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'Critically assess the notion that 'corporatism' improves economic performance'. Does globalisation threaten or enhance corporatism? Under globalisation can we have corporatism given that corporatism is based on national based policies?

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Introduction

'Critically assess the notion that 'corporatism' improves economic performance'. Does globalisation threaten or enhance corporatism? Under globalisation can we have corporatism given that corporatism is based on national based policies? Few people agree on what the definition of corporatism is but in general it can be seen as the joint pursuit by employees and employers of their collective interest. It is a system of running a state using the power of organizations like businesses and labour unions that act, or purport to act, for large numbers of individuals. In the name of social justice and order, corporatism advocates a close collaboration between employers and workers under the direction of the state in all matters regarding conditions of work, wages, prices, production, and exchange. Its aim is to substitute "corporate" (that is, collective) considerations for the free play of the market and for competition. Corporatism involves centralised wage bargaining and besides wages, bargaining may also include government economic and social policies in which case the state is either formally or informally involved in the process. Under corporatism, the interests of individuals are collectively represented through particular groups. These are given explicit recognition by the state in its function of reconciling the competing demands of government policy. In return, responsibilities in the process of policy implementation are conferred on those competitive groups and transitory alliances, with the government fulfilling the function of referee. Hence public policy formulation and implementation are conducted through tripartite mechanisms i.e. with representatives of the state and both labour and management being involved. The corporatist policy agenda may include as a major element the determination of incomes, but will also include much more besides. The Nordic countries and Austria come at the top of the list in various rankings of the countries according to the degree of centralisation of the bargaining structure, while the US and Canada are at the bottom. ...read more.

Middle

There are two basic always to deal with these kinds of externalities and consequently to improve the employment performance; either internalise them by centralisation the bargaining structure or remove them altogether by decentralising wage fixing. However, Pohjola shows that even the countries with intermediate bargaining structures are likely to achieve good employment performance under the normal circumstances of stable economic growth. This is because the unions and employer federations are ongoing organisations: they confront each other from year to year and thus induced to behave strategically. They can then achieve tacit or implicit agreement on wage formation without any formal arrangement if they understand that cheating and free riding will be punished by other others by not adhering to the implicit agreement in the future. The conclusion is the bargaining structures my matter only in turbulent circumstances. Glyn and Rowthorn argue that it was the 'durable compromise' in Norway and Sweden which allowed the achievement of important social and economic targets. In other words, they seek to go beyond certain structural characteristics of corporatism to encompass the notion of consensus between interest organisations and the state. In their comparative study of unemployment in OECD countries, Glyn and Rowthorn emphasises 'post tax' wage restraint. Use of tax revenues has contributed in some countries to the financing of structural change through investment in the economy - slowing down the decline of traditional manufacturing sectors, retraining schemes, public employment and so on. By avoiding periods of prolonged crisis certain corporatist economies have avoided the problem associated with 'hysterisis' where real wage levels remain inflexible in the face of rising unemployment. Successful countries in this respect have some form of institutional corporatism and a great deal of societal consensus and solidarity (Glyn and Rowthorn). Landesmann argues that in the long run it is the capability of the corporatist countries to structure their economies and to foster technical progress, which is decisive for their abilities to combine full employment and equality with increases in the standard of living. ...read more.

Conclusion

However, Pohjola shows that even the countries with intermediate bargaining structures are likely to achieve good employment performance under the normal circumstances of stable economic growth. It may be therefore that the bargaining structures my matter only in turbulent circumstances. Landesmann suggested that most of the literature only focuses on short term criteria and in terms of long term policies countries such as Austria failed to develop necessary industrial policies. But even if there is correlation between economic performance and corporatism it may not be that enhanced economic performance is due to favourable structural background factors or to corporatism. Pekkarinen suggested that the strengthening of corporatism in Finland might well have been a consequence of a strong economy rather than the other way round. Also I have pointed out that there are also potential downsides to corporatism for example in increased uncertainty. It will be very difficult for corporatist economies to maintain its policies with the increasing external factors. The problems in the corporatist states started in the 1970s with a combination of the oil crisis and the collapse of the exchange rate system as well as a stagnation or decline on the demand side and increased competition in important industries from e.g. newly industrialized countries, which accelerated in the 1980s. Add to this the technological development and use of information technology, and the deregulation of the financial markets around 1990. The increased interdependency between states together with the deregulations of important financial markets gives that the autonomous economy does not exist on national level any more. Then the international economic environment for the European corporatist states has completely changed. Thus this could be one reason why the corporatist states have problems because contracts on the national level do not have the same importance as earlier. It can even be that the corporatist structure is a problem in the domestic economy, because special interest groups are given strong power. Hence corporatism seems not a successful way to organize society in the globalised economy of today. ...read more.

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