In the previous post, we learned about the competing interests of capital owners and workers. Because of that competition, compromise is necessary if the people of a country want to have both a democratic political system and a capitalist economic system. Now we will add the state to our analysis. According to David Coates, the balance of power between the state, capital, and labor determines the type of capitalism a country has. In this post, we’ll identify three types of capitalism, analyze the relationships among the state, capital, and labor in each, and evaluate the strengths and weaknesses of each type. Let’s get started.
Coates has identified three types of capitalism: negotiated, market-led, and developmental. In the first type, negotiated capitalism, workers have political strength. That means that they are well organized to satisfy their interests, especially their interest in fair wages and job benefits. Germany is an example. The second type, of which the United States of America is an example, is market-led capitalism. In this type, capital has political strength. That means that there are fewer regulations and capital owners can keep more of their profits. In the third type, developmental capitalism, the state uses its political strength to lead economic development. Japan is a good example.
The distribution of political power in each type of capitalism determines the relationship between the state, capital, and labor. In negotiated capitalism, workers are well organized to satisfy their interests. In particular, they are able to get a good income and job benefits from companies, and the state protects their rights by regulating capital. In market-led capitalism, the rights of workers are weaker, and the state regulates companies less. In developmental capitalism, the state has more political power than workers or capital. Japan is an example because political power is not widely distributed and there are more regulations on capital.
Each type of capitalism has some strengths and weaknesses. One strength of negotiated capitalism is that there is relative income equality. In other words, there is not a large gap between the richest and poorest people. A weakness of negotiated capitalism is that companies are less flexible in how they can use their capital. For example, if a company wanted to open factories in another country, it might need its workers’ consent to do so. A strength of market-led capitalism is that companies are usually more cost competitive than their rivals in other countries. On the other hand, there is relative income inequality. One strength of developmental capitalism is that companies are able to make their plans with less risk because they know how the state wants to develop the economy in the future. A weakness is that political power is not well distributed in society.
When the people of a country choose to have both democracy and capitalism some compromises are necessary. How the state, capital, and labor balance competing interests determines the type of capitalism a democracy has. In negotiated capitalism, there are many labor rights and workers have political strength. Because of that, there is relative income equality. In market-led capitalism, companies have political strength, and there are fewer limits on how they use capital. In developmental capitalism, the state leads economic development. That makes it easier for companies to make plans into the future. In capitalist democracies, people can decide what kind of balance they want between the state, capital, and labor.