The Great Transformation of Japanese Capitalism 9781138678187

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The Great Transformation of Japanese Capitalism

In the 1980s the performance of Japan’s economy was an international success story, and led many economists to suggest that the 1990s would be a Japanese decade. Today, however, the dominant view is that Japan is inescapably on a downward slope. Rather than focusing on the evolution of the performance of Japanese capitalism, this book reflects on the changes that it has experienced over the past 30 years, and presents a comprehensive analysis of the great transformation of Japanese capitalism from the heights of the 1980s, through the lost decades of the 1990s, and well into the 21st century. This book posits an alternative analysis of the Japanese economic trajectory since the early 1980s, and argues that whereas policies inspired by neoliberalism have been presented as a solution to the Japanese crisis, these policies have in fact been one of the causes of the problems that Japan has faced over the past 30 years. Crucially, this book seeks to understand the institutional and organisational changes that have characterised Japanese capitalism since the 1980s, and to highlight in comparative perspective, with reference to the ‘neo-liberal moment’, the nature of the transformation of Japanese capitalism. Indeed, the arguments presented in this book go well beyond Japan itself, and examine the diversity of capitalism, notably in continental Europe, which has experienced problems that in many ways are also comparable to those of Japan. The Great Transformation of Japanese Capitalism will appeal to students and scholars of both Japanese politics and economics, as well as those interested in comparative political economy. Sébastien Lechevalier is Associate Professor at the EHESS in France.

The Nissan Institute/Routledge Japanese Studies Series Series Editors: Roger Goodman, Nissan Professor of Modern Japanese Studies, University of Oxford, Fellow, St Antony’s College J.A.A. Stockwin, formerly Nissan Professor of Modern Japanese Studies and former Director of the Nissan Institute of Japanese Studies, University of Oxford, Emeritus Fellow, St Antony’s College Other titles in the series: The Myth of Japanese Uniqueness Peter Dale The Emperor’s Adviser Saionji Kinmochi and pre-war Japanese politics Lesley Connors A History of Japanese Economic Thought Tessa Morris-Suzuki The Establishment of the Japanese Constitutional System Junji Banno, translated by J.A.A. Stockwin Industrial Relations in Japan The peripheral workforce Norma Chalmers Banking Policy in Japan American efforts at reform during the Occupation William M. Tsutsui Educational Reform in Japan Leonard Schoppa

Japan and Protection The growth of protectionist sentiment and the Japanese response Syed Javed Maswood The Soil, by Nagatsuka Takashi A portrait of rural life in Meiji Japan Translated and with an introduction by Ann Waswo Biotechnology in Japan Malcolm Brock Britain’s Educational Reform A comparison with Japan Michael Howarth Language and the Modern State The reform of written Japanese Nanette Twine Industrial Harmony in Modern Japan The intervention of a tradition W. Dean Kinzley

How the Japanese Learn to Work Second edition Ronald P. Dore and Mari Sako

Japanese Science Fiction A view of a changing society Robert Matthew

Japanese Economic Development Theory and practice Second edition Penelope Francks

The Japanese Numbers Game The use and understanding of numbers in modern Japan Thomas Crump

Ideology and Practice in Modern Japan Edited by Roger Goodman and Kirsten Refsing Technology and Industrial Development in Pre-war Japan Mitsubishi Nagasaki Shipyard, 1884–1934 Yukiko Fukasaku Japan’s Early Parliaments, 1890–1905 Structure, issues and trends Andrew Fraser, R.H.P. Mason and Philip Mitchell Japan’s Foreign Aid Challenge Policy reform and aid leadership Alan Rix Emperor Hirohito and Shôwa Japan A political biography Stephen S. Large Japan: Beyond the End of History David Williams Ceremony and Ritual in Japan Religious practices in an industrialized society Edited by Jan van Bremen and D.P. Martinez The Fantastic in Modern Japanese Literature The subversion of modernity Susan J. Napier Militarization and Demilitarization in Contemporary Japan Glenn D. Hook Growing a Japanese Science City Communication in scientific research James W. Dearing

Architecture and Authority in Japan William H. Coaldrake Women’s Gidayû and the Japanese Theatre Tradition A. Kimi Coaldrake Democracy in Post-war Japan Maruyama Masao and the search for autonomy Rikki Kersten Treacherous Women of Imperial Japan Patriarchal fictions, patricidal fantasies Hélène Bowen Raddeker Japanese-German Business Relations Co-operation and rivalry in the inter-war period Akira Kudô Japan, Race and Equality The Racial Equality Proposal of 1919 Naoko Shimazu Japan, Internationalism and the UN Ronald Dore Life in a Japanese Women’s College Learning to be ladylike Brian J. McVeigh On the Margins of Japanese Society Volunteers and the welfare of the urban underclass Carolyn S. Stevens The Dynamics of Japan’s Relations with Africa South Africa, Tanzania and Nigeria Kweku Ampiah

The Right to Life in Japan Noel Williams The Nature of the Japanese State Rationality and rituality Brian J. McVeigh Society and the State in Inter-war Japan Edited by Elise K. Tipton Japanese-Soviet/Russian Relations since 1945 A difficult peace Kimie Hara Interpreting History in SinoJapanese Relations A case study in political decision making Caroline Rose Endô Shûsaku A literature of reconciliation Mark B. Williams Green Politics in Japan Lam Peng-Er The Japanese High School Silence and resistance Shoko Yoneyama Engineers in Japan and Britain Education, training and employment Kevin McCormick

The Changing Face of Japanese Retail Working in a chain store Louella Matsunaga Japan and East Asian Regionalism Edited by S. Javed Maswood Globalizing Japan Ethnography of the Japanese presence in America, Asia and Europe Edited by Harumi Befu and Sylvie Guichard-Anguis Japan at Play The ludic and logic of power Edited by Joy Hendry and Massimo Raveri The Making of Urban Japan Cities and planning from Edo to the twenty-first century André Sorensen Public Policy and Economic Competition in Japan Change and continuity in antimonopoly policy, 1973–95 Michael L. Beeman Men and Masculinities in Contemporary Japan Dislocating the salaryman doxa Edited by James E. Roberson and Nobue Suzuki

The Politics of Agriculture in Japan Aurelia George Mulgan

The Voluntary and Non-Profit Sector in Japan The challenge of change Edited by Stephen P. Osborne

Opposition Politics in Japan Strategies under a one-party dominant regime Stephen Johnson

Japan’s Security Relations with China From balancing to bandwagoning Reinhard Drifte

Understanding Japanese Society Third edition Joy Hendry Japanese Electoral Politics Creating a new party system Edited by Steven R. Reed The Japanese-Soviet Neutrality Pact A diplomatic history, 1941–45 Boris Slavinsky, translated by Geoffrey Jukes Academic Nationalism in China and Japan Framed by concepts of nature, culture and the universal Margaret Sleeboom

Japan’s Agricultural Policy Regime Aurelia George Mulgan Cold War Frontiers in the Asia-Pacific Divided territories in the San Francisco System Kimie Hara Living Cities in Japan Citizens’ movements, Machizukuri and local environments Andre Sorensen and Carolin Funck Resolving the Russo-Japanese Territorial Dispute Hokkaido-Sakhalin relations Brad Williams

The Race to Commercialize Biotechnology Molecules, markets and the state in the United States and Japan Steve W. Collins

Modern Japan A social and political history Second edition Elise K. Tipton

Institutions, Incentives and Electoral Participation in Japan Cross-level and cross-national perspectives Yusaku Horiuchi

The Transformation of the Japanese Left From old socialists to new democrats Sarah Hyde

Japan’s Interventionist State The role of the MAFF Aurelia George Mulgan

Social Class in Contemporary Japan Edited by Hiroshi Ishida and David H. Slater

Japan’s Sea Lane Security, 1940–2004 ‘A matter of life and death’? Euan Graham

The US-Japan Alliance Balancing soft and hard power in East Asia Edited by David Arase and Tsuneo Akaha

The Changing Japanese Political System The Liberal Democratic Party and the Ministry of Finance Harumi Hori

Party Politics and Decentralization in Japan and France When the Opposition governs Koichi Nakano

The Buraku Issue and Modern Japan The career of Matsumoto Jiichiro Ian Neary Labor Migration from China to Japan International students, transnational migrants Gracia Liu-Farrer Policy Entrepreneurship and Elections in Japan A political biography of Ozawa IchiroTakashi Oka Japan’s Postwar Edited by Michael Lucken, Anne Bayard-Sakai and Emmanuel Lozerand, translated by J.A.A. Stockwin An Emerging Non-Regular Labour Force in Japan The dignity of dispatched workers Huiyan Fu A Sociology of Japanese Youth From returnees to NEETs Edited by Roger Goodman, Yuki Imoto and Tuukka Toivonen

Natural Disaster and Nuclear Crisis in Japan Response and recovery after Japan’s 3/11 Edited by Jeff Kingston Urban Spaces in Japan Edited by Christoph Brumann and Evelyn Schulz Understanding Japanese Society Fourth edition Joy Hendry Japan’s Emerging Youth Policy Getting young adults back to work Tuukka Toivonen The Organisational Dynamics of University Reform in Japan International inside out Jeremy Breaden Schoolgirls, Money and Rebellion in Japan Sharon Kinsella Social Inequality in Japan Sawako Shirahase The Great Transformation of Japanese Capitalism Edited by Sébastien Lechevalier, translated by J.A.A. Stockwin

The Great Transformation of Japanese Capitalism

Edited by Sébastien Lechevalier

Translated by J.A.A Stockwin

First published in French in 2011 as La grande transformation du capitalisme japonais (1980-2010) by Presses de Sciences Po. Published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Sébastien Lechevalier The right of the editor to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Lechevalier, Sébastien. [Grande transformation du capitalisme japonais (1980-2010). English] The great transformation of Japanese capitalism / edited by Sébastien Lechevalier ; translated by J. A. A. Stockwin. pages cm. – (Nissan Institute/Routledge Japanese studies) Includes bibliographical references and index. 1. Capitalism–Japan. 2. Japan–Economic conditions–20th century. 3. Japan–Economic conditions–21st century. I. Title. HC462.95.L4213 2014 330.952–dc23 2013030250 ISBN: 978-0-415-71766-3 (hbk) ISBN: 978-1-315-87118-9 (ebk) Typeset in Times New Roman by Taylor & Francis Books

Contents

List of illustrations List of contributors

xi xii

Foreword: From ‘Japanophilia’ to indifference? Three decades of research on contemporary Japan

xiii

ROBERT BOYER

Preface

xxxvi

SÉBASTIEN LECHEVALIER

Introduction: seven Japanese lessons on the diversity of capitalism and its future

1

SÉBASTIEN LECHEVALIER

1

Thirty years of neo-liberal reforms in Japan

26

YVES TIBERGHIEN

2

Is this the end of the J-model of the firm?

56

SÉBASTIEN LECHEVALIER

3

Is Japanese capitalism still co-ordinated?

73

SÉBASTIEN LECHEVALIER

4

What is the nature of the Japanese social compromise today?

86

SÉBASTIEN LECHEVALIER

5

Which education system in a neo-liberal world?

106

SÉBASTIEN LECHEVALIER AND ARNAUD NANTA

6

Is convergence towards the Silicon Valley model the only way for the Japanese innovation system? SÉBASTIEN LECHEVALIER

119

x

Contents

7

Should Japanese capitalism adapt itself to globalisation?

138

SÉBASTIEN LECHEVALIER

Conclusion: Capitalisms and neo-liberalism – lessons from Japan

157

SÉBASTIEN LECHEVALIER

References Index

162 187

Illustrations

Figures I.1 I.2 4.1 7.1 7.2 7.3

7.4 7.5

Evolution of the Nikkei index, 1980–2010 Evolution of real GDP in Japan and the United States The ‘resegmentation’ of the Japanese labour market Evolution of Japan’s trade (exports + imports) with the United States and China, 1979–2009 Evolution of Japanese exports, imports and trade balance, 1979–2009 Evolution of the contribution of the trade balance to GDP ((X-M)/GDP) and of the openness of the Japanese economy ((X+M)/GDP) between 1979 and 2009 Evolution of outward and inward Japanese foreign direct investment, 1984–2010 Transition of the imports structure, 1980–2005

14 14 99 140 141

142 142 146

Tables 1 2 3 4

5

Management of work and employment in a period of crisis: two contrasting styles xix About the efficiency of the Japanese scientific and technological system xxiv A weakness of Japan: a low science linkage index Science or technologies and applications? xxv The origin (Europe, United States, Japan) of scientific knowledge used in patents applied for in the USA: a second weakness of Japan American or Japanese science? xxv Japan: laboratory in research on new growth regimes xxxiv

Contributors

Robert Boyer, economist at CEPREMAP, was until 2008 Professor at EHESS and a senior researcher at CNRS. Sébastien Lechevalier is Associate Professor at EHESS and President of the Fondation France-Japon de l’EHESS (ffj.ehess.fr). Arnaud Nanta is a researcher at CNRS. Yves Tiberghien is Director of the Institute of Asian Research and Associate Professor of Political Science at the University of British Columbia

Foreword From ‘Japanophilia’ to indifference? Three decades of research on contemporary Japan Robert Boyer Right up to the 1970s, the idea that economic systems were converging had long prevailed. Indeed, at that time, the speed of reconstruction and modernisation of both the European and Japanese economies suggested that it was the same model of production and mass consumption that was being diffused, at least in the old industrialised economies. In these countries, action by the state – massive and omnipresent – was seen as a positive contribution to the modernising process. By comparison, the relatively modest American performance fuelled the idea that a mixed economy, combining private initiative with supervision by public authorities, was superior. It was tempting to deduce from this that the European and American economies would in the end converge towards the same organisational model of, on the one side, progressive and prudent liberalisation, and on the other, acceptance of greater intervention by the state. With the crisis in the post-war growth regime, a period of major uncertainty began, as experts and governments encountered many difficulties in explaining how to recover earlier growth patterns, and how to fight against the emergence of long-term unemployment. Everyone was searching for recipes for success, and it is in this context that the search for ‘models’ was started. Thus the three most recent decades have successively directed attention away from the Scandinavian social-democratic model towards the German model, which itself was replaced by the Japanese example, and then it seems that the American configuration of Silicon Valley became dominant. After a brief return to the Rhineland model, from the beginning of the 2000s belief in the superiority of capitalism dominated by the finance industry has prevailed. The crisis affecting the best cases of this model – the USA, the UK, Ireland and even Iceland – as well as the global spread of this crisis, has now led to renewed search for institutions and regulations capable of creating sustained growth once more. The depressive spiral triggered by the Lehman Brothers collapse has been so intense and uncertainty so radical that a new vision of institutions that should control the ‘new capitalism’, desired by some executives and experts, has been slow to emerge. It is in this quite specific intellectual and political situation that lessons derived from the Japanese growth and crisis should attract renewed interest.

xiv Robert Boyer First of all, we shall briefly assess work by French researchers concerning the Japanese economy, and then extract more general lessons that we might derive both for companies and for governments, as the Japanese model involves a tight linkage between the two. Finally, the question of diversity of forms of capitalism and of its renewal will become clearer through the study of the Japanese trajectory.

Japan, a concern for French research, few in number, but original We do not propose to deal here with research in typically Japanese studies concerned with all aspects of Japanese society, or its history over a long period. The developments that follow will be confined to work on the economy and the socio-economic system conducted by French researchers since the Second World War. Broadly speaking, two factors appear to have guided the orientation of their work. Two processes of late industrialisation with strong collective interventions If Great Britain was the first nation to experience the industrial revolution, France was somewhat behind, justifying ad hoc state intervention to compensate for the competitive advantage enjoyed by the dominant power. Without doubt it is in this context that we should find the origin of the style of relations between the state and the economy that continues to govern French society. On the other hand, since the Meiji period, the Japanese authorities have not ceased to put in place original methods to modernise the economy and allow it to meet international competition, at a time when the USA was in the process of replacing Great Britain as the dominant economy. Thus, France and Japan explored a form of capitalism different from that put forward by the classical, and then neo-classical theoreticians and/or by the upholders of liberalism, who took as their starting point the British, and then the American experience. By contrast, extra-market co-ordination seems to have played a determining role in the process of catching up and modernising later developing countries. In Japan we find the impact of discrete ministerial recommendations, co-ordination between large groups, and the innovative mechanism for determining wages that operated with the shunto-. In France, it was the role of the all-powerful central state, which foreign observers and analysts persist in calling ‘Colbertist’, despite the radical changes that took place over the centuries, and in particular after the two world wars. The procedure in operation after the Second World War was essentially that of indicative planning, at its height at the beginning of the 1970s, then slowly declining until it disappeared with the victory of the neo-liberals at the heart of a conservative government, which abandoned the interventionist mindset inherited from Gaullism. Because of this, researchers in the two countries have set themselves the goal of trying to understand why these interventions succeeded, even though,

Foreword: from ‘Japanophilia’ to indifference?

xv

according to orthodox theories, they were condemned to fail. So the question posed was that of the similarities and differences between the exceptionalism of Japan on the one hand and of France on the other. The catalytic role of Franco-Japanese institutions of academic co-operation It was necessary for researchers interested in these issues to be able to meet and directly exchange views outside the very impersonal media of national and international academic reviews. In this context, we should never underestimate the role that was played, and continues to be played, among other organisations, by the Maison franco-japonaise (MFJ). As evidence, we can examine the impressive list of French intellectuals and researchers who, having had a period of stay at the MFJ, have written pieces of work presenting to their research colleagues as well as to the general public their perception of Japanese society and their interpretation of the success of what became for a while the ‘Japanese model’. We recall the long-term impact of Paul Claudel’s stay in Tokyo, but it is also impressive to note the diversity, both of origins and of approaches, of the researchers who have attempted to pierce the Japanese mystery. Some were university teachers, some engineers, journalists and high officials in economic administration. We also have at our disposal a series of analyses done at various periods, which in different ways throw light on facets of Japanese society and economy. It is not a purpose of this preface to give a detailed account of the different contributions and the reasons for their changes in tone according to the period observed, whether this be in Japan’s period of rapid growth, or, by contrast, in the ‘lost decade’ (1992–2004). Even so, they seem to share a general orientation: while a majority of analysts always insisted on the cultural origin of Japanese particularities, they helped in reality to explore the question of the variety of capitalisms. The Japanese example also contributed to the early launching of the debate about ‘capitalism versus capitalism’ (Albert, 1993). This issue was particularly acute after the excesses of the bubble of the 1980s, when the opening of the economy to international finance destabilised the Japanese model and re-opened the question of its inevitable convergence towards American-style finance-led capitalism. The theme of the duality between market capitalism and capitalism coordinated by collective procedures has become very topical over the past two decades (Hall & Soskice, 2001). The contribution of French researchers on Japan seeks to go beyond the kind of dualism implying that Japan, France and Germany belong essentially to the same configuration. It is clear that even if in the 1960s and 1970s the Japanese and French paths appeared to run in parallel, with the breakdown of Fordism, important differences appeared in basic institutions, notably in the organisation of firms and consequently in that of the system of production. Because of this, the studies of Japan were the spearhead of a deeper mode of analysis of the variety of capitalisms, transcending the kind of binary opposition that was useful in political and

xvi

Robert Boyer

ideological debates but hardly enlightening for socio-economic studies. In doing so, the French researchers have reached similar conclusions to those of other specialists who have long made Japan the vehicle for re-evaluating economic theories by means of comparative and historical analysis.

Heuristic power and the dangers of ‘models’ At the international level, the first works on the particularities of the Japanese economy quite naturally emphasised the role of cultural factors in the genesis and persistence of a quite original way of doing things. This orientation lasted right up to the contemporary period, as certain authors continue to attribute a determining role to Confucianism (Morishima, 1984). In the same way, we may take the specifics of wage labour nexus as the transposition into the manufacturing sphere of the type of relations existing within the family. Moreover, there is little doubt that cultural norms fashion lifestyles and consumption patterns. Even so, such intuitions are hardly satisfactory. First of all, this is because the relationship between cultural norms and economic activity is much more complex than would be supposed by a one-to-one relation between a religious attitude and capitalist logic. This difficulty was emphasised by the fundamental work of Max Weber on relations between the Protestant ethic and capitalism (Weber, 1904). Second, and most importantly, we should not assume that cultural traits will persist over a long period, as capitalism inevitably corrodes value systems inherited from earlier modes of production. Basically, analysis wavers between the idea of Japan belonging to a generic model, and the fact that it can embody a form of capitalism distinct from that of the Anglo-Saxon countries. Consequently we can well understand why people are interested in the notion of a model. In using this term, researchers aim to bring together the characteristics of a given economy and society in order to comprehend how they persist over time performing not just acceptably, but better than the economy and society of typical finance-led capitalism such as that of the USA and the UK. All the models that have appeared successively since the beginning of the 1970s have thus been defined as having genuine features that were not noticed during the ‘Golden Age’ (les trente glorieuses) from 1945 to 1975, or emerging in response to crisis in the related socio-regime. There also remains the difficult problem of extrapolating from the level of the firm to that of the whole economy. Indeed, it was from the observation that the Japanese firm was not organised like its American counterpart in its treatment and sharing of information, as well as in its decision-making structure, that the idea of a Japanese model first appeared (Aoki, 1988). At the macroeconomic level, a multitude of institutional arrangements codify the procedures of co-ordination in the area of industrial strategy, innovation and workforce training, and they interact with specific adjustments of the market and price fluctuations. Therefore, Japanese capitalism constitutes a way of

Foreword: from ‘Japanophilia’ to indifference?

xvii

doing things different from that of the USA. The J-firm model, as opposed to the A-firm one, sums up this peculiarity. Nevertheless, in retrospect, the over-use of the term ‘model’ has created much confusion, and the Japanese example once more sensitises us to its dangers. First of all, and most frequently, there are foreign analysts who, seeing developments extremely favourable to a particular country compared with its competitors, connect such performance to organisational and institutional peculiarities, often derived from rather superficial observation. The existence and apparent coherence of this model derive from the observation of a period of rapid growth, in the course of which all firms and institutions appear extraordinarily effective. However, generally an acceleration of growth ends up creating serious tensions and a reversal of the situation, and then all the drawbacks appear in a model of which yesterday one saw only the good aspects. After having praised the effectiveness of the keiretsu, analysts now denounce them as anti-competitive. Other analysts, who admired the decision-making process both within firms and also in state institutions, now stress their slowness, rigidity and their possible perverse role in a period of structural crisis. Moreover, the notion of a model so much simplifies the complexity of interactions at the centre of an economy that it ends up by producing a diagnosis that is shown to be false as soon as the situation radically changes. The J-model resulted more from rather impressionistic ‘connections of sentiment’, even though they were based on field research, rather than from a good and proper theoretical underpinning. It is true that this kind of theory is not evident from the moment when, for example, one wishes to formalise the interactions between a large number of institutional forms at the macroeconomic level or management tools at the level of the firm. Indeed, as it is very difficult to test the hypothesis of complementarity between institutions, we deduce from their compatibility a presumption of their complementarity, in other words a better result than if only one of them existed (Boyer, 2005a). The irony is that precisely at the moment when nearly everyone has come to praise the Japanese model, the limits, both of the organisational model of firms and of the macro-economic regime, surreptitiously reveal themselves. A better method would be to define the particularities of the Japanese configuration, and then follow the changes within it, most often brought about by the effect of its own success. Moreover, at the point when the human resources departments in most large firms throughout the world were seeking to implant Japanese management methods, it became evident that an unprecedented intensity of work made the viability of such methods more and more problematic in Japan without introducing significant reforms, like those put into operation in the key firm Toyota (Shimizu, 1999). In the same way, on the macro-economic level, the accumulation of reserves linked to the surplus in the balance of trade created international friction to the extent that the Japanese were forced to play the game of financial liberalisation: this opening up led to a

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speculative bubble that eventually burst, resulting in a long period of quasi-stagnation and fears of deflation. Too often, analysts forget the historically determined character of institutions and their evolution, which may result in a loss of regulatory power. From this may result a curious vicious circle. The policy makers of economies whose performance is mediocre turn to countries that are succeeding, in search of a model that they can try to adopt. In doing this, they tend to infer from good macro-economic health the existence of a high-quality institutional structure … until, stemming from tensions in the economy targeted, a major crisis occurs, in the course of which their understanding of the model, which yesterday was crowned with all the virtues and which they were striving to emulate, undergoes a spectacular re-evaluation. So we may expect that the notion of a model, whether organisational or national, will be questioned. Most commonly, the model’s failure precipitates a search for an alternative, through a process that seems unlikely to succeed. Indeed, when uncertainty grows and a grave crisis affects the national economy, it does not seem illogical to look for references that might stimulate institutional reforms, which are, however, particularly difficult to put in place. The attribution of all virtues to an institutional structure seems to be a cosy tactical choice for governments that have been lamenting the inertia of past institutional compromises.

