Socio-Economic Review (2008) 6, 771–784 doi:10.

1093/ser/mwn017
Advance Access publication August 18, 2008

REVIEW SYMPOSIUM

Richard Whitley Business Systems and

Organizational Capabilities. The Institutional
Structuring of Competitive Competences. Oxford,
Oxford University Press, 2007

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Keywords: business systems, varieties of capitalism, institutions, firms, inno-
vation, performance, competitiveness
JEL classification: F2 international business, K2 regulation and business, L1
market structure, firm strategy and market performance, L2 firm organization
and behavior

The heterogeneity of competing capitalisms

and business systems
Bruno Amable
CES—University of Paris I and CEPREMAP, Paris, France

Correspondence: bruno.amable@ens.fr

Richard Whitley’s new book extends the framework of the business system which
he proposed in several contributions, notably in Whitley (1999). The main theme
of the business systems approach is that differences in societal institutions encou-
rage particular kinds of economic organization and discourage other ones
(Whitley, 1999, p. 27). Therefore, the characteristics of the firm, its pattern of
organization and its interactions with other agents, particularly regarding its
financing or the employment relation, distinguish different models of capitalism
and should be analysed in a comparative analysis of market economies.
Whitley (2007) establishes links between macro institutions, innovation
systems and modes of organization. Institutional systems create specific

# The Author 2008. Published by Oxford University Press and the Society for the Advancement of Socio-Economics.
All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org
772 Review symposium

constraints and incentives for the development of firms’ dynamic capabilities,

particularly regarding their innovative competences. Dominant institutions will
encourage firms to develop competitive capabilities that are more effective in
certain industries. These characteristics explain how certain patterns of economic
specialization and performance may be established. In this sense, the innovation
system may be considered as a logical link between the dominant macro insti-
tutions characterizing the national economic model and the specific pattern of
the organization of the firm.
The great strength of Whitley’s approach is its analytical character, which gives
rise to several testable propositions. By isolating a small number of key elements
and combining them, he obtains ideal types that are used in the analysis of con-
crete cases. There are, for instance, eight types of business systems, four types of
states and six types of innovation systems, each of them defined by certain key

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characteristics. State types are defined by the states’ involvement in economic
development and whether they encourage business or labour associations.
Whitley identifies and defines an arm’s length state, a developmental state and
two types of corporatist states. These categories are broadly compatible with
the various typologies of capitalism found in the literature. As in most of the
comparative analysis of capitalism, the notion of complementarity is crucial to
the coherence and stability of the ideal types. The complementarities are based
partly on economic efficiency principles and partly on power-sharing principles.
The latter are elements through which the political can enter the analysis of
business systems.
Different state types are associated with particular firm characteristics and
business systems. For instance, fragmentation of ownership is high in arm’s
length states and low in developmental states. Other characteristics concerning
governance structure, pattern of inter-firm relations, employment relations and
organizational capabilities are also complementary to the features of the state
types. Likewise, innovation systems are defined by a certain number of elements:
authority sharing, involvement with public science systems, authoritative coordi-
nation, firms’ specificity, discontinuity and the systematic nature of innovations.
Institutional and organizational complementarities lead to the presence of certain
innovation systems in specific state types: the innovation systems with autarkic
and technological teams are present in arm’s length states; the state-led inno-
vation system characterizes the developmental state; and the group-based and
highly collaborative innovation systems are associated with the business corpora-
tist and inclusive corporatist states, respectively.
An important proposition of the book is that the degree of standardization of
business systems, i.e. the degree of homogeneity of firms in terms of organization
patterns, is expected to vary between institutional regimes. More precisely, since
the institutions that govern labour and capital markets are more encompassing in
 Business systems and organizational capabilities 773

corporatist states, more companies are expected to follow similar policies and
practices. This means that firms’ organizational patterns should be less hetero-
geneous, the more the state can be characterized as corporatist. Likewise, since
firms in highly corporatist environments are more constrained to follow institu-
tionalized conventions, less variation should be found in their innovation strat-
egies than firms in arm’s length states. A consequence of this situation is that the
demise of the corporatist arrangements, if it takes place, should be accompanied
by an increase in firms’ heterogeneity.
The question of the leading or dominant (national) firm and heterogeneity is
important in Whitley’s approach. For the evolutionary approach of the firm, het-
erogeneity is a tremendously important aspect (Dosi et al., 2000). For other
approaches, institutional isomorphism (DiMaggio and Powell, 1991) is such
that there exists a predominant and almost unique form of organization: insti-

