International and Comparative Business

Foundations of Political Economies

Leo McCann, Author

• Publisher: SAGE Publications Ltd
• Year: 2013
• Print ISBN: 9781412948760, 9781412948753
• eBook ISBN: 9781446293485
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

?Erudite and accessible, McCann demonstrates how the national gets reconfigured around the global without losing some of its unique features. Far from being a one-size-fits-all Anglo-American template, neoliberalism comes in many different hues and variations. This is by far the best textbook in the field and is destined to become a classic for years to come.? Manfred B. Steger, Professor of Political Science at the University of Hawai?i-Manoa, Honolulu, Hawai'i, USA
 
?A sweeping examination of systems of capitalism in theory and in the world's major industrial economies leads Leo McCann to challenge the conventional wisdom on globalization. Historical analysis of the evolution of business systems and detailed examination of present practice demonstrate persuasively that, despite facing common challenges, distinctive national differences remain salient. A must read for anyone who needs to understand how business systems operate in an increasingly interdependent world economy.? - Dr Eileen Appelbaum, Senior Economist, Center for Economic and Policy Research, Washington, DC, USA

Globalization has profound effects on national economies even as distinct national 'models' of capitalism remain. International and Comparative Business accessibly tracks the historical and socio-political contexts of the world's major countries on a chapter-by-chapter basis to the present day. The book provides a comprehensive, critical, yet concise introduction to each of the economies' key features, including macro overviews as well as organizational and workplace-level analysis. Each chapter features learning objectives, in-depth interpretation and critique of key literature, and annotated further reading to allow readers to rigorously navigate their way through the wealth of material available for each country.  

This text is essential reading for students and researchers in the areas of international business and cross-cultural management, comparative political economy, and history.

Leo McCann is Senior Lecturer in International and Comparative Management at Manchester Business School, University of Manchester, UK

ONE	Introducing the Field

Chapter objectives

• To introduce readers to the field of study known as ‘varieties of capitalism’ (VoC), showing that even as the world economy is becoming more interconnected and ‘globalized’, it still tolerates wide differences in national ‘models’ of capitalism

• To lay out the four main aims of the book

• To introduce the two general characterizations of types of ‘models’ of capitalism that exist in the world: namely ‘liberal market economies’ (LMEs) versus ‘coordinated market economies’ (CMEs)

• To introduce the ideas of globalization and VoC as powerful yet contested concepts

Introduction: a global economy, but made of many ‘varieties of capitalism’

We are increasingly told by politicians, think tanks, academic experts, businesspeople and the media that we live in a ‘global’ economy. People the world over live and work in a globalized economy of dramatic and intense change, in which products and services are increasingly designed, produced, delivered and consumed across almost all territories of the world, and in which financial and physical transactions cross borders at dizzying speed. Multinational corporations, such as McDonald’s, Unilever, Toyota, Tata or Siemens, market their products and services to almost all corners of the world, and a global labour market for employee ‘talent’ has emerged within which companies compete to recruit the ‘best and the brightest’ graduates regardless of their country of origin. ‘World class’ corporations claim to be genuinely global companies – although they have a headquarters somewhere in the world they detach themselves from their traditional national moorings as they try to attract global consumers, investors and employees. ‘Global’ seems to have superseded ‘national’ as any attempts by governments to develop distinctly national economic plans or industrial policies seem doomed to failure. Traditionally national ‘ways of doing business’ have ‘converged’ into an ephemeral ‘world best practice’ as the seemingly ‘universal’ norms of global capitalism take over.

This is what we are told. But is it true? This book agrees that the world economy is changing, and is in many ways becoming more internationally interconnected than ever before. But it also demonstrates that many profound differences remain in how business (and capitalism more generally) operates across many regions of the world. This is true even across highly advanced economies, such as Japan, the USA, France, Britain, Germany or the Nordic economies, and the book suggests that national traditions of business are likely to remain very significant. The book introduces readers to a large and influential set of literatures that explains economic action not in terms of detached, ‘global’ norms but as framed, enabled and constrained by complex, historically produced and contemporaneously reproduced local and national institutions. These institutions form essential ‘rules of the game’ that allow capitalism to work yet also continue to structure it and reproduce it in quite different forms. There remain powerful forms of national difference in supposedly ‘global’ business in terms of how companies are financed, who they do business with, how they recruit, train and retain staff, their interaction with unions and other forms of employee representation (such as German-style Works Councils), how they develop and deploy technology and how they restructure when facing financial trouble.

Just because the world is (arguably) getting more integrated and globalized, this does not necessarily mean that economic action and firm behaviour is becoming more similar. Rather than the somewhat simplistic assertion of a ‘convergence’ in economic behaviour under globalization, a large and powerful literature points to continued ‘divergence’ and the maintenance of difference (Amable 2003; Coates 2000, 2002; Dore 2000; Hall and Soskice 2001, Morgan et al. 2010; Whitley 1999; Wood and Demirbag 2012). These authors have developed and contributed to the influential ‘varieties of capitalism’ (VoC) or ‘national business systems’ (NBS) literatures, which focus on the production and reproduction of the institutions that make up national economies. This literature teaches us that countries develop distinct ‘models’ of economic behaviour, which clearly change over time but in doing so retain certain fundamental features even under the pressures of globalization and convergence (Coates 2000; Steinmo 2010).

