An era of free-market capitalism is definitely over and changes are becoming visible around the world. Recent Japan’s government report indicates new facets of a revised model of “capitalism”, inspired by present crises and global challenges. The attention from political economy’s angle presents features of opportunities to strengthen sustainability of modern national growth models.
“Capitalism” has been traditionally approached as an economic system in which private actors are owned and property is controlled by “private interests”, where supply and demand “balance” can freely set prices in the markets, generally in a way that can serve the best society’s interests.
The extent to which these “basic principles” operate often distinguishes various forms of capitalism.
Theoretically, in free markets’ economies (often called laissez-faire economies), markets operate with little or no regulation from the governments’ side. In mixed economies, it is a peculiar “blending” of market forces and so and government’s penetration with a dominant share of “market’s forces”. However, greater extent of government’s “corrected” measures are managing the market failures and promoting social welfare.
Thus, mixed capitalism’s patterns predominate today’s political economies, in part due to new global challenges, digital revolution, climate changes and other growth features that are not profitable for business (such as environmental pollution, traffic congestion and/or renewables to name a few), as well as other spheres of social welfare such as public safety, criminality, defense, etc.
In fact, there are more facets in “modern capitalism” that the mentioned two (free market and “mixed capitalism”); the national political economies are trying to combine in state governance all scientifically proved approaches to perspective socio-economic development. Thus, it is interesting to see how the new forms of capitalism are entering the political economies’ theories and slowly conquering global growth patterns…
“Old” and “new” capitalism
More recently, economists have identified several types of “capitalism” distinguished according to the role of entrepreneurship (the process of managing businesses) in driving innovation and the role of institutional settings (i.e. national governance bodies) in formulating national priorities and most popular ideas to spur socio-economic growth.
More in: Baumol W.J., Litan R.E. and Schramm C.J. – Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity. 2007. -New Haven, Connecticut: Yale University Press.
= In the state-guided capitalism, the government decides which sectors will grow. Initially motivated by a desire to foster growth, this type of capitalism has several pitfalls: excessive investment, picking the wrong winners, susceptibility to corruption, and difficulty withdrawing support when it is no longer appropriate.
= Oligarchic capitalism is oriented toward protecting and enriching a very narrow fraction of the population. Economic growth is not a central objective, and countries with this variety have a great deal of inequality and corruption.
Some researchers noted that in modern free-market economies (and even in the forms of “guided capitalism”), the rate of return on investment frequently outstrips national growth rates. Thus, if discrepancies persist, the wealth held by owners of capital will increase far more rapidly than other kinds of earnings (wages, for example), eventually outstripping them by a wide margin and leading further to inequality, social tensions and reduced growth.
Additionally in: Piketty Th. – Capital in the Twenty-First Century. 2014. -Cambridge, Massachusetts: Belknap Press.
= Big-firm capitalism takes advantage of economies of scale: this type is important for mass production of goods and services. Entrepreneurial capitalism produces breakthroughs like the automobile, telephone, and computer. These innovations are usually the product of individuals and new firms. However, it takes big firms to provide for a mass-production and for marketing new products; most often a mixture of big-firm and entrepreneurial capitalism seems best. This kind of “blending” in developmental strategies is very much characteristic to the US economic growth, more than in any other country in the world.
Thus, some sort of government’s intervention is often needed for efficient growth patterns and, as is presently seen, pulling national economies out of the recession. Different means can be used, e.g. through adequate tax policy, other fiscal and monetary measures, structural changes and increasing government spending, etc.; besides, appropriate steps shall be taken nation-wide to protect the free market from powerful private interests that seek to impede its efficient functioning.
Reference to International Monetary Fund publications, e.g.: https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm
Japan’s vision for a “New Form of Capitalism” includes key drivers organised across the following pillars:
1. Sustainable growth and equitable sharing of benefits from growth. The pandemic has exposed systemic inequalities from the past, with the impacts hardest felt among disadvantaged groups. Disposable personal income has been stagnating amid widening labour market disparities. Clouded by the ageing and shrinking society, Japanese youth increasingly believes that socioeconomic factors are shaping economic success and their odds for improving well-being.
2. Main areas for policy consideration include measures to enhance human resources and business’ dynamism and innovation; for example, by eliminating differential treatment of men and women and leveling the opportunities for non-regular workers. A combination of environmental policies with equity in mind is needed to increase resource efficiency and decarbonise the economy in line with the Paris Agreement.
3. Equal opportunities and foundations of future prosperity: investment in education in Japan went hand-in-hand with strong educational equity, but more purposeful training and upskilling over the life-cycle, particularly to adjust to digitalisation, will be a key for people to keep on working when aging.
4. Main areas for policy consideration include measures to strengthen inclusion in the workplace and invest in skills for life; for example, enhancing their application at work which in turn requires greater participation in work-related training and reduction of job strain that negatively affects their well-being, mental health as well as productivity.
5. Inclusive and sustainable business dynamism and innovation: Japan has long been a front-runner in technological developments, but it is now losing its edge to other OECD countries. Against a fairly rigid business environment, the widening productivity gap between large enterprises and SMEs drags down productivity performance particularly in the services sector.
6. Main areas for policy consideration include measures to boost business dynamism, improve reallocation of jobs and cross-utilisation of talent across the economy, and strengthen coordination of public and private investment in human resources.
7. Enhanced trust for responsive and inclusive governance: given a relatively low participation rate in Japanese national elections, it is crucial to increase representation and participation in the political process of all groups of population. Main areas for policy consideration include measures to promote women’s and youth participation in inter-generational dialogues, democratic processes and broadly in decision-making across government institutions and the society at large.
Reference and citation from: https://www.oecd.org/wise/events/Launch-measuring-progress-towards-inclusive-and-sustainable-growth-in-Japan-24-April-2023-Agenda.pdf?utm_campaign=OECD%20Well-Being%20News%2C%20March%202023&utm_content=See%20the%20agenda%20%26%20register&utm_term=wise&utm_medium=email&utm_source=Adestra
Japan’s revised model
Recent Japan’s government report indicates new facets of a revised model of “capitalism”, inspired by present crises and global challenges. The attention from political economy’s angle presents features of opportunities to strengthen sustainability of national growth models, the issue becoming common to almost all states in the world. Due attention in the report is paid to specific issues that matter for different groups of Japanese population. Underpinned by rigorous statistical analysis at a sufficiently disaggregated level, the report helps to understand better some of the main drivers of well-being and economic success in Japan.
The report “Measuring Progress towards Inclusive and Sustainable Growth in Japan” is the outcome of collaboration with the Ministry of Economy, Trade and Industry; it aims to monitor progress in key areas crucial to realising the Japanese government’s vision for a “new form of capitalism”.
Building on the OECD Framework for Policy Action on Inclusive Growth, the report includes a set of key indicators to support measures for the government to deliver on its vision as well as inform on best practices in other major advanced economies.
As Japan is recovering from the pandemic in the wake of current global challenges, it is also racing ahead to address long-term structural challenges for more sustainable and equitable growth. A central message is that creating equal opportunities for all in Japan requires a balanced approach of taking both efficiency and equity concerns into account.
Japanese political economy is regarded as a “coordinated market economy”, the approach which is based, generally, on exchange private information through non–market institutions such as unions and business associations (such as in Germany and Scandinavian states). However, the development in the modern economic and political system is still oriented towards country’s trade and industry sectors which are still controlled by private owners with –mainly – “a view to profit”.