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tutional constraints lead firms to adopt similar structures. Boyer et al.’s (1998)
study of the automobile sector concluded that there exists a diversity of organiz-
ation modes within a given (national) institutional structure. Moreover, this
diversity is at the core of institutional dynamics (Lung, 2008). Such findings
call into question the validity of comparative analyses of capitalism that rely on
a strict isomorphism between the macro-level constraints given by the insti-
tutional framework and the micro-level organizational features. If a given
variety of capitalism is associated with a specific type of firm, as for instance
the J-firm in Aoki’s works (Aoki, 1990), firms’ heterogeneity is by necessity dys-
functional. The same could be said about the firm-based approach of Hall and
Soskice (2001). The main characteristics of the firm are defined for each
variety of capitalism, limiting the extent of differentiation among organizations
within a given variety.
Whitley’s approach is more flexible. If a limited number of ideal types are comp-
lementary with the features of a model of capitalism, heterogeneity is not conceived
to be pathological. As mentioned above, the approach deduces the existence of a link
between the form of capitalism and the degree of heterogeneity. In a dynamic per-
spective, the differentiation of organizational structures could be conditioned by
the evolution of the macro-level institutions and in return could influence this evol-
ution. The development of certain types of firms could have contrasting effects on
the dynamics of collective interests, which would then have consequences for the
demands expressed by these interests in terms of policies or institutional reform
(Amable, 2003; Amable and Palombarini, forthcoming).
It would be interesting to confront Whitley’s business systems analysis with the
evolution of the Japanese productive system as analysed by Lechevalier (2007).
The 2000s have witnessed an increase in the heterogeneity of Japanese firms.
This fact contradicts the theory that organizational diversity is not a feature of
the Japanese economy or that the high degree of coordination of the Japanese
774 Review symposium

economy would prevent any change in Japanese firms’ organization. Aoki et al.
(2007) show that no clear single pattern has emerged and that the current situ-
ation is characterized by the coexistence of three models: the traditional J
model; the hybrid model, mixing market finance and a greater internal relational
orientation; and the inverse hybrid model, combining relational finance with
more market-oriented employment and incentive patterns. More importantly,
they suggest that diversity may remain a stable feature of the Japanese
economy. Would these findings be compatible with Whitley’s relation between
the degree of organizational homogeneity and the degree of corporatism?
Lechevalier (2007) links increasing heterogeneity to financial deregulation.
The evolution of Japan in the 1980s–1990s would be similar to the emergence
of the dual structure of the Japanese economy in the 1950s, due to the differen-
tiated introduction of foreign technology according to a firm’s size in the interwar

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period. For the contemporary period, financing deregulation would have broad-
ened the scope of financing possibility. This would be compatible with Whitley’s
main defining elements of the business system. The dynamic element behind this
interpretation of the Japanese economic situation is that the Japanese crisis would
be explained by the decomposition of the former institutional complementarities
and the emergence of structural incompatibilities between the previous system,
international pressures and the new organizational forms. This conflict would
also be found in the conflict of interests between the social groups whose interests
would be attached to the old system, the internationalization of Japan and the
new forms of organization.
As mentioned above, the political aspect is present in Whitley’s book. The
different state types rest on different types of coalitions: strategic managers of
large firms and, sometimes, financial elites in arm’s length states; state elites
and big business managers/owners in developmental states; bureaucratic elites
and strategic managers of large firms in business corporatist states; peak associ-
ations of capital and labour in inclusive corporatist states. Two remarks can be
made. First, these dominant groups are defined with respect to interests
defined mostly at the level of the firm. This is compatible with the theoretical
architecture of the business systems, but is more limited than the socio-political
foundation of the diversity of capitalism found, for instance, in Amable (2003). If
economic determinants and evolution condition individual and collective agents’
interests, they do not strictly determine them (Amable and Palombarini, forth-
coming). Second, the dominant coalitions in Whitley (2007) are more strictly
the ruling elite rather than the broad social base supporting the dominant socio-
political compromise, the dominant social bloc (Amable and Palombarini,
forthcoming). Does this imply that Whitley relies on an elitist political theory,
according to which the masses’ choice would be limited to the identity of an
elite which would, once in power, pursue its own ends?
 Business systems and organizational capabilities 775

