Reading Assignment:

Chapter 7: France: State-Directed Dirigisme in a Free Market World

Chapter 8: Sweden: Crisis and Reform of the Capitalist Welfare State

Chapter 9: The Unification of Germany and the Unification of Europe

Overview:

Chapter 7 presents the case of France, long one of the most consciously state-directed economies in the world, despite always remaining fundamentally a market capitalist economy. It had one of the most extensive systems of indicative planning in the world for decades, and it is a central nation in the European Union, second only to its neighbor Germany in that group. This chapter also presents an overview of the history of the EU and its prospects.

Chapter 8 covers the Swedish economy, famous for its extensive social welfare system and high degree of income equality, which was supported by a corporatist system of national level wage determination backed up by active labor programs to retrain and support laid-off workers. As Sweden experienced crises in the late 1980s and later, these aspects of its system have been weakened, while market capitalist elements have been strengthened. Nevertheless, it continues to have high income equality.

Chapter 9 looks at the social market economy of Germany after the fall of the Berlin Wall in 1989, the signal event that brought about the end of the Cold War in Europe and opened the way to the unification of Germany. This meant unifying market capitalist West Union, Germany dominates its fellow EU members and thus points to the longstanding problem of how to integrate a strong German economy in the world system.

Learning Objectives: The first objective of the Week 4 readings is to illustrate two very different forms of market capitalism (France and Sweden) and how they have evolved over time in response to changes within the countries. The second objective is to demonstrate the major changes experienced by the German economy before and after World War II and how the East and West German states developed very different systems. This chapter provides an important example of how an economy transitions from one system to another form.

Our assigned readings for this week contrast other forms of capitalism with the more centralized approach found in Sweden. Over the past 5 years, leaders in both major US political parties have taken actions to shift the US economy toward the Swedish model. In particular, the federal government has adopted higher taxes, higher levels of welfare and transfer payments, and more regulation.

If we leave politics aside and just focus on the economics of this potential change, what is the expected impact of this shift on the growth potential of the US economy? What is the expect impact on income and wealth distribution? How would this change affect the international competitiveness of the US economy?

Your post must be substantive and demonstrate insight gained from the course material. Postings must be in the student’s own words – do not provide quotes!