Conciliating effectiveness and stability of societies: an original configuration The way Japan has developed provides a second lesson of general relevance concerning an essential point: that of strategies, specifically that of making the labour market more flexible, throughout the last two decades. Indeed, with the collapse of the canonical post-war model of growth, the hypothesis that unemployment derives from the rigidity of market institutions made a remarkable come-back. At both national and international levels policies were progressively imposed whereby adjustment of time worked, employment and wages were more and more governed by market logic. The implicit, and later explicit, reference was that of the American or British ‘workfare’. Still, Japanese employment relations give us a counter-example in which the competitiveness of firms has been far from impeded by the recognition that there is a employment stability in the work contract, over and above the normal short-term hazards. Research on labour economics has also provided evidence for the merits of original forms of management developed by Japanese firms. The goal is to promote skill training through internal mobility in a large firm, so that for the workforce, being placed in temporary unemployment and having employment terminated are only last-resort strategies, once all other possibilities linked to internal mobility have been exhausted (see Table 1).

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Table 1 Management of work and employment in a period of crisis: two contrasting styles Phase

Japan

France

I II

1 Reduction in overtime 2 End of temporary contracts

III

3 Reduction in hiring of young graduates

1 End of fixed term contracts (CDD) 2 Reduction in overtime limited by labour law and clauses in collective conventions 3 Reduction of indeterminate-term contracts and replacement by temporary employment 4 Temporary closure of the firm

IV

4 Temporary posting to other sectors or firms belonging to same group 5 Transfer to other firms 6 Reinforcement of the marketing department 7 Suppression of overtime

V

8 Temporary closure 9 Restructuring 10 Cessation of hiring

VI

11 Voluntary departure 12 Launch of new sectors 13 Layoffs

5 Collective layoffs 6 Possible negotiation to reduce the number of layoffs (wage concessions and reduction of length of work) 7 Public subsidies to promote early retirement, hiring of long-term unemployed, programmes of youth training

This characteristic, which is desirable for workers, may only be understood by reference to the complementarities between the various components of wage relations in the large firm. In this regard, it is as different from the American model of defensive flexibility as from the strong institutionalisation that is central to labour relations in France. Research inspired by ‘régulation theory’ has described the Japanese configuration as ‘company-ist’, since belonging to a large firm fashions almost the whole of labour relations (Boyer & Yamada, 2000). First of all, the firm seeks to train and then conserve the specific skills on which it constructs its competitiveness. All the other variables are then conditioned by that goal. Wage policies seek to maintain those wage earners who possess key skills. Incentives rather than constraints explain the quality and intensity of work. Social welfare is in essence linked to membership of such and such a large firm. We can measure, in passing, the considerable differences separating labour relations in France from those in Japan. This is what explains the failure of most attempts to import into France techniques of labour management derived from Japan. The complementarity between components that have long spelled the success of employment relations in Japan are lacking in France.

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Many international comparisons insist on the opposition between marketdominated capitalism and capitalism that puts into practice other procedures for co-ordination, which are complementary to the market. The contribution of French research on the question is to have gone beyond such a dualist approach and instead taken into account the variety of forms of capitalism, starting with an appraisal of the differences between the USA, Japan and France. A huge area of international comparison then opens up. This shows that without doubt labour relations are the most varied factor within different types of capitalism. It is no exaggeration to say that research on Japan has permitted a major advance in the area of institutional economics. Such comparisons also give a paradoxical result: at the height of Japanese growth, wage and income inequalities were closer to those found in social democratic Scandinavian countries than in Anglo-Saxon countries, whereas in the two cases wage negotiations were very decentralised and dominated by private companies without major public intervention. Thus, Japan seems to have combined two traits seen as contradictory from the standpoint of standard economics: firms performed remarkably well thanks on the one hand to stabilised wage relations, and on the other hand to stable and moderate social inequalities, at least before the crisis of the 1990s. For many foreign analysts and specialists, the ‘lost decade’ marked the abandonment of typically Japanese employment relations in favour of essentially defensive mobility and flexibility. Undoubtedly, some sectors and firms adopted this model (Aoki et al., 2007). A significant part, though, of the Japanese productive model maintained a wage relationship that gave precedence to employment stability. Indeed, even during the crisis that followed the speculative bubble of the 1980s, the specific characteristics of Japanese wage relations continued to guide the strategies of firms. In an unfavourable macro-economic context, however, marked by uncertainty about how to escape from the crisis, firms that pursued complementary strategies between workforce skills and performance registered notable successes in exports and innovation. On the macro-economic side, the Japanese authorities were in the end able to avoid long-term mass unemployment that would weigh heavily on social ties. In this respect, company-ism was far from being the only form of wage relations, as the service sector developed quite a different set of wage relations, marked by a differentiation of work contracts and by their great flexibility as much from the perspective of the firm as from that of employees (Ribault, 2002). Also, policies put in place by governments were complementary to those of large firms: increasingly, even if not explicitly, social protection was significantly improved throughout the lost decade. Because of this, in the most recent period there was no explosion of inequality like that seen in Anglo-Saxon countries, even if some Japanese researchers found evidence of growing fragmentation in what had previously been perceived as a homogeneous middle class that formed the majority of the population (Tachibanaki, 2005).

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The dissolving and corrupting power of financial dominance The Japanese trajectory of the three last decades teaches a third lesson: this country is among the first to experience the charm and then the dangers of opening up to international finance. Well before the Asian crisis of 1997, Japan was as much motivated to take this route as constrained not to do so. Because it was accumulating large commercial surpluses, it was necessary that they should be recycled internationally. For its part, internal financial liberalisation led large firms to turn away from bank credit in favour of direct financing via capital markets trading shares and bonds. Consequently, Japanese commercial banks had to look for new clients who were financially less solid and presented greater risks. This is the context in which the speculative bubble of the 1980s took off, during which credit, real estate prices and the stock market simultaneously exploded. This atypical economic conjunction of factors took the central bank and the Ministry of Finance by surprise, both of which, because of liberalisation, had lost a great part of their means of influencing the economy. When the bubble burst, it took no less than a decade for the public authorities to restore the viability of the financial system. These chain reactions, both in the boom period and in the period of stagnation, anticipated configurations that since then have not ceased to be repeated, of course with specific features. In the mid-1990s, we could have drawn lessons that would have been most useful both in Asian countries and more recently in the USA, the UK, Ireland and even Iceland. In the first place, it is clear that the speed of diffusion of innovation and financial products is much faster than innovation in the rest of the economy. This silent power of penetration (why refuse supplementary possibilities of financing authorised by globalisation and new instruments?) can bring macro-economic disequilibrium and transform previous boom and euphoria into recession and even panic. Just as financial dominance ends up affecting most other institutional forms, liberalisation leads to the emergence of a new mode of regulation, which even the best-informed actors do not manage to detect in real time. Consequently, we see a loss of control of the economic situation resulting from the inadequacy and also the obsolescence of instruments inherited from earlier ways of control. Some American economists mocked the archaic nature and powerlessness of the Japanese central bank and the Ministry of Finance, but the American sub-prime crisis has shown a situation equivalent to that of Japan at every point: disarray on the part of the authorities because of the obsolescence of their cognitive maps. Moreover, Japan offers one of the first examples of heterodox monetary policy that seeks limitless access to the liquidity of the central bank for all financial institutions. However, this was to forget that when the financial system as a whole is technically, even if not de jure, bankrupt, monetary policy loses nearly all its effectiveness: there will be an explosion of the monetary base but a contraction of credit – a situation that was to be

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repeated in the USA from September 2008. Similarly, the issuing of public securities to support government expenditure and remove the bulk of bad debts from the banks’ balance sheets turns out to be much more a substitute for than a stimulus to credit to private agents. Similarly, the Japanese government undertook vast programmes of public expenditure (subsidies to consumption, highways, information technology) to sustain economic activity in a typically Keynesian perspective. However, no real recovery was seen from this – merely alternation between mini-recoveries and recessions. Indeed, households subjected to serious uncertainty prefer to save. Public infrastructure plans take time to become operational and public expenditure affects only very indirectly the over-production of manufactured goods and dwellings that were at the heart of the speculative boom. The reader will not fail to see a parallel with the recovery plan of George Bush in 2008 and that of Barack Obama in February 2009. Great hopes … progressively disappointed, as these programmes did not get to the heart of the seizing of accumulation, namely the freezing of the financial system. This double failure of monetary and budgetary policies raises a crucial theoretical question. Whereas after the Lehman Brothers collapse economists made a widely noted return to Keynesian thinking, which insists on effective demand and the possibility of action through public expenditure on employment, it is a quite different writer whom we should invoke to understand the lost decade in Japan, and also probably the difficulties faced by the American economy in the decade of the 2010s. It is to Irving Fisher that we owe the most relevant analysis of the consequences of excessive indebtedness on the contraction of production and the possibility of deflation. As the race to liquidity is at the heart of the strategy of all the actors, we leave the textbook world of the Keynesian multiplier to enter that of credit and finance. The brutal reversal of perspectives open to the Japanese economy show, therefore, how much the restoration of a functional financial system is a necessary though not sufficient condition to overcome a major crisis. This lesson is not yet totally understood by the community of political elites and of American experts facing the sub-prime crisis. Because of this lack of strategic vision in the treatment of a structural and/ or systemic crisis, it needed nearly 13 years for a Japanese economic recovery – quite a modest one – to begin. Throughout this period, debts of unprecedented dimensions accumulated, and the losses, in terms of growth and employment, were heavy. Thus, the Japanese crisis confirms one of the lessons of comparative crisis analysis: they are all the more costly, in budgetary, economic and social terms, when the public authorities are slow to take measure of the crisis and to adopt a rapid and carefully thought-out response (Honohan & Klingebiel, 2000; Leaven & Valencia, 2008). This last message has been fully taken on board by American politicians (Bernanke, 2009). They have also realised that it was perilous to allow deflation to set in (Mikitani & Posen, 2000).

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Let us note a final contribution of the Japanese crisis of the 1990s. It taught economists the difference between a simple cyclical adjustment, in the course of which healthy recovery is restored endogenously, and a structural crisis in which the collapse of economic activity does not, for example, make it possible to re-establish the conditions of enterprise profitability and investment. Thus, in episodes of this kind, purely economic mechanisms and determinism that prevailed before are destroyed, and collective action is needed to reconstruct a set of institutional forms and rules permitting the return to a viable path of growth. Since the emerging model is most often the unexpected result of a whole gamut of conflicting individual strategies, and structures of production have to be readjusted while new skills have to be nurtured, it takes a whole decade before escape from the crisis starts to be effected. In a word, structural crises last for a long time and this is a message of enormous importance for the prospects of the contemporary US economy.

An exemplary strategy of innovation despite an unfavourable macro-economic context1 Considering the pathetic macro-economic performance of the Japanese economy between 1991 and 2001, we should have predicted a reduction in innovation activity, on the grounds of the financial fragility of firms, public deficits and tensions in budget priorities. Indeed, this is what we observe in most countries. On the one hand, expenditure on research and development (R&D) of firms tends to be pro-cyclical, despite the managerial mantra holding that survival and competitiveness of firms depend on dynamism of innovation. On the other hand, in a period of recession and growth of unemployment, the reaction of the public authorities is often to extend social expenditure to the detriment of investing in the future, including education and scientific research. This is, for example, what we see in France and many economies of the European Union (EU). In this respect, Japan is a brilliant exception. Successive governments have accepted growing indebtedness to sustain a double strategy. On the one hand, as we have seen, maintaining the social ties typical of Japanese lifestyle has been a priority, in order to avoid a European-style trajectory in which mass unemployment sets in on a timescale of several decades. On the other hand, future-oriented expenditure has not been sacrificed at all, as is shown by the regularity with which public support for scientific and technical innovation has grown. Even so, many studies on innovation, science and technology have shown that the impact of R&D on growth and employment depend crucially on the quality and intensity of inter-relations between scientific advances, strategies of innovation of firms, and their capacity to convert patents into profitable products and rapidly growing markets. According to these issues, the Japanese innovation system (JIS) exhibits quite an unusual configuration, at the

xxiv Robert Boyer opposite end of the spectrum to what we see in the USA and, to a lesser degree, the UK (Freeman, 1987). On the one hand, the Japanese authorities are perfectly well aware of the determining role of research, as is expressed in the higher proportion of researchers in relation to employment than in the other Organisation for Economic Co-operation and Development (OECD) countries. In contrast, this effort is not reflected in the indicator that measures the ‘productivity’ of scientists, whether this be explained by inferior organisation of universities or whether it be related to a linguistic barrier. The university reform undertaken at the end of the 1990s was the result of this realisation, but it will take time for it to be manifested in the ‘performance’ of Japanese scientists. On the other hand, Japanese firms are much better placed in the area of patents and applications. It is in Japan that the intensity of R&D is highest of the countries considered, and this effort is expressed in the best performance in terms of relations between the number of patents and the population. Only Germany does better in terms of the productivity of R&D. Clearly, the JIS is closer to the Rhineland model than to the US configuration (see Table 2). Many specialists in scientific and technical change deduce that the present position of Japan, though favourable, risks being put into question by the fact that more and more innovations derive from basic scientific advances, a domain in which Japan is far from excelling. It is indeed true that it is in the USA that innovations stem the most from basic science, whereas in Japan this proportion is the weakest among the three poles of the triad: Asia, the USA Table 2 About the efficiency of the Japanese scientific and technological system

A Science 1 Output: number of scientific articles/ population in millions 2 Input: number of researchers/employment in thousand 3 Apparent productivity 1/2 B Technology 4 Output: number of patents in the triad/ population in millions 5 Output: Input: employment in R&D/ population in millions C RD/GDP 6 Apparent productivity 4/5

Japan

USA

Germany France

United Kingdom

OECD

451.1*

703.9

529.8

514.1

807.4**

467.7

10.4**

9.3

6.9

7.5

5.5*

6.6

43.4*

75.7

76.8

68.5

159.0**

70.9

92.3**

57.7

90.7

40.3

36.7*

41.5

3.2**

2.6

2.6

2.2

1.9*

2.2

28.8***

22.2

34.9**

18.3*

Note: * minimum; ** maximum; *** second rank maximum.

19.3

18.9

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and Europe. We should note that this proportion is the highest in the EU, but it is decreasing, whereas it is increasing slightly in Japan. In contrast, Japan is first in rank in terms of technological innovation derived from learning by doing within firms, which confirms the previous strategy (see Table 3). In the redeployment of competitive advantages at the world level, specialists in science and technology agree on attributing competitive advantage to the American economy because of its university system and its centres of academic research, but it appears that Europe is not badly placed in this regard because it manages to use its scientific advantages rather effectively. By contrast, the contribution of Japanese science to innovation by Japanese firms is modest and has been decreasing over time. Thus, the JIS is more and more dependent on Europe and the USA (see Table 4). Is this an irremediable weakness that compromises the long-term future of Japanese growth? Not necessarily, as long as we conduct an epistemological or even anthropological analysis of the sources of innovation. Both Europe and the USA have inherited a Cartesian and scientific conception of the sources of innovation: fundamentally, all must derive from scientific breakthroughs. Contemporary hopes placed on biotechnology exemplify this vision. However, we should remember, following the work of great classic writers such as Adam Smith, that knowledge can originate from productive practice to the point of eventually contributing to the emergence of the craft, the technician, the engineer and finally the scientist. Table 3 A weakness of Japan: a low science linkage index Science or technologies and applications? Percentage of :

European inventors

Science-based patents Technologies and applications

American inventors

Japanese inventors

1987–91 1992–96 1987–91 1992–96 1987–91 1992–96 65.7% 61.3% 67.9% 70.8%** 56.4% 57.6%* 22.1% 30.9%*** 23.4% 22.4% 31.2%** 27.0%

Source: (European Commission, 2003: p. 427) Note: * minimum; ** maximum; *** second rank maximum. Table 4 The origin (Europe, USA, Japan) of scientific knowledge used in patents applied for in the USA: a second weakness of Japan American or Japanese science? Citations from:

European inventors

American inventors Japanese inventors

European science American science Japanese science

1987–91 1992–96 1987–91 1992–96 1987–91 1992–96 54%** 54%** 32% 36% 28% 33% 28% 30% 51% 47%** 36% 32% 8%* 6%* 8%* 6%* 29%* 26%*

Source: (Third European Report Science and Technology Indicators, 2003: p. 424) Note: * minimum; ** maximum; *** second rank maximum.

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The preceding statistical data may now be interpreted as the dominance of a social system of innovation given impetus by techne, in other words by learning by doing, learning by communicating. This corresponds to Japanese specialisation in products that assume the putting together of coherent integrated systems that call on diverse knowledge in different domains (Clark & Fujimoto, 1991). A comparative analysis of social systems of innovation (SSI) in OECD countries confirms the reality of this tendency to specialise in techne rather than in episteme (Amable et al., 1997). In this perspective, the viability of the JIS is assured, even in the long term, as long as there is a need for integrated system products such as cars, equipment goods and robotics, where there are few indicators suggesting they are likely to disappear. This is a guarantee of favourable involvement in a new international division of labour. In this, we find the central theme of the diversity of forms of capitalism. How then do we explain the Japanese recovery from 2003? Whereas, for a long time, Japanese growth was stimulated by capital formation, over recent years it is the recovery of total factor productivity growth that has been at the origin of economic growth. Many industrialised countries attempt to bring about innovation-led growth, but few manage it, perhaps because neither firms nor governments invest sufficiently in education, research and innovation. Japan is, together with the social democratic Nordic countries (Sweden, Finland, Denmark) one of the rare examples of success of this strategy that has been consistently pursued over several decades.

From globalisation to a de facto co-ordination of regionalisms2 The success of the launch of a new strategy of growth has important implications for Japanese international involvement. More generally, Japan constitutes a good point from which to observe the globalisation process as well as the changing meanings that each country has given to this term over time. In the first place, for Japan globalisation has meant a greater opening-up to international competition, rivalry with the North American system, and finally the acceptance of financial globalisation which led to the bubble and the lost decade. Thus, the way the Japanese see globalisation has significantly changed, and has changed even more if we make a retrospective analysis starting with the oil shock of 1973. It seems to be from that era that we can date the strategies of Japanese firms and of public policies: to accelerate the process of innovation in order to create a commercial surplus from manufacturing that would make it possible to import natural resources and energy that Japan lacked. We can conceptualise by contrasting the Japanese trajectory with that of the ‘Dutch disease’ where, in contrast, riches in natural resources provoked over-valuation of the national currency and a contraction of the manufacturing sector (Lechevalier & Onaka, 2004). This brief chronology makes it possible to put the concept of globalisation into a comparative context. It is often reduced either to the idea of the

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disappearance of national frontiers as a result of the dominance of large multinationals, or to belief in necessary convergence towards a canonical model – that of the USA – in a world where all countries are narrowly interdependent and linked by external trade flows, direct investment and even more of portfolio investment. Clearly, national frontiers have far from disappeared – even more so in that the sub-prime crisis seems to have induced a strong re-nationalisation of economic policies – and the thickening of international relations is very unequal depending on country and geographical zone. In recent years, it appears to be the dynamism of China and India, and to a lesser extent of Brazil and Russia, that has been considered the principal engine of change in international economic relations. More precisely, since 2003, the Japanese recovery has been nourished by a new form of division of labour at the heart of Asia. The dependence of Japanese industry on exports to the USA has been continuously reduced whereas commercial relations with China and other Asian countries have become stronger. In parallel, it is true, foreign trade with the rest of the world has also increased, corresponding to a strategy of geographical diversification of Japanese foreign trade (see Chapter 7). Japanese direct investment has also been directed towards China and Asia, in so far as some exports have been replaced by the move into ‘transplants’. Since then, Japan has exported components for high technology and equipment, in order to re-import finished products, which corresponds to a deepening of earlier specialisation. Thus, it is not an exaggeration to put forward the hypothesis of a process of intra-Asian regionalisation, on the initiative of the large multinationals. In the 1990s, the Japanese authorities could doubt that the co-ordinated rise of China would bring about marked de-industrialisation of Japan (see Chapter 7). In fact, in the 2000s, a division of labour between China and Japan appears to be in progress. Japanese enterprises count on their technological advances to nourish their sales to Chinese and other Asian firms which were launched into a process of catching up with the technological frontier. This, for example, is shown by an analysis of world trade in electronics industry products: Japan specialises in high-end products and, for the time being, China specialises in the most competitive part of the market. Taiwan, South Korea and other ‘dragons’ occupy an intermediary position. Thus, a process of regionalising systems of production by different Asian countries appears to be establishing itself. This change is already having major effects, as much in Japanese macroeconomic dynamics as in tensions in international relations with the USA. It is also remarkable that the Japanese situation should be more and more dependent on that of other Asian countries, most importantly China. This was a priori a means of escaping from the earlier tight dependence on the USA. It is true that Japan is no longer the special target of American pressure seeking to obtain more open internal Japanese markets, financial liberalisation and the appreciation of the yen vis-à-vis the dollar.

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Since 2003, it has been China that is in the sights of the USA, which seeks a revaluation of the yuan in order to reduce the Chinese trade surplus, which they consider to be the result of unfair competition. The geopolitics of relations between Japan and the USA between 1980 and 1990 shifted in the 2000s in the form of friction between China and the USA, but the process was not identical, as the Chinese authorities, having learned from the Japanese precedent, were not ready to consider complete liberalisation of their capital account, all the less so in that their powers of negotiation were much greater than those available to Japanese governments in the earlier period. The co-ordinated rise in the regional integration process – in Europe, in Asia and in Latin America – had led to the hypothesis of a possible decoupling of these large geographic zones from the evolution of the US economy. After September 2008, the bursting out of the sub-prime crisis and the brutal diffusion of the US recession to the rest of the world (and to China, in particular) led to the Asia-USA decoupling idea being put into perspective. Regionalisation rather than globalisation, but even so strong international interdependence was a permanent feature: this is one of the lessons of the Japanese trajectory over the course of the past three decades.

