA Kong Totally Totally planned free- economy Classifying economic systems

Mid 1980s

N. Korea China UK Hong Cuba Poland France USA Kong Totally Totally planned free-market economy economy N. Korea Cuba China Poland France USA UK China () Mid 2000s ECONOMIC SYSTEMS • Classifying economic systems – methods of classification – classification by degree of government control – other methods of classification • The command economy – features of a command economy – planning: • consumption and investment • matching of inputs and outputs • distribution of output ECONOMIC SYSTEMS • Advantages of a command economy – high investment, high growth – stable growth – social goals pursued – low • Problems of a command economy – problems of gathering information – expensive to administer – inappropriate incentives – shortages and surpluses ECONOMIC SYSTEMS

• The free-market economy – demand and supply decisions – the price mechanism: • shortages and surpluses • equilibrium price • response to changes in demand and supply – the interdependence of markets The price mechanism: the effect of a rise in demand

Goods Market Sg Dg shortage Pg until Dg = Sg (Dg > Sg) Dg

Factor Market Sf D shortage P f f until Df = Sf (Df > Sf) Df  ECONOMIC SYSTEMS

• Advantages of a free-market economy

– transmits information between buyers and sellers

– no need for costly bureaucracy

– incentives to be efficient

– competitive markets responsive to consumers ECONOMIC SYSTEMS • Problems of a free-market economy

– may be limited: problem of market power, monopoly,

– Inequality and social costs

– the environment and other social goals may be ignored

• The mixed economy…Western Europe after IIWW THE NATURE OF ECONOMIC REASONING • Economics and policy

– positive and normative economics

– the role of the economist in policy making

– the use and abuse of economics

– Risk: economics as an a- critical tool for political

• Institutions matter - rules and norms.

• Reduce uncertainity • Guide behaviour

• Real world: • Behaviour driven by institutions?

• Behaviour driven by rational maximizing process? Institutional analysis

• Socio-economic model classification is made taking into consideration control over firm ownership. • Amoroso (2003), Jessop (2002), etc, classify countries according to specific macroeconomic factors such as competition, welfare states, openness, etc. • In some countries, firms are controlled by financial markets, in others the State has several control functions, in others the control is shared by State, , unions, etc. Types of models

In general, 5-6 types of models are discussed in literature:

1. competitive capitalist countries (anglo-saxon) 2. corporative capitalist countries (German- Japan) 3. dirigiste economies (France) 4. socialist markets 5. social democratic countries (Scandinavian model) 6. Hybrid model • In TE the socialist and social democratic models are not present

Economic systems

Low efficiency High efficiency

Low equity Mediterranean Anglo-Saxon Model Model , , ., Greece, Ireland, USA, Portugal, , Australia, New Zeeland High equity Continental Model Scandinavia Model Germany, France, , Finland, Benelux, Austria ,

Correlation scatter and Inequality

40

. Latvia

Portugal

37 UK Greece

Poland

Estonia

34 Romania Italy

Spain

Ireland

Bulgaria

Ineq 2007

Cyprus

31 Slovakia France Belgium Luxembourg

Germany 28 Finland Austria Czech Republic Sweden

Slovenia Denmark

25 20 40 60 80 100 120 Financialization GDP per head as a percentage of the EU15 average: 2004

GDP per head GDP (PPS) per head Luxembourg 220.5 196.9 Denmark 142.7 112.0 Ireland 141.7 127.1 USA 127.3 142.5 Sweden 122.5 106.7 Japan 116.0 107.1 UK 112.6 109.1 Netherlands 112.0 108.1 Germany 104.1 98.5 France 103.6 104.4 Italy 92.0 97.5 Spain 76.0 87.4 Greece 58.6 74.4 Portugal 50.3 67.7 Czech Republic 33.2 64.6 Poland 20.0 44.6 PPP: the big mac index

Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)

