Evolution of Human Behavior from Private Property to Corporate Governance in the Western States

Giorgi Rusiashvili, Associate Professor, Candidate of Sciences, SEP Fellow

When knowledge is the slave of social considerations, it defines a special class; when it serves its own ends only, it no longer does so. There is of course a profound logic in this paradox: genuine knowledge is egalitarian in that it allows no privileged source, testers, messengers of Truth.

It tolerates no privileged and circumscribed data. The autonomy of knowledge is a leveler. (Gellner, Plough, Sword and Book, 1988).
Knowledge which … transcends the bounds, the prejudices and prejudgments of any one society and culture is not an illusion but, on the contrary, a glorious and luminous reality. Just how it was achieved remains subject to debate. (Gellner, Reason and Culture, 1992).
“Capitalism” is defined by many researchers, scientists, economists and philosophers of past and present, and probably the same would be in future, by different and sometimes even contradictory terms. Many classify it as simply an economic system, some distinct from this “capitalism” as an ideology, that is the philosophical advocacy of that economic system which succeeded finally within human nature reality. Some philosophies argue the capitalism as a political system supporting the economic activity of economic subjects with or without the free market principles observed. This view is often founded upon the Marxian idea that political ideology is largely a consequence of underlying economic realities.
All ideologies and viewpoints – both those who support and those who oppose it, agree upon at least one basic feature of the economic system known as “capitalism”. This basic feature is that capitalism involves private property over capital goods (the “means of production”). Beyond this one feature, however, there is no agreement on what other criteria an economic system needs to meet in order to be considered as a “capitalism”.
With all the above in mind, this article classifies the economic system and defines it as capitalistic if it is based on the private ownership of the property (means of production, assets, capital goods, etc). For this reason, capitalism has to be considered as mainly a social arrangement in the society, which shall guarantee scarcity of the resources used in the production processes in the most efficient manner. However in this case the policy choice needs to be justified.
As far as social involvement in the private property processes is concerned, there are the following issues to be considered within the human rational behavior aspect: people are mainly supposed to act rationally during the involvement in the economic processes based on their nature, however if the action is to be considered as irrational, this could be due to either of the lack of the information gathered (which is agreeably called as informational asymmetry), or people are risk-taking and loose.
From other point of view it is proved that by human nature while making the decision people compare what they wish to receive with that one which they want to avoid and mainly prefer the option which avoids the avoidance sought, instead of bringing the benefit sought (George Ainslie, Picoeconomics, 1992). So because of risk to loose they not always choose the best prize but their action is still considered to be within the limits of the rationality boundaries.
“In the twentieth century, the essence of man is not that he is a rational, or a political, or a sinful, or a thinking animal, but that he is an industrial animal. It is not his moral or intellectual or social or aesthetic … attributes which make man what he is. His essence resides in his capacity to contribute to, and to profit from, industrial society. The emergence of industrial society is the prime concern of sociology” (Gellner, Thought and Change, 1964). We will return to this issue below in the text.
The main question, which needs to be answered in the context, is evolution of the human rights from property ownership to the right of pursuing of happiness. Based on different studies (Lyndon LaRouche at al) it could be summarized that while property right is based on negativistic approach (the right of person to have the possession of property and fully benefit from such possession, but property in this case could be not of all persons possession in the society), the right of pursuing of happiness is based on positivistic approach – that in order to be happy the person has the right to possess the property and since everyone has the right to be happy everyone has to have the property at least upon their willingness to posses the property. So right of pursuing of happiness could be considered as continuation and extension of the property right.
This is also in contradiction with wrong interpretation of Marx that the main mean of capitalism, the private property, should be of all possession, because paradoxically the Marxian main postulate is reached by two ways:
1) Again through negativistic approach – the property should be of no one in order to be treated as common (as it was the case in the former Soviet system) and
2) Through positivistic approach – in order the property to be of all, it should be accessed to be possessed in reality by everyone (ultimately this rule as we will see is reached in the corporate governance system or JSC companies in Western countries).
Capitalism actually stands on the formula by which shareholders of companies shall receive a positive value added in a reasonable period of time and the return from the equity employed in the businesses operations has to be greater than the cost of that capital invested.
Hence it should be mentioned that in transition economies the Joint Stock Company form of ownership is hardly establishing or even is not establishing at all, opposite to the limited liability legal forms of private companies which are very much vide spread. It is also the case that due to the absence of the market exchanges for shares and securities the market value added product is hardly to be determined in such a case, and as we have argued in our recent article (Economic Value Added: exploring the key of its application in the transition markets, in Georgian (2006)), this should be corrected on the basis of application of economic value added product instead, through mandatory equalization of market value product with the economic value product (hence it is noteworthy to mention that in the free operating market exchange systems the market value added is not always equal to and can differ from economic value added due to the different market forces, like economic agents expectations and/or market speculations).
This fact is also an indication of how much there is a difference, between the Western national states with intristic adoption of corporate governance and poor countries with private property as main form of ownership on the means of production.
Hence we should not forget that the modern developments in the transitional social-economic systems have quite large similarities with the history of private property development at its early and middle stages in Europe, when too much protection of the property right was required in the process of transformation of the human life from monarchies to citizenship principle based capitalistic societies.
Hence it should be mentioned that some authors (Yves R. Simon, Philosophy of Democratic Government, 1961) relate the capitalism with the non-democratic systems of social life arrangement in the sense that the government through apriory and prima facie application of the property rights within the fundamental human rights range is supporting the interests of 20% of population, possessing significant private property, against the interests of the rest 80%, who has no such property rights. Such a relation for evidence only is shown on the graph below.
Lorenz Curve

