Comparative Capitalism of Advanced Industrialized Countries
Fall 2005
Political Science 376-0
Helen Callaghan h-callaghan@northwestern.edu
Class meetings: T, Th 12:30-2pm, Searle 2107
Office hours: Th 2:30-4pm, Scott Hall 205
Course description:
A recent series of spectacular scandals- including Tyco, Enron and WorldCom in the US,
Vivendi, Ahern and Parmalat in Europe- has brought corporate governance issues to the forefront of political agendas around the world. Reform proposals are controversial because the structure of authority relationships within firms affects not just the likelihood of fraud. It also matters for economic performance, company finance, production strategies and the distribution of incomes.
In this course, we will draw on arguments from political science, economics, history, law and sociology to identify the issues at stake, examine how and why the US corporate governance system differs from those of other advanced industrialized countries, look at the implications of these differences and discuss whether they are likely to persist in the future.
Course requirements and assessment: participation: 20%
Midterm in-class exam: 40%
Final in-class exam: 40%
Reading materials:
Available for purchase at Norris:
Blair, Margaret. Ownership and Control. Rethinking Corporate Governance for the Twenty-First
Century . Washington D.C.: Brookings, 1995.
Peter Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of
Comparative Advantage.
Oxford: Oxford University Press, 2001.
All other readings are available electronically on the course management blackboard.

Fall 2005 PoliSci 376-0: Comparative Capitalism
Date Topic
Week 1
T 9/20
Th 9/22
Social responsibilities of the corporation
Reading
[Film excerpts: The Corporation]
Friedman, Milton. "The social responsibility of business is to increase its profits." New York Times , September 13, 1970.
While watching/reading, think about the following:
•
What is a corporation? What purposes does it serve?
•
How does the corporation differ from other legal persons?
•
What exactly does that mean for a firm to have social responsibilities?
•
Do firms have such a responsibility? If so, what is it? What should be done to make sure it is honored?
•
On what grounds does Friedman object to the “social responsibility” doctrine? Do you agree?
2

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 2
T 9/27
Th 9/29
Introduction to
Corporate
Governance
[Film excerpts: Bankrupt] ch. 2 “A Primer in Corporate Governance” and ch. 3 “A Finance
Perspective on What’s Wrong with the System” in Blair, Margaret.
Ownership and Control. Rethinking Corporate Governance for the
Twenty-First Century . Washington D.C.: Brookings, 1995. p. 740-744 (“The Agency Problem”) in Shleifer, A., & Vishny, R.
(1997). A Survey of Corporate Governance. Journal of Finance, 52 (2),
737-783.
Reading instructions on Blair:
You can skip p. 33-48 (Role of Debt and Equity; Mix of Debt and
Equity; Distinction Debt and Equity; Further Changes in Ownership
Structure) and p. 110-121 (reform proposals)
You can skim p. 48-92, carefully reading only the first three paragraphs of each section
After reading ch. 2, you should be able to answer the following:
•
What is a residual claim?
•
How does limited liability change the identity of residual claimants?
•
What are the key differences between the basic model and the
Berle and Means model of the corporation, and how do they affect affect corporate governance?
•
What options are available for mitigating the problems arising from the separation of ownership and control? (ch. 2 lists seven.)
After reading ch. 3 and Shleifer/Vishny, you should be able to answer the following:
•
What are the benefits of separating ownership and control?
•
What is an agency problem? How do finance theorists propose to solve it?
•
What are the key assumptions underlying the finance theory approach?
•
Can hostile takeovers solve the principal-agent problem? What about incentive contracts?
3

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 3
T 10/4
Th 10/6
Market myopia and stakeholder views of the corporation ch. 4 “Are Financial Markets Too Short-Sighted”, ch. 6 “Whose Interests
Should Corporations Serve” and p. 254-258 of ch. 7 in Blair, Margaret.
Ownership and Control. Rethinking Corporate Governance for the
Twenty-First Century . Washington D.C.: Brookings, 1995.
75-85 in T. Donaldson and L. Preston (1995) ”The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications” in The
Academy of Management Review, Vol. 20, No. 1, p. 65-91.
“Stakeholders- The Case in Favor” (by A. Campbell) and “Stakeholders-
The Case Against” (by J. Argenti) in Long Range Planning, Vol. 30, No.
3, p. 442-449
Reading instructions on Blair:
You can skip p. 123-128 (High Cost of Capital) and p. 205-223 (What the Law says)
After reading ch. 4, you should be able to answer the following:
•
What is market myopia, and why might the US corporate governance system be suffering from it?
•
What is dedicated capital?
•
What do the finance model and the market myopia model have in common? How do they differ from each other?
After reading ch. 6, Donaldson & Preston and Argenti/Campbell, you should be able to answer the following:
•
How does the stakeholder model of the corporation differ from the finance and myopia models?
•
What are the most common arguments for shareholder primacy?
How do critics respond to them? What is your own view?
4

Week 4
T 10/11
Th 10/13
Varieties of
Corporate
Governance
(VoCG)
Fall 2005 PoliSci 376-0: Comparative Capitalism
[film excerpts: Challenge to America, Vol. 3] p. 267-271 (Alternative Governance structures) and p. 282-286 (Japanese and German Governance systems) in Blair, Margaret. Ownership and
Control. Rethinking Corporate Governance for the Twenty-First Century .
Washington D.C.: Brookings, 1995.
Sections on corporate governance (p. 155-156, 164-168, 170-174) in ch.
7 (“National Systems of Political Economy”) of Gilpin, Robert. Global
Political Economy . Princeton: Princeton University Press, 2001. p. 183-194 in Woolcock, Stephen. "Competition Among Forms of
Corporate Governance in the European Community." In National
Diversity and Global Capitalism , edited by Suzanne Berger and Ronald
Dore, 179-96. Ithaca: Cornell University Press, 1996. p. 17-33 (Institutional Complementarities; CMEs: the German case;
LMEs: the American case; Comparing Coordination) in the Introduction to Peter Hall and David Soskice, eds., Varieties of Capitalism: The
Institutional Foundations of Comparative Advantage (Oxford: Oxford
University Press, 2001).
After reading the above, you should be able to answer the following:
•
What is a keiretsu?
•
What is meant by “network-reputational monitoring”?
•
What is meant by “institutional complementarities”?
•
What are the main differences between the German, US and Japanese models of corporate governance?
•
How are these differences in the corporate governance sphere linked to other dimensions of the institutional infrastructure distinguishing
Liberal and Coordinated Market Economies?
5