France Germany Italy Japan UK USA EU(15) OECD Malaysia Singapore Growth 1960-9 7.5 4.4 5.3 10.9 2.9 4.3 3.5 4.6 5.4 6.5 8.8 1970-9 3.2 2.6 3.8 4.3 2.0 2.8 3.2 3.6 8.1 7.9 8.3 1980-9 2.2 1.8 2.4 4.0 2.4 2.5 2.2 2.6 3.0 5.8 6.1 1990-9 1.7 2.2 1.5 1.7 2.1 3.0 2.1 2.6 1.8 6.9 7.7 2000–5 2.0 1.0 1.5 1.9 2.7 2.9 2.0 2.6 2.8 5.2 4.6 Unemployment 1960-9 1.5 0.9 5.1 1.3 2.2 4.1 2.5 2.5 n/a n/a n/a 1970-9 3.7 2.3 6.4 1.7 4.5 6.1 4.0 4.3 n/a n/a n/a 1980-9 9.0 5.9 9.5 2.5 10.0 7.2 9.3 7.3 n/a 6.2 3.6 1990-9 10.6 7.7 10.4 3.7 8.1 5.8 9.2 6.9 9.3 3.4 2.8 2000–5 9.2 8.9 9.0 5.0 5.1 5.3 7.9 6.7 10.5 3.5 3.8 Inflation 1960-9 4.2 3.2 4.4 4.9 4.1 2.8 3.7 3.1 46.1 –0.3 1.1 1970-9 9.4 5.0 13.9 9.0 13.0 6.8 10.3 9.2 30.6 7.3 5.9 1980-9 7.3 2.9 11.2 2.5 7.4 5.5 7.4 8.9 332.2 2.2 2.5 1990-9 2.0 2.2 4.7 0.8 3.9 2.4 3.3 4.4 847.0 3.6 1.9 2000–5 1.8 1.4 2.7 –1.3 1.8 2.2 2.1 2.3 7.1 1.6 1.0 Competition Economic Main Relationship International Taxation Characteristics Economic between Economic Actors public and Relation Models private (leader country) actors Anglo-saxon Promoting , Firms, Residual Global Low , model free withdrawal of , public competition no or little (USA, UK, competition the State from Markets, sector: progressive Irland) the Economy Market- rate oriented Corporatist Balancing Decentralized Tripartite Public- Protection of High model Cooperation structures private strategic taxation to (Germany) and ( sectors in an finance Competition clubs, Trade open Welfare unions, economy State government) Dirigist model State National Private and Public- High Taxes (France) Control, Accumulation Public private and regulated and sectors partnerships Collective competition Regulation under State Recourses Strategy guide Social State Knowledge Public and Public- National High Democratic controlled and Private Firms private Actors, wages, model innovation as and Ethic moderate free career (Scandinavian and economic Corporations in order to competition, perspective, countries) competition guide for realize open High and regulation Social economy progressive Cohesion rate Socialist Balancing State State or Public and National Distributive markets (China, between Regulation municipal private strategies in a policies, ) forms of and owned firms, actors with global collective liberalization innovation semi-private more context, services, and free firms, emphasis on reasonably equalitarian competition private collective free trade principles. foreign goals firms. Public Authorities

Appropriate institutions

• Every country chooses the economic institutions that thinks are more appropriated for the domestic context, considering the numerous differences that can exist within the same (Rodrik 1999). • The Italian districts case is just an example and an interpretation of such a diversity of local governance, local development, and networking between economic agents. Appropriate institutions (2)

• In the same way the phenomenon of the Italian dualism between north and south shows that those same institutions do not have the same effect (Graziani 1998). Appropriate institutions (3)

• Or still, the phenomenon of familiar Capitalism in some countries of the south east Asian show, in other terms, another varieties of capitalism dramatically affected by informal rules. (Hirschman, 1990) Appropriate institutions (4)

• In Germany or other Asian countries such and Japan there is a strong link between banks and the firms, a particular institutional framework and a particular partnership between state and market which have allowed the creation of a successful model of development specific with informal rules of those countries (Rodrik 1999). Appropriate institutions (5)

• In LDCs strategies of "Imports Substitution" (IS) or of “Exports Promotion" (EP), and all the connected institutions (subsidies to the exports, customs duties, aids of State, credits to the exports, etc) have been working in the same period, in the same countries but not in others although countries were in the same category of LDCs (Meier 2000). Different "style of Capitalism"

• Therefore appropriated economic institutions equal for all countries do not exist, but every country has is "style of Capitalism" (Rodrik 1999)