The thick description and comparison of societal systems of capitalism

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Feb 17, 2005 - The thick description and comparison of societal systems of capitalism. Gordon Redding. Euro-Asia and Comparative Research Centre,.
Journal of International Business Studies (2005) 36, 123–155

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The thick description and comparison of societal systems of capitalism Gordon Redding Euro-Asia and Comparative Research Centre, INSEAD, Fontainebleau, France Correspondence: Dr. G Redding, Euro-Asia and Comparative Research Centre, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France. Tel: þ 33 (0)1 60 72 48 92; Fax: þ 33 (0)1 60 72 40 49; E-mail: [email protected]

Abstract Critiques of international business theory have recently pointed to weaknesses in the handling of context, of culture, and of policy implications. It is contended that the origins of such failings lie in the discipline’s commonly accepted methodologies, and in turn that they have epistemological roots. As a route out of the dilemmas faced, a proposal is made to adopt more complete ways of handling determinacy, including the influences of history, culture, and the societal emergence of institutions. Business systems theory is drawn upon and a model proposed, developed from the work of Whitley. In this, culture is seen as underpinning formal institutions, which in turn underpin societal business systems. The use of the model relies on the ideas of Geertz on ‘thick description’ and of Ragin on holistic analysis. It is illustrated with a comparison of the American and French socio-economic systems, seen historically. Findings in strategy research about the geographically defined nature of firm supremacy in many industries are brought into the account, using the business systems literature. Consistent patterns of determinacy, as well as distinct and contrasting trajectories of business system evolution, are noted. A more complete and multidisciplinary form of explanation, grounded in socioeconomics, is advocated as a means of meeting the challenges both of understanding and of policymaking at several levels. Journal of International Business Studies (2005) 36, 123–155. doi:10.1057/palgrave.jibs.8400129 Keywords: business systems; comparative capitalisms; socio-economics

Received: 2 October 2003 Revised: 8 September 2004 Accepted: 20 September 2004 Online publication date: 17 February 2005

Introduction At the first annual JIBS conference on Emerging Research Frontiers in IB held at Duke University in March 2003, a single consistent theme ran through the entire proceedings. Speakers had been invited to address the question of the state of international business theory, and from the opening address of Bruce Kogut to the final session several days later, the challenge was constantly reaffirmed: that the discipline needs to address the question of what was referred to as ‘context’. The dilemma that this presents derives from the strong tendency of scholars to stay working on very specific questions, studied with much of context assumed out, and to end up with disembedded results or conclusions. Kogut argued that, especially for US scholars, there is a need to confront the cultural dimension – a point conceded also by Porter (2000), signalled clearly by Landes (1998), and noted by several as a ‘cultural turn’ in the social sciences (Archer, 1996; Nash, 2001). He advocated in addition the bridging of the quantitative and the

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qualitative, and the inclusion of the political dimension, if scholarly work in international business were to have an impact in the domain of policy, pointing out what he saw as a high degree of ‘policy irresponsibility’ in the social sciences. The proposals in this paper respond to that set of observations. My aims are (1) to sketch how the literature has so far dealt with context in international business, (2) to derive a set of key research challenges from that brief review, based on a consideration of what issues under context have received inadequate attention, and how the understanding of them might be achieved, (3) to propose an analytical framework, at the societal level, that moves towards meeting a number of those challenges, and in doing so to compare the use of business systems analysis with alternatives, and (4) to demonstrate the framework in use. In preview, it may be noted that a number of key propositions will be argued. First, that the societal level of analysis becomes more significant in the light of findings such as (a) in any industry, leading competitive firms are based in one or two countries (Porter and Wayland, 1995; Haake, 2002), and (b) the marketing of goods by the major multinationals remains restricted largely to their most familiar segment of the triad (Rangan and Drummond, 2002; Rugman and Verbeke, 2004). There is macroclustering in the locating of competitive industry, and also in capacities to penetrate markets. Second, that such analysis gains in explanatory significance with a fuller than usual acknowledgement of (a) the realm of ‘meaning’, (b) the roles of interest groups, and (c) the impacts of history; that just as economic action is embedded in institutions, they are in turn embedded in meaning or rationale, these latter being essentially cultural, and so societal. The third proposition is that the pursuit of understanding, via thick description, is a necessary counter-weight to the pursuit of proof via positivism, the latter being too often de-contextualised. Fourth, it will be contended that such complex description need not be teleological, and can contain accessible patterns of determinacy and predictive power. Last, and in qualification of the previous point, an entirely determinist argument is inappropriate, and needs to be balanced by the inclusion of human and organisational agency. The complexity of explanation that flows from these requirements is obvious, and becomes the core challenge.

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Theorising about context in international business research Work by scholars dealing with international business to grapple with the complexity of the socioeconomic world tends to pursue either of two related aims. One is more normative and is a search for what Hall and Soskice (2001) term ‘comparative institutional advantage’, or what Porter (2000) calls ‘productive economic culture’. The other is more descriptive and settles for what Sorge (1996) sees as stable clusters of causation in specific historical settings, or what Fligstein (2001) sees as distinct societal market orders. Cutting across and through all these clusters of research are two massive background questions, each unresolved. The first is the explanation of economic growth historically, a review of which by McCraw (1997: 539) concluded that understanding remained impoverished, and that economic scholars could not handle the necessary interactive effects, could not figure out how to incorporate institutional and political factors, and could not explain productivity increases other than by adducing inputs of capital and labour. Illustrative of this is Landes’ acknowledgement, in his attempt at the same issue, that ‘If we learn anything from the history of economic development, it is that culture makes all the difference’ (Landes, 1998: 516), but without systematically addressing how. The second massive question is convergence or otherwise, with most economists bound instinctively to universalism and so almost inevitably for convergence, and sociologists equally almost inevitably against it. Debates are frequently characterised by selective evidence and partial arguments on both sides. Calm deliberation, as for instance in Dore (1996), draws no clear conclusion. The economics approach The theory of the firm in neoclassical economics, with its assumptions of the firm as a production function, in conditions of perfect information and competition, went through a stage 1 form of refinement through transaction cost analysis, agency theory, and behavioural theory. It then went through a stage 2 form of refinement as it attempted to incorporate the effects on firms of surrounding institutions and later of surrounding networks. The accretion of relevant factors such as embedded competencies, institutions, politics, and networks has led to a growing acknowledgement that efficiency is socially constructed. The context included in such formulations, however, tends to

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be restricted to the immediate or proximate features, whose connection with organisations is fairly direct, as in networks, competition, and sourcing. Despite this accumulating complexity, there is nevertheless unease among critics about the essential universalism of the economics approach, about the classic functionalist assumption that institutions arise that are best suited, and about the use of undersocialised methodological individualism in so many accounts (Granovetter, 1988). It is held to have failed to specify systematically the ways in which competitive pressures select particular ways of organising economic activities in different circumstances (Whitley, 1999a, b). It gives inadequate attention, in the view of Carney and Gedajlovic (2001), to varying goals in dominant coalitions, varying risk preferences, varying availability and channelling of finance, and surrounding relations with stakeholders. The most complete recent attempt to explain societal variation in industrial success, from the standpoint of economics, is that of Porter (1990), who condenses the explanation to the four points of his diamond. In this, although the analysis of company capabilities on his vertical axis reflects decades of work in the economics of industrial organisation, the roots of the factor and demand conditions on the horizontal axis are relatively weakly dealt with (Fitzgerald, 1994; Redding, 1994b). Nor, in isolating clusters, do the relevant factors incorporate features of the insides of firms, these being treated as black boxes (Foss, 1996). It is further argued that the framework is most appropriate for the advanced industrial world, and does not travel well to the developing world, thus being unintendedly ethnocentric (Yetton, 1992). Porter (2000) has acknowledged the significance of social features, especially culture, but he does so from a declared position that he is updating the economics of Ricardo by the addition of technology, factor quality, and methods of competing (Porter, 1990: 173). His position is that an economic culture is shaped by an economy, except for beliefs, attitudes, and values derived from purely social or moral choices. He sees the two sources as being difficult to disentangle. The agenda for him, however, is to modify economic culture in order to enhance national competitiveness, such modification being ‘one of the greatest challenges’ (Porter, 2000: 22). This is to ensure that hard work, initiative, education, and saving are encouraged in line with a newly emerging international

economic culture. At the same time, in an acknowledged paradox, the preservation of local sources of competitive advantage, such as special supplier or customer relationships, is becoming increasingly important and decisive in a globalising world. Both for established and new industries The world’s leading competitors in a wide variety of industries are all based in one or two countries, especially if industries are defined narrowly in ways that are meaningful for setting strategy, and cases where government heavily distorts competition are eliminatedy Within companies, global firms have indeed dispersed activities to many countries, but they concentrate a critical mass of their most important activities for competing in each business, in one location. (Porter and Wayland, 1995: 64)

If, as he notes, ‘the home base for a particular business is where comparative advantage ultimately resides’ (ibid: 64), then global strategies become ways of leveraging it. I would argue that they might also include protecting, fostering, and understanding it, and that is the central justification for this paper. I would argue further that advocacy of a newly emerging international economic culture needs to acknowledge its inevitable nature as an overlay, on top of, and interacting with, continuing local realms of meaning. Overall, the field of economics continues to struggle with reaching its Mecca. As Marshall noted in 1920, this lies in economic biology rather than economic mechanics, ‘but biological conceptions are more complex than those of mechanics’ (cited in Friedman, 1953). With which advice, I shall now turn to attempts by economists and sociologists to behave other than with their ‘casual mutual disregard’, and to see how the sociologically inclined may overcome their ‘visceral distaste’ for the neoclassical model (Zukin and DiMaggio, 1990: viii, 2)

The socio-economic approach As Piore (2002), writing as an economist, has observed, in addressing the problem of reconciliation between social science disciplines, sociology has the potential to fill in certain important gaps in the accounts given by economics. These gaps are firstly the understanding of the institutional supports of a market, and secondly an appreciation of the limits of rational choice analysis. Sociology works by arguing for the existence of different social realms, each with its own social logics, and the boundaries of which require defining via a process of interpretation. These realms provide different contexts for action, and examples of such

