Page 163 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
cal economy result from the variations in the basic components of
economies.
The purpose of economic activity in a particular country largely
determines the role of the state in that economy. In those liberal socie-
ties where the welfare of the consumer and the autonomy of the mar-
ket are emphasized, the role of the state tends to be minimal. Al-
though liberal societies obviously differ in the extent to which they
do pursue social welfare goals, the predominant responsibility of the
state in these societies is to correct market failures and provide public
goods. On the other hand, in those societies where more communal
or collective purposes prevail, the role of the state is much more intru-
sive and interventionist in the economy. Thus, the role of such states
can range from providing what the Japanese call “administrative
guidance” to maintaining a command economy like that of the for-
mer Soviet Union.
The system of corporate governance and private business practices
constitutes another important component of a national political econ-
omy. American, German, and Japanese corporations have differing
systems of corporate governance, and they organize their economic
activities (production, marketing, etc.) in varying ways. For example,
whereas shareholders (stockholders) have an important role in the
governance of American business, banks have played a more impor-
tant role in both Japan and Germany. In addition, regarding business
practices, whereas the largest American firms frequently invest and
produce abroad, Japanese firms prefer to invest and produce at home.
The policies of each government have also shaped the nature of busi-
ness enterprise and business behavior through regulatory, industrial,
and other policies; furthermore, some national differences in corpo-
rate structure and business practices, as Alfred Chandler has demon-
strated, have evolved largely in response to economic and technologi-
cal forces. 3

The American System of Market-Oriented Capitalism

The American system of political economy is founded on the premise
that the primary purpose of economic activity is to benefit consumers
while maximizing wealth creation; the distribution of that wealth is
of secondary importance. Despite numerous exceptions, the American
economy does approach the neoclassical model of a competitive mar-

3
Alfred D. Chandler, Strategy and Structure: Chapters in the History of the Indus-
trial Enterprise (Cambridge: MIT Press, 1970).
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