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EU Mediation of Global Capital Flows vs National Corporate-Labor Coalitions: The Great Battle over the EU Takeover Bill, 1990-2001
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amounts, the effects are asymmetric. Third, with respect to structural reforms, the mostrelevant flows are equity inflows, FDI financial flows and FDI corporate flows. Theseflows bring outsiders into the national political economic game and lead to both firm-level competitive pressures and government-level reform pressures. Of these three flows,equity inflows tend to have the most systemic effect (government level pressures)because they directly affect the general level of the stock market, with all its cascadingeffects (such as bank capital adequacy ratios and credit ratings throughout the economy).
The domestic impact of free global financial inflows is particularly great in the
case of non liberal capitalist systems. These non liberal systems integrated acomplementary set of industrial organizational features (large groups, cross-shareholdings), stable employment practices, bank-centered corporate finance, andwelfare corporatism that set them apart from the more liberal systems in the US andUK.
15
The liberal Anglo-Saxon systems embedded radically different practices, in
particular direct financing through capital markets, dispersed corporate ownership, andmore flexible labor markets. The contrast is often labeled as one between “stakeholdercapitalism” and “investor capitalism”.
16
The clash between the two systems is particularly
clear on the issue of corporate governance. The Anglo-Saxon model of governance viewsthe enterprise primarily in terms of maximization of shareholder value, a concern withefficiency, and effective checks and balance through external board members.
Why are global financial flows particularly challenging to non liberal systems?
The primary answer is because free global financial flows and deregulated finance aremore compatible with liberal systems than with non liberal systems. Capital markets formthe corner stone of a liberal system but were long poor parents in non-liberal systems. Itis important to remember that financial deregulation and the removal of capital controlssince 1971 were spearheaded by the US and the UK, creating competitive pressures onnon liberal systems to follow suit.
Thus, as Ron Dore (1998) points out, financial deregulation and the rise in equity
inflows in non liberal systems brings about a tension between stakeholder concernsstemming from the traditional set-up and newly introduced shareholder concerns.According to Ahmadjian and Robbins, “with their growing investments abroad,institutional investors, with no interest other than to maximize returns for their investors,increasingly replaced long-term, patient shareholders. Firms with foreign shareholderssimultaneously confronted two systems of business, and two very different sorts ofpressure.” (2002: 5). Furthermore, the process of financial deregulation and capitalcontrol liberalization involve much greater challenges for non liberal systems than forliberal systems, since corporate financing was the core institution sustaining the wholesystem. Financial deregulation must thus be accompanied by a whole series of other legalmoves, including the setup of supervisory institutions, corporate reforms, and laborreforms. In the absence of these accompanying moves, the system risks remaining stuckin a transitional and dysfunctional stage. The initial complementarity and interlockingcharacteristics of the various components of non liberal system may become problematic
15
See dicussion by Ahmadjian and Robbins 2002: 7-10
16
See Aoki 1988, Dore 2000, and Ahmadjian and Robbins 2002
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| | Authors: Tiberghien, Yves. |
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9
amounts, the effects are asymmetric. Third, with respect to structural reforms, the most
relevant flows are equity inflows, FDI financial flows and FDI corporate flows. These
flows bring outsiders into the national political economic game and lead to both firm-
level competitive pressures and government-level reform pressures. Of these three flows,
equity inflows tend to have the most systemic effect (government level pressures)
because they directly affect the general level of the stock market, with all its cascading
effects (such as bank capital adequacy ratios and credit ratings throughout the economy).
The domestic impact of free global financial inflows is particularly great in the
case of non liberal capitalist systems. These non liberal systems integrated a
complementary set of industrial organizational features (large groups, cross-
shareholdings), stable employment practices, bank-centered corporate finance, and
welfare corporatism that set them apart from the more liberal systems in the US and
UK.
15
The liberal Anglo-Saxon systems embedded radically different practices, in
particular direct financing through capital markets, dispersed corporate ownership, and
more flexible labor markets. The contrast is often labeled as one between “stakeholder
capitalism” and “investor capitalism”.
16
The clash between the two systems is particularly
clear on the issue of corporate governance. The Anglo-Saxon model of governance views
the enterprise primarily in terms of maximization of shareholder value, a concern with
efficiency, and effective checks and balance through external board members.
Why are global financial flows particularly challenging to non liberal systems?
The primary answer is because free global financial flows and deregulated finance are
more compatible with liberal systems than with non liberal systems. Capital markets form
the corner stone of a liberal system but were long poor parents in non-liberal systems. It
is important to remember that financial deregulation and the removal of capital controls
since 1971 were spearheaded by the US and the UK, creating competitive pressures on
non liberal systems to follow suit.
Thus, as Ron Dore (1998) points out, financial deregulation and the rise in equity
inflows in non liberal systems brings about a tension between stakeholder concerns
stemming from the traditional set-up and newly introduced shareholder concerns.
According to Ahmadjian and Robbins, “with their growing investments abroad,
institutional investors, with no interest other than to maximize returns for their investors,
increasingly replaced long-term, patient shareholders. Firms with foreign shareholders
simultaneously confronted two systems of business, and two very different sorts of
pressure.” (2002: 5). Furthermore, the process of financial deregulation and capital
control liberalization involve much greater challenges for non liberal systems than for
liberal systems, since corporate financing was the core institution sustaining the whole
system. Financial deregulation must thus be accompanied by a whole series of other legal
moves, including the setup of supervisory institutions, corporate reforms, and labor
reforms. In the absence of these accompanying moves, the system risks remaining stuck
in a transitional and dysfunctional stage. The initial complementarity and interlocking
characteristics of the various components of non liberal system may become problematic
15
See dicussion by Ahmadjian and Robbins 2002: 7-10
16
See Aoki 1988, Dore 2000, and Ahmadjian and Robbins 2002
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