Innovative business models and varieties of capitalism: Financialization of the U.S. corporation

Business History Review

Volumn 84, Issue 4, 2010, Pages 675-702

  Lazonick, William ^a  

^a UNIVERSITY OF MASSACHUSETTS   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 79952435332     PISSN: 00076805     EISSN: 2044768X     Source Type: Journal    
DOI: 10.1017/S0007680500001987     Document Type: Article

References (83)

1. William Lazonick, "The New Economy Business Model and the Crisis of U.S Capitalism," Capitalism and Society 4, no. 2 (2009) (online journal)
2. Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Kalamazoo, Mich., 2009).
3. See, for example, Michael Mandel, "The Failed Promise of Innovation in the United States," BusinessWeek, June 3,2009.
4. Peter Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Founda tions of Comparative Advantage (Oxford, 2001), 27.
5. William Lazonick, "Entrepreneurial Ventures and the Developmental State: Lessons from the Advanced Economies," World Institute of Development Economics Research, dp2008/ 01
6. available at http://www.wider.unu.edu/publications/working-papers/ discussion-papers/2008/en-GB/dp20o8-oi/.
7. Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977).
8. Alfred D. Chandler Jr., Inventing the Electronic Century: The Epic Story of the Consumer Electronic and Computer Industries (New York, 2001), chs. 2 and 3.
9. Michaela Platzer and Glennon Harrison, "The U.S. Auto Industry: National State Trends in Manufacturing Employment," Congressional Record Service Report, 7-5700,3 Aug. 2009
10. U.S. Vehicle Sales Market Share by Company, 1961-2008," at WardsAuto.com http://wardsauto.com/keydata/.
11. Ronald Kalafsky and Alan MacPherson, "The Competitive Characteristics of the U.S. Machine Tool Industry," Small Business Economics 19, no. 4 (2002): 355-69. (Pubitemid 37131576)
12. Frank Giarratani, Gene Gruver, and Randall Jackson, "Clusters, Agglomeration, and Economic Development Potential: Empirical Evidence Based on the Advent of Slab Casting by U.S. Steel Minimills," Economic Development Quarterly 21, no. 2 (2007): 148-64.
13. Robert Burgelman, "Fading Memories: A Process Theory of Strategic Exit in Dynamic Environments," Administrative Science Quarterly 39, no. 1 (1994): 24-56
14. Daniel Okimoto and Yoshio Nishi, "R&D Organization in Japanese and American Semiconductor Firms," in The Japanese Firm: Sources of Competitive Strength, ed. Masahiko Aoki and Ronald Dore (Oxford, 1994), 178-208.
15. Lazonick, "The New Economy Business Model"; and Sustainable Prosperity in the New Economy?
16. William Lazonick, "The Chandlerian Corporation and the Theory of Innovative Enterprise," Industrial and Corporate Change 19, no 2 (2010): 317-49
17. Sustainable Prosperity in the New Economy?
18. The stock market can perform five functions in the operation of the company that can be summarized as creation, control, combination, compensation, and cash.
19. See Lazonick, "The New Economy Business Model."
20. Under the new-economy business model, most companies list on NASDAQ, which has less stringent listing requirements than the New York Stock Exchange, thus tending to shorten the duration of time from company formation to initial public offering (IPO), which in turn tends to increase the prevalence of owner-entrepreneurs who still exercise a degree of control over the allocation of resources of the company after the IPO. Nevertheless, the participation of venture capital and the use of broad-based stock option plans in the new-economy model contribute to the separation of ownership from control at the IPO, and the tendency remains for the complete separation of ownership from control over time under the new model.
21. For the main characteristics of the U.S. old-economy business model.
22. see David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism (New York, 1977)
23. David Mowery and Nathan Rosenberg, Technology and the Pursuit of Economic Growth (New York, 1989);
24. Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Enterprise (Cambridge, Mass., 1990)
