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E X C H A N G E

The Future of the U.S. Business Model and the Rise
of Competitors
by Peter Cappelli

Executive Overview
For at least two generations, the United States provided the most important model for organizing business
activities. Explicit efforts to export U.S. ideas about economics were part of an effort to counter
communism, but equally important were lessons about how to structure and operate individual business,
transferred in part by U.S. multinationals but also through the power of example. The rise of extremely
successful economic competitors operating with different business and economic models in the 2000s
provided counterexamples to the U.S. approach and coincided with concerns about the merits of U.S.
practices, driven first by accounting scandals in the late 1990s and accelerating with the Wall Street
financial crisis of 2008. These twin developments have called into question the future role of the United
States as a model for business in the rest of the world. The articles in this Exchange consider the future of
the U.S. example in the competition for influence along with other models that are competing for attention
from the world business community.

I
t is not surprising that the United States emerged
as the dominant economic power after World War
II and, in turn, the source of the most influential

ideas for the business community around the world.
Before the war, multinational companies such as
Ford were already exporting the assembly line model
and the large-scale manufacturing associated with it
that had been developed in the United States. After
the war, competition for leadership was swept away
because the United States was the only industrial
country other than Sweden to survive with its pro-
duction base intact. Prewar Japan’s mercantile
model for business had some influence before the
war but obviously lost influence when it was disman-
tled after the war. The Soviet Union represented the
most important and influential alternative economic
and political model, especially for developing coun-
tries, and it would remain a challenger to U.S. mod-
els through the early 1980s. But the Soviet Union
offered relatively little in terms of ideas to countries

that were not committed to socialist economic mod-
els and especially little to businesses (an exception
was the planning model, especially five-year plans,
which were popular even with U.S. corporations).

It is also fair to note that the U.S. government
invested considerable resources to tout U.S. prac-
tices and principles to other countries, not just in
broad strokes (e.g., democracy and capitalism) but
at the level of operating practices. These efforts
included programs for teaching U.S. business and
management practices overseas, for bringing for-
eign visitors to the U.S. to observe, and for
hands-on advocacy in other countries, especially
in labor policy.1

The important attributes of the U.S. business

1 U.S. government support for U.S.-style trade unions in developing
countries, for example, was extensive and was part of a more general effort
to counter communist advocacy. Many of these outreach efforts were
conducted through the AFL-CIO and various ostensibly independent “Free
Labor Institutes.” See, e.g., Herrod, 1997.

Peter Cappelli (cappelli@wharton.upenn.edu) is George W. Taylor Professor of Management at The Wharton School and NBER.

2009 5Cappelli

Copyright by the Academy of Management; all rights reserved. Contents may not be copied, e-mailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express written
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model after World War II are the subject of con-
tinuing debate, but there is general agreement on
the following:2

● A corporate model of ownership and organiza-
tion. This was in contrast to family-owned and
smaller-scale operations that were more typical
especially in Europe.

● Large-scale production operations based on
mass-production principles.

● Open markets and informal oligopolies such as
the “Big Three” auto companies. This is in
contrast to the many more formal cartels that
were common in Europe and to a lesser extent
Asia.

● Formal organizational structures relying on hi-
erarchies and complex, M-form models. This is,
again, in contrast to informal organizational
forms associated with smaller, family-based
businesses.

● Workplace organization based on collective
bargaining with trade unions whose goals were
explicitly practical rather than political.

Important elements of this model were imposed
on Japan and, to a lesser extent, on Germany after
the war. Whether the transfer of practices to other
countries represented a true convergence to the
U.S. model or a more adaptive process of borrow-
ing and tailoring is a subject of some debate.3 But
there is little doubt that the most influential busi-
ness models for at least a generation after the war
came from the U.S.

That changed somewhat after the OPEC oil
price shocks of the 1970s. The success of Japanese
business, especially its fuel-efficient auto compa-
nies, combined with the poor performance of the
U.S. economy in the early 1980s, helped spread
Japanese management practices around the world.
Practices from other countries, perhaps most no-
tably apprenticeship programs in Germany and
Scandinavia, had influence in the international

community as well. Although it was down, the
U.S. model was soon to reinvent itself and stage a
substantial comeback.

