COOPERATIVE CAPITALISM
“The future often seems
improbable until it happens.”
COOPERATIVE CAPITALISM
HISTORY PARALLEL
• “The era of corporate consolidations that
unfolded a 100 years ago when the
ascendant manufacturing corporations in
the United States and Europe struggled with
the same fundamentals of the industrial
revolution.” pg.172
COOPERATIVE CAPITALISM
HISTORY PARALLEL
 “Last decades of the 19th
century…..corporations searched for
collaborative remedies to help reduce the
harsher aspects of freewheeling
competition” pg.172
COOPERATIVE CAPITALISM
HISTORY PARALLEL
• Struggles Then and Now
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Rapid technological changes
Rising capital costs
Oversupply of production
Downward pressures on prices and profits
Intense competition for foreign markets
COOPERATIVE CAPITALISM
HISTORY PARALLEL
• “Industrial firms in steel, electrical
generation, automobiles, oil, chemicals,
telephones, railroads, and other sectors
were merged or entered in cooperative
alliances intended to achieve the scope and
scale needed to dominate national global
markets and to stabilize them.” pg.173
• “Historic drive to rationalize production took
many forms”: pg. 173
COOPERATIVE CAPITALISM
HISTORY PARALLEL
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Forms of Production
– Mergers and Trusts
– Cartels
1. “The emerging cartels were unstable, however
because they lacked the ability to enforce price-output
agreements and keep individual procedures from
cheating by undercutting the price levels. Pg. 186
– Market-sharing agreements
1. Many failed; they were declared to be monopolies. An
example of a company that did not fail would be
duPont and BASF.
COOPERATIVE CAPITALISM
HISTORY PARALLEL
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“The historical parallel with the 1890’s had
a political dimension: cooperative
capitalism on a global scale eclipsed the
power of national governments…” pg.186
Now cooperative capitalism is again
overshadowing national governments.
COOPERATIVE CAPITALISM
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Today
– How to cope with the environment and succeed
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Harsh and overwhelming competition
– Low prices
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Technological edge
– Constant investment in new technology
COOPERATIVE CAPITALISM
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Key Issues
– Moore’s Law
– Strategic Alliances/ Consortiums
– Free Capitalism vs. Government Intervention
COOPERATIVE CAPITALISM
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Key Issues (overview)
– Moore’s Law
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Fundamentals and Definition
Applies to computing power
Ramifications
COOPERATIVE CAPITALISM
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Key Issues (overview)
– Strategic Alliances/ Consortiums
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Troubling implications
Consortium
Pressure on profits
COOPERATIVE CAPITALISM
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Key Issues (overview)
– Free Capitalism vs. Government Intervention
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American vs. Japanese
COOPERATIVE CAPITALISM
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MOORE’S LAW
– What is Moore’s Law??
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Definition: The observation made in 1965 by Gordon
Moore, co-founder of Intel, that the number of
transistors per square inch on integrated circuits had
doubled every year since the integrated circuit was
invented. (Webopedia)
– Currently at 18 months
COOPERATIVE CAPITALISM
Moore’s Law
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The computer chip and personal computer
boom.
– 1980’s
1. 64 kilobit D-RAM chip (DRAM = Dynamic Rand. Access
Memory)
a. Equivalent to 6.25 pages of typed text
2. During the 80’s designers quadrupled the power 3
times
a. From 64k to 256k, 256k to 1m, and 1m to 4m
» 1024k = 1m
COOPERATIVE CAPITALISM
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Moore’s Law
The computer chip and personal computer
boom (cont’d).
– 1990’s
1. 256m D-RAM created by the ‘Big 3’ consortium
a. By the time the 256m D-RAM comes out “…design
engineers will already be working in the realm of
gigabits… If the technology curve continued along its
established arc, by the year 2010 a standard D-RAM
would be available that stores [60 gigabits]” pg. 174
b. Each gigabit is 1024 megabits (m). A 60 gigabit chip can store
the equivalent of more than 6 million pages of text on a single
silicon chip as compared to the 6.25 pages of text that a typical
chip in the 80’s could store.
COOPERATIVE CAPITALISM
Moore’s Law
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“For 30 yrs. The semiconductor industry has been
riding the same curve – quadrupling the chips
capacity every 3 yrs… so noone ever doubted the
256m chip was possible.” pg. 174
Limits of Physics?
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Moore’s law couldn’t go on forever as everyone knew.
Simple laws of physics would eventually slow or stop
progress because “the submicronic circuit lines [would
become] too small to delineate reliably or the chips
internal architecture [become] too dense to function.” pg.
175
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The question is when?
COOPERATIVE CAPITALISM
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Moore’s Law
Each generation of chips sent a ripple of changes
through nearly every kind of machine.
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Finance
Household appliances
Computers
New means of production
Characteristics of each new generation
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More expensive than the previous for R&D
Makes existing chips cheaper or obsolete
Causes more price war and gross profits suffer
“The only way you make money in memory is to be a
leader.” pg. 177
COOPERATIVE CAPITALISM
Moore’s Law
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Limits of chip production
– Due to exponential capital demands
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Will it be physics or simply shortage of capital?
