Capitalisms Compared

Welfare, Work, and Business

John R. Bowman

• Publisher: CQ Press
• Year: 2013
• Print ISBN: 9781452259024
• eBook ISBN: 9781483323718
• Edition: 1
• Topic: Economics
• Subtopic: Political Economy
• Index: Economics

How different would Americans' lives be if they had guaranteed access to health care, generous public pensions, paid family leave, high-quality public pre-school care, increased rights at work, and a greater say in how corporations are run?

This one-of-a-kind book emphasizes that differences in policies and institutions affect the lives of citizens by comparing health, pension, and family policies, as well as labor markets and corporate governance in the United States, Sweden, and Germany. Demonstrating that the US model of capitalism is not the only one that is viable, Bowman encourages students not only to rethink their assumptions about what policy alternatives are feasible, but also to learn more about American capitalism through insightful contrast. Covering a wide range of policy areas and written in a crisp, engaging style, Capitalisms Compared is a perfect companion for courses in political economy and public policy.

1 Introduction

MOST AMERICANS UNDERESTIMATE THE EXTENT TO WHICH THE world's rich capitalist economies vary. We tend to think that capitalism comes in one size and shape, and that it basically looks like the contemporary United States. The purpose of this book is to challenge this equation between the particular features of U.S. capitalism and the essential features of capitalism in general. It is a book about capitalisms, not capitalism. My main goal is not to demonstrate that one national variant of capitalism is better or worse than another, but simply to show that different versions of capitalism exist and can be successful.

The three countries described in this book—the United States, Germany, and Sweden—all have rich, globally competitive, capitalist economies. Economic activity in each is dominated by privately owned corporations that pursue profit by producing goods and services in competitive markets. In each country, a minority of the population owns the “means of production,” and the majority earns a living by working for private employers. People use their paychecks to purchase a broadly similar array of products, manufactured in many cases by the same companies in the same factories. Yet in spite of these important common features, the lives of families and workers in these three countries are very different. Although it is no longer possible to point to real-world socialist alternatives to the U.S.-style capitalist economy, the two other countries described in this book represent very real capitalist alternatives to the U.S. model. I hope that an awareness of alternatives will allow readers to approach contemporary U.S. policy debates with a fresh point of view and to rethink their assumptions about what is or is not possible or affordable in the United States. For instance, the examples of Germany and Sweden show that it is possible to have a successful twenty-first-century capitalist economy in which all citizens receive health insurance and in which long-run health costs are under control. It is possible to have a successful twenty-first-century capitalist economy in which the parents of infants receive guaranteed paid time off from work and in which almost all preschool-age children receive high-quality public child care. It is also possible to have a public pension system that provides a decent retirement income to all citizens without undermining public finances. Finally, it is possible to require capitalist business corporations to have employee representation on boards of directors and to pay attention to interests other than those of shareholders.

Unlike most other authors who compare policies and economic institutions, I go into considerable detail in this book, providing in-depth descriptions of key institutions and policies. There are two reasons for this. First, I have found that even when we can define abstract terms like universal health insurance, universal parental leave, and centralized collective bargaining, it is difficult to understand these concepts fully without a good sense of how they operate in practice. In order for these concepts to have real meaning, they must be brought to life. What does universal health insurance look like? What happens when you are sick or injured? How much does it cost the patient? Who pays the doctors? Who decides what kind of care you get? In short, how does it really work? This goes for American institutions and policies as well. How do Medicaid and Medicare function? What is “managed care” Who pays for the health care of Americans who don't have insurance? Although many readers of this book will be Americans who believe that they know how the U.S. system works, I am certain that most of them will be surprised more than once. They may even find the sections on the United States to be the most interesting parts of the book!

A second reason why I focus on policy details is that these policies and institutions are not experienced by citizens as abstractions, but as part of the fabric of day-to-day life. To a large extent, the idea for writing this book originated with a conversation that I had several years ago with a Norwegian friend and colleague who was visiting me in New York. At some point, the talk turned to summer vacation plans, and my friend—call him Geir—started to describe a large-scale renovation of his family's vacation house. I understood immediately that this would be very expensive, and as one part of my brain was visualizing the remodeled house, another part was thinking, “What? How can someone earning a university professor's salary, with three kids about to enter college, afford to even think about this kind of expense?” Of course, the answer is simple. In Norway, as in many other countries, low or free tuition and cheap government-subsidized loans mean that the out-of-pocket costs of higher education are extremely low. “Saving for college” is not something that Norwegian parents or students have to do. It is not part of their culture. It is not part of their way of life.

As a student of comparative politics who lived in Norway for a year, I have long been aware of the fact that higher education there is almost free. However, I had never before put two and two together. I never made the connection between that policy abstraction—“free higher education”—and its impact on the daily lives of citizens. In the United States, where higher education is definitely not free, parents, and eventually their children, need to think and strategize about how to pay for college almost from the time the kids are born. Something that is a nonissue elsewhere is, for Americans, a huge fact of life. It is a big obstacle that we must negotiate and plan around as we face the future. It also affects a variety of other decisions, from how many children we have to what we do with each and every paycheck we receive. The same thing can be said for most of the policies discussed in this book, from pensions to family policy to the rules that establish how corporations are run.

