COOPERATIVE CAPITALISM “The future often seems improbable until it happens.”

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COOPERATIVE CAPITALISM

“The future often seems improbable until it

happens.”



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



HISTORY PARALLEL

“Last decades of the 19th century…..corporations searched for collaborative remedies to help reduce the harsher aspects of freewheeling competition” pg.172



HISTORY PARALLEL

• Struggles Then and Now– Rapid technological changes– Rising capital costs– Oversupply of production – Downward pressures on prices and profits– Intense competition for foreign markets



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



HISTORY PARALLEL• 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 agreements1. Many failed; they were declared to be monopolies. An

example of a company that did not fail would be duPont and BASF.



HISTORY PARALLEL

• “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.



• Today– How to cope with the environment and succeed

• Harsh and overwhelming competition– Low prices

• Technological edge– Constant investment in new technology



• Key Issues– Moore’s Law– Strategic Alliances/ Consortiums– Free Capitalism vs. Government Intervention



• Key Issues (overview)– Moore’s Law

• Fundamentals and Definition• Applies to computing power• Ramifications



• Key Issues (overview)– Strategic Alliances/ Consortiums

• Troubling implications• Consortium• Pressure on profits



• Key Issues (overview)– Free Capitalism vs. Government Intervention

• American vs. Japanese



• MOORE’S LAW– What is Moore’s Law??

• 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

http://www.webopedia.com/TERM/M/Moores_Law.html



Moore’s Law

• 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 timesa. From 64k to 256k, 256k to 1m, and 1m to 4m

» 1024k = 1m



Moore’s Law• The computer chip and personal computer

boom (cont’d).– 1990’s

1. 256m D-RAM created by the ‘Big 3’ consortiuma. 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.



Moore’s Law• “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?– 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

– The question is when?



Moore’s Law• Each generation of chips sent a ripple of changes

through nearly every kind of machine.– Finance– Household appliances– Computers– New means of production

• Characteristics of each new generation– 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



Moore’s Law

• Limits of chip production– Due to exponential capital demands

• Will it be physics or simply shortage of capital?– Leads to companies forming alliances to spread costs

for mutual goals

• Exploring strategic alliances/ consortiums– Possible negative affects



Consortiums

• Troubling Implication of Cooperative Capitalism– Potential for cartelized market– Global price administered by an oligopoly of a

few dominant firms



Consortiums

• 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



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



Consortiums

• 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

• Examples• Japan• Korea• Taiwan



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• Aggressive in pursuing strategic alliances

– Firms & Governments - Taiwan, Italy, Japan, and Singapore … etc



Consortiums

• Other Big Players (cont’d)– 2 other players in the world that can match or

possibly beat the IBM-Siemens-Toshiba consortium:• 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



Consortiums

• Consortium in Other Industries – Telecommunications:

• AT&T, Time Warner, TCI, MCI, Ameritech and Nynex, CBS, ABC, Disney, and many others



Consortiums• Pressure on Profits

– “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



Consortiums• Pressure on profits

– “The retained earnings that corporations traditionally held for future capital investments had declined drastically as a percentage of profits since the 1970s.” pg. 183

• 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



Capitalism Vs. Government

• “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, profit-maximizing enterprises versus the cooperative & state-administered version in Japan.” pg. 187



Capitalism vs. Government

• American Model vs. Japanese Model– “Anglo-Saxton legal rules to ensure free-

wheeling 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)




• Which model will win? – “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 Union1. Airbus

2. Steel Cartels

– U.S. Multinational Corporations1. “If you can’t beat ‘em, join ‘em” pg. 188

– Developing the nations of asia1. Japan’s keiretsu vs. Korea’s chaebol




• Why Japanese Model?– “Offers chance to rationalize output among

major producers and perhaps stabilize markets, freeing them of persistent surpluses and roller-coaster prices.” pg. 189




• Future?– “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• 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: Nat

ional 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

http://www.businessweek.com/

http://online.wsj.com/public/us



http://news.ft.com/home/us

http://www.lights.com/epi/virlib/BriefingPapers/1995/profitu.PDF



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COOPERATIVE CAPITALISM “The future often seems improbable until it happens.”