The Lorenz Curve hence was developed for representing income distribution, we use it also to show distribution of assets or unjustified property ownership. In such use, some political doctrines (e.g. socialism) would consider it to represent social inequality. The representation of social inequality and unfairness with nearly the same results is shown in the following research results conducted in Russian Federation, however these results could be generalized for all Newly Independent States including the countries of Central and Eastern Europe. Hence it should be noted that with the time lag the social response is becoming quite less negative, but still it should be considered as very antagonistic.

From this point of view it should be pointed out that hence there is a discrepancy between the democracy and capitalism, some authors believed (like John Kenneth Galbreith) that as always due its internal forces capitalism will find the ways of its transformation in order the problem to be solved. This was sought to be happened through the convergence system of capitalism with the socialism. It is also true that the most beneficial form of capitalism – socially oriented market economics was finally reached only within the scope of the role of trade unions and solidarity issue between workers making pressure on old wild type of capitalism. Hence after the break up of the huge socialist system in the East countries this issue of the so-called convergence systems operation lost its actuality for modern scientists and researchers.
Hence we don’t agree with such approach because to our opinion that the problem still exists is proved by the antiglobalization movements which besides of cultural identity problems by majority of population is considered as more globalization leading to more harder capitalism with subsequent involvement of property rights issue and if capitalism would be ideally democratic system than such manifestos would be not required (Fisher and Ponniah, Another World is Possible, Popular alternatives to globalization at the World Social Forum, 2003). The most recent events related to the first hire contracts issues in France or pension age increasing in Italy and elsewhere in Europe is also the proved evidence for this argument.
Also it is important to stress our attention on the issue of Neo-Corporatism. Under a system of State corporatism is described by Jonathan Unger and Anita Chan in their essay China, Corporatism, the East Asian Model:
At the national level the state recognizes one and only one organization (say, a national labor union, a business association, a farmers’ association) as the sole representative of the sectoral interests of the individuals, enterprises or institutions that comprise that organization’s assigned constituency. The state determines which organizations will be recognized as legitimate and forms an unequal partnership of sorts with such organizations. The associations sometimes even get channeled into the policy-making processes and often help implement state policy on the government’s behalf.
Free market theorists like Ludwig von Mises, would describe corporatism (as per a quote claimed to be from Mussolini: “Fascism should more properly be called corporatism because it is the merger of state and corporate power”) as anathema to their vision of capitalism. They would advocate the state to be what has been called the “night-watchman” and the government’s role in the economy to be restricted just to safeguarding the autonomous operation of the free market. In this sense of capitalism, corporatism would be perceived as anti-capitalist and as socialism. But did they were right, because of relevant non-democracy of capitalism considered above and claimed public commitments by corporations against the governmental support, is still a question?
“Looking at the contemporary world, two things are obvious: democracy is doing rather badly, and democracy is doing very well. New states are born free, yet everywhere they are in chains. Democracy is doing very badly in that democratic institutions have fallen by the wayside in very many of the newly independent ‘transitional’ societies, and they are precarious elsewhere. Democracy, on the other hand, is doing extremely well in so far as it is almost (though not quite) universally accepted as a valid norm” (Gellner, Contemporary Thought and Politics, 1974).
Let us now consider the reasons of irrational behavior: 1) Long – term approach (as per Hofstede studies); 2) gift economy approach (or let the gift to circulate assuming that all other agents are sharing the values of the person gifting); 3) charity without any real feed-back for the act (we will come back again to this issue later in the text).
In the empirical part of cooperation and rational behavior correlation determination it is important the role played by Hofstede (2000, 2001) measurements with the following indexes (in Živko Tjaša and Milan Zver, 2000, 2001):
• power distance (PD) – the opinion about equality and hierarchy in society;
