The advancement into globalization raises a controversial discussion about political and economic systems. By its nature, globalization implies setting a singular standard in various aspects of society, like politics, economics, technology, regulations, employment, etc. (Tregakis and Brewster, 2006). While convergence towards a common political and economic system is encouraged by structures such as European Union, which weakens trade barriers, the cultural patterns, the timing of industrialization, the nature of the dominant industries, the density of population or the disparity between rich and poor count as factors of divergence (Ashraf and Galor, 2007). As a result, two most common economic and political systems define the developed and developing states in the 21st century, respectively the coordinated market economies (CME) and liberal market economies (LME). The differences between CME and LME imply various advantages and disadvantages on individual citizen level, which will be explored in this paper.
Countries with liberal system are Anglican nations like United Kingdom, United States, Canada or Australia, while those with coordinated system are Germany, Japan, The Netherlands, Switzerland, Norway or Austria (Hall and Soskice, 2001).
There are specific characteristics of these two systems. They differ in terms of labor regulations, union system, skills coordination, competitive system, capital nature or employees’ relations, but also in other areas that are more abstract, such as culture or social patterns (Lin and Miller, 2003; Hall and Soskice, 2001).
Coordinated Market Economy
The coordinated market economies refer to economic systems wherein firms rely heavily on formal institutions for regulating the market and on non-market coordination, engaging in industry-wide labor unions and encouraging educational systems that allow share investment in specific skills (Culpepper, 2004). In addition, in the CME system, companies engage in collaboration with rivals, which does not weaken their competitive edge, but strengthens their competencies (Hall and Soskice, 2001). In these markets, the tradition of organized labor negotiations advantages the job security, while the approach on shared training and education increases the level of employees’ skills development, which has the effect of strengthening the overall industry. Furthermore, in CME, firms encourage cooperation with employees, so that they are part of labor union and work councils, with the purpose of assuring the accommodation of the fairness and justice principles (Frege and Godard, 2014). This implies that the work quality is assured by ethical standards and regulations that govern the labor unions and work councils (Casper and Matraves, 2003).
In terms of corporate governance, firms activating in CME systems access finances that do not rely on financial openness, known as patient capital that allows firms to retain skilled employees during downturn periods or to invest in endeavors with long term returns (Hall and Soskice, 2001). This approach favors and protects employees in turbulent times, and permits organizations to maintain their capabilities, avoiding, like this, new investments in forming internal capabilities. In CME systems, firms are less likely to innovate than in the liberal market economies. However, in CME, firms are more likely to produce continuous improvements, which are a reflection of the highly skilled labor force that develops based on shared, industry-wide training programs (Hall and Soskice, 2001). There are various outcomes of the industry improvements, which affect employees and employers alike. Employees who have the information that can lead to steady progress can put their companies in a vulnerable, “hold up” position for negotiating their stay, as they can be hunted by similar firms, while specialists who share their information with management can be exploited (Hall and Soskice, 2001).
These features of CME pose both advantages and disadvantages. The union bargaining system is advantageous for individual citizens, because this system protects their employability on a long – term. Furthermore, they have rights and specific work conditions, such as the shorter fix schedule, part-time employment and flexible working conditions, which reflect a high quality of work (Tregakis and Brewster, 2006). Furthermore, the collaboration with employees, combined with the strong dependence on unions dissipates the risk of employees becoming exploited by their companies. Another advantage of CME systems for individual citizens consists in the fact that firms invest in the training and development of the employees, who end up gaining high levels of specific skills (Dudovskiy, 2012). The “patient capital” represents another advantage of CME firms for individual citizens, because it translates into increased job security, even in turbulent times.
On the other hand, the disadvantages of this system refer to the inability to explore radical innovation and to gain competitive advantage by capitalizing on existing resources, considering that there is a collaborative competition between firms (Dudovskiy, 2012; Hall and Soskice, 2001). For individual citizens, the lack of radical innovations does not allow them to distinguish from one another, maintaining a unitary specialization level. Nevertheless, as they progress as the industry improves, they continue to develop their high level skills (Culpepper, 2004).
Liberal Market Economy
Unlike CME, firms in LME systems are coordinated by hierarchies and competitive market mechanisms (Hall and Soskice, 2001). In LME firms, workers do not receive the same levels of benefits as those in CME firms, because the relationship between employees and employers are not cooperative, but adversarial, and wage negotiations are considered at company level (Barry and Nienheuser, 2010). Employees need to exert innovative skills in order to be valuable for organizations, otherwise they can be easily disposed of (Hollingsworth et al, 2005). Unlike CME, who invest in employees’ skill formation through industry specific trainings, in LME system, workers have more general skills, which can be integrated in other companies (Hall and Soskice, 2001). In terms of corporate governance, firms in LME rely on public information (Casper and Matraves, 2003). Liberal markets encourage radical innovation, by providing financial capital to entrepreneurs who are interested in creating new companies and developing new technologies (Hollingsworth et al., 2005).
For individual citizens, the advantage of LME consists mainly in the fact that entrepreneurs are encouraged to innovate, which can result in developing revolutionary technologies. On the other hand, the fact that the skills are general, hence transferable to other organizations is an advantage for individual citizens, who can explore more opportunities, both in terms of wage and incentives. Nevertheless, due to the absence of an organized bargaining system and the adversarial relationship between company and employees, this system does not protect the employees as CME does, and they are easily disposable.
The comparison between CME and LME indicates that despite the globalization and its standardization nature of equalizing societies, countries do not converge, but maintain their specificities in terms of employee relations, market competitiveness or innovation. The current analysis revealed that CME is more advantageous for individual citizens, because it provides a higher level of specialization, more rights and job security, whereas LME has the disadvantage of an unorganized bargaining system that is detrimental for individual citizens.
References
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