The munificent seven

This is an infuriating book: it combines on the one hand the worst features of argument-by-anecdote and example, of hypotheses in search of self-confirming evidence, and of conclusions drawn from empirical research without supporting documentation, with, on the other, fascinating historical and business-case nuggets which make it a good read. The sum is much less than the parts.

Charles Hampden-Turner and Fons Trompenaars assert, on the basis of casual empiricism and interviews, that the act of wealth creation can be best understood by focusing on seven "fundamental valuing processes". These are: making rules and discovering exceptions; constructing and deconstructing; managing communities of individuals; internalising the outside world; synchronising fast processes; choosing among achievers; and sponsoring equal opportunities to excel.

They argue that the seven cultures of capitalism - United States, Britain, Japan, Germany, France, Sweden and the Netherlands - can be understood by seeing how the seven dilemmas which arise under each of the seven processes are resolved. Some cultures (for example the US) focus excessively on individualistic solutions to each process; others (like Japan) go for more integrating and communitarian solutions. The ways in which each "culture" resolves these dilemmas is derived from a questionnaire administered to 15,000 managers.

Taken literally, the thesis at the heart of the book is absurd. The analysis-by-sevens is yet another example of the apparently insatiable desire by business writers to make even the most complex problems simple. Capitalism, and the associated history of such diverse nations, cannot be boiled down to seven processes. The thesis should not therefore be taken seriously. Yet there are two aspects of the parts which demand the readers' intention. The first is a central question: why do some types of capitalism succeed and others fail? In particular, why has the Anglo-Saxon method of capitalism - particularly in the US and Britain - done relatively badly since the second world war? The second is why economics, which pretends to the status of explanatory science of economic performance, has failed to provide the answers.

The two turn out to be related, and for reasons which the authors point to. The best bits of the book are, in fact, the negative ones which hint at the failures of conventional economic theory. Neo-classical economists typically claim that their analysis is independent of value judgements, in the sense that the conventional tools illustrate how consumers can maximise their utility, given their beliefs. Thus any set of values, provided it can be expressed within the calculus of utility, and any set of beliefs, provided they are rational, can be accommodated. In practice, however, values and beliefs collapse into narrow self-interest as the motive and money income as the measure of utility.

Hence the bastardised version of Adam Smith's version of wealth creation - individuals maximising their own utility (and firms maximising profits) - becomes the ideal, with the prediction that those economies closest to this ideal, open to competition and respecting property rights (like the US) are likely to be the most successful.

This economist's vision has absorbed much intellectual effort for little result: economics does not have a good predictive record, nor has it proved particularly good at analysing past longer-term economic performance. The reasons are ones which this book hints at: the content of beliefs and values matter; and these are best understood through the history behind their evolution - the history of ideas and experience.

The pity is that the authors choose to make their positive thesis - the "seven cultures" - the dominant theme of the book, rather than the more modest one of first explaining why other approaches are inadequate. Had they done so, they might have realised that more intellectual progress might be made by putting more information on culture, values and beliefs into the economic model, rather than throwing it all overboard in the pursuit of their dilemmas.

Dieter Helm is a fellow of New College, Oxford.