References
Amable, B. (2003) The Diversity of Modern Capitalism, Oxford, Oxford University Press.
Amable, B. and Palombarini, S. (forthcoming) ‘A Neorealist Approach to Institutional
Change and the Diversity of Capitalism’, Socio Economic Review.
Aoki, M. (1990) ‘Toward an Economic Model of the Japanese Firm’, Journal of Economic
Literature, 28, 1 –27.
Aoki, M., Jackson, G. and Miyajima, H. (2007) Corporate Governance in Japan. Insti-
tutional Change and Organizational Diversity, Oxford, Oxford University Press.
Boyer, R., Charron, E., Jurgens, U. and Tolliday, S. (eds) (1998) Between Imitation and
Innovation: The Transfer and Hybridization of Productive Models in the International
Automobile Industry, Oxford, Oxford University Press.
DiMaggio, P. and Powell, W. (1991) The New Institutionalism in Organizational Analysis,
Chicago, IL, University of Chicago Press.

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Dosi, G., Nelson, R. and Winter, S. (eds) (2000) The Nature and Dynamics of Organiz-
ational Capabilities, Oxford, Oxford University Press.
Hall, P. and Soskice, D. (2001) ‘Introduction’. In Hall, P. and Soskice, D. (eds) Varieties of
Capitalism, Oxford, Oxford University Press.
Lechevalier, S. (2007) ‘The Diversity of Capitalism and Heterogeneity of Firms—A Case
Study of Japan during the Lost Decade’, Evolutionary and Institutional Economic
Review, 4, Special Issue ‘The Evolution of Institutions and Organizations’, October.
Lung, Y. (2008) ‘Modèles de firmes et formes du capitalisme. Penser la diversité comme
agenda de recherche pour la TR’, Revue de la Régulation, 2, accessed at http://regulation.
revues.org on July 10, 2008.
Whitley, R. (1999) Divergent Capitalisms. The Social Structuring and Change of Business
Systems, Oxford, Oxford University Press.

Institutions as key to competitiveness

and performance
David B. Audretsch
Max Planck Institute of Economics, Jena, Germany

Correspondence: audretsch@econ.mpg.de

When a cover headline of The Economist proclaimed ‘The Death of Distance’, a

corollary implication was that place or location was also losing its economic
meaning. Richard Whitley explains in this important new book why The Economist,
776 Review symposium

along with what has now become conventional wisdom concerning the inevitable
convergence of developed countries towards a singular model of capitalism in a
global economy, is wrong.
The central thesis of this book is that place still matters very much in shaping
firm competitiveness and performance, along with strategy and organization.
Place matters because institutions not only are important but also vary signifi-
cantly across countries. Thus, an important reason as to why competitiveness
and performance are so heterogeneous across firms is the heterogeneity of the
institutional environments in which the firms are operating. This book suggests
how we can understand the simultaneous combination of diversity in firm organ-
ization, strategy and performance even as the interdependence across national
boundaries increases over time.
There are three main messages and key contributions in this book. The first is

