Rhine Capitalism: the Economic Policies of the German Social Market Economy

History and Reasons for Implementation

Like many new ideas, Rhine Capitalism (The Social Market Economy) developed in a time of great economic, political, and social turmoil. Many events in Germany's modern history had contributed to the formation of this economic model. The roots of the social market economy were planted during the 19th century when German thinkers questioned the social inequality they had witnessed during the Industrial Revolution. This burgeoning dislike for the cut-throat nature of capitalism was made even more apparent following the Great Depression and subsequent global financial crisis. However, the collapse of Nazi Germany in the 1940s finally pushed German leaders to find a new path for their nation. As they had now not only disapproved of capitalism, but also held a tremendous distaste for totalitarianism and government overreach. These three events led to the eventual creation of the the Rhine Model of Capitalism as a feasible alternative between noninterventionist capitalism and command-style economics.  The Social Market Economy attempts to address failings in both systems by safe-guarding personal freedoms and providing social security. 

Analysis of Model

Rhine Capitalism is heavily influenced by two major ideas. Social Democratic ideals strongly contributed to the model as the underlying philosophy of social democracy is for the promotion of socioeconomic and political equality.  Additionally, the key tenants of the social market economy were also influenced by Christian Democracy. The idea of providing equal opportunities for all were borrowed thoroughly from catholic social doctrines.

While the social market economy contains components of a market economy (e.g., free trade of goods and protection of private property) and discourages supervising production, the model ensures that the government is not idle. Supporters of Rhine Capitalism encourage the government to guide the economy via the implementation of fiscal policy and regulative measures. These measures include the protection of pensions, establishment of a universal healthcare system, preservation of the rights of labor, enactment of anti-trust legislation, and expansion of unemployment insurance and protection. This social safety net, while not as extensive as one found in the Nordic Model, is quite comprehensive. Programs mentioned above are funded mainly by government payments and employer contributions. Given the Rhine Model's philosophical neutrality towards laissez-faire and economic statism, there is a constant battle of priorities. That is, does a nation prioritize unfettered economic growth or planned development. 

It is also interesting to note that the "social" part of the model deals with providing equal economic opportunity and not for the redistribution of wealth. Indeed, Rhine capitalism is often referred to as successful combination of the American model of Capitalism with European Democratic Socialism.


The social market economy draws criticism from both the left and the right. Many leftists view the social market economy as a temporary fix to problems inherent in capitalism. Many socialists believe that trying to "humanize" capitalism creates an entirely new system full of contradictions. In other words the social market economy does little, in the long run, to cure the excesses of capitalism (e.g., market fluctuations, worker exploitation, wage gaps, etc.). 

Many on the right criticize the social market economy for the complete opposite reason. Many conservatives believe that the regulative measures put forth by proponents of Rhine Capitalism strangle economic growth. They mainly target regulations that limit investment opportunities.   


Although the use of the term fake news has increased in popularity, fake news is not a new phenomenon and has been around for years. What has changed however, is its speed of distribution and ability to alter public opinion. Since the conclusion of the 2016 U.S. Presidential Election, many have speculated on how fake news has become a powerful force in the media.

Through social media websites like Facebook, fake news stories can reach millions of people. Currently, fake news websites have not only been able to advertise their content on social media platforms, but have also been able to acquire information on their fellow advertisers. This is a problem because advertisers must compete to display their content on Facebook. Due the rise of fake news, advertisers must pay more money to show their products on the platform because they are now competing with more organizations. This financial barrier has discouraged some from using Facebook to display their content. Additionally, information about advertisers has been leaked to fake news websites, leading to many potential lawsuits from advertisers and third parties. All of these problems stem from the algorithm Facebook uses to display articles. The algorithm has increased demand for fake news stories because it prioritizes engagement, shock value, and viewership.  The only way to solve this problem is to have the top talent in software design repair the algorithm.