Government disarray in the face of systemic and structural crises In the same way, the originality of the Japanese trajectory, once the bubble had burst, helped reformulate the analysis of contemporary crises, anticipating in some aspects the American sub-prime crisis, which, however, showed much greater complexity. Indeed, standard analyses were deployed at two levels. The current concept of crisis corresponded to the phase of decline in the cycle: the difficulty with this interpretation is that no endogenous recovery of accumulation has taken place within the operating mode of regulation. Thus, faced with a brutal economic reversal, economists are rather tempted to borrow from economic historians the idea of a second type of crisis that shows, on the contrary, that the limits of a mode of regulation have been reached. However, the economists, for whom a long time is five or six years – the normal duration of a cycle – most often anticipate a rapid economic recovery. Implicitly, they adopt a concept of crises linked to the very etymology of the term: a dramatic episode in the course of which the analyst can diagnose survival, or, on the contrary, the end of an economic regime. Now, the Japanese crisis was marked by a long period of uncertainty in which we find neither a clear amendment to the earlier mode of regulation nor the emergence of a new one that could substitute it. At least two reasons explain the specifics of the ‘lost decade’, the name traditionally given to this long period of adjustment extending from 1992 to 2004. The main reason relates to the size of the disequilibrium accumulated during the period of speculation and the problem of putting this right after the bubble burst. Indeed, a series of vicious circles reinforced each other in a cumulative fashion. The first concerned the mechanisms of correcting

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overcapacity forged in the course of the boom. What had been an expansionist spiral came back as a chain reaction of depression. The second reason was linked to freezing of credit, despite the adoption, after 1997, of unlimited access to liquidity for financial institutions. In consequence, non-financial enterprises had to resort to distress sales in order to try to unlock the cash they needed, especially to repay past credits whose real value rose with the (slight) reduction in prices. This mechanism reacted with stock exchange values, which weakened the financial position of all the agents, in particular insurance companies. Thus a climate of pessimism became general and was maintained. Finally, economic theories suggest that in great depressions the budgetary weapon regains its full effectiveness, but the Japanese example shows, from the evidence, that the margins of manoeuvre are limited by the number and inertia of institutionalised compromises implicit to most public expenditures. Recovery follows the logic of the earlier growth regime rather than that of the patterns that public authorities would hope to see emerge. Another factor, cognitive in nature, intervenes to explain this long and uncertain muddling through in the crisis. In the mode of development typical of Japan, the Ministry of Finance and the central bank used discrete but useful tools to channel the expectations of private agents and to organise de facto co-ordination that would make regulation more effective. So financial liberalisation, external as well as internal, surreptitiously introduced a series of changes that initially were seen as minor, but whose occurrence all together ended up, after a decade, in destabilising the regulation mode. The Japanese public authorities, like the large firms, were the first to be surprised by this. They did not use a blueprint or a paradigm that would have allowed them to understand the novelty of the phenomena that were impacting the Japanese economy. This is typical of great crises, be it Japan in the 1990s or the USA during the 1930s. It is remarkable that these two factors are found again, mutatis mutandis, in the American sub-prime crisis. On the one hand, a real-estate crisis, a crisis of securitisation and of credit and finally an economic crisis arrived together. The disarray of the US authorities occurred at the height of these accumulated disequilibria. On the other hand, the long domination of the neo-liberal credo and belief in the efficiency of the financial markets were far from contributing to the intelligibility of the crisis. This was even more so because the pyramid of derivative products and their narrow interlinking meant that the freezing of the financial sector was unprecedented because of a systemic crisis in the proper sense of the term: the conventional market prices that had been used to evaluate the derivatives and the options lost all relevance in a context of frozen financial markets between banks and financial institutions. Escaping from crisis: a political question, not simply technocratic There is a third reason for the length of the Japanese crisis, and it is especially important for understanding the complex processes of exit from major crises.

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By profession, the economist deals with cold problems: once social and political struggles have effected institutionalised compromises, he needs to examine their viability, their effectiveness in economic terms and also the extent to which they conform to an ideal of social justice, in fact much more difficult to define than the two other criteria. It is thus tempting for the standard economics to consider that crises, even systemic or structural, are due to the violation of a canonical law or principle that should merely be restored and then the crisis would be overcome with very little delay. Régulation research, however, effectively shows that at the time of such episodes, earlier certainties are broken partially or totally. The outcome of a major crisis is, from that time on, essentially conditioned by the orientation of social and political struggles, areas that do not naturally emerge from expertise in economic theory. The duration of major crises does not depend on the speed of dissipation of politico-economic errors and irrationality of private actors’ behaviour. It relates mainly to the character of political processes that fashion the re-composition of economic institutions and the creation of new ones. The Japanese lost decade was no exception. Successive governments did not manage to persuade public opinion of the necessity for public aid to sustain the banks, in particular because of various episodes of corruption and of collusion by officials with the dominant financial and economic interests. This observation may throw some light onto the problems facing the presidency of Barack Obama in responding to the financial, economic and social crisis of the USA. On the one hand, the novelty of the sub-prime crisis made it particularly difficult to propose a political programme that would be credible for citizens, financial circles and experts. On the other hand, in even supposing that experts were best capable of elaborating plans, it was still necessary that such a programme pass through the opposition of the many different groups of interests in the USA that were so well represented in the House of Representatives and the Senate. So the Japanese governments of the 1990s and 2000s were not the only prisoners of interest groups endangering a rapid exit from the crisis.

Renewed diversity of capitalisms The success of approaches in terms of the variety of capitalisms has often implied the idea of stable and relatively unvarying forms over time. Over a long period the distinction between liberal capitalism and co-ordinated capitalism has continued to seem obvious (Hall & Soskice, 2001). Research on the Japanese economy led to this approach being overtaken in two directions, as this book testifies. On the one hand, indicators of capitalist plurality that do not simply boil down to a binary opposition between Anglo-Saxon economies and others have been accumulating. This is what comparisons between Japan and Germany have shown (Streeck & Yamamura, 2001; Yamamura & Streeck, 2003). More generally, analysis of systems of innovation in OECD countries

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(Amable et al., 1997), as of institutional forms as a whole, have concluded that there are at least four forms of capitalism, even if countries like China, India and Brazil are not included. This diversity is explained by differentiation between economic specialisations, the long-term impact of political choices in strategic periods, and even the effect of globalisation on the reinforcement of the institutional advantages of different types of capitalism. On the other hand, capitalisms are in permanent evolution, more or less rapid depending on whether you are within a regime of stabilised growth or if the economy is going through a structural crisis. Indeed, Japanese capitalism at the end of the 2000s is far from conforming to the configuration that resulted from the first comparative studies in the 1970s. The financial regime has been completely transformed by liberalisation and opening to the outside world; competition has become sharper, including in domestic markets; lifetime employment has been confined to those having skills that directly contribute to firm competitiveness. Even so, Japanese capitalism has not converged into a minor variant of American capitalism. The most recent research has allowed major advances in the area of institutional and organisational analyses. The very earliest works insisted on the general hypothesis of complementarity between Japanese institutional forms, a type of complementarity different from that seen in finance-led capitalism. In addition, Japanese capitalism exhibited a quite precise organisational model, the J-firm model, itself built on other complementarities at the level of the firm. By contrast, two major results emerge. First of all, we should not overestimate the degree to which institutional forms are mutually complementary, as it is difficult clearly to distinguish this property from a simple compatibility. In addition, it is not easy to demonstrate the superiority of economic performance by an analytical approach based on formal statistical method (Boyer, 2005a). These difficulties are precisely linked to the corresponding degrees of freedom that allow for local change, apparently minor, to put into action a series of transformations of the institutional configuration as a whole (Amable, 2003; Streeck & Thelen, 2005). Second, empirical evidence relating to the organisational development of Japanese companies has continued to reject the hypothesis of a single type of firm that just reflected the impact of institutional forms operating at the macro-economic level (Aoki et al., 2007). On the contrary, even within the same sector, strategies followed by firms could result in very different models of organisation. In particular, the modalities of financing on the stock exchange or by bank credit appear as a determining element, including of the management of wage relations (Lechevalier, 2007b). This diversity of strategies and forms of organisation of firms demonstrates the complexity of transformations that emerged after financial liberalisation and policies seeking to overcome the consequences of the speculative bubble of the 1980s. Not only can firms adopt different organisational models in the face of the same institutional context – think of the car industry (Boyer &

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Freyssenet, 2002) – but still, the Japanese government opened up the legal possibility of creating competition between J-firm and A-firm. Furthermore, the adoption of international accounting norms, centred very much on a financial view of the origins of profit (Bignon et al., 2004), introduced another process of change. Post-war Japanese capitalism appeared as the result of an unexpected mixing between the intent to copy some components of American capitalism and institutional constraints inherited from the inter-war period and the period of reconstruction. The two following decades marked the entry into a hybridisation process, although at the time it was hardly possible to work out the institutional configuration that would eventually emerge. Capitalism is movement, innovation, crisis, as well as institutional and technological change, as the Japanese trajectory teaches us.

Conclusion The successful period of the Japanese model ended after the speculative bubble of the 1980s burst. It has today been supplanted by the interest that researchers show in China, India and, to some extent still, in Silicon Valley or the model of Wall Street. Reference to Japan has made a notable comeback with the US ‘dotcom’ crisis and then that of sub-prime. Does the USA not risk following the same road of quasi-stagnation as Japan in the 1990s, with deflationary dangers? Japan deserves more than this episodic and sometimes condescending interest: the USA will not follow a lost decade. The chair of the US Federal Reserve will not allow the menace of deflation to become entrenched! It is sufficient to promote unlimited access to liquidity and to react as rapidly as possible through a vast programme of public expense! The difficulties of US plans for financial salvation and economic reflation suggest that the problems encountered are more structural than able to be interpreted in the light of archaic notions and the incompetence of those responsible for economic policies. These are some of the major teachings delivered by comparative and historical analysis of the Japanese economy. If culture is a powerful catalyst in the formation of economic institutions, the long-lasting differences between Japanese capitalism and Anglo-Saxon types of capitalism held, during the Japanese period of glory, to an original complementary relationship between stability of employment, innovation built on the integration of complex systems, financing based essentially on banks, and an original method whereby the public authorities oriented expectations and projects of private agents. Whereas we frequently compare Japan and the USA, it is remarkable to note that the complex of institutions progressively built following the Second World War made it possible to reconcile dynamic efficiency and the maintenance of social inequalities at a moderate level. In this respect, the durability of the social tie of employment associated with the labour contract was

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seen as a key factor in avoiding the establishment and then persistence of substantial mass unemployment. Observers have too long underestimated the lessons of the Japanese crisis of the 1990s. The penetrative power of financial dominance indeed came to erode and then destabilise a growth regime entirely centred on a search for competitiveness. This was an early sign of the Asian crises that were further aggravated by the fact that Korea, Indonesia and Thailand suffered from serious dependence in relation to the attraction of foreign capital – of portfolio capital and not only productive capital. The international community of economists has often emphasised the errors committed by Japanese governments that led to an undue prolongation of the financial crisis of the 1990s, for instance by raising the rate of valueadded tax (VAT) too early, in 1997. This is to forget the great merits of the policies that were pursued. First of all, that of having encouraged the permanent redeployment of Japanese firms towards a strategy centred on the dynamics of innovation and up-skilling of competence. Moreover, and less known, that of having de facto preserved the social tie by developing certain social benefits, particularly connected to the ageing of the population. Following the Lisbon agenda, many European countries sought to reconcile involvement in the knowledge economy and maintenance of social solidarity, but very little came of this. Even if it was not a complete success, the Japanese performance over the past 15 years remains no less worthy of consideration. Why is the length of major crises so uneven? The neo-classical economist tends to search for the reasons for these variations in durable irrational factors on the part of governments or private agents. For their part, researchers on Japan show how the inadequacy of perceptions inherited from the past and the inertia of institutional compromises limit the degree of government autonomy in rapidly overcoming a systemic or structural crisis. The scope of international repercussions of the sub-prime crisis may lead us to reconsider the benefits and costs of globalisation. If, very generally, the opening-up to international trade has on average exerted a favourable impact on growth and standards of living, this is not the case with the opening-up of the capital account to global finance. Since the Asian crisis, Japan has participated in a process of discreet but powerful regional integration, tending to intensify the division of labour within the Asian zone in order finally to minimise dependence on the US economy. The speed of diffusion of the American crisis from September 2008 shows that this project has been far from achieved, but that it has set up one future road to travel. Thus, Japan is already exploring a regime of growth led by innovation and regional integration. Is this not the strategy that a number of countries of the European Union seek, in theory, to pursue … without ever getting there? (see Table 5) Finally, not much has been said about demographic problems, but it is the case that Japan is on the brink of exploring what kind of regime will follow that led by industrial innovation. In rich societies, the essence of growth will be linked with education, training, health, leisure activities and the quality of

xxxiv Robert Boyer Table 5 Japan: laboratory in research on new growth regimes Regime

Characteristics

Empirical evidence

Obstacles/limits

1 Finance led

The financial regime conditions the redeployment of most institutional forms

Adoption of accountancy and prudential international norms

Persistence of an organic conception of the large firm

Erosion or disappearance of the main bank, reduction in cross-shareholdings between keiretsu

Very low level of holding shares by households

2 Innovation led

3 Dynamism of regional integration

Search for oligopoly rents associated with continuous renewal of products and techniques of production

Beneficial involvement in the new Asian division of labour, via complementarity of specialisations with China and ASEAN (Association of Southeast Asian Nations)

Permanent increase in R&D efforts

Ambitious reform of the national system of innovation (NSI) Recovery in total factor productivity since 2001 Since 2004, rapid increase in exports to China, more than to the USA

Determining role of exports to China in the Japanese recovery of 2003

Reduced amount of pension funds by capitalisation Slowing down of innovation in services

Weakness of research in biotechnology Weak involvement in international research networks Strong asymmetry in the size and geopolitical power of countries concerned

Political friction between China and Japan

Foreword: from ‘Japanophilia’ to indifference?

xxxv

Table 5 (continued) Regime

4 New social needs: anthropogenic model

Characteristics

Education, training, leisure, urban facilities as source of domestic demand and induced innovations

Empirical evidence

Obstacles/limits

Exchange of equipment and sophisticated components with consumer durables

In the long term, deflationary impact of overcapacity in China, in the absence of price rises for natural resources or/and of wage catch-up What financing: public or private?

Regular and strong growth in health expenditure

Reform of the education and university system Consequences of ageing 5 Stagnation/ decline

Defence of inherited compromises, institutions and values inhibit adaptation to the 21st century

Population decline

Very weak growth or stagnation Preference for the status quo or stability

How to increase productivity? Need for innovations centred on satisfaction of domestic needs Arrival of new generations

Need for a manufacturing surplus to finance import of primary materials Many incitements to innovate

urban services. Over a long period Japan has been seeking to convert into an advantage that which elsewhere is too often seen as a cost: namely, ageing. It could happen that an ‘anthropogenic’ model will in fact design a growth regime that will silently shatter modern societies. What is now presented as something irrational in relation to the requirements of industrial competitiveness could well map out the very long-term future of contemporary economies.

Notes 1 See also Chapter 6. 2 See also Chapter 7.

Preface

This book is at the same time a non-technical synthesis of 15 years of my own research on Japanese capitalism, a critical discussion of past research on diversity of capitalism (with a particular focus on Japan), and an attempt to define a new research programme. There are indeed good reasons to be disappointed by the level of debate in the Japanese economy among nonspecialists and one purpose of this book is to make accessible and known recent and more or less technical research on the Japanese economy, without entering too much into methodological issues. In this context, the access to sources in Japanese is far from being the only obstacle, even if it is a nonnegligible barrier. I am grateful to Robert Boyer for having accepted to write the Foreword. Let me also thank very sincerely my friends and colleagues Arnaud Nanta and Yves Tiberghien, for having participated in this project, not only through their contributions but also numerous discussions with them. Thoughts and conclusions presented in this book are the fruits of numerous discussions with my co-authors, including Ryo- Kambayashi, Junichi Nishimura, Cornelia Storz, as well as colleagues who have made fruitful comments or critics during seminars and conferences. Discussions and debates with associated researchers of Fondation France-Japon de l’EHESS, especially Hiroko Takeda and Toru Yoshida, have also influenced this book. I am also grateful to Christian Sautter and Philippe Pons, who have been, more than they can imagine, at the origins of new generations of research. At the other extreme of the chain, my students, in particular Adrienne Sala and Pauline Debanes, have been a great source of stimulation. On some particular points, advice and information given by Martin Hemmert, Eisaku Ide and Tetsuo Yoshimoto have been decisive. This book could not have been published in its present form without the trust of Professor Arthur Stockwin, to whom I am particularly grateful, and the constructive comments of two anonymous referees. Finally, I would like also to thank my family, particularly Eri, for their support, their trust and their patience. This book is dedicated to the memory of Victor Taton (1902–94). Sébastien Lechevalier

Introduction Seven Japanese lessons on the diversity of capitalism and its future Sébastien Lechevalier

Whereas in the 1980s the performance of Japan’s economy, clearly superior to those of the USA and Europe, led a majority of economists to speculate whether the 1990s would be a Japanese decade, the dominant view today is that Japan is inescapably on a downward slope.1 According to this view, this is caused by the failure of the Japanese socio-economic system to adapt to a new global and technological environment, and is aggravated by internal contradictions. One of the strongest manifestations of this is Japan’s problematic demography marked by a declining birth rate, and an absolute decline in the population, which is ageing rapidly.2 Going beyond such simplistic normative judgements, the evolution of Japanese economic performance over the past 30 years is something that at least needs to be carefully investigated. The point of departure of this book is dissatisfaction regarding dominant analyses of the Japanese trajectory since the early 1980s, and a willingness to propose an alternative approach, which can be summarised in the following manner: whereas policies inspired by neoliberalism have been presented as a solution to the Japanese crisis (or even as the sole solution), our aim is to show that they are in fact one of the causes of the problems that Japan has faced over 30 years. On the one hand, the financial deregulation largely contributed to the formation of land asset and financial bubbles at the end of the 1980s, and their eventual collapse; on the other hand, the reforms carried out since the 1980s, the main goal of which was to facilitate an institutional process of catch-up with the USA (following the success of the technological and economic catch-up between the 1950s and 1970s), destabilised the co-ordination and complementarities of the former model, without creating new ones. To put it briefly, our explanation seeks to go beyond the simplistic opposition of two ways of understanding the performance of the Japanese economy during this period: on the one hand, a succession of short-term political and economic errors; and on the other hand, structural problems that have nothing to do with these policies. The argument here goes well beyond Japan and concerns capitalism in its diversity, notably in continental Europe, which suffers from problems that are certainly different from those of Japan, but also quite comparable. In other words, what this book proposes is not so much a new analysis of the

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evolution of the performance of Japanese capitalism, but a reflection on the changes that it has experienced over the past 30 years. More precisely, it is not a question of revisiting the Japanese model – so beloved of 1980s economists – but to understand the institutional and organisational changes that have characterised this form of capitalism since then. If an understanding of the nature of the Japanese ‘model’ was the central point of research carried out in the 1970s and 1980s, the long Japanese crisis has focused attention on the 1990s and 2000s. Today, we call for the programme of research on Japanese capitalism to be revived: the main issue is actually to understand in a comparative perspective focused on the ‘neo-liberal moment’ (1980–end of 2000s?), the nature of the transformation of Japanese capitalism over the past 30 years.3 In the 1980s Japanese capitalism was a case that, on its own, justified the idea that capitalism is diverse. As Robert Boyer mentioned in his Foreword, this heuristic value of Japanese capitalism is the main reason why Japan at that time attracted a large number of researchers, beyond the narrow circle of Japan specialists. That form of capitalism was characterised by a certain mode of organising firms (distinguished from their American counterparts by an orientation towards the long term), by the importance of non-market coordination (again, the opposite of the US market economy), and by an absence of trade-off between efficiency and equity (with an overall level of inequality comparable with that of Scandinavian countries, but without an extensive system of redistribution and of social protection). The first contention of this book is that Japanese capitalism has evolved over 30 years, and now can be clearly distinguished from the ‘model’ of the 1980s. The transformations that have been a key feature of Japanese capitalism over the years may be summarised thus: increasing heterogeneity of firms in terms of their performance and their mode of organisation, so that it is no longer possible to speak of a J-model of the firm; decline of earlier forms of co-ordination (sub-contracting, keiretsu, shunto-, ‘bureau-pluralism’ industrial policies conducted by the Ministry of International Trade and Industry); rise in inequality, putting in question the post-war social compromise. To put it another way, just as Fordism no longer characterises American capitalism, ‘companyism’ – to take up the concept proposed by Toshio Yamada (2000) – no longer characterises Japanese capitalism. We shall see that to attempt to define what ‘post-companyism’ might look like risks leading us into a cul-de-sac similar to various attempts to comprehend ‘postFordism’ (Boyer & Durand, 1997; Miyamoto, 1993). However, the second contention of this book is that Japanese capitalism is no longer in a transitory state, even if its contemporary state is still one of instability. It has been profoundly changed, though this certainly does not mean convergence towards Anglo-Saxon or European forms of capitalism. The causality of these changes is complex. A role has certainly been played, and needs to be defined, by globalisation, a new phase of technical progress (marked by the introduction of information and communication technologies

Introduction

3

(ICT) in the firms), and above all by the maturation of the Japanese economy, whose model of development, at the beginning of the 1980s, permitted the economy to catch up with European economies as a whole and before long that of the American economy as well. The third contention of this book, however, is that the most profound driving force behind changes to the Japanese model has been the implementation – certainly progressive and fragmented, not without hesitation and steps backwards – of the neo-liberal policy package.4 Indeed, with hindsight, it is possible to say that what best characterises the whole of the period that started in the early 1980s in the world is the diffusion of the idea of the market and the attempt to apply it to the totality of economic and social spheres (Simmons et al., 2008).5 This is what we describe as a ‘neo-liberal moment’,6 and Japan is far from having been an exception to this. Even so, there have been a number of specific aspects of neo-liberal policies applied to Japan. In addition, given the nature of Japanese capitalism at the beginning of the 1980s, their impact was also different from those observed in Anglo-Saxon countries and in Europe. This is what we shall try to show throughout this work, which also deals with the general question of the diffusion of neo-liberalism in the world, focusing on the case of Japan and adopting the theoretical framework of the diversity of capitalism. We should here specify the results presented in this book and the choice of timeframe. The object of analysis is contemporary capitalism. This is why we exclude any reflection on the so-called Japanese model of development, as it is possible to consider Japan as a mature economy from the 1970s. This also justifies the period chosen: our concern is with the period that opened in the early 1980s and which may have come to an end with the global crisis of the late 2000s and the policies introduced on this occasion. This period also corresponds to the implementation of neo-liberal policies in Japan.7 Our point of reference is Japanese capitalism in the early 1980s. Certainly, this was the product of a long period of history, beginning well before the Second World War, though the war was a decisive turning point, as shown effectively by Okazaki & Okuno-Fujiwara (1999), among others. Even so, we shall concentrate on the ‘classic’ period of Japanese capitalism: that of the 1970s and the early 1980s, the analysis of which has given rise to the theories of the ‘Japanese model’. Before giving our reading of the Japanese trajectory since the end of the 1970s, we need to specify what we retain of the analysis in terms of the diversity of capitalism and our conception of Japan’s position within this diversity.