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analysis would be the ‘social systems of production’ described by Hollingsworth and Boyer (1997) or the different ‘architectures of markets’ described by Fligstein (2001). As part of the necessary interpretation, purposive action comes to be seen as a combination of (a) rational choice plus (b) alternative logics of means and ends constructed socially, and therefore varying between realms. The most obvious realm is that of a society, usually overlapping with a state/language/culture, and the strength of this case comes from the number of determinants of the economic order that derive from state action, either directly via regulation or indirectly by the institutionalising of norms historically shaped within a society. Piore argues further that the notion of ‘identity’ is a way of assigning membership to such behavioural realms. In his view, the evolution of the frameworks of meaning that result from the constant process of sense-making is essentially social. It comes about via the direct interactions of people in a social setting, as for instance in a market. This is also a world of shifting and evolving meaning, similar in some ways to language itself. It is this process that creates the institutional constraints that become the market’s frameworks. In a review of ‘Theorizing about organization cross-nationally’ Child (2000) made a distinction between high- and low-context approaches. Highcontext approaches include cultural theory, cultural information theory, and institutional theory. Low-context examples are economic universalism, technology-based theory, and psychological universalism/methodological individualism. In an attempt to forge greater cooperation in theory-building, Child returned for guidance to the original insights of Weber, and especially to the accounts from which could be derived the components of organisational context. Pointing out that Weber avoided a wholly deterministic view of social development, and allowed for the role of social action (intentional action oriented towards others), this allows inclusion in the account of what I shall later in this paper term ‘rationale’, or the combination of (a) formal rationality carried in the material systems of economic and technical imperatives, and (b) substantive rationality carried in the ideational systems of culture, religion, and social norms. The advocacy of this variable as crucial is echoed in the work by Biggart and Delbridge (2004) on the contribution of rationality to the emergence of different systems of exchange, and by Redding (2002a, b) on the role of rationale within culture. It

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is also visible in the central importance attached by Fligstein (2001) to the ‘conception of control’ (the espoused purposes that legitimise power) held by key economic actors in shaping capitalisms. Weber’s understanding of the inter-dependence of the material and the ideational, and of their combined role in shaping the institutional fabric within a particular society, provides Child with a definition of organisational context. This is then the setting for strategic choice. The choices of strategy are conditioned by constraints and action options stemming from the institutional fabric, as when a firm complies with accounting regulations or employment norms. In reverse, firms influence the structure of the institutional fabric, as for instance when they combine to lobby regulators. This reciprocal interaction between economic actors and a very complex institutional context is one of the points of Granovetter’s (1985) reminder of the embeddedness of economic action. Demonstrations of its workings at the societal level are visible in accounts of business systems, for instance those of Whitley (1992, 1999a, b), Hall and Soskice (2001), and Hollingsworth and Boyer (1997). In work such as this, context is the central theme. Following Mohr (1982), Child also noted the broad distinction, in this field, between variance and process research designs. The former deal with the discovery and prediction of variance in phenomena of interest. The latter deal with the discovery of the configurations and processes that underlie patterns of association or change. Research of the variance type dominates the field, and, as many reviewers have concluded, produces results that accumulate in a morass of trivia, trapped, in the words of Boyacigiller and Adler (1991), within geographical, cultural, temporal, and conceptual parochialism. Child cautions against the narrowness of investigation in variance research, and argues for more comprehensive analyses of organisational reality. So too does he argue that context needs to be seen not as a set of theoretically mysterious residuals, or inconvenient ‘noise’, but as the basis for more complex multivariate theorising, taking account of evolutionary change. His final main point is a plea for greater conceptual consistency, and operational equivalence, as a step towards research integration across sites and disciplines. Other reviews, such as that of Redding (1994a) on comparative management, and White (2002) on Asia-focused research, have confirmed similar points and have noted the ‘going-round-in-circles’ nature of much research,

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and the need to break away from the reductionism and functionalism that characterises so much of the field. The continuing salience of Weber’s ideas is evident in repeated returns to them. New formulations of his explanations of societal economic action pay tribute to the sophistication and rigour of his theorising (e.g. Cohen, 1981; Schluchter, 1981, 1989; Swedberg, 1998, 1999; Schroeder, 1992). Doubtless, a major contributor to this continuing return is Weber’s capacity to engage with both the cultural and the economic character of Western civilisation, and to drive towards an analytical socio-economic synthesis. This is based on an acceptance that no single feature can have a dominant causal influence on economic development. Whereas specifically economic motives condition and transform the way cultural preferences are both shaped and satisfied, at the same time all the workings of a historically given culture, in reverse, affect the formation of material wants, the way they are satisfied, and the way interest groups and power structures play a part. Key among these cultural influences is the invisible substratum of the ideational component. As seen by Cohen (1981: xxv), in reviewing his work, The most general characterisation of Weber’s comprehensive thematic interest involves the historically unprecedented penetration into the context of all institutional orders and cultural ways of life in modern Western civilization of a peculiar type of rationality.

Weber (1930: 26) was clear that the rationalism of Western culture was ‘specific and peculiar’, and he allocated much effort to the understanding of the religious bases of alternatives, as well as to the unpacking of the main concept (for discussion, see Kalberg, 1980; Schluchter, 1981; Swedberg, 1999; Redding, 2002a, b). This issue of comparative rationale will be returned to shortly in considering research challenges. In more recent socio-economics, the idea of path dependence describes the reinforcing of a direction of movement by network externalities, the way organisations learn, and by historically derived subjective modelling of the issues affecting choices of action (North, 1990: 99). These are all consistent with the general agenda of this paper. Another approach, that of neo-institutionalism, shares some of these aims. It rejects rational-actor models, and takes an interest in institutions as independent variables. It also turns towards cognitive and cultural explanations, and the sharing of meaning

as a basis for action. Unlike economics, and political science, ‘which tend to focus exclusively on economic or political rules of the game, sociologists find institutions everywhere’ (DiMaggio and Powell, 1991: 9). The central role of institutions in the model to be proposed pays tribute to this viewpoint. Co-evolution theory (Lewin and Volberda, 1999; Volberda and Lewin, 2003) is a programme to conduct the kind of multilevel analysis advocated by Child and others, in essence by re-integrating organisation theory and strategy research. It also echoes the ‘structuration’ theory of society proposed by Giddens (1984), in which the shaping of societal order feeds back into its determinants. It sees organisations as resulting from ‘a co-evolutionary interaction between the construction of environmental niches, organizational form, and its context, under the auspices of generic strategy’ (Sorge and Brassig, 2003: 1263). The work that results goes beyond longitudinal studies of adaptation, by incorporating (a) historical context, (b) change within institutions, industries, and firms, and (c) surrounding economic, social, and political macro-variables. It also embraces path dependence and complex, reciprocal, possibly lagged determinacy. Its comprehensiveness leads to its accounts moving towards narratives, rather than specific tests of connection – in other words towards ‘understanding’ as opposed to ‘proof’. A rich set of studies has resulted from the coevolutionary approach (see for instance, Lewin and Koza, 2001). There is also a set of parallel and alternative approaches that place greater emphasis on the role of the firm per se in the totality. These tend to acknowledge context but to deal with it selectively. Starting with the transaction cost arguments of Coase (1937) and Williamson (1985), then the resource-based view of Penrose (1959), amended by Nelson (1994), these include the ideas of Teece on dynamic coherence (see for instance, Teece et al., 1997), the knowledge-based view of Kogut and Zander (1992), the extension of the units of analysis into alliances (Koza and Lewin, 1998), and the culture-bearing view of the firm proposed by Galunic and Weeks (2003). Moran and Ghoshal (1999) have also argued for the view of firms not just as containing resources and players but as being the most crucial places for the bringing together of what is needed for an economy to flourish. Firms, as they argue, are the economy’s ‘primary marshalling yards’. Perrow’s (2002) analysis of US industrial history makes the same point.

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So too is Whitley’s (1992, 1999a) position, in work on business systems, essentially a sociology of firm behaviour. In the approach to be outlined in this paper, there is much debt to co-evolutionary theory, and consequently there is overlap. So too, as in the other approaches above, the firm is taken as central to the account, although it will be dealt with as an ideal type. Three features are, however, proposed as additions to the above approaches: (1) an enforced coming to terms with ‘meaning’, via the specific addressing of the cultural dimension as causal, and particularly within that the issue of ‘rationale’; (2) the inclusion of interest groups as shapers of the institutional framework and the resulting organisational outcomes; and (3) a somewhat stronger than average acknowledgement of historical forces. This is not to say that such issues are absent from co-evolutionary theory. It is to say instead that, when they are treated, they are inadequately weighted, and often shied away from by analysts.

Research challenges The research challenges that may now be identified surround four questions: (1) What fundamental rules of method, based in epistemology, are appropriate for the treatment of causation or determinacy in accounts that deal with socio-economic action? (2) What is it in ‘context’ that has been inadequately addressed so far? (3) How may complexity be best handled in social science? (4) What are the most appropriate units of analysis for delivering understanding? Although all such questions have resonance for social science more broadly, and will be partly considered in the light of principles derived from that wider arena, attention in formulating responses will be mainly on the field of international business.

Research challenge number 1: epistemological questions In response to a critique of the business systems approach by the economist Mark Casson, Whitley (1999a) outlined some core principles of method and epistemology in the social sciences. These may

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be paraphrased as follows: (1) The concern of economists with the relative efficiency of markets and hierarchies leads to a search for permanent laws that govern economic behaviour. The pursuit of this aim requires the use of highly abstract and simplified representations of circumstances. Complex issues are reduced to mathematical formulae and sparse logics such as game theory. Causes have effects in a linear connection. This process works on the assumption that human behaviour is atomistic and discrete and can be analysed in a ‘functionalist’ way, that is, assuming a common pursuit of efficiency. These assumptions are deeply suspect. (2) Three important features of the social world are difficult (or impossible) to fit into such an approach: (a) There are multiple and complex connections and constant flows of reciprocal influence between social phenomena. (b) The phenomena themselves change over time. (c) Social systems are open to new external influences that affect them as they evolve. So, because the social world is in constant flux, attempts to understand it based on Newtonian physics, where units of analysis are fixed and relations between them permanent, are misapplied. (3) The social sciences (including, in principle, economics) are second-order fields, in that they can only study phenomena through the medium of people’s conceptions of what is going on. There is no external reality to study independently of people’s construction of it. So there is nothing on which to base standardised true information as a basis for rational action, the latter being always contestable and changeable. (4) Four other important features of the social world are usually excluded from the accounts of it given by economists: (a) There is competition over meaning, which makes a value-neutral definition of events impossible, for example, what is a damaging and irresponsible strike to one person is a desperate search for justice by another. (b) Common constructions of reality depend heavily on institutions such as language, and this will affect the meaning of rationality, for which there can be no universal calculus.

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(c)

(d)

Economic behaviour and progress is pathdependent, in that it is shaped by the conditions in which it takes place and its prior trajectory. Market power and national dominance, including state influence, come into play in a contest between business systems, or industrial orders, over the question of how efficiency is to be understood. Key standards and criteria are thus not absolute.

