German And Japanese Labour Relations Systems example essay topic

INTRODUCTION United States, German and Japan have developed to be the most significant economic powers of the world. This document will discuss the key similarities and differences of these three systems as well as the strengths and weaknesses. Their power to adapt successfully to change is without a doubt an important measure when considering the chance of their survival. At the same time, we have to keep in mind the very basis of what provides capitalism is its essence, as Raymond Aron tells us (Dahrendorf, 1967): " A capitalist system requires [... ] that the means of production are the object of individual appropriation; [... ] that the steering of the economy is decentralized and occurs on the market, [but also] that wage labour [be present] [... ] the predominant motive [being] the profit motive " SIMILARITIES AND DIFFERENCES BETWEEN US, GERMAN AND JAPANESE MODELS OF CAPITALISM US AND GERMAN MODELS US and German models share a broad acceptance of free trade, market determined product pricing and independent monetary policy. But, whereas the US model largely relies on market co-ordination of economic agents and seeks to address market failures by providing additional market elements where they are missing (e. g., tradable pollution permits, patents, etc. ), the German model relies in many areas on non-market coordination, supplemented by a generous system of welfare protection. So, for example, Germany has a widespread and successful vocational training system that is strengthened by cooperation between firms in the setting of standards and the avoidance of free-riding; between firms and employees, through collective wage bargaining and co-determination through a largely mandatory system of works councils and worker participation on supervisory boards, and between these social partners and the education system.

There is also substantial inter-firm collaboration in research and development (in conjunction with state-sponsored research institutions) (Hutton, W. 1995). Employees and companies alike are willing to make substantial relationship, specific investments and technology transfers on the basis of the trust provoked by co-determination, formal business organisations and the long-term provision of capital from "haus banks" and committed cross-shareholdings. All this contrasts markedly with the US model with its "residual" welfare state, and its emphasis on competitive relations between companies, flexible labour markets, management autonomy, general education, market-determined technological standards and capital market financing. US companies have often succeeded in inspiring commitment from staff by creating a united internal corporate "culture", and their focus on shareholder value can demand an impressive compensation with the desires of the marketplace.

Extensive legal liability, shareholder activism and, in some cases, "social audits", can also align the interests of the US corporate sector with broader social goals. In Germany, as in many other European countries, a high degree of employment protection appears to have interacted with other labour inflexibility and with demand shocks to create an "insider-outsider" problem in the labour market - preventing the wages of those still in work being offered low enough to price the unemployed back to work. Moreover, extensive cross-shareholdings, long-term bank finance, and co-determination (the very features that have helped underpin a long-term approach to investment and innovation) may have also prevented reallocation of capital and resources to radically new technologies with the scale and rapidity that we have seen in the US. By contrast, flexibility is built into the heart of the Anglo-Saxon model, in particular by the rigours of the capital markets on which it relies for finance.

Given the emphasis on tangible short-term returns (outside the area of hi-tech start-ups), companies need a high degree of flexibility to react quickly to product-market and technological developments. They therefore place a high premium on management autonomy and the ability to hire and fire. The market for corporate control in particular increases the need for flexibility. Industries in Germany and the US are principally internally financed with small or negative contributions from market sources.

US AND JAPANESE MODELS The Japanese model is almost an opposite of the US model. The Japanese people are trained from the beginning to live as a community, to act as a team, at a very young age. It is a way of reducing the probability of opportunistic behaviour that would otherwise be a limit to the model's overall stability, equal pressure being a social regulator thereby forcing agreement among teams. This represents quite a contrast with the US individualistic model.

Strangely enough, this team effort is an effective basis to compete on the cost cutting field that is privileged by US industrial corporations, probably because of the use of technology to supplement human work rather than replacing it as in the U.S., and achieving better quality this way. In the same way, the firm is traditionally regarded as a social organ internalising a lot of the aspects of the employees' welfare, by constantly training them and assuring them of a future within the firm, eliminating the need for the welfare state in the form commonly witnessed in Western Europe (W. Hutton pg. 248). Unlike the U.S. firms, Japanese firms are not "alone" (i.e. fiercely independent) on their own markets, they are part of a bigger collection, which provides them a wide and very efficient network of relations (financial or of another nature): the kereitsu (W. Hutton pg. 248-249). It entails them to an impressive source of internal investment capital, the centre of it being a financial institution "fuelling" the system's complex collection of elements. Economic agents, who consume from one another within the same kereitsu, encourage the stability of the system.