The diversity of capitalism: a brief introduction The idea that capitalisms are diverse is far from being universally accepted among economists, as shown by the following passage from Jeffry A. Frieden of Harvard University, quoted by Lorenzi (2008: 37): ‘We may not, for

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[advanced industrial countries] speak of a diversity of capitalism … The differences that count between the industrial countries have nothing to do with their economic institutions; they concern their economic policies, their public policies and the manner in which they react to political decisions.’ In sum, the dominant vision among economists is that market capitalism constitutes the only viable form of organisation of economic and social systems. The differences between countries are related to the more or less significant gap between their real organisation and this ideal type. Nevertheless, in a particular, post-socialist context, a large number of researchers have made an empirical, not tautological, assertion of the diversity of capitalism (Albert, 1993; Amable, 2003; Boyer, 1986, 2005b; Hall & Soskice, 2001). These works have shown that this diversity is far from being merely anecdotal, and concerns the real fundamentals of the functioning of different national economies. They have therefore proposed various typologies. For example, Michel Albert (1993) distinguishes between liberal capitalism and Rhine capitalism. One of the most popular typologies for a decade has been the dichotomous typology put forward by Peter Hall and David Soskice, opposing liberal and co-ordinated capitalism.8 This dichotomy has been criticised, among others, by Boyer (2005b) and Amable (2003) for at least the two following reasons. First, certain countries are hard to fit into this typology. This is typically the case with France and Italy, which are neither liberal economies nor co-ordinated ones. Moreover, and even more fundamentally, we should not place in the same category all the forms of nonmarket co-ordination: the firm, the state and civil society are really three categories that obey very different and differentiated logics. Also Amable (2003) breaks down co-ordinated capitalism into several categories, starting with a very precise analysis of the European context, and proposes a typology with five forms of capitalism: neo-liberal, social-democratic, continental, Mediterranean and Asian. The principal contribution of these theories, however, once the fundamental diversity of capitalism has been established, does not concern typology. There is a real danger in falling into a purely descriptive, rather than theoretical, analysis of this diversity, and to acknowledge the differences in each national form of capitalism. The contributions mentioned above clearly go beyond this endless debate about the number of types of capitalism. They respond convincingly to criticism of approaches judged too descriptive, and concentrate on identifying the theoretical foundations of the diversity of capitalism. To oversimplify, we may distinguish two main ones: on the one hand, history (including initial conditions and trajectory, which we may call ‘path dependence’); and on the other hand, institutional complementarities. The bases of the diversity of capitalism Taking into account historical evolution is fundamental to the very existence of the diversity of capitalism, but also and in particular to the persistence of

Introduction

5

this diversity. Indeed, the fact that national economies have developed original institutions in a relatively closed context does not rule out a priori the convergence of various forms of capitalism, for example under the impact of globalisation. Much published research, however, has shown up the importance of phenomena related to path dependence, which largely run against the grain of various pressures towards convergence. The risk is certainly to hold back from considering institutional change. A richer concept of path dependence, however, has been developed from recent research, allowing one to reconcile the acceptance of institutional change with a degree of inertia (David, 2007; Deeg, 2005; Garud & Karnoe, 2001). This concept allows us to understand the following apparent paradox: why should a particular shock, such as the Asian crisis of 1997, or more recently that of the 2008–9 crisis, produce different effects depending on the national economies discussed? This basically comes down to the fact that every form of capitalism is constructed according to its own trajectory, that it certainly could have been affected by exogenous crises, but that these crises are essentially the product of its own development, eminently contradictory. In other words, the crisis of each economy stems from that economy’s own structure (Boyer, 1986). As for institutional complementarities, they may be defined thus: to simplify, there is institutional complementarity when an institution reinforces the impact and the characteristics of another institution (Boyer, 2005a). We define here institutions as social rules, which implies a form of sanction in the case of failure to respect such rules, and not merely of practices (Amable & Palombarini, 2009). In addition, they have a formal character and have to be distinguished also from conventions, which are informal rules. Let us return to institutional complementarities. The best-known form, studied in depth in the case of Japanese capitalism at the end of the 1980s, is that existing between the system of long-term employment and bank finance: the adoption by a given firm of long-term employment – that is to say, the guarantee that it grants to its employees not to fire them, except in extreme circumstances that threaten the firm’s very survival, requires that it should be insulated from financial market fluctuations and their requirements for short-term profit. In general terms, the existence of institutional complementarities implies that we should not consider institutions of a particular form of capitalism independently of each other. This is why institutional configurations tend to be reasonably stable: reforming a given institution will only be deep and positive if it is accompanied by change in the other institutions with which it maintains complementary relations, and this is not easy. How to study the diversity of capitalism: micro-heterogeneity, types of co-ordination and social compromise The next question concerns the method of analysing the diversity of capitalism. Without entering into technical details, which are not our main task here, we may summarise the originality of our approach as articulating a

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micro-economic analysis and a political economy perspective. More precisely, we propose to combine an analysis of the forms of organisation at micro level, the forms of co-ordination of this diversity at meso and macro levels, and social compromise, which must be seen as an attempt to mediate, necessarily temporary and local, between contradictory interests. In other words, the theoretical contribution of this book is to attempt to reconcile micro approaches to diversity of capitalism with political economy perspectives such as those proposed by Amable & Palombarini (2009). The first dimension of our approach starts with the assertion of the heterogeneity of actors within each form of capitalism, which is manifested both at the level of the differentiation of interests (Amable & Palombarini, 2009) and at the level of the organisational diversity of firms and of their performance (Sako, 2007; Deeg & Jackson, 2007; Sako & Kotosaka, 2012a, 2012b). On this last point, going beyond the tautological assertion of differences between firms according to their size or their sector of activity, many works (often of evolutionary inspiration) have indeed demonstrated the great diversity of firms in terms of performance and of organisation within a given form of capitalism – so much so that we cannot define capitalism by a mode of organisation that would serve as an ideal type (Lechevalier, 2007b). Here is where we find the second and third dimensions of our approach, the political economy of forms of co-ordination and of social compromise. That which defines a given type of capitalism is at the same time the heterogeneity of the firms that make it up, the ways in which this heterogeneity is co-ordinated, and the underlying social compromise, which determines especially the inequalities. The concept of co-ordination that is understood here must be specified. The source of the problem of co-ordination is neither the division of labour nor the structure of the game, but the fundamental heterogeneity of organisations, which makes it necessary to go beyond an approach centred on the market as co-ordination. The theoretical origin of this concept is found in the kind of mathematical economics developed by Kirman & Zimmermann (2001), as well as Aoki & Yoshikawa (2006), who propose a concept of equilibrium as distribution of probabilities. The principal theoretical interest is to analyse the interaction between micro and macro levels and the conditions of aggregation of micro behaviour in a decentralised environment.9 In this framework, the locus of co-ordination is not at the centre of organisations – as in Hall & Soskice (2001), for example – but between them, at macro and meso levels. We may distinguish two forms of co-ordination, private and public, which have to lead us beyond the classic dichotomy between states and markets. To put this another way, the co-ordination with which we are concerned here is co-ordination outside the market, but is not synonymous with state intervention. As far as the impact of co-ordination is concerned, it is twofold: at a given level of heterogeneity of actors (e.g. firms), co-ordination defines the conditions of interactions between micro and macro levels, going beyond a simple aggregation; it influences just as much the evolution of heterogeneity at the level of the actors.

Introduction

7

To give a more concrete idea of what is meant by co-ordination outside the market, let us now specify its benefits and limits. Among its benefits, we may distinguish three broad categories. They include first of all the diffusion of technical and organisation innovations, making it possible to exploit potential externalities. Examples that come to mind are those of ‘spillovers’10 – the effect of which is anything but automatic – and also the diffusion of a mode of production such as ‘Toyotism’ (among subsidiaries or overseas plants: see Boyer et al., 1998). Another benefit of co-ordination concerns insurance and risk sharing. Co-ordination should allow diminished fluctuations in a firm’s profits, as well as at the macro-economic level. A third benefit relates to distribution: co-ordinated capitalism opens the possibility of negotiating in a coordinated fashion the sharing out of value added, and also to limit the growth of inequality, and this links in with the question of social compromise (see below). On the other hand, besides potential benefits, non-market co-ordination brings with it a certain number of limitations. Thus, the risks of developing a rental economy are higher, the more limited is market co-ordination. Besides, if the crises that affect co-ordinated capitalism are generally less brutal than those of liberal capitalism, it is often more difficult to escape from them. In this respect, Japanese capitalism is a good example. In the end, we need to think about the capacity of the state to play the role of arbiter – just like the market in liberal capitalism – which in the contemporary context is characterised by criticism of the legitimacy of government intervention, which makes it de facto more difficult. The third dimension of analysis concerns social compromise. This is an integral part of wage labour nexus in analyses of régulation, of which Boyer & Yamada (2000), who put forward an original interpretation of Japanese capitalism, is representative. The concept of social compromise, which we utilise in the framework of this book, is inspired by this work, as well as by that of Amable & Palombarini (2009). In terms of this last perspective, it is essential not to concentrate merely on compromise within firms (whether this follows the Toyota model or not), but to analyse it at the level of the whole society, taking into account political mediation. Amable & Palombarini (2009) thus define institutions as political economy compromises. Methodologically speaking, this requires analysis of the formation of ‘dominant social blocs’ – that is to say, social groups which, by their situation within society, are able to influence in a decisive fashion the nature of social compromises and their embedding in institutions. Institutions are at the centre of the regulation of social conflict, which cannot be abolished or eliminated but only partially and momentarily neutralised. It is essential here to underline the link with heterogeneity of actors, mentioned above. Social conflict indeed has as its origin the differentiation of socio-economic interests of individual and collective agents, as well as the diversity of social expectations, and the demands that emanate from them. To put this in other terms, one of the issues of our concept of social compromise is to offer a theoretical framework to study the inequalities which, in

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our view, are neither just another measure of the performance of a given form of capitalism nor an element determined by global forces that act beyond each type of capitalism (for instance, globalisation or skill-biased technological progress). They are an element of the very definition of the nature of each form of capitalism, which the concept of social compromise allows us to analyse in a reflexive fashion. We should also note that this concept also embraces the reproductive sphere; our analysis does not focus on wage labour nexus as such, but equally embraces the family and gender relations (Arai & Lechevalier, 2005b; Takeda, 2005; Nohara, 1999b). How to study the evolution of the diversity of capitalism: institutional and organisational changes Indeed, the most innovative contributions of the theories of the diversity of capitalism have adopted a dynamic perspective allowing the study of institutional change at the macro level and organisational change at the micro level (Boyer 2005a; Deeg & Jackson, 2007; Deeg, 2009; Lane & Wood, 2012). The major ambition of this book is to follow this line of analysis and to apply it to Japanese capitalism in order to understand the nature and causes of institutional change that have characterised it from the early 1980s. To understand it requires going beyond the myth of ‘Japan that never changes’ – that is, beyond two arguments that support it: cultural interpretation of Japanese capitalism (e.g. Michio Morishima, 1984) on one side, and misuse of international comparisons (e.g. choosing one indicator such as the ratio of foreign direct investment (FDI) to the gross domestic product (GDP), stating the absence of convergence, and concluding about the stability of the ‘model’) on the other side. A variant of this statement – much more sophisticated but nonetheless wrong in our view – is the vision proposed by Lincoln (2001) of an ‘arthritic Japan’. Here, the absence of change – i.e. the absence of convergence towards the US model – is explained by the inability of the Japanese government to reform the model radically in a context of a fast-changing – global and technological – environment. This vision of Japan is similar to a certain vision of Europe, popular in the 1990s, the so-called ‘eurosclerosis’. There are two antidotes to these misleading approaches. One, which is a founding principle of régulation approach, is to learn from historians, who developed tools that allow us a richer understanding of the dynamics of capitalism. The second one is to adopt the concept of incremental institutional change proposed by Streeck & Thelen (2005): a great transformation such as the one experienced by Japanese capitalism from the early 1980s does not always mean a total breakdown (e.g. a crisis that leads to a radical or discrete type of institutional change), but can be understood as a gradual but nonetheless significant (and certainly irreversible in the mid-run) change which may take various forms such as displacement, layering, drift, conversion, or exhaustion. Connecting this form of institutional change to organisational diversity may help us to understand the former, as convincingly

Introduction

9

shown by Lane & Wood (2012), or Sako & Kotosaka (2012a) in the case of Japan. As for the causes of institutional change, without entirely putting aside the impact of globalisation and technological progress, this book seeks to explore the impact of another force, neo-liberalism, the effects of which have been confirmed in works on political economy (Vogel, 1996; Campbell & Pedersen, 2001; Tiberghien, 2007; Simmons et al., 2008), but not sufficiently taken into account either in works on economics in general or in those on Japan in particular, with a well-known exception being the research of Ronald Dore (2000). We should note in passing that the neo-liberal discourse favouring change often makes reference to technological progress and globalisation to demonstrate the inevitability of convergence towards the purer forms of market economy. Emphasising the role of neo-liberal policies in the evolution of Japanese capitalism over the past 30 years means adopting a non-functionalist approach to institutional change, inspired by the work of Bruno Amable and Stefano Palombarini (2009), who reject both the dominant view – which concludes with an ‘arthritic Japan’ and a ‘eurosclerosis’, as shown above – and the VoC perspective. Indeed, the dominant approach insists that institutional change is necessary in Japan, given the growing incompatibility between the new economic context (which is said to be marked by globalisation and a new wave of technological progress) and the institutions of postwar Japanese capitalism. This incompatibility is then said to find concrete expression in the phase of economic stagnation between 1992 and 2004, regarded as the ‘lost decade’. As far as the VoC approach is concerned, it is no less functionalist in that it assumes the superiority in performance terms of the ‘pure’ forms of capitalism, whether they be liberal or co-ordinated, which then play the role of a magnet for mixed or hybrid systems, which are necessarily transitory in this sense. This not the case for Japan, as shown by Hideaki Miyajima in various works (see, for example, Miyajima, 2012, 2011). Now, what the Japanese case shows us is the fact that institutional change actually preceded the crisis (Chapter 1). The start of the dynamics of change was the end of the period of catch-up and the attempt under Nakasone to construct a new social compromise, according to a certain interpretation of Japanese society, judged too homogeneous and thus requiring increased diversification. We may thus consider the period of the bubble (1986–91) and the frenzy of consumption that accompanied it, as a first move in this direction. This is why institutional change in Japan from the 1980s is eminently political, inspired by a certain normative vision. The end of the catch-up period could have given rise to an alternative vision, insisting on social demands, in favour of the institutionalising of social protection and of greater socialisation of funds for education, health and housing, giving rise to a new definition of the middle class. This alternative vision manifested itself by the attempt to put into practice a new compromise at the beginning of the 1970s under Prime Minister Tanaka, which, however, was short-lived in the context

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of the first oil shock and of a very hostile reaction on the part of the most conservative fringe of the Liberal Democratic Party (Miyamoto, 2003; Peng, 2005). To adopt a non-functionalist approach to the institutional change does not mean putting aside the question of the performance of the Japanese economy (the development of which we discussed at the beginning of this Introduction), nor denying the role of the ‘crisis’, the so-called ‘lost decade’. However, it does imply that we should provide a nuanced view of its role in the dynamic of institutional change. On the one hand, it led the supporters of ‘reform’ to emphasise the limits of the previous model, even if, as we shall see, it is possible to show that it was these policies that contributed to the crisis in the first place. However this may be, the mediocre performance of the Japanese economy from the start of the 1990s de facto justified policies aimed at transforming Japanese capitalism. On the other hand, in the same way as neo-liberal reforms, the ‘crisis’ is one way of explaining a key rupture with the past that occurred over the period studied, namely increasing inequality. There is a current argument to the effect that it was not the Koizumi reforms that provoked the rise in inequality but rather the long stagnation of the economy (Ota, 2006). This argument is a priori defensible, and one of the aims of this book is to test its validity (Chapter 4).

The peculiar position of Japanese capitalism within the diversity of capitalism In the framework of the theoretical perspective that we have just presented, how can we clarify the nature of the ‘classic’ model of Japanese capitalism, which was probably at its height in the 1980s? To summarise, Japanese capitalism was eminently decentralised, co-ordinated and segmented. These three structural characteristics, which corresponded to the three dimensions that we have already outlined (micro diversity; meso, macro and institutional co-ordination; social compromise) must be understood in a comparative and historical perspective. In this Introduction, before going into the detail of this model of capitalism in the following chapters, we should clarify the basis for Japanese capitalism being different from other types of capitalism. To begin with, we must emphasise that before even being defined as capitalism, the ‘capitalist’ nature of the Japanese socio-economic system has been questioned. In fact, this has been a classic question since the beginning of the 1970s, to which Sakakibara (1993), for example, gave an original response in defining it as a non-capitalist market economy. The identification of the Japanese socio-economic system with a system other than capitalism in fact gave rise to a number of thoughts up to the middle of the 1990s. Without going as far as to assert that this was a kind of successful socialism, we should recognise that there were troubling elements in the post-war Japanese mode of development, even more so if we compare it with the quite comparable nowadays developing China (Minami,

Introduction

11

2007). The principal characteristics distinguishing it from the development of China lay in the combination of rapid GDP growth with reduced inequality.11 Concerning other criteria that should be discussed, conclusions are varied. Thus, if we consider the issue of state intervention, the Japanese system was far from being socialist, given that the role of government was limited. This is shown by Christian Sautter (1996), who makes a luminous comparison with the modes of intervention of the French state. As for market mechanisms, they are present, but less central than during the inter-war period, as many functions had been internalised by the large firms (Okazaki & Okuno-Fujiwara, 1999). Here the central question arises: where lay the objective function of the large firms? Many studies have shown that it lay not only in the maximisation of profit in the short term, but also and rather in long-term growth, and this once more fosters the idea that the Japanese system was not very capitalist (Odagiri, 1994; Aoki & Dore, 1994). Nevertheless, we can say that a collapse of ‘real socialism’ came to close the debate in a definitive fashion. The Japanese socio-economic system was really a form of capitalism. The neo-liberal policies put into operation from the 1980s were not intended to promote a transition from a form of socialism to market socialism, as in the cases of Russia or China. In the Japanese case, this was a process internal to capitalism itself. Another hypothesis in the 1980s was that the Japanese socio-economic system might be pre-capitalist. To demonstrate this, the paternalist character of enterprise management would be cited, or more generally the totality of relations between economic actors who seemed to obey a rationality clearly different from that in fashion in the USA or Europe. Actually, behind this reading of Japanese capitalism lay a cultural explanation. In this perspective, the Japanese model was not comparable with other types of capitalism as it was determined by a cultural and structural substratum that was completely unique. This approach, very popular among the Japanese themselves, who were taken by the idea of their country’s exceptionalism, is to be found in the well-known book by Michio Morishima, Why Has Japan ‘Succeeded’? Western Technology and the Japanese Ethos (Morishima, 1984). In this book, which was inspired by the famous thesis of Max Weber on the Protestant ethic and the spirit of capitalism, the author explained the particular characteristics of the Japanese economy by the substratum of Confucianism. In so doing, he did not manage to explain why other countries that we might also call ‘Confucian’ – most obviously China – had nevertheless failed to follow the same trajectory as Japan. Even more fundamentally, the principal weakness of cultural approaches is their inability to account for the historical nature of the Japanese economic trajectory. Thus, research by historians has shown how very close the ‘Japanese model’ was to the model of liberal market capitalism in the inter-war period, with the primacy of short-term employment relations and financing of the economy through financial markets. The Japanese model of the 1970s was above all the historical result of the Second World War (marked by the establishment of an administered

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economy), of the American Occupation, and then of the institutionalising, during the high-growth period (the 1950s and 1960s) of the post-war social compromise (Okazaki and Okuno-Fujiwara, 1999; Hoshi & Kashyap, 2001; Koike, 1988; Gordon, 1988).12 Similarly, a cultural interpretation insists on the role of Confucianism to explain the high rates of saving which have been the basis of investment and of growth, but it finds it difficult to explain why these same rates of saving have fallen to a remarkable extent over the past 20 years (Horioka, 2007). In these conditions, a cultural analysis does not measure up to the test of historical facts (Lechevalier, 2012b). In other words, the view that neo-liberal policies aim to modernise the structures of a profoundly archaic form of capitalism is not tenable. The perspective that this book adopts goes counter to this approach, arguing that Japanese capitalism, like all forms of capitalism, is not static but in constant evolution. We thus arrive at the following question: how may we place Japan within the diversity of capitalism, in a dynamic perspective? As we have maintained above, Japanese capitalism is a type often used in the literature on diversity of capitalism, from the book of Michel Albert (1993), to approaches in terms of Varieties of Capitalism (Hall & Soskice, 2001), passing through numerous régulationist works (Boyer, 2005a; Amable, 2003). At the same time we need to state that it is no easy task to position it within the diverse types of capitalism. One reason for this is that theories of diversity of capitalism are essentially focused on Anglo-Saxon and European types of capitalism, and leave aside, at least until recently, forms of capitalism in Asia and other regions (Storz et al., 2013). Another reason is more specifically linked to Japanese capitalism and to the influence of cultural interpretations. However this may be, Japanese capitalism at the beginning of the 1980s was clearly definable as an example of ‘co-ordinated’ capitalism, following the typology of Hall & Soskice (2001), being radically opposed to the liberal model.13 Nevertheless, in this case, perhaps more than in others, the dichotomy that these two scholars have introduced is not satisfactory. Thus, the similarity to German capitalism, emphasised especially since the work of Michel Albert, is really quite limited, as Robert Boyer shows in his systematic comparison of German and Japanese capitalism (Boyer, 2003). We should remember most notably differences in skill formation (state/enterprise) or levels of union influence (sector/enterprise). Placing Japan in the category of Asian capitalism, as is done by Amable (2003), is no more satisfactory, given the huge differences with Korean capitalism, for example, notably in the labour market and industrial structure. Should we then consider Japanese capitalism as unique? This would be to fall back into a cultural interpretation insisting on the exceptional character of Japan. The reality is that analyses in terms of the diversity of capitalism still have much more to do, notably in order to enrich our understanding of the meso-corporatist type, to which Japan is often considered to belong (Boyer, 2005b). We will now set out our understanding of the Japanese path from the end of the 1970s and the nature of Japanese neo-liberalism.

Introduction

13

Japan since the end of the 1970s: stylised facts and interpretation The primary aim of this book is not to understand why Japan passed from one period, the 1980s, when the majority of analysts believed that the Japanese model would allow it to become the first economy in the world, to a period of stagnation, which seems to correspond more and more to a relative – even absolute – decline. Having said this, it is true that the performance of the Japanese economy has itself affected the transformations of the model: the willingness to question the model of co-ordinated capitalism was necessarily limited while its performance remained acceptable. This was no longer the case from the second half of the 1990s (Yamamura & Streeck, 2003). The negative consequences of the bursting of the land asset and financial bubbles then seemed destined to continue, to the point that people started to speak of the ‘lost decade’ to describe the period that began in the early 1990s. From then on, neo-liberal policies seemed to be a more and more credible means to escape from the crisis. This voluntarist option for institutional reform had certainly been explored before the crisis, but it later appeared better adapted to the problems Japan was encountering, as Yves Tiberghien shows in Chapter 1. This is why it may seem useful here to give a brief account of the macroeconomic, sectoral and micro-economic performance of the Japanese economy.14 Our ambition is indeed also to contribute to the understanding of contemporary Japan from the viewpoint of economic history. How should we summarise the path taken by Japan from the start of the 1980s until today? The easiest way of putting it is to consider that we are dealing with a process in two stages: a success in the 1980s, with its apex at the end of the 1980s, followed by a long decline. At the time when Japan appeared to be coming out of this period of stagnation, around 2005, the world crisis in fact pointed to the fragility of this recovery. This way of seeing things seems to be supported by an analysis of the principal financial variables, such as the world ranking of the Japanese banks in terms of capitalisation, or also the Nikkei index (see Figure I.1). Even if one may criticise this index in terms of how representative it is (to the extent that the Japanese stock exchange became relatively marginal in the financing of firms after the bursting of the bubble), its evolution effectively symbolises the high point at the end of the 1980s, followed by a long decline; after moderate rises in the first half of the 1980s, the bubble phenomenon becomes clear as it passes in four years (1985–89) from 10,000 points to approximately 40,000. Since the stock market collapse, the index has stagnated at around 10,000 points right up to the present. A complementary and certainly more precise image is provided by the evolution of real GDP, especially if we compare it with that observed in the USA (Figure I.2).15 We may then distinguish three phases: during the 1980s, the rate of growth, averaging 4.5% per annum, was considerably greater than that of the USA; then comes the lost decade (1992–2004), with an average of 1.0% as against 3.5% in the USA; finally, the Japanese economy appeared to

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45000 40000 35000 30000 25000 20000 15000 10000

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Figure I.1 Evolution of the Nikkei index, 1980–2010 Source: Tokyo Stock Exchange, monthly data.

