Firms, Organizations and Contracts: A Reader in Industrial Organization

By Peter J. Buckley; Jonathan Michie | Go to book overview

13

Goodwill and the Spirit of Market Capitalism

Ronald Dore

HOBHOUSE MEMORIAL LECTURE

Why have large factories given way to the co-ordinated production of specialized family units in segments of the Japanese textile industry? One reason is the predominance of 'obligated relational contracting' in Japanese business. Consumer goods markets are highly competitive in Japan, but trade in intermediates, by contrast, is for the most part conducted within long-term trading relations in which goodwill 'give-and-take' is expected to temper the pursuit of self-interest.

Cultural preferences explain the unusual predominance of these relations in Japan, but they are in fact more common in Western economies than textbooks usually recognize. The recent growth of relational contracting (in labour markets especially) is, indeed, at the root of the 'rigidities' supposedly responsible for contemporary stagflation. Japan shows that to sweep away these rigidities and give markets back their pristine vigour is not the only prescription for a cure of stagflation. The Japanese economy more than adequately compensates for the loss of allocative efficiency by achieving high levels of other kinds of efficiency--in many respects thanks to, rather than in spite of, relational contracting. We would do well to be more concerned about those kinds of efficiency too.

One of economists' favourite Adam Smith quotations is the passage in the Wealth of Nations in which he sets out one of his basic premises.

It is not from the benevolence of the butcher, the brewer and the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our necessities but of their advantages. 1

-359-

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Firms, Organizations and Contracts: A Reader in Industrial Organization
Table of contents

Table of contents

  • Title Page iii
  • Preface and Acknowledgements v
  • Acknowledgements vi
  • Contents viii
  • List of Contributors xi
  • Foreword xiii
  • Introduction and Overview 1
  • Notes 18
  • References 20
  • I. THEORY OF THE FIRM 21
  • 1: The Equilibrium of the Firm 23
  • 2: The Nature of the Firm 40
  • 3: The Organization of Industry 59
  • 4: Production, Information Costs, and Economic Organization 75
  • Summary 95
  • Notes 96
  • References 102
  • 5: Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure 103
  • Conclusions 151
  • Notes 151
  • References 163
  • 6: Transaction-Cost Economics: The Governance of Contractual Relations 168
  • Conclusion 192
  • 7: An Economist's Perspective on the Theory of the Firm 199
  • Conclusion 212
  • Notes 212
  • II. MARKETS AND INDUSTRIAL ORGANIZATION 219
  • 8: Corporate Culture and Economic Theory 221
  • Introduction 221
  • Conclusion 261
  • Appendix 262
  • Appendix 271
  • Appendix 273
  • References 274
  • 9: Co-operative Agreements and the Organization of Industry 276
  • References 292
  • 10: Interpenetration of Organization and Market: Japan's Firm and Market in Comparison with the US 293
  • Conclusion 317
  • References 319
  • 11: Vertical Quasi-Integration 320
  • Conclusions 336
  • Notes 337
  • 12: Non-Contractual Relations In Business: A Preliminary Study 339
  • 13: Goodwill and the Spirit of Market Capitalism 359
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 383
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 385
  • References 407
  • 15: Joint Ventures 410
  • Conclusion 427
  • References 428
  • 16: Organizations: New Concepts for New Forms 429
  • Conclusion 440
  • Notes 441
  • 17: Markets, Bureaucracies, and Clans 442
  • References 456
  • Notes 459
  • References 473
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