The chapter starts by discussing and analyzing the aspects of socialism and capitalism. The author observes that a capitalist system permits a lot of freedom; it is dynamic in nature and also effective. Nonetheless, this type of system is characterized by several challenges: political and economic woes, pollution, and lack of gainful employment (Schweickart 87). Also, the act of democracy does not seem to have any place in such a system since individuals who are wealthy take over the control of every process.
When the possession and management of firms are left to laborers, myriads of gains can be realized. For example, no interest is earned in streamlining labor since it is not a defining factor in the process of production. Besides, new competencies and technologies are beneficial to a firm. Productivity is revamped when a business enterprise can access some of the production factors mentioned above (Schweickart 89).
In any case, workers can reduce working hours instead of being released from their duties permanently. The passion for expanding business activities is not readily possible, bearing in mind that when additional workers are injected into the workforce, their earnings do not change significantly. Furthermore, firms find it cumbersome to pursue optional sources of affordable or inexpensive labor because they are compelled to maintain social ties while executing their duties.
In contrast, business organizations that run their activities under the confines of economic democracy are often small in size and, of course, poorly established compared to capitalistic enterprises. Such enterprises are equally not passionate enough to improve their volumes of operations. In other words, they do not actively compete in the marketplace. Lack of long term strategic plan to operate on large volumes also forces such business organizations to run their activities along one production line.
Chapter 5
According to Schweickart, surplus production in a business enterprise cannot be equated to an accident (126). Nevertheless, the author is emphatic that a bust in production may not necessarily be preceded by a period of boom in regards to production. In some cases, sustained growth in firms might not be real at all owing to what the author refers to as dubious wealth. This expounds why the working class revenue has never improved for the last 30-40 years.
This has been aggravated by the ever-rising national debt that lowers the value of the local currency. This type of economic derailment has been necessitated by capitalists. As a matter of fact, the economic burden being experienced currently has its roots in unjustified systems.
From the outset, capitalistic systems often seek ways to blend well and sway the objectives of t both individuals and governments. For instance, hegemonic power is controlled by the elites in society. Although democracy exists, it does not have the much-needed power to influence change. The author reiterates that those who are economically well-off are indeed the minorities in society and that they often interfere with the natural tenets and benefits of democracy. The latter is a reality even when the voting population is educated and independent-minded.
Moreover, the overall societal democracy can be improved by economic democracy when a number of initiatives are put in place. First, workplace democracy must be given the first priority. This should go along with market democracy since inequality is rife in most markets. Second, investment decisions should be formulated and executed without delay. Finally, devolution of resources to the lower levels can indeed lower the economic gap being experienced at the moment.
Chapter 6
This chapter begins by highlighting the benefits and inherent aspects of Keynesian liberalism. The author refers to the unmet expectations as traps and dead ends. Keynesian theory is similar to social democracy since capitalism often leverages on export trade that is manipulated by state players. Other aspects of social democracy are the bureaucratic market and socialism.
Modern neo-liberalism has been associated with a complete lack of growth that has impeded economic development for a long time. The state-centric-export model failed to yield the expected outcomes when it was applied in some Asian countries. The Asian low wage was the main cause of his failure (Schweickart 165). In yet another dimension, the same capitalistic system was known as Comprador capitalism. Although it was implemented in Japan, it equally failed to succeed owing to the poor economic performance that prevailed during that time. Governments that were non-Marxist largely adopted National Socialisms due to the perceived benefits. However, the troubled economic times did not permit the growth and development of National Socialisms.
The state also attempted to control private capital even though the attempt never succeeded. Consequently, it was forced to resort to the earlier compradors model. Besides, the central plan model was overwhelmed by the task of satisfying consumer needs. These failures explain the reason why democratization of processes was eventually adopted across the board. Some of the processes that were democratized include labor, capital, and the actual political democracy.
This paper offers a holistic summary of the description, origin, causes and effects of invisible hand of capitalism in the world of business. To begin with, it is imperative to note that the term capitalism has been used for decades to depict an economic system of gaining wealth. The concept and ideology behind capitalism was a brainchild of Adam Smith who came up with the term in the 19th century.
He used this concept to describe the economic system in which the means of production were owned, dominated and operated by private individuals and for the sole purpose of making supernormal profits. In addition, the ideology behind capitalism sought to concentrate wealth among limited number of people. In other words, major economic investments were executed by few in society.
Moreover, it is also worth to note that capitalism is grounded on the freedom of individual enterprises. In this regard, to prevent economic abuses occasioned by market factors such as monopoly, cartels and financial frauds, any other government needs to regulate market operations especially in the case of a capitalistic regime where economic might by the few individuals controls the economy (Kennedy 260).
This has existed from as early as 1930s despite the capitalist ideal of hands off government. To date, there are myriad of many countries that have put up measures to control manipulation of the market. For instance, the United States of America government has been employing subsides, tax credits, incentives and other types of exemptions so that the market can be conducive to all players namely producers and consumers.
Moreover, other countries like Japan and German do not advocate the market to fully control the economy. The main rationale behind the latter is to manage the risks that may arise from the very economy. For instance, when Soviet Union and its satellite states collapsed, it resulted into huge losses being incurred. In the case of Adam Smith, the wealth of nations coupled with the free market has persuaded many countries favor the classical capitalism which was initiated during the 19th century.
Following the great depression in the 20st century, most countries ended the laissez-faire economics. By the beginning of the 21st century, capitalism remained unrivaled following demise of state controlled policies in Eastern Europe and former Soviet Union. According to Adam Smith, every individual attempts to maximize wealth through trade or other entrepreneurial activities in a capitalistic economy. This may jeopardize an economy since wealth will not be evenly distributed for the sake of carrying out investments.
In defining the invisible hand, (Sullivan and Sheffrin 32) describe it as the natural phenomenon that guides free market and capitalism through competition of scarce resources. The theory of invisible hand is coined to serve self interests. Therefore, producers have freedom on how to handle the process of production and selling of goods and services. On the other hand, consumers have the liberty to choose on what to purchase hence both players in the market will choose product distribution and the price to be offered.
In addition, invisible hand plays a vital role in revenue creation for those who have invested in the market. Needles to say, competitors must plan well in order to improve their capacity and efficiency of production while simultaneously aiming at maximizing on revenue generation. Nonetheless, they will be compelled to price their products in a way that will increase their market share.
Some economists like Gavin Kennedy and professor Emeritus Atuniversity of Edinburgh, Scotland have questioned the integrity of this indirect form of economic system know as the invisible hand. They conclusively differ that its contemporary use in latest thinking lacks inherent compatibility with the indeterminate manner employed by Adam Smith. Kennedy presents his sentiments to support Smiths intentions in using the word invisible hand in the current debate.
In line with this, he continues to argue that invisible hand should not be associated with Adam Smith bearing in mind that there is lack of adequate proof that Adam Smith contributed any significance to its meaning today. The personalities who came up with the invisible hand concept thought that capitalism would benefit all traders. Nevertheless Adam Smith did not believe in a magically benevolent market that operates without checks and balances.
Besides creating an environment where there is democracy in the market, there was need for government intervention. This was inevitable when the government needed to protect its civilians from manipulation by traders. As a result some laws such as setting minimum wages for employees as well as ceiling the prices of commodities in the market were made.
Therefore the natural laws of demand and supply were regulated and could not freely control the market. In contrast, the invisible hand concept was not employed in the financial market as some experts in financial modeling and portfolio risk analysis differed with Smiths theory either partly or in totality.