– Leads to companies forming alliances to spread costs
for mutual goals
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Exploring strategic alliances/ consortiums
– Possible negative affects
COOPERATIVE CAPITALISM
Consortiums
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Troubling Implication of Cooperative
Capitalism
– Potential for cartelized market
– Global price administered by an oligopoly of a
few dominant firms
COOPERATIVE CAPITALISM
Consortiums
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Potential for cartelized market
– “Imagine a one-world factory, jointly owned and
managed by the surviving competitors,
manufacturing the basic commodity that was an
essential ingredient for industrial systems and
consumer products. The many would depend on
the few.” pg. 179
COOPERATIVE CAPITALISM
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Consortiums
Global price administered by an oligopoly
of a few dominant firms
– “A production alliance among the three giants
would also build a bulwark against another
roller coaster of oversupply and collapsing
price.” pg. 179
– “Significant cost advantages on the part of the
three partners should support an aggressive
campaign to add capacity. This should reduce
the incentive for competitors to add capacity
ahead of demand and to initiate price warfare to
gain market share.” pg. 179
COOPERATIVE CAPITALISM
Consortiums
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Other Big Players
– “History has taught us there are going to be
multiple players. Because it’s such a marvelous
way to bring your nation into the forefront of
nations. It’s clean, it capitalizes on education
and knowledge and low-cost labor.” pg. 179
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Examples
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Japan
Korea
Taiwan
COOPERATIVE CAPITALISM
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Consortiums
Other Big Players (cont’d)
– “Many of the successful U.S. companies that
had emerged in recent years were what the
industry called “fables merchants” – small firms
that designed and marketed specialized
semiconductors but consigned their actual
manufacture to the major producers, frequently
in Japan, companies with the capital to sustain
the expensive factories.” pg. 179-180
– Texas Instruments
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Aggressive in pursuing strategic alliances
– Firms & Governments - Taiwan, Italy, Japan, and
Singapore … etc
COOPERATIVE CAPITALISM
Consortiums
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Other Big Players (cont’d)
– 2 other players in the world that can match or
possibly beat the IBM-Siemens-Toshiba
consortium:
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Research alliance between Texas Instrument and
Hitachi, Number 6 and 5 in global semiconductor sales
Alliance between NEC, Japan’s largest producer and
Number 2 in the world, and Samsung of Korea, Number
7 in global sales
COOPERATIVE CAPITALISM
Consortiums
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Consortium in Other Industries
– Telecommunications:
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AT&T, Time Warner, TCI, MCI, Ameritech and Nynex, CBS,
ABC, Disney, and many others
COOPERATIVE CAPITALISM
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Consortiums
Pressure on Profits
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“The basic dynamics of technological innovation – more
for less – had the perverse effect of depressing returns
per unit of production while simultaneously increasing the
new capital required to invest in the next round of
innovation. this squeeze left even the largest companies
exposed to the threat of weak profits and capital
shortages” pg. 183
“Across the last thirty years of globalization and
technological change, corporate profits in the U.S.
suffered almost in direct relation to the pace of revolution.
In the booming 1960s, profits were typically 11% or 12% of
U.S. national income and peaked at 14%. By the 1980s and
early 1990s, they had declined to around 8 or 9% and fell
as low as 6%. Manufacturing, in particular, used to be
much more profitable than service industries, but as now
less so.” pg. 183
COOPERATIVE CAPITALISM
Consortiums
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Pressure on profits
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“The retained earnings that corporations traditionally held
for future capital investments had declined drastically as
a percentage of profits since the 1970s.” pg. 183
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corporate profits were 34% of corporate debt in 1960s
by 1990, profits were only 15% of debt
“The company share of capital is smaller. Debt has grown
enormously and a much higher share of profit has to be
paid out in interest on the debt. So they feel under
tremendous pressure to maintain their profit levels in
order to make new investment and stay productive.”
pg. 189
COOPERATIVE CAPITALISM
Capitalism Vs. Government
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“As the organizational structure of global
industrial firms gradually converge, a
profound debate is forming between two
competing capitalist systems: the
American model of independent, profitmaximizing enterprises versus the
cooperative & state-administered version
in Japan.” pg. 187
COOPERATIVE CAPITALISM
Capitalism vs. Government
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American Model vs. Japanese Model
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“Anglo-Saxton legal rules to ensure freewheeling competition” vs. “webs of business
relationships and social obligations among
firms.”
“laissez-faire approach” to handling the
economy vs. “national strategies for industrial
development.”
“individualism” vs. “loyalty”
1.
(quotes taken from pg. 187)
COOPERATIVE CAPITALISM
Capitalism Vs. Government
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Which model will win?
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“For better or worse, there might not be much of a public
debate on this large question since the gravitational pull
of world commerce is already perceptibly toward the
Japanese model.” pg. 187
European Union
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2.
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U.S. Multinational Corporations
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Airbus
Steel Cartels
“If you can’t beat ‘em, join ‘em” pg. 188
Developing the nations of asia
1.
Japan’s keiretsu vs. Korea’s chaebol
COOPERATIVE CAPITALISM
Capitalism Vs. Government
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Why Japanese Model?
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“Offers chance to rationalize output among
major producers and perhaps stabilize
markets, freeing them of persistent surpluses
and roller-coaster prices.” pg. 189
COOPERATIVE CAPITALISM
Capitalism Vs. Government
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Future?
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“Japan and other Asian countries are openly
discussing the creation of global blueprints for
the international division of labor—and idea
that is anathema to the traditional notion of
national comparative advantage.” pg. 189
Notes
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Business Week
The International Technology
Roadmap
Financial Times
Wall Street Journal
Multinationals and the National
Interest: Playing by Different
Rules
Technovation
Amazon: Encyclopedia of
Economics
Rich Nation, Strong Enemy:
National Security and the
Technological Transformation of
Japan
•Financial Times
• “Profits Up, Wages Down”
•Scale and Scope: The Dynamic
of Industrial Capitalism
•MITI and the Japanese Miracle:
The Growth of Industrial Policy
•Trading Places: How We
Allowed Japan to Take the Lead
•The Enigma of Japanese
Power: People and Politics in a
Stateless Nation
•Nikkei Weekly
•American Metal Market
•The Employment Challenge