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Figure I.2 Evolution of real GDP in Japan and the United States Source: OECD. Note: Base 100 in 1979.

have escaped from the lost decade in 2005 … until the current crisis. Talking of which, the international engagement of the Japanese economy appeared to follow an identical trajectory, with the contrast between the 1980s, during which Japan was considered as the great winner from globalisation, and the lost decade, which seemed to reveal Japanese capitalism’s inability to adapt to the new global realities, even if, in this case, Japan’s trade surplus projected the image of a greater continuity (see Chapter 7).

Introduction

15

In short, the dichotomous image of success and failure is not completely false, but leads us to underestimate the institutional changes in Japanese capitalism during this period. This is why it is useful to attempt to grasp the path travelled by Japan through concepts such as liberalisation, deregulation and financialisation (Dore, 2000). This kind of evolution is not peculiar to Japan, but Japan in this respect traced a different path from those of the USA and Europe. This is why we propose here a reading of the situation on the basis of the institutional analysis that we outlined above – namely, combining an analysis on three levels: heterogeneity of actors (especially firms), forms of co-ordination and social compromise. In relation to the first level of analysis, the 1980s can be seen as a continuation of the 1960s, being marked by a compression of the dual structure of the economy according to the size of firms (Lechevalier, 2003, 2007b). The turn-around followed in the second half of the 1990s (1996 for manufacturing, 1998 for non-manufacturing), when we could observe growing dispersion in firm performance (Ito- & Lechevalier, 2009).16 As far as non-market forms of co-ordination were concerned, from the beginning of the 1980s they were affected by deregulation. As for market-type co-ordination, it showed its inefficiency with the emergence of the bubbles. In fact, it was only at the end of the 1990s that new forms of co-ordination emerged, such as new types of collaboration in R&D, and new policies on innovation (see Chapter 3). In other words, in this framework, it is possible to interpret the lost decade as the result of a lack of co-ordination (or of ineffective co-ordination) of the growing diversity of Japanese enterprises (Lechevalier, 2007b). The third dimension of this institutional analysis concerns the evolution of inequality revealing changes in the social compromise. From this point of view, although inequality started to grow in the 1980s, it was not comparable to what was observed in the USA during the same period, even though this was the period of the bubble economy in Japan (Moriguchi & Saez, 2008). Inequality began to grow significantly in the 1990s, but the mechanism underlying this evolution has still to be identified; then, in the 2000s, a new and indisputable phase in the growth of inequality took off, through mechanisms that were essentially occurring in the labour market (see Chapter 4). This analysis opens the way to an understanding of the way Japan developed, emphasising neo-liberal policies in general and deregulation in particular.17 While neo-liberalism is an object of study in political economy, it is rarely studied by economists, except when they are engaging in polemics. That, however, is not our approach, which is sustained by works of political economy on the subject, from a non-normative perspective. The point of departure for our analysis of neo-liberal causality is the chronology presented by Yves Tiberghien in Chapter 1 of this book. To summarise, we can distinguish four phases: the initial transformation put in train by policies of deregulation and privatisation under Nakasone (1982–87); a phase of little change and of stability (1987–96); and a phase of progressive structural reforms across the board under Prime Ministers Hashimoto, Obuchi and

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Koizumi (1996–2006). After Koizumi (2006–) and right up to the change of government following the 2009 elections, we may observe a form of stabilisation and consolidation. Thus, the main difficulty facing analysis of the changes that affected Japanese capitalism lies in the discontinuity of neo-liberal policies since the beginning of the 1980s, so that even if neo-liberalism really is a concept that allows us to conceptualise the period as a whole, it does not apply to each of its stages. It has ebbed and flowed. An important turning point occurred around 1998, when a consensus formed that Japan would not be able to revert to the state of affairs before the bubble burst, whereas the recovery of 1995–96 had led people to hope that this might be possible. To put it another way, it was above all the loss of confidence in the Japanese model that favoured the emergence of a new neo-liberal wave from the end of the 1990s, and not simply the assumption of power by Koizumi in 2001. This is a very important point regarding the chronology of change in Japan: the turning point – especially regarding institutional change and firms’ diversity – is less the mid2000s (corresponding to the Koizumi government), than the end of the 1990s and the early 2000s. Anyway, it is reasonable to ask whether the elections of 2009 marked a real transition, the moment when Japan turned the page on 30 years of neo-liberalism, or rather whether Koizumi could assert, like Thatcher in relation to Blair in the UK, that the Democratic Party of Hatoyama, Ozawa and Kan was his greatest success. These questions lead us to summarise what, in our opinion, constitutes the originality of the neo-liberal transition in Japan.

The specificities of the neo-liberal transition in Japan Before we specify what is involved here, we should first of all define as precisely as possible what is meant by ‘neo-liberalism’ in the framework of this book. Indeed, we shall note, with Stephanie Mudge, that we have here ‘an oftinvoked but ill-defined concept in the social sciences’ (Mudge, 2008: p. 703).18 We shall here concentrate on the ‘bureaucratic’ dimension of neo-liberalism rather than on intellectual or political dimensions (Mudge, 2008). Consequently, our aim is not to give a history of neo-liberal ideas in Japan, which would indeed be fascinating. Rather, we shall concentrate on analysing their embodiment in neo-liberal policies, and on the impact of these policies on the Japanese model of capitalism. This point of view must be understood in a broad sense, going beyond structural reform policies (Jabko, 2006; Amable, 2009) and including especially the social compromise as a whole. This also means that we understand neo-liberalism as one of the forces liable to initiate institutional change rather than as a form of capitalism, contrary to what Amable (2003) asserts. We here fully agree with Stephanie Mudge in her idea that neo-liberal politics have affected not only Anglo-Saxon countries but also continental European countries and Japan (Mudge, 2008).

Introduction

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In consequence, the definition of neo-liberalism that seems to us most appropriate to our approach is that proposed by Campbell & Pedersen (2001). We agree with their argument regarding the very nature of neo-liberal policies. More precisely, neo-liberalism can be defined as follows: The last two decades of the 20th century … have been described as the ones of rising neo-liberalism – that is, a time of market deregulation, state decentralization, and reduced state intervention into economic affairs in general. Cast in these terms, neo-liberalism has been a political project concerned with institutional changes on a scale not seen since the immediate aftermath of the WWII and a project that attempted to transform some of the most basic political and economic settlements of the post war era, including labour markets accords, industrial relation systems, redistributive tax structures, and social welfare programs. Integral to these changes has been a shift away from Keynesian economic ideas to a more conservative discourse based on monetarist, supply-side and rational expectations theories. (Campbell & Pedersen, 2001: p. 1) It is debatable how far these changes have been important and what their causes have been, but few doubt that neo-liberalism has become dominant since the middle of the 1980s. It is no less true that neo-liberalism is a diverse collection of different ideas, of economic and social policies, and of ways of organising economic and political activities. As recalled by Campbell & Pedersen, it includes, of course, monetarist and conservative ideas as a reaction to the Keynesian mainstream of the 1960s. More formal institutions such as minimal state involvement in social welfare, a non-progressive fiscal system, flexible labour markets, as well as decentralised relations between labour and capital, ‘liberated’ from collective negotiation in the presence of strong unions, and also the absence of barriers to capital mobility, should also be included. Indeed, ‘neo-liberalism’ is in fact an assembly of concepts, from which political elites choose in conformity with national, political and historical traditions. In consequence, it may take very different forms depending on the way in which the actors interpret and construct it (Campbell & Pedersen, 2001). In our view, the Japanese case is quite representative of this diversity of neo-liberalism.19 This characteristic is reinforced by the fact that there is always a discrepancy between the goals of a particular set of policies and its results. We are especially interested in the role played by the actors given this discrepancy, as they always have the possibility of influencing how policies are put into effect in practice, and of reinterpreting the new institutional environment thus created. For example, it is not easy to find among Japanese business people some unambiguous supporters of the neo-liberal ideology; however, at the same time, although there have been heated debates, a de facto constituted group has supported and pushed the reforms that served their own interest. This aspect can easily be analysed with the concept

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of ‘dominant social blocs’ proposed by Amable & Palombarini (2009). It gives to neo-liberalism in Japan a particularly pragmatic (non-ideological) flavour. If we are to specify the Japanese form of neo-liberal policies, we must first of all note that they have ended up covering a vast field. They have taken the form of progressive deregulation of financial markets, goods markets and the labour market; privatisation of several key industries and institutions (notably the telecoms operator NTT, the railway company JR, the airline company JAL, and the post); reduction in the scale of public service (for instance in education), which was already relatively small by comparison with other countries such as France (Sautter, 1996), in the context of the growth of public deficits from the 1990s; a tax reform on the US model, even though it was already not particularly burdensome, considering especially the low rate of value-added tax (VAT) and revenue taxes (Dewit & Steinmo, 2002; Jinno-, 2010); reform of the system of innovation, after the Silicon Valley model (see Chapter 6), as well as greater openness to FDI (Chapter 7). These policies, moreover, designed more or less directly to overturn the ideological foundations of institutions such as enterprise, the family (Chapter 4) and the school (Chapter 5). These policies as a whole led to a redefinition of the role of the market in relation to other institutions, of which it is crucial to understand the origin (see Chapter 1). The question of the place of Japanese capitalism in the diversity of capitalism is shifted when we take into account the neo-liberal transition that Japan has experienced since the start of the 1980s. This now stretches over three decades, and it is absolutely not sure whether it is now coming to an end, despite the threefold context of the global crisis, reflections on the model of Japanese growth since the ‘lost decade’, and the ‘unfinished’ political change in 2009, followed by what seems to be a return to the ‘ancien régime’. An alternative interpretation – discussed in Chapter 1 – is that Japan may have entered a post-neoliberal era after the end of the Koizumi government in 2006. The neo-liberal transition in Japan is itself not without ambiguity, and indeed contains several peculiar aspects. First of all, even if it has had some standard-bearers such as Prime Ministers Nakasone (1982–86) and Koizumi (2001–6), several brains such as Kaoru Yosano and Heizo- Takenaka, it was not pushed as strongly and visibly as the programmes promoted by Margaret Thatcher in the UK and Ronald Reagan in the USA. Nor did it excite a wave of opposition as strong as, for instance, in continental Europe, which stemmed to a large extent from the peculiarities of the Japanese political system. Indeed, the lines of cleavage are less clear, as shown in particular by the personality of Hiroshi Okuda, formally president of Toyota, both at the same time ‘officially’ committed to maintain the organisational mode of firms inherited from the post-war period, and also close to Koizumi, whose policies he supported within the Council for Economic and Fiscal Policy (CEFP) from 2001. Another key is the long-term disequilibrium of the

Introduction

19

institutionalised expression of interests, which did not permit the interests of consumers to be taken into account, nor, even to the slightest extent, those of workers (Sala, 2010). Second, it was not put in place rapidly in a coherent programme; it was, on the contrary, installed over time, in successive waves, up to a basic shift that we may identify with the very end of the 1990s or the early 2000s, when the assembly of reforms reached a critical threshold. From this point of view, a comparison with France and Korea is revealing (Tiberghien, 2007). We may conclude that we should not speak of ‘neo-liberal revolution’ in Japan, but only of a transition. A third peculiarity comes from the nature of Japanese ‘classic’ capitalism. For example, the neo-liberal revolution in Japan did not seek to dismantle the welfare state as it did not really exist (Tachibanaki, 2000), although it is true that welfare retrenchment has been active in the 1980s, in order to turn the page of the timid attempt of the 1970s to establish the foundation of a real welfare state (Peng, 2005). Similarly, the question of social democracy was not challenged given that it was little developed. There are, however, two essential keystones of neo-liberal programmes throughout the world (Supiot, 2012). We could say that its introduction has been made easier by the extremely decentralised functioning of Japanese capitalism, centred on the firm, and the informal character of a great number of the rules defining it. Indeed, a fourth specific feature concerns the diffusion of neo-liberalism in Japan. Simmons, Dobbin & Garrett (2008) distinguish four methods of diffusion (coercion, concurrence, emulation and learning), and show empirically that two of them (concurrence and emulation) have played a particularly important role among the Organisation for Economic Co-operation and Development (OECD) countries. This model, which functions well in the context of their international comparison of the diffusion modes of neoliberalism, is also relevant to the Japanese case, but it has a number of weaknesses in this case, especially in the matter of chronology. This general model indeed fails to explain the cycles in the implementation of neo-liberal policies in Japan (see Chapter 1). Another hypothesis concerning the diffusion of neo-liberalism is that put forward particularly by Jabko (2006) in the case of the European Union, and by Tiberghien (2007) in the case of Japan. The establishment of neo-liberal reforms seems fundamentally the result of individual political strategies: a certain number of politicians have used the market to further their own careers. They may be labelled ‘political entrepreneurs’. This would explain the discontinuity of neo-liberal reforms that do not correspond to the formation of a proper plan. This thesis is seductive and allows one to explain a certain number of stylised facts of the Japanese case. It does not, however, get round to analysing the role of private entrepreneurs and the decentralised character of Japanese capitalism. It makes it possible to bring back the political game into the analysis of Japanese capitalism, which does not take the form of opposition between right and left, but it has a tendency to forget something

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that is perhaps more fundamental: industrial dynamics. The diffusion of neoliberalism in Japan has not been primarily promoted by ideologues who had a clear and full concept of what the Japanese economy and society should be. It has been a flag that serves the interests of various categories, and among them large and international companies of the manufacturing and banking industries. Most importantly, it does not allow us to reply in a fully satisfactory way to the question posed by Tiberghien himself: how was it possible to put into effect policies that contradicted the demands of the population? We can give a different reply to this question from that relating to political entrepreneurs. In any case, and following Amable & Palombarini (2009), we may relate it to the dynamics of dominant social blocs and mediation by politicians, who are not necessarily entrepreneurs. The interest of this approach is that it allows us to think about several cases that correspond more or less to different stages of the diffusion of neo-liberalism in Japan. First of all, this policy could correspond to the demands of a group coming from the dominant social bloc without the totality of the bloc being in favour of it. We think here of the demands of multinationals and of certain Japanese financial institutions since 1970 to liberalise the financial sector. They obtained what they wanted, despite opposition from certain members of the dominant social bloc (regional banks, for instance), because their power to negotiate within the group was particularly strong. Subsequently, this policy could also correspond to the Japanese government’s wish in the mid-1980s to preserve the dominant social bloc while creating new conditions for its preservation. Then, from the end of the 1990s, we can observe new political mediation in a context of prolonged crisis. The aim was then to create a new dominant social bloc, accepting in the process the exclusion of certain members of the former dominant social bloc (farmers, small businessmen, small and medium-sized firms). This way of understanding is backed up by a number of research projects that put conflict at the heart of their analysis of contemporary Japanese society, at different levels from the firm to political dynamics (Krauss et al., 1984; Eisenstadt & Ben-Ari, 1990; Bouissou, 1997; Stockwin, 2008). The principal result is the revelation of a specific way to deal with conflicts (mainly through internalisation), which negates the image of a highly consensual society. Another interest of the way of understanding in terms of dominant social blocs is that it was mainly forged from reflection on the Italian case (Palombarini, 2001), whose proximity to the Japanese case has been emphasised by numerous scholars (Bouissou & Lazar, 2001). To finish entirely with this question, let us emphasise that the mode of diffusion of neo-liberalism in Japan had consequences for the nature of the policies put in train. Jabko (2006) also shows that in the European case, the policy corresponds both to liberalisation and to federalisation, which is therefore not a pure neo-liberal programme. In the case of Japan, something rather similar was taking place: there was liberalisation and, at the same time, the retention of costly programmes of public expenditure (Chapter 1).

Introduction

21

Lessons from Japan: contribution and structure of the book It is evident that the issues of the transformation of capitalism under the impact of neo-liberal policies go far beyond the case of Japan. The main consequences have certainly been national, but equally they have concerned the rest of the world, given the size of the Japanese economy and especially the particular place that Japanese capitalism occupies in the diversity of capitalism. This is why it is essential to attempt to draw lessons the Japanese trajectory over 30 years. The first lesson concerns the generality of the neo-liberal experience since the beginning of the 1980s. Certainly, many studies have shown that it goes far beyond the Anglo-Saxon countries, and has affected Latin America, Europe and a certain number of Asian countries. Curiously, however, the neoliberal experience in Japan is not well known, except for the ‘Koizumi episode’, which was in fact merely the final stage, though indeed bewitching, in a process embarked on in the early 1980s (Chapter 1). Well, this experience was profound even if it was not fully coherent. It confirms just how globally effective the hold of neo-liberalism has been over the past 30 years. A second lesson concerns neo-liberalism itself, the diversity of which the Japanese experience leads us to emphasise. Certainly, all neo-liberal experience throughout the world seeks to make the market the central mechanism of socio-economic co-ordination. Certainly, it has mobilised the same arsenal of structural policies, such as market deregulation and privatisation. However, it is no less true that it is strongly determined by local contexts. For instance, in the Japanese case neo-liberal reforms have not sought to decentralise negotiations over wages or employment policies of firms given that they were already decentralised. Similarly, resistance has been significantly less strong in Japan than in Germany to changes at the level of corporate governance, for reasons relating both to the structure of unionism and the influence of the conservative employers (Dore, 2009). A third lesson concerns the impact of neo-liberal policies on Japanese capitalism. As we shall see, this has profoundly changed, but this transformation does not add up to convergence towards the liberal model.20 This means that neo-liberal reforms have not produced all the ‘expected’ effects in Japan. In particular, we show that they constitute one key origin of the increasing diversity of firms (Chapter 2). They have indeed made it possible to establish new power relations, to the detriment of employees, but they have not been translated into a new economic vitality: quite the opposite. In our view, this is a sign that market co-ordination is far from being always effective, and that in Japan it has not found favourable ground for reasons that we shall attempt to spell out in this work (Chapter 3). In other words, this symbolises a setback for neo-liberal reforms in Japan. True, it was in the Koizumi years that Japan managed to escape from stagnation, but this book will show that it was indeed the deregulation of the 1980s that brought about the beginning of the crisis, even if the reasons for it went deeper than that. We

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shall also see to what extent the recovery, for which the policies of Koizumi are often held responsible, was shown to be extremely fragile in the context of the world crisis of 2008–9, essentially because of a fundamental disequilibrium in the strategy of growth, which did not give enough room for domestic demand and, within it, for consumers. This leads us to a fourth lesson, concerning more specifically the social compromise. As in all countries that have experienced neo-liberalism to a significant extent, we have seen in Japan a rise in inequality, but to an extraordinary extent (Chapter 4). This has led, on the one hand, to people thinking hard about setting up a real welfare state, and on the other hand, to a change of government whose initial goal was to do just that (Boyer & Lechevalier, forthcoming). However, in a neoliberal environment or even in the postneoliberal context, conditions are not favourable to the establishment of a new system of social protection, although there may be some exceptions (Peng, 2005). Moreover, it is not certain that the dominant approach within the Democratic Party of Japan (DPJ), which sought inspiration from the Blairite experience of the Third Way, was the most suitable to take up the challenges. As we shall see, social protection is certainly the most ‘exotic’ dimension of the Japanese system from a European perspective (Chapter 4). Even so, it is no less true that we can take lessons from it of general application concerning the future of systems of social protection worldwide (Boyer & Lechevalier, forthcoming). The fifth lesson concerns methodology. In order to understand the impact of neo-liberal reforms, we need to analyse them in all their dimensions, not only economic ones. This is what is shown by analysis of the reform of the school and university system (Chapter 5), as well as that of the effects of these policies on the family and in the area of reproduction more generally (Chapter 4). Indeed, neo-liberalism has ended up affecting the deepest foundations of society. From this perspective, the breach of trust linked with the new rules concerning hostile takeovers is quite symbolic (Dore, 2009). Two last lessons relate respectively to innovation and the character of globalisation. It would be false to assert that the model of Silicon Valley is neoliberal by nature, even if it carries with it certain liberal ideas that do not run counter to the view of thinkers such as Friedrich von Hayek. By contrast, the American success in the domain of information technology and biotechnology has led some people to assert that the American model of innovation that depends on the body of entrepreneurs and certain methods of financing was the only possible course, especially in everything involved in the creation of new industries. That is why the reform of the system of Japanese innovation in the 1990s was strongly inspired by this model (Chapter 6). This has also contributed to justifying a new stage in the reform of the financial system and attempts at making the labour market more ‘fluid’. Several works have shown that the model of Silicon Valley is not the only way possible to favour the emergence of new industries: one lesson from Japan is indeed that there is an ‘intrapreneurial’ regime, just as capable in this area, without relying at all

Introduction

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on small, innovative ‘start-up’ firms (Lechevalier, Nishimura & Storz, forthcoming; Storz, 2010). On globalisation, the lesson that we can draw from the Japanese experience in this area is that research on competitiveness, which is one of the arguments for putting into operation neo-liberal policies, is not a measure of success (Chapter 7). What is needed is the power to control the creation of rules of the game, which Japan has not known how or been able to do. On the very nature of globalisation, we say that it is an eminently political process, with nothing ‘natural’ about it. Evidence of this is given by the fact that globalisation seen from Asia essentially takes the form of regionalisation, whose character is different from European integration. As a whole, the structure of the book is transparent and can be summarised as follows. Chapter 1 puts forward a chronological perspective and a critique on the putting into effect of neo-liberal policies in Japan. Chapters 2, 3 and 4 analyse the impact of these policies in the three areas of the heterogeneity of firms, forms of co-ordination and the social contract. Chapter 5 presents an extension of this analysis to the case of education system reform. Finally, Chapters 6 and 7, devoted respectively to the innovation system and to the international outreach of the Japanese economy, adopt a different but complementary perspective, to the extent that in these two areas neo-liberal policies are articulated differently. With such as structure, are we able to propose both a synthetic and comprehensive analysis of the contemporary Japanese capitalism in transition? As explained above, the adoption of a three-level analysis – diversity at the micro level, forms of co-ordination and social compromise – corresponding to Chapters 2–4, is necessary in order to articulate different levels of change. Even so, in this encompassing framework we need to admit that we shall leave to one side a number of elements, most notably in a dynamic perspective. That is why, for example, we have deemed it important to devote a chapter specifically to the Japanese education system (Chapter 5). Certainly, the régulation approach and the Varieties of Capitalism type of analysis have taken this into account, especially at the level of workers’ vocational training, but they do not allow us to examine the dynamics of its reform. At the same time, we propose adopting a critical perspective on technological progress and globalisation (Chapters 6 and 7), which, according to the hypothesis most dominant among economists, are the two engines of the evolution of diversity of capitalism and are supposed to act in the same sense – that is, convergence towards the model of market capitalism. As can be seen from the above, this book seeks to draw a certain number of general lessons from the analysis of the Japanese path since the beginning of the 1980s. As a whole, the ambition of this book is to summarise – in a nontechnical way – 15 years of our own research on Japan (which inevitably implies a tendency of self-citation), but also to articulate and reinterpret various other contributions, and finally to define a new research programme on institutional change in Asian capitalism.