Due to increased pressure from governments and advertisers, Facebook has tried to combat fake news. For example, Facebook provides its users with an option to flag articles and has contracted fact checking companies. While these initiatives are an important part of the solution, they are not enough. Rather, a better solution involves adjusting the article selection algorithm as opposed to leaving users and third party companies in charge of manually fact-checking stories. The only problem is that devising such an algorithm is quite difficult and has stumped Facebook; there needs to be an influx of new talent and ideas to create such a solution. To help foster this creative energy, Facebook should hold a competition in which participants send in their solutions and original ideas. Netflix held a similar competition to help create an algorithm that would predict user ratings and offered the winner one million dollars. Facebook should do the exact same, as the competition helped Netflix achieve its desired goal.

Dealing with fake news has become one of the most pressing concerns for Facebook today. Fake news, not only harms the public image of Facebook as a respected repository of news, but it also has severe financial implications for the company as well. By hosting a competition, Facebook will be able to limit the power and influence of fake news.    

The Socialist Market Economy: A look into China's Economy After Deng Xiaoping

History and Reasons for Implementation 

Following the social and economic chaos of the Great Leap Forward and Cultural Revolution, Chairman Deng Xiaoping instituted a series of reforms to help reinvigorate China's failing economy. Deng Xiaoping realized that China's economic stagnation could be attributed to the highly centralized, planned economy established by Mao Zedong. He believed that if China was to become a world power, the government would have to institute market reforms. In the 1980s Deng Xiaoping initiated a program of economic reorganization aimed to make socialism more compatible with China's specific needs. China's current status as the world's second largest economy is largely credited to Deng Xiaoping's reforms. 

Analysis of Model

While it may have the term socialist in it, the socialist market economy is more appropriately connected with state capitalism as opposed to pure socialism. Many of the reforms went against long held socialist doctrines that the Communist Party of China held sacred during the Mao era. Early reformist policies included:  permitting private firms to operate freely from the state, opening Chinese firms to foreign investments, freeing up capital and lending institutions, reducing unnecessary regulations, and de-collectivizing agriculture.  Indeed, Deng Xiaoping's reforms led to revolutionary changes in the Chinese economy that allowed it to become a globally competitive economic power. Most of the Chariman's reforms focused on subtly reducing the power of the state, while still maintaining its supremacy. As a result of the reforms, China's GDP skyrocketed from 150 billion dollars to upwards of 1.6 trillion.

In order to maintain China's ties with socialism, the Chinese economy is comprised of a wide variety of state-owned industries, mixed-enterprises, and private firms. Prior to the reforms, Chinese firms were often thoroughly disorganized and deprived of capital. However, the new policies put into place reorganized Chinese industries into Western-style joint-stock corporations, with the state having a controlling interest.  

The economic reforms also changed China's approach to trade policy. During the reform period, the government cut tariffs from 56% to 15% and eliminated many harmful trade barriers. By 2001,  less than 10% of imports were subject to quotas.

One of Deng Xiaoping's primary objectives was to liberalize financial markets. It had long been China's policy to limit financial interactions to the Soviet Union and other communist nations. However,  China broke this policy by joining the World Trade Organization, opening the banking sector to foreign investment, and ending long held financial restrictions against many nations.  

Throughout the reform period, the state gradually lost more and more control over the economy. Although the state was still very much involved, it only held absolute control over a few industries. With reduction in state control, tax revenues consequently fell, damaging China's taxation system. Many analysts believe that the shrinkage of the government's power over the economy encouraged businesses to take risks in private sector. This risk-taking and increased creativity resulted in a newly re-energized economy.  


Many traditional socialists  argue that China's current system is a betrayal of classical Marxism. Leftists are of the opinion that China's Socialist Market Economy is inherently contradictory as you cannot claim to be socialist while maintaining a commodity-based economy. Many on the far left argue that China has completely abandoned the cause of the working class in favor of a fast-paced, full-blown capitalist economy. Although firms are technically publicly owned, revenues are used to overpay capital owners and underpay workers.  

It is also often argued that Deng Xiaoping's reforms dramatically increased inequality within China. Although China has experienced economic growth and rapid urban poverty reduction,  the Gini Coefficient  of China is approximately around 0.5. Additionally, the reforms have led to numerous cases of worker abuse, making China world-famous for its poor working conditions. 

