Rhine Capitalism
Encyclopedia
Rhine capitalism or Rhenish capitalism (also known as the Rhenish model or Rhineland model) is a contemporary economic order existing primarily in Western Europe
. The term originates from the French economist
and (in 1991) Chairman of the Board and CEO Assurances Générales de France (AGF), Michel Albert
who first used it in his book Capitalisme contre Capitalisme. He compared the so-called “neo-American model” of a capitalistic market economy, introduced by the administrations of Ronald Reagan
and Margaret Thatcher
with the “Rhine Capitalism", present in Germany, France and in some of Northern European economies. While the former is based more on the ideas of Friedrich von Hayek
and Milton Friedman
, the latter, according to Albert, is founded on publicly organized social security
. Albert analyzes the Rhenish model as the more equitable, efficient, and less violent one. However, according to Albert, complex psychological phenomena and the functioning of the press lets the American model appear more attractive and dynamic to the general public. Against this Albert wrote - even in 1991 - for example: “The largest banks know, however, that they are literally 'too big to fail
' and can count on a helping hand from government if the worst comes to the worst. America's political leaders would step in to prevent the crash of a major financial institution on the grounds that it could set off a lethal chain reaction culminating in widespread disaster. ... Thus, in yet another intriguing but ominous irony of history, 10 years of ultra-liberalism have resulted in a US financial system whose future may only be assured with the help of federal government handouts” (p. 61).
Albert identifies the following characteristics of Rhine capitalism:
According to Albert, both models differ little in their respective ideas about which goods are not tradable – with one major exception: religions. Areas where the models diverge significantly are the realm of negotiable goods (commodities, services) and that of mixed goods.
Two researchers, Peter A. Hall and David Soskice
, followed up the idea of two different kinds of capitalism with a large, empirical, international study. They came to a typology of (a) liberal and (b) coordinated market economies with different institutions and governance
systems. The paradigm of a coordinated market economy is the German way of Rhine capitalism, the Social market economy
, which, in the Anglo-Saxon world, is frequently called the “German model
”, whereas - according to Hall/Soskice - the meaning of the expression “German model” is more referred to the social practice in Germany than to Erhards
and Müller-Armacks
fundamental concept.
at the river Rhine and is also related to the nearby town of Bad Godesberg
where the German Social Democratic Party SPD
accepted this kind of capitalism with the so called Godesberg Program
.
Apart from Germany's
, Rhenish capitalism has been associated with other Northern European economies (Switzerland
, Austria
, the Netherlands
, Denmark
, and Sweden
) and it has also been used to characterize Japan's
.
It is linked to some principles of social legislation, which can be found in all these countries, as social security in illness, unemployment etc., reducing economic inequality, strong banking system but weak equity market, solidarity based insurances, a large public sector, and far reaching labor laws. Some Economists also make a distinction between the Rhinish Model and the Nordic model
.
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
. The term originates from the French economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
and (in 1991) Chairman of the Board and CEO Assurances Générales de France (AGF), Michel Albert
Michel Albert
Michel Albert is a French economist. He was born 25 February 1930 at Fontenay-le-Comte and is the Permanent Secretary of the Académie des Sciences Morales et Politiques since 1 January 2005....
who first used it in his book Capitalisme contre Capitalisme. He compared the so-called “neo-American model” of a capitalistic market economy, introduced by the administrations of Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
and Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
with the “Rhine Capitalism", present in Germany, France and in some of Northern European economies. While the former is based more on the ideas of Friedrich von Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
and Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
, the latter, according to Albert, is founded on publicly organized social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
. Albert analyzes the Rhenish model as the more equitable, efficient, and less violent one. However, according to Albert, complex psychological phenomena and the functioning of the press lets the American model appear more attractive and dynamic to the general public. Against this Albert wrote - even in 1991 - for example: “The largest banks know, however, that they are literally 'too big to fail
Too Big to Fail policy
"Too big to fail" is a colloquial term in regulation and public policy that refers to businesses dealing with market complications related to moral hazard, macroeconomics, economic specialization, and monetary theory....