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Notes 1 Vogel (1980) and Reich (1992) are characteristic of the first phase, Katz (1998) and Amyx (2004) of the second. 2 With a birth rate of about 8/1,000, a death rate of 10/1,000 and with people aged 65 years old and over representing more than 23% of the total population in 2012, the Japanese population started to decrease in 2005 and is expected to decrease further, from more than 127 million nowadays to about 116 million in 2030, and 97 million in 2050, according to Vital Statistics published by the Statistics Bureau, Minister of Internal Affairs and Communications. Although demographic forecasts are much more reliable than economic forecasts, nonetheless one should be very cautious about forecasts for 2050. 3 Among the sources of inspiration for this programme of research, we should mention Pempel (1998), who puts forward an analysis of the gradual changes that characterised the Japanese system between the 1960s and the beginning of the 1990s, distancing himself from perspectives focusing on system continuity. 4 See Lechevalier (2011b: p. 71): ‘Previous régulationist analyses … have rather emphasized the role of internationalization. It is true that internationalization has led firms to introduce other forms of human resource management and/or of financing their investments. Moreover, the internationalization of the Japanese economy has been one argument to promote deregulation, especially for the financial markets. However, [we argue] that deregulation has been partly conducted for political reasons that have nothing to do with “economic” dynamic, such as internationalization.’ 5 On the present crisis of neo-liberalism, see Duménil & Lévy (2011). 6 This neo-liberal moment saw the emergence of what Luc Boltanski and Eve Chiapello call the ‘new spirit of capitalism’, partly in answer to its most virulent critics in the late 1960s and early 1970s (Boltanski & Chiapello, 2007). 7 It is not yet possible to conclude that this neo-liberal period has come to an end and Japan has entered a post-neoliberal era, although there are some signs that may make us believe so, such as the political agenda of Prime Minister Abe from late 2012 (see Chapter 1). 8 See Hall and Soskice (2001). This book has given birth to the so-called ‘Varieties of Capitalism’ (VoC) approach, the aim of which is to analyse the diversity of capitalisms. 9 This is the main reason why this concept is here preferred to the one of ‘organisation’ as used by Streeck (2009) in order to characterise the ‘disorganisation’ of German capitalism after years of institutional change. Although these two concepts are not without relations, especially regarding the description of the lack of coherence of capitalisms having experienced a process of liberalisation, the specific interest of our concept of co-ordination is to connect the micro-level analysis of the diversity of actors to the meso and macro analysis of institutions. 10 Technological or research and development (R&D) spillovers are a type of externality with the following characteristics: ‘By technological spillovers, we mean that (1) firms can acquire information created by others without paying for that information in a market transaction, and (2) the creators (or current owners) of the information have no effective recourse, under prevailing laws, if other firms utilize information so acquired’ (Grossman and Helpman, 1992: p. 16). 11 We should recall that from the point of view of the Gini coefficient, in the 1970s Japan had a level of inequality comparable to that of Sweden – that is to say, one of the lowest in the OECD. See Chapter 4, as well as OECD (1976). 12 The path of Japanese post-war capitalism to some extent bears comparison with that of several European countries, from the point of view of American influence. On this, see Djelic (1998).

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13 We should remember that originally, theories of the Japanese ‘model’ were essentially American, and sought to explain the difference in performance between these two leading world economies and the source of the differences, with an American model which, however imperfect it may have been, was the closest to the model of market economy posited by neo-classical economics. 14 The least that we can say is that there are few books that take stock of the economic, political and social dimensions of the Japanese model since the end of the 1970s. This corresponds in part to the relative disillusion with Japan from the middle of the 1980s, and explains our difficulties in comprehending the changes that affected Japanese capitalism over 30 years. We may cite Katz (1998, 2003), and also Cargill & Sakamoto (2008). This last was the collection The World Since 1980, from Cambridge University Press, a series that seeks to examine the political, economic and social changes since the beginning of the 1980s and in fact introduces an interesting point of view on the chronology of world history, defining the turning point not at the start of the 1970s but at the end, corresponding to the effective debates on neo-liberal revolutions in the USA and the UK. Up to a certain point, this chronology corresponds well to the Japanese case if we consider that 1982, the year when Nakasone became prime minister, is a turning point for Japanese capitalism. 15 For a synthetic analysis of the structural causes of the Japanese stagnation, see Motohashi (2003a). 16 See also Chapter 2. 17 Such an analysis is not entirely absent from Cargill & Sakamoto (2008), but the authors spell out neither the neo-liberal policies nor their institutional consequences. See the critical review of this work in Lechevalier (2009). 18 However, even though the importance of neo-liberalism for an understanding of our era – similarly to globalisation, for instance – has been emphasised by numerous authors, we have to note that it is not an object of study of the ‘mainstream’ of economic science, for which all research that mobilises this concept risks being disqualified as no more than propaganda. Among the authors treating neo-liberalism, see Berger and Dore (1996), Boyer & Drache (1996), Crouch & Streeck (1997). 19 For a more general view on the diversity of liberalism, see Konzelmann et al. (2012). 20 On this point, we differ significantly from the conclusions of Dore (2009), for example.

1

Thirty years of neo-liberal reforms in Japan Yves Tiberghien

This chapter has three ambitions. First of all, it proposes a chronology of the structural reform process over 30 years and describes its nature. Second, it offers an explanation for this process and analyses the forces that motivated it, when the majority of the Japanese population were apparently opposed to it. Finally, the chapter evaluates the reform outcomes, especially in terms of the balance between state and market. Through a political analysis of the process of neo-liberal reforms and deregulation since 1980, I argue that the transformation of Japanese capitalism has not been linear, but has consisted in two distinct reform phases: that of Yasuhiro Nakasone in the 1980s, and that of Prime Ministers Hashimoto, Obuchi and Koizumi between 1996 and 2006. These two phases followed very different logic and goals, and were separated by a long pause. After 2006, neo-liberal reforms mostly stopped, due to a combination of inertia, voter backlash and doubt about the US model after the 2008 financial crisis. From 2006 to 2009, although the Liberal Democratic Party (LDP) remained in power, the reform movement lost momentum and experienced both popular backlash and internal resistance within the LDP. In 2009–11, under the first two administrations of the new Democratic Party of Japan (DPJ), an effort was made to pursue instead a more distributive social agenda, in order to respond to public concerns about inequality and welfare erosion. This agenda did not get the chance to come to fruition, due to a combination of weak DPJ governance, fiscal obstacles and the March 2011 triple disaster. By the third DPJ administration, under Prime Minister Noda (September 2011– December 2012), the government had turned toward fiscal retrenchment, trade liberalisation and energy policy. The social agenda was essentially abandoned. In turn, in December 2012, the LDP came roaring back to power under an Abe administration, version 2.0. Voters grew tired of policy incoherence under the DPJ and shifted their worries from one about inequality to one about low growth. The promise of a new economic policy that combined aggressive monetary stimulus, renewed fiscal Keynesianism, and ill-defined package of growth-enhancing structural reforms (the three-pronged ‘Abenomics’) received voters’ qualified approval. By early 2013, Abe launched his macro-economic policies with big effect. The ‘third arrow’, however, is a more

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uncertain package. At the time of writing, it seems clear that Abe does not intend to revive Hashimoto-style or Koizumi-style neo-liberal economics, even though he has recreated the key Industrial Competitiveness Council (ICC) used by Obuchi to push key reforms and relies on a Cabinet secretary (Yoshihide Suga) who was a key Koizumi supporter during postal reforms. Rather, Abe 2.0 may be seen as a functionalist or pragmatist. History is not yet written and it is too early to gauge the nature of Abe 2.0. For example, the conclusion or not by the Abe government of the TransPacific Partnership (TPP) will be a criterion to evaluate its neo-liberal nature, as TPP may be used as a Trojan horse to introduce a new wave of neo-liberal reforms. However, at this stage, it seems improbable that Abe 2.0 will proactively revive the neo-liberal agenda of reforms, not only because of the strong opposition within the LDP, but also because his agenda is primarily driven by a desire to revive Japan’s power in the context of a rising China. Instead, he may only preserve the major outcomes of the neo-liberal agenda and act as an heir in what may be already called a post-neoliberal era. As we shall see, the reform process has been sharply contested at every stage and has thus followed a non-linear track that sometimes makes it seem incoherent. The key moments of the reforms have often had to be accompanied by political gestures or counter-reforms in order to appease those who opposed them. The tactical pro-reform coalition has never been able to exert complete control, in the manner of Margaret Thatcher in the UK. The reforms of the 1990s could only progress at the price of compensatory fiscal expenditure on behalf of the losers from these same reforms, and this contributed to the explosion of Japanese public debt (which reached 200% of Japanese gross domestic product (GDP) in 2010, and more than 210% by the end of 2012). At the end of this complex process of progressive reforms, it is clear that Japan has itself experienced a ‘neo-liberal transition’, especially between 1996 and 2006, but with a period of preparation under Nakasone. Many authors have emphasised the combination in Japan of decentralisation with serious inertia in the system of political economy (Amyx, 2000, 2004; Bouissou, 2003 ; Katz, 2003; Lincoln, 2001; Okimoto, 1990; Schoppa, 2001; Tiberghien, 2003, 2007 ; van Wolferen, 1989). In these conditions, it is not surprising that the institutional changes that have characterised Japan over this period have been gradual, which does not mean that they have not been significant and profound, in conformity with the concept developed by Streeck & Thelen (2005). The cumulated change in institutions after 1996 and the responses by firms to those new possibilities have certainly amounted to the greatest overhaul of the Japanese capitalist system since the war. In addition, this chapter argues that the process of change resulted more from a political logic than from efficiency-seeking economic rationality. This is why I choose to call the process one of ‘neo-liberal transition’. Second, we analyse the forces that have upheld this transformation. Why has Japan adopted a battery of neo-liberal reforms despite the lack of enthusiasm on the part of the population and the logic of comparative advantage

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that was pushing it in other directions (Dore, 2000, 1999)? There are several possible hypotheses. Some of them have put forward the idea that the postwar Japanese model simply ran out of steam having reached its optimal point before becoming dysfunctional, whether as a whole or at least in its financial dimension (Fukao, 2002; Katz, 2003). According to this explanation, structural reforms after 1996 (and even those of Nakasone) simply responded to a functional imperative for adaptation and survival of the Japanese model. A variant of this approach put forward the concept of a general institutional crisis, when the different actors in the system and public opinion started to doubt the permanence of the status quo (Aoki, 2001, 2002; Toya, Aoki & Toya, 2003; Toya & Amyx, 2006). Once this moment was reached, a Pandora’s Box of reforms was opened by political actors. Other researchers emphasised direct pressure from Japan’s American ally, as much in matters of trade as in financial and monetary issues, lasting from the end of the 1970s to 1995 (Kikkawa, 1998; McKinnon & Ohno, 1998; Nakanishi, 2002). These relentless pressures, linked to a major trade imbalance between the two countries, may have, according to this view, forced Japan to begin its first financial reforms, and so put out of balance its coherent system of political economy, later making necessary other reforms designed to bring the system back into balance. Finally, another approach emphasised the normative and ideological aspects of the reforms. According to this view, the Japanese elite underwent a conversion, in part because of the diffusion of global norms following the neo-liberal revolution of Thatcher and Reagan, and in part because of the bias of Japanese intellectuals (Dore, 1999, 2000; Eda, 1999; Otake, 1994, 1996, 1997). Thus, Ronald Dore argues that economic, bureaucratic and intellectual elites adopted neo-liberal ideas after the middle of the 1990s, and that these ideas gradually became virtually hegemonic, thus pushing forward the reform steamroller. This chapter adopts a critical view of these different analytical approaches, given the fluctuating and targeted nature of Japanese structural reforms since the beginning of the 1980s. Basically, these reforms have been partial, clustered during particular periods, and strategically linked to fiscal deals. This tends to negate any purely systemic or functional logic. It remains true that many elements support the argument of an ideological transformation, first under Nakasone and more systematically after 1996, but a strong counter-current of conservative ideas in favour of social cohesion and maintenance of the previous advantages of the Japanese system has remained present throughout the period. This counter-current was followed by a more general public concern for inequality and social gaps after 2006, a concern that served as the backdrop for the limited attempts of the DPJ to enlarge the welfare system in 2009–10. So, these two currents of ideas find themselves in permanent confrontation and allow political actors to use and to express one or the other of them throughout the process of reforms and counter-reforms. In this, the force of ideas is not sufficient to explain directly the neo-liberal transformation of Japan.

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This is why this chapter proposes a different interpretation of the origins of the Japanese neo-liberal transformation. I argue that an alliance of economic and technocratic elites has promoted key reforms during targeted political windows (Tiberghien, 2007), often in the name of the floating urban middle class, but also in response to stimuli coming from globalised financial markets. This alliance has benefited from the discrediting of the status quo at times of crisis and patent dysfunction. It has nevertheless experienced political failures, especially in periods of stagnation (1988–95, 2000–1, 2006–9), and even of severe electoral reverse when the LDP was defeated in August 2009, partly as the result of social disquiet in the face of rising inequality. Such an approach is thus entirely compatible with the analysis in terms of dominant social blocs advanced by Amable & Palombarini (2009), presented in the Introduction to this book. After the series of reforms of Prime Minister Nakasone (1982–87), and above all 10 years of structural reforms between 1996 and 2006, what happened to the relationship between state and market in the Japanese system? On the one hand, some of the traditional tools used by the state to intervene in the economy (such as credit control), as well as support mechanisms for coordinating institutions outside the market, have been abolished; the state is thus less directly present in daily economic activities. On the other hand, it is striking that economic actors continue to expect that the state should play a role of stimulus, catalyst, or signalling agent (including, most strikingly, in the most recent period). Thus, as argued by Vogel (1996), deregulation of traditional state functions requires a process of re-regulation, or the creation of new instruments that fit the new stage of the economy. Deregulation without new regulatory institutions is often dysfunctional and the source of uncertainty (and bubbles). The state accepts and legitimises new behaviour involving a greater market component. The state also needs to intervene to remove institutional obstacles that prevent the formation of new patterns and relationships between private actors during a period of economic transition. The result of these partial reforms is, from the early 2000s, an economic system much less coherent and interdependent than in 1980, as Chapters 2 to 4 will show.1 Some firms and some economic sectors are now very globalised and open, while others (e.g. distribution, and small and large non-innovative firms) still retain characteristics very close to those of classic Japanese capitalism. As a whole, institutional change has thus been significant; the new system of political economy resulting from it is markedly different from the classic system while suffering from a lack of internal coherence (Sako & Kotosaka, 2012a, 2012b). This chapter begins with a brief description of the Japanese system on the eve of the transformative process, from the perspective of political economy. It will then proceed, in four stages, to a description of the Nakasone reforms in the 1980s, to a presentation of the pause in the reform process that followed, to analysis of the most intense reforms between 1996 and 2006, and finally to the period of pause and reversal that followed the departure of

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Koizumi in 2006: inertia in 2006–9, social backlash in 2009–11, transition in 2011–12, and a return to state-led partial reforms in 2013, albeit without the neo-liberal logic. Throughout these four phases, the chapter will evaluate the reforms that took place and the elements of the Japanese model that have been transformed (financial regulation, firm management, inter-firm relations), as well as the elements of the classic model that still persist (most notably the employment system and firm management). For each phase, the chapter will analyse the political forces that have permitted these reforms and those that have been limited, focusing on the cycles followed and sector variations. We shall emphasise the importance of political entrepreneurs under Prime Ministers Hashimoto, Obuchi and Koizumi, partly in response to the perception of a technological and global-environmental change (Chapters 6 and 7). The chapter also touches upon the look-back effect of structural liberal reforms on social inequality (see also Chapter 4) and on the political game in 2006–9, a period follow by a see-saw moment, and eventually a new focus on structural change under state leadership in 2013.The sequence from 2006 to 2013 demonstrates the continual instability of the Japanese model and the search for a new optimal equilibrium in a wake of partial change. Strikingly, the 2013 package of structural reforms proposed under Abe’s third arrow seemed to include both further liberalisation (especially trade liberalisation to stimulate domestic change), and a return to state-led initiatives. The chapter concludes with an analysis of relations between state, firms and market over the course of the past 10 years.

The Japanese system of political economy before the crisis As the Japanese classical system of political economy has been already described in the introduction and will be analysed more precisely in the first section of each subsequent chapters, we do not enter into the detail of its description here and we just emphasise some points – especially regarding state intervention – that will be useful for the rest of our argumentation in this chapter. Many authors have described the intensity of relations and networks within the post-war system, and the internal mechanisms for transferring resources between the productive sectors of the economy and the less productive sectors (Amyx, 2004; Aoki et al., 1990; Aoki & Patrick, 1994; Dore, 1983; Dore & Taira, 1986; Sakakibara, 1993; Lechevalier, 2007b). For example, for Bouissou (2003), the Japanese system is an interconnected system round several key elements, notably a market of influence between key political actors (the iron triangle), a social compromise upheld by the state of ‘indirect generalised social protection’, and a national system of ‘indirect generalised psychological protection’. A variation that distinguishes the Japanese case from that of other coordinated systems is the active and multiple role of the state in co-ordinating between actors, as much by regulation as by more flexible tools, such as

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bureau-pluralism.2 In contrast to the powerful state that we find in France and in Korea, the Japanese state may be seen as a catalytic state, intimately bound up in the networks of co-ordination and allowing them to function effectively without, however, dominating them (Amyx, 2002a; Okimoto, 1990). Besides, the configurations of networks in different sectors come in various forms and the role of each ministry or even of each bureau within a ministry can also differ. The interactive and interdependent nature of institutions in the Japanese system, not merely between them but also in relation to firm behaviour, makes all systemic reform projects very difficult. On the one hand, these institutions of political economy (for regulation of the labour market, financial markets and firm management), are anchored in the social and political tissue of the nation. On the other hand, all partial reform runs the risk of creating incompatibilities between ‘traditional’ areas of the system and those that have been reformed (Hall & Gingerich, 2009). From this arises the dilemma that has faced Japanese reformers for the whole period studied here: how to resolve functional problems, to optimise the interface with the world economy and technological changes, or even improve the efficiency of capital allocation (creative destruction), while conserving the networks that are basic to the comparative advantage of the Japanese economy.

Initial transformation: deregulation and privatisation under Nakasone, 1982–873 One of the intriguing elements of the path taken by Japanese reforms is the fact that the first structural reforms took place at the very moment when the classic system was at its height, while that system did not yet reveal flagrantly dysfunctional elements and had not yet been challenged by technological developments or by a new phase of globalisation (Chapters 6 and 7). These early reforms were initiated by Prime Minister Yasuhiro Nakasone between 1982 and 1987. They are important for two reasons. First of all, they formed the basis for a vast programme of structural reforms in the 1990s. Subsequently, they help us to understand better the political logic of the reforms, as they did not respond to purely functional or even ideological requirements. Finally, they show the eclectic nature of Japanese reforms, because they came in three totally different incarnations. This contrasts with more systematic and coherent reform plans in countries such as France (1984–2000) and Korea (1997–2002), let alone a liberal case such as the UK (Tiberghien, 2007). The first incarnation was the programme of financial deregulation, which responded to direct pressure from the USA (which saw deregulation as a possible solution to trade imbalances), and to that from large Japanese firms and banks. This programme of deregulation was marked by a progressive approach and by the lack of any attempt to work out a new system of adequate supervision. It was, in fact, the result of a kind of political arbitrage following the path of least resistance.

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By contrast, in the second incarnation, the process of privatising three large state enterprises, there was no foreign pressure and no functional need. This privatisation certainly embodied neo-liberal ideas of small government, but it was above all the affirmation of a political strategy of Prime Minister Nakasone, who used this reform to fight against his political enemies. As for the third incarnation, it essentially took the form of the famous Maekawa Report of 1986. In short, that report proposed engaging in a process of deregulation of labour markets and product markets and favouring structural transformation of Japanese society, while encouraging the development of domestic consumption. It made it possible to set up bases for future development, but was not followed by immediate effects. The role of neo-liberal ideas As Hideo Otake convincingly shows, economic liberalism (keizaiteki jiyu-shugi) appeared in Japan at the end of the 1970s, in the form of an underlying but powerful current (Otake, 1994). This new phenomenon appeared in a context of structural economic change, and in particular a worldwide trend of deregulating and abandoning all industrial policy in Japan in the face of a more vigorous and independent private sector. Otake argues that the Nakasone reforms were in fact preceded by progressive conversion to neo-liberalism under the two prime ministers before Nakasone (Masayoshi Ohira, 1978–80, and Zenko Suzuki, 1980–82). In this sense, the privatisation conducted by Nakasone put into practice a lengthy trend that had begun under Ohira and was pursued later under Koizumi. Of course, Otake notes that neo-liberalism, when it came to prominence within the LDP, was one ideology among others, but its influence gradually expanded. He qualifies privatisation of the Japan National Railways (JNR) as a reform ‘motivated by ideas’, rather than by interests. The determining concepts were reforms in the area of management, reduction in state structures and administrative reforms. We may also observe the important role played by intellectuals propounding neo-liberal ideas at the time of the privatisations. Thus under Nakasone, Professor Hiroshi Kato- (Keio- University) became president of the Second Ad Hoc Commission for Administrative Reform (Dainiji Rinji Gyo-sei Cho-sakai). It favoured a complete reform destined to break with a system that was, in his view, ‘Soviet in style’, and he was intellectually the guiding force of the process. During the 1990s, he continued to recommend other neo-liberal reforms so as to stay on the path opened up by Nakasone (Kato-, 2002). He deplored the fact that privatisation of the JNR had not gone far enough and had not got rid of administrative power. However, we should note that the basic reforms (for instance, privatisation of the JNR and of Nippon Telegraph and Telephone (NTT), were few in number. Neo-liberal ideology, defended in Japan from the beginning of the 1970s by dynamic representatives of the business and university worlds, played an important but incomplete role. This ideology was merely able to

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infiltrate the elite and exert some influence on political debates. More than once, opposing ideologies, which defended the original Japanese model in the areas of management and social affairs, managed to hold neo-liberalism in check, this result being due in particular to dominant interest groups, united groups of high officials and conservative politicians having close links with specific interest groups. Nakasone (as Koizumi later) imposed privatisation programmes against their opponents because of a political strategy: they both tried to use privatisation as a catalyst for greater economic and political transformation. As for the process of financial deregulation, a change otherwise more important for the evolution of the Japanese model, it is really difficult to find in it the organised expression of neo-liberal ideas and norms clearly expressed. Rather, it is more about political arbitrage between divergent interests and political strategy. Financial deregulation and the origin of the speculative bubble As indicated above, the Japanese financial system of the early 1990s was a regulated system, both centred on bank finance and relatively autonomous in relation to the outside world, given capital control. During the 1980s, key decisions were taken concerning these two dimensions of the system, both eliminating controls of the financial interface with the rest of the world (authorising national and foreign actors to operate freely abroad and at home, respectively), and liberalising the national financial system. I identify the first part of this programme of financial deregulation as external (financial liberalisation) and the second part of financial deregulation as internal. The latter consisted of eliminating the tight restrictions imposed on banks, on other financial institutions and on financial markets in the framework of the coordinated Japanese system. Among other things, it was a question of deregulating credit control, rates of deposit and borrowing, and obstacles to financial innovation. This kind of project was not unique to Japan. All the countries of the Organisation for Economic Co-operation and Development (OECD) put into force equivalent programmes during the 1980s (including France from 1983), to a large extent because of the emergence of global financial markets, following the first deregulations operated in the USA and the UK, technological innovations that made financial control more difficult and the financial needs of states and multinational firms more complex. The more the number of countries opening their capital accounts increased, the more pressure rose on other countries. Nevertheless, it is clearly recognised (at least, ex post facto) that financial deregulation constituted a real institutional transition of the regime, and that it brought with it serious risks. In particular, economists have long recognised the need to respect a certain sequence in the different stages, starting with internal deregulation before opening the capital account (Caprio et al., 2001;

