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Home arrow Management arrow Strategic Management in the 21st Century. The Operational Environment
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Managerial Capitalism

In The Visible Hand, Alfred Chandler discusses the transition from "proprietary" to "managerial" capitalism.50 Between the 1840s and 1920s, the economy of the United States transformed from agrarian and rural to industrial and urban. Modern multiunit business enterprises replaced small, traditional, sole-proprietary businesses. Controlling more resources enabled the new industrialists to increase productivity and lower costs. These industry consolidations resulted in greater market control by large, vertically integrated corporations. Big business arrived in the United States, seizing control of resources including raw materials, production technology, labor, and ultimately the government. A managerial capitalism artifact is oligopolistic price fixing, which results in market inefficiencies.

Organized groups are the principal beneficiaries of managerial capital-ism.51 Governmental assistance varies proportionately by the resources each group controls. Under managerial capitalism, the government's primarily role is to support these groups as an act of self-preservation. Satisfying large corporations helps the government to retain the existing structure and size (e.g., funding from tax revenues). Atomized societal members find their roles reduced. Marginalized groups controlling fewer resources receive far fewer benefits than people belonging to powerful and well-organized groups. The U.S. Congress's approval of the 2003 tax bill created $350 billion savings for tax payers. This legislation passed despite less than one-third of the public feeling these tax cuts were the best way to increase economic growth and increase jobs.52 One estimate found only 22 percent of tax payers with incomes less than $100,000 would benefit by President Bush's 15 percent maximum dividend tax rate.53 Who benefits the most by low dividend tax rate? Clearly, big business owners gain the most from such policies.

A pluralist society enables organized groups to exert too much influence on government trade policies. Capital's growing interests eventually control the activities of government, even at the expense of the long-term interests of society.54 Big capital's development into transnational corporation threatens the existence of the nation-state as well as labor unions and small capital. Following this line of thinking, growth trends in large corporations come at the expense of higher unemployment and a decline in small businesses.

Despite the apparent shortcomings of managerial capitalism, this form best represents the dominant state of U.S. capitalism.45 Managerial capitalism also has proponents; for example, Austrian economist Joseph Schumpeter argued that a production system dominated by big businesses is superior to one with only small businesses.56 Government regulation should not be based on the principle that big business must operate under a system of perfect competition. While Schumpeter's mention of government regulation seems to suggest the need for some big business limitations, he encourages market development beneficial to big capital. Another argument is big business represents the lesser of two evils.57 Capitalism stands with federalism, the separation of powers, and the antitrust tradition in the deep suspicion of authority.

Cooperative Capitalism

The "strong state-strong societal" form of capitalism can be characterized by both collectivist and neocorporatist theories. Whereas the former has historical roots in U.S.-state theory, the latter can be traced back to Europe. The European version has little in common with the U.S. style of capitalism due to organized labor's inclusion in the model. Jeffrey Hart's analysis of capitalism highlights this difference by distinguishing between cooperative governance based on organized labor's relative strength.58

The collectivist theory can be traced back at least to Alexander Hamilton. Hamilton provides recommendations for strong government guidance and protection of domestic industry.5 9 Hamilton states that the nation as a whole should support industry development. He warns that small manufacturers in the United States could never catch up with the larger and more-advanced manufacturers of Europe unless they are protected and subsidized. Government needs to provide a strong role to ensure the economic well-being of citizens. Arguably, England's fall in manufacturing competitiveness is attributed to government failure to protect domestic industries from foreign competitors.60

Some distinguishing collective-capitalism features include: (1) the organizational integration of a number of distinct firms, (2) the long-term integration into the enterprise of personnel below the managerial level, and (3) the state's cooperation in shaping the social environment to reduce the uncertainty of facing private sector investments.61 During the 1980s and 1990s, Japan's phenomenal economic growth and success were credited by some authors to collectivist policies where business and government work closely together for national interests.62 As was the case historically in the United States and the United Kingdom, the Japanese state played an important role in protecting the home market. Government protection allowed business organizations to develop to the point where they could attain a comparative advantage in international markets.

Another cooperative form of governance is the neocorporatist system, where societal interests are represented by formal, compulsory, non-competitive groups.63 Neocorporatism should be understood in terms of degrees instead of absolutes. Comparative studies on industrialized capitalist nations conclude that the United States is the weakest in terms of its level of neocorporatism.64 Due to legal limitations on industry collusion and cartels as well as the lack of a unified group representing labor interests at the national level, the United States lacks the foundation to develop a neocorporatist style of capitalism.65

Collective-capitalism critics express concerns about the limitations of centralized planning and increasing the power of government. Austrian school proponent Friedrich Hayek argued that a centralized authority cannot possibly acquire all the dispersed knowledge required for decision making.66 Other arguments against a more formalized relationship between government and business come from the proponents of proprietary capitalism, such as the Chicago and public Choice schools.67

Also, most big business interests likely will resist a call for more government coordination. For example, interviews with the negotiations team involved in a joint venture to build commercial aircraft in Japan and China confirms that big businesses feel better qualified to conduct their own foreign affairs. Businesses only want government assistance if it is in their best interest.68 An example of this governmental role can be seen when U.S. presidents visit Japan to lobby for more-open automobile markets.69 On the other hand, these same businesses try to distance themselves from U.S. national policies when human rights violations surface.70

In recent years, some economists have called to formalize the relationship between business and government.71 Increasing government-assisted foreign competition successfully is penetrating the U.S. market. At the same time, U.S. businesses have difficulties entering foreign markets. Perhaps U.S. businesses are beginning to realize they are mismatched when competing against nations with more formalized business and government's relationships. Lester Thurow sees the United States as using an individualistic strategy against countries that have a more cooperative form of capitalism.72 Robert Reich echoes similar sentiments; he recommends that a more formalized business and government partnership be supported/3 In the early 1990s, the Clinton administration advocated a more active role for government and international trade. President Bush tried to continue this trend, but he had more difficulty getting congressional approval.74 The U.S. government started to assert itself in overseas markets on behalf of U.S. businesses.

This trend trickled down to the local level as well. Even U.S. state governments started sending representatives abroad for trade missions. Starting in the 1980s, many U.S. state governments opened overseas promotion offices in Asia and Europe.75 In particular, Japanese economic growth led state government policy makers to believe that market opportunities existed and local government was best positioned to help businesses. Most overseas offices were understaffed and underfunded. Annual or biannual office budgets make long-term planning difficult. Some offices became part-time ventures for English-speaking local business people. Other offices closed when state budgets required balancing. No compelling evidence supports the assertion that these state offices did much to help U.S. businesses enter Japan's tightly controlled market.76 Little evidence suggests alliances between business and government resulted in a stronger position for the U.S. economy. These "cooperative" efforts appear to serve other purposes, such as offering state governors a bit of international experience to enhance their political portfolios in the event of them having aspirations for a role in politics at the national level.

 
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