' and can count on a helping hand from government if the worst comes to the worst. America's political leaders would step in to prevent the crash of a major financial institution on the grounds that it could set off a lethal chain reaction culminating in widespread disaster. ... Thus, in yet another intriguing but ominous irony of history, 10 years of ultra-liberalism have resulted in a US financial system whose future may only be assured with the help of federal government handouts” (p. 61).
Albert identifies the following characteristics of Rhine capitalism:
- the world of finance is more dominated by the banks instead of the stock exchanges,
- close relationships between banks and companies,
- a well-adjusted balance of power between share holders and managers,
- social partnership between employers and unions,
- employees of higher loyalty,
- better educated employees thanks to something like the dual education systemDual education systemA dual education system combines apprenticeships in a company and vocational education at a vocational school in one course. This system is practiced in several countries, notably Germany, Austria, Bosnia and Herzegovina, Croatia, Serbia, Slovenia, Macedonia, Montenegro and Switzerland, but also...
, - more regulated markets and – last but most importantly –
- shared values by most of the citizens regarding the ideas of equality and solidarity.
According to Albert, both models differ little in their respective ideas about which goods are not tradable – with one major exception: religions. Areas where the models diverge significantly are the realm of negotiable goods (commodities, services) and that of mixed goods.
- ReligionReligionReligion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...
s in the Rhine model do not function as economic institutions as they do, in part, in the US. - CompaniesCompanyA company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
are, in the neo-American model, negotiable goods as any others, whereas in the Rhine model they are a community. - WageWageA wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
s are determined by a momentary market situation in the neo-American system, while in the Rhine model they are more constant and take into consideration qualifications, seniority and nationally agreed pay scales. - HousingHouseA house is a building or structure that has the ability to be occupied for dwelling by human beings or other creatures. The term house includes many kinds of different dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures...
is mostly a market commodity in the US. In Rhine economies it is mixed, costs are often subsidized. - Urban transportationPublic transportPublic transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
would be partly regulated in the USA also, but is more a commodity than a mixed good. - The mass mediaMass mediaMass media refers collectively to all media technologies which are intended to reach a large audience via mass communication. Broadcast media transmit their information electronically and comprise of television, film and radio, movies, CDs, DVDs and some other gadgets like cameras or video consoles...
is traditionally commercial in the US. While in the Rhenish system there is a tendency toward privatization, the opposite can be found in the USA, and in the Rhenish system, the most watched television stations tend to be state-run. - EducationEducationEducation in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
is much more a commodity in the USA than in the Rhine model. - HealthHealth professionThe health care industry, or medical industry, is the sector of the economic system that provides goods and services to treat patients with curative, preventive, rehabilitative, palliative, or, at times, unnecessary care...
and legal professions: In the Rhine model a long tradition frees the members of a profession (e.g. doctors and lawyers) from the need to chase profit in order to be able to concentrate in a disinterested fashion on serving the public good. The service is a kind of an honor, and the expression for the payment in these areas (Honorar) is closely related to this underlying idea.
Two researchers, Peter A. Hall and David Soskice
David Soskice (economist)
David Soskice is a British economist.Currently, he is Research Professor of Comparative Political Economy and Senior Research Fellow at Nuffield College, University of Oxford.- Life :...
, followed up the idea of two different kinds of capitalism with a large, empirical, international study. They came to a typology of (a) liberal and (b) coordinated market economies with different institutions and governance
Governance
Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes...
systems. The paradigm of a coordinated market economy is the German way of Rhine capitalism, the Social market economy
Social market economy
The social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...
, which, in the Anglo-Saxon world, is frequently called the “German model
German model
The term German model is most often used in economics to describe post-World War II West Germany's means of using innovative industrial relations, vocational training, and closer relationships between the financial and industrial sectors to cultivate economic prosperity.- Industrial relations...
”, whereas - according to Hall/Soskice - the meaning of the expression “German model” is more referred to the social practice in Germany than to Erhards
Ludwig Erhard
Ludwig Wilhelm Erhard was a German politician affiliated with the CDU and Chancellor of West Germany from 1963 until 1966. He is notable for his leading role in German postwar economic reform and economic recovery , particularly in his role as Minister of Economics under Chancellor Konrad Adenauer...
and Müller-Armacks
Alfred Müller-Armack
Alfred Müller-Armack was a German economist and politician.He was professor of economics at University of Münster and University of Cologne. Müller-Armack coined the term "social market economy" in 1946....
fundamental concept.
