This discussion could and probably should be a book. However, we will try to summarize the key differentiators in a few hundred words.
When I first studied economics, a course during my MBA (1981), I was exposed to the Keynesian economic model. This construct was long taught by professors such as John Kenneth Galbraith of Harvard.
Only later did I learn there were other approaches to the ‘dismal science.’ For example, Nobel Laureate Milton Friedman is one of the most acclaimed advocates of the Chicago School.
While there are other several schools, i.e., Austrian, the following two represent somewhat polar opposites. A comparative analysis maybe useful. More importantly, depending on the approach a country dictates, a firm’s geo-political risk may be different.
Chicago School of Economics
According to the Encyclopedia Britannica, “At the heart of the Chicago school’s approach is the belief in the value of free markets. Simply stated, the Chicago school asserts that markets without government interference will produce the best outcomes for society (i.e., the most-efficient outcomes). A primary assumption of the school is the rational-actor (self-interest-maximizing) model of human behavior, according to which people generally act to maximize their self-interest and will, therefore, respond to appropriately designed price incentives.”
Keynesian Economics
According to Investopedia, “it is an economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.” As mentioned above, this theory remains popular.
Answering the ‘So What?’ Question
Theses men were semi-contemporaries. The thinking of Milton Friedman (1912-2006) and John Maynard Keynes (1883-1946) chronologically overlaps. On the surface, this might appear as the titanic struggle between advocates of big government and individual self-interest; the stuff of political debates Yet there is a micro-level.
Most organizations deal with a number of cultures and we have discussed that before herein. One’s decision for doing business in locales with different governing models may impact on the revenue stream and its profitability and the risk profile.
One must consider the governing style as a sub-culture in the Government Bubble in our cross cultural engagement model. Keeping in mind that each city state and country may view the role of government differently.
How Does Your Strategy Account for Differing Economic Models?
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