Moreover, investors would have to pursue individual profits which would yield outcomes that were globally negative. Due to their smart risk management strategy, they would have no significance in the real economy. In other words, were they to reduce their risks in selling their shares in the market, their effect would be far reaching on a global scale. Hence there is a need for investors to account for their actions in the market since their strategies will be a factor in determining the price.
Every person intends to labor for his own gain rather than for the larger society. In so doing, the entire society will benefit. When an individual prefers to trade locally, the economic benefits are two-tier in the sense that the individual entrepreneur will benefit alongside the society where that particular investment is being carried out. A local investment will equally aid in producing the greatest value for the industry concerned.
Therefore such an entrepreneur will be led by the invisible hand to attain certain positive objectives which had not been planned for in advance. In pursuing an individuals gains as an entrepreneur, a lot of positive economic returns will be ploughed back to society contrary to the original intentions. As a result, more will be achieved in the market as a whole (Kennedy 252).
In line with the discussion above, it is definite that capitalism will be indirectly responsible (or have an invisible hand) in achieving the stability of the given economy.
This implies that the individual pursuit by entrepreneurs elicits multiple effects to an economy since there will be free exchange of goods and services, comparative advantage will be established, and specialization will take place as well as substantive division of labor. When all of these factors are brought on board, the entire economy will benefit albeit from the unpopular economic system of capitalism (Sullivan and Sheffrin 37).
At this point, it is also necessary to elaborate on the effect of modern hand. At initial stages, process is performed without explicit agreements between the acting agents and its outcome will be produced in a decentralized way. Secondly, the agents will perform the process unintentionally. This means that the process will work out even without the agents knowledge hence called invisible. The byproduct of this process is its total outcome but agents aims are neither planned nor coordinated.
Adam Smith stated that the invisible hand system would work well in the free market economy. In this regard, the players in the market will be forced to think about the wants of other people. He identified that consumers and entrepreneurs will depend on each other. Hence they will seek help and cooperation from the other so as to fulfill their desires (Kennedy 250). At the free market, consumers will seek the lowest price while producers will pursue the highest rate of profit.
Therefore, producers will invest in projects that the consumers considered to be highly valued. At this point, there will be insatiable demand which will influence the market prices. Moreover, producers will tend to appeal to the consumers proving to them that he cares for their goodwill in using the product he offers.
According to smith, when producers propose an exchange in what they have, it can be of great use to consumers. In addition, this will nurture and build their self esteem since they will be in a position to assess their needs in the free market economy as embraced in capitalism.
Advantages of capitalism
Capitalism is usually characterized with an economy where resources and firms are privately owned in a free market in spite of the fact that there is regulation by the government so as to protect private property. As already mentioned, a capitalistic economy is also capable of triggering major growth in society. The following are some of the merits of capitalism:
1. Successful production- firms in a free market will have incentives in efficient production, minimizing costs and improving productivity as well as enhancing competitiveness. As long as these conditions are maintained, they will be able to operate their business and make meaningful gains.
2. Financial incentives- producers will only invest in the businesses that will yield high returns. If such an opportunity arises, they will be ready to take risks on it.
3. Little interference from the government- in a free market economy, there is plenty of information about the conditions expected hence producers can be able to plan in advance. Due to lack of control of the economy by the government, challenges posed by corruption, lack of incentives and poor information do not arise on a regular basis.
4. Allocation of resources is cost-effective- capitalism being the indirect influence on the market ensures that resources are distributed according to consumers choice.
5. Dynamic efficiency- firms need to maintain their efficiency in the market by responding to the consumers trends, tastes and preferences (Sullivan and Sheffrin 40).
Disadvantages of capitalism
1. Monopoly behavior- firms will be willing to pay low wages to employees while at the same time charge exorbitant prices to their consumers.
2. Inequality- in capitalism economy, resources are inequitably distributed. Hence, only a small percentage of the population workforce will possess the resources. Due to inequality of wealth and lack of government concern, poverty may arise leading to emergence of slums, diseases, and homelessness. This may compel people to migrate to other parts with more resources.
3. Immobility- it is difficult in a free market economy to transfer resources from unprofitable sector to a more profitable one. This may hinder equitable investments and distribution of resources.
4. Irrational behavior- economic fundamentals are ignored which results into people being caught in hypothetical bubbles leading to irrational behavior.
5. Limited government control- this may result into manipulation of consumers by the producers (Sullivan and Sheffrin 41).
Economic crisis and capitalism
The capitalist system has for many years proved to be a great engine in human prosperity. It has created profit incentives for the industry as well as literally pulling hundreds of millions of people out of poverty across the globe.
The year 2008 was filled with economic crises. First of all, there was the food crisis which was particularly threatening to poor consumers. Secondly, there was a record increase in fuel prices which affected all oil-importing countries around the globe. Towards the end of 2008, global economic downturn was almost at its peak, gathering momentum at unprecedented rate.
The downturn intensified as the year 2009 started. At this point many economists feared a full-scale depression (Kennedy 259). Hence there was a need to look out at the nature of capitalism and whether it needs to be changed.
However, defenders of capitalism are against the idea and believe that capitalism is unnecessarily being targeted for shorter economic problems. They believed that economic scenarios were as a result of bad governance and greed by some individuals. The question that arises is whether there is alternative approach or not since economists are still seeking substantial reforms to counter capitalism.
Works Cited
Kennedy, Gavin. Adam Smith and the Hand: From Metaphor to Myth . Econ Journal Watch 6.2(2009): 239-263. Print.
Sullivan, Arthur and Steven Sheffrin. Economics: Principles in action. Upper Saddle River, New Jersey, Pearson Prentice Hall, 2003.Print.
This paper is about the effects of food capitalism on peoples diet. The paper is limited to a discussion of human dietary effects that arise from regular consumption of industrial and artificially processed foods. Further, the paper suggests effective solutions to eliminate identified health threats. The report will be of direct relevance human population consuming processed foods. They will be informed about the effects of food capitalization, and how to avoid its negative impacts.
Background
Definition
Food capitalism can be defined as the radical shift in development and production of food for human consumption. It is a worldwide phenomenon whose effects is felt by millions of people. Food capitalism has brought about new changes in the human diet and has changed the nutritional value of foods eaten by human beings. This has contributed to the erosion of healthy diets.
History
Food capitalism dates its history from the industrial and agrarian revolution that brought about massive changes in the agricultural system. Agricultural systems changed from small and subsistence food production to large export production. Also, land ownership changed from small scale ownership, and large scale ownership was introduced. As a result, new methods of farming were introduced to encourage production.
Current Situation
Currently, industrial food production is mainly a profit making business that has created a global crisis. Also, industrial food production overwhelming effects to human health. The western world has devised inappropriate models of food production that rely on industrialization. As a result, processed foods rich in; calories, fat, carbohydrate and sodium dominates most diets today (Anderson, 2013, para. 23). Processed foods account for lifestyle diseases, especially in the American society. In fact, Americas population is exposed to heart diseases, cancer, Type 2 diabetes and cancer, all linked to changes in eating habits (Crossfield, 2009, para. 8).
Causes
Changes in Agricultural Practices in Third World Countries
Developing countries are subjects of agricultural adjustment programs that impose strict conditions in exchange of low interest loans. Therefore, governments in third world countries create open markets to exports, among them food exporters. This leads to fluctuation of food commodities in domestic markets. As a result, farmers experience fluctuation in food commodities and are unable to compete with introducing prices (Avakian, 2008, para. 17).
