One of the first things students of economics learnt was the distinction between a centrally- planned economy, a mixed economy and free market economy.
Students had the advantages and disadvantages of each model and at the end they were told that a totally free market economy is nearly impossible to have, and that practice has shown that centrally planned economies have not really worked.
So we speak of varying shades of the mixed economy model being applied everywhere in the world, depending on the role of government. The two extremes are important to understand what lies in between them.
These issues are still covered in today’s economics textbooks because they are an essential part of basic economic theory, even if some of the arguments are more reminiscent of the cold war era than of today’s globalised economy. What has emerged in the last ten years is a conflict between models of a different nature. This has little to do with the role of government but has a lot to do with the way businesses are run and the manner in which they relate to the rest of society.
I am describing it as a conflict, even though the two models do not reflect opposing political approaches like the centrally planned model and free market model did.
Yet, they are conflicting models as can be seen in the way certain global issues are being addressed. For example, at the world summit on climate change, it was evident that there were those countries which wanted business to be made more responsible for the impact that it has been having on global warming (and hence make it responsible for impact on society), while other countries were opposed to such measures in order not inhibit business from investing and creating jobs (irrespective of the impact on society).
The same happened when it came to discussing strategies on how to tackle the international financial crisis and the economic recession.
There were countries who wanted stronger regulations for financial institutions, while other countries wanted to adopt a minimalist approach. There were countries whose response to the financial crisis was to bail out banks (looking after the interests of investors and depositors), while other countries allowed banks to go bankrupt (irrespective of the impact on society).
To face the challenge being posed by the high level of indebtedness of certain countries, we have initiatives aimed at providing mutual support, while other countries have just allowed the speculators to make a killing.
To my mind the Europeans and those who share with them the same ideas and ideals have consistently sought to have the business sector integrated into the rest of society and have thus sought to adopt policies which seek a compromise among the various stakeholder interests.
They have thus sought to take action to control CO2 emissions generated by the business sector, they have used significant resources to stop financial institutions from being bankrupt and are working together to avoid a default on the part of highly indebted countries. Labour laws are yet another example of how the European model seeks to create a balance between the needs of the business sector and the needs of society.
It is difficult to have an unequivocal definition of the opposing model. However, it is generally those countries which do little to control the activities of the business sector, unless political issues come into play. So this model would have the support of two countries, such as China and the US, which have political systems that are diametrically opposed to each other. Moreover, this model adopts very much an adversarial approach in business, where the winner takes all and where control cannot be shared.
In the coming years, I would expect these divergences between the two models to become more pronounced in the coming years. Malta is totally immersed in the European model and I consider this to be a blessing for this country. The European model is showing itself to lead to greater social cohesion, and this is the key advantage over the opposing model, which for want of a better description, I call the Pacific model.