PROFESSIONAL ETHICS

Assignment#04

C#59

TYPES OF CAPITALISM
1- Consumer capitalism

Consumer capitalism describes an economic and cultural condition in which consumer demand is
manipulated, in a deliberate and coordinated way through mass-marketing techniques, to the advantage
of sellers.
This controversial phrase suggests manipulation of consumer demand so potent that it has a coercive
effect, amounts to a departure from free-market capitalism, and has an adverse effect on society in
general. Some use the phrase as shorthand for the broader idea that the interests of other entities
(governments, religions, the military, educational institutions) are intertwined with corporate interests,
and that those entities also participate in the management of social expectations through mass media.
The origins of consumer capitalism are found in the development of American department stores in the
1850s, notably the advertising and marketing innovations at Wanamaker's in Philadelphia. Leach argues
there was indeed a deliberate and coordinated effort among American 'captains of industry' to detach
consumer demand from 'needs' to wants.
In business history, the mid-1920s saw Alfred P. Sloan stimulating increased demand for General Motors
products by instituting the annual model year change and planned obsolescence, a move that changed the
dynamics of the largest industrial enterprise in the world, away from technological innovation and
towards satisfying market expectations.
Critics of consumer capitalism hold that advertising is neither coercive nor probably effective, that the
1958 Edsel catastrophe is proof that even the powerful automobile industry cannot successfully
manipulate public opinion and that allegation of a coordinated effort to manipulate public opinion are
nothing more than a conspiracy theory.
An important contribution to the critique of consumer capitalism has been made by the French
philosopher Bernard Stiegler, but very little of this has been translated into English. Stiegler argues that
capitalism today is governed not by production but by consumption, and that the techniques used to
create consumer behavior amount to the destruction of psychic and collective individuation. The diversion
of libidinal energy toward the consumption of consumer products, he argues, results in an addictive cycle,
leading to hyper-consumption, the exhaustion of desire, and the reign of symbolic misery.

2- Frontier capitalism
It is true that one of the tasks that governments throughout the world set themselves in the 1980s was the
ability to move huge sums of money and capital at speeds not imaginable in the past deregulation of the
financial markets, combined with enormous advances in technology made this possible. But there is,
however, one problem in all this. Why is it that the so-called globalization and integration of the world's
economy has gone hand in hand with greater restrictions in the movement of the world's population? Why
is it that such enormous numbers of the world's population are subject to even more stringent and
draconian controls? Europe provides a good example of how both processes develop simultaneously. On
the one hand there is the attempt to move towards greater integration between the European economies.
This is what lies behind the whole EMU project the lowering of restrictions between the various European
economies, convergence of the currencies, greater political co-operation, and supposedly, the free
movement of labor between member states globalization, if you like This has also gone hand in hand with
the European governments becoming less hospitable to migrants and asylum seekers.

3- Producer capitalism
The chief market agents distinguishable from this producer economy were large merchants and
corporations exploiting speculative credit opportunities not available to smaller proprietors. Large scale
merchants exercised increasing power over produces gradually moving from horizontal integration of
households to an early form of vertical or hierarchical integration of artisans. Eventually such merchants,
either privately or through banks provided much of the capital that made possible forms of corporate
industrial enterprises which included manufacturing firms and transportation facilities, especially for rail
roads. For the purpose of this study the point is that these merchants and corporate capitalists posses
financial advantages attained through risks, economies of scale and political and legal influence which

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PROFESSIONAL ETHICS

Assignment#04

C#59

smaller scale producers generally lacked. The threat to producer independence that these market and
political advantages represented, moreover, seemed very great. So great that it was understandably
difficult for average producers to conceive that they had the same economic opportunity a s the corporate
or merchant capitalist.

4- Family capitalism
The family is a fundamental unit of society. Family business is: a form of enterprise in which both
ownership and management are controlled by a family kinship group, either nuclear or extended, and the
fruits of which remain inside that group, being distributed in some way among its members.\
Family businesses have been remarkably obdurate in Asia, as well as in other developing and some
developed countries. Recent researches by Stijn Claessens from the World Bank show that, in developing
countries such as Malaysia, Thailand and Philippines, families control a large proportion, if not the
majority, of businesses and, moreover, that this phenomenon also exists in developed East Asian
economies such as Hong Kong and Singapore. Family businesses also continue to be present in
substantial numbers in other non-Asian developed countries as well as transitional economies. The
economic power wielded by family businesses can be enormous. The study by
Claessens et al, using 1996 data, found that the top 15 family groupings in Indonesia controlled a massive
61.7 per cent of the total value of listed assets, representing 21.5 per cent of GDP.
The Claessens study has been substantiated to some extent by a later, but more limited, study
commissioned by the Asian Development Bank (ADB).
In view of these substantive findings, it is critical that researchers and policy-makers learn more about
how these family businesses are run and, in particular, how family companies are governed
Given the dominance, if not prevalence, of family companies it is unfortunate that, to date, there does not
appear to be a standard terminology which describes the corporate governance of family-controlled
companies. In other words, personalized and relational business dealings are not unique to the third
paradigm. Instead, what appears to be unique in countries which fall into the third paradigm is the fact
that a significant number of companies in these countries, even those which are publicly-listed, are owned
or controlled by the individuals who founded them or their families. This appears to be one of the key
findings of the Claessens study as substantiated by the ADB study. The important point to note is that
individual founders eventually pass from the scene and their holdings typically are handed down, either
during their lifetimes or thereafter, to their families. Hence, it seems appropriate to refer to the corporate
governance phenomenon in such countries as family capitalism rather than personal capitalism. The
use of the term family thus distinguishes this third paradigm from the first and second paradigms on two
fronts: the relational and personalized nature of business and corporate dealings prevailing within and
among companies in the third paradigm; and the fact that many of these companies are largely owned or
controlled by families.
The renewed interest in family capitalism has spurred research and discussion on some of the corporate
governance implications associated with this paradigm. For example, Khan discusses the flexibility and
agility of family-based management. Carney & Gedajlovic suggest that because of the coupling of
ownership with control, businesses under the family capitalism paradigm, on the one hand, tend to have
powerful incentives for running efficient operations but that, on the other hand, particularistic values and
the tendency towards nepotism (as in appointing incompetent family relatives as key management) may
detract from such efficiency. Moreover, both Khan and Carney & Gedajlovic highlight the lack of adequate
monitoring mechanism as a key issue in family capitalism. In addition to these broader studies, individual
country-based studies focusing on family capitalism are also starting to emerge. The present article,
focusing on family capitalism in Indonesia, can be viewed as another contribution to this growing body of
research.

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