Reading. If we classify economic models basing on countries’ geographical location, do you think the countries within one group - American

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If we classify economic models basing on countries’ geographical location, do you think the countries within one group - American, Asian and European economic models – have the same features? How can you briefly characterize them?

Read an article from The Economist and do the tasks following the text.

A SUMMARY of economic models' best and worst features:

(1) The American model. Good points: flexible labour and product markets; low taxes; fierce competition; and shareholder capitalism, which puts pressure on managers to maximise profits. Bad points: wide income inequalities; low welfare benefits; poor quality of “public goods”, such as primary and secondary education; low investment and very low savings rates.

(2) The Japanese model. Good points: lifetime employment encouraged loyalty and high skill levels; public services, especially education, of high quality; close relations between banks and other firms; corporate cross-shareholdings shelter managers from impatient shareholders, allowing them to take a long-term view of investment. This, it was once argued, gave Japan an advantage over American capitalism, obsessed with short-term profit. Bad points: these “virtues” are now seen as vices at the root of the country's problems: firms sheltered from the full force of the market feel little pressure to use capital efficiently.

(3) The East Asian model. The region has long been an intellectual battleground for economists. Some saw East Asia's rapid growth as proof of the virtues of market-friendly policies—low taxation, flexible labour markets and open trade. Others argued that South Korea's industrial policy was evidence of the possible gains from selective government intervention. The truth is that there is no single “East Asian model”: economic policies vary hugely from relatively liberal Hong Kong to heavy-handed South Korea; from widespread government corruption in Indonesia to squeaky-clean Singapore. What the East Asian countries shared was an openness to trade and higher savings than in other emerging economies.

(4) The German social-market model. Good points: excellent education and training; a generous welfare state and narrow wage dispersion breed social harmony; close relations between firms and banks assist high investment. Bad points: overly powerful trade unions, high taxes, overgenerous jobless benefits and widespread labour and product market restrictions have led to persistently high unemployment.

(5) The Swedish model. Once advertised as a “third way” between capitalism and socialism. Good points: relatively open markets combined with a comprehensive welfare state, narrow wage dispersion and employment schemes that pushed the jobless back into work. Bad points: rising inflation and recession increased the budget deficit, and as unemployment rose, costly job schemes were no longer affordable; high personal taxes blunted incentives to work.

(6) The New Zealand model. Radical reforms in the 1980s transformed the rich world's most regulated and closed economy into one of the most free-market, with the lowest tax rates, lowest trade barriers and widespread privatisation. Bad point: a big increase in inequality.

(7) The Dutch model: Once an extreme example of Eurosclerosis, some now see the Netherlands as a model for the rest of Europe. Workers have accepted smaller pay rises in return for more jobs; rules on part-time and temporary jobs have been relaxed; and social-security taxes have been trimmed. The result has been a dramatic fall in unemployment—to 3.6%, compared with an average in the euro-11 area of 10.6%. The Dutch model appears to offer a way to cut unemployment without big cuts in the welfare state or wide pay differentials. However, the headline jobless rate paints too rosy a picture: one-third of workers are part-time, the highest proportion in the rich world, and an unusually large number of people receive disability or sickness benefits and so are excluded from the jobless count.

Task 1. Compare European models − German, Swedish and Dutch: what they have in common and in what they are different.

Task 2. Compare European economic models with American, Asian (Japanese and East Asian) and New Zealand. Say which of the models you consider the most effective.

Task 3. If somebody is obsessed with an idea (para.2), is he

a) disagreeing strongly with it;

b) refusing to support it;

c) having the mind excessively preoccupied with this idea.

Task 4. How do you understand the term “emerging economies” (para.3)? Give other examples of emerging economies.

Task 5. Choose the best synonym for the verb “to trim (taxes)” (para.7):

a) to enlarge;

b) to reduce;

c) to keep stable.

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