The Anglo-Saxon model (so called because it is practiced in Anglosphere countries such as the United Kingdom, the United States, Canada, New Zealand, Australia and Ireland) is a regulated market-based economic model that emerged in the 1970s.
Based on the Chicago school of economics, it was spearheaded in the 1980s in the United States by the economics of then President Ronald Reagan (dubbed Reaganomics), and reinforced in the United Kingdom by then Prime Minister Margaret Thatcher (dubbed Thatcherism).
Characteristics of this model include low levels of regulation and taxation, with the public sector providing minimal services. It emphasises strong private property rights, contract enforcement, and overall ease of doing business as well as low barriers to free trade.
Disagreements over meaning
Proponents of the term "Anglo-Saxon economy" argue that the economies of these countries currently are so closely related in their liberal and free market orientation that they can be regarded as sharing a specific macroeconomic model. However, those who disagree with the use of the term claim that the economies of these countries differ as much from each other as they do from the so-called "welfare capitalist" economies of northern and continental Europe.
The Anglo-Saxon model of capitalism is usually contrasted with the Continental model of capitalism, known as Rhine capitalism, the social market economy or the German model. It is also contrasted with Northern-European models of capitalism found in the Nordic countries, called the Nordic model. The major difference between these economies from Anglo-Saxon economies is the scope of collective bargaining rights and corporatist policies.
Differences between Anglo-Saxon economies are illustrated by taxation and the welfare state. The United Kingdom has a significantly higher level of taxation than the United States. The United Kingdom spends far more than the United States on the welfare state as a percentage of GDP and spends more than Spain, Portugal, or the Netherlands. This spending figure is still considerably lower than that of France or Germany.
In northern continental Europe, most countries use mixed economy models, called Rhine capitalism, a current term used especially for the macroeconomics of Germany, France, Belgium and the Netherlands, or its close relative the Nordic model, which refers to the macroeconomics of Denmark, Iceland, Norway, Sweden and Finland.
The debate amongst economists as to which economic model is better, circles around perspectives involving poverty, job insecurity, social services and inequality. Generally speaking, advocates of Anglo-Saxon model argue that more liberalized economies produce greater overall prosperity while defenders of continental models counter that they produce lesser inequality and lesser poverty at the lowest margins.
The rise of China has brought into focus the relevance of an alternate economic model which has helped propel the economy of China for thirty years since its opening up in 1978. The socialist market economy or a system based on what is called "socialism with Chinese characteristics". A confident China is increasingly offering it as an alternate development model to the Anglo-Saxon model to emerging economies in Africa and Asia.
History of the Anglo-Saxon model
The Anglo-Saxon model came out in the 1970s from the Chicago School of Economics. The return to economic liberalism in the Anglo-Saxon countries is explained by the failure of Keynesian economic management to control the stagflation in the 1970s and early 1980s. The Anglo-Saxon model was made from the ideas of Friedman and the Chicago School economists and the conventional wisdom of pre-Keynesian, liberal economic ideas which stated that fighting inflation depends on managing the money supply whilst increasing efficiency in the use of resources and that unrestricted markets are the best way to achieve this.
By the end of the 1970s the British post-war economic model was in trouble. After Labour failed to solve the problems it was left to Margaret Thatcher's Conservatives to reverse Britain's economic decline. During Thatcher's second term the British economy and its society started to change. Marketization, privatization and the deliberate diminishing of the remnants of the post-war social-democratic model were all affected by the American ideas. There are different sub-types and variations among countries that practice Anglo-Saxon model. One of these variations is neo-classical economic liberalism exhibited in American and British economies. The underlying assumption of this variation is that the inherent selfishness of individuals is transferred by the self-regulating market into general economic well-being, known as the invisible hand. In neo-classical economic liberalism, competitive markets should function as equilibrating mechanisms, which deliver both economic welfare and distributive justice. One of the main aims of the economic liberalism in the United States and United Kingdom, which was significantly influenced by Friedrich Hayek's ideas, is that government should regulate economic activity; but the state should not get involved as economic actor.