Page 191 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
systems and economic success, economic performance is ultimately a
function of many factors and cannot be completely explained by any
particular institutional arrangement. Moreover, as the contributors
to Suzanne Berger and Ronald Dore’s edited book, National Diversity
and Global Capitalism: Domestic Institutions and the Pressures for
National Convergence (1996), amply demonstrate, different societies
use different institutional arrangements to perform the same eco-
47
nomic functions. Although an economy may borrow “best practice”
techniques and institutions from one another, as happened when the
United States and others adopted Japan’s system of lean production,
there is no one-to-one correspondence across national economies be-
tween structure and function.
It is certain that some economic systems have failed miserably, no-
tably the command economies of the former Soviet bloc, and this
suggests that there are some minimal requirements for economic suc-
cess. Nathan Rosenberg and L. E. Birdzell demonstrate, in How the
West Got Rich (1986), that government policies and socioeconomic
institutions must facilitate efficient, flexible, and innovative economic
behavior. 48 Whether through an unfettered market mechanism or
some form of state interventionism, a society must create incentives
that encourage entrepreneurship, innovation, accumulation, and effi-
cient use of the basic factors of production (especially through invest-
ment in capital and skilled labor). Society must also reward innova-
tive activities and support the economy’s ability to adjust to
economic, technological, and other changes. However, such objec-
tives as these can be fulfilled by differing economic institutions and
practices.
The outstanding performance of the American economy in the
1990s and the dismal failure of many other economies convinced
most Americans, as well as many others, that the American economy
should be the model for the rest of the world. Throughout most of
the decade, the United States enjoyed a high rate of economic growth,
low unemployment, and low inflation, while Western Europe had a
low rate of economic growth and a very high rate of unemployment.
After the collapse of its bubble economy in the early 1990s, Japan
entered a serious financial crisis and, somewhat later, a recession. Al-
though the other Pacific Asian economies posted spectacular rates of
47
Suzanne Berger and Ronald Dore, eds., National Diversity and Global Capitalism:
Domestic Institutions and the Pressures for National Convergence (Ithaca: Cornell
University Press, 1996).
48
Nathan Rosenberg and L. E. Birdzell Jr., How the West Got Rich: The Economic
Transformation of the Industrial World (New York: Basic Books, 1986).
178