This book aims to explore and describe this globalizing world economy, but it does so by paying close attention to historical and contemporary differences in national ‘models’ of capitalism. It aims to build on the insights of VoC, noting this body of work as a powerful corrective to the often overblown globalization and convergence theories. It does this by exploring a large literature on a range of countries, discussing the historical development of each country’s economic ‘model’ and the ways in which each ‘model’ has changed, adapted and perhaps been eroded by domestic and global forces of competition and transformation. Much of the VoC and NBS literature is very abstract, technical and detached. Many readers, while attracted to the logic of the argument that there remains many distinct systems of capitalism, become frustrated by this abstraction and by the absence of detail on how and why these systems have formed. This book aims to make a contribution to these debates by paying closer attention to distinct country-based research in each chapter, by focusing in depth on how each major country ‘model’ really operates, in terms of finance and corporate governance, government institutions and macroeconomic policy, and at more micro levels – the level of management, work and organization. In doing so, it tries to project a more ‘human face’ onto discussion of VoC.

The book has four main aims:

• The first is to explore the theoretical background to debates on VoC and NBS, pointing out why these debates are crucial to a thorough and realistic appraisal of the world economy, and why it is important to note the wide diversity in socio-economic models that persist amid ‘globalization.’

• The second is to provide detail on the historical development and contemporary reproduction of national models or systems of capitalism. It covers all of the world’s major economies, moving from West to East through chapters exploring the USA, the UK, France, Germany, the Nordic economies, Russia, India, China and Japan. The book will focus on country-specific literature in order to build up a clear and detailed picture of the domestic and international forces that have helped shape these distinct models over time.

• The third is to show how these country models have changed in recent decades. Clearly globalization and convergence are real forces at some level. ‘Neoliberal’ economic theory and concepts of ‘global best practice’ in management, finance and government policy have spread across all manner of national business systems, and countries, firms and institutions demonstrably do change and adapt, especially when previously secure and economically successful models run into trouble following recessions or financial crises. Governments initiate reform policies that open up their economies to international trade and inward investment, and companies restructure themselves so that they better conform to (typically Anglo-American) forms of ‘best practice’ as they try to remain competitive. The chapters will show that (at a very general level) all of the nations have been through three very broad phases in the development of their own version of capitalism. These phases are: (1) an early period of growth in which ‘wild’ and unregulated forms of liberal capitalism emerge, often involving considerable social turmoil; (2) a period of ‘organized’ capitalism in which the rougher edges of capitalism are smoothed over by government regulations and the emergence of bureaucratic management structures in firms, which constitute more established ‘rules of the game’ and typically result in a more egalitarian distribution of wealth; and (3) a period up to today of ‘disorganized capitalism’ (Lash and Urry 1987), characterized by intensified international economic relations, widespread organizational restructuring, and a return to higher levels of income inequality. These three phases are similar to what Boltanski and Chiapello call the first, second and third ‘spirits’ of capitalism (Boltanski and Chiapello 2005). Throughout each of these phases, however, each of these countries has retained distinct institutional elements that means that notions of national varieties of capitalism still remain sensible and accurate.

• Finally, it tries to insert more of a discussion of morality and ethics into the typically rather technical discussions of models of capitalism. Much of the VoC literature has rather little to say about which models are the most morally defensible or socially attractive. Some write of the various strengths and weaknesses in national innovation systems and the ways in which various national models tend to specialize in different industrial and service sectors (Hall and Soskice 2001) but these analyses are often problematic. Supposedly strong and effective models can act in ways that confound expectations. What appears to be an effective or dominant model in one era can falter in the next. Change can be unpredictable and can often occur in some of the last places you expect to see it. The book will largely stay away from debates about the economic effectiveness of models, but will try to provide some insights into the relative strengths and weaknesses of the models in a moral and ethical sense. Recent years have seen many important economies struggle severely with the impact of financial crashes, unemployment, social dislocation, poverty, joblessness, even hopelessness. In such a context, which of the models seems the most morally defensible? The book will ask which – if any – of these various systems of capitalism approximate most closely to a model of a ‘good society’ – especially when it comes to their relative levels of income inequality, or workplace democracy, or employee dignity.

VoC literature places a great deal of emphasis on the existence of differing economic and social institutions that operate in different nations. These institutions (such as national laws and historical and cultural customs and practices) serve to structure the ways in which businesses, organizations and people operate (Scott 2008a). Institutions set the ‘rules of the game’ for capitalism, and these rules can differ significantly across difference regions of the world (North 1991). As the prologue has suggested, Japanese institutions seem better at supporting train-building industry and infrastructure than British institutions. In contrast, the UK’s institutions might be better at supporting the development and running of museums or other service-based firms. Institutions therefore assist the smooth development of certain economic forms, but also serve to inhibit or restrict the development of others.

