US capitalism a tarnished model

U.S. Capitalism: A Tarnished Model?by Richard Whitley

Executive OverviewThe apparent success of the U.S. model of capitalism as it developed in the 1990s and early 21st centuryencouraged many business and policy elites to regard it as an ideal form that should be adopted by othercountries and regions. The recent collapse of the U.S. financial system and the current recession are,however, likely to limit the attractiveness of this U.S. model in both OECD1 countries and industrializingeconomies. In this article, I review the key features and limitations of the postwar U.S. economic modelas well as the challenges to this model from the success of many Japanese firms doing business in the U.S.market and the rapid rise of the Asian “tigers.” Given the current situation, it is likely that the influenceof the fully fledged market fundamentalist model, imposed on many Eastern European countries in the early1990s, will be greatly diminished, and attention focused much more on alternative forms of capitalism.Most of these involve the state taking a more proactive role in economic development and regulation,albeit in “market friendly” ways.

The current financial crisis and economic reces-sion have intensified debates about the viabil-ity of the U.S. model of capitalism as it has

developed in the 1990s and early 21st century,especially its reliance on the financial servicesindustry as a key agent of economic growth, andthe desirability of imitating its central features.While it was not without its critics, the apparentsuccess of the “new” economy and the deregulatedfinancial sector in the United States providedample support for model missionaries and modelmercenaries (Braithwaite & Drahos, 2000, pp.586–587) proselytizing for the cause of liberalizedmarkets, strong antitrust legislation, and fluidmarkets for corporate control. High rates of pro-ductivity increases and continued economicgrowth seemed to justify the belief in flexible laborand capital markets and arm’s-length market con-tracting as the primary means of economic coor-dination. The subsequent collapse of the dotcomboom and freezing of many financial marketshave, however, greatly weakened the appeal ofthis model and are stimulating considerable inter-est in both reregulating financial markets andconstructing alternative models of capitalism.

The idea that U.S. capitalism—or at leastsome features of its productive system—representsthe most modern and efficient form of marketeconomy was prevalent among many business andpolitical elites throughout much of the 20th cen-tury, and indeed the “American system of manu-factures” was the focus of a number of study toursin the 19th century (Hounshell, 1984; Zeitlin,2000a). However, attempts to export the Ameri-can model, which were especially strong in theaftermath of World War II (Djelic, 1998), variedgreatly in their impact and apparent success indifferently organized market economies. It isworthwhile considering these differences if we areto understand the current situation and its likelyeffects on the diversity of capitalisms (Amable,2003; Crouch, 2005; Whitley, 1999). In particu-lar, the postwar efforts to Americanize Europeanand Japanese economies highlight a number ofimportant points about such export endeavors andthe limited convergence of different forms of cap-italism to a single U.S.-inspired version.

In brief, these points include the following:First, there is no single U.S. model of businessorganization and market structure that could besaid to represent the dominant features of the U.S.market economy in all major industries and re-1 Organisation for Economic Co-operation and Development.

Richard Whitley ([email protected]) is Professor of Organizational Sociology at Manchester Business School, University of Manchester.

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gions, whether in the 1950s or in the 1990s.Second, the particular version of mass productionand mass marketing companies that came to dom-inate many capital-intensive manufacturing sec-tors in the U.S. in much of the 20th centurydeveloped interdependently with distinctive insti-tutional features of the United States that werenot, and are not currently, to be found in mostother OECD member states (Hollingsworth,1991; Hollingsworth & Boyer, 1997). Addition-ally, the relative success of large managerially in-tegrated firms in the United States can be seen asa response to the specific nature of “thin” marketsfor capital-intensive goods there in the early 20thcentury (Langlois, 2003).