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McKinnon, 1993; Stiglitz, 2002). It is also understood that it is indispensable to accompany the transition of a financial regime with the elaboration of supervision authorities in the accounting, financial and banking areas, in order to avoid risks of disequilibrium and of speculative bubbles. Between 1979 and 1985, the Japanese government took a series of poorly co-ordinated decisions which came to create a badly organised and badly supervised financial deregulation, which subsequently played a crucial role in the formation of the enormous speculative bubble of 1985–90 and the destabilisation of the whole edifice of the Japanese financial system (Cargill & Sakamoto, 2008). Contrary to the case of privatisations targeted and desired by Nakasone, the government played a role that was above all reactive in the case of financial deregulation. Two types of actors played in a role in pushing this political agenda. On the one hand, the USA, which had for several years been attempting to resolve the problem of trade imbalance with Japan, demanded that Japan engage in a broad liberalisation of its economy and of its import and distribution system. In the absence of direct measures allowing increases in imports, the USA demanded at least financial deregulation that should be both internal and external to Japan, in order to open the financial system to American actors and to free Japanese capital. The high point was the ‘YenDollar’ Agreement of 1984, in which Japan agreed with her ally a specific programme of financial deregulation over 10 years (Frankel, 1984; Osugi, 1990). On the other hand, the second group of actors in favour of deregulation mainly consisted of the large Japanese exporting firms, which militated for financial liberalisation in order to have access to new euro markets of international bonds that would allow them to raise finance at a lower price than if they applied to regulated Japanese banks (Calder, 1997; Meyer, 1996; Rosenbluth, 1989). In the name of the need to be competitive, these firms wished to free themselves from the straightjacket of direct and regulated finance. In parallel, brokerage firms wished to obtain greater freedom in issuing securities. As these two types of pressure made the banks vulnerable, the banks had in turn demanded financial deregulation of their deposit and loan operations and the right to participate in the issuance of government bonds (until then reserved for brokerage firms), in order to remain solvent and competitive in a deregulated global climate. Faced with these external and internal pressures from large economic actors, how did the Nakasone government respond? Its response was constrained by two internal forces. The first stemmed from national interest groups that felt themselves vulnerable to American pressure and were the foundation stone of political support for the party in power, the LDP. Industries that were purely national and protected – such as construction, small companies, small regional enterprises and agriculture – mobilised to indicate strongly to the LDP their categorical opposition to all means of appeasing the Americans, if these would involve structural reforms of the distribution system or of the industrial fabric. The

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LDP could not allow itself to get on the wrong side of its main political and financial supporters. Nevertheless, these national industries were not too interested in the question of financial deregulation and did not regard their vital interests as under threat. The other constraint came from the banks, which were coming out of years of struggle with the Ministry of Finance (MOF), and were categorically opposed to increasing the level of direct supervision of their financial activities. At the time of the political battle around the Banking Law of 1982, the banks did not hesitate to bypass their tutelary ministry (MOF) during the writing of the law, and to lobby their political supporters in the LDP directly, asking them to block the attempt of the MOF to reinforce its prerogatives of audit, control and supervision. The Liberal Democrat government of Nakasone chose to manage this combination of external and internal pressures and forces by following the path of least resistance, in other words by initiating a badly organised process of financial deregulation. This process lacked any reinforcement of the kinds of supervision procedures that should indispensably accompany this transition of the financial regime. The result was disequilibrium in the financial system and such dysfunction that it would take 20 years or more for it to be sorted out. Each actor had won its case in the short term, even if the system’s permanence was put in jeopardy. It was an optimal political policy in the short term. The optimal choice for the long term of a well-organised and wellsupervised deregulation was impossible to attain politically on account of the constraints in place. The USA obtained external and internal financial liberalisation, even if, in an irony of fate, this did not permit it over the next decade to reduce the trade deficit, which tends to confirm that the main reasons for the American trade deficit were elsewhere. Large firms obtained the liberty to find the capital they needed in foreign markets, and to manage their surpluses more freely. As for banks, they benefited from the internal liberalisation of their operations and the right to negotiate government bonds. Brokerage firms obtained more liberty in financial markets. During this period, the national supporters of the LDP were able to preserve the status quo in the non-financial political economy. Finally, national financial actors won out over the inclinations of the MOF to consolidate the bank and financial system of supervision. Clearly, this case of financial deregulation demonstrates the crucial role of political arbitrage in decisions on structural reform. It also illustrates the lack of long-term planning of the process and the fact that it was developed in reaction to short-term constraints. It is certain that Nakasone and his entourage did not have a good comprehension of the future consequences of their decisions and their technical arbitrage on financial regulation. Finally, this case also takes account of the difficulty of the Japanese government in managing the economy in the face of strong and multifarious pressure groups, even under a charismatic prime minister such as Nakasone.

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Privatisation The other important dimension of the structural reforms launched by Nakasone followed a different course. This was a proactive programme directed from the top in the name of explicitly neo-liberal calculations, but in reality motivated by political calculations. This series of privatisations emerged from a series of reforms titled ‘administrative reforms’, conducted without excessive haste, and led to the privatisation of just four entities: Japan Tobacco and Salt Public Corporation (the salt and tobacco monopoly), and NTT in December 1984 (effective 1985), JNR in November 1986 (effective 1987) and Japan Airways or JAL (the national airline) in November 1987 (effective April 1988). The privatisation of NTT was the object of a long battle in which American trade negotiators participated (hoping to stimulate the telecoms market to open up), as well as the LDP and three ministries that were competing to clinch a position of power and control: the Ministry of International Trade and Industry (MITI), the Ministry of Posts and Telecommunications (MPT) and the MOF. In the end, because of the fact that Zendentsu-, the union representing the public sector of NTT (and its 300,000 members) more or less accepted privatisation, the operation proceeded without too much drama. It was possible to find compromise, NTT was not dismantled and re-formed into new entities, and the corporatist structure of social management survived, even if it took on a more liberal orientation (Samuels, 2003). The privatisation of JNR was another matter. JNR was a target of choice for Prime Minister Nakasone as for Keidanren (the Federation of Japanese Economic Organisations). The management adopted a combative attitude from the beginning and undertook the dismantling of the corporation, partly as a way to terminate all employment contracts and to re-hire employees following a meticulous weeding-out process. Two separate labour unions had to face this major political onslaught: Kokuro-, the most militant union of the Japanese system, and So-hyo-, the unified national union federation. Kokuro-, which had links with the Japan Communist Party, had been in the front line against the Security Treaty between the USA and Japan in the 1950s and early 1960s. The energetic action by management was justified by the enormous losses (US$80 billion in 1983), and a certain alienation of the urban middle class following disruptive strikes during the 1970s (Samuels, 2003). Other important factors weighed in favour of privatisation, including the reduced demand for transport in view of competition from cars and trucks, and the inefficient management and excessive size of the company, both of which were inherited from the pre-war period. The net result of the JNR privatisation was truly shattering: the unions were divided on this question, with the two less important unions, Tetsuroand Do-ro-, agreeing to an accord with the government. This situation gave to the government the chance to reduce in spectacular fashion the membership of Kokuro-. Because of privatisation, 73,000 employees lost their jobs. The

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membership of Kokuro- dropped from 187,000 in 1987 to 44,000 after privatisation. Numerous wage earners were dismissed (or ‘not re-hired’) as the result of this process. A large proportion of those who lost their employment appealed to the courts or to the International Labour Organization, and unleashed a long movement of protest, which is being pursued even today. They never found work again, and the social repercussions were heavy. For their part, the victors celebrated their victory. The dismantling of JNR was saluted as a turning point in the history of economic choices in Japan. It led to a transformation of the Japanese public sector. These events have also been considered to be the coronation of Nakasone’s mandate as prime minister. Managers and politicians who were shown to have co-operated were copiously recompensed. For example, a group of middle managers of JNR (named the ‘Group of Three’) who had co-operated with the LDP commission charged with the reforms, against the advice of their superiors, all received a bonus payment. Many of them became presidents of private railway lines (Japan Railways, or JR) created in the decade following privatisation. As for politicians, the example is often given of Mitsuzuka Hiroshi, named minister of transport after changing position and supporting privatisation whereas previously he had opposed it. It was also understood that numerous LDP personalities enriched themselves when the assets of the JNR were sold off (Samuels, 2003). Politically, the affair brought about the collapse of So-hyo-. This contributed to the fusion of almost all unions in a vast but hardly powerful union federation, Rengo-, in 1987.4 How should we explain this spectacular political outcome? Did the privatisation of JNR result from a pure ideological conversion or from pressure exerted by interest groups? These explanations are evidently insufficient to understand the process. In fact, Nakasone came to see privatisation (especially that of JNR) as a decisive battleground that could allow him to occupy the high ground in relation to the political calendar, to weaken the higher administration, suppress the unions and the Japan Socialist Party, and acquire personal supremacy.5 As Nakasone acquired a higher degree of political autonomy during his term, he was able to create original institutions, namely government councils reporting directly to the prime minister and whose decisions could be used to constrain and defeat various ministries, interests and political opponents. The most important of these institutions was the Rincho(Dainiji Rinji Gyo-sei Cho-sakai), initially attached to the Administrative Management Agency when Nakasone held this portfolio in 1981, and recreated later in the form of a commission placed directly under the authority of the prime minister. By this means, Nakasone was able effectively to tie the hands of his governments and pre-emptively weaken the opposition. Finally, the strategic vision of Nakasone was proved to work well. He benefited from a new electoral victory at the 1986 elections, won with a substantial majority, apparently reversing the trend of LDP decline, partly because of his new style of direction, which became broadly evident through his way of treating the privatisation question (Baerwald, 1986).

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The third element in the Nakasone reforms: the Maekawa Report and still-born economic deregulation Towards the end of his mandate, Nakasone attempted to launch a vast economic deregulation programme (kisei kanwa) and a complete reassessment of the economic system, by means of a report issued by a special commission directed by the prime minister. This was the Maekawa Report, issued in April 1986. Nakasone favoured greater internationalisation (kokusaika) for Japan, general reorientation towards a consumer economy based on well-being (and no longer an economy of production), and greater flexibility. The report was quite revolutionary, promoting a direct effort to reduce the current account surplus and to eliminate rules and measures that encouraged excessive savings. It also recommended greater trade liberalisation, including agricultural trade. In the areas of trade, finance and the labour market, the report was compatible with a neo-liberal programme. By contrast, at the same time, it encouraged wage rises, a lowering of time worked (a five-day week) and a Keynesian-type budgetary policy. It was thus relatively eclectic, as expressed in its absence of a unified ideology. It did not touch on the other areas of micro-economic organisation of the Japanese system. Unfortunately for Nakasone, his window of political action was close to its end and the Maekawa Report did not lead to concrete reforms. He was replaced in 1987 by Prime Minister Takeshita, head of a traditional LDP faction determined to perpetuate LDP political networks and opposed to a systemic reform that would risk weakening the LDP’s long-term political support. The first partial neo-liberal window for Japan closed again.

Phase of pause and stability, 1987–96 Between 1986 and 1991, Japan experienced the period known as the bubble, marked by exponential growth in financial and property markets, a credit boom, a very rapid appreciation of the yen, as well as growth surpassing that of the other countries of the OECD (4.6% on average). This euphoric period made political leaders extremely confident of the power of the Japanese system and inhibited any vague desire for structural reform. Political debates touched rather on how to redistribute the economic bonanza. Thus Prime Minister Takeshita chose to distribute to each local authority advance funds permitting the construction of a structural (often cultural) project for the long term. Emphasis was placed on dividing up the riches and not on the internal functioning of the system. The lavish party of the financial bubble came to a halt in January 1990, when a sudden increase in interest rates by the Bank of Japan provoked an abrupt fall in the stock market and a slower fall in property prices. A spiral of crisis ensued, leading to bankruptcies of brokerage firms, the appearance of toxic loans in the banks, freezing of credit in the economy, and then to a more general economic paralysis. The Japanese miracle suddenly came to an end.

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Economic growth tumbled from 5.2% in 1990 to 3.3% in 1991 and 0.9% in 1992. It then remained at this level for practically the whole of the lost decade (1992–2004). If the euphoria created by the bubble had hindered vague intentions of reform, the economic crisis that occurred after its collapse also led to a certain political paralysis. In that it was believed that the crisis was essentially short term, the priority at first was to re-launch the system using direct monetary and fiscal tools within the existing framework. Monetary policy was used to the full, with a progressive lowering of interest rates towards zero. The government also began a series of recovery plans through public expenditure, which led to growing deficits. The MOF completed this arsenal of measures by acting to intervene directly with financial actors. However, even if these measures allowed Japan to avoid a real recession, they only served to slow down systematic analysis of the situation and its imbalances, most notably that of how to manage toxic bank loans. Besides, the dynamics of structural reforms were put on hold because of two other political realities. On the one hand, the central administration sought to reassure political leaders and to manage the situation directly, keeping the politicians out of the game. On the other hand, and even more important, the leaders of political parties were involved in a process of total political reorganisation and a rewriting of the electoral system between 1991 and 1995. This period was marked by major political instability, by internal divisions in the LDP based on personal conflicts unrelated to the economic situation, and then by the temporary fall from power of the LDP in 1993–94. Many different parties were formed and quickly disappeared. Governments were unstable and the era of coalitions began from 1993, also putting an end to the period of LDP hegemony begun in 1955 (Stockwin, 2008). This climate of political realignment meant that the attention of leaders was overwhelmed by the question of their own political survival, and this did not allow them to lend sustained attention to the economy. We can say that on a number of structural subjects, economic governance of Japan was solely in the hands of senior administrators between 1990 and 1995, but even if they had the ability to direct current tasks, they were not mandated for a process of structural reform, as much in response to the collapse of the financial and land asset bubbles as to adjust the interface between the Japanese economy and external globalisation that was in the process of accelerating. The only exception to this lack of action was the launch, in 1993, of a programme of technical deregulation of certain specific markets, begun in the 1980s (kisei kanwa). Even if Prime Minister Hosokawa merely set up government committees to manage this question, they did begin to produce concrete reform projects and generate decisions from 1995, and would form a solid base for later reforms. It was doubtless the good relations of Hosokawa with MITI (the incubator of these programmes) that explains this advance of the neo-liberal programme. The fact that it was not linked with networks defending the LDP certainly played a part also.

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What, then, should we take from this period of relative inaction in neoliberal reforms between 1987 and 1995? Was another path possible? Probably not. We are dealing with an incoherent ad hoc period during which politicians were responding more to short-term interests than to an alternative logic. This period was thus purely defensive and tactical, and not a phase in which a new trajectory was being prepared.

Progressive structural reforms in all directions: Hashimoto, Obuchi and Koizumi, 1996–2006 From the autumn of 1996, everything changed. The government of Prime Minister Hashimoto (1996–98), went on to launch a structural reform programme on a number of dimensions, and the torch was taken up and adapted by several administrations, notably that of Prime Ministers Obuchi (1998–2000) and Koizumi (2001–6).6 On the one hand, the programme of structural reforms dealt with toxic loans and the paralysis of the financial system, a slow process that would not be completed until 2005. On the other hand, it focused on all dimensions of the co-ordinated Japanese economy, notably financial regulations, firm management, relations between different parts of the economy, the labour market and the role of the state (see also Chapter 3). On this last point, the political leaders attempted to take revenge on decades of administrative domination and to utilise the debacle of the financial bubble to carve up the Ministry of Finance and pursue administrative reforms of a more general order. It is important to separate the different elements of structural reforms of this period. It is clear that financial reforms tried above all to respond to a functional problem and to close the dysfunctional period that had been started with the badly designed reforms of the 1980s. The political actors pushing these reforms proclaimed a new programme under the label ‘Hashimoto’ and inspired by the British ‘Big Bang’ of Margaret Thatcher, without mentioning directly its predecessor Nakasone. The reforms of firm management, labour market and commercial code had a dual character. On the one hand, they were justified functionally by the need to reactivate the economy and to make Japanese firms dynamic. On the other hand, they also represented a political agenda – partially inspired by ideological convictions – of a reforming coalition in government aiming to restructure the Japanese system. As for Prime Minister Koizumi’s privatisation of postal services in 2005, it was entirely an independent political act responding to Koizumi’s vision of reforming the LDP. This reform corresponded neither to priority given to it by the electors, nor even to functional economic logic, and would in any case be put in question by the Hatoyama government in 2009–10, and eventually partially gutted in 2012. In the case of neo-liberal ideology, it is clear that it came to the fore with force and contestation starting with the Hashimoto period. This return of reform was symbolised by the role of academic personalities influenced by American economic ideas, particularly Professor Heizo- Takenaka of KeioUniversity, who began to play an advisory role under Obuchi and would

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become minister in charge of financial institutions under Koizumi. Yet, even if neo-liberal ideas spread with force and visibility during the period 1996– 2006, and were fully covered in the press (not only in the Nihon Keizai Shinbun – the Japanese equivalent of the Wall Street Journal – but also in a general paper of the centre-left like the Asahi Shinbun), they only came to fruition in a specific programme of structural reforms when they could be used by political actors for their political ends. In other words, ideas needed to come together with a political agenda to be fully operational. Resolution of the financial problem Resolution of the financial crisis went through a series of structural and tactical reforms. The Hashimoto government initially attempted to avoid directly attacking the problem of toxic loans, preferring an indirect programme of accelerating financial deregulation, the programme called the ‘Big Bang’ (Toya & Amyx, 2006). This attempt failed, and was not able to prevent an acceleration of the financial crisis in November 1997, leading to the fall of the Hashimoto government following the House of Councillors elections of July 1998. The following administration, that of Prime Minister Obuchi, then attacked the problem directly in the autumn of 1998, voting for several laws permitting bank recapitalisation, their restructuring under state mandate and the nationalisation of two banks that were in great danger. These actions were accompanied by the creation of a new independent agency, the Financial Supervision Authority (FSA), in 1998–99, thus completing the process begun in 1984. These changes as a whole led to a complete restructuring of the financial regulation regime, making it pass from a ‘relational’ system to a system of direct regulation.7 The government also modified the Bank of Japan (BOJ) Law (11 June 1997), even though this measure was the effect rather of a much broader political combat over the future of the MOF than a deliberate reform of its structure. The modified law conferred greater independence to the central bank. It is interesting to note that this is the law implicitly targeted by the newly elected Shinzo- Abe in December 2012, when he threatened to have the Diet pass a new BOJ law that would reduce the BOJ’s independence should the bank refuse to adopt a new policy of inflation targeting. The BOJ eventually relented in January 2013, but partially lost its independence in the process. Nevertheless, this programme was not sufficient, requiring the establishment of a process that would facilitate industrial restructuring allowing ‘dubious’ bank clients to regulate their affairs with the banks. It was finally under Koizumi in 2004–5, thanks mainly to accounting and fiscal reforms, that the problem of toxic loans was resolved. Programme of general structural reforms The wave of reform did not stop at financial regulation. In the name of necessary restructuring for bank clients, but also in the name of reviving firm

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competitiveness, a vast programme of structural reforms was launched under Hashimoto, reaching its apogee under Obuchi and Koizumi. Even though economic conditions were radically different from those in the 1980s, it is interesting to note the evident continuity with the reform movement of those years. Indeed, Prime Minister Hashimoto, who was none other than the main political actor of the administrative reform process undertaken by Nakasone, was the first to push forward this new phase. In this sense, there was continuity between the reforms of Nakasone and those of Hashimoto. After 1996, several waves of structural reform occurred, each one being followed by a period of budgetary rigour or absence of reform. Among the most significant, the Hashimoto government undertook a vast series of reforms centred on administration measures, the tax system and the economy (Tiberghien, 2007). This first series comprised three important reforms relevant to corporate restructuring: reforms of accounting procedure (increased transparency of financial statements), softening of the ban on holding companies (11 June 1997), and liberalisation of all transactions in the currency markets for individuals and for firms (16 May 1997). In the spring of 1999, the reform movement once again accelerated, when the government took the decision to support the restructuring of large firms. The government put in place the Industrial Competitiveness Council (ICC), a new authority reuniting all the government ministries of the private sector with several leaders chosen from the private sector (for example, those from Toyota, Sony and from all investment companies), presided over by the prime minister. In reality, Kaoru Yosano, the MITI minister, and certain important high officials from MITI, managed the process and relied on the presence of the prime minister in order to impose reforms, despite opposition from other ministries and connected interest groups (Tiberghien, 2007). The eight sessions of the council gave rise to a good dozen new laws relevant to reconstruction, of which the most notable were the Law on Industrial Revitalisation of August 1999, the Bankruptcy Law and the liberalisation of the Law on Temporary and Dispatch Workers of December 1999, and the first phases of the new commercial code (1999–2000). These reforms were carefully noted by the International Monetary Fund (IMF) in some of their various evaluations, and were saluted as structural changes of great importance, which confirms their orthodox character. The government also decided to support verbally and through measures of encouragement the alliance between Renault and Nissan, as well as the innovative restructuring plan later applied to Nissan, which was a turning point going well beyond that firm. The government thus used de facto the grave difficulties encountered by this iconic firm, to open the way for new, hitherto unacceptable practices in the private sector (see Chapter 2). What was the source of political dynamism that enabled such reforms? As in the 1980s battles over privatisation, they stemmed from political entrepreneurs. Despite the apparently important role played by Keidanren, the ICC sprang from the imagination of Yosano (aided by its MITI advisers); Yosano

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and Obuchi used it to get reforms passed that had been advocated over a long period. Thus the Law on Industrial Revitalisation had been officially elaborated to help members of Keidanren to eliminate excess capacity, but had been immediately denounced by the Nihon Keizai Shinbun as typical of encroachment by ‘bureaucratic administrative controls’. Since it was adopted, this law became the object of growing criticism from Keidanren, but it gave MITI (later METI, the Ministry of Economy, Trade and Industry) a new mission. The fate of reforms undertaken in 1999 depended on the high level of political independence enjoyed by the Obuchi-Yosano team. They slowed down when Yosano was relieved of his functions in 1999 and ceased after the sudden coma of Obuchi, in April 2000. In fact, in 2000, the rhythm of the reforms slowed once again, and even some counter-measures were applied. For example, the reform’s opponents took advantage of the power vacuum to obtain the postponement of decisive accounting reforms (especially consolidated taxation) and reforms of corporate governance. Reforms concerning the right to work were also interrupted until the later reform process under Koizumi. It is also important to note that the wave of structural reforms of this period led only to partial reform of the Japanese system, and that a number of elements remained in place, contrary to the reforms of the financial sector. So the ban on dismissals of wage earners classified as ‘regular’ was preserved. Also, regulations of takeover bids remain restrictive. The reforms continually had to face opposition from traditional LDP networks and public ambivalence. They were able to advance at points where the reforming coalition had found windows of independence. Postal privatisation under Koizumi Neo-liberal reforms took off once more, and privatisation returned to the political foreground under Prime Minister Koizumi, especially with the privatising of postal services in 2005. The real upheaval provoked in 2005 by reforms to the postal savings system was rather surprising after several years during which Koizumi strove to take control over political life and to impose vigorous reforms, without actually achieving them. Prime Minister Koizumi instituted a quite innovative style and a new discourse in Japanese politics after he assumed the post in 2001. He promised ‘reforms without sacred cows’ and announced that everybody would suffer. He swore to destroy the LDP rather than allow the LDP to sabotage his reforms. At the outset, however, he began slowly. His first attempts to reform public corporations (especially public highways and postal services) came up against considerable opposition and were watered down. Among the outposts of opposition to the Koizumi government were those referred to as ‘forces of resistance’ (hantai seiryoku), a group composed of party notables and LDP parliamentarians elected from rural districts, closely allied with groups defending category-specific interests that traditionally supported the LDP