• individualism (IND/COL) – how individual societies are assessing individualism, i.e. person’s orientation towards him/herself (or his/her family), pursuing own goals and interests or society, where social ties among family members are not firm. The opposite term is collectivism, which is tied to positive evaluation of devotedness, loyalty and placement of the individual into the group, where he feels protected;
• masculinity (MAS/FEM) – is a cultural component opposite from femininity. It is characteristic for societies with firm differences in role distribution between genders. In societies with lower value of MAS index – in the so called feminine cultures – the borders between traditional roles are vague, cooperation is highly appreciated as oppose to competition or rivalry (Apfelthaler 1999; and Aristotelian idea as reflected in Whitbeck 1973-74);
• long-term orientation (LTO/STO) – a national cultural component, which expresses long-term vs. short-term orientations of the members of a certain culture. We call it simply as charity or irrational behavior and non-profitability orientation in the short run (this is also commonly adopted in Confucian cultures in the far East, the countries like China, Japan, Honk-Kong, Taiwan South Korea and Singapore which are doing very much better economically);
• uncertainity avoidance (UA) – signifies the perception of society members being threatened by the unknown and uncertain situations.
Hence we can conclude that in the Western states, according to Hofstede indices there are the strong pre-requisites for dominance of cooperation against the competition.
Hence it should be noted that for the reasons of cooperation, irrationality or irrational behavior is not to be considered as such and it is contrary rational (being irrational from a first look) because it reduces the avoidance sought to minimum level in its ultimate case (George Ainslie, Picoeconomics, 1992). Thus everyone should agree that such an action of course is to be considered as rational, even highly rational. The main problem in reality with this may be that the society is not so much open (Karl Popper) and as per majority’s rule if the major part of socium elects to do not cooperate, then that action of cooperation considered as not being rational from majority point of view needs to be taken into account by minority as well.
Hence the problem addressed by the Reflectory theory (works of George Soros, The alchemy of finance: reading the mind of the market, 1988; and the works influenced by him: The Paradoxes of Unintended Consequences, 2000) still exists and people in majority sometimes reflect the misleading believes and thoughts which were passed to them, or they by themselves incorrectly assessed (reflected) the situation mainly in long-term approach, because for short-term approach the feed-back for the action is always more or less clear.
From other point of view rationality is primarily linked with competition and irrationality with cooperation. So let us consider why competition is necessarily linked with the rational behavior? In this case we have the full benefit sought, so through not dividing the work but doing it altogether to generate more income alone. As its antagonist, the cooperation should be primarily concerned with irrational behavior. If so, then why cooperation is good and why it brings better results:
1) First of all because for the society in common (which means that majority cooperates, hence enabling some ‘free riding’ of course) it is received the BEST BENEFIT SOUGHT with minimum avoidance sought, hence avoiding the maximum avoidance sought (Campbell and Sowden, Paradoxes of Rationality and Cooperation, 1985).
2) Second, in case the society does not cooperate and competes instead, then the society overall avoids the highest avoidance sought, however getting minimum avoidance sought with only the minimum benefit sought.
So it happens commonly in the life (as per scenario of Prisoner’s dilemma and Newcomb’s problem) that of course the majority rejects to cooperate (and this is the paradox of life based on capitalism system), but instead of fully competing the society separates in two more or less equally large enough groups (mainly depending on the property rights distribution to our point of view) and while one group elects to cooperate, the other – does not. So first looses everything and receives the highest avoidance sought, and they could be considered as losers for our example, and second part like in the best possible case receives THE BEST BENEFIT sought also with minimum avoidance sought and this actually happens in life. In this case it should be noted that those parts elect to do not cooperate whose avoidance sought is higher, and contrary that part elects to cooperate whose avoidance sought is lower. This is again because, paradoxically, the side with less avoidance sought never competes in case of other part elects to cooperate. This paradox can be explained by application of the bargaining/negotiation power. So in overall terms the society looses finally, but this is small cost in compare to second alternative, and thus somehow benefits from this.