This retort, in defence of the sociological position, represents a large body of similar warnings, and remains the debating ground between the two great social science camps, except that the debate is rarely engaged. As noted earlier, the disciplines run somewhat disdainfully in parallel. The discomfort implied in the debate over positivism and methodological individualism seems, for many, too much to bear, so the game proceeds, each side playing by different rules. And reviewers say, looking over decades, and especially of international business theory: we are running in place; there is theoretical anaemia, parochialism, narrowness, no policy engagement. And above all, there is scanty attention to context.

Research challenge number 2: context inadequately addressed In particular, three aspects of context have been inadequately addressed: the realm of ‘meaning’; the roles of interest groups; and the influence of historical forces. This is not to say that they are not addressed at all. It is instead to contend that they are not normally included in the main body of accounts, or are treated as marginal to the main explanation. When they are treated, often the special nature of studies leaves them without the necessary bridges into the core theory, leaving the latter impoverished. I shall briefly consider each ‘missing’ piece. The problem of meaning Berger and Luckmann’s (1966) classic definition of culture as the ‘social construction of reality’ has remained a respected guide to the origins of differences in ‘reality’. What things mean to people varies by society, and that includes things as apparently universal as ‘the firm’. Speaking in general terms of firms that are representative of their societies, for one culture, such as the American, the ‘meaning’ of the typical firm is that it is a rationally constructed

instrument for the delivery of shareholder value, for Germans it is a means of delivering communal obligations, for Japanese it exists to employ people, for Koreans to implement national economic policy, and for many Chinese as a family writ large and serving an owning family (Redding and Witt, 2004). These different meanings affect policy and action. The question of meaning affects the entire substratum underlying normally accessible social and economic ‘facts’, and in the context of business it especially causes varying interpretation and behaviour in the allocation of authority, in the defining of identity and belonging, in the forming of trust, and in the formation of institutions such as those for accounting, labour, and exchange. The influential work of Clifford Geertz on the workings of culture has been based on the position he shares with Weber that man is an animal suspended in ‘webs of significance’ he has spun. Culture is those webs, and the analysis of it is not an experimental science in search of law but an interpretive one in search of meaning (Geertz, 1973: 5). The second-order nature of the social sciences is nowhere more forcefully stated: the object of study, when the motivation for people’s behaviour is the core issue of interest, is the meaning attributed by people to the influences they are subjected to. This can only be seen and understood in their terms, if a realistic comprehension of what is going on is to be achieved. Is the firing of 5000 employees widely interpreted as an act of accepted rationality, or as a betrayal of social responsibilities? Did Daimler and Chrysler executives share the same meanings for the phenomena they discussed? Recent attention to the role of ‘collective sense-making’ in strategy (Stopford and Baden-Fuller, 2003) and to the ‘moral ecology’ of capitalism (Dunning, 2003) are acknowledgements of the same idea. It is, in Geertz’s view, necessary to see culture as a system of construable signs or symbols, interwoven with the world of action, not directly ‘causing’ the formation of institutions, behaviours, or processes, but acting as a context (and here we are back to the beginning of the paper), within which such institutions can be intelligibly – in other words thickly – described. This is similar to the position of Giddens (1984) that culture is shaping action at the same time as action is shaping culture, with the two coevolving. So there has to be enough context included to cover the main determinants of people’s viewpoints. Selecting just the supposedly dominant influences is an error. Life is not that simple.

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The outcome is a way of access to the conceptual world in which our subjects live, and a minimum of self-reflection will convince most people that influences are multifold. Such penetration of unfamiliar universes of course presents a problem, namely the tension between (a) the need to grasp and (b) the need to analyse and move theory forward. My position is that understanding connections between events, even though not always subject to explicit ‘scientific’ analysis, is nevertheless at the heart of the human studies. It is a necessary complement to the disaggregation that comes with analysis. Interpretive approaches tend to resist conceptual articulation, and in turn systematic assessment. Too often the interpretation is presented as self-validating. But in Geertz’s view ‘ythis will not do. There is no reason why the conceptual structure of a cultural interpretation should be any less formulable, and thus less susceptible to explicit canons of appraisal, than that of, say, a biological observation or a physical experiment’ (Geertz, 1973: 24). It is simply that the achieving of this aim is more difficult, and the reasons are: the account needs to stay closely grounded and so it inhibits abstraction; it builds on prior accounts, seeking new insights, more incisiveness; it moves forward in spurts, with other accounts running in parallel; its genre is the essay; it generalises within cases, rather than across them, so it does not codify abstract regularities; as with the diagnosis of symptoms in medical science, the process is one of taking signifiers and placing them within an intelligible frame; it is not predictive in the strict meaning of the term, being instead explanatory of the current condition, but at the same time its explanation should survive realities to come, yielding defensible interpretations of new social phenomena. One starts such thick description with a puzzle to unravel, but one does not start without guidelines. The end sought is a reading of the conceptual structures guiding the acts of our subjects, and the role of theory is to provide a vocabulary in which those structures can be related for comparison. Two features of such explanation provide structure to it. The first is that there are patterns within culture, what Geertz sees as ordered clusters of significant symbols. This is how sense is made of events. To study the totality of such patterns is to study ‘the machinery individuals and groups of individuals employ to orient themselves in a world otherwise opaque’ (Geertz, 1973: 363). This complex task is made more manageable by the fact that

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certain sorts of patterns recur from society to society, making it possible to study comparatively ways, for example, of pair-bonding, inheritance, assigning authority, ownership, exchange, etc. The second feature is that the patterns are often connected. There are ‘complementarities’ that provide some overarching integration. We do not observe perfectly coordinated total systems, but instead we observe systems that work well enough to hold in check the inherent tensions and internal discrepancies within any society. In most societies, certain of the connected patterns come to be well enough integrated, and to be sufficiently central to the social structure, as to take on stronger than average influence, obvious cases in point being religion, marriage traditions, or work norms. These can then form the first outlines of the mental landscape for most people, and the bases for further exploration.

The role of interest groups In a critique of the literature on East Asian ‘miracle’ economies, Wilkinson (1996) called for the inclusion of ‘interests, power and ideology’ as factors in the design and maintenance of business structures, arguing that over-reliance on such causal features as culture or institutions can lead to a determinist form of account, in which human agency is neglected. One might argue with him that power and ideology are essentially cultural features, but his advocacy of the inclusion of interests is important. It is certainly appealing intuitively to ensure for instance that a discussion of the chaebol takes full account of the motives of the dominant family groups. So too should a discussion of the rise of shareholder capitalism in the US take account of the ideological nature of the way returns to risk are dispersed, and of the related rise of a powerful new class of analysts as described by Fligstein (2001: Chapter 7). Mannheim’s (1936) definition of ideology as a justification for the holding of power is also salutary in this regard. Interest groups are organised collective actors, such as unions, professions, or owners, which represent particular societal positions and then compete to obtain a share of resources or other benefits. The structure and significance of such groups vary greatly between societies, and so too does their impact. Unions, for instance, have great impact on German industry, but little on US industry now. For shareholders, it is the other way round. Whitley (1999a, Chapter 4) has provided a cogent account of the way in which interest groups

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are part of the tems, citing a set such a source in any account complete.

social structuring of work sysof detailed studies. It is clear that of influence justifies a place that purports to be reasonably

Historic influences History is not a predictive science, and should not be treated as if it could contribute clear patterns of determinacy. It is, however, a very important conditioning feature in the background context, and without it accounts of current economic systems are likely to be incomplete. It is especially valuable in providing some sense of the trajectory of development along which an economic system may be seen as evolving, and it brings to any account two particular kinds of influence. First, there are the specific historical events, institutions or people, capable of changing a society, such as the American Revolution, or the Napoleonic Code, Karl Marx, or Margaret Thatcher. Second, there are conditions that, in a historical period, shaped an economy. An example here is the size of the resources made available for exploitation in the 19th century westward expansion of the United States, and the impact that had on the scale of much US industry. A number of exemplary studies of the impact of historical forces, such as Hamilton’s (1994) account of the role of ‘civilisation’, Eisenstadt’s (1996) account of ‘Japanese civilisation’, or Jacobs’s (1985) account of Korean patrimonialism, in addition to the special field of economic history itself, provide evidence that there is much to be learned from the inclusion of such aspects. The rarity of such description in the analysis of international business is worthy of note, as its explanatory contribution is commonly too significant to remain untreated. Research challenge number 3: describing complexity Ragin (1987), in an influential book on the comparative method, attempted to move the debate beyond the contest between the quantitative and the qualitative, and towards a synthesis that paid tribute to the evidence-based rigour of the former and the interpretive power of the latter. His conception is that proper comparison is between ‘wholes’, within each of which complex interactions are occurring and can be described. Parts of wholes should not be taken out of context. His view of the qualitative approach is to acknowledge in

particular its capacity to deal with complexity. In doing so, it also has the capacity of being interpretive and historical. It also incorporates special metatheoretical means of studying aggregate units such as nation-states, developing a form of large case method. By combining both holism and analysis, the latter becomes contextualised and permits ‘modest generalisation’. Ragin’s method relies on the Boolean algebra of logics and sets, using binary data and truth tables to construct patterns of co-variance between elements of the complexity under study. With this, it becomes possible to retain some of the strict comparative logic of experimental design, while accepting causal complexity and different combinations of conditions. It also fosters the generation of alternative explanations for testing, and so prevents the ‘stacking of the deck’ that can downgrade the value of some ethnographic studies.

Research challenge number 4: units of analysis It is unnecessary to force a choice between analysing a state, a ‘society’ that may be across nationstates or within one, an industrial district, or even an industrial sector. All are valid contexts against which to try to understand the prevalence of certain types of organisation, and the possibility of certain competitive advantages. There are grounds for much cross-fertilisation among the approaches. Depending on the research question, it is clearly sensible to define context so as to highlight certain of its features. Thus an analysis of the regional ethnic Chinese in Pacific Asia would benefit more from an understanding of Chinese norms than of local national conditions, although both have something to contribute. So too the study of Emiglia Romana would benefit from understanding differences between the north and south of Italy in surrounding fabric, and so justify a regional perspective. The reason why the nation-state often emerges as the most compelling among the various surrounding envelopes is that so much of the institutional fabric is set within its boundaries. Not always, but often, this begins with language. Cultural norms are also often, but not always, refined out within a state. Government policies also may shape much economic action, as via legal regulation, taxation, and development policies. There are some states, being in which brings much influence from the clarity and strength of the processes of social ordering that surround people. Examples here would be Japan or France. In others, there is less

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clarity, as under changing conditions (e.g. China), the inclusion of much variety (e.g. Brazil), or the breakdown of the established fabric (e.g. Russia). The criticism of being teleological is sometimes levelled at accounts that begin with a puzzle to unravel, such as ‘Why is the Japanese financial system as it is?’, and appear to explain it as an adaptation serving a future condition, for example, that the system as it has evolved will be desirable from the standpoint of the given society. This form of explanation is not advocated here. Instead, following the advice of Gellner (1970: 118), All that is required is that each ‘functional’ explanation be as it were read backwards. The ‘explanation’ of institution X is not really the proper, causal explanation of it, but of the manner in which it contributes to the society as a whole. The ‘real’ explanation of X is provided when the functional accounts (Sic) of the other institutions is given – of all of them, or of a relevant subset of those of them which contribute towards the maintenance of X – which jointly make up a ‘real’ causal explanation of X itself (just as the ‘functional’ account of X figures in their causal explanation)y good, proper explanations can only be had when a whole society is seen as a unityy partial studies of institutions in isolation are incomplete, and only a step towards proper understanding.