Arguments FOR and Against Lowering the Corporate Tax Rate


Most companies do not pay the full corporate tax. The current US corporate tax rate is 35 percent; however, due to creative accounting and tax loopholes, large corporations can avoid paying the full amount. In fact, the effective corporate tax rate that corporations pay is just 12.1 percent. Many of our biggest companies paid nothing in corporate taxes. For example, by the end of 2010, GE recorded profits of $81 billion yet only paid 2.3 percent in corporate income taxes. In 2012, Citizens for Tax Justice published a study of taxes paid by the 280 most profitable U.S. corporations. It found that 40 percent of them paid an effective rate of 17.5 percent or less over the last three years, with 30 companies paying nothing and 67 companies paying less than 10 percent. With these companies paying far less than the actual tax, the government is not receiving money it could potentially invest in public services. This loss of tax revenue could lead to an increase in individual income and payroll taxes.

 In reality we are not taxing more than foreign nations. Corporations complain that they pay higher taxes here than in foreign countries and that U.S. laws discourage them from repatriating foreign earnings. While it is true that the statutory corporate tax rate in the U.S. is relatively high compared to other countries, it’s not clear that this is a meaningful measure of the tax burden on corporate businesses. In order to calculate the total federal tax rate on income earned in the corporate sector, one needs to follow the trail to the owners of a corporation, namely, its shareholders. Since they also pay taxes on the same income that is taxed at the corporate level, corporate profits are double taxed in most foreign countries. Additionally, if we were to lower our tax rate, a CRS (Congressional Research Service) study showed that other large economies, such as China and India, would only respond with a retaliatory reduction of their own tax rate, leading to a race to the bottom.

Research shows that taxes don't have as much of an impact on where corporations invest. One common argument for cutting corporate taxes is that high tax rates cause companies, both US and foreign, to invest elsewhere. However, 2010 study conducted by Steve Fazzari of Washington University looked at thousands of companies and found that taxes really don’t have that much impact on corporate investment decisions. What matters most to companies is the cost of capital, which dictates how large a return companies will make when they, for example, open a new plant. Taxes make up a very small portion of that calculation. Rather, firms assess the political stability, infrastructure, and labor force of a nation when they are deciding where to locate.


Cutting the corporate tax rate will promote higher long-term economic growth. An important 2008 report by economists at the Organization for Economic Cooperation and Development (OECD) measured the relationship between different types of taxes and economic development. The evidence showed that the corporate income tax is the most harmful tax for long-term economic growth because corporate money in excessively large quantities. The report found that corporate income taxes appear to have a particularly negative impact on GDP per capita. When statutory corporate tax rates are lowered, firms that are dynamic and profitable (i.e., those that can make the largest contribution to GDP) experience gains in productivity. OECD economists speculate that this could be because these firms rely heavily on retained earnings to finance their growth. Higher taxes mean less retained earnings, which  prevents them from investing in beneficial things such as: research and development. Many noted economists have predicted that the U.S economy will be between 1.5 to 2.6 percent smaller over the long-term because other nations’ corporate tax rates are considerably more competitive.

Cutting the corporate tax rate will improve U.S. competitiveness. At 35 percent, the overall U.S. corporate tax rate is one of the highest in the world. It is 10 percentage points higher than the OECD average of 25 percent even after incorporating various deductions, credits, and other tax reducing provisions. Over the past four years, 75 countries have cut their corporate tax rates to attract investments. Britain has set out a detailed plan to create the most competitive corporate taxation system in the G20, aiming to lower corporate taxes from 28 percent to 17 percent by 2020. This plan is motivated by the departure of large British multinationals such as the advertising giant WPP and the drug maker Shire who have moved to Ireland in the last three years. The high “sticker price” of the U.S. corporate tax rate not only makes the American economy less competitive globally; it makes American businesses more eager to outsource and less eager to keep jobs in America. 

Collective Capitalism: A look into Japan's Economy and Corporate Culture

History and Reason for Implementation 

Following its disastrous defeat in World War II, Japan underwent a massive social and economic reorganization program. For the next several decades, Japan transformed from a lagging. newly industrialized nation to becoming a modernized economic powerhouse. Indeed, Japan's industrial growth was outstanding, eventually becoming the third largest economy in the world.  Not only did industrialization improve the standard of living, but it also changed Japan's economic mentality. By the 1980s, Japan had fully embraced capitalism in its own unique way. 

