Changing Japanese Capitalism: Societal Coordination and Institutional Adjustment

Citation

Hughes, S. (2008), "Changing Japanese Capitalism: Societal Coordination and Institutional Adjustment", Critical Perspectives on International Business, Vol. 4 No. 4, pp. 424-426. https://doi.org/10.1108/17422040810915457

Still turning Japanese?

During the 1980s, when terms such as deregulation, liberalisation and de‐nationalisation entered public consciousness and the notion of popular capitalism articulated itself in the growth of share ownership and the privatisation of public utilities, a wider debate on international competition was beginning to take hold. Manufacturing competitiveness, or rather the perceived lack of it, was subject to a number of international factors, not least the rise of Japan as an industrial powerhouse.

The struggle of companies in the UK, USA and elsewhere to compete with the innovations and productivity performance of their Japanese counterparts gave rise to a broad ranging literature on Japan and its management practices. Indeed anything that fed a ravenous demand for insight into the Japanese “miracle” became required reading in many a corporate boardroom. For some of this time, I was a postgraduate student at Warwick University, required one night to listen to a guest speaker from the (then) electricians union the Electrical, Electronic, Telecommunications and Plumbing Union (EEPTU). At the time, the union was looked upon as a pariah within the Trades Union Congress, having espoused the virtues of no‐strike agreements (based upon a US model of pendulum arbitration), been accused of “stealing” members from other unions and seeking membership of the employers organisation, the Confederation of British Industry. The leadership of the EEPTU was one of the first to visit Japan to examine the strike free industrial relations that became fabled as one of the principal reasons behind Japans post‐war industrial success. Japan, we were confidently informed by our speaker, was the future. It would overtake the USA as the world's number one economic power. Its productivity levels would continue to be the benchmark for all others through a mixture of technological innovation, work ethic and of course harmonious, single recognition and pendulum arbitrated industrial relations of the sort espoused by the EEPTU.

Who were we to doubt. We carried Sony Walkmans, drove Nissan cars (in various stages of dilapidation) and watched football on Toshiba TVs. The business world it seemed was turning Japanese, or so we thought.

Then, just as predications of an Asian century led by the economic might of Japan began to appear as compelling headlines in broadsheets and business magazines, the 1990s saw stock market and land values collapse in Japan as it stumbled into what would become known as the lost decade. As the squeeze on credit and the exposure of Japanese banks to the collapse in land prices led to sharp reductions in private investment, government attempts to stimulate the economy through classic Keynesian packages such as public work programmes failed to prevent the stagnation of the economy. Interest rates rose, debts turned both big and bad and investment dropped sharply as business found it increasingly difficult to acquire credit from its closely aligned and hitherto reliable banks. The fabled post‐war economic expansion had ground to a halt.

It is from this buffer point in post‐war growth that Witt begins his “fine grained analysis” of the complex and highly co‐ordinated nature of the Japanese economy. In analysing the last 15 years of comparative stagnation his key question is “what has changed?” and to this he consistently demonstrates and finally concludes, “very little”. In so arriving, Witt undertakes a tour along the familiar terrain of institutions, systems and networks that comprise the Japanese business economy. His focus is predominately on the institutions that structure the economy and the changes they have undergone at three levels of determination: culture, business environment and business system. In virtually all measures Witt establishes a cogent picture of institutions and practices that remain largely change resistant. Despite the many voices arguing, for example, that labour management systems were undergoing change Witt finds little evidence for this. The nenko joretsu system of earnings and promotion based on seniority is still the predominant practice with the predicted shift toward more performance related wage systems not yet materialising. Likewise evidence for changes in the networked business structures that define the keiretsu is both mixed and limited. The vertical keiretsu or supplier networks found themselves in the glare of the global spotlight when Nissan decided to reduce the number of its suppliers by forty percent. For many Japan observers, this was a portent of things to come as other companies would follow Nissan's lead and engage in some radical cost cutting to reduce debt. But as Witt points out Nissan was the exception and no other major Japanese companies followed in its path. Some devised more arms‐length contractual relationships with their suppliers while Toyota, now the world's largest car maker, took an opposite approach by integrating its suppliers more closely into its network in order to prevent their products being acquired by competitors. No radical restructuring here then nor among the horizontal keiretsu of business groups where the picture is once again mixed and despite some mergers across the keiretsu and the loosening of alliances, inherent conservatism still prevails.

Perhaps, Witt's most intriguing finding is the increase in exposure of Japanese companies to foreign shareholding. About a fifth of corporate Japan is now foreign owned. Although the impact on corporate governance in Japan is still unclear and open to further research, foreign shareholders are already pushing firms to give more weight to shareholder value. The tension between the traditional stakeholder perspective of corporate Japan and that of maximising shareholder value is one still being played out. Some such as Sony appear to be accommodating the change with minimal disruption while others are taking a more incremental and selective approach based upon the size and strength of their foreign shareholding.

Witt's book is the outcome of his doctoral studies while at Harvard. It is well versed in the literature, rich in data and diagram and tells its story with focussed clarity albeit couched in the dry but informative style of a PhD thesis. It presents us with an adept and intriguing assessment of Japanese domestic capitalism as it attempts to lift itself from the economic sick bed of the 1990s. In doing so, Witt helps us understand why Japan has struggled for so long to escape from its economic malaise. While its corporate success stories such as Sony and Toyota are global leaders in their own right they represent the exception to the picture of the Japanese economy that Witt carefully crafts. While the highly co‐ordinated and deeply networked mechanics of the Japanese corporate machine was once a source of strength, the world has moved on leaving corporate Japan preferring to stroll the slow road of incremental adjustment wrapped in the comfort of its established practices. What we are left to reflect upon is a sombre portrait of an economy burdened by government debt and struggling to free itself from an embedded faith in institutional conservatism and risk aversion. Still turning Japanese? Some no longer think so.