In the midst of a globalized world, it becomes vital to appreciate the varying types of economies carried by different nations and cultures. When examining the effects and attributes of capitalism as a whole, it is necessary to understand that not all capitalisms are created equal. Two basic types of capitalism exist: liberal market economies (LME) and coordinated market economies (CME) (Hall and Soskice 2001, p. 8). However, within these two major groupings there are many different types of capitalism, which all have their differences that make their particular brand of society unique. There are several major forms of capitalism: mercantilism, free-market capitalism, social market economy, state capitalism, and corporate capitalism, all working toward the idea that societies run on the exchange of goods and services. Each of these types of capitalism has their own varying attributes, examples and applications in the real world, expanding the idea of capitalism into its own permutation.
LMEs are defined as economies in which “firms coordinate their activities primarily via hierarchies and competitive market arrangements” (p. 8). Competition is used as the main barometer of economic progress and contracting, setting prices created by the competition inherent to the market. Conversely, in CMEs, “firms depend more heavily on non-market relationships to coordinate their endeavors with other actors and to construct their core competencies” (p. 8). To that end, collaboration is favored over competition, as firms work together to set the markets and establish their own sense of contracting and network monitoring. Firms in both LMEs and CMEs require relationships in industrial relations, vocational education, corporate governance, inter-firm relations, and employees in order to succeed. These two basic types of capitalism help to set the tone for the five distinct types of capitalism that are found in the world economy.
Mercantilism is one of the earliest forms of capitalism, and is mostly identified by the give and take of trade between nations (Aizenman 2012, p. 1). Mercantilism was one of the primary means of engaging in economic trade during the Renaissance and up to the 18th century, particularly in Europe; Elizabethan England was a prime example of Europe’s mercantile spirit, as economic resources were used to help sustain the English fleet to stave off the Spanish Empire. Governments engaging in mercantilism regulate a nation’s economy in order to increase the power of a state in order to keep up with their political rivals. This ties in closely with political absolutism, as it offers an economic means of maintaining that sense of dominance. This type of capitalism intrinsically ties private enterprise with the will of a state, making their interests mutual. For example, The Opium War between China and England in the 18th century stemmed from English mercantilists importing goods from China while limiting exports (Aizeman 2012, p. 3). The colonies were effectively used as an economic resources for the host country, and this is how private industry is treated in a mercantilist state.
Free-market capitalism is the most popular and well-known kind of capitalism, also sometimes known as laissez faire capitalism (Ayal 1998, p. 327). In the free market, governments play a smaller part in running the economy, instead allowing private enterprise to determine supply and demand. This type of capitalism is much more competitive and autonomous, allowing private companies to behave on their own recognizance with little oversight by governmental entities (Ayal 1998, p. 329). While the United States and other countries ostensibly run on the free market, governmental regulation is much too rigid for it to be a strictly free-market system. No true free-market capitalist economy exists, as they are managed in at least some fashion by governmental regulation.
Another type of capitalism is a social-market economy, in which the free-market system is supplemented by the state offering peripheral social services that benefit the worker. These often include social security, labor rights legislation and unemployment benefits (Kippstein & Lichbach 2005, p. 29). Social markets often have the central components of free-market capitalism, like notions of free exchange of goods, setting of prices, international trade and private property; however, the state plays a more active role in regulating these market forces. Social security systems, like universal healthcare and pensions, are a part of a social-market economy. Governments are given the responsibility of establishing the framework of legislation needed to facilitate efficient competition within the private sector; this makes the government a benevolent regulatory figure in a social market economy, promoting both competition and social equity. Germany, France and Northern Europe are examples of social-market economies, or “Rhine capitalism.” This is meant to address some of the more blatant problems with a free-market economy, including a lack of competition and the threat of monopolizing.
Conversely, there is corporate capitalism, in which bureaucratic corporations establish a capitalist marketplace and dominate it in a hierarchical fashion (Singh & Zammit 2006, p. 220). It can be argued that the US and the vast majority of the labor market is controlled by corporations; these companies have the monetary power and ability to wield substantial economic power, even to the point of influencing state policy and governmental regulation (Singh & Zammit 2006, p. 230). Businesses that are not corporations are also structured like corporations in terms of hierarchy, but often can be criminally charged if the government sees fit. Corporations, on the other hand, have limited liability, meaning that they are subject to less accountability than companies owned by one person or a small group of people (Johnson 2010, p. 1). While this depends on reliable notions of supply and demand, it also creates a system of potential inequality between corporations and people, which is a commonly-cited problem with corporate capitalism (Singh & Zammit 2006, p. 231). Corporations in this type of capitalism have an incredible amount of power due to their ability to spend and advocate for pro-business governmental policies through the work of interest groups. To that end, corporate capitalism is perhaps one of the closest working examples of free-market capitalism without actually escaping all government regulation.
In conclusion, there are five major types of capitalism which make up the spectrum of the capitalist system. They all largely fall upon the idea that societies are run by the exchange of goods and services, but each type varies in its approach to governmental regulation. LMEs and CMEs are the basic varieties of capitalism, dealing with either competition or cooperation as the way to get firms to succeed in the marketplace. Mercantilism is essentially an economy that works for a country; free-market capitalism and its varieties walk along the spectrum of public and private control of the marketplace. The advent of the Industrial Revolution saw an end to mercantilism, and now capitalism’s variants rest upon just how much power companies have over the state. Social-market economies offer a balance between private and public sector interaction, while state capitalism places most of the power of the economy on the state. Meanwhile, corporate capitalism places a larger emphasis on freedom for corporations to act as they please, with little regard for the state. Regardless of where they fall on the spectrum from LME to CME, these five types of capitalism help to determine the relationship governments have with their country’s businesses.
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