Third, many of the key institutional features ofthe neoliberal model that were urged on othermarket economies, especially the former state so-cialist societies of Eastern Europe in the 1990s(Amsden et al., 1994), did not apply to the U.S.economy as a whole. In particular, the role of thestate was much more proactive and promotional(Evans, 1995; Weiss, 2009) in some sectors thanothers. Fourth, no country that attempted to fol-low the prescriptions of the postwar model mis-sionaries did so wholeheartedly; many such tech-nology and institutional transfers involvedconsiderable conflict, revision, and hybridization,as did similar imitations of the much misunder-stood Japanese model of production in the 1980s(Boyer et al., 1998; Zeitlin & Herrigel, 2000).Finally, some of these hybrid innovations in man-agement, corporate structures, and rules of thecompetitive game became key components of al-ternative forms of capitalism that provided quitedifferent models of business organization. Someelements of these alternatives in time providedthe basis for revising aspects of the dominant U.S.model (Liker et al., 1999).

In this essay I shall elaborate these points inmore detail to suggest how the current crisis islikely to affect perceptions of the U.S. model andits impact on business systems and the institu-tional arrangements governing them in bothOECD countries and industrializing economies.First, I summarize the key features of the dominantmodel of U.S. business as it was portrayed in manyaccounts in the postwar period, and some of its

limitations. Second, I briefly discuss the importantchallenges to this model arising from the successof many Japanese firms in the U.S. market and therapid rise of the Asian “tigers” that did not followthe edicts of the IMF and the World Bank. Third,the central features of the new model of U.S.capitalism that became popular in the 1990s areconsidered, together with the relative failure ofmost attempts to imitate it in Europe and else-where. Finally, I discuss the implications of thecurrent financial collapse and recession for therelevance of U.S. models in developing dominantforms of economic organization in the 21stcentury.

ThePostwarU.S.Model and Its InternationalHybridization

As Zeitlin (2000a, p. 34) has emphasized:“Americanisation was far from a new issue for(European and Japanese manufacturers) after

1945. Fordism, Taylorism and the ‘American Sys-tem of Manufactures’ had already begun to attractwidespread foreign interest before the First WorldWar.” In particular, scientific management as anidea and as a set of managerial practices hadappealed to a wide range of business and politicalelites, including Lenin and other Russian revolu-tionary leaders, German engineers and industrial-ists, and some trade union leaders (Bendix, 1956,pp. 206–207; Guillen, 1994, pp. 91–121).

However, it was especially after the defeat ofGermany and Japan, and their occupation by U.S.and other Allied forces, that the idea of reorga-nizing the economies of Europe and Japan alongU.S. lines became generally established, bothamong U.S. business and political elites and, tovarying extents, among domestic ones. A crucialfeature of this postwar Americanization was thecombination of a particular managerial and tech-nological approach—loosely termed Fordism—with specific institutional innovations dealingwith market regulation, corporate governance,and competitive practices. Whereas much of theearlier foreign interest in U.S. business modelshad focused on production rationalization and theorganization of large-scale manufacturing, thepostwar U.S. model was at least as much con-

12 MayAcademy of Management Perspectives

cerned with institutional reforms, partly driven bypolitical efforts to prevent the return of authori-tarian regimes.

For many actors and observers in the 1950s and1960s the American model of business organiza-tion was exemplified by the large diversifiedcompany that integrated the mass production ofstandardized goods with their distribution and mar-keting to mass, homogeneous markets through amanagerial hierarchy that specified and controlledroutinized tasks carried out by mostly semiskilledworkers. Such Fordist strategies focused on achievinghigh levels of labor productivity through the mech-anization of many production processes and system-atic managerial coordination and control of all partsof the development, production, and marketing pro-cess. Increasing productivity and a managerial focuson continuing cost reductions enabled these compa-nies to compete primarily on price in large consumermarkets for standard goods.

This dedicated capital- and manager-intensivemachine required a relatively predictable patternof large-scale demand to absorb the high levels ofthroughput it generated, and so has been typicallyassociated with oligopolistic markets susceptibleto mass marketing techniques and advertisingcampaigns (Hirst & Zeitlin, 1991; Lazonick, 1991;Piore & Sabel, 1984). Flexibility in responding tofluctuations in demand was predominantlyachieved through hiring and firing easily substi-tutable semiskilled labor and exerting marketpower over suppliers who were usually dealt with atarm’s length. Quality improvements were largelysecondary to cost reductions in this model (Boyer &Durand, 1987).