Financialization

U
.S. practices evolved in important ways after
the 1980s, in part in response to the shakeups
of government deregulation, pursued first by

President Carter in the form of eliminating ex-
plicit product market regulations in transporta-
tion, finance, and other industries and then ex-
tended by President Reagan to reduce all forms of
regulation on business. The idea was that the best
way for economies to develop was to reduce the
role of government—lower taxes and subsidies,
less regulation—and encourage private ownership.
This model, based on open markets, became known
as the “Washington consensus,” reflecting the fact
that these principles for stimulating economic
growth were shared by the U.S. government and the
international institutions over which it had great
influence, especially the International Monetary
Fund (e.g., Williamson, 1993).

Then Federal Reserve Board Chairman Alan
Greenspan articulated the idea that the rest of the
world was moving toward this U.S. model in his
statement to Congress during the 1998 Asian fi-
nancial crisis: “My sense is that one consequence
of this Asian crisis is an increasing awareness in
the region that market capitalism, as practiced in
the West, especially in the United States, is the
superior model.” He went on to emphasize the
importance of “greater reliance on market forces,
reduced government controls, scaling back of gov-
ernment-directed investment, and embracing
greater transparency” as being central to the U.S.
approach (Greenspan, 1998).

These free-market reforms did expand around
the world, along with a quite remarkable growth
in democratization. The proportion of countries
with democratic governments, for example, dou-
bled from 1980 to 2000, to 60% (Simmons, Dob-
bin, & Garrett, 2006). A reduced role for the state
in business and an increased role for individual
property rights did seem to go hand-in-hand with
an increased role for individual political rights,
which contributed to the idea that the U.S.

2 There is a long literature on the attributes of the U.S. model as well
as a separate literature, more developed outside the U.S., on the spread of
U.S. practices abroad. One of the seminal works in this area is Djelic, 1993.

3 For the convergence view, see Abramovitz (1994). For the view that
the process was more about learning and adapting, see Zeitlin and Herrigel
(2000). For classic studies about the patterns of business practices around
the globe and the forces that shape them, see Guillen (1994) and Whitley
(1999).

6 MayAcademy of Management Perspectives

model— both of government and the economy—
was spreading.

The U.S. business community also argued vo-
ciferously that the key to its competitiveness was
the ability to restructure quickly when operations
proved uncompetitive and, in turn, to be able to
start up quickly in a different direction. As a
practical matter, that meant having greater ability
to lay off workers, close facilities, and move on.
Unions and employment regulations were seen as
obstacles to competitiveness (Potter & Young-
man, 1994). The apparent success of Silicon Val-
ley and its model based on constant restructuring
with job cuts and outside hiring seemed especially
compelling (Saxenian, 1994).

A further evolution of the U.S. model in the
1990s centered on the goal of securing greater
importance for profit as the primary goal of busi-
ness, in contrast to earlier “stakeholder” models,
which asserted that businesses had many stake-
holders other than shareholders and that the in-
terests of these different stakeholders had to be
balanced. This new approach became known as
“financialization” because of this emphasis on fi-
nancial goals and the pursuit of shareholder value.
Many factors contributed to its rise, one of the
most important of which was public policy (e.g.,
court rulings in shareholder-driven lawsuits ex-
panding their interests).4 Dore (2006) asserted
that the growth of an intermediating financial
industry followed from the notion of property
rights as transcendent. The newly empowered fi-
nancial industry essentially governed business by
relying on free market pricing of equity assets to
reward or punish businesses based on their profit
performance. This industry includes private-sector
agencies that rate and evaluate companies based
on the assumption of transparent financial infor-
mation as well as traders who themselves profit
from the buying and selling of and speculation
concerning equities. Government policies encour-
aged individuals to participate in financial mar-
kets through owning stock. An ancillary outcome
of financialization was that the financial indus-
tries themselves became influential and extraordi-
narily wealthy.

The development associated with financializa-
tion that was arguably easiest to spot was the rise
of financial incentives to encourage executives to
operate their businesses to maximize shareholder
interests in profit. Ironically, the expansion of
financial incentives was encouraged by govern-
ment efforts to limit executive pay by prohibiting
salaries in excess of $1 million from being claimed
as business expenses: Compensation shifted to
stock-based components as a result. In the early
1990s, less than 10% of total executive compen-
sation at publicly held firms was accounted for by
pay that was contingent on stock prices, but by
2003, that figure was almost 70% (Hall, 2003).
Evidence suggested that aligning the interests of
executives to those of shareholders across coun-
tries led to better corporate performance, although
that was perhaps not surprising given the lack of
any systems for managing executives in some
countries (Gugler et al., 2003). The longest eco-
nomic expansion in U.S. history and an exploding
stock market helped persuade the world that there
was something to the U.S. way of doing business.
The financial industry itself along with compen-
sation consultants pushed to extend the financial-
ization model to other countries (Conyon et al.,
2009).

