What Is the Anglo-Saxon Model?
The Anglo-Saxon model is a market-based economic system characterized by a strong emphasis on free markets, limited government intervention, and a focus on shareholder value in corporate governance. This economic model is predominantly practiced in Anglosphere countries, including the United States, the United Kingdom, Canada, Australia, and New Zealand. It falls under the broader category of Comparative Economic Systems. In an Anglo-Saxon model, financial markets play a central role in capital allocation, with companies typically relying on public equity markets for funding rather than bank financing.
History and Origin
The Anglo-Saxon model gained prominence in the 1970s and 1980s, influenced significantly by the Chicago School of economics. Its rise is often attributed to the failure of Keynesian economic management to address stagflation in the 1970s. The principles of economic liberalism, advocating for unrestricted markets and managing money supply to combat inflation, became central to this model. Key political figures, such as U.S. President Ronald Reagan (through "Reaganomics") and UK Prime Minister Margaret Thatcher (through "Thatcherism"), spearheaded its implementation and reinforced its characteristics in their respective economies. The economic reforms under Thatcher in the UK, particularly, moved the British economy closer to American norms and practices, contributing to the development of a distinct Anglo-Saxon economic model.15
Key Takeaways
- The Anglo-Saxon model emphasizes free markets, minimal government regulation, and a strong focus on shareholder interests.
- It is characterized by developed financial markets and dispersed ownership of companies.
- Labor markets in Anglo-Saxon economies tend to be more flexible, with less employment protection.
- The model prioritizes short-term efficiency and shareholder returns.
- Compared to other models, it typically exhibits lower public spending on certain social policies.
Interpreting the Anglo-Saxon Model
The Anglo-Saxon model is interpreted as a system where markets are the primary mechanism for resource allocation and economic coordination. In this model, the Anglo-Saxon model places significant importance on the ease of hiring and firing employees, often resulting in higher labor market flexibility but potentially lower job security.14 Corporate structures in this system are typically characterized by a large number of independent shareholders, and managers are primarily accountable to the Board of Directors and, by extension, the shareholders.13 The focus on deregulation and robust capital markets allows for significant mobility of investment and rapid shifts of capital to more efficient areas, fostering economic growth.
Hypothetical Example
Consider a hypothetical country, "Marketland," that adheres to the Anglo-Saxon model. In Marketland, a large public company, "Global Tech Inc.," decides to downsize its less profitable division. Due to the flexible labor laws characteristic of the Anglo-Saxon model, Global Tech Inc. can streamline its workforce relatively quickly to adapt to market changes. The company's decision-making process is heavily influenced by its institutional investors and other shareholders who demand high quarterly returns and a focus on maximizing shareholder value. The CEO of Global Tech Inc. has significant autonomy, reporting primarily to an independent Board of Directors that represents shareholder interests.
Practical Applications
The Anglo-Saxon model is evident in several aspects of real-world finance and economics. In the realm of corporate control, hostile takeovers are more common in Anglo-Saxon economies due to dispersed ownership and a focus on shareholder rights, allowing external parties to acquire control if they believe they can enhance value.12 Additionally, the model influences national monetary policy, often favoring independent central banks and market-based approaches to economic stabilization. The OECD's Principles of Corporate Governance, while not exclusive to one model, incorporate many elements that resonate with the Anglo-Saxon model, particularly concerning the protection of shareholder rights and transparency.11 These principles emphasize a framework for corporate governance ensuring strategic guidance of the company and effective monitoring of its management by the board of directors, as well as the board's accountability to the company and its shareholders.10
Limitations and Criticisms
While often lauded for its dynamism and efficiency, the Anglo-Saxon model faces several limitations and criticisms. One significant critique is its potential to contribute to increased income inequality. Critics argue that the emphasis on short-term profits and shareholder returns can lead to a neglect of other stakeholders, such as employees, suppliers, and the broader community.9 This can manifest in less robust social safety nets and lower employment protection compared to other economic models.8 Furthermore, the "light-touch regulation" often associated with the Anglo-Saxon model has been cited as a contributing factor to financial instability, as seen during the 2008 global financial crisis.7 The International Monetary Fund (IMF) has, at times, faced criticism for promoting a "one size fits all" approach that aligns with the Anglo-Saxon model, potentially overlooking the diverse developmental stages and needs of different economies.6
Anglo-Saxon Model vs. Rhenish Model
The Anglo-Saxon model is frequently contrasted with the Rhenish model (also known as the Continental European model or German model), which represents an alternative approach to market economy.
| Feature | Anglo-Saxon Model | Rhenish Model |
|---|---|---|
| Primary Focus | Shareholder value and short-term efficiency | Stakeholder interests and long-term stability |
| Capital Structure | Dispersed ownership; reliance on equity markets | Concentrated ownership; reliance on bank financing |
| Corporate Governance | Single-tier board; strong CEO power | Two-tier board; greater employee/bank representation |
| Labor Market | Flexible, with lower employment protection | Less flexible, with stronger social protections |
| Government Intervention | Limited | More significant, especially in social welfare |
While the Anglo-Saxon model prioritizes the interests of shareholders and market-led allocation of resources, the Rhenish model places a greater emphasis on the interests of a broader range of stakeholders, including employees, and often features closer relationships between companies and banks.54 The Rhenish model is characterized by a "social market economy" that focuses on long-term efficiency and multiple goals, contrasting with the Anglo-Saxon model's foundation as a building block of a liberal market economy.3
FAQs
Which countries primarily adopt the Anglo-Saxon model?
Countries that predominantly adopt the Anglo-Saxon model include the United States, the United Kingdom, Canada, Australia, Ireland, and New Zealand.
What is the main difference in corporate governance under the Anglo-Saxon model?
In the Anglo-Saxon model, corporate governance prioritizes the interests of shareholders, with boards of directors primarily accountable to them. This often leads to a focus on maximizing shareholder value and reliance on public capital markets for funding.2
How does the Anglo-Saxon model affect labor markets?
The Anglo-Saxon model generally leads to more flexible labor markets, characterized by easier hiring and firing practices and less stringent employment protection compared to other economic models.1
Is the Anglo-Saxon model considered more efficient than other models?
Proponents argue that the Anglo-Saxon model's emphasis on free markets and competition leads to greater efficiency and overall economic growth. However, critics point to potential downsides such as increased inequality and financial instability.