Stimulating Employment and Growth : Do we need an Anglo Saxon or a Nordic Model?

Frank McDonald

Bradford University School of Management

National Business Systems

Countries have different national business systems determined by their institutional systems and norms of behaviour National business systems largely determine the rules of the game for business transactions

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National Business Systems

These systems are path determined by history and normally they change slowly.

They however can experience rapid change in periods of crises eg the UK in the 1980s or with radical change in the views of elities eg China in the 1990s

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Types of national business systems in the EU

Anglo-Saxon Nordic Rhenish Issue of the emerging national business systems in new member states

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Anglo-Saxon Model

National business systems geared towards open economies (active participation in globalisation process), emphasis on extension of internal market of the EU based on social protection at minimal level, and flexible labour markets - UK and to a lesser extent Ireland

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Anglo-Saxon Model

Strong market based reforms Social model conditions largely determined by needs of competitiveness Increased growth and employment Business friendly policies Economic stability Open to globalisation process Bradford University School of Management

Anglo-Saxon Model - Benefits

High growth and low unemployment relative to Rhenish model countries Conducive to high levels of inward foreign direct investment from outside of the EU Fast adjustment to process of globalisation

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Anglo-Saxon Model - Benefits

High proportion of population economically active Some internationally competitive sectors eg financial & business services in London, Pharmaceuticals

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Anglo-Saxon Model - Problems

Growth and unemployment not better than Nordic model countries Low level of labour productivity compared to both Rhenish and Nordic model countries Large income inequalities - regionally and across types of jobs

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Anglo-Saxon Model Challenges

Improve labour productivity Reduce problems of low income for labour with low or the wrong skills Reduce regional inequality Keeping up with fast pace of change caused by technological change and globalisation

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Nordic Model

National business systems geared towards globalisation process and development of high employment (with reformed social benefits systems) founded on knowledge based industries, labour markets geared towards encouraging high productivity with high wages – the Scandinavian countries and the Netherlands

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Nordic Model - Benefits

High growth and low unemployment High labour productivity High social welfare benefits

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Nordic Model - Problems

High proportion of GDP is accounted for by the state Low proportion of population are economically activity Not as attractive as the UK and Ireland for non EU based inward foreign direct investment

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Nordic Model - Challenges

Maintaining high proportion of GDP accounted for by the state Dealing with low proportion of population that are economically activity Creating enough high wage/high productivity jobs in the face of increasing international competition

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Rhenish Model

National business systems concerned to protect social benefits system (or to have slow pace of reform of this system) and to protect and encourage national (European) champions in key industries, major concerns about the globalisation process, and strong emphasis on protecting employment conditions – France and to a lesser extent Germany, Italy and Spain

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Rhenish Model

Slow market based reforms Business policies geared towards European champions Social model conditions determined by strong EU laws and policies to enhance social cohesion Increased growth and employment Bradford University School of Management Economic globalisation process Stability Cautious approach to

Rhenish Model - Benefits

High labour productivity – especially France and Germany High social welfare benefits Some leading international companies – VW, EADS, Siemens, Thales

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Rhenish Model - Problems

Low growth and high unemployment compared to Nordic and Anglo-Saxon models High proportion of GDP is accounted for by the state Low proportion of population are economically active

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Rhenish Model - Problems

Not as attractive as the UK and Ireland for non-EU based inward foreign direct investment Many of the large internationally competitive companies in France are strongly connected to the State For advanced economies have a relatively large share of GDP in basic manufacturing

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Rhenish Model - Challenges

Boosting growth and reducing unemployment Adjusting to the decline in manufacturing jobs Increasing proportion of the population that are economically active

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Rhenish Model - Challenges

Maintaining high proportion of GDP accounted for by the state Creating enough new jobs in high wage/high productivity work in the face of increasing international competition and technological change

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Emerging Models

Emerging national business systems with an evolving orientation towards social benefits systems and the globalisation process Challenge what kind of national business system will help them to catch up to the labour productivity levels of the richer members of the EU and to maintain international competitiveness

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Nirvana Model

High productivity High growth and low unemployment High welfare benefits Bradford University School of Management

Nirvana Model - requirements

Business system which can deliver high productivity in the face of increasing international competition and technological change by overcoming problems of inappropriate characteristics in labour force, eg low economic activity, low or the wrong skills, low adjustment capacity, poor levels of education

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Realistic models

Countries with high degree of consensus about social norms and highly educated populations – versions of the Nordic model Countries with diverse and conflicting views on social norms and high proportion of unskilled or wrong skilled labour with high proportion of poorly educated labour – versions of the Anglo-Saxon model

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Realistic models

Countries with diverse and conflicting views on social norms and highly educated populations with appropriate skills – versions of the Rhenish model However, it is not clear if even France and Germany have the conditions necessary to sustain Rhenish models

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Role of the EU

Flexible social and economic policies that permit development of different national business systems that can tackle the different challenges that face the member states A flexible EU with inner-core members in some areas and peripheral members in many areas Problems of labour migration within the EU from low to high income countries

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Role of the EU

Creation of a nirvana model by strong and uniform social and economic policies with large scale transfer of income to help poorer member states to compete with high social costs Systems that generate sufficient high wage/high productivity jobs to finance high social welfare benefits A very difficult project to create, implement and sustain

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