One World, Ready or Not

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One World, Ready or Not The Manic Logic of
Global Capitalism
Chapter 9 Cooperative Capitalism
William Greider
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COOPERATIVE CAPITALISM

• The future often seems improbable until it
  happens.

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COOPERATIVE CAPITALISMHISTORY 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

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COOPERATIVE CAPITALISMHISTORY PARALLEL

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

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COOPERATIVE CAPITALISMHISTORY 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

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COOPERATIVE CAPITALISMHISTORY 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

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COOPERATIVE CAPITALISMHISTORY PARALLEL

• Forms of Production
• Mergers and Trusts
• Cartels
• 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
• Many failed they were declared to be monopolies.
  An example of a company that did not fail would
  be duPont and BASF.

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COOPERATIVE CAPITALISMHISTORY PARALLEL

• The historical parallel with the 1890s 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.

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COOPERATIVE CAPITALISM

• Today
• How to cope with the environment and succeed
• Harsh and overwhelming competition
• Low prices
• Technological edge
• Constant investment in new technology

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COOPERATIVE CAPITALISM

• Key Issues
• Moores Law
• Strategic Alliances/ Consortiums
• Free Capitalism vs. Government Intervention

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COOPERATIVE CAPITALISM

• Key Issues (overview)
• Moores Law
• Fundamentals and Definition
• Applies to computing power
• Ramifications

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COOPERATIVE CAPITALISM

• Key Issues (overview)
• Strategic Alliances/ Consortiums
• Troubling implications
• Consortium
• Pressure on profits

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COOPERATIVE CAPITALISM

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

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COOPERATIVE CAPITALISM

• MOORES LAW
• What is Moores 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

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COOPERATIVE CAPITALISMMoores Law

• The computer chip and personal computer boom.
• 1980s
• 64 kilobit D-RAM chip (DRAM Dynamic Rand.
  Access Memory)
• Equivalent to 6.25 pages of typed text
• During the 80s designers quadrupled the power 3
  times
• From 64k to 256k, 256k to 1m, and 1m to 4m
• 1024k 1m

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COOPERATIVE CAPITALISMMoores Law

• The computer chip and personal computer boom
  (contd).
• 1990s
• 256m D-RAM created by the Big 3 consortium
• 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
• 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 80s could store.

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COOPERATIVE CAPITALISMMoores 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?
• Moores law couldnt 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?

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COOPERATIVE CAPITALISMMoores 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 RD
• 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

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COOPERATIVE CAPITALISMMoores 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

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COOPERATIVE CAPITALISMConsortiums

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

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COOPERATIVE CAPITALISM 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

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COOPERATIVE CAPITALISM 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

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COOPERATIVE CAPITALISM Consortiums

• Other Big Players
• History has taught us there are going to be
  multiple players. Because its such a marvelous
  way to bring your nation into the forefront of
  nations. Its clean, it capitalizes on education
  and knowledge and low-cost labor. pg. 179
• Examples
• Japan
• Korea
• Taiwan

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COOPERATIVE CAPITALISM Consortiums

• Other Big Players (contd)
• 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

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COOPERATIVE CAPITALISM Consortiums

• Other Big Players (contd)
• 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, Japans largest producer
  and Number 2 in the world, and Samsung of Korea,
  Number 7 in global sales

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COOPERATIVE CAPITALISM Consortiums

• Consortium in Other Industries
• Telecommunications
• ATT, Time Warner, TCI, MCI, Ameritech and Nynex,
  CBS, ABC, Disney, and many others

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COOPERATIVE CAPITALISM 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

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COOPERATIVE CAPITALISM 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

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COOPERATIVE CAPITALISMCapitalism 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

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COOPERATIVE CAPITALISMCapitalism 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
• (quotes taken from pg. 187)

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COOPERATIVE CAPITALISMCapitalism Vs. Government

• 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 Union
• Airbus
• Steel Cartels
• U.S. Multinational Corporations
• If you cant beat em, join em pg. 188
• Developing the nations of asia
• Japans keiretsu vs. Koreas chaebol

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COOPERATIVE CAPITALISMCapitalism Vs. Government

• 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

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COOPERATIVE CAPITALISMCapitalism Vs. Government

• Future?
• Japan and other Asian countries are openly
  discussing the creation of global blueprints for
  the international division of laborand idea that
  is anathema to the traditional notion of national
  comparative advantage. pg. 189

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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 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