Industrialization of Agriculture
Today, agricultural production depends on modern technology for cheap and tight labor. Agricultural manufacturers have improvised new technologies of preserving food products with chemicals and transporting them to other continents. Consequently, there has been continuous growth of food capitalism. Also, industrialization has led to the growth of corporations that continuously dictate the types of food grown and prices. As a consequence, developing nations abandon domestic products for export products. Afterwards, they consume processed products made available by industrial corporations. The manufacture of farm inputs among them fertilizers and pesticides to boost yields has negative effects on foods consumed by human beings.
Increased Production of Biofuels
Production of bio-fuels has created shifts in farming practices. Industries that produce biofuels continue encouraging farmers on the growth of sugarcane and other foodstuffs. Consequently, and used for agricultural production is now utilized for non-agricultural production. This has contributed to food shortage and malnutrition. Consequently, people turn to the world market for cheap and affordable processed food commodities (Avakian, 2008, para. 19).
Effects and Problems
North America and Europe
Health effects caused by food capitalism are shocking. In America, deadly diseases among them, diabetes, stroke, cancer and heart illnesses all linked to the Western diet (Anderson, 2013, para. 25). Food capitalization has also created race and social classes among the American citizenry. Foods with high nutritional values are expensive and can be afforded by a certain class of people in the guild. Consequently, there are races that are more prone to obesity and diet related illnesses than others. Minorities also face higher risks of suffering from obesity and diet related disorders.
Asia
In Asia, the continuous growth of food for export has lead to hunger. For instance, the Indian population suffers from chronic hunger. Colombias population has suffered malnourishment with the produce in exports increasing Angus (2008). Few people suffer from obesity, diabetes and heart complications.
Africa
Food capitalism has created food crisis characterized by hunger, famine and increases in food process. The rate of indigenous and highly value nutritious food products has decreased, and exports have increased. Examples of illnesses caused by processed foods also exist in the continent with high blood pressure, obesity and cancer affecting parts of the population (Magdoff, 2012, para. 15).
From the discussion above, health impacts caused by food capitalization on diets are felt in all continents. However, Europe and North America are the worst affected continents. The figure below illustrates the prevalence of obesity rates in selected areas. From the figure, the effects of food capitalism of peoples diet have impacted peoples health with America leading to obesity relates illnesses.
Figure 1.1: Obesity Rates in Selected Countries.
Discussion
Today, cities are parked with fast foods cafes and hotels. Many people feed on food products that lack nutritional value. Supermarket stands have beautiful displays of canned and refrigerated foods from different companies. It is interesting to note that, the products contents may be of equal quality and quantity, but of different manufacturers. This is what defines capitalism in the food chain. Multinational companies are rushing to introduce cheap and new processed food products into the marketplace.
According to Vivas (2009), human beings consume food that no longer responds to the nutritional needs of people (par. 1). This is due to capitalists models of maximizing profits and exploiting labor force in production. The revolution of agricultural methods has eroded small scale farming that sustains the production of subsistence food, and introduced large scale farming to increase export production. Developing nations continue to nurture and export unprocessed food products and importing more processed food products.
Nutrition is the latest crisis brought about by changes in capitalism. The introduction of processing in the food supply chain has introduced health complications to consumers. Industrial processing of food has led to mass production of food products that lack nutritional value. Human beings knowingly and unknowingly continue to eat these processed foods with little or no knowledge of the immense effects on their health. Guthman (2011) claims the neighborhood makes people eat what is available (p. 66) . Food manufacturers create neighborhoods that have ready and affordable processed foods. This, in turn, has changed the eating lifestyles of human beings.
Agricultural corporations have for the last few years managed to increase earnings by producing cheap food products, and dominating the production of processed foods. As consumers search for new meanings of food products in the marketplace, manufacturers continue making success and huge profits. It is interesting that such corporations do not have interests in the effects caused by their end products.
As a matter of fact, capitalism of the food chain has demonstrated the inability of human beings to cater for their own basic needs. It is a painful fact that even in the 21st century ordinary people are facing food shortages and instability in food prices. Also, huge populations suffer from obesity, type 2 diabetes, cancer and heart diseases. Obesity cases related to consumption of processed food high in calorie levels, especially in America are increasing day by day. In addition, millions of people are dying from hunger and malnourishment. All due to consumption of processed foods brought about by capitalization in the food supply chain.
However, some states are making significant steps towards the eradication of the evils introduced by food capitalism. Both private and public organizations are funding domestic agricultural projects aimed at producing high nutritional value food. For instance, in Africa, The Alliance for Green revolution funds projects aimed at producing in Africas crops. If all continents adopted healthy food production measures, human beings would live a life free from heart disease, cancer, obesity, diabetes and other food related illnesses. A continent cannot work alone in eradicating food capitalism since it is a worldwide problem. The international community is mindful of the challenges and hopefully, good mechanisms will be produced.
Conclusion
To conclude, food capitalism is a serious problem facing the human population globally. Developed countries so far feel the effects of food capitalization. Organizations concerned with human health have mostly embraced the issue and people are slowly becoming aware of the dangers exposed by consumption of processes foods. Luckily, some organizations have taken actions towards the eradication of food capitalism.
Recommendations
Solving the problems caused by food capitalism is not easy. Large agricultural corporations control food economies and people face difficulties in changing diet lifestyles. However, the following recommendations will help to improve the situation for ordinary people. For their implementation to be effective, governments, international economic agencies, and health agencies need to adopt strong and active stands.
Governments need to put mechanisms in place and ensure that all its citizens have access to enough cultural and highly nutritious food.
Governments need to oppose strict policies aimed at facilitating control of agriculture by multinational corporations. This will include taking firm stands against exploitation of international forces like the International Monetary Fund.
Governments need to impose strict rules on use and conservation of natural resources. This can be accomplished through the formulation of conservation policies.
Health authorities need to implement research on the impacts caused by processed foods and engage in discussions with the relevant authorities to moderate the vice.
Publicity campaigns using the media should be started to alert ordinary people on the impacts and educate them how to live healthy lives
The health sector needs to provide authoritative information on health risk factors to ordinary people. This can be done through the provision of free training on health risk factors caused by lifestyle.
Ordinary people should enhance their diets with domestic foods and if necessary, work hard to retain them in their farms.
References
Anderson, Katie. 2013. The Greatest Threat to Global Food Security: Capitalism. Web.
I concur with Harveys account of the infamous 2008 global financial crisis and how the past events could help in explaining the synopsis of the global meltdown. I also agree with Harvey on the issue of the goalpost shifting of different financial problems since capitalism is not interested in finding permanent solutions. The capitalist market is more comfortable when the crisis is shifted to another region. Although I had an idea of the possible catalysts of the 2008 global financial meltdown before watching the video, Harvey presented a clear report of the events that occurred before the crisis and put them into perspective, especially in terms of how the American financial market operates at the macro level.
Harvey subjected the financial market in America to a microscopic analysis in order to highlight the glaring imbalances resulting from subjecting markets to the capitalistic orientation. In the video, Harvey carried out a comparative analysis of the 2008 financial crisis and similar events in the past. The findings are analogous, indicating that capitalism is the root cause of all the past financial crises in the US that spills to other regions. In the view of Harvey, capitalism can only survive if it grows in order to retain a functional facet.
