1. (Coordinated Market Economies – CME)
European Economics
The Continental Model
(Coordinated Market Economies – CME)

2. European Economics – The Continental Model
1. Definitions.
2. Organizations and Institutions which constitute the Continental Model
3. A bit of statistics
4. The sustainability of the Continental Model of capitalism and the possibility to use them as a muster for the whole EU.

3. The Continental Model - CME
European Economics – The Continental Model
The Continental Model - CME
Operates with a greater element of strategic cooperation, both between firms and between banks and firms and between unions and firms. Investment finance depends more heavily on the banks; wage-bargaining may be coordinated at a national level; employees have greater job security, personal and income taxes are likely to be more progressive and income inequality, other things equal, somewhat less.
GERMANY, AUSTRIA, BELGIUM, FRANCE, LUXEMBOURG

4. The Continental Model - CME
European Economics – The Continental Model
The Continental Model - CME
Continental countries  rely extensively on insurance-based, non-employment benefits and old-age pensions. Although their membership is on the decline, unions remain strong as regulations extend the coverage of collective bargaining to non-union situations.

5. The Continental Model - CME
European Economics – The Continental Model
The Continental Model - CME
These countries typically have:
unemployment benefits and easy to access government payments,
publically-funded pensions,
early retirement wages,
high taxation, although not as high as in Nordic model countries,
strong trade unions that variably lead to high labour protection (such as in France) and/or high wages (such as in Germany).

6. European Economics – The Continental Model
Boeri, Tito (2002), “Let Social Policy Models Compete and Europe Will Win”, paper resented at a Conference hosted by the Kennedy School of Government, Harvard University, April.

7. Continental Model - CME
European Economics – The Continental Model
Continental Model - CME
In coordinated market economies, firms depend more heavily on nonmarket relationships to coordinate their endeavors with other actors and to construct their core competencies. These nonmarket modes of coordination generally entail more extensive relational or incomplete contracting, network monitoring based on the exchange of private information inside networks, and more reliance on collaborative, as opposed to competitive, relationships to build the competencies of the firm.

8. European Economics – The Continental Model
Important Finding
Taking into account that the hypothesis which has been including in the mainstream economics since the beginning of the current crisis, that markets (especially financial market which is crucial for the „anglo-saxon” model in coordination of activities) are much often inefficient that it was assumed in standard economic theory, liberal market economies where the equilibrium outcomes of firm behavior are usually given by demand and supply conditions in competitive markets could be less effective.

9. European Economics – The Continental Model
What types of organizations and institutions support the distinctive strategies of economic actors among countries organized according to the continental model?
Because the latter rely more heavily on forms of coordination secured through strategic interaction to resolve the problems they face, the relevant institutions will be those that allow them to coordinate on equilibrium strategies that offer higher returns to all concerned.

10. European Economics – The Continental Model
What types of organizations and institutions support the distinctive strategies of economic actors among countries organized according to the continental model?
In general, these will be institutions that reduce the uncertainty actors have about the behavior of others and allow them to make credible commitments to each other:
powerful business or employer associations,
strong trade unions,
extensive networks of cross-shareholding,
legal or regulatory systems designed to facilitate information-sharing and collaboration.

11. Cooperation and Competition!
European Economics – The Continental Model
What types of organizations and institutions support the distinctive strategies of economic actors among countries organized according to the continental model?
Cooperation and Competition!

12. European Economics – The Continental Model
Co-ompetition!
In an announcement full of visionary projections and short on actual details, executives of Ford, General Motors, and DaimlerChrysler said they will join forces to create the biggest-ever Internet venture for connecting auto suppliers. The venture, which the three companies touted in their Friday announcement as "the world's largest virtual marketplace," does not yet have a name.
A DaimlerChrysler executive called the move an example of "co-ompetition" among traditional companies entering the Internet marketplace.

13. European Economics – The Continental Model
The financial system or market for corporate governance in coordinated market economies typically provides companies with access to finance that is not entirely dependent on publicly available financial data or current returns. Access to this kind of capital makes it possible for firms to retain a skilled workforce through economic downturns and to invest in projects generating returns only in the long run. There is no such strong pressure of short-term profit, which – from the perspective of some economists – could be seen as one of the grounds of current crisis
BUT
Access to what would normally be considered “private” or “inside” information about the operation of the company is crucial.

14. Continental Model The Labor market
European Economics – The Continental Model
The Labor market
Continental Model
The German industrial relations system addresses these problems by setting wages through industry-level bargains between trade unions and employer associations that generally follow a leading settlement, normally reached in engineering where the union is powerful enough to assure the labor movement that it has received a good deal. By equalizing wages at equivalent skill levels across an industry, this system makes it difficult for firms to poach workers and assures the latter that they are receiving the highest feasible rates of pay in return for the deep commitments they are making to firms. By coordinating bargaining across the economy, these arrangements also limit the inflationary effects of wage settlements

15. Continental Model The Labor market
European Economics – The Continental Model
The Labor market
Continental Model
The complement to these institutions at the company level is a system of works councils composed of elected employee representatives endowed with considerable authority over layoffs and working conditions. By providing employees with security against arbitrary layoffs or changes to their working conditions, these works councils encourage employees to invest in company-specific skills and extra effort. Their effectiveness is underpinned by the capacity of either side to appeal a disputed decision to the trade unions and employers' associations, who act as external guarantors that the councils function as intended

16. Efficiency Low High Equity High Low
European Economics – The Continental Model
Efficiency
Low High
Equity
High
Low
Continentals
Anglo-Saxons

17. Public debt as a share of GDP
European Economics – The Continental Model
Continental countries seem to face a trade-off between efficiency and equity, they enjoy far more equity but far less efficiency.
Continental model countries are reasonably successful in mitigating poverty, yet nevertheless are blighted with high unemployment, especially in terms of job creation. Socially the model is fractious, splitting highly taxed workers ('insiders') against a growing population of welfare recipients ('outsiders'), who despite being adequately cared for by the state may lack a measure of social inclusion that employment provides.
Is it sustainable?
Public debt as a share of GDP

18. European Economics – The Continental Model
It is clear that the Anglo-Saxon model of supervision and regulation of the financial system has failed. It relied on several factors:
self-regulation that, in effect, meant no regulation;
market discipline that does not exist when there is euphoria and irrational exuberance;
internal risk-management models that fail because, as a former chief executive of CITIGROUP put it, when the music is playing, you've got to stand up and dance.
N. Roubini.