Successful Fordist firms were seen by many,particularly U.S. model missionaries, as develop-ing interdependently with specific kinds of insti-tutional arrangements governing capital, labor,and product markets, which needed to be estab-lished in societies whose elites wished to modern-ize their economies in the American mode. Mostof these institutions were concerned with corpo-rate governance, competition policy, and laborrelations. They constituted the central features ofwhat has become popularized as the liberal marketeconomy. The key elements of this institutionalorder elevate market-based forms of economic co-

ordination above cooperation between companiesand between firms and state agencies, with exitnearly always preferred to voice (Hall & Soskice,2001; Hollingsworth, 1991).

Particularly important to the occupation au-thorities in Germany and Japan, and to advocatesof the U.S. economic model more generally, wereantitrust legislation, the separation of the banksfrom large industrial companies, and antimonop-oly competition rules (Kester, 1990, pp. 99–111;Quack & Djelic, 2005). Rules forbidding cartel-ization, collective risk sharing between firms, andjoint investment in new technologies and marketswere coupled with an overwhelming belief in theefficacy of free and fair competition to select effi-cient companies as central elements of the recipeimposed or advanced by U.S. elites in the postwarperiod. As in much orthodox economic theory,strategically autonomous and authoritatively inte-grated firms were seen as “islands of planned co-ordination in a sea of market relations,” as Rich-ardson (1972) put it, that were best relying on theprice mechanism to manage interfirm relation-ships in an essentially arm’s-length environment(Whitley, 2007, pp. 38–50).

This general model of firms and markets wascontested by some business and political elites andnever fully accepted in Europe, even in occupiedGermany where different U.S.-inspired reformshad a variety of outcomes, including completerejection (Djelic & Quack, 2005). However,large-scale U.S. investment in western Europe andpolitical pressures to construct Europe-wide mar-kets and regulatory institutions in the developingEuropean Community encouraged the reductionof national barriers to mass EC-wide consumermarkets and a widespread belief in the benefits ofFordist-style mass production. For much of thetrente glorieuses after 1945 many European businessand political elites continued to view the U.S.model as the most modern and challenging(Ranieri, 2000; Zeitlin, 2000b). Indeed, U.S.management consultants, business schools, andsimilar transfer agents of American “best practice”were often seen as important contributors to eco-nomic growth and productivity in the 1960s and1970s (Kipping & Engwall, 2002; Locke, 1996;Whitley et al., 1981).

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In the case of Japan, though, the reforms to thepolitical and economic system carried out duringthe U.S. occupation between 1945 and 1952 weremore wide-ranging and far-reaching. Aimed atdestroying prewar coalitions between the landlordclass, the military, the bureaucratic elite, and bigbusiness and deconcentrating economic power,these reforms broke up the family holding compa-nies that dominated large areas of the economy(zaibatsu), tried to separate the banks from indus-trial companies, established the Fair Trade Com-mission to restrict monopolies, and passed theAnti-Monopoly law of 1947 (Johnson, 1982;Kester, 1990).

However, by relying on the unpurged parts ofthe central bureaucracy to implement these andother reforms, the Americans enabled the Minis-try of Finance and the Ministry of Commerce andIndustry, later the Ministry of International Tradeand Industry, to play a leading role in managingJapan’s economic reconstruction and in construct-ing the emerging bureaucratic-political coalitionthat has governed Japan for much of the postwarperiod (Pempel, 1998, pp. 84–91; Whitley, 1992a,pp. 124–127). This coalition was able to organizerecession cartels in many industries, restrict directforeign investment in Japanese firms, control ac-cess to foreign technology, and, in effect, con-struct a highly coordinated business system thatbore little resemblance to the U.S. model (Kester,1990; Whitley, 1999). Together with the eco-nomic boost provided by the Korean War andcontinuing U.S. aid in the 1950s, as well as accessto the U.S. market, this system became so success-ful that it has provided an influential alternativeto the U.S. model, not only in Asia but also onethat has inspired considerable discussion, not tosay paranoia, among some in the U.S. itself, espe-cially in the 1980s.