where, (+) – stands for cooperation and (-) stands for competition/conflict

Therefore for the competition/conflict category we can identify the following main common criteria similarities:
– acting in the same field of economy, so no division of work but contrary performing better than others;
– free action, which assumes that if the rule of law enables then people are supposed of doing whatsoever, without even acknowledging others interest.
In the most dramatic form of it – property and conflict over property rights, Coase (The Problem of Social Cost, Ronald H. Coase, Professor of Economics at the University of Chicago. The Journal of Law and Economics 3, p.1, October 1960) made it evident that it’s necessary to consider the cooperation factor (Social benefit, or how others benefit/suffer from person’s private property activity; see Shleifer, Andrei (1998) «State versus Private Ownership», Journal of Economic studies).

Hence we stipulate here the negative externality, or taking from the society the benefits mainly having Two conjectures:
1. Market failures arise from inadequate assignment of property rights
2. Final allocations are independent of the initial assignment of rights.
The positive externality is also to be considered which stipulates giving to the society the benefit (for example see Sturger case). Altogether this could be summarized under the Human Rights modernization issues in current realities (Dnes).
And as we had concluded for the task of estimate the reasons (causes) for inefficiencies of the firms in FSU countries in compare to Western States (Rusiashvili Giorgi, Applying Coase theorem in the market competition regulatory policy in FSU countries: the way to intensive growth of production, Scientific-Research Institute of Finance, Georgia, 2005) that: FSU state bureaucracies (what is called in modern literature as ‘heritage of power’) try to keep inefficient markets (through unfair competition/unjustified regulation policy of external cost usage) in order to keep the firms’ immobility to engage in the global market and thus its own socio-political stability, but at least at the level to have minimally required economic growth. This comes not only to direct economic ends, but to institutional differentiation and breach of social protection through infringement of public obligations (commitments) from firms’ side with cultural (sharing of values) diversity among firms and society in a whole, which is also more or less possible in transition.
We consider two aspects of the firms’ output and market efficiency (see graph below):
One of the interesting results from this study is to show that a large number of countries and sectors – from both the agricultural and industrial economies categories both from EU and NIS-could be so called ‘scale inefficient’. For example the Ukrainian economy performs better then other countries of NIS, but according to its scale which is almost the same as France scale in Europe, it does very badly. The major cause of inefficiency for EU members could be the production of large output in the face of decreasing returns to scale (increasing cost conditions), and for NIS countries the production of small output in the face of increasing returns to scale (decreasing cost conditions).

