The Past Speaks

We often hear the term “Anglo-Saxon capitalism” bandied about. In the wake of the 2008 global financial crisis, some people announced the “death of Anglo-Saxon capitalism”.  A few days ago, a pundit at Sky News, one of Rupert Murdoch’s UK TV channels, announced the continental Europe needed to save itself by adopting Anglo-Saxon capitalism. Anglo-Saxon capitalism is a term of abuse and praise, used by people all over the political spectrum.

I’ve long been sceptical of the whole concept of “Anglo-Saxon capitalism”. As used by academics and business journalists, Anglo-Saxon capitalism denotes a variety of capitalism that is much more committed to the free market than the sort of capitalism one finds in countries such as France, Germany, and Japan. Anglo-Saxon economies are held to be characterized by weak labour unions, flexible labour markets, relatively low taxes, and the dominance of the economy by the financial services sector.

One of the many problems with the concept of  Anglo-Saxon capitalism is that it overlooks the simply enormous differences within the so-called Anglosphere: Britain, Ireland, Australia, Canada, the United States, etc., have quite different economies, social policies, political systems, etc. Moreover, the essential features of Anglo-Saxon capitalism only really emerged in the Reagan-Thatcher era. Indeed, in the 1950s and 1960s, West Germany was much more committed to the free market than Britain. The enormous differences between the economies of Canada and the United States, few of which can be attributed to the francophone presence in part of Canada, seem to illustrate everything that it wrong with this facile concept.

I don’t really think that “Anglo-Saxon capitalism” actually exists and I think it absurd when scholars publish articles arguing that the distinctive features of the Anglo-Saxon way organizing the economy can be traced back to the Magna Carta or something like that in English legal history. (For a quick primer on “legal origins theory” and the ideas of Rafael La Porta,  Florencio Lopez-de-Silanes, and Andrei Shleifer, see here). I’m not a legal historian (far from it), but legal origins theory really isn’t consistent with my understanding of North American legal history, at least with what I read in such scholarly works as Morton Horwitz’s The Transformation of American Law, 1780-1860 Cambridge, Mass: Harvard University Press, 1977 or Peter George, and Philip Sworden. 1986. “The Courts and the Development of Trade in Upper Canada, 1830-1860”. The Business History Review. 60, no. 2: 258-280.

It was, therefore, with great interest that I discovered a new working paper called  “Anglo-Saxon Capitalism in Crisis?  Models of Liberal Capitalism and the Preconditions for Financial Stability”.

The authors are: Sue Konzelmann, who is a Reader in Management and Director of the London Centre for Corporate Governance and Ethics (LCCGE) at Birkbeck, University of London; Marc Fovargue-Davies, who is a Strategy Consultant and Research Associate of the LCCGE, and Gerhard Schnyder, who is a Lecturer in Comparative Management at King’s College London and a Research Associate of the LCCGE.

None of the authors is Canadian, but they pay a fair bit of attention to Canada (and Australia) in this important paper.

Here is the abstract. I’ve put some of the key sentences in bold.

The comparative capitalism literature sees national business systems as ‘configurations of institutions’, where different socio-economic institutions are interconnected in coherent, non-random ways (Jackson & Deeg 2008). From a comparative perspective it is argued that different countries cluster into a limited number of ‘models’ (Albert 1993, Whitley 2000, Hall & Soskice 2001, Amable 2003). Whilst different classifications exist, virtually all of them group the six Anglo-Saxon countries into the same category of market-based, shareholder-oriented or ‘liberal market economies’ (LMEs).

The similarities in the institutional configuration of the Anglo-Saxon economies would lead us to predict similar conditions for doing business and comparable economic trajectories. However the 2008 financial crisis has demonstrated that the broad categorizations of models of capitalism may conceal important differences among these LMEs. Indeed, the Anglo-Saxon variety of capitalism groups some of the worst hit countries with countries whose financial systems were remarkably stable during the crisis. As evident in the Financial Times’s ranking of the 50 largest banks by market capitalization (Financial Times, March 2009), between 1999 and 2009, American and British banks had lost considerable ground whilst those of the two other main Anglo-Saxon countries,Canada andAustralia, clearly gained. This casts doubt on the conclusion that the 2008 crisis represents a crisis of Anglo-Saxon capitalism as such.

This chapter examines the question of why the four main Anglo-Saxon countries experienced the 2008 financial crisis in such divergent ways, despite their similar cultural attributes (Redding 2005), legal origins (La Porta et al. 1997) and institutional configuration (Hall & Soskice 2001). Of particular interest are the reasons behind the rise to dominance of the British and American financial sectors – and the resulting shift in the balance of the economy in their favour. This is in sharp contrast to the Canadian and Australian systems, where greater restraint prevented a similar outcome.

We explore how political, ideational and historical factors led to different approaches to the regulation of the financial industry, focusing on the influences shaping the process of economic liberalization in each country and their effect on the evolution of corporate governance. Our analysis reveals a clear division in the interpretation of liberal economic theory and the way it was applied. This gave rise to more than just the ‘fundamentalist’ neoclassical incarnation, characteristic of both British and American capitalism: by contrast, the Canadian and Australian systems evolved in a more balanced way, producing an apparently more stable result. From this, it is hard to escape the conclusion that there is in fact no such a thing as ‘Anglo-Saxon Capitalism,’ and consequently, no general failure of liberal capitalism per se. Instead, the 2008 crisis suggests the failing of a particular variety of economic liberalism, where the balance between the state and the private sector had become unsustainable. 

It will be interesting to see whether the bogus term “Anglo-Saxon capitalism” is used less frequently in the future. Konzelmann et al., make a convincing scholarly case in their paper for the view that Anglo-Saxon capitalism does not exist. However, I suspect that this rubbish concept will continue to be cheerfully used by journalists and academics for generations to come.