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Global styles of capitalism, characteristics and assumption

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Most countries display a mix of individualism and communitarianism. A brief sketch of the key economic concepts, characteristics and assumptions underlying the two conflicting competitive models is provided in continuation.

These include:

1) how to optimize the performance of a system,

2) the key driving force in the economy,

3) the motivation for work,

4) the responsibility for training prior to employment,

5) the relationship between government and business, and

6) the purpose of government policy.

How to Optimize the Performance of a System

Perhaps the most important philosophical difference between the two variants of capitalism is the assumption concerning how to optimize the performance of a system. In the communitarian model, a system can be optimized only when cooperation exists at all levels within the system. There must be cooperation between individuals, departments and functional areas within a company, union and company, companies, industry groups and business and government. The source of this philosophy is not entirely clear, but it was promoted by W. Edwards Deming for at least forty years before his death in 1993 and practiced in Japan since 1950.

The assumption underlying the individualistic model is that competition at all levels will lead to optimizing the performance of a system. The source of this philosophy is easily traced to the classical school of economics founded by Adam Smith. Smith wrote that an “invisible hand” leads individuals to unintentionally promote the good of society while seeking their own self-interest. Although the classical economists were concerned mainly with the macroeconomic system, their views spilled over into microeconomic theory and business practices. For example, the neoclassical micro economists, who followed Smith, supported individualism and a “laissez faire”, or free enterprise market. To both classical and neoclassical economists, a free market was self-regulating and produced the maximum social benefits. Similar ideas can be found at the practice level in the works of Frederick W. Taylor and the scientific management movement where individual specialization and performance were emphasized to the extreme.

To summarize the key concepts, success in a communitarian system is believed to come from the collective efforts, or teamwork of all members of the system, while success in an individualistic system is believed to come from the efforts of individuals seeking their own self-interest. In an individualistic system, optimizing the parts is assumed to optimize the whole. However, the assumption in a communitarian system is that optimizing the parts will automatically produce sub-optimization of the whole because of the interdependences among individuals and groups within the system.

The Key Driving Force in the Economy

The driving force in the economy, according to the communitarian viewpoint, is the desire for long term growth and improvement of the system. On the other hand, the driving force in an individualistic system is the individual’s desire for consumption and leisure in the present. These driving forces influence the goals and behavior of organizations and governmental units as well as individuals within the system. For example, during the five year period from 1985 to 1989, Japanese investment, as a percentage of its gross national product (GNP) was over twice that of the United States, i.e., 35.6% compared with 17%.

 The Motivation for Work or Work Ethic

The communitarian model includes the assumption that work itself provides intrinsic motivation and that being part of a winning team provides considerable rewards and satisfaction. People mainly live to contribute, to accomplish, to create and to gain respect from others for their efforts. Consumption and leisure are less important considerations for the individual. However, the individualistic system is based on the assumption that people are motivated to work mainly to increase consumption and leisure and to avoid unemployment. This hedonistic attitude can also be traced back to the neoclassical economists (or marginalist) who assumed that workers would attempt to maximize pleasure and minimize pain. This idea translates into maximizing the utility obtained from consumption and minimizing the disutility associated with work. Although the lack of work ethic associated with American workers has been challenged by behavioral scientist for a number of years, the structure of most American organizations (discussed below) has reflected this “lazy man” view until recently.

The Responsibility for Training Prior to Employment

In a communitarian system, skills and training prior to employment are primarily viewed as the responsibility of society. For example, strong high schools with very low dropout rates of six or seven percent are typical in Japan and Germany.

Government and business supported apprenticeship programs are used to insure that the less capable high school students (academically) become functional members of society. In contrast, public schools are relatively weak in an individualistic system. For example, in the U.S., the high-school dropout rate is around twenty-nine percent and apprenticeship programs are much less common. Although colleges are relatively strong in the American individualistic system, many non-college bound students (the “neglected majority”) do not receive a marketable education. Although a discussion of the reasons for these differences is not within the scope of this text, the skill levels of individuals entering the workforce is an important determinant of competitiveness for the organizations who rely upon their skills. It is also important for any organization contemplating a change from an individualistic to a team oriented system.

Relationship between Government and Business

In the communitarian system, government works to support business and to promote cooperation between businesses and industry groups within the system. Government is responsible for a strong infrastructure including education, communication and transportation systems. Government in an individualistic system also recognizes the need for a strong infrastructure, but the classical view of government is still present in individualistic systems. To the classical economists, the best government was the government that governed least. 

Purpose of Government Policy

In a communitarian system such as Japan, government policy is designed to increase investment and savings (through tight credit controls) to generate long term growth in supply. However, in an individualistic system such as the United States, government policy is designed to promote as much competition as possible. Cooperation is viewed as detrimental to the economy because it leads to monopoly power. Thus, cooperation between companies and industry groups is to a large extent illegal in the American individualistic system.

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