The idea of systems of capitalism The notion that it is possible to study societal systems of capitalism unites three traditions of enquiry: (1) the Weberian view that only a combination of the ideational (psycho-sociological) and the material (economic and technological) will explain societal variations in economic behaviour; (2) the view of the embeddedness of economic action proposed by Granovetter (1985) and the proliferation of institutional theory that has followed; and (3) the conception of business systems as societally distinct modes of coordinating economic action, as argued by Whitley (1992, 1999a, b), Albert (1993), Dore (2000), Hall and Soskice (2001), and others. The basic proposition uniting these approaches is that the structures used to stabilise coordination and control among parties involved in economic exchange – examples being firms, or markets, or ways of employing people, or established channels for the sourcing of capital – emerge as distinct responses to societal conditioning. This latter is analysed as a surrounding context of institutions,

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the contribution of which is to provide the order and predictability needed for exchange to proceed in stable conditions. This fabric may well reflect long historical evolutionary trajectories. Thus the current South Korean system might be argued to be a product of societal development policies instituted in the years from 1961 to the present, but it could not have taken its present shape without the many centuries of prior socialisation into the acceptance of a patrimonial kind of power structure, a particular pattern for the expressing of identity, and a particular sense of nation. The institutions are of two kinds. Formal ones are more or less visible and tangible, such as legal systems. Informal ones exist at the deeper level of culture, and they shape the formal. No society is free from outside influences, and no economic system can escape from the core logics of such universals as price or technology, so external influences, both material and ideational, are included in the account. The essential argument is that economic logic on its own has a place, but is inadequate for carrying a full understanding. At the same time, following the observation of Granovetter (1985), it is taken to be as dangerous to present an over-socialised account of economic exchange as it is to present an under-socialised account. The aim here is to supplement, and hopefully amend, the clear partiality and epistemological weakness of economics, not to do away with it. As far as the boundaries of context, or the ‘realms’, are concerned, the aim is simply stated: to include determinants as completely as can reasonably be achieved within an accessible explanation, and to choose realms containing prime determinants. In many cases, the most appropriate boundary is the nation-state, but, as already noted, that does not preclude the drawing of other boundaries. Causation is not seen here as linear. Instead, patterns of determinacy are sought that display complexity. This comes from three considerations. First, there are likely to be multiple determinants of most phenomena of interest. Second, the determinacies are likely to be reciprocal, to be clustered in ‘complementarities’, as the total system evolves by the interactions between its parts. Third, the relations between sources of influence are likely to change through time, as external influences amend the balance of forces, and as the system’s evolution causes internal shifts. It is also an inevitable consequence of what was argued earlier that the objects of study should be seen, as far as possible,

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via the categories, and the perceived significance of them held by local participants. As an example of this last point, the ‘firm without boundaries’, now common in China, has been described by Meyer and Lu (2005) and noted for its difference from forms customary in the West.

A proposed model What is proposed here is an amended version of Whitley (1992, 1999b) theory of business systems. The amendments do not affect its core structure (although they use some different terms), but they introduce a more explicit addressing of the cultural component, and include in doing so a means of dealing with the challenge posed by Weber of alternative societal systems of rationality. There is in addition an intention to address the normative question of competitive advantage as outcome. The model is outlined in Figure 1, and a further version of it, containing more specifics about the

Figure 1

contents of each component in terms of outline research questions, is given in Figure 2. The theory is built in three layers with the intention of capturing historical trajectories. Put simply, the Culture underlies the Institutions, and the Institutions underlie the Business System. An important assumption is that it captures the essence of systems that are evolving more or less spontaneously, and so it is a snapshot in time. Also, the normal internal dynamics that it depicts would be inhibited by the constraints of heavy state planning, or of ideologies such as communism or Castroism, which are specifically designed to deny free and spontaneous adjustment such as capitalisttype entrepreneurship, although such constrained systems might still be presented using it. It is important to note also that most societies do not contain a single business system in terms of the standardising of their organisational options into one format. Not all Japanese business is via keiretsu,

The nature of the business system: a development from Whitley.

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Figure 2

Constructing the analysis of a business system.

Korean via chaebol, or American via large professionally managed conglomerates. It is, however, possible to make progress towards understanding

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by assuming that an economy normally presents three or four main types of enterprise, of which one is likely to be both dominant and arguably

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representative of the society’s socio-economic evolution. The arguments to be presented in this paper assume that an analysis is being done of the most representative form (or forms) exhibited in a societal system, and the most significant contributor to the economy, and that its study will reveal the embedded nature of such a form. Parallel analyses of the other forms in that society would reveal the even more complex totality, but could be expected to share many of the patterns of determinacy. At the top is the business system, the realm of day-to-day action, conceived by Whitley as the means of analysing the core domains of business structures and processes as they reflect the coordination and control of economic exchange. The concept of coordination is crucial here, as it is also at a different level of analysis in Mintzberg’s (1979) typology of organisations. It refers to the patterns of connection, of bringing things together, which have become stable and comprehensible. Specifically (and with some variation in labels from the original), these are as follows: Ownership: This is the structure that first places a boundary around what is to be coordinated, in terms of being gathered together under identifiable and controlling ownership. It includes the implications that flow from governance structures, how that coordination is to be done. Networks: The second domain is that of the links across the economy, whereby firms connect (or do not) among themselves, in this case using mechanisms other than ownership. These can include stable subcontracting or sourcing relationships, agreements to cooperate on market behaviour, informal and formal alliances of many kinds, and societally specific organisations set up to bring parties together in cooperation, such as the Japanese keidanren. Management: This third form of coordination occurs within the organisations, and it represents the work of managers in bringing together into cooperative relations the necessary human, technical, and financial components of economic action. It occurs below the level of ownership, but in close interaction with it. Within it are captured features such as the style of interaction with the labour market, the organisational structure responses to stabilising complex interactions, the ways of handling information flow, decision-making, and motivation. The three features flow together in practice. The nature of ownership clearly influences the nature of

management, and of networks, and the combination evolves as a total. But the shaping of its present form as a business system is heavily influenced by the context in which it is embedded. This is the second layer, and further down the third, representing as they do the institutional fabric of the society. Whitley’s (1992) earlier treatment of institutions categorised them as proximate and background, the former being the more immediately influential, such as the structures of the labour and capital markets and legal systems, and the latter lying in the background, such as norms for authority and trust. In the model presented here, this same distinction is maintained, but with the added characterisation of the proximate being also seen as formal (i.e. visible as codifiable patterns of behaviour). This is the realm of established order. The background institutions are seen as informal (i.e. existing as largely uncodified systems of meaning requiring interpretation). This separating of institutions into two broad categories accords with similar distinctions common in the literature, as for instance in Berger and Luckmann (1966). In the model proposed, the middle layer represents the formal (and proximate) category of Institutions. The informal (and background) are treated as in some sense prior, and categorised as the base layer under the general title Culture. This base layer is the realm of meaning. Thus the realm of meaning underlies the realm of established order, which in turn underlies the business system. It is not intended that any of these categories should be treated as absolutely hard and fast; instead they are analytical conveniences allowing for exceptions. Some of the formal may slip into the informal. Some background forces may become proximate, and vice versa. The institutions that act as the most immediate context of the business system are those that heavily influence the key resources upon which business is dependent. The interest groups contained within them, such as bankers, shareholders, unions, etc., shape the way in which, and the conditions on which, such resources are accessed by the actors in the business system. Because of their nature as resources to be drawn from, they are interpreted here as various forms of capital. The first of these resources is capital itself, the second human capital, and the third social capital. (1) Capital: Access to capital varies from society to society, both in terms of the channels through which money flows, and the conditions that

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(2)

(3)

(4)

(5)

(6)

affect its accessibility – from societies where it is widely and easily available through well-organised institutions, such as banks, venture capital firms, and for anyone with a good case to make out, to societies where transactions are done mainly in gold sticks at the jewellers. With all the combinations in between, the institutions of capital are highly variable. They are seen here in terms of typical sources of funding, conditions of access to capital, how use is monitored, what key actors emerge, and what key tensions typify the system. Human capital: This category represents the second crucial resource, the skills and talents of people in the society, how such talent is fostered and grown, and how it comes to be channelled for use in the business system. This latter question brings into account the social groupings that occur, and also the core institutions of the labour market such as regulation, welfare, and bargaining. Social capital: The important role of trust in setting the patterns of economic exchange that stabilise within a society is analysed here in terms of its two main manifestations. Institutionalised trust is a matter of structures such as law and the established social fabric. Interpersonal trust takes on shapes and processes that reflect moral norms and other social values. The role of the state/civil society: Three aspects of the way in which the state influences the shape of the business system are: (a) the extent to which the government dominates in shaping the economy’s character; (b) the extent to which the state welcomes, or is antagonistic to, intermediaries such as strong professions, independent banks, an influential bourgeoisie; and (c) the degree of formal regulation of markets. Civil society, when developed, often serves to supplement (or replace) the forms of order orchestrated by the state. Rationale: Within the realm of meaning, or culture, the first issue is that which represents a society’s commonly accepted reasons for doing things, and in particular its understanding of what a firm is for, and why economic action is pursued. Flowing from this is a set of accepted means for achieving the ends adopted (see Redding, 2002a). Identity: Two major platforms exist for establishing order, and this one deals with the ideals underlying horizontal order. People find places

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in society that connect them to surrounding groups in ways that are societally distinct. Identity with a group usually carries with it implications about allegiance, dependence, conformity, all of which provide forms of stable order that are carried forward into social and economic structures. (7) Authority: This is the basis for vertical order, and it takes account of how power is morally legitimised, defined, and exercised. It is how bosses justify their power in the economy, but it also takes account of deeper traditions such as paternalism or meritocracy. An important, varying, aspect of it is the sensitivity exhibited in different societies towards such norms.