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that, rather than evolving towards a convergence towards a singular business
system, in fact a plethora of distinct business and innovation systems exist sim-
ultaneously. The second contribution is to link the key mechanisms through
which different institutional contexts shape organizational capabilities to firm
competitiveness and ultimately to performance. The third contribution of this
book is to apply the underlying framework to analysing the extent to which mul-
tinational firms are able to develop distinct transnational organizational capabili-
ties that distinguish them from their domestic counterparts.
This book succeeds in weaving together disparate literatures, spanning a broad
spectrum of scholarly fields and disciplines, ranging from economics to strategic
management and political science in a coherent and compelling manner that is a
pleasure to read. The book is organized into three major sections corresponding
to the three major insights identified above, with the individual chapters provid-
ing the building blocks.
Chapter 1, which introduces the comparative analysis of competing capital-
isms, makes it clear that despite claims that the developed world experienced
‘The End of History’ with a convergence towards a singular economic model, a
strong and robust literature has emerged that identifies and supports the existence
of competing varieties of capitalism. It links the different institutional contexts or
types of capitalism to the way in which firm capabilities are developed and ulti-
mately linked to performance, which goes a step beyond what the literature on var-
ieties of capitalism has established. As Whitley (p. 6) points out, ‘By integrating
these accounts of how different kinds of firms develop different kinds of organiz-
ational capabilities with the comparative analysis of institutional regimes and
business systems, we can begin to understand the processes through which differ-
ently organized market economies generate varied economic outcomes’.
The first substantive section of the book considers how complementarities and
changes in institutional regimes at different levels of collective organization
 Business systems and organizational capabilities 777

influence the establishment and evolution of the main types of business and inno-
vation systems in a cross-country context. The four chapters of this section explain
and identify the circumstances in which distinctive businesses and innovation
systems are associated with specific institutional contexts for particular countries.
In addition, how and why the business and innovations systems evolve over time,
from both exogenous and endogenous forces, is explained. One of the most useful
features of this section is a taxonomy of country-level contexts and the comp-
lementary institutions. The different state types are then linked to particular
systems of business as well as organizational characteristics of firms.
The country is taken as the unequivocal unit of analysis because, ‘As long as the
nation state remains the primary unit of political competition, legitimacy and
definer and upholder of private property rights, in addition to being the predomi-
nant influence on labour market institutions, many characteristics of business

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systems will continue to vary significantly across national boundaries, albeit not
always constituting highly integrated and consistent coordination and control
systems’ (p. 56). What this assumption glosses over is the insights from the literature
on the new economic geography that there are rich variations not just in institutions
but, just as the thesis of this book would predict, also in organizational capabilities
and performance across much less aggregated regions or local spatial units of analysis
within a given country. While I would not contest the primacy of the country in
shaping the institutional context, a rich research opportunity exists in shifting the
framework of this book to a less aggregated spatial level, such as regions or cities.
The book recognizes the priority that innovation has in the competitiveness
and performance of both countries and firms. In Chapter 3, a particular focus
is placed on providing a taxonomy of innovation systems and how institutions
and public policy shape the national innovation system. Chapter 5 provides a
framework for analysing the evolution of business and innovation systems over
time. The chapter suggests four salient points concerning the evolution of
business systems. First, changes in national institutions and policies can lead to
a change in what is termed as the institutional regime. Second, such institutional
changes can emanate from both endogenous as well as exogenous forces. Third,
while globalization has generally reduced the direct control of national govern-
ments over the competitiveness and performance of their jurisdiction, ‘few, if
any, are willing to let global market forces rule unconstrained throughout
national economies’ (p. 111). Fourth, the degree to which organizational forms
and strategies have been shaped by the evolution of institutions varies consider-
ably across different institutional regimes.
Section 2 of the book links the institutional regime to the development of distinct
competitive capabilities of firms particular to specific industries. Most interesting is
the analysis linking the institutional regime to the literature on the theory of the
firm. This results in a framework shedding light on how different institutional
778 Review symposium

environments facilitate firm competitiveness in heterogeneous industries by

developing varied kinds of organizational capabilities. For example, Chapter 7
shows how different features of institutional regimes facilitate firms’ adoption of
distinct approaches in generating innovative capabilities. Similarly, Chapter 8
examines particular industry and (national) institutional contexts. This suggests
that countries taking a more coordinated institutional approach, as is prevalent
in Europe, can attain competitiveness in emerging technology industries by pursu-
ing a niche strategy in sub-segments, where firms build upon their national insti-
tutional advantage. This insight is contradictory to the prevalent conventional
wisdom several decades ago, which suggested that Europe’s comparative advantage
was solidly rooted in, but also limited to, the so-called moderate technology indus-
tries which required a highly skilled labour force but not cutting-edge research and
innovation. Perhaps the fallacy of this conventional wisdom was focusing too much

