'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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‘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.  

A necessary condition of corporatism is that agreed wage rates are adhered to by lower order bargaining units eg at the shop floor.  Thus the system is facilitated by a high degree of unionisation of workers and organisation of employers in units subject to central control.  For the individual worker there will be gains in that losses from possible future unemployment are reduced and the likelihood of disputes arising from uncertainty about appropriate wage levels is diminished.  There are also social gains in that there will be an increase in communal harmony and presumably lower taxes for unemployment relief. Corporatist arrangements are also seen to seek to achieve a consensual framework in which durable, long term relationships between state, trade union and business can be fostered. There is the existence of a ‘consensus’ between labour and firms with shared perspectives on the goals of economic activity.  This may be reflected in the low frequency of industrial disputes, or the existence of works councils and other elements of co-determination if firms.

Goldthorpe argues that corporatism represents attempts by governments, in dealing with problems of macroeconomic policy to find institutional and ultimately political substitutions for the declining efficiency of market mechanisms.  The most common objective has been to establish arrangements, formal or informal, for consultation and negotiation between government, employers’ associations and union federations, in the content of which the latter may be induced to accept and to commit their members to accepting some form of restraint in their use of their collective bargaining strength.  Such restraint has been seen as necessary, given the growing rigidity of modern economies, to allow governments to introduce expansionist policies aimed at sustaining employment without producing disastrously high rates of inflation; or conversely, to allow them to introduce restrictions policies aimed at cubing inflation without producing disastrously high rates of unemployment.

Several arguments can be put forward in favour of corporatism.  The first is the argument about the dynamic inefficiency of capitalism where the game is between two actors, the firm and the union, possibly interpreted as the employers of the economy and the workers.  In a dynamic game in which the capitalists invest and the workers set the wage, there is a dynamic externality leading to a sub optimal capital stock:  the capitalists will not invest as much as an efficient solution would stipulate, because then the workers would have an incentive to renege on the original wage agreements and extract the differential rent of the installed capital.  It would be advantageous to both if workers could commit themselves to lower wages, but it is difficult to see how such commitments could be enforced in a normal market economy based on free contracting between the agents.

It is argued that institutions may be important in that they regulate and coordinate economic relationships, which might otherwise be subject to detrimental forms of conflict.  There may be better responses to economic shocks by coordinating wage restraint in such a way as to avoid the use of unemployment as a labour disciplining device, and thus as a method for regulating distribution conflict.  In corporatist economics there is an incentive of the parties concerned to ensure that the burden of adjustment to economic shocks should not fall in an uncoordinated way on particular groups, but should be shared more equally. Henley and Tsakalotos further point out that in corporatist economies there is the ability to avoid profit squeeze in response to adverse economic shocks, which enables employers to maintain rates of investment and deliver sought after future employment stability. They argue that this is both in the short term sense that corporatism appears better able to forestall profit squeeze brought about by cyclical shocks, and in the longer term sense of providing a more stable framework for investment. Henley and Tsakalotos argue that institutions are necessary for the efficient operation of markets because they constitute important mechanisms for reducing the uncertainty and potential for conflict, which are inherent in market economies.  

During the 1970s and 1980s the market liberal challenge to the post war economic and social consensus of the mixed economies was that unfettered markets could best promote efficiency and thus improve economic performance.  The neoclassical view is that perfect competition between economic agents is a socially efficient way to organise the operation of product and factor markets.  The enhancement of competition is seen as the desirable solution to unemployment, inflation growth, and productivity problems. If this is the case then institutions, and not least the corporatist institution can be seen as ‘imperfections’ or ‘rigidities’, which hinder the operation of the free market.  

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Paradoxically, however, the Walrasian ideal of full employment with approximately equal wages seems to have been best achieved in the social corporatist countries.  Most of the enquiries into corporatism take the view that competition in the markets of real economies is not perfect.  Rather, markets are dominated by the behaviour of rent seeking organisations with vast resources in influencing other agents’ decisions and try to distort allocations so as to generate outcomes with distributive effects favourable to themselves. Pohjola points out that real economies do not consist of atomistic agents but of a large number of small and influential ...

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