LATE DEVELOPMENT

Countries do change direction, and catastrophic wars are likely turning points, both oVering as they do both the aforementioned beneWts from reconstruction, and the opportunity to change political institutions. We could, then, stop at World War II and dig no further for the origins of today’s varieties of capitalism. It is useful, though, to look just a bit further back, to a set of theories which places the origins of diVerence in a country’s initial industrialization.

Alexander Gerschenkron (1952) argued that late industrialization requires diVerent institutions than early industrialization. Britain could industrialize with liberal eco-nomic institutions for two reasons: one is that companies were smaller and capital requirements for industrialization were less; the other was that international industrial competition was less. Later industrialization required greater concentration of re-sources: it came at a time when industry was more capital intensive, when the techno-logical change required to move from being an agrarian society to being an industrial one was greater, and when the large corporation was coming into being. International competition had become tougher. The countries that succeeded in getting on the industrial ladder later – the US, then Germany, then Japan, then Russia – did so with the aid of progressively greater centralization of control. In the US, this centralization was manifest in the role of Wall Street banks in assembling the large corporations; in Germany, the role of banks persisted after it had faded in the US; in Japan, the prewar zaibatsu and, after the war, the keiretsu along with the guiding hand of the state; in Soviet Russia, fully centralized state planning.

John Zysman (1983) used a late development framework to explain diVerences among capitalist economies in the late twentieth century. Comparing the US, UK, (West) Germany, France, and Japan, he oVers a classiWcation which follows the market versus bank scheme discussed above, but with a twist: Germany, France, and Japan are all credit (i.e., bank) centered, but France and Japan diVer from Germany in that the state (at the time) guided the investment priorities of the banks.

A related line of reasoning locates the origins of modern institutions in the particular political settlement that makes those who have power in an agrarian country willing to make the investments, and to countenance the social changes needed for the transform-ation to a modern commercial and industrial society. Here we see the problem not so much in terms of the requirements of competitive catch-up, as the problems of overcoming

domestic resistance to change. This argument is developed by Gerschenkron (1966), Barrington Moore (1966), Charles Tilly (1992), and others. Gøsta Esping-Andersen (1990) uses it in explaining why diVerent parts of Europe developed diVerent kinds of welfare state – a story that feeds into the VOC analysis. We will see, in Chapters 13 and 14, that the same issues come up today in the newly industrialized countries.

11.7.4. CONVERGENCE?

Does the liberalization of international markets make us all more alike, or does it promote further diVerentiation? The VOC story suggests the latter: increased trade makes comparative advantage more important, and institutional diVerences are sources of comparative advantage. On the other hand, capital mobility could force countries to converge toward a single model. Systems with quasi-insider control of companies can be eYcient competitors and, at the same time, oVer a worse deal for portfolio investors – that is to say, for minority shareholders. Portfolio investment can have greater national mobility than either labor or quasi-insider investment. Liberalization of inter-national Wnancial markets makes it easier for portfolio investors to shop around, and they seem likely to favor countries with strong MSP protection.

Michel Goyer (2006) shows that, among American institutions investing in contin-ental Europe, public employee pension funds prefer Germany with its strong job security and consensual management, while hedge funds prefer France with its some-what weaker job security and extremely hierarchical management. If that sounds like public employee pension funds make investment decisions based on a sentimental attachment to workers’ rights, consider what Lily Qiu (2006) Wnds: that in the US, Wrms in which those same public pension funds invest are much less likely to make bad acquisition decisions, while other institutional investors have either no eVect or an adverse eVect on the quality of acquisition decisions. German institutions may not, in the end, be a bar to increased returns for minority shareholders. Ronald Gilson (2000) argues that a great deal of functional convergence can happen without institutional change, or formal convergence. He argues that international capital mobility simply results in higher payouts to shareholders and closer attention to the preferences of minority shareholders, in countries like Germany.

11.7.4.1. Convergence as illusion

In considering this and other convergence narratives, let me oVer the following caution:

in my memory, there have been three important convergence narratives regarding national business systems. Each promised an entirely diVerent kind of convergence.

174 THE GLOBAL ENVIRONMENT OF BUSINESS

The Wrst was convergence of bureaucratic capitalism and bureaucratic communism into one form of ‘‘industrial society.’’ In the 1950s and 1960s, business corporations in all industrial countries seemed to be getting larger and more bureaucratic; they were particularly large and bureaucratic in the leading capitalist economy, the US, and in its big communist rival, the Soviet Union. It was, of course, the age of mass production and managerialism (Gordon 1945; Berle and Means 1967). Large industrial companies could be viewed as miniature planned economies, or planned economies as gigantic industrial enterprises, so the diVerences between industrial capitalism and industrial communism could be viewed as matters of degree, not fundamental diVerences in character (Galbraith 1967). There also appeared to be a trend, within the capitalist economies, for the state to take on an increasing economic role, whether as an owner or as a regulator of enterprise (Harrington 1972). To the extent that capitalist Wrms were controlled by shareholders, rather than managers, the former were now likely to be workers, through their pension funds (Drucker 1976). The Soviet bloc would eventually liberalize somewhat, and we would have similar bureaucratic industrialisms, a Weberian dream or a Kafka-esque nightmare, depending on your predilections, on both sides of what had been the Iron Curtain.