In the process of growth, capitalism shifts financial problems to different geographical locations. The shift occurs because capitalism is functional only when it grows and is successfully managed, irrespective of the direction. In the video, Harvey was specific about if the growth of capitalism is negative in the markets where it is functional, the shortfalls have to be shifted to another geographic location. The constant shift causes capitalism to spread and in the meantime incurs eventual financial crisis whenever it fails to grow in the market. This, in turn, compels a significantly wide scale of the financial crisis even when the meltdown originates from one region.
Main Discussion
I concur with the post on underlying factors that precipitated facilitate the financial crisis to spread worldwide as a result of capitalism. Based on Harveys talk, I can refer to the 2008 financial crisis as an institutional failure in one market as having the potential to spread like a bush fire to other geographical regions. It happened because an institutional failure under the capitalistic markets is not static and confined to one region since there is constant inter-and intra-market trade. To further clarify the institutional failure as catalyzing the crisis, the functionality of capitalism is purely based on its successes in implementation. These successes should be sustainable for the market to remain sound and economically viable. In the event of improper institutional regulation, there is bound to be a ripple effect on the market forces operating at the macro level. If the situation of institutional failure persists, there is no alternative but to move capitalistic shortfalls to other geographic markets.
Conclusion
The shift often occurs abruptly because of the interrelatedness of different markets, as influenced by institutions mandated to manage the financial market indicators such as the balance of payment. Unfortunately, if the shift is too sudden, there are considerably high chances of an instant spillage of high magnitude to the primary and secondary markets across the globe. If unchecked because of the persistent institutional failure, a global financial crisis of a different kind might occur to complete the recurring cycle, which often takes a different shape yet bringing the same results.
Do you agree with Harveys explanation that we can understand the 2008 financial crisis by looking at how capitalism has responded to prior crises, in part by shifting them around geographically and moving beyond old spatial limits?
As a matter of fact, Harveys ideas and thoughts regarding the capitalism cycle are impressive and provide a better understanding of global financial crises. According to the opinion of the expert, the problem is that every system has some risks and the crises that society is experiencing today are the result of how the conflicts were managed and mitigated yesterday. It is of paramount importance to note that the crisis of the 1970s impacted our life today in a significant way. The approaches that were used to deal with the crises shaped the way a future crisis develops. In the 1970s, there was an excessive power of labor, and it consequently led to the wages repressions and the fact the ordinary workers made less money, whereas rich people accumulated more and more. Low wages for people means low demand for the goods. However, it should be stressed that the solution was not to raise wages but to create a system of credit cards. The effective demand was overcome by the creation of the new financial system.
According to the words of Harvey, capitalism never solves problems; it postpones them and moves around the globe. The words of the expert are easy to prove, the crisis in the United States can be now traced in Europe. The problem is that there are no limits in capitalism. The money goes through a circulation process. The business usually works by the following scheme:
Startup with money;
Buy labor;
Buy equipment;
Set the working process;
Create a good;
Sell the good (original may + profit);
Take part of the money made;
Recapitalize the money in order to get more profit.
The problem of financial issues seems to be eternal. The fundamental reason for the fact that new crises arise is human greed. Rich people accumulate money with impressive speed, whereas the middle class and poor people lose income. The gap between rich and poor becomes more evident, and thus, the only solution is to change the way of thinking and innovate financial models.
The alternative explanations of crisis Harvey outline at the outset of his talk
The colleges reflection is focused on the evaluation of the role of capitalism in modern society and debating Harveys words. Although it is reasonable to say that capitalism provided people with an opportunity to improve living standards, however, it is also evident that humanity cannot be guided by old approaches that simply do not function in a new and globalized world. The gap between poor and rich gains momentum and it is the consequence of the failure in institutions and human frailty. The human tends to be greedy when he reaches a point where power and money are accumulated. Rich people double their profits while the middle class and poor lose their income. The financial system should be innovated as such a tendency can lead to severe outcomes. Every system is not protected from crises, and capitalism is not the exception. The problems that were experienced in one country and then managed will affect the life of other countries. This is a cycle that should be broken. People should rethink and reconstruct the financial system as the modern world demands changes. Globalization dictates new rules and people should implement changes not only on the local level but on the global as well.
The VOC approach does not end at just grouping nations but also delves into the details that make up the countrys economy. For instance, VOC takes an interest in the countrys preoccupation, nationalism, dependency on capitalism, reliance on rational choice, and firm centricity (Hall and Soskice, 2001). Currently, known LMEs are countries such as the United States, the United Kingdom, Ireland, Australia, Canada, and New Zealand (Hall and Soskice, 2001). On the other hand, CMEs include countries such as Japan, Austria, Sweden, and Germany. Hybrid economies have Middle Eastern countries such as the United Arab Emirates and Saudi Arabia (Thelen, 2012). In China, VOC is a tricky approach to utilize to evaluate the countrys economy. The countrys economy cannot be confidently classified as either LME or CME considering her path and position versus conventional attributes in VOC. This paper gives an in-depth evaluation that explains why the VOC approach cannot be used to confidently examine and categorize China as either an LME, CME, or mixed economy.
Industrial Relations
Industrial relation is a crucial economic dimension that was considered an independent field of study as early as the beginning of the twentieth century. The field deals with the relationship between the labor market and investors within a country and the dynamics that govern them. These dynamics include labor laws, work environment, the existence of trade unions, and economic opportunities (Hall and Soskice, 2001). Using Hall and Soskices VOC approach, a low unionization rate would indicate a liberal market economy, while a high unionization rate would indicate a coordinated market economy. China has the All-China Federation of Trade Unions (ACFTU), an organization that unionizes over three hundred Chinese workers. The ACFTU is tasked with taking care of workers interests and needs (Shen, 2006). At the same time, there is the All-China Federation of Industry and Commerce (ACFIC), a non-governmental department of commerce that influences industrial relations.
The existing ACFTU rarely promotes the interest of Chinese workers despite being the largest union in the entire world. For instance, when workers strike with reasonable demands, the ACFTU occasionally sides with the management in a resounding manner (Chang, and Cooke, 2015). The situation is complicated. Cookes industrial relations survey indicated that the Chinese were convinced that ACFIC and ACFTU were designed to serve the states interest (Cooke, 2004). This was achievable through the states top-down approach to control employees. With the labor market finding itself with such state-controlled associations, private firms within the nation have found it difficult to operate. For instance, there are compelling laws that encourage ordinary workers to join state-controlled unions instead of private organizations (Cooke, 2004). In other words, the labor market is controlled by the government, and it influences huge segments of many economic sectors.
To add salt to injury, attempts by private businesses to show visible representation have always been suppressed (Cooke, 2004). These practices leave workers unprotected, hence making the labor force unreliable. Also, the future of privatized labor market is unpredictable, thus remains unclear. Since labor is one of the essential production resources, the existing gap in Chinas labor market is a big blow to private businesses and their future. In as much as legal adjustments have been made to Chinas labor laws over the years, the outlook of the sector remains divergent in actual practice.
Chinas attributes regarding industrial relations are inconsistent with VOCs parameters and cannot be compared to industrial relations of western nations. For instance, western countries have unions created for the workers and represent the interest of workers. On the other side, China has unions made up of workers, but they are influenced by their interests (Chang, and Cooke, 2015). Such a framework is not accounted for in the VOC analytical approach. Also, Chinas industrial relations may look like a coordinated market economy (CME) from the outside, but actual practice suggests a liberal market economy (LME). Therefore, it is impossible to use the VOC approach to classify the country as either an LME or a CME.
