Capitalism: CMEs and LMEs
This term describes private ownership, market competition, and profit motives that drive economic systems.
What is capitalism?
This country’s flexible regulatory environment and focus on low-cost production make it especially well-suited to globalization and outsourcing demands (discussed in the readings).
What is the United States?
VOC posits that neither LME nor CME is universally superior, as each system has these, such as growth vs. stability.
What are trade-offs?
The Varieties of Capitalism article analyzes capitalism by comparing these types of economies, such as the U.S. and Germany.
What are liberal market economies (LMEs) and coordinated market economies (CMEs)?
VOC theory suggests that globalization does not lead to this, allowing economies to retain unique strengths.
What is convergence?
LMEs like the U.S. typically have higher GDP growth but also suffer from this economic drawback compared to CMEs.
What is higher income inequality?
Describe the basic tenets of inclusive vs. extractive institutions.
Inclusive (possible answers): Support free markets and democratic participation, facilitating fair resource distribution and innovation. Examples include property rights, open markets, and civil liberties.
Extractive (possible answers): Concentrate power and resources in the hands of elites, often leading to crony capitalism, monopolies, and restrictions on civil freedoms. Examples include oligarchies and one-party states.
In this type of capitalism, the government controls major industries, as seen in China.
What is state capitalism?
Name a pro and con of LMEs mentioned in the readings
Pros: flexibility, innovation, typically higher GDP growth, entrepreneurial culture, efficient resource allocation, job flexibility
Cons: lack of coordination, higher income inequality, potential job insecurity, short-term focus, underinvestment in worker skills
In CMEs, wages are set through this mechanism, often advocated by unions to help stabilize wages.
What is collective bargaining?
The U.S. has a high focus on this type of innovation, often leading to entirely new products or industries (Apple is a model of this strategy)
What is radical innovation?
With a Gini coefficient of .22, this country exhibits lower income inequality due to a coordinated, wage-compressed labor market.
What is Germany?
Name two of the four critical features of effective economic institutions in advanced industrialized economies (per the VOC reading)
What are: Coordination, Equilibrium, Non-Convergence, and Institutional Complementarity
German firms retain a high manufacturing employment rate (~22%) due to the high cost of outsourcing skilled labor, focusing on this kind of product improvement.
What is incremental innovation?
In CMEs, coordinated labor relations and bank-based financing provide stability, supporting this sector known for long-lasting products.
What is manufacturing?