25. Thomas P. Hughes, American Genesis: A Century of Invention and Technological Enthusiasm, 1870-1970 (New York, 1990)
26. William Lazonick, Competitive Advantage of the Shop Floor (Cambridge, Mass., 1990), chs. 7-10
27. William Lazonick, "The Innovative Firm," in The Oxford Handbook of Innovation, ed. Jan Fagerberg, David Mowery, and Richard Nelson (Oxford, 2004), 29-55
28. David Brody, Workers in Industrial America: Essays on the Twentieth Century Struggle (Oxford, 1993, 2nd ed.)
29. Nathan Rosenberg and Richard Nelson, "American Universities and Technological Advance in Industry," Research Policy 23, no. 3 (1994): 323-48
30. David Hounshell, "The Evolution of Industrial Research in the United States," in Engines of Innovation: U.S. Industrial Research at the End of an Era, ed. Richard Rosenbloom and William Spencer (Boston, 1996), !3-85
31. Mary O'Sullivan, Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany (Oxford, 2000), chs. 3-6.
32. Nonsalaried employees are classified as "hourly" (or "nonexempt") workers because of the stipulation of the Fair Labor Standards Act of 1938 that requires employees who are paid an hourly wage to receive 150 percent of that wage if they work longer than the normal working hours. The overtime work of salaried personnel is exempt from this provision.
33. This section draws on the following works: Eleanor Hadley, Antitrust in Japan (Princeton, 1970)
34. Shinichi Yonekawa, "University Graduates in Japanese Enterprises before the Second World War," Business History 26, no. 3 (1984): 193-218
35. James C. Abegglen and George Stalk Jr., Kaisha: The Japanese Corporation (New York, 1985)
36. Michael Cusumano, The Japanese Automobile Industry: Technology and Management at Nissan and Toyota (Cambridge, Mass., 1985)
37. Andrew Gordon, The Evolution of Labor Relations in Japan: Heavy Industry, 1853-1955 (Cambridge, Mass., 1985).
38. See also the following works by Ronald Dore: Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy, 1970-1980 (Stanford, 1986)
39. Taking Japan Seriously: A Confucian Perspective on Leading Economic Issues (Stanford, 1987)
40. British Factory, Japanese Factory: The Origins of National Diversity in Industrial Relations (Berkeley, 1990, 2nd ed.)
41. Stock Market Capitalism, Welfare Capitalism: Japan and Germany versus the Anglo-Saxons (Oxford, 2000).
42. See also: Kim Clark and Takahiro Fujimoto, Product Development Performance: Strategy, Organization, and Management in the World Auto Industry (Boston, 1991)
43. Masahiko Aoki and Ronald Dore, eds., The Japanese Firm: Sources of Competitive Strength (Oxford, 1994)
44. Okimoto and Nishi, "R&D Organization in Japanese and American Semiconductor Firms.
45. Mari Sako and Hiroki Sato, eds., Japanese Labour and Management in Transition: Diversity, Flexibility, and Participation (London, 1997)
46. Hidemasa Morikawa, A History of Top Management in Japan: Managerial Enterprises and Family Enterprises (Oxford, 2001
47. The following by Lazonick: "Strategy, Structure and Management Development in the United States and Britain," in Development of Managerial Enterprise: Proceedings of the Fuji Conference, ed. Kesaji Kobayashi and Hidemasa Morikawa (Tokyo, 1986), 101-46
48. Cooperative Employment Relations in Manufacturing and Japanese Economic Growth," in Capital, the State, and Labour: A Global Perspective, ed. Juliet Schor and Jong-Il You (Al-dershot, 1995), 70-110
49. Organizational Learning and International Competition," in Globalization, Growth, and Governance: Creating an Innovative Economy, ed. Jonathan Michie and John Grieve Smith (Oxford, 1998), 204-38
50. The Japanese Economy and Corporate Reform: What Path to Sustainable Prosperity?" Industrial and Corporate Change 8, no. 4 (1999): 607-33
51. The Institutional Triad and Japanese Development" [in Japanese], in The Contemporary Japanese Enterprise, ed. Glenn Hook and Akira Kudo (Tokyo, 2005), 1: 55-82.
52. These institutions are conventionally labeled "cross-shareholding, " "lifetime employment," and "the main bank system," respectively. For reasons elaborated in Lazonick, "The Institutional Triad and Japanese Development," these conventional terms are misleading.