Contrary to competition, cooperation stipulates division of labor. Herewith cooperation could be considered in two folds:
– as division of the work (specializing in doing it) and
– benefits of the rule of law (Dnes) gained, which is likely the evident form of cooperation, because that one who commits himself/herself to the rule of law, s/he cooperates with other part of society, and that one who breaches the rule of law is not cooperating with others.
Hence it’s important as the same for democracy, for the rule of law it is possible some ‘free-riding’ to exist (or failure of it), but it is necessary the majority to obey it for the sustainability purposes of the socium. Therefore the relationship between the cooperation/competition and its different versions is summarized in the table below.

In National Western states there is higher level of division of labor (Pagano and Bowles studies, 2000, 2001, 2002, and 2003), and so we conclude that in the Western States the higher is cooperation level.

“Complementary institutions (mainly Nationalism) promoting cultural standardization and social protection, make market mobility compatible with a complex division of a labor” (Gellner).
Furthermore as the outcome of Pagano and Bowles studies the labor productivity is possible without exchange, but labor market is impossible without division of labor as nothing would be first produced and second exchanged, thus:
• Vertical and horizontal differentiation (society is not homogenous, only ethnic groups; there is no political idea or No nationalism) causes
• No reward for productivity effort and innovation, which causes
• Economic stagnation, which causes
• No structural changes (or the society is still disintegrated from the world community) and
• Immobile division of the labor
But:
• Vertical and horizontal heterogeneity (one political idea) causes
• High reward for productivity intensive growth and innovation, which causes
• Economic development, which causes
• Structural changes (the society is integrated in the world community), causes
• Mobility in the labor division.
Hence we can conclude that in Western states, because they are fully National (or have national identity plus political unity and social loyalty alongside with sound law system established) there is dominance of cooperation prevalence within competition.
“This is indeed one of the most important general traits of a modern society: cultural homogeneity, the capacity for context-free communication, the standardization of expression and comprehension” (Gellner, Conditions of Liberty, 1996).
The main issue we count is Maslow pyramid for two reasons, first the self-realization issue is close to Hertzberg motivational theories and second here it could be stressed out that the notion of the employees to be satisfied against being not dissatisfied is provided more in corporate governance form of organizations, rather than in private limited companies, where employees can’t benefit from the sound management.
So we arrived here to the conclusion that the three factors can be linked to each other: satisfaction (happiness) with corporate governance and economic productivity and efficiency (because of the fact that in the corporate governance forms the firms are doing better) are positively correlated (see Corporate Governance and Firm’s Efficiency: The Case of a Transitional Country, by Valentin Zelenyuk and Vitaliy Zheka, Ukraine, October 31, 2004)1.
In this very important study, the authors look for empirical support for the hypothesis that there is a positive relationship between the levels of corporate governance quality across the firms and the relative efficiency levels of these firms. This hypothesis is related to Liebenstein’s (Leibenstein, 1966) idea of X-efficiency, whose concept of X-efficiency by conceptualizing, essentially, on corporate governance has spurred a tremendous amount of literature, pro and con, and also inspired the authors to look for an empirical confirmation/opposition of his ideas explicitly in the light of the corporate governance notion.
They used the data envelopment analysis (DEA) estimator to obtain proxies for X-[in]efficiency of firms in sample and then analyzed them with respect to different ownership structures by comparing distributions and aggregate efficiencies across different groups. They also used truncated regression with bootstrap, following Simar and Wilson (2003), to infer on relationship of inefficiency to various indicators of quality of corporate governance, ownership variables, as well as industry and year specific dummies.
Their main hypothesis tested is that the higher the quality of corporate governance is the higher is the efficiency of that firm. Their methodology for testing this hypothesis involves two stages. First, using the data envelopment analysis (DEA) estimator, they estimated efficiency of each firm relative to the so-called best-practice frontier. The resulting estimates served them as proxies for what Leibenstein called “X-efficiency”. These estimates are then, at the second stage, analyzed by comparing distributions and aggregate efficiencies across different ownership structures, and by regressing efficiencies on the firm specific variables, which they expected (based on theory) to influence the X-efficiency of each firm. Among these firm-specific variables are the proxies indicating good (or bad) corporate governance practices, shares of state and foreign ownerships, as well as industry and time dummies.
On the basis of used methodology in this study some proxies of corporate governance were found to be significant determinants of proxy for X-efficiency and therefore they found strong empirical support for the main hypothesis that there is a positive relationship between the levels of corporate governance quality across the firms and the relative efficiency levels of these firms. This gave another empirical support for Liebenstein’s idea that the major source of X-efficiency is motivation at each level of management/ownership. Overall, the empirical evidence they found is consistent with various economic and management theories suggesting that the quality level of corporate governance at an enterprise must be positively correlated with efficiency of such an enterprise. “This is also a support of the argument of Stiglitz (1999), that establishment and enforcement of proper corporate governance principles shall significantly enhance development of individual corporations and economies as a whole — at least due to increasing of efficiency of resource utilization” (Zelenyuk, Zheka). They also found negative relation between the share of the state ownership in a firm and this firm’s efficiency estimates which supports previous findings by other researchers (Brown and Earle, 2000; Andreeva, 2003; and Melnychenko, 2002).
However, they also identified the positive and significant relationship between foreign ownership and inefficiency. This is very interesting empirical exploration and could be correlated with our findings regarding the National homogeneity issues in the Western states and through this linkage with the increased cooperation sense.
“Remarkably, we found that the relationship between the share of the foreign ownership at a firm and this firm’s inefficiency level is positive and significant, implying that actually foreign firms are not more but less efficient than local firms, at least in our sample” (Zelenyuk, Zheka).
Overall, they do find support for the argument that the quality of corporate governance at a firm, on average, goes together with higher performance of this firm, the results and conclusions are quite robust: all the specifications have produced quantitatively similar results, and therefore unanimously suggest the same qualitative conclusions. The authors therefore claim that: “Importantly, this conclusion is found for a transitional country, where the ethics of capitalism is far from being fully inoculated into the culture and mentality—for a country where such issues as transparency have often being viewed as a nuisance rather than as a way to success”.
Together with other findings mentioned above, the authors suggest that it does not matter what the origin of the firm is but whether this firm is exercising good corporate governance practices or not is a case. To our believe this is also correlated with other part of socium’s better life as increased economic productivity means economic growth (competition between the corporate firms in the same field of business can be disregarded, since in relativistic terms the society ultimately wins from such a conflict) and this is overall represented in public happiness under welfare economics terms. Social welfare maximization in case of cooperation and efficient market is shown in the graph below. Here we consider one company producing goods X, and second company – goods Y.