In turn this stability allows for efficient cooperation as well as planning that reduces both uncertainty and transaction costs in the same network of alliances. This also lengthens the product life cycle management process and the profitability of each individual product. This is probably a factor explaining the rapid growth experienced by Japan. However, the fact remains that the ability to adapt as opposed to adopt imported goods or concepts is a great asset for the Japanese ever since the Tokugawa regime which provided spectacularly rapid economic development to the point where it may have seemed like a concept to copy.

The ratio of retention to investment is higher in the US than in Japan as a result of different investment behaviour rather than different retention policies. Indeed, the ratio is generally low for high investment countries like Japan. Japanese industry is more externally financed with both banks and markets contributing larger shares. In the 1980's, a period of financial liberalization, all countries, except Japan, have seen more internally and less market financed industry whereas the US are principally internally financed with small or negative contributions from market sources. JAPANESE AND GERMAN MODELS We can define the German and Japanese model as a group of institutions (including political institutions, intermediate associations, financial systems, labour relations systems, inter-firm networks, etc.) linked together into distinct national systems of economic governance. Organized market economies (OMEs) such as Germany and Japan differ from liberal market economies (LMEs) in that they look after more long-term cooperative relationships between firms and labour, between firms and banks, and between different firms.

And the state and intermediary associations play a critical role in establishing and maintaining the framework for this private-sector coordination. Although there is considerable variation across sectors and across firms within individual countries, the OMEs remain sufficiently different from LMEs to make this a useful distinction. These governance structures affect everything from corporate strategy to public policy and economic performance. The German and Japanese variants of the OME model also differ from each other.

German firms, banks, and unions are more inclined to coordinate their activities at the sector level, whereas the Japanese coordinate through intersect groups. Japan has solid inter firm networks, including horizontal industrial groups as well as supply and distribution chains. The German government merely facilitates private-sector coordination, while Japanese government organizes and guides the private sector more directly (Hutton, 1995 pg. 246). The German government has programmed its economic model into law, whereas the Japanese model relies more on informal custom and standard practices.

The German and Japanese labour relations systems combine broad agreements on wage moderation in exchange for employment security with firm level agreement that encourage labour management cooperation. In Germany, sector employers associations and unions negotiate collective bargains on wages and benefits. In Japan, a few leading firms negotiate settlements with their enterprise-based unions during the annual spring wage offensive (shunt^o), and other firms then follow within a fairly narrow range of the leaders. These labour relations systems can benefit both sides, employers win control in wage demands, workers gain employment security, and both benefit from fewer labour disputes. In addition, firms avoid competing in wages or undermine labour-management cooperation through hot negotiations at the firm level. Both systems also feature systematic labour representation in the management process.

German firms are legally required to represent labour through a system of "code termination", whereas Japanese companies naturally incorporate labour despite the lack of a legal requirement. Labour participation at the firm and plant level; help labour-management cooperation on the shop floor, a critical element in German and Japanese firms' ability to continuously raise efficiency. Long-term cooperative relations between labour and management also gives firms the incentive to invest in human resources. German firms typically do this through a distinctive dual (firm and school) vocational training system, whereas Japanese firms train their workers directly. In the political realm, German employers' associations and unions are both represented in most important decision-making bodies, whereas Japanese business enjoys better access than labour to central ministries and the ruling party.

Germany and Japan both have credit-based financial systems in which banks have dominated the long-term financing of industry. The Japanese government has actively directed the allocation of credit through government financial institutions and private banks, whereas the German government has left the banks with greater freedom. In the German constitution, the method for government is clearly defined within the constructs of a 'social state'. On the contrary, as Japan's economic growth demonstrates, Japan has put priority on its economy and its industries, an emphasis that for many approaches the extreme. In both countries, however, firms have developed long-term relationships with their primary banks, known as Haus banken in Germany and main banks in Japan. The banks monitor firm performance and assist firms in trouble.

