Strong Managers, Weak Owners: The Political Roots of American Corporate Finance

By Mark J. Roe | Go to book overview

CHAPTER 20
Counterpoint II

THE ISSUE of industrial organization leads to another issue. Can one identify the superiority or inferiority of institutional voice by comparing the performance of national economies where it is strong with the performance of those where it is weak?


AMERICAN COMPETITIVE SUPERIORITY

In the end, enhanced institutional voice in the United States must be justified in American terms, not by using the foreign systems as blueprints. But the post–World War II successes of Germany and Japan with different governance systems pique our curiosity. Might they have a better system? This possibility, vivid until the German and Japanese economic setbacks of the early 1990s, probably led some people to associate foreign success with the foreign differences.

There is a debater's superficially strong rebuttal to this association, as I briefly noted in chapter 2. It goes like this: After World War II, the United States was superior as an economic competitor to Germany and Japan, and the United States then had the same corporate governance system as it does now. Does this detract from the importance of looking at corporate governance weaknesses in the United States? Does it mean that poor corporate governance cannot help explain the country's recent problems or the foreign nations' successes, because each nation had the same governance system forty years ago, when the United States was strong and the others weak? Different governance structures may mask the real reasons for foreign successes: weaker entrenched interest groups,1 or better-educated and better-motivated employees, or better macroeconomic policies, or success just from catching up by copying more advanced economies.

Many factors explained American economic superiority over Germany and Japan in 1945, including military superiority. It is logically possible that American corporate governance had a few problems then and has a few now but because governance is a secondary economic feature, it did not drag down the American economy. For many decades, large-scale

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1
See Mancur Olson, The Rise and Decline of Nations (1982).

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