It didn’t happen. By the late 1970s, it was apparent that mass production was a spent force. The leading actors in the Wrst convergence drama were struggling, and while some of the supporting players – Japan, West Germany, Sweden, and Italy – were thriving, their departures from the model of bureaucratic mass production were suddenly more interesting than anything they shared with that model. This led, for the convergence-minded, to various stories of Japanization, Xexible specialization, and lean production, all discussed in the previous chapter. This set of narratives was persuasive because Japan had so quickly emerged from the rubble of war to best the US at what it seemed to do best – the mass production of cars, televisions, and other consumer goods. And many of the techniques pioneered by Japanese companies, in quality management, inventory management, continuous improvement, teamwork, multiskilling, contracting practices, and so forth, were eagerly adopted by companies around the world.

Yet, Japanization didn’t happen, either. In the 1990s, Japan was in crisis. Germany had its own crisis, as the West absorbed the East at considerable expense. Centralized wage bargaining retreated in Scandinavia, Italy stopped growing. Did this dissuade many from believing in convergence? No, instead, a new type of convergence, a new focus for the convergence narrative, was identiWed. While Japan and the economies of continental Europe were slowing down, their Anglo-Saxon counterparts were picking up. So the future became American again: not the America of bureaucratic mass production, but a neoliberal model, deregulated, Xexible, entrepreneurial, Wnancialized, globalized.

Each of these convergence stories starts with a very big element of truth: bureaucratic mass production, Xexible production, and neoliberalism are all real; for a time, each of

them was ascendant, aVecting the path of development everywhere in the world. In each case, I would suggest, the result was a sort of optical illusion. Framing our understand-ing of the world by lookunderstand-ing at a particular important trend, other changes that are happening at the same time fade into the background. In particular, processes of diVerentiation fade into the background, because they are harder to encapsulate in a trend. But diVerent places remain diVerent, and there will be new and diVerent universal trends in the future: that much we can predict with conWdence.

176 THE GLOBAL ENVIRONMENT OF BUSINESS

12 ^Clusters

Who makes your computer, and where is it made? There is probably no simple answer to that question. The laptop I’m working on right now is branded by RM, a British company that sells to schools and universities. Reading the Wne print on the back I’m not surprised to Wnd it’s made in Taiwan by ASUS. ASUS also sells computers under its own brand, but here it is playing the role of OEM, or original equipment manufacturer.

OEMs put products together to the speciWcations of the company that brands them and sells them to consumers. In some industries, such as clothing or footwear, the term ‘‘full package supplier’’ might be used instead of OEM.

Part of this OEM’s work takes place in its factory in Taiwan, but before it makes the machine ASUS must source the parts: specify the components needed, select the suppliers, negotiate terms, and secure delivery. These activities, which we summarize as ‘‘coordinating the supply chain’’ (also known, in diVerent contexts, as the value chain, the commodity chain, or the supply network), are one of the basic roles of the OEM – sometimes the only role, as the Wnal assembly may itself be outsourced.

Where do the parts come from? Taiwan is the world’s leading manufacturer not only of notebook computers but also of their components, so many of the parts are sourced there, and more speciWcally in the Wfty mile stretch between Taipei and Hsinchu, at the northern end of the island. Others will have come from China, Singapore, Korea, Japan, Malaysia, or the US.

We shouldn’t ignore the software, though most of that will have been added later, by RM, by the systems support people where I work, or by me; most of it comes from the US – the inevitable contributions from Microsoft (Redmond, near Seattle, in Washing-ton State), Adobe, Mozilla (both in California’s Silicon Valley), and so on. All of those companies will have incorporated code produced by individual companies, or program-mers, scattered around the world.

So where is the computer from, and who makes it? It would be tempting, and easy, to say that it is the product of a global network: hundreds of companies are involved, in many diVerent countries. That, however, would be a cop-out: notebook computers come not just from anywhere in the globe but from particular places and particular organizations. Two of those places, Taipei-Hsinchu and the Silicon Valley, are each the home to clusters of hundreds of microelectronics, computer systems, and software companies. Some of the organizations that contributed to the computer are small companies, many of them located in these clusters. Others are multinational corpor-ations (MNCs). Of those MNCs some, including ASUS, and the chip-maker Intel, are based in those clusters; others, such as the beloved Microsoft, are based elsewhere.

Notebook computers are also produced elsewhere, of course. South Korea and mainland China both produce a lot of them, although some of the suppliers (Intel or its lone rival AMD; and, inevitably, Microsoft) are the same no matter where the machine is put together. Overall, the number of places in the world where this kind of work gets done is not very large, nor is the number of companies capable of contributing certain components, or playing certain roles in putting in together.

Taipei-Hsinchu and the Silicon Valley are examples of specialized industrial clusters.

In our world of nearly instant long-distance communication and overnight airfreight across oceans, it turns out that many companies still Wnd it advantageous to locate near to their customers, their suppliers, even their competitors. These two clusters are particularly interesting both because they are high technology clusters which others have tried hard to imitate (usually without much success); and because they are closely linked, by both business and personal relationships, in spite of the PaciWc Ocean and what might seem to be large linguistic and cultural diVerences.