A graphic form of thick description To illustrate the nature of the thick description that the model allows, two societal systems are now presented graphically, a partial one of the US (Figures 3–5) and a partial one of France (Figure 6). These are not intended to provide a full treatment of the two systems. Complete explication of such patterns requires too much space to be fitted into this paper.1 Instead, they illustrate the workings of the thick description method, by tracing the workings of one feature, namely the institutions that affect the sourcing and allocating of capital. The treatment of the US is presented as three charts that could be overlapped (e.g. with viewfoils or computerised overlays) to create a complex total. The three separate views each focus on the influences flowing through the three main institutional features, namely Capital, Human Capital, and Social Capital (the latter two being here illustrated but not explicated). Even though only introductory in its treatment, this permits some sense of the web of connections within the system, and through time. For the case of France, the interest is more with the tracing of change, and for that, one aspect only is chosen to represent the wider process, and that is the working of the institutions of Capital. Connections with Human and Social Capital are nevertheless referred to, even though not focused on here. On a practical note, those who teach will realise that the restrictions of black and white journal printing can be surmounted by the use of colour, overlays, and magnification, in presenting such

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Figure 3

Capital in the US: institutions, their origins and their effects.

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Figure 4

Human Capital in the US: institutions, origins, and effects.

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Figure 5

Social Capital in the US: institutions, origins, and effects.

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Figure 6

The French business system.

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illustrations. The ‘whole’ nature of the object of study remains the real point. These are not models giving quick guides to summary concepts and their connections. Instead, these are fairly radical attempts to deal with what business practitioners deal with daily – the world with all its blooming buzzing confusion. They come with a warning: Only to be used for poring over; cannot be mastered in a few minutes. Understanding should seep in as a result of immersion. This is not conventional social science. If it is thick description, it should be no surprise that it is in fact thick. It is a conscious attempt to bring a new perspective to analysis. To observe that the diagrams are too complex is to miss the point. They are not intended to be read like conventional functionalist models. They are in the spirit of Marshall’s economic biology, and against the spirit of economic mechanics. They are also in the spirit of complexity theory, the object of study being a complex adaptive system, within which the free will of actors comes to be exercised, and in which there is an absence (or a low level) of design. The search for patterns brings into the account what are treated elsewhere as coevolutionary couplings and autocatalytic networks. It also includes an assumption, following Prigogine (1996), about progress through time, namely that states of non-equilibrium can be adapted to via coherent irreversible processes. This is seen as just as valid for the social sphere, as in the realm of nature. The patterns of connections are thus (a) partly the result of deliberate volition by actors, (b) partly the result of the logics of complementarity, (c) partly the result of deep and old societal preferences, and (d) shaped by path dependence as processes move forward. It is not possible here, given space constraints, for these depictions to be examined in detail. Suffice it to say in that regard that they are intended to meet the principles of method discussed earlier, and at the same time move towards some assumptions in complexity theory. As a means of description, I shall follow the traces of four or five representative and distinctive features of each business system, laying out the connections that help to understand each of them. Following this, I shall move to a more general discussion of trajectories to illustrate linkages between society and society’s selection of industrial specialisation. The arguments behind the many propositions in the text are drawn from an emerging literature that (rather than breaking the

narrative with constant citations) is grouped here. In addition to very specific country-based work, the main sources are as follows: Lazonick (1991), Whitley (1992, 1999b, 2002), Albert (1993), Fukao (1995), Moerland (1995), Berger and Dore (1996), Crouch and Streeck (1997), Hollingsworth and Boyer (1997), McCraw (1997), Orru et al. (1997), La Porta et al. (1998), Kristensen (1999), Dore (2000), Quack et al. (2000), DiMaggio (2001), Fligstein (2001), Hall and Soskice (2001), and Sachsenmaier et al. (2002).

The business system of the US This is the ultimate example of capitalism responding to the free play of market forces, with government standing back from direct interference but instead using regulation to preserve conditions favoured by business owners. Strong ideals of individualism feed through into institutions preserving both freedom and accountability, backed by the political structures of democracy and decentralisation. Massive growth of assets in the 19th century fostered the early capacity for very heavy capital commitments, the struggle with organisational scale and scope, the early managerial revolution with its split of ownership from control, and the consequent wide spreading of ownership. The perpetuation of this trend, in stable conditions of growth, together with the scientification of finance, from 1970 onwards, led to the switch of power towards a new elite of analysts and financial intermediaries, acting on behalf of a widening constituency of the owning public, and pressurising the professional managerial group to put shareholders first. In consequence, the volatility of capital and the related high flexibility of a very responsive labour market – itself supported by a specific form of publicly available training and education – have made for a fast-moving economy built on a specific form of adaptiveness to technical change, and to the encouragement of a heavily socialised consumer hunger. Trajectory A: shareholder value The dominance of shareholder value as an ideology allows its proponents (directors, professional managers, analysts, financial service providers) to lay claim to rewards and influence, and so to perpetuate that ideology. The growth of the economy has legitimated this power shift within the society since the 1970s, and ensures that it dominates in much board decision-making, and public discussion of performance.

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These tendencies are supported within the institutional fabric by the growth of widespread, largely passive, share ownership via funds and pension plans, by a very active market in corporate control, and by a powerful driving rationality that very publicly calculates and reports on company performance. In this context, key actors become boards, fund managers, and analysts, and the pressure placed on professional managers gives the system its strong dynamic tension. The role of the government is traditionally hands-off, except for the setting of rules for the competitive game, and this leads to the raising of the competitiveness. Thinking about the design of such a society and economy can be traced to the birth of the state, and so to the Age of Reason, and the emergence of a form of democracy. Ideals about freedom and the acceptance of individual responsibility are also supportive. The Protestant ethic arguably played a key part also in setting the ideals into institutions. An important part of the rationale continues to be the drive to consume, acting as a stimulus to the pursuit of economic growth.

Trajectory B: professional management The growth of management as a profession in the United States, visible in the significance there of the MBA, and of management theory, would normally be examined as an aspect of Human Capital, but a number of complementary features can be identified within the institutional workings of Capital. Because share ownership is widespread, even though often clustered via fund managers, firms need to be managed by professionals as agents of owners, the managerial revolution having started early in the US (arguably a century before that of France, for instance). Shareholder value creation is then stimulated by a coldly rational concentration on performance, led by portfolio managers. Firm strategies are not constrained by adherence to a single sector. Strong competition policy is exercised by the separation of firms from each other into discrete compartments, designed to facilitate performance measurement, discipline, and reward. A related feature within processes of management is the strong control and decision power exercised by managers (compared with that in other capitalist systems). This system is supported by the very high significance of equity market funding (and the related strength and sophistication of venture capital funding), these in turn resting upon a base

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of publicly accessible reliable information of great density and reach. A connection exists here with the rich fabric of civil society institutions, and especially the professions such as accounting, which (as aspects of Social Capital) provide a high level of comfort that information is reliable, qualifications have meaning, and regulations will be adhered to. This contribution to the maintaining of order in society is a crucial component in the architecture of decentralisation and market freedom. The strength of identity with a profession, for many individuals, is a valuable counter-weight to the increasing weakness of identity with corporations, as the risks of being fired increase, such labour market mobility being a response to the strategic adaptiveness demanded under the drive for shareholder value.

Trajectory C: applying science The innovative strength of the US economy lies largely in its ability to bridge scientific inventiveness and commercial application. It is most clearly visible in Silicon Valley, Route 128, and the Raleigh–Durham triangle, but such inventiveness is not restricted to the hard sciences. It is equally visible in financial services and consultancy. This may be traced to a chain of supporting features. The highly developed venture capital system has grown alongside a system of education and of government support for scientific research, which together foster close links between science and its application. Scientific research per se rests on a strong ideological heritage. Reason, order, foresight are all cardinal virtues stemming from the Age of Reason, and they still legitimise the allocation of scientific resources that produces the world’s second highest innovation index score, and the fifth highest percentage of GDP spent on R&D. Incentives for risk-taking, and especially the accumulation of wealth (e.g. property rights, patents, IPOs), are also well provided in the institutional fabric. Trajectory D: competitive intensity An essential aspect of the US system of capitalism, and one that distinguishes it from many others, is the enforcing of competition between firms via the outlawing of alliances, cartels, monopolies, and other forms of collaborating against the market. The interlocking networks of Germany and Japan are absent here, and US firms operate in compartments separate from each other. They rarely collaborate in R&D, education, or shared investment. Contracts are normally arm’s length. They

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stand on their own feet, and are held to account by the public (via the analysts), not by their peer companies. They live and die by the discipline of the market. A complex cluster of features supports the implementation of this ideal of competitiveness. We see here the full flowering of the ‘specific and peculiar rationality’ of Western cultures identified by Weber. Respect for the scientific method, for calculation, for economic logic, for accounting are all manifest in the highly elaborated legal and financial frameworks. So too does the codification and diffusion of information reach unusually high levels, both of penetration and of reliability, allowing the market, in large measure, to run itself. Objectivity, neutrality, bureaucracy are natural corollaries. The government stands back from direct intervention and is strongly influenced by the corporate interest group in formulating and applying regulation. The legal and financial systems work in support of the overall ideal, and in doing so are biased towards the protection of owners. Within the culture, competitiveness as legitimate behaviour may be traced to ideals of freedom, material progress, and respect for winning. These also serve to strengthen the legitimacy of the private sphere in the economy and so to keep government influence under control (in strong contrast to many other systems in Europe and Asia). Supporting cultural ideals include individualism and self-responsibility, the generally lowcontext nature of society, and a strong belief that status should be based on measured achievement.

Trajectory E: organisation The institutions of Capital in the US make only a partial contribution to the nature of economic organisation. The institutions of Human and Social Capital need also to be factored in. But, staying with Capital, it is possible to discern connections between the priorities determined in the process of capital sourcing and allocation, and the way these come to be interpreted in the managing of organisations. Managers are under pressure to perform. This comes from the rationality and discipline applied in the pursuit of shareholder value, and the consequent response of allocating power to managers to enable the delivery of performance. The transparency and related detailed judgement of performance raise the significance of managerial action, and enhance its power and status, compared

for instance with that of labour. This enhancement is furthered by the tendency of firms not to build strong bonds of inter-dependence with labour (as e.g. occurs in Germany and Japan). Labour is dispensable in a mobile labour market, and strategic dependence on the accumulation of high levels of labour skill is not common. Instead, there is high task fragmentation and standardisation, leading to further reliance on managerial control. Rather than crucial knowledge being vested in a ‘permanently’ employed group of workers, it comes to reside within the managerial hierarchy. This concentration of decision power, combined with the all pervasive rationality, and the ideals of bureaucracy, and supplemented by the objectivity and professionalism of the hired manager (as opposed to the owner-manager), leads to high capacities for coordinating complex organisation. The efficient stitching together of elaborate firms, although unique to this system of capitalism, provides it with certain inbuilt competences relevant to firm growth. These competences remain grounded in the system itself, and are expressed in a distinct organisational style.