The questioning of the efficacy of the U.S.model, particularly its emphasis on the priority offree markets and the residual, passive role of thestate in guiding economic development, was fur-ther reinforced by the even more rapid rise of thefour East Asian tigers, or newly industrializedcountries (NICs): South Korea, Taiwan, HongKong, and Singapore in the 1970s and 1980s(Amsden, 1989; Vogel, 1991; Wade, 1990). With

the possible exception of Hong Kong, which wasmuch more state coordinated than the officialrhetoric claiming positive nonintervention poli-cies suggested (Castells et al., 1990; Fong, 1988;Schiffer, 1991), there could be little doubt thatthe state in these economies had played a majorrole in their success (Fields, 1995), with the SouthKorean one deliberately “getting relative prices‘wrong’” (Amsden, 1989, pp. 141–147) in the eyesof orthodox economists. Furthermore, family-con-trolled firms dominated these economies, withcapital markets playing a minor role in corporategovernance and investment funding, and compe-tition policy rarely followed U.S. dictates.

Even if liberal markets and a small state ap-peared to work in the U.S., which may be the caseonly for some industries in some historical periods(Weiss, 2009), it became clear to many observersthat more coordinated economies in which thestate was actively involved in economic develop-ment could be at least equally competitive, if notindeed superior in industries such as cars andconsumer electronics (Evans, 1995; Streeck,1992). The rise of the East Asian NICs, the re-surgence of Italian industrial districts in some sec-tors, and the export success of firms in manycontinental European economies in what becametermed diversified quality production together dem-onstrated that there were a number of viable al-ternatives to the postwar U.S. model, particularlyin medium-technology sectors (Amable, 2003;Crouch, 2005; Whitley, 1999).

Furthermore, as European and Asian managers,politicians, and advisers became more familiarwith the United States over the postwar decades,they learned that the U.S. model being advocatedby many missionaries did not accurately reflect thenature of the U.S. economy and its dominantinstitutions. In particular, there was much morevariety between sectors and regions in prevalentpatterns of economic coordination and control, asreflected for instance in the IT industry in theNortheast and California (Saxenian, 1994), andcorporate governance rules in particular stateshave often prevented an active market for corpo-rate control from developing. Many of the largestU.S. corporations are headquartered in Delawareas a result of its favorable treatment of incumbent


managements (Franks et al., 2007; Roy, 1997;Tylecote & Visintin, 2008, pp. 92–96). Addition-ally, the vigor with which the federal governmenthas pursued antitrust cases has varied betweenpolitical regimes and also reflects perceptions ofnational security interests (Davis et al., 1994). Inthe past half-century the central U.S. state hasalso been extensively involved in supporting thedevelopment of particular industries, especiallythose with military connections (Weiss, 2009).

Thus, key elements of the U.S. model, or per-haps the version of it that has been seen as iconicand most desirable by model mercenaries and mis-sionaries, did not appear to be so necessary forU.S. economic success. This was especially thecase in the industries where the Fordist model hadbeen dominant, as many U.S. companies becamevulnerable to firms from very different kinds ofmarket economies that focused more on qualityand flexible responses to demand changes (Boyer& Durand, 1987).

TheRiseof SiliconValleyand theNewU.S.Model

These doubts about the coherence and generaleffectiveness of the institutions and businesssystem characteristics of liberal market econo-

mies as summarized in the U.S. model were coun-tered to some extent by the collapse of the SovietUnion and the Japanese bubble. Together withthe rapid U.S. recovery from the recession of theearly 1990s, the subsequent boom in the ICTsector, and the Asian financial crisis of 1997,these events seemed to revitalize many modelmissionaries who urged market fundamentalistrecipes on the emergent market economies ofEastern Europe and Russia, often with unfortunateresults (Amsden et al., 1994; King, 2007). How-ever, the model that most appealed to foreignbusiness and political elites, especially in Europe,was not so much the postwar Fordist one, but therelatively novel Silicon Valley (henceforth SV)pattern of economic organization that seemed tobe successful in generating the growth industriesof the future.