Challenges to the New U.S. Model

B
y the beginning of the 21st century, it was easy
to believe that the United States was once
again providing the most important and influ-

ential lessons for running economies and espe-
cially for operating businesses. But that perception
would not remain unchallenged for long. The first
challenge to the dominance of the U.S. approach,
especially the financialization practices, came
with the unending (as of this date) stream of
corporate financial scandals that began in the
mid-1990s. The common theme across all these
scandals was financial fraud in various forms, at-
tempts by executives to manipulate finances in
order to improve share prices and enrich them-
selves. The most prominent of these were malfea-
sance on such a monumental scale that it literally
brought the company down, such as Enron,
WorldCom, Adelphia, and Global Crossing. But
the list of companies where financial malfeasance4 See Epstein, 2005.

2009 7Cappelli

was not quite bad enough to force the failure of
the company is much longer, including Xerox,
Sunbeam, Waste Management, Tyco, Health-
South, and others.

One marker for financial irregularities is earn-
ings restatements, in which companies revise
earnings that had previously been presented as
accurate. These restatements represent serious ac-
counting errors. The General Accounting Office
calculated that these restatements, once quite
rare, grew by 145% from 1997 to 2001, and about
10% of all publicly traded companies restated
earnings during that period (GAO, 2002). Fur-
ther, all the major accounting firms were involved
in cases of audit failure, in which the firms were
found not to have followed standard audit proce-
dures.

The fact that these scandals were so common
in the United States and so much less so in other
countries suggests that something about the finan-
cialization practices in the U.S. might be to
blame. And the compensation systems that reward
U.S. executives for improving share prices were a
leading candidate (Coffee, 2005). Could the U.S.
model be such a good thing if it was associated
with so much outright fraud and put so many
companies at risk?

The Sarbanes-Oxley Act of 2002 was enacted
in response to these financial scandals. The Act
extended some of the principles of financialization
by pressing for better transparency of information
to allow the market-based governance controls to
work better: requirements to ensure the quality of
financial reporting; substantial penalties for lack
of compliance; and greater oversight of audit
firms, security analysts, and the other participants
in the financial industry who evaluate financial
performance. Pressures to extend the arrange-
ments associated with Sarbanes-Oxley to other
countries were explicit when foreign companies
needed to operate in U.S. financial markets and
were implicit through arguments that these prac-
tices were the new “best practices” in corporate
governance (e.g., the Clause 49 reforms in India).5

The second challenge to the U.S. approach
began at roughly the same time with the steady

rise of foreign competitors that did not follow the
“Washington consensus.” These were led by the
“Asian tigers”—South Korea, Singapore, Hong
Kong, and Taiwan, fast-growing economies whose
strong governments, not traditional democracies,
controlled trade practices and used subsidies and
industrial policies to build targeted industries and
then the economy. The businesses in these coun-
tries were sophisticated competitors by the mid-
1990s, but the economies themselves were still
relatively small. The real challenge to U.S. busi-
ness hegemony would come in the next decade
with the economic expansion of the largest coun-
tries in the world: Brazil, Russia, India, and China,
called the BRIC group.

The Chinese economy grew a blistering 99%
from 2001 through 2007, compared to a more
anemic 18% in the United States. And it did so
with a nondemocratic, communist political system
and a government that was heavily involved in
managing and regulating all aspects of business,
from trade practices to targeted industry invest-
ments. India grew by 66% in the same period,
fastest most recently, competing more directly
than China with the United States in higher
skilled industries. While India threw off much of
the central planning of its socialist government in
the reforms of 1991, the government still plays a
much more significant regulatory role than in the
United States. India also lacks the influential in-
vestor markets, powerful financial intermediaries,
and shareholder maximizing goals of the U.S. fi-
nancialization model. Russia’s 55% growth rate in
this period was attributable mainly to natural re-
sources, making its example relevant to fewer
countries. But its system of outright government
control over large business operations, where fi-
nancial transparency is hardly apparent and finan-
cial intermediaries are weak, looks nothing like
the U.S. approach. Brazil is the most similar to the
United States in its more modest rate of growth
(24%), although it is innovating and leading in
many of the industries where the U.S. has been
dominant, particularly agriculture and aerospace.
Brazil’s socialist party government has proven to
be reasonably centrist with respect to economic
and business policy yet still much more activist
than the United States.5 See, e.g., Chakrabarti, Megginson, and Yadav (2008).

