Economic Integration

The European Model

• The European Model
• I. Foundations
• Based on mercantilism-strong state is necessary to regulate and control the domestic and international operations of a national economy.
• Influence of Marx
• indirectly thru his warnings about the inherent stability of capitalism.
• Schmoller
• the teachings of the German economist Schmoller argued that there are no universal principle of economics. Instead we can understand the workings of the econ activity only by long observation of facts, rather than by trying to identify general principles via theoretical abstractions;
• antitheoretical approach; strong state is necessary to correct social injustices and to regulate the economy.
• ideas of the social mkt economy
• After the WWII, the European model was influenced by the ideas of the social mkt economy, where the combination of state intervention and mkt forces to achieve desired social goals
• Philosophy of social democracy, which reflected the view that the state is a necessary force for good and must intervene actively the econ affairs.

II. Legal Foundations: Civil Law

• II. Legal Foundations: Civil Law
• The EM has its legal foundations in Civil law
• a code based legal system operated by professional judges interpreting a detailed set of written rules and regulations.
• III. Features of the European Model
• 1. Corporate Governance
• a) managerial capitalism replaces shareholder capitalism
• Managerial Capitalism-is a system of corporate governance that places the interests of stakeholders above those of shareholders
• Whereas shareholder capitalism requires managers to focus on profitability, managerial capitalism focuses on other objectives, such as providing a stable work environment for managers and employees
• More emphasis on the interests of all "stakeholders": efficient management vs employee loyalty
• Advantages
• provides more stable employment; create a more equal distribution of income within company; stakeholder corporations may take a longer view of technological improvements than shareholder corporations which may be more interested in short-term profits.
• Disadvantage
• lower efficiency (not profit max).