While this revised U.S. model included some

aspects of the earlier one, such as low levels ofemployment protection, there were a number ofsignificant differences in both the business strate-gies pursued and the institutional context govern-ing economic activities. The major shift in theprevalent competition model concerned the flex-ibility of firms and their ability to reconfigure thenature and organization of core activities andskills to respond to rapid and radical changes inmarkets and technologies. From focusing on coor-dinating and controlling operations to the distri-bution of standardized products at low prices, firmsin this new competition model concentrated oncommercializing radically new products and ser-vices as rapidly as possible, even if these mightcannibalize existing markets and threaten to de-stroy current organizational capabilities.

The archetypical “high-flex” SV firm as por-trayed by Teece (2000, pp. 57–59) combines shal-low hierarchies, extensive external linkages, lim-ited diversification, and a strong “change culture”to adapt quickly to unpredictable events, and so isquite different from the multiproduct, hierarchi-cal, integrated companies that were emblematic ofthe postwar model. In some perceptions, the corecompetence of the emerging 21st-century firm isconsidered to be based on knowledge productionand improvement involving the mobilization of awide range of business partners to win high-speedlearning races (Powell, 2001). Such project-basednetwork firms depend much more on the activeparticipation in, and commitment to, complexproblem solving and successful project completionon the part of skilled employees than was charac-teristic of Fordist firms, but are rarely able to offercredible commitments to stable and long-termemployment in the pervasive environment oftechnical and market uncertainty (Whitley,2006). Managerial prerogatives over hiring andfiring are thus preserved in this new U.S. model,but now extend from the majority semiskilledmanual workforce to the technical and managerialranks whose contributions are crucial to firms’success, but whose knowledge and skills are vul-nerable to environmental changes.

While fluid external labor markets continue toconstitute a key feature of this U.S. model, there

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are major differences in how they support Fordistand project-based firms. As Casper (2007) empha-sized, in the competence-destructive environmentof SV-type technological clusters, it is crucial formanagers to have access to a pool of technologicalexperts with known reputations in specific areaswho can be recruited quickly to work on rapidlychanging projects. Such pools of mobile laborpower facilitate the fast diffusion of new knowl-edge and skills among firms in ways that are muchmore difficult to achieve where careers are moreorganizationally specific (Bahrami & Evans, 1995;Saxenian, 1994).

From the viewpoint of individual engineers andscientists, the clustering of such companies inparticular regional innovation systems reducessome of the risks of joining new firms in rapidlychanging environments by facilitating the con-struction of social networks of scientists, engi-neers, and managers that provide fast informationabout new opportunities and reduce search costsfor both employers and employees. The agglomer-ation of firms reliant on highly skilled staff thatare able to offer potentially very high rewards insuch clusters affords technologists some reassur-ance that alternative posts are likely to be avail-able in the event of redundancy or firm failure.

A key part of the incentive structure for skilledtechnologists to join these risky project-basedfirms is, of course, equity ownership, either di-rectly or in the form of share options. Especially inwinner-takes-all markets, such stakes can generateenormous rewards for staff of successful compa-nies, but even in different cases they can lead toconsiderable payoffs through trade sales or publicofferings on capital markets. In the SV model suchhigh-powered incentives are linked to anotherimportant feature of the business environment:informed venture capital (Kenney & Florida,2000).

Given the high levels of uncertainty and risksof failure in such high-technology clusters, inves-tors are more likely to gamble on the potentialsuccess of one project if they can (a) diversify theirrisks across a number of different ones in a port-folio of investments and (b) realize the gains fromsuccess by selling their interest in the medium

term. The ability to trade ownership stakes easilywith relatively low transaction costs is therefore asignificant component of the business environ-ment for venture capitalists in the SV model.

