Most Effective Political Economy system. Social democracy vs Liberal democracy

Essay 2016 6 Pages

Politics - International Politics - Topic: Globalization, Political Economics


Social Democracy Vs Liberal political economic system

The integration of both political and economic institutions for shaping the scope of equality and freedom has been the hot discussion of both politicians and economists in our dynamic era of globalization all around the world. Distribution of wealth, balance level of equality and freedom and social security of public have been influential elements of political economic system, which are significant issues for achieving national prosperity and economic growth of the state. The main goal of this research paper is to analyse and illustrate the comparisons of world’s most dynamic political economic systems, which are Social democracy and Liberal democracy, and their contributions to economic growth and development. Social democratic system will be better in providing economic growth and prosperity for nations regards to focusing on social welfare policies, establishing regulations for economic activities, managing of money and distribution of wealth, and maintenance of high living standard for public compared to liberal democracy.

The idea of social democratic system originated from Marxism in 19th century and revolution changes of capitalism. Social democratic system emerged as a result of lectern socialists and Swedish social democratic elements. It evolved as transformation of capitalism to more nationalist approaches in 20th century. Capitalism as concern of too much freedom and lack of equality has been reformed and changed through revolutionary era of 20th century. As a result of new ideas and gradually reforms of capitalism, the social democratic system has evolved in 20th century mostly in Scandinavia countries such as Norway and Sweden.[1]Social democratic system strongly revolves on maintenance of high social welfare, regulation of market activities and flow of national wealth inside any country as well as having intervention to ownership of banks, factories, and natural resources through Neo-corporatism. It means that state regulates economic activities in order to enhance local industries, increases job opportunities as well as keeps national wealth in any country.[2]

Moreover, every individual as a part of community is responsible for having contribution to whole nation’s economic growth and prosperity. In compensation to this claim, state provides everyone high social welfare system which enables all citizens to experience high level of living regardless of income they are earning. The state provides equal social welfare to all the citizens, they only differ by increasing their own capacities which lead them to better economic growth and higher living standards simultaneously[3]. For instance, in Scandinavian countries taxation is high and as a result the state strongly focuses on welfare state policies such as providing unemployment insurance, health insurance, education services and other public services. State believes that the high rate of taxation benefits back the citizens, state itself does not benefit from taxation. Similarly, high education system and health care lead the whole nation to great economic growth and prosperity.

On the other hand, liberal democracy centralized on capitalism and theory of laissez-Faire which means economy is free to do what it desires and wealth is controlled by natural law like gravity. It encourages private property and free trade with no monopoly of economy in the state. It focuses more on increasing individual’s capacity than empowering nation.[4]It set low taxation and encourage free market and competitive advantage for having prices low. Therefore, liberal democratic countries provide low level of social welfare for public and focuses less on economic growth and prosperity of nation and more on individual enhancement.

Liberal advocates believe that men are rationally born to maximize their capacity of wealth with no intervention of state. It allows individuals to exercise thier natural right to make economic choices. According to natural law, every person has the right to act according to his/her desire’s consistency and any intervention to his/her inclination is deprival of natural right.[5]Therefore, state should have less or no intervention on economic activities and set no regulation for enhancing nation’s economic growth. Since, state mostly focuses on freedom of individuals, it leads to functionalization of countless parties and finally to indecision and lack of conviction. According to liberal critics, the ultimate goal of liberal democratic political economy system is Anarchy (lack of government) that state will be abolished through lack of conviction[6].

Taking into consideration both social democracy’s and liberal democracy’s basics and criteria, we can assert that social democracy distributes wealth more equally in state compared to liberal democracy and that’s the reason why GDP per capita and Gini index in Scandinavia countries are higher and better compared to liberal democratic countries. For instance, GDP per capita of USA is 55904$ and South Korea’s is 27513(both are liberal democratic) while GDP per capita in Norway is about 76266$ and that of Switzerland is more than 8200$ which are higher figures compared to USA and South Korea[7]. Higher GDP per capita lead a country to better economic growth, this claims can be proved by statistic that shows USA economic growth as 2.57 and Sweden’s economic growth as 2.75[8]. Similarly, according to statistic of the Gini index, the inequality index in liberal democratic countries such as USA is 41while Gini index of Norway (social democratic) 25 and Denmark is 29 which are less than USA[9]. In social democratic states because of economic regulations, the wealth in state are distributed more equally compared to liberal democratic and that’s the reason why we can witness more middle classes in social democratic states and more inequality in liberal democratic countries.

Abbildung in dieser Leseprobe nicht enthalten

Besides, as the result of strong welfare policy in social democratic states, public experience higher social welfare system compared to liberal democratic states. Despite the fact that, the taxation is higher in social democratic states, public get back large burden of taxation by getting advantages of higher education system and health care as well as experiencing higher public facilities and insurances. Regards to HDI index statistic[10], social democratic countries have higher HDI figures compared to liberal democratic states. For example, as we can see in the table of HDI index for the year 2014, Norway and Denmark rank higher compared to USA and Singapore. In the similar way, experiencing higher social welfare cause public to be more satisfied and happier from state and that’s why Scandinavia countries enjoying happier life compared to USA and Singapore. The attached table shows us how stable social welfare policies effects happiness, life expectancy, and economic states of individuals and nation as whole. Denmark, Norway and Sweden with happiness figures above 7.4 are happier and having prosperous nation compared to USA, Brazil and UAE which their figures’ of happiness ranging around 7.0.[11]

Abbildung in dieser Leseprobe nicht enthalten

On the other side of discussion, social democratic system has been criticized because of underestimating the level of democracy and encouraging state’s intervention to public affairs. Critics of social democratic system claim that individuals should be given full authority and freedom on controlling and regulating their own economic activities in order to achieve democracy level to its highest extent in the state. In addition, social democracy critics strongly reject welfare policy because they claim that it is inequality that we spend some others’ money on some others’ welfare or in other words, riches pay higher taxes compared to poor while both riches and poor people experience same level of welfare system[12]. Besides, they believe that social welfare policies such as unemployment insurance will cause no motive of working for jobless people or searching for jobs which as a result, unemployment rate will not be improved as it is supposed to be in social democratic countries [13].


[1](Lindgren 2007, 43-45)

[2](Lindgren 2007, 48-51)

[3](Lindgren 2007, 60-61)

[4](JEVONS n.d.)

[5](D.Gramp n.d.)

[6](Liberalism vs. Socialism n.d.)

[7](Data n.d.)

[8](Data n.d.)

[9](GINI Index n.d.)

[10](UN 2015)

[11](World Happiness Index 2016)

[12](JEVONS n.d.)

[13](Lindgren 2007, 65-67)


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American University of Central Asia – American University of Central Asia
social democracy liberal democracy political systems politics




Title: Most Effective Political Economy system. Social democracy vs Liberal democracy