Implications The industries in which US capitalism excels fall into three categories. One is service industries using the skills of highly trained and mobile professionals, such as consultancy, banking and financial services, architecture, and engineering services. The second is service industries requiring large, complex, tightly coupled bureaucratic control systems, with top management imposition of rapid total organisation change and response to market. This is visible in fast food, entertainment, software, and telecoms. The third is science-based industries dependent on rapid innovation, improvement and change, as in biotech, IT, and pharmaceuticals. What US capitalism is not good at is industries where high levels of dependence on labour skills, or on close permanent customer links, are strategic necessities. In the former case, the need for constant improvement and technical upgrading in stable industries such as automobiles, consumer durables, and consumer electronics has not been met, and such industrial dominance as the US had in the 1960s has now been lost to Japan and Germany. With relatively complex products such as engineering systems, machine tools, and nuclear facilities, where after-sales service and customer cultivation is long term, the US has similarly lost out to systems with a quite different societal fabric.

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The business system of France This is a system in quite radical transition (Hancke, 2001). Having once been widely seen as the most state-dominated system in any OECD country, France has in the past decade decentralised and privatised much discretion over economic matters, and continues to move the making of business policy into the realm of big business. There is debate over whether this movement is a real transfer of influence, as the dominant elite of the enarques may be seen to be simply shifting power within their own still dominant structure, but there is nonetheless a distinct reducing of direct government control and responsibility, and a corresponding rise in the ability of big business to achieve its priorities. Two major historical transformations need to be noted as formative for the French system. The first ran between 1946 and 1980, and, led by the state, saw the transformation of France from an essentially agricultural society to a modern industrial power. Developing from this, a further transformation since 1980 has seen the dismantling of strong state dirigisme and its replacement by a system in which successful large firms are used as catalysts of social and economic change, while market forces are introduced to the mixture. The mixture itself, seen by the French as ‘Tocquevillian liberalism’, is constantly evolving, remains distinct, and is a long way from the Anglo-US form of free market capitalism. The state’s role in France has been so strong (and for so many centuries) that much of the institutional fabric retains that influence. The banking sector reflects decades of government support (including dramatic bail-outs), and so too does the industrial concentration. Labour market structures and institutions bear witness to earlier deeply embedded leftist and communitarian ideals. The peculiar power structures evident in organisational behaviour, with their class distinctions and top heavy hierarchies, reflect patterns of social stratification traceable to cultural beliefs in authority and high power distance. Weakness in vertical communications is reflected in constant activism and protest. Low societal trust reflects on the weak structures of civil society, and has a further connection with strong familism, itself visible in a powerful tradition of family control in a large SME sector. Strong identity with societal ideals, themselves elaborately codified and revered, accounts for many outcomes, including colonialism/internationalism, and a resistance to imported norms.

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Trajectory A: newly successful large firms The ownership of large firms in the French economy is not spread widely through the population as it is in the US. The stock market, although increasing in significance, has only half the value of its UK equivalent (for roughly the same population and GDP), and illustrates a quite different structure for the sourcing of capital, with much more reliance in France on banks and owner networks. Big business in France is owned, to a significant degree, via a complex web of cross-shareholdings. Within these holdings are blocs of investment by government, banks, and pension funds, as well as holdings by fellow industrial firms. The very large sector of small and medium enterprises complements this, and both sectors are characterised by a high level of family ownership. Related to this is the particular French mode of elite coordination of the state, business, and finance, by an intellectual meritocracy with high autonomy (to be discussed shortly). Three forces have combined to the advantage of big business in France in recent years. First, the state has seen the large firms as the leading instruments of a desired societal transition in which social, technological, and regional development policies could be implemented. This has included the gradual dismantling of union power. This role has given business people influence and negotiating power in matters of industrial development policy. Second, the switch towards a more market-driven discipline has provided the stimulus to change within firms, and has raised productivity to a point where the large firms are now profitable enough to tender for international capital on the Paris Bourse. Third, the protective system of cross-shareholdings has provided them with protection both from state intervention and from the rigours of the stock market’s rationality. The large blocs of stable shareholdings, with 40% of market capitalisation tied up in cross-holdings, have allowed capital to be treated as ‘patient’ and long-term views taken of firm development. This is nevertheless a system in transition, and subject to much external influence. Foreign investors now hold 35% of equity in the top 40 companies, compared with 10% in Germany, 11% in Japan, and 9% in the UK. EU legislation continues to pressurise France to be more market driven. Against these forces is the inertia derived from the continuing reliance on bank lending (42% compared with 23% in the US), and from an institutional fabric not designed for the free

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market, for example, limited disclosure, weak shareholder rights, weak market for corporate control, and relatively weak protection of creditors.

Trajectory B: strong top management The centralisation of power in France rests on centuries of tradition, during which Paris was always dominant, and the state was always looked to as the provider of welfare and order. Alternative sources of power have not become significant, and influential civil society bodies not dependent on the state have never flourished. Two outcomes of this hierarchical view of society are discernible in the economy: management itself is conducted hierarchically; and the highest levels of administration are entrusted to the elite group of graduates of the grandes ecoles, and particularly those from the Ecole national d’administration known as the enarques. Many societies have used intellectual elites as keystones at the top of the societal structure (traditional China, traditional and modern Japan, the UK, are examples). But few of these elites are as coordinated via circulation across the key sectors of business, government, and finance as is that of France. The roots of this are traceable to old beliefs about centralised order, and a strong sense of national consciousness. They are also traceable in cultural views of authority, which tend to emphasise authoritarianism, elitism, and social stratification. The well-known belief in egalitarianism, expressed so well in the minutiae of social conduct, is only part of a more complex duality in which French organisations display its opposite: a tendency to ‘presidentialism’; top heavy organisation structures; weak vertical communications; and limited worker autonomy. The end result of these forces is that there is a concentration of power at the top, both organisationally and societally. Much of this stems from the refining-out of the elite using tough criteria, and the legitimacy this provides. Much also stems, in the business sector, from the widespread retention of family ownership, and so of paternalism, as a legitimating force in many hierarchies. Trajectory C: systemic transition It was noted earlier that France has been going through a major transition affecting its business system, many of the elements of which are visible in the changes to how capital is sourced and allocated. One of the end results has been a transformation within organisations. In the 1980s,

French industry was typified by low-skilled, lowproductivity Taylorism, under-investment, and strong unions. The scene now is much more one of higher skills, high productivity, weak unions, and profitable market-sensitive strategies. In this transformation, a significant alliance was forged between business and government, and brokered by the elite, such that business began to take over some of the traditional government role in pushing through changes. The policy in education was not to replicate the German formula of deep technical skills provided largely by an alliance of state and industry, but to make widely available a high-quality general education, including technical skills, and to allow such skills to be coordinated within an industrial system with strong management and supervision. Changes such as these have reflected the increasing foreign influence in much ownership, and also the continuing dependence on the state for support in key domains such as training. The decline of union influence has assisted this transition.

Trajectory D: family business Strong family ties are part of the social fabric of France, and are perhaps reflective of a society that came relatively late to industrialisation. Collectivism is higher than in Anglo-Saxon countries, as is also power distance, and suggestions that France has low levels of societal trust are indicative of a society still closer in some ways to a gemeinschaft rather than a gesellschaft fabric. The retention of family ownership widely in the economy at all scales is clear, but its perpetuation into the modern period requires an understanding of the institutional features that have supported it. These would include the reliance on relatively patient bank lending, and its likely cultivation of long-term local ties, the weakness of disclosure, the tolerance of cross-shareholdings, and the low shareholder rights are likely also to have played a part in this. The absence of a strong market for corporate control is also significant. Implications The strategic outcomes for French industry derive from the distinct combination of heavy investment by the state in science and technology, and an instinct for centralised control that is also applicable in the organisational context. These two forces tend to dominate others that are nonetheless related to them. Deep technical skills are available, patient capital is conducive to large-scale

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capital commitment, and experimentation with technical innovation has been in many ways subsidised and encouraged. Hierarchical traditions, weakly developed professional independence from the state, and a non-fluid labour market have inhibited the flourishing of profession-based industry. What the capitalism of France is good at is a reflection of this context. In the first place are the industries linked to science-based technological change and programmes linked to government funding. These include pharmaceuticals, life sciences, nuclear energy, and aeronautics. An offshoot of this is the radical technical inventiveness visible in French trains and automobiles. A second category is that which sees the combination of rapid model change cycles to stay ahead of consumer market demand in industries benefiting from centralised and heavily invested product and brand development. Examples here are fashion clothing, cosmetics, beverages, and food. The third category is that where process technologies are tightly coupled, and so require strong central control and synchronisation, a possible reason for the French dominance of global budget hotel chains, water supply systems, and industrial catering.

Observations on the use of the model I turn now to the broader question of the comparison of societal systems. Two observations flow from what has just been described: features that are deeply embedded in specific societies are unlikely to be easily transferable; and the meaning of action rests on cultural definitions of ends and means. How may these essential dilemmas of globalisation be best thought through? In this regard, a number of characteristics of this thick description method need now to be considered, in order to allow some judgement as to its worth in the context of the apparently unsatisfactory condition of international business theory. These will be considered under four headings: (a) webs of connection within commonly found trajectories; (b) universal themes; (c) complementarities; and (d) strategic implications for firms. Commonly found trajectories It is normal in the wider business systems literature to observe the description of four trajectories, each seen in terms of complex antecedent conditions (i.e. contexts) and present-day responses in the

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form of stable structures. The four fields are as follows: (1) the sourcing of capital; (2) the stabilising of labour markets, skill systems, and employment patterns; (3) the norms of ownership; and (4) the stabilising of production systems. There are other aspects of business systems that are commonly analysed, but these four are examples of separate (but connectable) arenas in which revealing and explanatory societal comparisons can be fostered.