Education and Creation of Workforce
According to VOC, education and creating a workforce in coordinated market economies (CME) are concentrated on vocational pieces of training that generate firm-specific skills. In liberal market economies (LME), education and creating a workforce are designed to avail skilled people who can work in different firms and industries in a general sense (Wailes, Bamber & Lansbury, 2011). Also, training firm-specific workers encourage long-term employment tenures that define CMEs. On the other hand, the inadequacy of firm-specific skills enables short-term assignments that define LMEs. These parameters can evaluate any countrys education and workforce using the VOC approach. In China, however, VOC can examine the primary foundation of education and the creation of force (Wailes, Bamber & Lansbury, 2011). Despite having a literacy rate of 93.8 percent, the United Nations Development Programs showed that Chinese students register very low enrollment to tertiary institutions. The UNDP also reported that China is a low scorer regarding the education attainment index with 85 percent, despite undertaking significant improvements in recent years (Wailes, Bamber & Lansbury, 2011). The current Chinese rating is just behind Lebanons and is an indicator of a weak and ineffective education system.
In a VOC context, Chinas educational system tasked with producing a pool of skilled workers does not meet its objectives. Research shows that many employers often report skills mismatch from the available employee for the past decade, thus insinuating a shortage of usable skills in the market (Gallagher, 2011). In other words, the supply of technical skills does not meet the countrys demand. For instance, the countrys need to supply ratio for senior engineers and senior technicians averaged 2.30 and 2.25, respectively, for the last ten years (Gallagher, 2011). On the contrary, data shows that the existing deficit is not produced by a lack of professionals but by a lack of fit and qualified personnel. Out of every 5 million students that graduate each year, 1.5 million are unfit to practice their profession (Gallagher, 2011). For example, research conducted by McKinsey in 2005 found that only one-tenth of Chinas 1.6 million engineers were fit to compete on international levels (Gallagher, 2011). Using a VOC approach, it is evident that Chinas educational system focuses on general skills and not vocational training. From this perspective, the country can be classified as an LME. However, the attributes that follow are not consistent with the conventional characteristics of an LME. There is a gap between creating a workforce and the current demand for skills.
At the same time, the system is transitioning from an LME to a CME regarding education and creating a workforce. The transition makes it impossible to examine China using Hall and Soskices VOC approach. For the last three decades, research shows that enrollments in vocational schools more than doubled from the original 3 million students per year (Cooke, 2008). However, the number of schools has also decreased significantly, posing uncertainty to the inadequate supply of labor compared to the countrys demand. In a nutshell, in as much as China has a vast need for a skilled workforce, their process of creating the force cannot be termed as efficient and or effective (Cook, 2008). Also, there is a mix of concurrent systems used to generate the workforce. These attributes make it impossible to examine and accurately categorize Chinas economy using VOCs technique regarding education and creating a force.
Relations with Employees
Labor and employment are a crucial dimension in Hall and Soskices VOC approach. In liberal market economies (LME), market conditions influence the work environment and salaries and wages. There is no room for bargaining between employers and employees to create a work environment. In coordinated market economies (CME), there is room for negotiation between employers and employees to create a conducive work environment and wages and salaries (Hall and Soskice, 2001). Bargaining is usually done through organizations that aggregate the interest of employees and those of the employers. Every employee wishes to have a reliable employer, and it is also every employers wish to have a dependable employee. Formally, employers and or management often have the freedom to hire and fire in liberal market economies (LMEs). In coordinated market economies (CMEs), employers and management do not have the freedom to hire and fire because employees are highly protected against dismissal.
In China, employers are aligned toward a typical CME. Since the beginning of the twenty-first century, the countrys conventional employment space has been under a tripartite framework. Employees in the country had a collective bargaining umbrella covering thirty-four percent of workers (Cooke, 2008). This means that almost a third of all formally registered workers were protected from random dismissals and or retrenchments. This protection was achieved through the aggregation of nearly half of registered Chinese workers in trade unions, organizations, and local associations (Pringle, Brown & Kai, 2017). Chinas employee fraternity matches the attributes of a CME as per the VOC approach. However, the employer/management does not match the expected criterion. For instance, the government makes up a considerable segment of employers.
Most big firms in China are owned by the government, which in many cases, has forcefully seized and rebranded private businesses by use of state machinery. The managerial style that follows such happenings is not in line with conventional CMEs, making it impossible to use VOC to evaluate China in this regard. For instance, it is not uncommon for Chinese government officials to have a personal stake in private and public businesses (Thelen, 2012). This relationship with employees has drawn a discriminative line in the labor market, weakening dynamics that govern suitable employment. In such a case, employee retention, promotions, and retirement benefits hang in the balance. These factors nock China off-balance as a typical CME, making the countrys employment inconsistent with the VOC approach.
Inter-Company Relations
Inter-company relation is another parameter used to examine economies using the VOC approach. In LMEs, diffusion of technology is achieved through the movement of employees through different companies. This mode of operation calls for the existence of a fluid labor market and temporary employment tenures (Cooney, 2007). On the contrary, organizations within CMEs depend on direct connections to diffuse skills and technology. Inter-company relations create room for joint ventures between local and international firms. In China, government legislation largely influences the relationship that exists between firms in the same economic sectors. The government encourages market access for both local and international companies to exchange technology and techniques. At the start of the 21st century, China joined the World Trade Organization (WTO) and subsequently encouraged wholly foreign-owned enterprises (Pringle, Brown & Kai, 2017). Many joint ventures turned into wholly foreign-owned enterprises to freely acquire technological techniques from other firms. Also, poaching of intellectual property by employees who move to different companies became common. These happenings have not translated into technological diffusion like in a typical CME. This inconsistency limits the usage of VOC to evaluate Chinas economy.
Besides, Chinas banking sector is dominated by four big state-owned banks. Private banking institutions cannot come up and grow. Simultaneously, the relationship between these four banks and all other small banks is flawed, marred with shallow competition and weak connection channels. In context, China singlehandedly controls the financial system, one of the essential segments of the economy (Pringle, Brown & Kai, 2017). Unlike in Western Europe, private banking institutions are left out where the government even supports private sectors. Chinas inter-company relationship is a mix of attributes from LMEs and CMEs and could be a mixed economy by some scholars. Regardless, it is impossible to use the VOC approach to evaluate the country since it would require constant revision and revisitation of its dynamics.
Conclusion
Hall and Soskices VOC approach is a straightforward evaluation model that can categorize economies as either liberal market economies (LMEs) or coordinated market economies (CMEs). Analyzing Chinas market economy is an impossible venture using the VOC for several reasons. The country has a mixture of characteristics throughout the stipulated parameters used to categorize market economies. Some of Chinas economic sectors match the criteria for classifying an LME, while they also fit the requirement for CMEs. For example, unlike Russia, China embraced a capitalistic economy but retained communist party leadership (Ellem, 2021).
At the same time, the country has economic attributes that are not in line with VOCs definition of a CME or LME. It is, therefore, impossible to use VOC to examine and categorize Chinas market economy as either an LME or CME. Since China is the worlds second-largest economy, this paper aids in furthering research regarding the countrys economic outlook in the future; research can be done to establish the possibility of having other models for classifying market economies and the primary arguments that will define ideal economies. For instance, the economist can consider factors such as socio-political influence on the economy and adjust the definition of ideal LMEs or CMEs. The majority of firms in China are private, but state-owned institutions primarily control the economy. Chinas economic growth rate has always been commendable with such an outward outlook. The country has taken significant strides in economic progress for the last seven decades and calls for more profound economic research regarding VOC.
References
Chang, K., & Cooke, F. L. (2015). Legislating the right to strike in China: Historical development and prospects. Journal of Industrial Relations, 57(3), 440-455.
