Tuesday, December 17, 2002

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THE MERITS OF LIBERAL MARKET ECONOMIES: A recent trend in comparative political economy is to stress the "varieties of capitalism" among the advanced industrialized states. Essentially, these varietoes boil down to the "liberal" and "coordinated" variants. Liberal market economies -- the U.S., U.K., Australia, Canada -- operate along roughly laissez-faire principles. Coordinated market economies -- Japan, Germany, France, Italy -- are more comfortable with non-market (i.e., governmental) forms of resource allocation. Researchers who push this typology argue that both kinds of systems are equally valid providers of economic growth/social welfare.

There is, however, one big difference that tends to get overlooked. Liberal market economies age better than coordinated market economies. Last month, the Center for Strategic and International Studies published an "Aging Vulnerability Index" for twelve advanced industrialized states. What vulnerability? To quote the report:

"Today, there are 30 pension-eligible elders in the developed world for every 100 working-age adults. By the year 2040, there will be 70. In Japan, Italy, and Spain, the fastest-aging countries, there will be 100. In other words, there will be as many retirees as workers. This rising old-age dependency ratio will translate into a sharply rising cost rate for pay-as-you-go retirement programs—and a crushing burden on the budget, on the economy, and on working-age adults in any country that does not take serious steps to prepare."

The report rank orders the twelve countries in terms of vulnerability. Surprise, surprise: the four least vulnerable states are also the four liberal market economies in the survey -- the United States, Great Britain, Australia, and Canada. Coordinated market economies suffer because their pension systems are unreformed public behemoths, and because their birth rates have plummeted. All is not sweetness in light in the Anglo-Saxon economies, but comparatively speaking, they're in much better shape.

posted by Dan on 12.17.02 at 01:31 PM