53. When in financial distress, a company might raise cash by selling some of its stable shareholdings to other companies at the going market price, but with an understanding that the shares would be repurchased, also at the going market price, if and when its financial condition improved.
54. The value of shares held by foreigners increased from 6 percent in 1992 to over 13 percent in 1998 to almost 28 percent in 2008. Tokyo Stock Exchange, Fact Book 2009 (2009), 61, available at http://www.tse.or.jp/english/market/ data/factbook/index.html.
55. Hence, my use of the more modest term "main bank lending," rather than the grandiose term "main bank system," to describe this institution. "This section draws upon Lazonick, Sustainable Prosperity in the New Economy? and references contained therein.
56. On the historical role of the U.S. government in the development of the computer industry.
57. see Ernest Braun and Stuart MacDonald, Revolution in Miniature: The History and Impact of Semiconductor Electronics (Cambridge, U.K., 1982, 2nd ed.)
58. Kenneth Flamm, Targeting the Computer: Government Support and International Competition (Washington, D.C., 1987), and Creating the Computer: Government, Industry, and High-Technology (Washington, D.C., 1988)
59. Stuart Leslie, "How the West Was Won: The Military and the Making of Silicon Valley," in Technological Competitiveness: Contemporary and Historical Perspectives on the Electrical, Electronics, and Computer Industries, ed. William Aspray (New York, 1993), 75-89
60. David Mowery and Richard Langlois, "Spinning Off and Spinning On: The Federal Government Role in the Development of the U.S. Computer Software Industry," Research Policy 25, no. 6 (1996): 947-66 (Pubitemid 126364463)
61. Arthur Norberg and Judy O'Neill, Transforming Computer Technology: Information Processing for the Pentagon, 1962-1986 (Baltimore, 1996)
62. National Research Council, Funding a Revolution: Government Support for Computing Research (Washington, D.C., 1999)
63. Janet Abbate, Inventing the Internet (Cambridge, Mass., 1999).
64. Lazonick, Sustainable Prosperity in the New Economy? 30-31.
65. Lazonick, The New Economy Bussiness Model.
66. U.S. Congress, "Democrats Tell Big Oil: Spend More on Production and Renewable Energy, Less on Stock Buybacks before Making Demands for New Drilling Leases" (Washington, D.C., 31 July 2008)
67. see also Kristen Hays and David Ivanovich, "Politicians Fume as Exxon Profits," Houston Chronicle, 1 Aug. 2008.
68. U.S. Congress, "Democrats Tell Big Oil."
69. American Energy Innovation Council, "A Business Plan for America's Energy Future," June 2010, available at http://www. americanenergyinnovation.org/full-report/
70. John Broder, "A Call to Triple U.S. Spending on Energy Research," New York Times, 9 June 2010.
71. William Milberg, "Shifting Sources and Uses of Profits: Sustaining U.S. Financialization with Global Value Chains," Economy and Society 37, no. 3 (2008): 420-51
72. Lazonick, Sustainable Prosperity in the New Economy?
73. U.S. Could Lose Race for Nanotech Leadership, SIA Panel Says," Electronic News, 16 Mar. 2005.
74. In 2008, the NNI (national nanotechnology infrastructure) budget was $1.55 billion with an estimated budget for 2009 of $1.65 billion, and a proposed $1.64 billion for 2010.
75. See the Web site www.nano.gov/html/about/funding.html http://www.nano.gov/html/about/funding.html.
76. U.S. Could Lose Race for Nanotech Leadership.
77. William Lazonick and Oner Tulum, "U.S. Biopharmaceutical Finance and the Sustain-ability of the Biotech Business Model," Research Policy (forthcoming).
78. AFL-CIO, Executive Paywatch (2009).
79. See the Web site http://www.aflcio.org/corporatewatch/paywatch/pay/index. cfm.
80. William Lazonick, "The Explosion of Executive Pay and the Erosion of American Prosperity," Entreprises et Histoire 57 (2010): 141-64.
81. William Lazonick, "The Explosion of Executive Pay and the Erosion of American Prosperity," Entreprises et Histoire 57 (2010): 141-64.
82. Lazonick, Sustainable Prosperity in the New Economy? ch. 2.
83. Lazonick, Sustainable Prosperity in the New Economy? ch. 2.