The Financial Thesis: Reconceptualizing Globalisation's Effect on Firms and Institutions

Abstract

The relationship between globalisation and institutional change is an issue frequently debated in economic geography and the social sciences. Some see firms, whatever their national culture or heritage, as facing common market forces that undermine self-determination and predict convergence towards a global best practice. Others are sceptical, arguing that different country-specific ‘varieties of capitalism’ have market-distorting effects, resulting in path dependence that limits the strength of global incentives to converge at the firm level. Others still are unconvinced by both these arguments. As such, this paper seeks to better understand globalisation's impact on institutions and firms by documenting the effect of global finance and its affiliated agents on institutions and firms. Specifically, I examine the experiences of firms in both Japan and the US that sponsor pension funds to see if they have had similar experiences and behaviours in both jurisdictions. I find that American and Japanese pension sponsors, despite clear manifestations of societal differences, have in fact had very similar experiences. So, some of the predictions held by path dependence and the varieties of capitalism are not confirmed in this case. However, because convergence towards a ‘best practice’ corporate pension offering is also rejected, the paper concludes that new research that focuses on the impact of financial markets on institutions and firms offers important insights for explaining the outcomes in both places.