8 MayAcademy of Management Perspectives

As evidence of the changing balance of world
economic influence, the United States accounted
for roughly 27% of world gross domestic product
from 1950 through 1990. By 2008, that figure had
dropped to 20%.6 One of the hallmarks of the
U.S. model had been large corporations. In 1980,
for example, only 2 of the 10 largest corporations
in the world were based outside the United States;
both were oil companies. By 2008, 6 of the top 10
were foreign-based. When we look within industry
categories, the results are even more surprising:
Among conglomerates, a category of business per-
fected in the United States in the 1960s, only 4 of
the top 10 now are U.S.-based; in consumer du-
rables (which includes autos), another category
the United States had completely dominated,
only 1 of the top 10 is U.S.-based (Forbes, 2009).

Other evidence of the change in business in-
fluence can be seen in the assessments of business
schools. The Financial Times first ranked MBA
programs worldwide in 1999 and included only 3
non-U.S. schools in the top 20. By 2008, a ma-
jority (11) of its top 20 schools were outside the
United States.7

The 2008 Financial Crisis

T
he collapse of financial institutions that began
with Wall Street investment banks (Bear
Stearns, Lehman Brothers, Merrill Lynch)

quickly spread to the banking sector and from there
to financial institutions around the world. The credit
squeeze that accompanied the sharp fall in the value
of financial assets led to a worldwide recession, the
worst in the United States since 1982– 83.8

The U.S. Director of National Intelligence ar-
gued in 2008 that the biggest threat to U.S. secu-
rity and to its long-term position in the world has
to do with the current financial crisis. It is leading
to “increased questioning of U.S. stewardship of

the global economy” (Mazzetti, 2009). By early
2009, the extent to which much of the rest of the
world blamed the United States for the 2008
financial crisis and subsequent world recession—
both government policies (e.g., lack of regulation)
and business practices (e.g., the focus on share-
holder value and incentive-based executive
pay)—was palpable at international gatherings
(Dougherty & Bennhold, 2009). In response to
these criticisms as well as to the growing financial
power of other countries, the meetings of the
financial ministers of the leading industrialized
countries known as the Group of Seven or G-7
expanded in 2009 to 20 countries and is now
known as the G-20.

The National Intelligence Council of the U.S.
government develops probable scenarios for world
events. It argues that the fastest growing econo-
mies in the near future will likely follow a “state
capitalism” approach that sees a powerful role for
government in shaping and controlling business
(GPO, 2009), a direct rebuff to the U.S. model.

Given these developments, we asked three
prominent researchers of international business to
consider the future role of the U.S. model as well
as the most likely challengers for influence on the
international scene. Their accounts suggest a
richer menu of choices and the possibility of
greater heterogeneity in the international econ-
omy going forward.

References
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Oxford, England: Oxford University Press.

Chakrabarti, R., Megginson, W., & Yadav, P. K. (2008).
Corporate governance in India. Journal of Applied Cor-
porate Finance, 20(1), 59 –72.

Conyon, M. J., Peck, S., & Sadler, G. V. (2009). Compen-
sation consultants and executive pay: Evidence from the
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Djelic, M. (1993). Exporting the American model: The postwar
transformation of European business. Oxford, England:
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Dore, R. (2006). Financialization of the global economy.
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Dougherty, C., & Bennhold, K. (2009, January 28). Russia
and China blame capitalists. New York Times. Retrieved

6 Estimates of world GNP are not necessarily straightforward because
they are aggregated from individual country estimates, which are not always
accurate or even consistent. There are many sources of world GNP data.
This one is taken from the CIA World Factbook.

7 See http://rankings.ft.com/businessschoolrankings/global-mba-rankings.
8 The National Bureau of Economic Research determines recessions

based on trends in a complex set of economic variables. Interestingly,
unemployment is not one of those variables, although it is the measure most
frequently associated with recessions. U.S. unemployment in 1982 peaked
at 10.8% and stands in March 2009 at 8.5%. See http://www.bls.gov/cps/.

2009 9Cappelli

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10 MayAcademy of Management Perspectives