Cooke, F. L. (2004). HRM, work, and employment in China. Routledge.
Cooke, F. L. (2008). The changing dynamics of employment relations in China: An evaluation of the rising level of labor disputes. Journal of Industrial Relations, 50(1), 111-138.
Cooney, S. (2007). Chinas labor law, compliance, and flaws in implementing institutions. Journal of industrial relations, 49(5), 673-686.
Ellem, B. (2021). Is there a Chinese variety of capitalism? The University of Sydney Business School.
Gallagher, M. E. (2011). Contagious Capitalism: Globalization and the politics of labor in China. Princeton University Press.
Hall, P. A., & Soskice, D. (Eds.). (2001). Varieties of capitalism: The institutional foundations of comparative advantage. OUP Oxford.
Pringle, T., Brown, W., & Kai, C. (2017). Going to market: comparing labor relations reform in China, Russia, and Vietnam.
Shen, J. (2006). An analysis of changing industrial relations in China. International Journal of Comparative Labour Law and Industrial Relations, 22(3).
Thelen, K. (2012). Varieties of Capitalism: Trajectories of liberalization and the new politics of social solidarity. Annual Review of Political Science, 15, 137-159.
Wailes, N., Bamber, G. J., & Lansbury, R. D. (2011). International and comparative employment relations: An introduction. In International and Comparative Employment Relations: Globalisation and Change (pp. 1-35). Allen & Unwin.
Since the beginning of the twentieth century, the varieties of capitalism (VOC) have dominated comparative research on contemporary capitalists. The conceptual model for relative employee engagement offers a systematic institutional study space. Nevertheless, more focus on the political challenges and the unequal and interdependent evolution of regional capitalism needs to complement capitalisms different approaches.
However, this dichotomy was criticized for simplicity; it sets the fundamental theoretical basis for VOC study and has also been used with various amendments to comparative employee engagement since the second half of the 2000s (Thelen, 2012). A proper understanding of labor relations encompasses analytical approaches in various academic disciplines, such as accounting, economy, law, science, sociology, and other management science aspects. This article aims to provide strengths and limitations in the various capitalist framework styles in research comparative labor relations.
Strengths of the Varieties of Capitalism Framework
The approach to the VOC gives new conceptual and analytical inspirations for studying and contrasting with advanced countries. It draws attention to institutions holistic character, establishing reasonably consistent trends in new post-socialist capitalism states. For twenty years after 1981, the recompense for adjusting working time remained relatively constant: personnel had more flexibility by using working hours to reduce overall operating time and conditions for negotiating work time changes (Baccaro & Howell, 2011). It contains a vast cognitive capacity that is useful to discuss social changes and the discrepancies between various capitalist variants in the area. It can recognize strategic dilemmas, options, and weaknesses in countries pursuing the optimal modern capitalism model.
The VOC approach combines empirical findings from many fields, including political theory, sociology, economics, law, and psychology, into neo-institutional strategies. VOC methodology claims that the primary objective of changes in industrialized capitalisms industrial relations structures, including widespread weakening of labor and shifting ever more regulatory problems to the company stage, is fundamentally capitalist amid variations in institutional type (Baccaro & Howell, 2011).
The public discourse has a particular deficiency in comparable employment relations and this strategy is focused on the neo-institutional framework. It also offers theoretical and analytical methods to recognize the commonalities and dissimilarities between countries and groups of nations in the region. Each economy has unique capabilities and frameworks for collaboration that fit what businesses and governments do. Emerging varieties of capitalism paradigm have thus proven to motivate even post-communist nations, including some alternate conceptions of capitalisms variety.
Another strength of the VOC approach is concentrating on regional, sectoral, and social responses to the turmoil and the challenges raised by globalisation, including globally characterized government policies. For example, The French State was much more active in labor market control, essentially replacing trade union failure and union representation (Baccaro & Howell, 2011). It also offers a useful study of national priorities translating into international affairs.
These priorities generally derive from competitive organizations and capitalism frameworks, which primarily explain divergences between the authorities of developed nations strategies. The study of labor relations should concentrate on labor laws and the broader economic and social effect on the potential importance of capital and labor and connections between employers, workers, group organizations, and the government.
Limitations of the Varieties of the Capitalism Approach
Both the central concept of capitalism versions and the causes for their divergence and the models main characteristics are negated. Alternative models of capitalism arise from the theorys past and its application in other areas of the world. Thus, the VOC approach and critique were chosen for the paper, therefore considering general and comparative issues. For example, the German national and trade framework plus separate legal enrichment rights for employees at the work level have allowed pressure to be put on the current institutional configuration to be decentralized (Wailes, Bamber, & Lansbury, 2011).
Another source of uncertainty was created by creating a capitalist typology referring to different relevant theories and methodological parameters and different qualitative and quantitative operationalization of the capitalism approach varieties.
The VOC view is criticized for excessive assertions, suggesting that empiricism varies from the typological hypothesis. The primary theory does not know the specifics of employment relations. Wailes et al. (2011) studies demonstrate that German labor relations in a comparative context are examples of the employment relations paradigms comprehensive framework. Both claim that Germanys dual structure of industrial relations has better allowed German unions to resist globalization pressures than their peers in the United States and Sweden.
Wailes et al. (2011) contrast the participation of industrial restructuring unions in Germany and the US and emphasizes the position institutional arrangement gaps have played in deciding employers and employees response to foreign economic sanctions. The critical controversy stems from the fact that generalizations and findings from VOC studies were initially confined to a small number of advanced countries.
VOC leads to inherited inequalities in the labour market. The legal concept of private estate and the desire to share the prosperity of subsequent generations are the basis of a capitalist society. For example, Wailes et al. (2011) demonstrate the degree to which production globalization creates possibilities and threats for employees and how international dimensions can contribute to shaping outcomes for employment. Capitalists claim that hard work pays fairness for a capitalist society. On the other hand, citizens can be affluent simply because they have money or have joined the wealthy elite. Therefore, capitalist society struggles to achieve equality, but it also fails to offer fairness and equality.
Conclusion
In conclusion, analyzing the effects of globalization, the varieties of the capitalist approach overcome some of the institutionalized approachs weaknesses stated in the previous section. By focusing on interrelationships between institutional arrangements, the institutional perspective overcomes the propensity to treat employment isolation entities. Moreover, the firm core of the VOC overpowers bureaucratic analyses to perceive institutions as distinct from the social players involved.
The emphasis on the coordination issues facing individual businesses helps employers return to the study of shifts in relationships with jobs. It has been used to describe cross-border similarities and disparities, particularly employee engagement, and technical training programs. In this context, VoC methodology should be viewed mainly as a plan for potential tests, rather than a ready-made theory of all.
References
Baccaro, L., & Howell, C. (2011). A common neoliberal trajectory: The transformation of industrial relations in advanced capitalism. Politics & Society, 39(4), 521-563. Web.
Thelen, K. (2012). Varieties of Capitalism: Trajectories of liberalization and the new politics of social solidarity. Annual Review of Political Science, 15, 137-159. Web.
Wailes, N., Bamber, G. J., & Lansbury, R. D. (2011). International and comparative employment relations: An introduction. In International and Comparative Employment Relations: Globalisation and Change, (5th ed., pp. 1-35). Crows Nest, Australia: Allen & Unwin.