Difference of "Rhine capitalism" to "German model"
The term Rhine capitalism is an allusion to the former German government capital BonnBonn
Bonn is the 19th largest city in Germany. Located in the Cologne/Bonn Region, about 25 kilometres south of Cologne on the river Rhine in the State of North Rhine-Westphalia, it was the capital of West Germany from 1949 to 1990 and the official seat of government of united Germany from 1990 to 1999....
at the river Rhine and is also related to the nearby town of Bad Godesberg
Bad Godesberg
Bad Godesberg is a municipal district of Bonn, southern North Rhine-Westphalia, Germany. From 1949 till 1990 , the majority of foreign embassies to Germany were located in Bad Godesberg...
where the German Social Democratic Party SPD
Social Democratic Party of Germany
The Social Democratic Party of Germany is a social-democratic political party in Germany...
accepted this kind of capitalism with the so called Godesberg Program
Godesberg Program
The Godesberg Program was the party program outline of the political course of Germany's social-democratic party, the SPD. It was ratified on November 15, 1959, at an SPD party convention in the town of Bad Godesberg, which is today part of Bonn....
.
Apart from Germany's
Economy of Germany
Germany is the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP in 2008. Since the age of industrialisation, the country has been a driver, innovator, and beneficiary of an ever more globalised economy...
, Rhenish capitalism has been associated with other Northern European economies (Switzerland
Economy of Switzerland
The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and political stability has made Switzerland a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment...
, Austria
Economy of Austria
Austria is one of the 12 richest countries in the world in terms of GDP per capita, has a well-developed social market economy, and a high standard of living. Until the 1980s, many of Austria's largest industry firms were nationalised; in recent years, however, privatisation has reduced state...
, the Netherlands
Economy of the Netherlands
On the Index of Economic Freedom, the Netherlands is the 13th most laissez-faire capitalist economy out of 157 surveyed countries. At the time of writing the Netherlands is the 16th largest economy of the world. Between 1998 and 2000 annual economic growth averaged nearly 4%, well above the...
, Denmark
Economy of Denmark
With very few natural resources, the economy of Denmark relies almost entirely on human resources. The service sector makes up the vast amount of the employment and economy. Its industrialised market economy depends on imported raw materials and foreign trade. Within the European Union, Denmark...
, and Sweden
Economy of Sweden
The economy of Sweden is a developed diverse economy, aided by timber, hydropower and iron ore. These constitute the resource base of an economy oriented toward foreign trade...
) and it has also been used to characterize Japan's
Economy of Japan
The economy of Japan, a free market economy, is the third largest in the world after the United States and the People's Republic of China, and ahead of Germany at 4th...
.
It is linked to some principles of social legislation, which can be found in all these countries, as social security in illness, unemployment etc., reducing economic inequality, strong banking system but weak equity market, solidarity based insurances, a large public sector, and far reaching labor laws. Some Economists also make a distinction between the Rhinish Model and the Nordic model
Nordic model
The Nordic model refers to the economic and social models of the Nordic countries . This particular adaptation of the mixed market economy is characterised by "universalist" welfare states , which are aimed specifically at enhancing individual autonomy, ensuring the universal provision of basic human...
.
Literature
- Albert, Michel: Capitalism Against Capitalism. London: Whurr, 1993. - ISBN 1-870332-54-7.
- Albert, Michel; Gonenc, Rauf: The Future of Rhenish Capitalism. In: Political Quarterly, 67(2005)3, p. 184-193.
- Brittan, Samuel: Capitalism with a human face. Aldershot: Elgar, 1995. - ISBN 1-85278-446-6.
- Edinger, Lewis Joachim; Nacos, Brigitte L.: Capitalism with a Human Face. In: Edinger, Lewis Joachim; Nacos, Brigitte L. (Ed.): From Bonn to Berlin : German politics in transition. New York: Columbia University Press, 1998. P. 145-195. - ISBN 0-231-08413-7.