Modeling Our Future: Flexicurity Capitalism

This chapter¹ starts from the hypothesis that Goodwin's (1967) Classical Growth Cycle, modeling the Marxian Reserve Army Mechanism, does not represent a process of social reproduction that can be considered as adequate and sustainable in a social and democratic society in the long-run. The chapter derives on this background a basic macrodynamic framework where this form of cyclical growth and economic reproduction of capitalism is overcome by an employer of “first” resort, added to an economic reproduction process that is highly competitive and flexible and thus not of the type of the past Eastern socialism. Instead, there is high capital and labor mobility (concerning “hiring” and “firing,” in particular), and thus flexibility, where fluctuations of employment in this first labor market of the economy (the private sector) are made socially acceptable through the security aspect of the flexicurity concept, that is, by a second labor market where all remaining workers (and even pensioners) find meaningful occupation. The resulting model of flexicurity capitalism with its detailed transfer payment schemes is in its essence comparable to the flexicurity models developed for the Nordic welfare states and Denmark in particular.

We show that this economy exhibits a balanced growth path that is globally attracting. We also show that credit financed investment, and thus more flexible investment behavior, can be easily added without disturbing the prevailing situation of stable full capacity growth. We do not yet get, however, demand- but only supply-driven business fluctuations in such an environment with both factors of production always fully employed. This combines flexible factor adjustments in the private sector with high employment security for the labor force and shows that the flexicurity variety of a capitalist economy, protected by the government, can work in a fairly balanced manner.