Capitalism contributes significantly to the development of the personal property ownership of investors. The main goal for many capitalistic investors is to make more profits in their businesses. Capitalism is the process of trading where people own properties and businesses privately. They may also hold essential capital goods and supply their products and services through the market economy approach rather than the central economy. A central economy, also planned or command economy, is a state in which people engage in activities managed by the central government and are societal. The British economy applies the capitalist approach in many of its businesses since it allows free market transactions, and the firms control many factors of production privately. The report highlights how Brexit affected the continuity of the growth of financial markets. It discusses the nature and characteristics of Britains capitalism by outlining its history and how the principal city, London, plays a critical role in the spread of capitalism.
The City of London
The city of London hosts the worlds largest financial market hence promoting the growth of capitalism. Many financial traders have offices in the city and engage with other traders to make money. Moreover, London is the financial district hosting many financial institutions like head offices for banks, brokerage firms, savings unions, and many more. London provides a conducive environment for financial traders to conduct their duties freely by allowing them to meet at specific places (Christie and Wieser, 2020). The traders access resources quickly since other stakeholders know what traders need to push their agenda, thus providing these goods and services that traders demand their comfortability. The environment is also secure from theft and other unfavourable activities for financial trading. The city of London came into existence after the Roman invasion, playing the centres role for power and administration. With time, the city hosted many coffee shops where financial traders sat to trade, thus influencing the citys development. Therefore, the city of London is influential in Britains growth in the number of influential capitalists.
The Neoliberalism Turn
British capitalism contains high liberalized markets for labour and finance. Capitalism affects businesses and influences workers spirit because the worker with the most effort earns the highest wages and salaries. Thus, many employees get motivated to work harder than others to generate more income (Anwar and Graham, 2020). Self-interests are the driving forces of capitalism since many make the business perform better, immersing more wealth for the owners. Neoliberalism affects many companies by creating policies that lead their actions. The most common approaches include eliminating price controls, deregulating the capital markets, lowering trade barriers, and reducing government interference in trade activities. Neoliberalism promotes capitalism since individuals easily join the needs of their choice and engage in activities that benefit them the most. Neoliberalism affects the number of traders in a market by increasing their number through free entry and exit to the market policy that gives people the freedom to trade openly. British capitalism grows since traders have the freedom to join the market that fits them and may make independent decisions on the size of risks they may engage themselves.
The Post Financial Crisis Brexit
Additionally, another factor that has shaped the nature of British capitalism is Brexit. Brexit is the United Kingdoms exit from the United Nations (Krzy|anowski, 2019. p. 482). The move left many people unemployed by making them lose jobs as finance officers. Unemployment increases since capitalists want to reduce the cost of labour since there is a decrease in the number of profits they make from the trades (Robinson, 2019. p. 161). Others are directly sacked from their jobs since their contributions to the size of returns reduce. Capitalists rely on the number of profits they make to determine the extent of labour they employ. Brexit negatively influenced many businesses in Britain. Some international investors opt to leave the country for others that function by the United Nations laws. Specialists speculated that Brexit would significantly affect the state of London City and its participation in financial trade because it hosts the worlds largest financial markets.
The industrial revolution contributed to the growth of capitalism in Britain since it influenced many sectors, such as the agricultural and business areas. The industrial revolution significantly contributed to slavery (Inikori, 2020. p. 61). Whereas some people supported slavery, others argued that the employment of people for freewill influenced business growth since people worked more to gain higher income. Freewill employment motivated employees to work harder and produce more. Such a career significantly boosted the development of capitalism by influencing employee motivation. Apart from the division of labour and specialization, competitive market dynamics, the importance of the shareholder value, and high relations are other essential characteristics of British capitalism.
Conclusion
British capitalism was influenced by the industrial revolution and the invasions by the Romans. Capitalism affects the growth and development of states by influencing business people to invest in privately-owned capital goods. The investments in such areas attract high profits and increase the demand for more opportunities to create wealth. Financial markets in Britain are located in London, where excellent financial facilities such as head offices of banks and the Central Bank of Britain exist. London hosts the worlds most significant number of financial investors and influences effective decisions made in the world regarding financial management practices. British capitalism continues to expand since many people gain knowledge about financial management and identify their roles in such investment opportunities.
Krzy|anowski, M. (2019) Brexit and the imaginary of crisis: a discourse-conceptual analysis of European news media, Critical Discourse Studies, 16(4), 465-490. Web.
Pardo-Guerra, J. P. (2019). Automating finance: infrastructures, engineers, and the making of electronic markets. Cambridge University Press. Web.
Robinson, W. I. (2019) Global capitalist crisis and twenty-first-century fascism: beyond the Trump hype, Science & Society, 83(2), 155-183. Web.
Grey argues that studying organizations encompasses factors such as society, economics, politics and history. He also argues that these factors are rarely incorporated in organizational studies. Moreover, he argues that the study of organizations is a technical matter. Grey believes that modern business trends have emphasized on maximizing shareholder value.
Companies have focused on financial engineering. Additionally, companies exploit cheap labor from offshore countries to maximize on returns. This paper will explore Greys case on fast capital and its relation to end of management. It will also explore its effect on organization as well as managers (Grey, 2013, p. 105).
Greys argument about Fast Capitalism and the End of Management
According to Grey, fast capitalism achieved social connections which have been disjointed by new capitalism. In essence, capitalism practiced within the first five decades after the great depression and World War II ensured that there was connection between consumption and production. Additionally, there was connection between communities and places. Moreover, organizations followed their bureaucratic systems. Management was strengthened and business structures were followed effectively.
However, in new capitalism, bureaucratic systems have been squashed. Companies reward top managers for increase in shareholder values. However, middle level managers face serious management issues. Middle level managers have little authority in contemporary companies; they can be sacked at will. In essence, fast capitalism has led to deterioration of management values. Consequently, even though management structures are in place, organizations do not follow their bureaucratic systems (Grey, 2013, p. 120).
Nonetheless, this is not to say that management has ended. However, their structures and ways of dealing have been altered significantly. In this regard, the results of fast capitalism are unsustainable with regards to available resources. For instance, when middle level managers are sacked, they are faced with numerous problems including poverty.
In this regard, fast capitalism rewards the few people at the top while those in lower ends are exploited. This cannot be sustained for long. Fast capitalism is hence deemed for an unpredictable future. Additionally, Natural climate and resources cannot sustain fast capitalism. In essence, grey asserts that fast capitalism has greatly affected organizational systems for management (Grey, 2013, p. 114).
Its effects on organizations and managers
Fast capitalism has brought about use of unsustainable economic practices. These include exploitation of weak financial systems in poor countries, greed by top management officials, deregulation, and emphasis on maximizing shareholder value among others. Organizations, therefore, focus on financial returns rather than structures. In addition, corporate structures are focused on financialization.
Therefore, organizations are significantly transformed to focus on the tenets of fast capitalism. This has resulted in weak organizational structures which cannot sustain best economic practices. In addition, organizations have turned into agencies for exploitation as seen in offshore outsourcing (Grey, 2013, p. 125).
Additionally, managers have found it difficult to stamp their authority in an increasingly challenging business environment. Of great concern are middle level managers whose tenure is increasingly at risk due to fast capitalism. In contrast, top managers have increased command in management of companies. Moreover, their rewards are extremely high when compared to middle level managers. The roles of managers are however at the mercy of stakeholders who may have little knowledge on financial practices (Gray, 2009, p. 52).
Conclusion
Fast capitalism has transformed business structures throughout the world. Multinational companies have focused solely on maximizing shareholder value. This has come with its repercussions. Global economy has led to exploitation of poor countries. Moreover, Grey faults fast capitalism for the overwhelming transformation of organizations and their financial structures.