As Tylecote and Visintin (2008) emphasized,VCs also need to be knowledgeable about thetechnologies and markets involved if they are tobe able to select promising projects, actively sup-port them as members of company boards, andestablish meaningful milestones for judgingprogress. Such well-informed and committed ven-ture capitalists in the United States and to a lesserextent elsewhere have been able to construct port-folios of projects in which the success of a limitednumber that can be traded on liquid capital mar-kets or sold to larger competitors has more thanoutweighed the failure of others. While such re-alization of profits and their recycling to newprojects can be achieved through private place-ments, these transactions can be conducted on amuch larger scale with easier diversification op-portunities when publicly regulated exchanges areavailable.

It is important to note, though, that large andliquid capital markets on their own are not suffi-cient conditions for the establishment of success-ful technology clusters, as the examples of theUnited Kingdom and other anglophone econo-mies indicate. Much of the venture capital andprivate equity activity stimulated by such marketsin these societies has failed to support new firms inrisky high-technology sectors, preferring to engagemore in short-term financial engineering (Tyle-cote & Visintin, 2008, pp. 96–101). Indeed, manyregions in the U.S. that have tried to establishsuch clusters have not succeeded to the sameextent as Silicon Valley (Casper, 2007). In par-ticular, the existence of capital market-based fi-nancial systems does not guarantee the creation ofa community of knowledgeable and well-informedventure capitalists and providers of related special-ist business services who are willing and able tocommit substantial resources to new venturesrather than focus on transaction-based fee income(Suchman, 1995, 2000). The SV model is not,then, wholly dependent on liquid capital marketsper se, but rather more on the existence of such a


community that can draw on human and materialresources to make significant commitments and isable to monitor the progress of projects effectively(Kenney, 2000).

A further feature of the SV model that distin-guishes it strongly from the postwar U.S. model,and one that has attracted the attention of manypolicy makers in Europe and elsewhere, is theclose involvement of public research and educa-tion organizations with emerging industries.While much of the enthusiasm for university-ledlocal innovation systems built around academicscience parks has been shown to be misplaced, atleast for the establishment of major technologyclusters (Mowery & Sampat, 2005), academic re-search and training do seem to be more closelyconnected to new firm formation and the growthof new industries in such clusters than was thecase for Fordist sectors dominated by isolated hi-erarchies (Whitley, 2007, pp. 70–78). This hasespecially been the case for the biotechnologyindustry, which has depended much more directlyon publicly financed university research than hasthe IT sector (Prevezer, 1998). Although someobservers suggested that “the presence of leadingresearch universities . . . was by no means suffi-cient to create Silicon Valley during the 1950sand 1960s” (Mowery & Sampat, 2005, p. 227),many attempts to replicate the success of thishigh-technology cluster have involved the activeparticipation of such universities.

This important role of publicly supported sci-entific and technological research, and universi-ties more generally, in stimulating new technolo-gies and industries constitutes part of a broadershift in perceptions of U.S. models of economicsuccess: the significance of state funding and risksharing for technological research and develop-ment. Whereas much product development andinnovation in the postwar model had limited andtenuous connections to current academic re-search, and was mostly conducted within largeprivate companies, the SV model clearly de-pended on massive federal support for university-based research and training combined with large-scale military support for new technologies andprocurement policies that encouraged investment

in risky projects (Leslie, 2000; Mowery & Nelson,1999; Saxenian, 1994). Indeed, Sturgeon (2000)suggested that it was during the early 20th cen-tury that the foundations of the SV model werelaid, including the important role of militarycontracts and advanced technological trainingof key inventors.

The widespread belief in the key contributionof academic research to the SV model, especiallyduring the 1990s dotcom boom and popularizationof the “knowledge economy,” encouraged manystates that had invested considerable resources inthe expansion of higher education and academicresearch in the 1960s and 1970s to develop knowl-edge transfer policies and involve universities andpublic research institutes more directly in eco-nomic development. Thus, patent laws werechanged in many countries to imitate what wasincorrectly seen to be the success of the Bayh-Dole Act of 1980 in stimulating research-basedeconomic growth (Mowery et al., 2004), andmany national and local governments attemptedto coordinate the use of academic research intechnological development.