Analysis of Model

Japan's interpretation of capitalism has often been referred to as collective capitalism. In this system, workers, especially those who work for large corporations like Sony, have a relationship with their employer that is unlike that of any other developed country. In an almost filial way, workers pour in many hours of hard work and loyalty in return for almost a life-time employment, social protection, status, and pension.  In this unique system, the worker's livelihood is at the mercy of the corporation he or she works for. This complete domination of the employee by the employer has a created a very stratified and hierarchical corporate culture that both promotes hard work and causes intense stress. 

Japan's corporate culture places an emphasis on long-term relationships fostered by cooperation among different companies, developing an economy based on interrelated markets. Many Japanese companies allow each other to purchase stock in their business; as a result, firms work together because they have a vested interest in each other's success. For example, one third of the stocks traded on the Tokyo Stock Exchange are owned by a coalition of companies known as keiretsu. Kigyo Shudan, another example of cross company cooperation, is a coalition of industrial firms that own approximately half of the shares traded on the stock exchange. This friendly atmosphere not only encourages growth, but it also reduces risky behavior and trades, hostile takeovers, and corrupt deals. These safeguards prevents the economic health of the nation from being tied to a handful of competing companies.


Many critics have voiced concerns regarding the employee's working conditions. Employers are very demanding and have their workers work for a very longtime. This has not only led to several negative mental health phenomena (e.g., "death by overworking"), but also has led to several family groups speaking out against this practice.  

Dodd Frank: A Brief Update

This post details the effects of the Trump administration’s likely rollback of the Dodd–Frank Wall Street Reform and Consumer Protection Act.  In this post, I will describe the three major areas of the law that might change. 


The Dodd-Frank act is designed to regulate financial markets through government oversight to prevent the risky and corrupt behavior that led to the 2008 Financial Crisis. However, many within the Trump administration argue that the act restricts growth via complex regulations.


According to the author, one of the key parts of President Trump’s agenda is to free banks from certain restrictions that aim to minimize risky investments.

·      Volcker Rule: limits a bank’s ability to invest in private equity and hedge funds
·      Systemically Important Financial Institutions: financial firms worth $50 billion
·      Consumer Protection Bureau: employees report unethical practices within the company to the bureau

These rule makes proprietary trading and volatile stock purchases much more difficult to undertake. The author claims that these parts of the legislation are disliked by many within Wall Street mainly because there is a certain degree of uncertainty with regards to what investments are considered unstable and what constitutes proprietary trading. However, many have credited this part of the act with the relative financial stability of the past seven years.

Another area of potential overhaul deals with the size of the firms being regulated. Under the law, systemically important financial institutions are put under intensive exams conducted by the Federal Reserve to test their financial stability. Furthermore, firms worth $10 billion are placed under greater watch by the government. The author argues that the Trump administration wants to repeal this rule so that lenders would feel less pressure to loan money to small businesses. However, the author stresses that turning a blind eye to systemically important financial institutions could cause another financial collapse.

The article states that Trump’s final push against Dodd-Frank deals with reducing the power of the various consumer protection agencies empowered by the law. Many have applauded this portion of the law as a proper safeguard against corporate scandal and improper management. However, many within the White House want to reduce these agencies’ powers and encourage internal conflict resolution, which will result in a significant decrease in government oversight.


The key stakeholders identified in this article have opposing interests and policy goals.

·      The Trump Administration: the main proponent for the repeal of Dodd-Frank
·      Large Financial Institutions (Wall Street): many favor the reduction of regulations
·      Regulatory Agencies: oppose Trump’s reform as they will likely be eliminated


Although this article is very thorough, the viewpoints of small business owners and middle class citizens are not fully addressed. Their viewpoints can be accounted for by researching ways in which Dodd-Frank negatively or positively effects the middle class.

