Is There an Anglo-American Economic Model?
The Term Is Inappropriate and Counterproductive
OCTOBER 01, 2000 by CHRISTOPHER LINGLE
Those who wish to avoid the painful changes wrought by increasingly competitive and open global markets speak derisively of an Anglo-American economic model. Allusions to a cabal of white men in dark suits involve a racial epithet that is distasteful. It is also ill-informed in that it belittles the enormous contribution made by women, Asiatic peoples, and individuals of African descent to these successful economies.
It may be true that the economies of the United States, Great Britain, and some members of the Commonwealth have performed differently (and for the most part, better) than others. However, the term “Anglo-American economic model” is inappropriate and its use counterproductive. Indeed, it is just as inaccurate as the claims of a Japanese or an Asian economic model, a delusion put in sharp focus by the ongoing crises in that region.
This approach to economic organization is not limited to any particular region of the world. Similarly, suggestions that globalism is an outgrowth of the “Westernization” of the world economies are misguided and misinterpret the dynamics of the process.
What has happened in America or the United Kingdom should not be thought of as the outcome of ethnic, regional, or cultural characteristics that cannot be experienced elsewhere. Instead, it represents a natural and historical evolution toward a harmonious blend of individualism and the market. Many of those who resist the process of institutional innovation are interest groups as well as rule-bound bureaucrats and politicians with a fixation on social engineering, or cultural conservatives who resist the changes wrought by modernization.
Nonetheless, it is useful to examine features and results that set the British and American economies apart. First among the features are their relatively flexible labor markets that allow rapid adjustments within the highly competitive global economy. Second, a rigorous set of laws and rules that provide guarantees for the rights of shareholders and other owners of business enterprises, including adjudication of disputes by competent and independent judges. Third, capital markets tend to be more important than bank lending so that there is more publicly available information on issuers and borrowers. Finally, there is a tendency to curb the power of governments to intervene in the market. This has been accomplished through lower tax rates, deregulation, and privatization.
In terms of results, it is interesting to note that the American and British economies provide incentives that support new job creation. By being more open to competition, they encourage and reward entrepreneurial innovation. Consequently, these economies exhibit unemployment rates that are lower and economic growth rates higher than most other industrialized economies.
Implicit in critiques of the so-called Anglo-American model is a presumption that its economic actors are immune to a certain sense of humanity. It is as though the world would be better if kinder, gentler bureaucrats and politicians were more active in guiding economic matters. But there is little evidence that political judgments are consistently made on the basis of fairness. Citizens in most emerging market economies are aware that corruption, cronyism, discrimination, and nepotism come from the politicization of economic life.
An alternative approach to more market-driven economies is an active government hand in protecting certain factions that are presumed to have a stake in the outcome of corporate decisions. In turn, corporate executives are told they must include a contrived group of “stakeholders” even at the expense of the interests of owners (stockholders). From the beginning, the assertion of stakeholders and a demand for their “rights” was flawed on principle and intrusive on the rights of owners.
Advocating stakeholder rights reflects an explicit resistance to an open and competitive global market. Trade unions encourage this notion to protect jobs of their members. Yet this hinders workers and owners of more competitive companies from being successful.
By contrast, the shareholder model is guided by profitability that arises from satisfying customers so that the mutual interests of hired managers and shareholders are also served. The shareholder model is also associated with increased efficiency in the use of capital.
Indifference to Profits
By operating in a competitive capital market, companies operating under the shareholder model are forced to measure performance against profits. In the past, producers in Korea, Japan, and other Asian countries focused on market share and cash flow instead of profitability. Their indifference to profits was prompted by access to cheap capital, which induced them to make imprudent investments that did not consider rates of return. Firms operating under this approach did not build up capital reserves to protect them against downturns.
Looking at the U.S. economy, double-digit interest rates combined with high inflation and unemployment rates during the 1970s prompted substantial restructuring of the American economy during the 1980s. Though inflicting considerable pain, reinventing U.S. businesses set the basis for the current boom. Business and political leaders in Europe and Asia are trying to avoid these adjustments. Indeed, many in the current management elite fear their dismissal will be a condition for access of foreign lending or buyouts.
Opening up domestic capital markets in Asia and Europe may be the single most important change. Liberalization of financial markets would force an unprecedented shift in political and corporate culture. It would allow foreign ownership that can provide initiative and funds to recapitalize their economies as well as restructuring of their industries.
In sum, it would be foolish to believe that the growing dominance of a single economic system associated with globalization is a form of neo-imperialism or is the outcome of a conspiratorial design. To do so ignores the nature of cultural and political evolution. In this dynamic process, those models of organization that provide better results for their respective communities are better able to survive and are imitated by others.