Unlike the earlier U.S. model that largely re-stricted the explicit role of the state to a classicnight watchman regulatory function (Evans,1995; Johnson, 1982), the new SV model was alsoseen by many policy makers and advisers as justi-fying a coordinating and steering role for stateagencies, particularly with regard to the develop-ment and use of public scientific knowledge. As aresult, there was considerable interest in develop-ing regional innovation systems around leadinguniversities, creating internationally excellent re-search institutions, and facilitating technicaltransfer activities in many OECD countries(Asheim & Gertler, 2005; Kruecken & Meier,2006; Weingart & Maasen, 2007). Much staterestructuring of academic systems in Europe andAsia has been legitimated by the belief that theSV model showed how state-supported researchcould, and should, contribute directly to eco-nomic growth and that universities should play amuch more entrepreneurial role in the develop-ment of new knowledge-based industries (Clark,1998; Engwall & Weaire, 2008).

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The Impact of the Financial Crisis on theRelevanceof theU.S.Model

Given these differences in prevalent models ofU.S. capitalism and their varying influence onbusiness models and institutional arrange-

ments in different market economies since theend of World War II, what are likely to be theeffects of the current financial crisis and world-wide economic recession, widely seen as originat-ing in the United States, on the influence of theU.S. model on forms of economic organizationelsewhere in the world? At least five generalpoints can be made.

First, there seems little doubt that the greatlyexpanded role of the financial services sector inthe United States and United Kingdom since thederegulation of many financial markets in the1980s and 1990s will decline, and few policy mak-ers will be willing to rely on financial innovationsas the key to economic growth. The increasedflexibility and ease of trading financial instru-ments between firms, both on formal exchangesand directly between banks and other organiza-tions, which has become such a feature of dereg-ulated financial markets, encouraged banks andother providers of loans to slice them into differ-ent tranches of variously risky investments andsell them on to other financial and nonfinancialcompanies. The institutionalization of this “orig-inate-and-distribute” business model is widelyseen as having enabled many lenders to avoidresponsibility for their decisions and exit quicklyfrom commitments, at least as long as the marketsfor these products remained liquid. These kinds ofmarkets have been partly legitimated, if not in-deed directly facilitated, by developments in fi-nancial economics that assumed they are efficientand provided techniques for pricing options andother derivatives (MacKenzie, 2005).

Such low-commitment relationships betweenactors in financial markets are unlikely to be sus-tained in the short to medium term, whether inthe United States or elsewhere, even if a return tothe Glass-Steagall Act separation of commercialbanking from investment banking will be difficultto implement and is improbable given the exten-sive involvement of commercial banks in the U.S.

and Europe in complex and highly risky deriva-tives markets. It remains to be seen, though,whether academic research in financial economicschanges its presumptions and model-buildingtechniques significantly in the light of the presentcrisis in financial markets. Previous responses byorthodox economists to major recessions wouldsuggest that any such revisions are likely to belimited, although some financial journalists doseem ready to jettison the whole apparatus.

Second, the expansion of such transaction-based banking business models and rapid exitsfrom financial commitments seem likely to rein-force more general doubts about the viability ofultraliberal market economies in which ownershiprights can be traded very easily with few con-straints on short-term economic opportunism. Re-liance on arm’s-length forms of economic coordi-nation in contrast to more collaborative andsocially organized means of integrating economicactivities is becoming less attractive to many busi-ness and policy elites, particularly in societies thatdeveloped more coordinated market economies,such as in continental Europe and East Asia. Rigidenforcement of antitrust rules prohibiting inter-firm cooperation in developing new technologiesand markets seems likely to weaken in many so-cieties, as firms explore a variety of cooperativeand competitive relationships with business part-ners in different countries (Herrigel & Zeitlin,2009).