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on factors of production, such as research and human capital, while ignoring the
role of institutions. As Whitley points out, ‘Firms in Germany or Sweden have
specialized in these technologies not as a “second best” solution, but because the
institutional organization of these business systems create institutional advantages
in resolving the key managerial dilemmas in these subsectors’ (pp. 226–227).
A particularly important organizational form for emerging technology firms is
what Whitley terms ‘project-based firms’, which is the topic of Chapter 9. Project-
based firms are created to commercialize distinct projects, typically innovative in
nature. When analysed through the lens of competitive varieties of capitalism,
Whitley finds a remarkable ‘variety and lack of convergence to a single form’
(p. 246). His framework highlighting how different institutional contexts will
shape different organizational forms reconciles the seeming paradox of the
small, flexible firms populating Silicon Valley as being distinct from the small,
flexible firms constituting the industrial districts of Italy and Denmark. Just as
there is no singular model emerging for institutions, there is, analogously, no
singular model for project-based firms.
The third and final part of the book is devoted to applying the framework of
institutional analysis of organizations and firm capabilities to the multinational
enterprise. In particular, this section focuses on the extent to which multinational
corporations are systematically distinct from their domestic counterparts. This is
an interesting and important application because multinational enterprises are
subjected to a different institutional regime than are solely domestic firms.
Chapter 10 shows how multinational enterprises can access and absorb external
knowledge located in the host country, and as a consequence, evolve as a result of
their transnational activities. The subsequent chapter identifies how such capa-
bilities to access and absorb external knowledge in host countries can be system-
atically developed by multinational firms, again making them distinct from their
domestic counterparts.
 Business systems and organizational capabilities 779

One of the most fundamental questions in the field of strategic management

is: where do organizational capabilities that ultimately generate competitiveness
and a superior performance actually come from? In searching for answers, this
research area has mainly looked within the organizational boundaries of the firm
for answers. A key insight put forward in Whitley’s book is that the answer may
actually lie at least partially beyond the boundaries of the firm. It is the external
institutional context that helps to shape the organizational capabilities, thus con-
tributing to firm competitiveness and performance. Scholars in the field of strategic
management would be well advised to take Whitley’s lead in focusing more on the
business and innovation systems in which the firm operates as contributing to the
formation and evolution of organizational capabilities.
Similarly, one of the central goals in the new economic geography is to explain
spatial variations in economic performance. Again, this book offers a compelling

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insight that has typically been overlooked—the spatial variation of institutional
contexts across national boundaries.
This book succeeds in providing a coherent and compelling framework showing
not only that different types of institutional contexts result in a variety of systems of
capitalism across countries but also the extent to which the institutional and policy
context matters. Business and innovation systems matter not just in shaping the
capabilities and performance of firms but ultimately for the country as well. As
Whitely emphasizes, institutions cannot be copied from one business system to
another without costs. This would suggest that in a world of increasingly mobile
factors—physical capital and labour, and also information and knowledge—it
may be institutions that are the stickiest and the most costly to transmit across
geographic space. A compelling implication of this important book is that in a
globalizing economy, it may be institutions that are becoming the key to competi-
tiveness and performance for both firms and countries.

Best practice winning out?

