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Cash, Crisis, and Corporate Governance: The Role of National Financial Systems in Industrial Restructuring.

By Victoria Marklew. Ann Arbor: University of Michigan Press, 1995. 260p. $44.50.

This book explores how national finance affects firm survival and adaptation in times of crisis. The idea is not new; it was first systematically explored by Zysman more than a decade ago. What Marklew adds to this literature is attention to the bottom-up approach of examining the structure of national financial systems by looking at them from the firm's point of view. More specifically, three main factors are found to be critical to a firm's adjustment--the cost and availability of capital and the attitude of the providers of capital. The author examines four companies with private and public ownership structure: British Steel, British Leyland, Usinor-Sacilor, and Peugeot. Her analysis enables her to reach two basic conclusions. First, Thatcher's Britain and Mitterrand's France had more in common than is widely acknowledged. In both cases, the state responded to industrial crises quite similarly despite significant differences in ideology and institutional constraints. Second, the differences between public and private sectors are becoming increasingly blurred. What matters in government-industry relations are not labels but the financial structures of the firms themselves and the national systems that affect them.

The author illuminates the increasingly sophisticated ways that governments help both public and private firms. The capitalist system is indeed changing from one where ownership was key to one where ownership does not matter. In this way, Marklew joins a host of other analysts who have shown that labels such as "public" and "private" are unable to capture the essence of this transformation. One goal for the next generation of comparative political economists will be to uncover the characteristics of the new environment that make ownership irrelevant. Moreover, it is imperative to look into the technologies of the public sector to illuminate the instruments of control that governments use and the ways that these same instruments become tools of survival and adaptation in the hands of corporate managers. In this environment, the author rightly concludes, the government's ideology plays no role.

Fair enough, but is this the end of ideological attachment to ownership? Not really! The irony is that ownership is made irrelevant only by ideological commitment to a particular form of ownership. Changes in ownership in Britain and France have been made possible only by arguing that ownership is extremely important and that only private ownership will make firms more competitive. At the same time, governments find themselves having to aid firms regardless of their public or private status. So does ownership and, by extension, the government's commitment to it matter, or is the financial environment within which firms find themselves more important to their performance? This is not an easy question to answer, but the simple answer is that ownership does not matter so long as all firms are private. The new capitalist system makes ownership irrelevant only by making all firms private. This is an answer that has very strong ideological dimensions. A close look at the aims of Mitterrand's and Thatcher's governments reveals that industrial policy differed greatly based on the willingness of each government to experiment with mixes of public-private financing. The reasons for such differences are based on legal instruments and state willingness to use them or create new ones. There are statutory limitations on multinationalization and product diversification that make British state-owned companies far more financially dependent on the public purse than French companies. Consequently, the options available to corporate managers are significantly different in the two countries and between public and private companies in the same country. Moreover, Thatcher was far more unwilling to continue managing state-owned enterprises (SOEs) after they were rescued than was Mitterrand. She put a squeeze on corporate finances making it close to impossible for British SOEs to compete if they remained in the public sector. Perhaps the key to exploring the impact of ideology and a government's commitment to state ownership lies not so much in questions of whether governments are willing to prop up ailing companies but rather in how and what influence they intend to retain after company finances are brought back into shape. In the new system, one could conclude--in contrast to the author--that the firm's financial environment matters so long as ownership does not fluctuate.

This book is well argued and well researched. The study could benefit, however, from more explicit treatment of two areas. The first is methodological and afflicts most comparative quasi-experimental designs. Has the dependent variable (firm adjustment) been sufficiently delimited to include all or at least most variations? In other words, are there any other adjustment strategies not explored by the study that would reveal information that qualifies or even refutes the conclusions? How does the author know she has not committed sampling error? This is, of course, a problem of all bottom-up approaches that seek to make generalizations from firm-level analyses. It is very difficult to know whether one has marshalled sufficient evidence to arrive at solid conclusions. True, the author acknowledges this possibility (p. 171), but a more explicit treatment of the issue is needed much earlier in the study.

Second, the conclusions could have touched on an additional area of theoretical importance: the nexus between political economy and public policy. There is currently little dialogue between the two fields in comparative studies although each has considerable insights to offer to the other. For example, since the findings suggest that mixed economies are evolving into more complex public-private partnerships, can this insight be tied to theories of policy networks? If so, how? Can we go beyond state and market issues into theories of how policies are actually made from a bottom-up perspective? Most theories of policymaking tend to be compartmentalized into narrow domains, such as education, health, or transportation policy. Consequently, their insights apply solely to education, transportation networks, and the like. This is an opportunity to transcend this narrow focus and draw conclusions that apply to several industries at once. If financial structures of various firms and the networks in which they are embedded are critical variables in understanding adjustment strategies, it follows that a theoretical treatment of these networks can serve as a bridge that unifies theory in diverse sectors. What do these financial networks look like? Are they fragmented and becoming even more so? Do networks in some countries contain more financing options than networks in other countries? The answers are contained in this study, but they are unfortunately lost in the details of the case studies. They could have been brought together in the concluding chapter to be used by policy analysts as a springboard to delve further into the nuances of comparative policymaking.

This is a very good book. It makes a strong case for linking the micro to the macro in an effort to reveal how adjustment works from the bottom up. The book also serves another useful purpose. It bridges political science approaches that are almost exclusively preoccupied with state behavior and business school approaches that examine corporate behavior. Each perspective illuminates different aspects of the same phenomenon, but the disciplinary distinction between politics and business remains sharp. We need more empirical and theoretical analyses to find out how the two may be combined to yield a more complete understanding of political reality.
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Author:Zahariadis, Nikolaos
Publication:American Political Science Review
Article Type:Book Review
Date:Sep 1, 1996
Words:1210
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