Varieties of capitalism seen around the world-Capitalism varies across as well as within individual countries

Source: The post varieties of capitalism seen around the world has been created, based on the article “Capitalism varies across as well as within individual countries” published in “Live mints” on 23rd February 2024.

UPSC Syllabus Topic: GS Paper 3- Economy- investment model

News: This article discusses how different types of capitalism exist within countries. It describes how businesses operate in various sectors: informal (like small shops), formal competitive (medium-sized businesses), and formal oligopolistic (large, influential companies).

What are the varieties of capitalism seen around the world?

There are polar models of capitalism– Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs)

Liberal Market Economies (LMEs): Examples include the US, UK, and Canada, where firms interact mainly through market mechanisms. These economies emphasize free market principles and minimal state intervention.

Coordinated Market Economies (CMEs): Found in countries like Germany and Japan, where firms rely more on non-market relationships for coordination. These economies often feature strong labor unions and close collaboration between government and industry.

Intermediate Models Between LMEs and CMEs:

Mediterranean Capitalism: Found in countries like Spain and Italy, it combines elements from both LMEs and CMEs, with a notable presence of family businesses and state intervention.

East Asian Capitalism: Seen in South Korea and Singapore, this model mixes state-guided policies with market operations, often focusing on export-driven growth.

Social Capitalism: Characteristic of Sweden, where there’s a blend of market mechanisms and strong social welfare systems.

State-Guided Capitalism: Exemplified by China, where the state plays a crucial role in controlling and guiding the economy, often through ownership of key sectors.

What are the different types of capitalism varieties within a country?

1. Informal Sector: Small, labor-intensive businesses like local shops, with less than 20 employees. These operate in competitive markets, like the perfect competition model.
2. Formal Sector:

1. Formal Competitive Sector: Medium-sized enterprises, employing up to 100 workers. They operate in competitive markets as price-takers, without significant market power.
2. Formal Oligopolistic Sector: It comprises a small number of large firms, each with a significant market share in its industry or field of service. Sometimes, these are conglomerates operating in multiple industries or services. This sector is characterized by variations in labor, capital intensity, and productivity. It is further divided into two:

a) Non-Politically Connected Firms: Large companies with substantial market shares but without direct influence over government policies.

b) Politically Connected Oligopolistic Sector: A subset of the oligopolistic sector, where firms wield both market power and political influence, capable of impacting government policies. This exists in both advanced and developing countries.

Question for practice:

Discuss the various types of capitalism varieties within a country.