Ronald Dore
Veggio, Grizzana Morandi, 40030 BO, Italy

Correspondence: rdore@alinet.it

I suppose Linnaeus was not exactly an exciting read, and the same could be said of
Whitley’s botany of business systems. Impressive in its scope and erudition and
inventive in its taxonomy though it is, it is hard to find, in the book’s calm,
780 Review symposium

reflective and studiously non-judgmental elaborations of institutional combi-

nations and mutations, any proposition that one could possibly disagree with
or know how to set about testing for falsifiability.
And if it is information rather than provocation one is looking for, there is,
indeed, some to be found, for example, in the short and somewhat opaque
chapter about biotechnology and software development in Germany, Sweden
and the UK which shows that the question of which of the sub-branches of
these fields a country succeeds in depends (well, mostly) on the interaction
between the riskiness and appropriability of the research on the one hand and
the propensity for committed single-firm careers on the other. There is also a
chapter on the (widely defined) project-based firm, with a certain amount of con-
crete illustration. And finally, there comes the real nitty-gritty in a closing chapter
which actually quotes from interviews and very illuminatingly describes how

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Japan’s highly competitive car firms and its bumbling banks adapt to British insti-
tutions and what the adaptation is doing to their original career structures.
But these odd ventures into empiricism aside, the Whitley world somehow
fails to connect with the world around me that I read about in the business
pages of the newspapers. It is a world of institutions rather than of events,
either events that illustrate the regularity of institutionalized behaviour or
events like the collapse of Enron or the Asian crisis which work to change
those regularities, through collective learning or new laws. The book is full of
references to the books contained in its 30-page bibliography, but I noticed
only one reference to a newspaper report (the Financial Times on ‘the takeover
directive’, p. 137). He has caught up with the rise of the institutional investor
and, in the book’s only reference to shareholder value, he attributes to such inves-
tors a major role in making it a dominant managerial objective. But the firms in
the Anglo-Saxon economies had more or less got used to the conventional insti-
tutional investor, mostly locked into their share-holdings in index funds. That
sort of traditional institutional investor constituted, as it were, the Established
Church of shareholder value. But what is really shaking up, initially the Anglo-
Saxon and now increasingly other business systems, is the hands-on evangelists,
the private equity funds, the buyout funds, the hedge funds and the investment
banks which leverage them, picking off individual firms for born-again conver-
sion to the new religion. And I can find no reference to any such evangelists in
the book.
In this note, I shall self-indulgently confine myself to a few observations on
points that interest me and hope that others will do justice to the book’s
overall scope. The first point concerns Whitley’s attempt to bring order into
the bewildering variety of the business universe—his basic typology of national
business systems according to their state structures/policies: i.e. his four ideal
types of the ‘arm’s length’ night watchman sort of state; the ‘dominant
 Business systems and organizational capabilities 781

developmental’ state whose bureaucrats/politicians coercively shape employment

and financial institutions usually in the name of, if not always consistently with
the intention of, achieving maximum growth; the ‘business corporatist’ state, not
exactly the ‘executive committee of the bourgeoisie’ but where the bureaucrats/
politicians act collaboratively with managers and their national organizations;
and finally, ‘inclusive corporatist states’, where unions are also allowed a say.
How far is this schema an improvement on the more familiar dichotomous
terms he eschews: Anglo-Saxon and Rhenish (though Anglo-Saxon creeps in
once in the last chapter) or liberal market economies and coordinated market
economies? America and Germany, of course, remain the archetypes of the first
and the fourth of his categories, but specifying two other categories usefully
serves to underline the point that the countries that do not fit into either of
those categories are not just intermediate, i.e. at different points on a continuum

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from the first to the fourth. ‘Dominant developmental’, for instance, solves the
problem that the grandfather of ‘varieties of capitalism’ thinking, that quintessen-
tial Enarch Michel Albert, had in fitting his own France into his Anglo-Saxon/
Rhenish dichotomy. One would be able to come to grips with the typology
better, though, if Whitley were to name more names. When discussing change
at the end of Chapter 4, for instance, there is a paragraph which sounds like a
description of Japan, but is ostensibly about the evolution of ‘business corporatist
regimes’ (p. 112). Japan and who else?
Whitley has a good point when he says that the extent to which a country has
what can be called a homogeneously cohesive, standardized business ‘system’ at
all depends on how much the state has got involved in shaping it and whether
it is a centralized or a federal state. But the other thing that accounts for the cohe-
siveness of business practices, aside from the prescriptive institution-creation of
states and corporatists actors, is—whisper the word in Whitley’s presence—
culture. How much top managers chat with their shop-floor workers, how
much they panic when their share price drops, how conscientious they are
about paying their subcontractors on time, how readily they switch suppliers
or sack workers, how happily they contemplate driving a competitor out of
business, how willing they are to consider themselves mere agents of owner prin-
cipals, may well be very much the same in Baden-Württemberg as in Saxony, in
spite of differences in their Land-prescribed institutional framework. And they
may behave rather differently from the way people behave across the German
borders in Provence or Cracow. And the reason for this is not just that they
share certain federal institutions such as co-determination, but also because
they all speak German, watch German TV, read similar German textbooks at
school and thus have absorbed norms of behaviour generally shared among
native speakers of the German language, norms from which they may indeed
deviate, but not without a conscious sense of deviating. The norms are anything
782 Review symposium