Third, together with the relative decline ofFordism and the significant differences betweenthe postwar U.S. mode of business organizationand the SV model, the growing interest in differ-ent business systems highlights the variety of ef-fective forms of economic organization to befound in the U.S. and other capitalist societies. Italso emphasizes the inadequacy of the belief thatthere is a single business model that is the mostefficient for all sectors and countries. Not only isthere not an all-encompassing and highly coher-ent U.S. model of capitalism that is more effectivethan other forms in all industries and markets, butthe relative success of particular U.S. models, suchas the SV one, is quite specific to certain sectorsand dependent on particular kinds of supportinginstitutional arrangements and services (Casper,


2007; Kenney, 2000). The current failure of ultra-flexible financial markets may well encouragemore sophisticated analyses of different competi-tion models, the conditions in which they becomesuccessful in different markets and industries, andhow contrasting institutional frameworks encour-age them to become established.

However, fourth, despite the reaction againstultraliberal market contracting, the SV model willprobably continue to be attractive to many policymakers, both in the United States and in otherOECD countries, as it offers the hope of economicgrowth through new industries and does not de-pend on the sorts of financial innovations andtrading that developed in the 2000s. Indeed, whileventure capitalists investing in new firms andprojects in Silicon Valley often expect to realizetheir profits through selling ownership stakes inthe medium term, they are much more committedto the active management of their investmentsthan the originate-and-distribute banking modelimplies, and are concerned to build on and en-hance their knowledge of particular technologies,markets, and people to do so effectively. Reregu-lating capital markets and limiting transaction-based banking need not, then, result in the col-lapse of Silicon Valley or inhibit the developmentof similar high-technology clusters.

Equally, given the limited role of equity mar-kets in supporting Fordist strategies in the 20th-century United States, it seems unlikely that in-troducing some constraints on financial flexibilityin the banking systems would prevent large firmsfrom successfully implementing mass production/mass marketing business models. While thepresent crisis may greatly reduce the size and dom-inant role of the U.S. financial services industry inits recent form, this need not necessarily lead tothe rejection of either the postwar U.S. model orthe SV variant.

If network-based firms are indeed key to eco-nomic growth in the 21st century (Powell, 2001),they seem to be quite specific to particular sectorsand environments. A U.S. model based on SVwill apply only to certain kinds of industries andbe restricted to quite local contexts. Insofar asthese limitations are recognized, they demonstratethe importance of key features of the business

environments, such as the provision of collectivecompetition goods and constraints on economicopportunism, for effective development of partic-ular competition models and interconnections be-tween firms’ capabilities, success in different kindsof markets and technologies, and dominant insti-tutions governing access to capital, labor, andproduct markets (Whitley, 2007, pp. 88–110).

Finally, the highly active roles of national gov-ernments in all sorts of capitalist societies in deal-ing with the current crisis, together with the im-portance of state support for the success of manyU.S. companies, have rendered prohibitions onstate steering of economic development uncon-vincing. This is especially so in many innovativesectors where state procurement policies, risksharing, and public funding of higher educationand scientific research have helped the growth ofnew industries. While being more important indefense and health-related industries in the post-war United States than in other sectors, statecoordination of investments, provision of collec-tive competition goods (Crouch et al., 2001,2004), and regulation of markets to encourageinnovation has been more significant in the de-velopment of many industries there than is oftenacknowledged (Breznitz, 2007; Dobbin, 1994;Roy, 1997; Weiss, 2009). Adopting a U.S. model,then, need by no means imply the relegation ofthe state to a passive bystander role.

Consequently, it seems highly likely that (a)the attractiveness of fully fledged market funda-mentalism of the kind imposed on many countriesin Eastern Europe in the early 1990s will be greatlydiminished by the current crisis, and (b) statesteering of economic development, regulation ofmarkets, and support for particular firms and in-dustries will be widely viewed as legitimate anddesirable, albeit in “market friendly” ways. Fromthis point of view, then, the collapse of hyperflex-ible financial markets in the United States andelsewhere will reinforce existing tendencies inmany industrializing countries for the state to playa leading role in coordinating and supporting eco-nomic development, as it did in many East Asianeconomies in the postwar decades. It is, though,worth pointing out that the geopolitical environ-ment in which the U.S. opened its markets to

2009 19Whitley

Japan and the NICs during the Cold War haschanged considerably, so that purely export-ori-ented industrialization is no longer likely to leadto similar rates of rapid growth.

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US capitalism a tarnished model

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