He argues that fast capitalism is unsustainable on scarce natural resources and climate. He uses many evidences such as Enron scandal, among others. Essentially, he argues that financialization of corporate culture has triggered a slow end to management.
Reference List
Gray, J 2009, False Dawn: The Delusions of Global Capitalism, Granta Books, London.
Grey, C 2013, A Very Short, Fairly Interesting and Reasonably Cheap Book About Studying Organizations: The new capitalism and the Strange Fates of Management, Sage Publishers, London.
The American model of shareholder capitalism has been prominent around the world in the last four decades. This model suggests catering to the interests of shareholders and ignoring everything else. While being a profitable model of shareholders, it proved to have significant flaws, which were illustrated during the last two economic crises. German stockholder capitalism model presents itself as an alternative that benefits not only shareholders but also employees and the communities around them.
Introduction
Stakeholder and shareholder capitalism models are two very widespread business strategies popular in different areas around the world. Shareholder capitalism is the predominant model in the USA, while stakeholder capitalism is more common in Europe (Germany, France, Sweden, Denmark) and certain countries in Asia, like Japan (Brandt & Konstantinos, 2016). As the titles suggest, each model focuses on the interest of a certain group within the corporation. In the shareholder capitalism model, shareholder interests are the main concern, while in stakeholder model shareholder interest is on equal ground with concerns and interests of other stakeholders, such as the community, the employees, the suppliers, etc.
Although shareholder capitalism model received a great boost in popularity due to the USAs victory over communism in the 1980s, and increasing economic output and prosperity, those days are long gone (Pearlstein, 2014). Nowadays, the effectiveness and even morality of the approach is put under question after two spectacular financial crises and numerous scandals revolving around outrageous wages of top-tier company managers, while the rest remain in decline. In this paper, we will outline the functioning and staple traits of both systems, and explore the relationship between the employees and employers in German stakeholder capitalism and in American Shareholder capitalism.
American Shareholder Capitalism
Shareholder capitalism could be best described by professor Milton Friedman, who stated its founding postulate: The principal objective of a business enterprise is to generate economic returns to its owners. If the CEO and the directors are not focused on shareholder value, it may be less likely the corporation will realize that value (Coates, 2014, p. 54). Thus, the model is geared at maximizing profit at any cost. Any considerations towards anyone else be that the employees, the community, or even the country, are not regulated by law in any feasible way.
In the American shareholder capitalism model, the corporations are owned by a small group of shareholders. They have the power to elect CEOs, directors, and other high-ranking officials. Although it is not explicitly stated, the primary duties of these high-ranking corporate officials are to ensure that the shareholders receive their profits through any means necessary. Otherwise, they would lose their jobs. All modern American corporate governance is based on the concept of shareholder primacy.
Most American corporations have a one-tier governance structure. This means that the directorial board has complete control over the companys function, its financial strategy, and the general direction of development. The US Federal Law does not prescribe any obligations of corporate social responsibility, leaving that to the discretion of the company (Brandt & Konstantinos, 2016).
Relationships with banks are also regulated by a dedicated chapter in the US commercial law. According to it, no bank has the authority to directly interfere with corporate governance, no matter how much said corporation owes to the bank. Thus, how the corporation spends money received from loans is totally up to the directorial board (Brandt & Konstantinos, 2016).
In the USA, the shareholder model has discredited itself through numerous scandals associated with the Wall Street Managers. One of the more recent cases happened at Goldman Sachs and Wells Fargo & Co., which caused a public backlash and demand to hold the top managers accountable (Meyerson, 2014). Some other accusations towards the shareholder capitalism model include moving production to third world countries, which causes poverty and unemployment to rise, tax evasion, deceiving customers, and leaving communities hanging (Davis, 2010).
German Stakeholder Capitalism
German stakeholder capitalism has deep roots in the history of German and Prussian states. The concept is based on the principles of co-determination, which suggests that the shareholders, the managers, and the employees will all work together in harmony in order to achieve maximum productivity, due to all three groups having something important at stake (Franklin, Carletti, & Marques, 2014). Although the shareholders are still considered to be the most important group of stakeholders, other groups are represented and are capable of influencing corporate governance. In Germany, all stakeholders are legally outlined and protected by law.
The model suggests a two-tier corporate governance structure, with the directorial board having broad discretion over the companys overall orientation. However, the two-tier structure suggests that all decisions have to go through more rigorous scrutiny, especially when the interests of other stakeholders are directly involved (Franklin et al., 2014).
Naturally, worker co-determination is very extensive in such a model, with representatives of the employees present on almost every level, sometimes on part with members of the directorial board. Lastly, German corporations work very closely with the banks that loan them money, with the banks demanding total transparency and even direct involvement, as far as expenses are concerned (Brandt & Konstantinos, 2016). Opinions on such practices vary, with some stating that an extra layer of responsibility prevents the corporations from following corrupt practices that became the norm in the American system, while other experts are worrying over the banks holding too much sway in corporate decision-making (Coates, 2014).
Employee Advantages and Disadvantages of Each System
If we compare the shareholder capitalism model with stakeholder capitalism, it will be obvious that the latter has more social securities for the employees. Under the German system, employees have their representatives, which are elected every several years, to represent the interests of the employees as a stakeholder class (Brandt & Konstantinos, 2016). Many researchers in socio-economic fields state that the employees are the most vulnerable stakeholders in any company, as they develop firm-specific skills through years of dedication to the company (Coates, 2014). These representatives have the tools to protect the employees from unjust and unmotivated actions initiated by the directorial board, such as wage cuts, employee cuts, etc. In contrast, the American capitalist model does not allow for any employee representatives in the directorial board, thus meaning that workers have no voice on any corporate matters.
In Germany, all stakeholders, including the employees, are protected by a stakeholder-friendly legal framework that regulates their rights and obligations within the context of running a business. In the American legal system, there is no law that explicitly protects the rights of stakeholders other than shareholders. Thus, the rights and interests of employees do not have the same level of protection (Murray, 2013).
Conclusions
Stakeholder capitalism is considered a more socially oriented model of capitalism, as it takes into account not only the direct profits of its shareholders, but also the employees, the suppliers, and the communities in which the corporations are set. Disenchantment with shareholder capitalism around the world and in the USA is growing, which was demonstrated during the last elections. Shareholder capitalism, which started as an attempt to curb the growing mediocrity of managerial capitalism, grew into a system where the needs of the many are overshadowed by the needs of the few. Shareholder capitalism is noted for its focus on short-term perspective, with no long-term goals in mind. As the results of this literature research have shown, the stakeholder model does a much better job of protecting the interests of the employees.
References
Brandt, F., & Konstantinos, G. (2016). Shareholders vs. Stakeholders capitalism. Comparative Corporate Governance and Financial Regulation, paper 10.
Coates, D. (2014). Models of capitalism: Growth and stagnation in the modern era. Malden, MA: Polity Press.
Davis, G.F. (2010). Is shareholder capitalism a defunct model for financial development? Review of Market Integration, 2(3), 317-331. Web.
Franklin, A., Carletti, E., & Marques, R. (2014). Stakeholder governance, competition, and firm value. Review of Finance, 19(3), 1315-1346. Web.
Meyerson, H. (2014). Shareholder capitalism vs. Stakeholder capitalism. The Washington Post. Web.
Murray, M. (2013). Stakeholder capitalism vs. Shareholder capitalism; How workers lost everything. NH Labor News. Web.