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 5
T 10/18
Th 10/20
T 10/25
VoCG: implications I p. 36–54 (Comparative Institutional Advantage; New Perspectives on
Public Policy Making) in the Introduction to Peter Hall and David
Soskice, eds., Varieties of Capitalism: The Institutional Foundations of
Comparative Advantage (Oxford: Oxford University Press, 2001). p. 148-163 of Estevez-Abe, Iversen and Soskice. “Social Protection and the Formation of Skills” in Peter Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage
(Oxford: Oxford University Press, 2001).
After reading the above, you should be able to answer the following:
•
What is meant by comparative institutional advantage?
•
What is the difference between radical and incremental innovation, and what are the institutional requirements for each?
•
How is vocational training connected to corporate governance and labor market structures?
•
What do the theories of institutional complementarity and comparative institutional advantage imply for the desirability of convergence?
Midterm
Th 10/27 Film excerpts: Bigger than Enron
(Midterm week => no readings)
6

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 7
T 11/1
Th 11/3
Implications II:
Corporate scandals/
VoCG: causes I:
Legal systems
Readings for Tuesday:
Coffee, John. "A theory of corporate scandals: Why Europe and the US differ." Oxford Review of Economic Policy 21, no. 2 (2005): 198-211.
Coffee, John. "What Caused Enron?" In Corporate Governance and
Capital Flows in a Global Economy , edited by Peter Cornelius and Bruce
Kogut. Oxford: OUP, 2003.
Readings for Thursday:
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and
Robert Vishny. "Investor Protection and Corporate Governance." Journal of Financial Economics 58, no. 1 (2000): 3-27. (especially p. 9-12) p. 24-70 in Coffee, John. "The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control." Yale
Law Journal 111, no. 1 (2001): 1-82.
Tuesday’s readings should enable you to answer the following:
•
How and why do corporate scandals differ across corporate governance systems?
•
Why did the US experience an increase in scandals during the late
1990s?
•
How is the problem being addressed? How should it be addressed?
Thursday’s readings should enable you to answer the following:
•
What is the observed relationship between legal family, minority shareholder protections, and ownership dispersion?
•
How do proponents of the “Law Matters” Thesis explain the observed correlation?
7

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 8
T 11/8
Th 11/10
VoCG: causes II
(politics)
Vitols, Sigurt. "The Origins of Bank-Based and Market-Based Financial
Systems: Germany, Japan, and the United States." In The Origins of
Nonliberal Capitalism: Germany and Japan in Comparison , edited by
Wolfgang Streeck and Kozo Yamamura. Ithaca: Cornell University
Press, 2001. p. 539 -560 in Roe, Mark J. "Political Foundations for Separating
Ownership from Corporate Control." Stanford Law Review 53, no.
December (2000): 539-606. p. 57-77 in Gourevitch, Peter, and James Shinn. Political Power and
Corporate Control: The New Global Politics of Corporate Governance .
Princeton, NJ: Princeton University Press, 2005.
Wood, Stewart. “Business, Government, and Patterns of Labor Market
Policy in Britain and the Federal Republic of Germany” in Varieties of
Capitalism: The Institutional Foundations of Comparative Advantage , edited by Peter Hall and David Soskice. Oxford: Oxford University
Press, 2001. p. 248-273.
After reading the above, you should be able to discuss the following:
•
How do the strength of the state, ideology and political systems affect ownership dispersion?
•
Does the timing of industrialization matter?
8

Fall 2005 PoliSci 376-0: Comparative Capitalism
Week 9
T 11/15
Th 11/17
VoCG: Future?
T 11/22 Review
Th 11/24 [Thanksgiving]
T 11/29 [Reading week]
Th 12/1
T 12/6
Th 12/8
[Exam week]
Hansmann, Henry and Reinier Kraakman. „The End of History for
Corporate Law.” Georgetown Law Journal , vol. 89 (2001): 439-68. p. 54-65 (The Dynamics of Economic Adjustment) in the Introduction to
Peter Hall and David Soskice, eds., Varieties of Capitalism: The
Institutional Foundations of Comparative Advantage (Oxford: Oxford
University Press, 2001).
p. 641-663 in Coffee, John. The Future as History: The Prospects for
Global Convergence in Corporate Governance and its Implications.”
Northwestern University Law Review, Vol. 93, no. 3: 641-707.
Jackson, Gregory, and Peter Moerke. "Continuity and Change in
Corporate Governance: Comparing Germany and Japan." Corporate
Governance: An International Review 13, no. 3 (2005): 351-61.
Vitols, Sigurt. "Changes in Germany's Bank-Based Financial System:
Implications for Corporate Governance." Corporate Governance: An
International Review 13, no. 3 (2005): 386-96.
After reading the above, you should be able to answer the following:
•
What are the theoretical arguments in favour of and against the claim that there will be convergence onto a single model of capitalism?
•
What is the evidence to date?
[no readings] no classes
Final in-class exam (3pm to 5pm)
9