This introductory chapter proceeds in five further sections. First, it outlines one of the main ways of distinguishing and categorizing different varieties of capitalism, explaining what is meant by so-called liberal market economies or LMEs (such as the UK) and coordinated market economies or CMEs (such as Japan). The chapter moves on to explore the debate between the VoC approach and another major (perhaps dominant) area of literature, that of globalization theory. Thereafter a discussion ensues about the disturbing and traumatic economic crises that seem to have become a common feature to all economic systems in recent years. In that section, I will briefly explore the extent to which all ‘varieties’ of capitalism were caught up in the 2007–8 subprime mortgage crisis, and the extent to which this crisis may have discredited or disrupted the previously dominant ideology of neoliberalism and the LME model. A very brief section then explains the main motivations for writing this book, which aims to help the reader understand the value of this field of study. The chapter closes by highlighting the complex, contested and very unresolved nature of the field of international and comparative business.

Introducing the two main ‘models’ of capitalism: liberal market economies versus coordinated market economies

VoC authors have made many different attempts to describe, clarify and categorize the competing socio-economic systems that exist across the world. One of the simplest and widest-used frameworks was that developed by Hall and Soskice (2001), in a very widely cited text that seems to have had a labelling effect on the field of study – Varieties of Capitalism.¹ In their interpretation countries that operate LMEs are compared to countries operating CMEs.²

LMEs are highly open, highly globalized economies with traditions of minimal governmental interference and light regulation, and in which short-term stock market movements are of crucial importance in both explaining firm behaviour and motivating top management. Large firms operating in such a climate tend to be owned by a large and very diverse range of shareholders, which exercise considerable pressure on top management to ensure that the company is acting in the interests of owners by delivering ‘shareholder value’. These pressures are often short-term and the management of firms in LMEs often engage in dramatic and radical organizational change (such as downsizing and cost-cutting) in order to maintain high stock prices and dividends. Employment and careers inside LME firms can be insecure, and workers tend to have limited say in the operation of their work and in the running of the company. LME firms often radically reinvent themselves to stay ‘ahead of the game’ exiting quickly from industry sectors that appear to be non-value-creating, and entering new areas, such as in the so-called ‘new economy’ era in the 1990s when IT and internet companies (especially in the USA) boomed in value. The word ‘liberal’ in this context refers to the freedoms the system grants for business; implying limited state involvement in the economy and the absence of heavy regulation. Under these systems firms also tend to be less cooperative with each other than they may be in other economic systems. This feature is particularly clear in the USA that has especially tight anti-trust legislation.³ LMEs are also known as ‘Anglo-Saxon economies’ or ‘stock market capitalism’. The classic examples are the USA and UK, which are well known as ‘business friendly’ environments, especially since the enactment of ‘neoliberal’ economic reforms begun under US President Ronald Reagan and UK Prime Minister Margaret Thatcher in the 1980s.⁴

In contrast, there are the CMEs. The most widely used examples of CMEs are Germany and Japan. These countries have tended to progress down different economic routes from the LMEs for numerous reasons, not least of which is the almost total rebuilding of their economies after the Second World War. As the ‘coordinated’ title suggests, these countries exhibit a much-increased role for inter-firm interaction and cooperation, such as the formation of large business groups. ‘Coordination’ also refers to firms’ close interactions with various institutions of government (Hall and Soskice 2001: 8–9). The post-war rebuilding of Germany and Japan, which involved considerable state intervention, direction and ownership of industry, has often led to the CME model being associated with the concept of the ‘developmental state’ (Johnson 1982; Wade 2003). Ownership of large companies in CMEs tends to be much more concentrated, with more committed owners who are invested for the longer term and are relatively unconcerned with short-term movements in share price. Sometimes these owners are families, sometimes they are large and conservative banks, sometimes they are other companies who are fellow members of business groups which have traditio...

Table of contents

• Cover Page
• Halftitle
• Advertisement
• Title
• Copyright
• Dedication
• Contents
• About the Author
• Prologue
• Acknowledgements
• 1 Introducing the Field
• 2 Theorizing Varieties of Capitalism
• 3 The USA: The World’s Foremost Economic, Political and Military Power
• 4 The United Kingdom: A Problematic Triumph of Finance Over Industry
• 5 France: Powerful Traditions Turning to Radical Change
• 6 Germany: Europe’s ‘Production Machine’
• 7 Nordic Economies: The Employee Dignity Agenda
• 8 Russia and the Former Soviet Union: The Radical Adoption, Creation, and Abandonment of Models
• 9 India: A Turbulent Transformation
• 10 China: Multiple Models Amid Growth and Change
• 11 Japan: Still the World’s Second Most Prominent Model?
• 12 Conclusion
• References
• Index