System Comparisons: how competitive is the social market economy?Martin Wolf, Chief Economics Commentator, Financial Times

10th Munich Economic Summit

Bayerischer Hof, Munich

19th – 20th May 2011

2

1. Is there an Anglo-Saxon model?

• There is much talk of different “models”:

– “Anglo-Saxon model” – individualism;

– “Social market model” – corporatism;

– “Nordic model” – solidarity;

– “Southern European model” – dirigisme;

– “Asian model” – developmental state.

• The differences among these “models” must not be exaggerated

• Moreover, the UK is, in some respects, much more like continental Europe than it is like the US

3

1. Is there an Anglo-Saxon model? Spending

SHARES OF PUBLIC SPENDING IN GDP 2010 (per cent)

58.5 56.751.4 50.6 50.1

47.0 46.6 45.0 43.541.1

37.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Denm

ark

Franc

e

Sweden Ita

ly

Nethe

rland

s

United

King

dom

German

y

Spain

Canad

a

United

Sta

tes

Austra

lia

NORDICS SPEND MORE BUT NOT SO MUCH MORE

4

1. Is there an Anglo-Saxon model? Borrowing

HOUSEHOLD DEBT AS A PER CENT OF DISPOSABLE INCOME, 2009

0

20

40

60

80

100

120

140

160

180

UK Canada US France Germany Italy

Source: OECD

ANGLO-SAXONS DO BORROW MORE

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2. Differences in long-term performance?

• It is not easy to identify difference in long-term economic performance that relate to these supposed “models”

• But Anglo-Saxon economies have performed quite well over the past two decades

• Will that last? Maybe not.

6

2. Differences in long-term performance?

GDP PER HEAD RELATIVE TO US (at PPP)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Denmark France Germany Italy Netherlands Sweden United Kingdom

1990 2010

Source: Conference Board

THE END OF “CATCH UP”

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3. What happened in the crisis?

• GDP and unemployment performance in the crisis is also not model-specific: contrast the UK and US

• But fiscal performance seems to be

8

3. What happened in the crisis? Output

GDP IN THE CRISIS

88.0

90.0

92.0

94.0

96.0

98.0

100.0

102.0

Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11

US Germany France Italy UK Japan

US ECONOMY WAS THE MOST RESILIENT

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3. What happened in the crisis? jobs

UNEMPLOYMENT RATE IN THE CRISIS

0

5

10

15

20

25

Spain France UnitedStates

Italy Sweden UnitedKingdom

Germany Netherlands Denmark

2007 2010

US HAD HUGE INCREASES IN UNEMPLOYMENT

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3. What happened in the crisis? fiscal

CHANGE IN GENERAL GOVERNMENT DEFICITS, 2006-10

-12

-10

-8

-6

-4

-2

0

Italy

German

y

Franc

e

Nethe

rland

s

Austra

lia

Canad

a

United

King

dom

United

Sta

tes

Denm

ark

Spain

COUNTRIES AT THE EPICENTRE SUFFER MOST