Business Systemics LO5825

Rol Fessenden (
23 Feb 96 23:59:01 EST

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In the Feb 10 issue of the Economist is an article entitled "Stakeholder
Capitalism" describing current trends in German, Japanese, American, and
British capitalism. The article compares Stakeholder capitalism as
practiced by Japan and Germany with shareholder capitalism as practiced in
the US and Britain. Very interesting reading whiich I recommend to

The essence of the article is that stakeholder capitalism has outperformed
shareholder capitalism from 1945 to 1983. However, since then,
performance has reversed. There is an implication that earlier success
was due to injection of huge amounts of post-war capital into essentially
destroyed economies.

What are the distinguishing characteristics of stakeholder capitalism?
Lifetime employment. Employee participation in management (Germany).
Bank and supplier stock ownership (Japan). Less broad stock distribution.
Eg in Japan, the top 5 shareholders may hold 25% of the equity, whle in
Germany as much as 40%. In America, the top 5 typically hold much less
than 10%. A bank is frequently the dominant voice in a German or Japanese

So, what are the results? Well, over the last 50 years, growth has
averaged 5.5% in Japan, 3% in Germany, 2% in Britain, and 1.7% in the US.
However, most of those numbers were established near the end of the war.
Over the last decade the rates were Japan 2.5%, US 2.2%, Britain 2%,
Germany 1.9%. Short term rates may be irrelevant, but 1995 rates were US
3.3, Britain 2.6, Germany 2.1, and Japan 0.5.

Stakeholding is supposed to produce more investment. Japan has
consistently invested more than 20% of GDP. This is driven in large part
by their lack of natural resources. There has been little to choose
between Germany, US, and Britain.

Impact in manufacturing and R&D are ambiguous as well. The US has far and
away the highest manufacturing productivity, but the biggest growth rates
have been in 4.2% in Japan, 4% in Britain, 2.5% in US, and 2.2% in
Germany. Ambiguous outcome.

Employment should be a crucial test of the stakeholder model. Until 1981
it was clearly superior. Japan is now at 3.3%, US at 5.6%, Britain at 8%,
and Germany now over 10%. Even West Germany alone is much higher than the
US rate.

In total the analysis shows no clear victors between the two models.

Further assessment shows that currently, there is little to choose between
the two approaches. German and Japanese companies are down-sizing their
domestic operations. Daimler-Benz has switched to American accounting
because German accounting practices hid huge financial losses. They have
shed 70,000 jobs. Grundig 3,000 jobs, Deutsche Telekom 60,000 jobs.
Overall 300,000 German jobs igrated abroad in the last 5 years.

Ditto Japan. 45,000 jobs being eliminated at Nippon T&T, 7,000 at Nissan.
New graduate unemployment is 14%, highest in the OECD. 2 million jobs
lost since 1989, and a growing belief that more is to come. Most
companies are expanding their off-shore production.

In summary, there appears to be little to choose from between shareholder
capitalism and stakeholder. At least for the moment.

 Rol Fessenden
 LL Bean

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