The firms, in turn, remain loyal clients: they conduct a large and stable share of their borrowing and transaction business with their lead bank. CONCLUSION WEAKNESSES These models, like any other, experiences a few problems: US MODEL The models' challenging nature is reflected in almost every area of the society. For example, this affects corporate governance through the struggle between managers and shareholders, between those who run a firm and those who legally own it. Laws are also clearly in favour of shareholders without much concern for the stakeholders. This causes investment to be oriented in the short term increasing risk and uncertainty in the external capital market that might eventually provoke such things as under investment therefore creating a favourable climate for hostile takeovers and over indebtment (with the abusive use of Los for instance).

A company's stock too often serves as a benchmark for its performance although they are the basic limits of this approach. The minimal state and the corporate system altogether are putting a lot of pressure onto individuals because of the uncertainty on the job market, the relative absence of social assistance to the unemployed, and the fact that it is one's own responsibility to get adequate training rather than the firm's (W. Hutton pg. 241). This in turn leads to a bi polarised distribution of wealth in society; the richer being able to train and hope for a better income while the poorer see their skills becoming less valuable (W. Hutton pg. 241). It could be considered as the toll to pay for more flexible labour markets.

GERMAN MODEL This model, similarly to the Japanese, relies heavily on insider trading that might eventually cause over investment because of satisfaction and lack of transparency. German capitalism, despite its commitment to quality, shows its inability to compete on a cost effectiveness basis with the Japanese (the "lean" producers) and more the Americans; this leads inevitably to a slide in German international market share for consumer goods. The cartels and the Mittel stand (the important base of small and medium corporations) then become unable to compete on a cost cutting basis because the system can't allow them to. This rigidity is in part due to the peculiarly important place of the welfare state which puts a lot of pressure on the economy at the same time it fuels it by providing the unemployed access to the same quality of life than the employed allowing the former to maintain their level of consumption.

It proves to be a downside in an environment of harsh competition leading to higher levels of unemployment; the state having to raise its spending with lowering revenues, and having trouble to keep up with its enabling role. Thereby raising the spectrum of rising social inequalities. JAPANESE MODEL This model's weaknesses are probably an unintended consequence of its strengths. For instance, the insider trading reduces transparency of the Japanese "public" corporation causing equity markets to be more volatile and less reliable to determine what a firm really is worth; this could be seen as a by-product of a system which is founded on trust and implicit contracting, unlike the U.S. model providing very explicit and clearly codified modes of contracting. Another problem concerning the Japanese system is its tendency to over invest given the incentives to do so exist and no really efficient safeguard prevents it.

An answer might be a cycle of internal capital markets showing how mutual dependence between firms is built into the system thereby implying that if a firm experiences problems, its partners from the same kereitsu will do everything necessary (i.e. invest, lend managerial and technical expertise, etc.) to bail it out. In this peculiar model, growth is very much internally generated, the system fuelling itself into a good circle of self-protectionism that in effect sustains consumption: in encouraging economic actors not to buy from outsiders and be willing to pay a supplement for it, leading the way to a self- sustain. In that regard, this model is very Keynesian in its economic system's organization and Galbraith ian considering its pattern of industrial organization. It works very well in periods of prosperity, but is a major weakness when the tides are turning: firms cannot face up to the enormous costs of internalising social functions like some frictional unemployment. There also are implications in bargaining power for the workforce, Japan being historically a small country with few resources, the workforce feels it does not have the influence to behave too aggressively in their expectations for negotiating better work conditions because of a zero sum perception regarding potential gains of a given group.

Bibliography

Hutton, W. (2000) 'The diversity of capitalisms' in Understanding Business: Markets, Routeledge, London, pp.
239-254 Gray, J. (2000) 'Capitalism and global free markets' in Understanding Business: Markets, Routeledge, London, pp.
256-262 Singh, A. (2000) 'Why did East Asia grow so Fast' in Understanding Business: Markets, Routeledge, London, pp.
264-280 Brown, V. (2000) 'competition and power in markets' in Understanding Business: Markets, Routeledge, London, pp.
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