but set in stone. It is in the nature of norms that a growing tide of deviations will
change them, and behaviour that was once norm-flouting becomes ‘normal’, after
which point it may then be further entrenched by legislation. This is one powerful
way in which institutions change. Indeed, the role of the deliberately norm-
flouting ‘norm entrepreneur’, the creative destroyer of norms, is rightly seen as
crucial in a number of recent studies.1
Although Whitley suffers from a sort of pudeur which prevents him from
talking culture, and although writers like Hofstede and Trompenauer find no
place in his extensive bibliography, he does, if just occasionally, talk about
norms, for instance in this interesting passage (p. 40):

The more that political authority is seen to rest on services rendered

between equal and remote transacting partners who do not directly

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share collective interests [not quite how I would describe the love –
hate relationship between Tony Blair and his electorate], the more
likely that authority within other organizations will also be viewed as
primarily contractual. Conversely, political and bureaucratic elites in
more promotional states often justify their roles in paternalistic
terms that encourage paternalism within companies. Inclusive corpora-
tist states, however, are more likely to invoke communitarian norms
that treat citizens as equals and emphasize the common interests of
all members of the polity.

What he is talking about here has considerable relevance to the whole question
of the system-ness of national business systems. Institutional complementarity is
a familiar notion that Whitley makes frequent use of. Cross-shareholding pre-
venting the possibility of takeovers and hence reducing the pressure for high
returns to capital is one condition that makes employment guarantees and
career employment possible, for instance. But there is another glue that holds
systems together, and that is what one might call ‘motivational congruence’—
the equivalent, for effect, of that which in the field of cognition is described as
a human need to avoid cognitive dissonance. Behavioural dispositions spill
over from one context to another. If you have learnt to be deferential to your
school-teachers, you may find it hard to have a matey, joking relationship to
bosses at work. If you have learnt to be punctilious about your obligations to
other members of your family, you are more likely to have a conscience that
drives you to fulfil your obligations to your trading partners. If you are constantly
1
For example, Jacoby, S. M. (2005) The Embedded Corporation, Princeton, NJ, Princeton University
Press; Tiberghien, Y. (2007) Entrepreneurial States, Ithaca, NY, Cornell University Press. I am told
that the term was coined by Cass R. Sunstein (1996) in ‘Social Norms and Social Roles’, Columbia
Law Review, 96, 903– 968.
 Business systems and organizational capabilities 783

urged as a child to develop your own individuality and look after your own inter-
ests, you are less likely to acknowledge obligations beyond the strictly contractual.
The other dimension that is greatly underplayed in Whitley’s book, in addition
to national culture/nationally differentiated behavioural dispositions, is ‘who
gets what’. There is a great deal in the book about ‘authority sharing’. German
co-determination, a key feature of its inclusive corporatist system, is described
as authority sharing, but it is not remarked that the authority that is shared is
also the authority to share out rewards. Or that much of the conflict that contains
the potential for generating institutional change is not about what form of auth-
ority sharing produces the best collective competitive good that will put Germany
ahead in the GNP growth-rate race, but rather about the power to determine how
much of the value added goes to employees (and to which employees) and how
much to owners—a conflict in which the political power struggle is interpreted

