German and Japanese Stakeholder Capitalism

People in Germany and Japan…do not have quite the same views about money and motives as Gordon Brown and Bill Clinton have. They tend to believe that, although money is a splendid thing to have, and few people would not put themselves out to get some, if you want to know why people work hard, work conscientiously, work creatively, work entrepreneurially, money is only a small part of the answer: you need also look at social structures, the perceived fairness of organizational arrangements, friendships, collegiality, obligations arising from personal relations, as well as the intrinsic satisfactions of the work itself.

Historically, the stakeholder/shareholder divide can be located along geographical lines. While the US and much of Europe have followed the Anglo-Saxon (aka shareholder) model, Germany and Japan have a long tradition of stakeholder economics.

Germany’s two-level system of corporate control…management boards, responsible for day-to-day decisions, and supervisory boards, made up of big shareholders and assorted interest groups – not just banks but also local politicians, cartel partners, and, eventually, trade unions. All these structural differences…reinforced the fourth distinguishing thing about German companies: the emphasis on their social role.

German stakeholder capitalism was voluntary at first, later enforced by Bismarck, and then resulted in an ingrained “powerful belief that, in an ideal world, all interests ought to be involved in decisionmaking.”

Japanese “long-termism” was similar to the German stakeholder style of capitalism.

Management was usually by consensus…Japanese companies operated in families or keiretsu – reinventing the zaibatsu that General MacArthur had broken up – while American companies operated as independent units. And while Western companies tended to be accountable to short-term investors, Japanese firms financed their expansion with loans from their keiretsu banks. As for profits, these were deemed less important than market share. Japanese firms were prepared to tolerate very low returns on investment.

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