United States:
- Republic Government
- Laissez Faire
- Minimal Gov't intervention in business
- Largest and most powerful economy
Japan:
- Constitutional monarchy w/ a Parliamentary Government
- Asian Tiger Economy
- Gov't controls market
- Third Largest economy; second most technological
Germany:
- Federal Republic Government
- Business Hierarchy
- Mild Gov't intervention in business
- Third most technological economy
Italy:
- Republic Government
- Relies on Middle Class entrepreneurs
- Member of the EU
- Top seven of the world's influential economies
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United States Japan Germany Italy
Government structure takes a great influence on a country’s economic stability. As the world continues to expand, globalization grows. This paper is to explore the different government structures around the world and compare their economic standings. Four of the countries that would be analyzed would be the United States, Japan, Italy and Germany. Each of these countries has a unique aspect of dealing with its economy. It ranges from extreme liberal and almost no government influence to a strong dependency on the government institution. The positive and negative aspects of each economy and why certain things work will also be shown to determine what ways are most successful. Other complications of globalization and the effects of democratization will be briefly included to show the results of strong political economy.
Four models of political economy are distinguished by different views as to how the government is involved with the economy. History has a large impact on how influential the constituents allow the government to be. Italy, Germany, Japan and the United States have developed distinct political economies that have each succeeded and are replicated by other countries who seek the same accomplishments. These models are only a fraction of the explanation as to how these countries have achieved economic success. Globalization has expanded trade and erased barriers to create an open society and it is because of the strategies these countries developed a successful global trade. Economies now are required to have intranational implications to succeed and these four models are the basis of what works. There are strengths and weaknesses to each model and it will be discussed what are the methods and why others are adopting such methods.
The citizens of the United States of America have wanted minimal government involvement with business and have been able to freely do business with minimal restrictions. The strong belief in Laissez Faire and the ‘invisible hand’ kept a very liberal sense in business. This theory was derived in the very beginning of the birth of the country into the most largest and powerful economy in the world. Laissez Faire meaning ‘to leave alone’ is widely advocated by many economists who also favor capitalism, often promoted the fact that competitive markets will provide a motivation to such individuals and stimulate the ‘American dream’ to succeed (Robert L. McCan, 1991).
Japan has the second most technological economy in the world and the third largest economy (Photus Coutsoukis, 2000). After the World War II ended, United States occupation under General McArthur helped rebuild Japan’s economy. Japan’s unique strategy of building a tight business relationship is called keiretsu. In the circle of business, manufacturers, suppliers, and distributors all have a certain connection that is also integrated into the culture (ibid) This makes it hard to penetrate into this exclusive inner circle if one was outside of the loop and excluding outsiders as well as ideas and progress (ibid). The government influence in business is the strongest of the four models. It is known as the Asian tiger model since the drastic boom in the economy was so apparent that it demanded attention around the world (Magstadt, 2001). The government has a lot of control since it determines most business decisions (ibid). Japan is a capitalistic country although the government instructs companies what to produce for the market and protects companies from competition (ibid). The sudden increase of wealth in Japan around the past decade has captured many followers in the Asian market as well. Korea, Singapore and other Asian countries have adopted this model, but this has created more competition for Japan and as the economy has stagnated the citizens must look for a strong government to retain such wealth (ibid).
The third most technologically powerful country would be Germany (CIA, 2001). Like Japan, Germany rebuilt its economy as well as it’s political structure with the help from the United States and the ally forces from WWII of the Marshall Plan. Business culture includes straightforwardness and preciseness (Crundwell, 2001). A clear structure of business hierarchy is apparent (ibid). The German model mixes government and business together. Unlike the United States, economic decisions are part of the government but not taken over like in Japan (Magstadt, 2001). It must be pointed out that Germany’s model is more similar to the United States than any other (ibid). Slavic Countries have turned to the German model in hopes of stimulating their own economy. Mixing Government and business has proved to be successful, however the market continuously changes and this capitalistic economy is floundering because of the social benefits the government provides to its workers (Coutsoukis, 2000). Germany if faced with basic problems that have also plagued the United States such as unemployment and social security (ibid).