Nordic Economic Policy Model

History of the Model and Reasons for Implementation

 Denmark, Finland, Norway, Iceland, and Sweden (collectively known as the Nordic Economies) have a union of both low levels of financial corruption and high levels of economic freedom that has caught the world’s attention. In a world where poverty reduction, anti-corruption, and redistribution of wealth have become very important political issues, many look to this region as both a source of inspiration and as a model for the future. Following the devastation of WWII and the polarization of global politics under the capitalist and communist banners, Scandinavia did not commit to any one system. Rather, after WWII, the Nordic nations initiated an economic renaissance that combined the positive aspects of both socialism and capitalism, Scandinavian nations recognized that both forms of economic organization were not entirely antagonistic and that the welfare policies and social safety net of socialism and the competitive and innovative spirit of the free market could be synthesized. Many agree that this unique synthesis the Nordic model provides has contributed to the higher levels economic equality and high standards of living that have characterized the region.

Analysis of Positive Impacts

The Nordic Model is characterized by a unique combination of capitalism and social benefits that result in nations that are afforded with world class government services (e.g., free education, employment resources, universal healthcare, etc.). The social services provided by the Nordic nations are well known for their extensiveness and generosity. 

The tax code of the Nordic economies has lauded by many analysts. The Scandinavian tax structure is mainly focused on individual income combined with a standard flat-tax. As a result, a system is created that treats all citizens equally and encourages both worker participation and productivity.  In addition to this, most citizens do not mind having to pay higher taxes as they have a tremendous amount of faith in their government and trust that public funds are used productively. This comes as no surprise as Scandinavian nations possess some of the lowest levels of corruption in the world. All five Nordic countries were ranked among the 12 least corrupt of 176 evaluated countries.

Given the tremendous levels of transparency and trust within the government, the public sector is extremely active and works to reduce the gap between the rich and the poor through redistributive taxation and government spending programs. Government money is also used to strengthen social insurance programs and wages. In many Nordic nations, the wage-based unemployment benefits are extremely high especially in Denmark and Sweden. In accordance with their economic progressivism, the unemployed of the Nordic Nations population were able to receive numerous benefits that far surpassed those of any other developed country

In addition to their strong social welfare measures, the Nordic Nations do value economic individualism and liberalism. According to the OECD, Nordic countries rank very highly in product market freedom, surpassing most developed states in the Economic Freedom Index. the Nordic nations have implemented certain laissez faire policies when comes to government regulations concerning the free market. For example, every Nordic nation has a corporate tax rate than is significantly lower than that of the United States. Corporate income in the United States is taxed at 39.3 percent, while the tax rate in Nordic nations tends to not exceed beyond 28%, thus making Scandinavia a business friendly zone. However, Nordic nations have put into place a strong system in the work place that aims to prevent the abuses that might be found in the free market. The Nordic labor system has been set up in such a way where Partners within firms negotiate the terms to regulating the workplace among themselves, rather than being governed by some law. The Nordic nations, with regard to their labor policies, have followed a form social corporatism where there exists a social partnership that takes into account the goals and interests of management and balances them with the concerns of labor.

Analysis of Criticism and Negative Impacts  

Despite all of the positive aspects of the model, there are still several distinct shortcomings. Firstly, the taxes required to finance Nordic welfare programs are extremely high. Many Nordic nations raise money for their social programs and maintain low corporate tax rates by levying  high taxes on personal income. Indeed, according to the Organization for Economic Development,  Denmark tax rate as percent of its GDP is 26.4 percent, Norway (19.7 percent), and Sweden (22.1 percent) . It is no surprise then that for nations like Norway, Sweden, Denmark, and Finland that public spending dwarfs the other components used to calculate GDP.   

Another criticism is that the public sectors of these countries are too large. In the Nordic nations, the government is one of the largest (if not the largest) employer of its citizens than any private sector affiliated group. Indeed government employees e.g., school teachers, healthcare professionals, and general bureaucrats)  comprise around 30% of the workforce. The bloated public sector of these countries not only employs much of the population, but also provides many expensive and costly benefits for its employees. These costs could lead to high spending deficits and government borrowing. In fact, many economists have labeled the Scandinavian economies as a "debt-crisis waiting to happen."