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and mediated (culture again) as a conflict between competing definitions of
fairness.
‘Who gets what’ is missing again in the lengthy sections on innovation
systems. There is no mention of the wide international variation in intellectual
property regimes, particularly none of the variation in the extent to which
employee inventors have a right to a share in the rent their firm gains from the
property and how that affects patterns of collaboration. Again, in the second
half of the chapter on international governance devoted to the European commu-
nity, there is a mention of the disarray over the takeover directive, but no inquiry
into the capital versus labour issues that the battles over that directive involved.
Whitley’s central interest is in innovation and competitiveness, and in pursu-
ing the Penrosian inquiry into how firms get and retain organizational capabili-
ties, and how national institutions, particularly insider/outsider financial control
and training and employment systems, help or hinder them in doing it. The
purpose is assumed to be the building up of competitive competences in firms
and in national economies, and Whitley has a lot of sensible things to say
about it. But how important is competitive competence in the broader scheme
of the things that determine the nature of business systems?
This question relates to the ‘vive la différence’ declaration of his opening page.
The assertions of convergence on the part of ‘globalization enthusiasts’ are, he
says, mistaken. ‘In particular, the idea that the prevalent American variety of
capitalism will come to dominate the world economy by virtue of its superior effi-
ciency’ is flawed (p. 3). But is it indeed superior efficiency, brought about by the
ability to build competitive competences, that would make for convergence if it
ever were to happen?
For relative efficiencies to count, the mechanism of convergence would seem
to be something like this: (stage 1) the super-efficient best-practice leader firms in
the world economy, which have mastered the secrets of success (including
784 Review symposium

building organizational capabilities), either drive their competitors to the wall

(will it be Airbus or Boeing that admits defeat?) and take over their markets or
have their superiority so universally recognized that everybody imitates them;
and (stage 2) the internationally dominant firms force the institutions of their
host economies into the mold of the domestic economy that spawned them—
or alternatively, other countries, partly under the influence of their own
struggling-to-compete firms, voluntarily imitate those institutions in order to
help their firms to stay in the race.
What a wonderful, what a just, world it would be if convergence or non-
convergence depended on such performance factors. Perhaps I am wrong to
extrapolate from the only part of the world that I know much about, but the
astonishing changes in Japan over the last decade—in corporate governance, in
managerial priorities, in wage systems, in labour markets, in the market for

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corporate control—can all accurately be described as convergence towards the
American system, and yet they have precious little to do with performance
factors. They took place at a time when in some important sectors—automobiles
and some branches of electronics—Japanese firms were consolidating their world
dominance. The major factors have been: (i) Foreign investors have come to own
30% of Japanese firms and, with 60% of share trades, control share prices and
thereby intimidate managers, while private equity fund wolves picking off the
odd sheep are changing the behaviour of the whole flock. (ii) The growth rate
differential between the United States and Japan—caused by macroeconomic
policy and demand-side deficiencies, not differential supply-side efficiencies—
has led to a collapse of national self-confidence and a predisposition to despise
Japanese institutions once hailed as gloriously unique human inventions. (iii)
Cultural change. Harking back to what I said about the German-ness of managers
in Baden-Württemberg and Saxony, the Japanese elite no longer speak just
Japanese. Many top businessmen, after many years spent in their American sub-
sidiaries, speak American; top bureaucrats and the economists and corporate-law
jurists influential in remolding institutions speak (and in universities train the
next generation in) the Friedman neo-classical they learnt in graduate school
in Chicago and Philadelphia.
If the world becomes one, it will not be because best practice wins out, but
because the elites of all countries have come to speak that variant of Friedman
neo-classical known as Davosese, probably in its pure spoken English rather
than its Google-translated version. As with the Romanizing policies of Augustus,
the Germans may be the last to hold out. Next year is the 2000th anniversary of
the Battle of the Teutoberg Forest. But the Romans were the victors in the end—
for a while, at least. The new Goths/Vandals from Asia also seem to be speaking
Friedman neo-classical, though whether they will eventually develop a signifi-
cantly different Chinese version remains to be seen.