The sourcing of capital As with most such patterns, it is useful to conceive of a continuum, with opposing ideal types at each end. With the sourcing of capital, the crude contrast is that between systems of patient and impatient capital. It is necessary here to acknowledge that, in all systems, it is normal for retained earnings to provide the bulk of capital needs, so our concern is with the provision of the additions to this and the finding of start-up capital. In conditions conducive to patient capital, firms have access to funds that they can use for long-term investment. They are not required to report results quarterly to a judging public. They can enter capital-intensive industries more easily, can invest in improvements with long payback periods, such as training, can build up a firm’s technical competences based on stable labour forces, and can take long-term risk. There are several methods of sourcing capital that, usable either singly or in combination, will support this condition: (1) sourcing from banks that are in turn taking policy guidance from government; (2) sourcing from other companies tied in alliances through bonds of exchanged ownership; (3) sourcing from private capitalists not accounting directly to a financial market, and commonly owning the firm; and (4) sourcing direct from government. At the other end of the spectrum are systems in which capital is impatient. This means that it moves fast to where it gets the best return. Competition for such capital can be intense, and is based on demonstrated returns, usually seen in the short term. Here firms are constantly innovating to match competition, or they will lose access to this key resource. The support of this condition is via

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(1) sourcing from the stock market, (2) sourcing working capital from banks, but not long-term capital, and (3) sourcing from intermediaries such as venture capitalists. For a stock market to play a central role, it is likely to reflect political ideologies about the distribution of power in society, and in particular the tolerance by the governing elite of alternative sources of societal influence. For it to work efficiently, it is likely that a fabric of civil society institutions, such as professions, will need to have accreted to support it. So too will legal frameworks have become elaborated. For such a system to work successfully, another requirement is a surrounding industry of analysts of information, and critics of performance, basing their running commentary on rich and publicly available data about business performance. Other common intermediaries, between firms and their eventual owners among the members of the public, are investment funds, and the banks, merchant banks, and insurance companies that manage them. In a system such as this, there are many sources of pressure on managers (who normally act on behalf of owners) to deliver the best return on the capital they use. Special styles of management, and of governance, will then evolve to deal with such demands, a typical feature of which is a very high level of reward for the taking of such pressure, visible in the fact that the US and the UK, which are the classic examples of this formula, have the highest-rewarded hired executives in the world. There is, as a corollary, a constant demand from the public for disclosure of what is going on. Where capital is essentially patient, features also connect together. Stability of employment, which encourages investment in labour skills, and then in turn the use of such skills in distinct firm strategies, is often associated with safe capital provided by parties interested in long-term firm survival rather than short-term gain. Surrounding political philosophies such as welfarism will also induce lending institutions to see such stability as a legitimate base for long-term lending. The power and influence of unions in the maintenance of such an equilibrium is often enhanced. As can be seen, the evolution of a system towards either end of the spectrum is a matter of clusterings of related and supporting features moving together.

The stabilising of labour markets, skill, and employment systems Again here there is a continuum, as with capital, running between stable and volatile alternatives. Stable labour markets tend to offer longer-term employment, and higher social protection against unemployment. In consequence of the average worker being with a firm longer, the response in skill training is for firms to do more of it, and often also to collaborate with other firms and with government on the delivery of technical training into the workforce. This in turn is conducive to industrial responses that rely on stable, high-level skills in firms as a key source of competitive advantage. Not surprisingly, there is also a connection with stable (i.e. patient) capital, as just noted. Unions in such contexts are often strong and well integrated into the total system, although in varying ways depending on identity with a craft, a regional sector, a national interest group, or an enterprise. In the alternative response, with mobile labour, length of employment in a job is less. Nor do firms commit so strongly to skill development, either separately or collectively. Instead, individual employees are expected to equip themselves with general skills applicable within a range of firms, and societal education systems are built in support of this, the clearest example being the MBA. Careers are no longer assumed in terms of one company, or even one industry (Sennett, 1998), and labour market institutions are designed to facilitate rapid re-deployment of labour, as firms shift their emphases, their industries, and their partnerships, in pursuit of return to shareholders. The variables that combine to reveal various types of labour market have been identified as the following (Heylen and van Poeck, 1995): (1) whether a government has active labour market policy programmes, such as public employment and re-training; (2) the generosity of the benefit system that gives unemployment protection; (3) the legislation of employment protection, and in particular the fostering or otherwise of a split labour market of insiders (permanently employed) and outsiders (floating and unemployed); and (4) the centralisation or otherwise of wage bargaining, high centralisation often being accompanied by related bargaining on prices, taxes, government spending, etc.

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Norms of ownership The continuum in this case runs between systems where ownership is public and widespread, and so conducive to strong shareholder lobbying, and systems where ownership is shared among a few parties with interests in firm stability (such as banks, local government, firms in the same sector or region or owning group). This latter, dividing across several large and committed stakeholders, is often accompanied by less public pressure. This is the essence of the difference in ownership patterns between what are labelled Liberal Market, as opposed to Coordinated Market, economies (Hall and Soskice, 2001). Another pair of labels making the same distinction is Stock Market Capitalism and Welfare Capitalism (Dore, 2000). Whitley’s refinement of this distinction is to point out the ‘compartmentalised’ nature of the former in terms of the absence of connections between firms, in contrast with various forms of coordination and integration in the latter case (which in his taxonomy subdivides into several cases). A core feature of the Stock Market/Liberal form is the performance-driven discipline that runs through it, deriving from the market for corporate control. Boards are, generally speaking, not made up from owners, but from hired professionals appointed to deliver shareholder-defined performance. Non-delivery will lead to their replacement, under conditions of financial market scrutiny. Ownership itself may be openly contested, as power groupings coalesce to protect their interests. In such circumstances, the issue of corporate governance rises in significance, as the disseminated distribution of ownership, via funds, brings into play the invested interests of an increasing proportion of the population, a clear trend in the US over the past 30 years (Fligstein, 2001). The mantra of shareholder value becomes the carrier of the ideology whereby the retention of power by a new executive interest group, joined as it is by its acolytes in financial analysis and services, solidifies their role as a new elite. In the Welfare/Coordinated form, opposite responses are visible. The distribution of value gained by enterprises does not favour one constituency over others, at least in terms of design principles. The German state, for instance, defines in its constitution that economic enterprise exists for the society as a whole. The tendency is for many more stakeholders to become involved: managers, bankers, unions, government, owners with reciprocal ties, community, etc. all collaborate in the

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forming and delivering of industrial and enterprise policy. The shareholder bloc (often more divided and less clearly led than in the US case, where large funds represent them powerfully) is simply one of many fighting for influence. Underlying such behaviours are often societal ideals of collectivism, communitarianism, and stability, which stand in strong contrast to the individualism and applied economic rationality that characterise the Liberal Market case. The assigning of power to interest groups such as unions allows the perpetuation of societal responses tailored to such interests. In France, for example, union membership currently applies to only 13% of the workforce, but unions retain an influential formal role in the welfare system via the mutuelles that deliver health and unemployment assistance. In Germany, unions are heavily represented on corporate boards and on industry consultative committees, and protect members accordingly. Such forms of influence often end in the moulding of legislation in matters of labour, taxation, welfare, education, etc., and this serves to increase the cohesion of the system as a whole, tying together the political, social, and economic domains.

The stabilising of production systems Classifications of systems of production will normally reveal differences within an economy depending on technology and market access. It is, however, possible to make out a case for a societal effect operating in parallel. In other words, a tendency exists for certain response patterns in the way production is organised to owe much of their design to the surrounding fabric of the society, to become what Hollingsworth and Boyer (1997) call ‘social systems of production’. The matter is inevitably complex, and there are risks in reducing outcomes to a few categories, but, accepting that caveat, it is possible to see patterns in the ways of organising work. Exact overlaps of systems and societies are not suggested here, but clustering tendencies are. Whitley (1999a: 88–116) distinguishes three broad types of work system, subdividing two of them further to make a taxonomy of five, and they are as follows: (1) Taylorist: Here the worker is typically an extension of the machine, carrying out a usually repetitive operation, designed and controlled above without his or her inputs, commonly without strong connection or commitment

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(2)

(3)

(4)

(5)

between labour and management, and paid according to the rate for that job. This is a common response in the US. Delegated responsibility – negotiated: In the delegated responsibility systems, the worker has become involved in diagnosing and solving production problems, and in choosing how to apply skill and judgement to tasks. In ‘negotiated’ systems, the amount and nature of such worker involvement is a result of the ways in which strong industrial or craft unions have limited the discretion of management over work processes. Reward is commonly based on formally certified skill. This is common in mainland Europe, especially in large-scale industry. Delegated responsibility – paternalist: This system also fosters delegation, but in conditions of weak unionisation, or of enterprise unions. Reward is based more on personal skills as judged by supervisors and managers. Japanese management commonly adopts this structure. Flexible specialisation – artisanal: In flexible specialisation, firms are essentially fluid and commonly small, and they rely on flexibility in putting together human skills. Job categories and coordination structures are likely to change as new responses are shaped to meet changing market demands. The artisanal form of this work system relies upon co-opting the skills of key craft workers and technologists, whose work may be quite varied, requiring of them substantial inputs of judgement and innovativeness. Reward systems may well be supported by strong unions. European industrial districts, such as Emiglia Romana or western Jutland, are full of networked small and medium enterprises, and are homes for this type. Flexible specialisation – patriarchal: Here too the skills and creativity of key workers are relied upon, but with greater managerial control and clearer hierarchy. Greater personalism is involved in reward processes. Surrounding societal structures include less union strength, and weaker public systems of qualifying work skills. This occurs in much of Chinese family capitalism.

How these patterns came to be associated with their societal contexts is, in Whitley’s argument, due to two sets of forces: the characteristics of interest groups, and the influence of certain

institutions (e.g. those in labour markets, education, capital, and the cultural features of trust and authority). The arguments are outside the space limits of this paper but may be seen in Whitley (1999a: Chapter 4), and in Hollingsworth and Boyer (1997).

Universal themes The literature on business systems, or alternative systems of capitalism, has tended to address a number of themes consistently, most of which have a direct bearing on international business research. The main themes have been the following: (1) the need for multidisciplinary cooperation in achieving understanding; (2) the persistence of the societal effect, that is, culture; (3) the need for a historical perspective and the current study of change; and (4) the implications for the practice of global business. As this is a new and relatively small field, however, the penetration of such ideas into more orthodox single-discipline-based analysis remains more of an intention than an achievement. The turning point may be the wider realisation of the implications for strategy, a matter to be addressed shortly. Certainly, the approach discussed here would help to address two related and significant sources of unease in the worlds of research and practice – universalism and ethnocentrism. These are wider themes, external to this paper, but impinging strongly upon it. Universalism in economics has long been a subject of attacks, ranging from the highly sophisticated and analytical (e.g. Williams, 1973; Etzioni, 1988; Numagami, 1998) to the practically founded exasperation of its recipients, visible in the reactions in recent years against the ‘Washington consensus’ on development reform in poor countries, or the cynicism of those suffering financially from the collapse of the hyped ‘new economy’. Ethnocentrism is a close companion, visible daily in the corridors of multinational corporations, as executives struggle to resolve the inherent tensions of the transfer, amendment, hybridising, or demolishing of local systems of coordination that carry with them such large volumes of invisible baggage.

