What is the role of ideology in shaping how businesses go about their everyday operations?
Generally, economic theories of the firm - particularly at undergraduate level – imply that businesses have clear aims and a clear way to go about those aims. This might be the basic profit maximisation; it could be growth; it could be market share. In some models it’s not quite as clear for the firm as a whole – the objectives of managers and shareholders can conflict, for example – but it is at least the case that each agent has clear objectives, subject to some constraints.
However, the real world is rarely so certain. While it is obvious that capitalist firms throughout history have the overarching aim of making money, the way to achieve this is not always clear, particularly if we are talking about long term strategies. For example, could it be that being a “socially responsible” firm will increase business from sympathetic customers? Or that higher wages, better working conditions and so forth, which seem costly, will actually increase employee productivity? The history of how firms have worked seems to suggest that firms as a whole – or capitalism, if you like – is susceptible to waves of ideology about the ‘right’ way to do business.
Consider the American School of Economics, which was the chief ideology and policy of the USA during its industrialisation period. This was a highly protectionist school, which focused around maintaining domestic competitiveness and employment. High wages, good education and healthcare for the workers were encouraged, both for humanitarian reasons and as a way to increase productivity and make business more profitable. It was not only required that government policies were set up in a certain way – tariffs, public services, employment rights – but also that these policies had popular support. Business generally shared in the idea that well paid employees would be more productive, something epitomised by Henry Ford’s famous doubling of his worker’s wages.
The result of this policy was a large, profitable domestic sector and consistent increases in real wages, allowing the USA to outperform the UK. This isn’t to romanticise the period: I’d have plenty to say about anti-labour violence and US foreign policy at the time (that is, if anyone were interested). However, the American School of Thought demonstrates how a certain way of thinking can permeate society and business as a whole, and massively affect how the economy functions. Can you imagine such policies working these days, when the popular mentality is so against them? Surely, firms would lobby against – or find ways around – attempts to reestablish such a system.
Another example is in Japan, where they had different ideas. The Japanese firm is a highly collective organisation, one which is loyal to its employees, and in turn has this loyalty reciprocated. Firms generally offer workers ‘lifetime employment’, coupled with numerous benefits such as insurance, pensions and promises of progression, based mostly on seniority. Achievements are shared collectively, and many companies even require employees to sing a ‘company song’. Getting a job at a major firm requires that one goes through a rigorous army-esque training program, and is a major lifetime achievement, to the extent that it is not uncommon for those who accomplish the feat (or don’t) to be reduced to tears. From a certain perspective, this approach might seem quite rigid and inflexible for both workers and firms, but it has certainly produced results: successful firms like Sony and Nintendo; low unemployment despite macroeconomic weakness, security for a large amount of the population, even with relatively low government spending.
There are numerous – indeed, surely countless – other ways to organise a firm based on a people’s worldview, national identity and so forth. Germany has its stakeholder model, where union leaders sit on board meetings and have a say in how the company is run; in turn, however, they are willing to go against their immediate interests by holding wages down to maintain national competitiveness. In countries such as India, the nature of the workplace is intertwined with religious ritual, something firms must consider in how they run their businesses. The rise in worker owned coops in Argentina and across the western world, with 48,000 in the US alone, indicates a growing number of people who share their own, democracy based ideas about the best way to organise business and treat employees.
One implication of the ideology theory is that, contrary to the Reaganite idea that 1980s ‘neoliberal’ reforms simply unleashed business to its true calling, it could be that the decade just instilled them with a certain mentality, one no more special than any other. This ideology was a more ruthless, ‘profit (shareholders) first’ mantra: firms merged, outsourced and became less tolerant of unions. While it is true that these things were accompanied and enabled by changes in the law and technology, the decade as a whole it also seemed put a lot of things, particularly mergers, in vogue: evidence is quite consistent with the idea that mergers were mostly driven by hubris. Similarly, outsourcing has come under fire after it has emerged that there are many hidden communication, management and transaction costs that were not first realised, and hence it may not be as profitable as first thought. Is this uncertainty the mark of firms which have a clear aim and know how to go about it, or which seem largely motivated by fads and unaware of the exact results of the actions?
One last example of how people’s perceptions can have a large influence on the economy may come from the UK. Here, the government’s recent policy of austerity has meant that public sector workers have faced massive cuts. Naturally, the government and press have justified this by appealing to the idea that there is a lot of excess waste in the public sector: pointless, lazy bureaucrats and so forth. Meanwhile, the private sector has failed to step up and fill the gap in employment. Interestingly, a survey provided some insight into why – aside from general macroeconomic weakness – this may be the case: 57% of private sector employers said they were not interested in former public sector employees because they were “not equipped” for the job, based simply on the fact that they were employed by the public sector. In other words, the general impression, fostered by the political class, that public sector workers are useless – false though it may be – has backfired by changing business’ impression of them, reducing hires.
In sum, it seems how businesses are run is substantially dependent on ideas, and hence can be a political choice. Cries that businesses should be more “socially responsible” may sometimes seem repetitive and empty, but history shows us that it is possible to manoeuvre the way businesses operate as a whole. Business’ ideology is also an interesting area of exploration for economic theory: instead of having businesses driven by maximising some goal, they could be driven by a certain set of principles (I expect there are some papers that deal with this, though perhaps not in the way I’d like). In any case, anyone trying to legitimise whatever way business happens to be behaving right now as ‘natural’ should take another look at the history of the firm.