Another country of the second world war to recuperate rather well, Italy took political and economical renovations to become the fifth strongest economy (Istituto Geografico de Agostini, 2002). It was before the World War II that Italy was a desperate country willing to sacrifice its freedom to dictatorship in hopes that economic stimulation would come about (Coutsoukis, 2000). Mostly agriculture at that time, It was not until after the war that reforms were made and Italy became more industrialized and prosperous (ibid). Being prominently based on the middle working class, Italy is unique to the other models since the power lies within the people instead of the corporations and government (Magstadt, 2001). The government gives incentives to the middle range entrepreneur to stimulate business (ibid).
Political economy has been effected directly by the global governments that in turn have established. Throughout history, governments have shaped the economy and each country’s trade. Economic development is essential in democratization. Studies on democratization success rates based on GNP capital show that the higher capital the country, the more secure the government is. Such finding were that if less than $1,000 GNP per capital had a prediction of 8 years, $1,001 to $2,000 was about 18 years and if greater than $6,055 those countries here pretty solid (Benhard; Nordstrom; Reenock, 2001, 776).
Economies currently doing well are for the most part, democratic, creating inspiration for other representatives to imitate them. There is no doubt that to be a successful form of government, the country must do well economically. It was proven in studies that the better a country develops and reforms economically, the more successful democratization will be (Benhard; Nordstrom; Reenock, 2001, 776). The unstable government in a new country will falter if the economy does poorly and unhappy citizens will demand for a change. Ultimately, the public demands its representatives to perform and produce a strong economy. Germany and Italy are two countries that surprisingly both started as authoritarian regimes and made transitions into democratic regimes smoothly with successful economic developments.
The more economically stable a government is, the more sovereignty it has. Studies show that democracies tend to be more successful at winning wars (Gartzke, 2001, 469). Democracies tend to hold the voice of the citizens, therefore the representatives greatly cares for their rights, wills and concerns attentively. During such times of war, countries that are able to afford and produce material resources rather supply such material things protecting its citizens from the war (ibid). After World War II Germany was extremely unstable. It is argued that ‘after the Second World War, German history presented an obvious challenge to the notion that economic development drove political development inexorably onward and upward’ (Berman, 2001, 432). Political power has great influence over labor also. In the global economy, governments that support businesses interests also hold the favor on the IMF to control labor unions (Button; Giddiness, 2001, 54).
The pressure from other countries attacking usually causes the need for most countries to form alliances for protection. Because security is a basic necessity for survival, representatives of democratic regimes tend to be more concerned for their constituents safety but the degree and perception of threats vary among countries (Gartzke, 2001, 469). Germany is part of the Big 7 also known as the G-7, which is a part of the top seven world powers – all democracies. Similar regime types tend to ally together therefore it is in the best interest to have a government similar to strong countries. Germany’s recovery helped form the EC, which would later become the EU, one of the strongest trading blocs in the world. One requirement to obtain membership was to have a democratic institution. This was enough incentive for any country wanting to establish a solid economic alliance, including Spain.
Compatibility among other countries allying tends to be the same regime types. Globalization causes countries to require interaction with other countries for trade, security, help and even perhaps technology or science development. Governments interact will with similar regime types such as democratic systems deal best with democratic countries. Intranational groups are formed either for economic or security reasons.
With a prosperous economy, it is much easier to obtain technology and advanced knowledge. With technology, it will become easier to communicate and erase borderlines (Comor, 2001, 390). Ideas and political theory will spread faster, increasing democratization. Technology causes developing countries to be at a disadvantage compared to established ones and are more likely to be susceptible to political pressure from those countries. This has a result to an unbalanced global economy and distributive power among nations, which most developed countries have democratic regimes promoting for democratization. Globalization allows the world to view each power at its best and at its worst. Other countries have also established economic ties causing it more and more able to rely on others.
Today’s results provide valid conclusions to each case as each economies have weaknesses and strengths. Currently, the United States is undergoing problems with the national deficit and social problems as social security is seemingly creating problems to national spending. Japan is in great need for reform and with a new government elected just last year, the country is hoping for a positive aspect to follow after the decade of recession. Germany is remaining stagnant but also going through its own social internal problems as well. Italy is faced with international disputes. Capitalism in all these countries have given hope to developing countries yet however face inequality and ultimate problems that with winners also come losers. Democratization also takes into effect with the wealthier countries pushing for similar government types. With the example of the collapse of the USSR, few countries look to communism and economic equality. We will see in decades to come how China will deal with such a situation with globalization in a predominantly democratic regime planet.
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