In the past these critical political choices on which system of governance provides the most value in terms of efficiency, equity, and participation have been made and defended. Mark Roe’s (1994, 2003) path dependence thesis rests on how political forces in America, anxious about the influence of concentrated financial or industrial monopolies, resisted any effort at concentration of ownership or at ownership through financial institutions, resulting in dispersed ownership. In contrast European social democracy has tended to favor other stakeholder interests, particularly labor, as a system that promotes welfare among all citizens and attempts to prevent wide disparities. In turn this can be viewed as a reaction to the historical rise of fascism and communism. Listen and Free land adopt a similar historical view that the form of governance is a result of wider political and institutional developments:
In this way, characteristic institutions of the US economy can be traced back to distinctive political and regulatory intervention, resulting for example in weak banks, diversified companies, and the dominance of the diversified corporations. In contrast in Europe and Japan the regulatory environment encouraged a very different approach:
Regulatory policy in the United States had the unintended consequence of pushing U. S. companies in the direction of unrelated diversification, whereas in Germany and Japan it continued on a pre-war trajectory of discouraging mergers in favor of cartels and of promoting corporate growth through internal expansion rather than acquisitions. In other words, modern regulatory policy in the U. S. produced corporations who relied on markets to acquire ideas and talent, whereas in Germany and Japan it produced corporations whose primary emphasis was on production and on the internal generation of ideas through development of human capital and organizational learning. The implications for corporate governance are straightforward: corporations favor shareholders in the U. S. so as to obtain capital for diversification and acquisitions; they favor managers and employees in the Germany and Japan so as to create internal organizational competencies.
A very different reading of these events is offered by Rajan and Zingales, who argue that widely dispersed shareholder ship is related to the development of liquid securities markets and the openness to outside investments, while it was not social democracy but protectionism that kept European and Japanese markets closed from competition with concentrated ownership. As financial economists they favor the globalization route to open market based competition, which they see as the way to unsettling local elites, achieving dispersed ownership, raising capital, and improving corporate governance.
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