Modified capitalism and centrally planned socialism, as practiced respectively in the United States and the Soviet Union, delineate a range of economic systems that leaves a vast middle ground. Private ownership of productive resources may be blended with substantial planning and extensive welfare systems, or social ownership of resources may be combined with market determinations of what is produced and how production occurs.
France and "Indicative Planning"
Although the French economy is primarily capitalistic, before 1982 it used planning far more than other modern Western economies.
In a system of indicative planning, leaders of government, industry, and labor unions meet regularly to exchange information and to negotiate targets for industrial production.
The French used this process to try to avoid specific shortages, surpluses, and production bottlenecks. For example, if housing was expected to boom, the lumber and brick industries were alerted, and construction unions were asked to step up their apprenticeship programs. Under indicative planning, a bumper crop of superior wines might have cued officials to negotiate for reduced foreign tariffs on French exports.
The French government also maintained tight controls on investment. By setting up plans to coordinate economic activities, it normally secured voluntary compliance to the overall plan. However, when specific unions or industries failed to comply, the government showed little reluctance about using sanctions and price controls. Government remains very significant in the French economy, collecting 2 francs in taxes out of every 5 francs of GNP.
Planning initially expanded under the administration of François Mitterand, elected in 1981. Mitterand nationalized banking as well as some heavy industry. Although the French economy performed very well for a brief period after the inception of indicative planning, with fairly consistent growth and negligible unemployment from the mid-1950s until the mid-1970s, it faltered even more than did most other European economies in the early 1980s. This resulted in a return to greater reliance on markets during 1984--1991. Indicative planning has been reduced significantly, and government activities are increasingly privatized.
Sweden's Welfare State
Sweden is a typical Scandinavian economy. Severe poverty has been eliminated because the welfare system covers every Swede from the cradle to the grave.
In modern welfare states, resources are largely privately owned, but high taxes and a massive welfare system mean that income is distributed across the society.
Thus, the Swedish economy has been called "welfare capitalism."
Worker productivity in Sweden is unsurpassed, and per capita income now rivals that in the United States, in spite of reduced incentives that many people consider vital to hard work. Only about 5 percent of Swedish enterprises are government operated. More than 90 percent of all businesses are private; roughly 5 percent operate as producer or consumer cooperatives.
Many Americans view themselves as very heavily taxed, with roughly 30 percent of gross domestic product absorbed by taxes. In Sweden, taxes are nearly half of the country's GNP, the highest tax take of any industrialized capitalist economy. A surprisingly simple tax system relies heavily on a very progressive income tax structure to foot the bill for most social programs.
Swedish prosperity is unquestionably aided by the fact that the nation has avoided major wars for more than a century and that it allocates few resources to national defense. A long history of industrialization has fostered a well-developed work ethic. Collective bargaining is widespread, and negotiations between unions and management have generally been peaceful. Despite this success, the Swedish government is also moving slowly in the direction of reducing government activity and increasing reliance on the market system.
Rudyard Kipling's famous line, "The sun never sets on the British Empire," was true when he wrote it at the turn of the century. Since World War I, however, the British Empire's colonies have evolved into only a very loose confederation, and there are now several countries that exceed Great Britain as a world power. Mighty civilizations have risen and fallen before, but why did the world's first industrial giant fall by the wayside? Some observers attribute Britain's decline to World War I. Others point to a lack of coherent and consistent economic policy.
Just as the Middle East has spawned many important religions, Great Britain is the birthplace of most of the world's economic systems. Utopian and Fabian socialism, the welfare state, the roots of capitalist ideology, and Keynesian demand management policies all found British soil to be a fertile breeding ground. Marx researched most of the three volumes of Das Kapital in the British Museum.
The decline of Britain may have resulted from erratic policies that meandered among the ideas expressed by a variety of economic prophets. From John Locke's writings about private property until World War I, Britain was among the most capitalistic of countries. Then Fabian socialism gave birth to Labour governments that nationalized much of British industry.
Militant unionism and an unwillingness to promote new investment rendered much of British industry obsolete by 1980. Britain was reluctant to allow entrepreneurs to pursue the most profitable investments available; instead, political pressures channeled investment spending toward senile industries. The extensive and expensive British welfare system appears to have caused serious problems for work incentives, while high tax rates and threats of nationalization dampened new investment and technological innovations.
Highly progressive tax rates, especially on investment income, stymied entrepreneurship and left English workers using antique technology. But wealth was apparent on London streets. This paradox is explained by the fact that many wealthy English people chose to squander their money on furs and Rolls-Royces rather than engage in risky investments from which high taxes prohibited much of a rate of return.
Just as the Roman Empire dissolved and Italy emerged, the British Empire devolved into England. Italy and England followed similar paths in terms of economic power and international influence, but both now appear to be on the road to recovery. In 1980, Prime Minister Thatcher announced plans to resurrect the marketplace. Following the supply-side path initiated in the United States by former President Reagan, she slashed tax rates and privatized many of the industries nationalized earlier. John Major, who succeeded Thatcher in 1990, announced plans to continue her basic policies with relatively little modification. The future of Great Britain is now linked to the prosperity of the European Community.