The big revelation produced by my conversation with Geir is that policies and economic institutions are not phenomena that exist outside our day-to-day lives. Rather, they are part of the foundation on which our daily lives are built. They are part of that set of taken-for-granted facts of life that condition everything we do. And, most important, they vary across countries. Life is different if you don't have to worry about saving for college or having enough retirement income, or if you never have to make a choice between your career and staying home with your children. Looking at policies and institutions in detail makes it easier to imagine how these different capitalist political economies work in practice and to imagine the different kinds of experiences that they create for their citizens.

Comparing Political Economies: Markets, Politics, and Institutions

The topic of this book falls within the political science subfield of political economy. What is the difference between a political economy and an economy? Basically, a political economy is the slice of social reality that emerges when we adopt a political perspective on economic activity. At the risk of oversimplifying, we can say that in the absence of that political perspective, economists are trained to see the world as being composed of individual actors—firms, workers, and consumers—who start out with certain resources, such as skills, wealth, and raw materials. Economic life is mostly about their efforts to improve their material situations by engaging in market exchanges with each other. Government is certainly present in this “nonpolitical” model, but mostly as the enforcer of property rights and contracts. In the world as viewed by economists, people improve their situations by trading with each other, not stealing from each other.

Viewing the economy from a political perspective leads us to emphasize some elements that are often underplayed by economists. One of these is power relationships. Not only do people trade with each other, they also try to dominate each other. Some people use threats to get other people to do things that they wouldn't otherwise do—even if they were paid. When we are sensitive to power relations, we are more inclined to see government not as a neutral umpire but as an important resource in our efforts to achieve our individual and collective economic goals. If I control the government, I can use it to force through my interests over those of other people. This means that I can improve my economic position not only by engaging in trade but also by influencing government policy. Government becomes a major player in determining how resources and income are distributed. It can supplement or replace what we earn from our “pure” market behavior. Thus, from a political–economic perspective, household income is not just the result of skill levels or supply and demand conditions but also the result of public policy. Especially important in this respect are the policies that provide households with valuable resources like health care and education, as well as cash.

A political perspective is also more sensitive to the role that institutions play in economic life. Institutions are the “rules of the game” that structure our behavior.¹ Some of them are formal, appearing as laws, constitutions, and regulations. Certain basic institutions, such as those that protect private property and prevent people from reneging on contracts, are necessary for any market to function. Beyond these basic building blocks, all markets are also shaped by many other formal rules and regulations. For instance, in the health insurance market, insurers may be prohibited from turning away customers with “preexisting conditions.” In the labor market, laws and regulations may make it difficult for an employer to fire a worker without good cause. They can also determine how difficult it will be for workers to organize together into labor unions and what strategies will be available to them when they do. In the capital market, regulations require corporations to disclose accurate information to potential investors. They also shape how corporations will be governed—who controls corporate decisions and in whose interest.

Other institutions are “informal.” These are norms and traditions that guide behavior, even though they are not legislated. For instance, community norms that lead an employer to feel a sense of responsibility for her workers may cause her to keep them in employment during an economic downturn even though there is no narrow economic justification for doing so. Norms may also prevent the executives of corporations from taking advantage of their positions to secure extremely generous pay packages for themselves.

In short, when political economists look at economic activity—the production of goods and services and the allocation of economic resources—they tend to look beyond pure market exchanges at political power and the rules of the game that structure market behavior, especially those created by government. As a subfield of political science or economics, political economy focuses on explaining how these political relationships, political processes, and political institutions affect economic behavior and performance. Why are some countries richer than others? Why do some countries have higher unemployment rates than others? Why do some countries produce more equality than others? “Pure” economic factors will always be part of the story, but never the whole story. It is also necessary to look at the power relationships in society and the policies that they generate. In all societies, government is a central actor in the economic system, as a rule setter and regulator, but also as a direct source of goods and services.

In drawing attention to the important role played by institutions and politics, political economists naturally look at cross-national differences and their consequences. A great deal of research effort has been devoted to important studies that systematically compare the economic performance of different types of capitalist economies and that examine the political and social factors that have produced the institutional and policy differences.² These factors include the political balance of power among groups in societies, especially between workers and employers; the nature of political institutions; and ideology and culture. In this book, also, I will identify some important differences in economic outcomes among Germany, Sweden, and the United States and connect them to institutional differences. On the basis of the evidence presented, readers will no doubt make some tentative judgments about which sets of policies and institutions work best. Further, my summary discussion of the background of key policies will also make passing reference to how they emerged and which political forces supported them. However, neither of these important projects—evaluating differences among countries or explaining them—is my main purpose in this book. Rather, my goal is to provide the kind of rich descriptions of policies and institutions that will lead readers to ask the kinds of questions that I asked myself when talking to my Norwegian friend Geir. How do these differences in the rules of the game affect people's day-to-day lives? How do they affect our pursuit of a good life?

What is underemphasized in most studies that compare aggregate growth rates, unemployment, and inflation is sufficient acknowledgment of the fact that while the performance of the most advanced capitalist economies does indeed vary, there is a set of countries that have performed fairly well over the course of several decades. In any given economic cycle, ...

Table of contents

• Cover
• Half Title
• Acknowledgements
• Title Page
• Copyright Page
• Contents
• Preface
• 1 Introduction
• 2 Health Policy
• 3 Pension Policy
• 4 Family Policy
• 5 The Labor Market
• 6 Corporate Governance and Finance
• 7 The Viability of Alternative Forms of Capitalism
• References
• Index
• About the Author