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Complementarities In quantum physics, a complementarity occurs when opposing demands can only be brought into harmony in the sense of a compromise: thus, Heisenberg’s uncertainty relation formulates the best-possible compromise between position and momentum. In social science, as commonly used, the idea is an extension from the economics notion of ‘complementary goods’ (e.g. hardware and software), but taken into the realm of institutions, with most relevance for the present topic in the work of Aoki (1994) and Hall and Soskice (2001). In this latter usage, the presence or efficiency of one increases the returns from or efficiency of the other. What we might then think of as useful connections may be identified across different parts of the society. An example might be the connection between a fluid market in capital that fosters rapid organisational adjustment, and a fluid market in labour that is complementary to that process. There may also be instances where the interaction between the two features achieves compromise, and thus relates more closely to the quantum physics notion of complementarities. An example here might be the large German firm that lives as a compromise institution between the forces of social responsibility and the forces of market competitiveness. In conclusion, it is possible to see complementarities as coming together to affect either or both of (a) synergy and (b) workable compromise. The essential contribution of the complementarity idea is to enrich the understanding of causation, and to foster the comprehension of complex interacting determinants. The analyst is encouraged to seek connections and incorporate them into the account. So too is there encouragement to study matters not obviously connected. Examples here would be the connection between systems of contract law and modes of inter-firm collaboration reported by Casper (1997), or connections between long-run finance and long-term employment commitments, and between product market instability and labour market deregulation, argued by Hall and Soskice (2001: 28, 32). Such connecting threads, across institutional spheres and often across disciplines, are an essential part of the thickening of description that is advocated here. Such combinations also help to enrich the idea of societal distinctiveness, as the comparison of single attributes out of their contexts comes to be seen as inadequate, and as unique societal patterns of combinations take over from main causes as the bases of explanation.

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Strategic implications The essentials of the strategic implications are as follows: (1) Societies appear to have their own ways of fostering organisational characteristics, key ones of which may make their firms especially competitive in industries or segments, such advantages being distinct to those societies. (2) Such characteristics are difficult to replicate elsewhere because of their local embeddedness. (3) The global extending of management systems out of national contexts meets heavy challenges to the maintenance of efficiency, effectiveness, and competitiveness, as alternatives are encountered, when the latter are tuned to local circumstances. Analysis in this field may be illustrated by referring to two (from many) studies that have examined aspects of the argument: those of Hall and Soskice (2001) on the question of societal capacities for innovation, and of Whitley (2003) on the institutional structuring of organisational capabilities. Thinking on the logical implications for multinationals will be illustrated by a consideration of the work of Doz et al. (2001) on that question. Hall and Soskice, arguing from a political economy perspective, define two major alternative forms of capitalism, the Liberal and the Coordinated market economies. They take the US and Germany as examples, and analyse the institutional complementarities within each. The variables of particular note include stock market capitalisation as a percentage of GDP, employment protection, employment distribution, income distribution, systems of training and education, systems of financing, corporate governance, inter-company relations, industrial relations, and competition policy. They show clearly how the German system fosters both (a) the inclusion of a wide range of stakeholders and (b) stable systems of both employment and finance, together with the reciprocities between such features. A web of connections is explained, two examples of which will serve to illustrate this form of thick description. The German system of training relies on heavy state commitment to technical training provision, the design of which is achieved with much input from industry collectively, but is backed up also by high internal investment by firms in human capital

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formation. Skill levels are generally high, and are based on elaborate systems of certification. This allows for the assessment of firms’ capacities to be made by others, including financiers, and this in turn fosters long-term finance, which then allows for long-term employment commitments to workers. Other outcomes are that sunk costs in investment are less risky, skilled employees are able to contribute to organisational decision-making, consensus is fostered, and co-determination brings profitability needs into consensus decision processes. Inter-company relations in much of German industry are generally cooperative, partly due to the work of government, usually regional, in fostering the progress of sectors by encouraging cooperative standard setting, technology transfer, labour negotiations, and training. In this also an important part is played by interlocking share ownership and directorships, which encourage a sense of shared fate. Outcomes include a stable labour market for skills, a high level of technical competence within firms, and a tolerance of high capital investment. The combination of these two sets of interlocked features means that industries are favoured that require the coordination of complex and varied technical skills in capital-intensive product fields, and evidence is presented to show the German competitive strength in such fields. The criterion used here is specialisation in patenting, the outstanding industries being civil engineering, nuclear engineering, transport, agricultural machines, mechanical components, and engines. Practical implications are visible in two results. As global competition becomes fiercer, embedded advantages become more critical. In the automobile industry, reports on car reliability, over the first 3 years of use, show Japanese makers holding eight of the first 10 positions, and business press commentaries on the likely demise of the US industry are appearing. So too is there apparent realisation of the advantages available in certain geographies as a process of institutional arbitrage takes place: for instance, the migration of German firms to the US to have access to the scientific creativity there, or the counter-migration of a General Motors plant to Germany (in preference to Spain, which would have been cheaper) to gain engineering skills. Software design in India, financial instruments managing in London, fashion design in Italy are all tributes to the embedded nature of certain forms of organisational capability,

and acknowledgements of the surrounding cultural and institutional features that support it. A useful review of industry-specific competitiveness, together with a formulation of the links between the two main types analysed by Hall and Soskice, and the organisation specificity of knowledge they produce, is offered by Haake (2002), who also advocates greater differentiation in defining types of capitalism. This latter point is well met by Whitley, consistently in his work, with the proposition of at least five ideal types of business system. In his discussion of competitive competences, he presents a more fine-grained view of the ways in which resourcebased theory should be developed to take account of how ‘managers generate idiosyncratic collective advantages that are not easily tradeable’ (Whitley, 2003: 667). In doing so, he explores the connections between two institutional fields, authority sharing and career structuring, and outcomes in how firms coordinate, learn, and reconfigure, to compete. Again here we enter the world of thick description. Necessarily dense webs of connecting features are laid out and unravelled. Connections are clarified between organisational characteristics and types of organisational career, between surrounding institutional features of the society and ways in which authority is shared, in turn affecting career structures. The logic in summary terms is as follows: In general, the more financiers, managers, and skilled workers are locked into each others’ destinies, the less likely they are to act opportunistically and seek short-term advantages through changing business partners. Institutional frameworks that encourage such lock-in, therefore, reduce the risks associated with long-term commitment and so facilitate both authority sharing and the development of organizational careers. They also, though, can inhibit firms’ ability to adapt to radical technological and market change. (Whitley, 2003: 680)

In seeking the origins of such patterns, it becomes necessary to bring into the account matters as diverse as the state’s role in coordinating economic action, organisational networking and intermediary associations, the market for corporate control, public training structures, and the nature of the labour market. The interaction of these institutional features presents a context against which patterns of authority-sharing develop in organisations. The end result is that the particular organisational capabilities that result are suited to provide competitiveness in certain product markets. These

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latter are differentiated according to whether success within them depends on cumulative adaptation, as for instance in Japanese high technology engineering, or on radical innovation, as in Silicon Valley. In a wide-ranging study of organisational change in 460 European firms, Whittington et al. (1999) reported the importance of ‘national contingencies’, citing the contrast between British and German firms in the managing of change. British companies, under the influence of short-term capital markets among other things, are significantly less likely to rely on project structures as instruments of change, but instead to rely on operational decentralisation and downscoping. German companies, with more ‘patient’ capital, are more likely to rely on project structures, and to emphasise strategic decentralisation and HR innovations. Economic historians have described the evolution of such benefits in different geographies (Jones, 1981; Abramovitz, 1993; Landes, 1998). The non-random distribution of such organisational capabilities and preferences, and the locally embedded nature of these, has led thinkers on the managing of global organisations to pay more attention to ways of absorbing such advantages. A representative organisational study responding to this theme is that by Doz et al. (2001) on the transition of firms from their inherently national character to being ‘metanational’. This newly defined ideal condition is represented in their advocacy of the following collective beliefs and components of corporate culture (Doz et al., 2001: 215):  that the corporate centre is not the fount of knowledge, but just one star in a galaxy of specialised technology, knowledge, and capabilities;  that no local cultures are superior or inferior, they are just different;  that innovation comes from harnessing diversity;  that winning requires a combination of metanational innovation and operational efficiency;  valuing difference over similarity;  valuing a site for its unique contribution;  valuing willingness to learn from others; and  valuing flexibility and willingness to embrace innovation.

In this formulation, the organisational challenge is to leverage efficiently, via the appropriate enabling structures, the metanational innovations across global markets. The core of this approach is the retention, and conscious use of, variety. Although each site is required to achieve global standards, it should do so on local terms. Although by no means addressing directly the understanding of alternative business systems, this would appear to be acknowledgement of their relevance as a fact of life to be faced by global executives. In concentrating on the issue of ‘know-how’ as the crucial variable, it also reinforces the argument that organisational capability is the most crucial of all the mechanisms that come to vary societally, and one that becomes the deciding factor in the allocation of industrial competitiveness. The origins of such capability at the (ideal type) organisational level have not so far been analysed comprehensively enough. More and better inclusion of context requires a new formulation of both method and way of thinking. This could well have benefits at several levels of policymaking, from that of the firm to that of the state.

Acknowledgements The preparation of this paper has been part of a research project funded by the Lee Foundation, to whom grateful thanks are expressed. It has also been greatly helped by the INSEAD Research Committee’s support, and by the hospitality of Arie Lewin and the supporters of the JIBS research conference held at Duke University in March 2003. The guidance of Arie Lewin and comments by Max Boisot and Steven White were especially useful, as was the advice of anonymous reviewers. The ideas of Richard Whitley on the concept of business systems remain important foundations. The practical assistance of Nathalie Gonord is gratefully acknowledged.

Notes 1 The full description of such systems is now the core project of the Euro-Asia and Comparative Research Centre at INSEAD.

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About the author Gordon Redding is Director of the Euro-Asia and Comparative Research Centre, INSEAD, and

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coordinates the Centre’s work in investigating the comparison of societal business systems. He previously spent 24 years at the University of Hong

Kong, where he was founding director of the Business School. His doctoral degree is from Manchester Business School.

Accepted by Arie Lewin, Editor in Chief, 20 September 2004. This paper has been with the author for two revisions.

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