Cultural Building Blocks - The Evolution of Business Systems

Think of it as the Lego of economies: on the flat-grooved base several different shaped and coloured pieces fit together to build a particular business system. What exactly this Lego is and how the pieces are constructed is the metaphorical substance of Professor Gordon Redding's latest enquiry into the evolution of business systems. These three working papers give a tantalising preview of what promises to be a seminal book about culture and economies.

by Gordon Redding
Last Updated: 23 Jul 2013

It's one of those head-scratching sorts of questions: how does culture influence a business system or economy? Why do so many different ways of doing business exist internationally? What are the rods holding a system or economy together? Gordon Redding, Director of the Euro-Asia Centre at INSEAD has clearly been giving his sizeable mental faculties some good exercise pondering these issues. His reflections form the substance of these three thought-provoking working papers that are the cornerstone of a forthcoming book.

Thankfully, we are eased into considering the topic. From the initial paper, The Evolution of Business Systems, the argument progresses in The Cultural Foundations of Economic Development and in Authority: The Vertical Order of Society. Adopting the metaphor of Darwinian evolution, the first paper asserts that differences in business systems can be linked back to their evolutionary histories. Thus, the political, social and economic conditions of each country shape how the institutional fabric of society is woven. Culture, via values and norms, also plays a key role in determining which economic institutions emerge. Identifying six distinct competitive systems (ranging from Anglo-Saxon individualism through to the Korean chaebol and Chinese capitalism), Redding proposes a framework for how different systems emerge. In the most simplified terms he argues that a business system is embedded in an institutional fabric, which rests (with the business system) on a societal culture.

With this established, the path to the second working paper is clear. It delves into explaining how culture, with material and institutional logistics interact constantly to shape the economic system. Drawing on the sociologist Max Weber's ideas, Redding questions how culture influences the formation of social order examining values, norms, ends and means. This leads him to propose that order exists both vertically (through authority) and horizontally (by a society's identity) and that how these are used in society depends on rationale. It is this last factor that makes the first two dynamic. Rationale determines what the society wants to achieve and lies behind the organising ability to coordinate assets and efforts to achieve it. The core argument of the book is that variations in substantive rationale can account for most of the differences between major forms of capitalism.

Having established that culture influences societal transformation through the parallel forces of rationale, identity and authority, the third paper dissects precisely how authority functions in the trio. Of course, authority is also about power and both exist in multitudes. In order to illustrate this, Redding highlights the differences in how authority operates contrasting a US and Thai company of equivalent size. Thus bureaucracy is identified with the Western system and patrimonialism in the Thai system: one is rational and the other traditional with both existing on a continuum along which the vast majority of countries are placed. As an illustration, three systems are examined: Western bureaucracy with its Roman law, Christianity and rationality, the Japanese business system with that country's social history, and the Chinese system with the belief systems of Confucianism and centralised structure. Several proposals about how these forces have impacted present day structures are put forward.

If the reader of these parallel papers were depicted visually, light bulbs would be flashing above the head. These thought-provoking works will provide much mental fodder to any manager who has set foot onto the cultural business divide.


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