Although all the points on the grand social utility frontier are Pareto efficient, only one point identifies where social welfare is maximized. This is point Z (sometimes called the bliss point) where the social utility frontier MN is tangent to the highest possible social indifference curve labeled SI.
Hence it should be noted that the second crucial factor of happiness beyond the satisfaction (self-realization) as leisure being opposite to work, is to be differently treated. First of all we should point out that despite of the better life conditions in Western countries hence in absolute terms the level and quality of happiness could be increased, but its ratio does not or hardly increase so much, because of increased problems of social life from other side at new qualitative level. Second, hence there is more leisure in Western countries in absolute quantitative terms, but it is not or is hardly higher in relativistic terms in compare to the leisure in poor countries because of the human nature. Hence in the poor countries the motivational forces of humans as per Maslow pyramid are of course at a lower level (Eric B Ross, The Malthus Factor, Poverty, Politics and Populations in Capitalist Development, 1998).
It should be also pointed out that the Western States being doing better economically are predominantly the Christian States. The main reasonableness of Christianity is charity (John Locke, The Reasonableness of Christianity, Oxford, 1999). Purpose of charity is to improve the life around in the society, and make the number of the people having lower avoidance sought less, thus increasing the number of the people having higher avoidance sought and thus increase the chances for its own to receive higher benefit sought with minimum avoidance sought based on the common willingness to cooperate higher. That is why in the poor states there is lower level of cooperation because it is substituted by full competition as there is lower avoidance sought and both sides in our example tend to compete instead with each other. So in this case we are receiving some kind of imaginary nation instead of real political unity, cultural identity and social loyalty.
It is difficult to do not agree with the following passage that: “It is nationalism which engenders nations, and not the other way round” (Gellner, Nations and Nationalism, 1983).
The Nation: real or imagined, what is it? Based on Pagano we can describe the different countries of NIS and EU in the following table below which summarizes the basic determinants of the National States, in this case mainly Western states, with prevailing cooperation:

So in the National States (Western states) where it is the open free society the real nation based on the priority and primarily order of the rule of law enforced through the well-standing legal system by evolution of human rights through economic development came to the situation where the cooperation prevails, and such behavior of the majority can be freely considered as not irrational, but contrary as fully rational. Such cooperation is overlapping all the fields of life and even reflects in the unification of the Western States.
“Civil Society has at the very least two contrasts, and so its essence cannot be seized with the help of a merely bi-polar opposition between pluralism and monocentrism. We must try to understand that which we have suddenly discovered we possess and value. Many of us in the West took it for granted (some still do), as a kind of normal human condition, while those in the East learnt to love it more ardently by being so thoroughly deprived of it, and by seeing the utter falsity of the faith which declared it to be redundant and fraudulent. But we need to know just what it is we love. We can only identify it through characterizing the full variety of its historic contrasts” (Ernest Gellner, Conditions of Liberty: Civil Society and its Rivals, 1996).
Hence the democracy is the final stage of development of civilization even with its ‘free-riding’‘ institute, we can conclude that democracy and capitalism are not coterminous things, because one is based to say literally on 80% opinion and second on 20% interest. Hence of course it should be noted that the role of solidarity among the workers and the trade unions’ role as mentioned above are also the real factors which improved the capitalism in today modernizing it to socially oriented free market economics.
“The model that can be drawn up, of a plural society in which the multiplicity of forces and institutions prevent any one of their number dominating the rest, and which function on the basis of a broad and non-doctrinaire consensus — this picture does not warm the blood like wine. To appreciate and savor its appeal, one needs a rather sophisticated taste, perhaps” (Gellner, Contemporary Thought and Politics, 1974).
As it is not necessary for the division of labor the market exchange (Coase) on the side of goods exchange, hence it is of course impossible being existing without exchange on the resources market side, which otherwise is called specialization or we call it also cooperation (but not limited to this) for our research purposes, the market economics can operate with limited usage of private property, instead using the corporate governance as the basic form.
Therefore the studies in Rationality, Social change and cooperation are great challenge today for purposes of welfare economies construction, reduced externality costs, increased social benefits, scarcity and efficiency of the resources and goods distribution and elimination of unjustified wealth allocation in the transition countries.
The main conclusion we can draw from the research is that in the Western states there is higher state of cooperation and therefore higher rate of common social benefit. That is why these countries are doing better economically. This is reflected in the culture of Western states from the point of view of the human nature. This sharing of values is also common for all Western European countries united today in the European Union and it is not surprising why these states united, because ‘by the Divinity of Labour…’ (George Ripley, 1840), which is uniting people (Jean Monnet, 1952), the (National Western) states are bringing together.
The great role to our point of view in this sense played the property rights evolution. The other issues like The Cost of Market Transactions to be Taken into Account and the Public Sector’s Quality are the issues of further research.
We do hope that our study will contribute at least a bit to increase in believes that good corporate governance is beneficial from not only the enterprises performance point of view but for establishing the culture of solidarity and loyalty to the country as well in transitional states. More generally, we also hope that our results would be provocative for more studies in this area, with better methods and better data, and that altogether these studies will stimulate dissemination of high standards of corporate governance practices and cooperation advantages within the competition based free market institutions enforcement.

Acknowledgment of CEU Support:
Research for this article was supported in whole by Central European University (“CEU”) Special and Extension Programs. The opinions expressed herein are the author’s own and do not necessarily express the views of CEU.