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(farmers, traders, postmasters, small firms, estate agents, fishermen, etc.) and opposed structural reforms. From 2003, soon after his triumphant re-election as head of the LDP, Koizumi had seriously weakened the system of internal LDP factions and reinforced his control of the government and of the political discourse, but he did not manage to control the legislative programme. LDP traditionalists at that time controlled more than 60% of ordinary parliamentarians affiliated with the party, and they were able to frustrate most reforms that were harmful to well-established networks of category-specific interests that kept them in power. Observers and commentators rapidly formed a negative opinion of the reforming abilities of Koizumi. For example, Gerald Curtis, one of the bestknown specialists of Japanese political life, wrote that even if Koizumi represented an important change, he would not manage to enforce his reform programme because of decisive institutional obstacles that barred the route ahead (LDP institutions, legislative institutions, and the incompleteness of administrative reforms with the Kantei8 being limited in its ability to act).9 The weak executive power was not able to impose the adoption of reforms. Neither the neo-liberal ideology nor the group of Koizumi supporters appeared powerful enough to promote large-scale reforms, such as postal privatisation. A change began at the end of 2003, after Koizumi’s victory in lower house elections. He then launched a more audacious attempt to take control of the process of reform. He started by nominating Heizo- Takenaka (Keio- University professor) as minister of state for financial services, and in 2004 adopted a much more aggressive attitude towards toxic bank loans. Rapidly, Koizumi manoeuvred so as to put all his political cards on a single objective: postal privatisation. Even though this question had been privileged by Koizumi since the 1980s (because of his close links with the banking lobby and his long-term rivalry with the Tanaka faction, which had always cultivated its relations with postmasters), this goal had long been considered politically impossible and unacceptable to public opinion. Public opinion polls still indicated that postal privatisation was not regarded as a real priority and only received very weak support. The key question of postal privatisation concerned the control of financial flows. Given the enormous place taken by postal savings (up to 40% of total household savings) and the huge public investment fed by these savings, the control of postal savings played an important role in the control of financial movements in Japan. Throughout 2005, the privatisation project seemed destined to fail. Koizumi presented his bill in March 2005, but met considerable opposition from within his own party, the LDP. The lower house only just approved the law in June (with defections of LDP parliamentarians), but the upper house rejected it in July. In an unusually audacious gesture, Koizumi dissolved the lower house (he could not dissolve the upper house) in order to punish the upper house and bring about reorganisation of the LDP. He banned those LDP members who had voted against his reforms (in the lower house vote) and ran

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new candidates against them in their districts. In the end, contrary to most predictions, Koizumi won a spectacular victory (296 seats out of 480 for the LDP), crushing both his opponents within the party and the opposition party. In the aftermath of these elections, Koizumi once again, without delay, submitted his postal reform to the Diet (which had not changed), whose two chambers in October 2005 approved the reforms over a few days (Hiwatari, 2006). Despite these tumultuous events, it is important to note that postal privatisation finally took the form of a compromise that dismantled postal services, creating a holding company on the one hand and four independent companies on the other (courier and messaging service, management of the post office network, postal savings and bank services, and finally insurance), but did not envisage the privatisation of postal savings until 2017. In addition, the compromise bill that came about as a result of a concerted government and LDP effort to appease the opposition comprised four supplementary incentives: 1 a 2 billion-yen fund (€15 million), designed to assure the maintenance of postal services in under-populated regions; 2 the obligation to provide services across the entire national territory; 3 authorisation of cross-holdings of shares between different departments; and 4 guarantees that postal employees would retain their status as public servants. The clash between the ancient ideology and the new one thus took place within the LDP in 2005. Ironically, it was not between the LDP and the opposition that the debate took place, but between the ‘reformist’ wing of the LDP (led by Koizumi) and the party’s ‘conservative’ wing. This made the opposition invisible, especially at the time of the 2005 elections. However, the evidence suggests that Koizumi had intended from the beginning to use postal privatisation to discredit his opponents and to appear in the eyes of public opinion as a modern man, oriented towards the future, free of all allegiance to interest groups. This doubling of the stakes worked well, and public opinion showed that it favoured Koizumi’s courage and his driving role at the time of a very unusual election, in September 2005. It was, in fact, Koizumi’s manipulation of things that preoccupied the electorate, and of issues to which electors gave priority, that allowed him not only to privatise postal services, but also on this occasion to reorient Japanese political life. The immediate impact on the role of the state was inevitably the additional loss of an enormous lever of intervention in the economy (but establishing this gradually). Nevertheless, the political turnaround of 2009 led to this reform being halted, and even put into reverse. Thus the final impact was almost nil and one’s evaluation of it highly qualified.

Toward post-neoliberalism, 2006– Period of reform inactivity after Koizumi, 2006–9 After the departure of Prime Minister Koizumi in September 2006, the administrations of Prime Ministers Abe, Fukuda and Aso- slowed down the

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process of reform, and this led de facto to a new period of inaction. There are several reasons for this. The first was simply a change in the coalition in power. These three final LDP administrations experienced an internal swing of the pendulum towards the most traditional LDP factions, which believed that Koizumi had gone too far and sought to reconsolidate the situation. Subsequently, one after the other, they gradually lost their political independence and their impetus, as their political weaknesses became more and more critical, especially after the loss of their majority in the House of Councillors to the opposition Democratic Party in July 2007. Finally, the population began to oppose the pursuit of reforms from the end of 2006 and beginning of 2007, as controversy on growing inequalities began to dominate newspaper headlines and Diet discussions (Chapter 4). This public reaction of rejecting reform in the face of economic and social developments played a large role in the historic election of 30 August 2009, which booted the LDP from power and installed the Democratic Party (DPJ) in government. The failure of social welfare expansion under the DPJ, 2009–12 The Democratic Party government in power since September 2009, first under Prime Minister Hatoyama, then under Kan after June 2010, has attempted to transform policy making by breaking the former LDP machine and to expand universalistic provisions. The DPJ clearly targeted the social excesses of the Koizumi liberal reforms and the sense of ‘social breakdown’ that ensued. This approach was later rationalised by Prime Minister Kan Naoto as the ‘third way’ approach during the upper house election campaign of July 2010. By the third way, Kan meant an innovative, socially conscious approach that was neither the old particularistic way of the LDP, nor the Koizumi neo-liberal approach. In reality, apart from some vague aspirations attempting to reduce inequalities in the labour market and to extend the social welfare system to disadvantaged groups, the DPJ found itself too limited by political constraints, by the global economic situation and by the catastrophic fiscal situation of Japan to give real impetus for a new direction. By the second half of the Kan administration and the Noda administration (2011–12), the social agenda had nearly disappeared. Under the DPJ,10 the inequality problem became an important political priority, due to the convergence of four kinds of forces.11 First, the DPJ used the banner of inequality as a tool to fight the LDP and its Koizumi legacy since 2007. Once in government, therefore, the DPJ had to show some political action behind this banner. Second, the debate over inequality quickly got connected to labour deregulation and regulation, particularly over temporary workers (in part due to media and scholarly work, as well as work by the OECD). In turn, this development offered an opportunity for re-regulation by the Ministry of Health, Labour and Welfare (MHLW), which saw this political situation as a chance to correct the excesses of the past programme of

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deregulation. Third, taking on the battle of labour re-regulation created a perfect political rationale for an alliance between the DPJ and the Social Democratic Party (SDP), an alliance necessary to control the upper house. By the same token, the issue was a useful one in building bridges with Kamei Shizuka’s People’s New Party (PNP), a conservative party aiming to reassert Japan’s traditional model. Hatoyama got personally involved in supporting the issue, as a way of showing respect for smaller partners. Fourth, the issue of inequality and labour dualism found a second political life under Prime Minister Kan, due to his personal political interest in labour and poverty issues. Thus, a solid coalition came into being with the aim of taking regulatory action against inequality in the arena of part-time labour rules. From the 2009 manifesto to the 2010 manifesto and Kan’s third way concept The DPJ tried to harness the feeling with direct promises in its manifesto,12 centring its entire platform upon leader Hatoyama’s core concept of ‘fraternity’. Promise #38 in the detailed list of measures commits the new government to ‘extend employment insurance coverage to all workers’, in order to ‘provide people with a greater sense of security’. The core promise, however, is #39, which pledges to ‘rectify the excessive deregulation of employment and stabilise workers’ livelihood’. The DPJ also aimed at ‘promoting continuity in the transmission of technology and skills’. In order to achieve these goals, the DPJ committed to ‘ban, in principle, the dispatch of temporary workers to manufacturing jobs’, and to ban ‘temporary employment contracts of two months and less’. It further committed to establishing the principle of ‘equal treatment for dispatched workers and other workers at the same workplace’. This constituted one of the major concrete promises made by the DPJ in fighting the election. Additionally, promise #40 committed the DPJ to raising minimum wages (establishing a national minimum wage of 800 yen and seeking an annual average of 1,000 yen), and to target the growing population of ‘working poor’. Promise #41 further concluded with a sweeping commitment ‘to realise equal treatment such that people doing the same work at the same workplace can receive the same wage, regardless of gender or regular or irregular status’. The 2010 manifesto opened with Kan’s strategic third way positioning.13 Contrasting with what he calls the first way (‘economic policy centring on public works’) and the second way (‘excessive market fundamentalism’), Kan’s third way ‘represents a package of economic policies that address the issue of the economy, public finance, and social security in an integrated manner’. It advocated a ‘stronger social security system’. The manifesto included a strong section on inequality. Under section 6 (‘Supporting the People Working on the Frontlines of the Economy’), the manifesto says: ‘we will work hard to eliminate economic disparities and to achieve a better work-life balance in Japan’s labour force.’

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The two key pledges remain similar to those made in 2009. The manifesto in section 6 included a promise to ‘promote the harmonisation of lifestyles and work by ensuring equal and balanced treatment of persons performing the same work at the same work place. The second pledge was to complete the passage of the bill initiated by the Cabinet on the dispatch of temporary workers. Under the work done in the first year of the DPJ, the manifesto listed item 46: ‘Review of System for the Dispatch of Temporary Workers.’ The manifesto indicated: ‘a bill has been submitted to ban, in principle, the dispatch of temporary workers to manufacturing jobs, a practice that has been a major factor in destabilising employment.’ Early budgetary moves: closing the inequality gap in employment insurance and working to raise the minimum wage In government since September 2009, the DPJ initiated two significant steps on the inequality front. The first consisted of closing the employment insurance inequality. The 2010 manifesto lists this as a significant achievement under item 43: ‘standards for the application of employment insurance were eased to allow the system to cover all workers. The portion of employment insurance funded by the national treasury was increased to strengthen the finances of the employment insurance system.’ Then Prime Minister Hatoyama introduced the change to employment insurance (as part of the budget-related bills) in his Cabinet email No. 24, dated 26 March 2010: In the area of employment, we will drastically shorten the eligibility criteria for employment insurance, from a prospect of over six months of employment to over 31 days, in order to relieve the employment insecurity of people who work. We will also increase the resources for employment adjustment subsidies by a factor of more than 10 compared to the amount budgeted for the current fiscal year with the aim to alleviate the burden of business operators working hard to maintain employment. A second initial step consisted of increasing the minimum wage to 800 yen and later 1,000 yen. The manifesto of 2010 lists this item under result number 44: ‘an agreement has been reached among the business community, labour organisations and the government to “raise the national minimum wage level to 800 yen as soon as possible, and to aim to achieve a national minimum wage level of 1,000 yen, while taking economic conditions into consideration”.’ These small steps, however, lost momentum after 2010. The bigger battle: the revision of the dispatch law As promised in its 2009 manifesto and targeting one of the major mechanisms identified by the OECD and MHLW behind the rise in wage inequality,

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the DPJ initiated a legal revision to ban in principle the dispatch of temporary workers to the manufacturing industry. The bill represented a major counterstep in the structural reform process and has involved significant political manoeuvring, coalition politics, and tensions between the DPJ and Keidanren. The bill came together as a brain child of a political-bureaucratic coalition that includes the DPJ and both Hatoyama and Kan, coalition parties (the social-democratic SDP and traditionalist PNP), and bureaucrats from the MHLW. The DPJ was more focused on arresting the trend of rising poverty and inequality, while Rengo- (the largest labour union) had an overt aim to introduce European-like regulations.14 The bill has faced fierce opposition from the LDP, but also by Keidanren and METI (the same coalition that had successfully pushed for structural reforms from Hashimoto or Koizumi). Opponents argued that strongly reregulating temporary workers in the absence of some increased flexibility on the side of regulations and jurisprudence (hanrei) covering permanent workers would have negative consequences on employment and hurt corporations badly. One solution advocated by RIETI researcher Tsuru Kotaro was to solve such functional problems through ‘an increased variety in the types of regular workers’.15 In other words, the reduction of the regulatory gap between permanent and non-permanent workers could come from both sides. Interestingly, Komeito, the key pivotal party and LDP partner in opposition, was actually close to the DPJ intentions on this issue, but decided not to lend support to the bill (critically for its success in the upper house) due to other short-term political considerations. Although the bill was introduced by the Cabinet on 6 April 2010 and Diet committee debates took place on 28 May 2010, the legislative process was interrupted by the resignation of Prime Minister Hatoyama on 1 June and the breakdown of the coalition with the SDP. By the time of the upper house election in July, the bill was not completed. The bill was supposed to be picked up by the following Diet session in the autumn, but political infighting prevented it. Budget deliberations dominated the next Diet in early 2011, until the great Tohoku earthquake and tsunami hit. Alas for the DPJ and luckily for Keidanren, political realities never allowed the DPJ to pass the bill. It remains in the pile of work initiated by the DPJ that was not completed. The official name of the bill was the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (労働者派遣事業の適正な運営の確保及び派遣労働者 の就業条件の整備等に関する法律等の一部を改正する法律案). The shorter usual name is ‘temporary staffing services law’ (労働者派遣法). It aimed to prohibit three kinds of dispatch and thus involved a significant re-regulation of temporary labour. Precisely, the bill would: 1 Prohibit ‘registered temporary/dispatched staffing’ (登録型派遣) in which employees who register in a temporary staffing company are allowed to

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work only when jobs are available to the staffing company on a daily basis. Exceptions would be made for 26 special areas, in which specialised skills are required (e.g. the interpreting business) and for other special cases (e.g. substitute labour for the maternity leave). 2 Prohibit temporary/dispatched staffing in the manufacturing industry except for a long-term or permanent dispatched staffing. 3 Prohibit daily-based temporary staffing for less than two months, with some exceptions. 4 Require temporary staffing companies first, to strike some reasonable balance of the temporary staff member’s wage against the permanent employees of the supplied company, and second, to disclose information on the wage level and their margin.16 The bill actually originated in early drafts by the DPJ in 2008 and subsequent negotiations between the DPJ, the PNP and the SDP. An initial agreement between the three parties was actually struck in June 2009, before they came to power. The bill was intensely debated in the Diet Committee on 28 May 2010, with intensive questioning by the LDP, Komei, the JCP and Your Party. Following this debate, a formal agreement was struck between the DPJ, the PNP and the SDP to complete passage of the bill in the autumn session of the Diet; however, the loss of the upper house majority by the governing coalition prevented it from happening. Closure of the DPJ social window and shift to fiscal conservatism under Noda, 2011–12 Interestingly, the combined influence of the upper house defeat in July 2010 and worries about fiscal realities in the face of the euro crisis and active lobbying by the MOF led to a partial shift of focus under Kan. While Kan continued to advocate his third way approach and his concern for social issues, he initiated fiscal retrenchment and renewed trade liberalisation (under the banner of the TPP, or Trans-Pacific Partnership, advocated by the USA). By 2011, the harsh reality of the 11 March earthquake, tsunami and nuclear crisis robbed him of any political autonomy to pursue the initial DPJ agenda. Kan’s government eventually crumbled during the summer of 2011 in the face of harsh opposition from the LDP in the upper house and internal infighting within the DPJ. Noda succeeded Kan in September 2011, marking the final abandonment of the DPJ social agenda of 2009. Noda strictly focused on fiscal retrenchment (an increase in the consumption tax) and the TPP, as well as energy policy. In fact, Noda and some of his key officials also started to explore the possibility of deregulation and structural reforms. At this point, the DPJ experiment came full circle and reached a point of stasis. It could neither unravel the neo-liberalism of the previous decade nor successfully advance a social component. However, the true cause of this stasis had most to do with

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the weakness of the DPJ as a loose and weak coalition and its lack of internal coherence. The return of the LDP and the launch of ‘Abenomics’, December 2012– In the face of great policy incoherence, internal infighting, political incompetence and weak economic growth, the DPJ literally lost all voter support and crashed in the lower house election of December 2012. Interestingly, Noda called that election nine months ahead of the mandatory schedule as part of a deal with the LDP to get the consumption tax increase voted in the upper house. He apparently still thought that voters would reward his sense of responsibility. He thus misread the double voter anger: first, voters were angry at being misled by the DPJ in 2009 and seeing their hopes for a more social model totally dashed; second, voters were also frustrated by low growth realities and the sense of doom and weakness that permeated Japan in 2012. In the summer of 2012, it appeared that voters also remained frustrated with the LDP’s old record and would be ready to vote for new third-force parties, both on the neo-liberal right and on the nationalist right of the LDP. By December, however, support for third parties ebbed and a sense of realism pervaded public opinion. It appeared that the LDP leader, former Prime Minister Abe, was gaining traction with a new dream, the so-called ‘Abenomics’ formula of monetary and fiscal expansion combined with some structural reforms. Economic voting led to a greater victory by the LDP than expected, but voters did not bless Abe’s nationalist agenda. Rather, they expressed a purely pragmatic economic vote, yearning for stability in economic policy and a new economic policy that would be able to generate growth. It could still be construed as the search for an elusive third way: neither economic stagnation nor a harsh neo-liberal agenda. Abenomics is based on three simple arrows. Arrow one referred to Krugmanstyle monetary expansion and inflation targeting. Given stubborn deflation for two decades, Abe advocated extraordinary monetary expansion through asset purchases, especially bond purchases, the very policy that BOJ Governor Shirakawa had resisted for years and that Federal Reserve Chairman Ben Bernanke has pursued in the USA. Abe did not shy from threatening the BOJ to act on public TV, giving its monetary committee and governor one month to accept Abe’s approach or to see the Diet pass a new law that would strip the BOJ of its independence. The gambit worked: the BOJ accepted the new orders in January and the governor resigned, paving the way for the nomination of a deflation-target advocate, Haruhiko Kuroda. The second arrow consisted of traditional fiscal expansion through increased construction, including in Tohoku area, investment in new energy, and even modest military investment. Backed by the new bond-purchase programme, this was easy enough. The third arrow is the more interesting package. Ill-defined at first, it was presented as a package of structural reforms that would increase the long-term

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growth path of Japan, namely a package of supply-side reforms. A new Industrial Competitiveness Council and a new Deregulation Council were duly formed. The former met no fewer than 12 times between its creation and June 2013, and produced a long list of possible structural reforms. That list, however, does not represent a unified framework and would not fit under a neo-liberal lens. It combines some older METI ideas about deregulation, special economic zones (tried under Koizumi), gender equality and medical reforms, but it does not include labour deregulation or immigration reform. The more significant component of Abe’s structural reforms may be his efforts to join the TPP after the upper house election of 21 July 2013, given the demanding nature of the process for domestic regulation. TPP negotiations can be an ideal platform for reformers to push structural change through an external lever. It remains to be seen, however, if Abe is ready to espouse a significant liberal or significant reform process. So far, the third arrow has been a chance for METI to reinvigorate its own agenda. More importantly, it is clear that unlike Nakasone, Hashimoto, or Koizumi, the Abe team is not following an ideational framework that can be seen as neo-liberal. Former reform leader Heizo- Takenaka has been made a member of a key council and yet has been quite critical of the process. Abe is first and foremost a pragmatist who thinks in terms of Japanese competitiveness. He is looking for functional solutions to the low growth and deflation trap in which Japan is still stuck. At the time of writing (June 2013), Abe was generally shopping for ideas and had not set his sight on a definite long-term line of action.

Conclusion The model of Japanese political economy experienced a number of tactical and profound changes from the beginning of the 1980s. We may describe the dynamics that brought about these changes as a ‘neo-liberal revolution bit by bit’, or better still, a ‘neo-liberal transition’. This transition was permitted by the convergence of several forces: the necessary and natural evolution of the Japanese model in a new international context, notably marked by financial globalisation; the presence of neo-liberal ideas within a reform-minded elite; the use of the process of reform by political personalities with the aim of winning political victories; and more profound and decisive changes at the level of the dominant social bloc. Reform periods were interrupted by periods of inaction or even of reversal, when political opponents of the reforms regained power. The model that results from this process is less coherent than in 1980, partly modified and partly resilient. Some key sectors of the Japanese political economy have been liberalised and market mechanisms attained, even if this process has not followed a coherent logic as a whole and has left important parts of the system intact.

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Thus, the financial system was fundamentally deregulated and integrated into the global financial system, forcing Japan to follow up with the creation of a new system of direct control and surveillance. The Japanese financial market was progressively opened up to foreign actors, even if the relationship with the main bank continues for some traditional large firms like Mitsubishi. In the area of firm management, numerous legislative changes now allow more direct governance by shareholders, especially minority shareholders. External directors are increasingly numerous and the concept of return on equity (ROE) is now an accepted norm for many firms. At the same time, these new regulations are not leading to convergence towards a unique model, and this explains the persistence of classic-type governance in some large firms (see Chapter 2). Even so, as much in the financial area as in the management of firms, the reforms have embedded the logic of competition between the rules of classic Japanese capitalism and ‘global’ – that is American – rules. This is why it is difficult to envisage a return to the ancient model. So the period from the end of the 1990s to the early 2000s, marked by growth in the number of fusions and acquisitions, may be considered a turning point from this point of view (Dore, 2009). At the level of the labour market, neo-liberal reforms have been less spectacular. On the one hand, they have directly targeted the public sector (which, however, was limited) and the unions. They brought about strong growth in the number of non-regular workers. They also led to the legalisation of the practice of stock options and to growth of the component linked to merit in remuneration. On the other hand, they did not lead to a profound questioning of the principles of employment security for regular wage earners. In fact, dismissal of regular wage earners remains very strictly controlled. On the role of the state in the economy, we have certainly seen a net withdrawal, even if it may be described as paradoxical. This withdrawal has been directed and decreed by political leaders in opposition to a reticent and sceptical bureaucracy. It symbolises a change in power relations between politicians and senior functionaries. Over the past 30 years, under political pressure, the state has lost its direct tools of industrial policy, of financial and banking control, of regulating through co-ordination between actors,17 and of the interface between the global economy and the national economy. Nevertheless, this evolution is marked by two major paradoxes. The first is that even if this ebbing of state power was initiated by politicians and desired by the private sector, it was codified by senior government officials, who were the only ones with the capacity to do so. This codifying allowed them to remain major actors and to intervene in the details. The second paradox is that the state served as catalyst for all the reforms, politicians relying on reports and analyses by the principal ministries, notably MITI/METI. The state became an indispensable actor in the task of bringing about its own apparent selfeffacement. It remains also indispensable in the operational area of the ‘poststatist’ system. Senior officials in elite ministries (especially within MITI/ METI), are key actors at the centre of reformist coalitions that effect

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evolution of the Japanese model. When international investors, who are major new actors, need allies to combat oligopolies and monopolies at the heart of the Japanese economy, they knock at the doors of METI. In acting this way, the state has been able to reinvent its role, no longer as a microregulator of the economy, but rather as a think tank or strategic guide, in which role they remain indispensable. The state has moved on from the role of regulator to the roles of lookout and channelling agent. The bureaucracy is also indispensable in negotiations with other states for the further development of global governance and management of global financial flows. The third paradox, finally, is that the more the state appears weak, the more popular expectations of it remain strong. Thus, at the time of the 2008–9 crisis, everyone was looking to the state as the only possible saviour. In 2006–13, Japan went through a very fluid phase of stop and go with great policy instability and great experimentation. The social expansion strategy tried by the DPJ crashed quickly before key laws could even be passed in the Diet. In a way, it died stillborn and turned into short termoriented fiscal management and strategic trade imperatives under Noda. By 2013, Japan started a new experiment, termed ‘Abenomics’, but an experiment primarily focused on new macro-economic policy and with very weak structural components in its initial phase. Japan remains in an uncertain phase as formerly dominant paradigms have all hit the wall. Simple neo-liberal ideas have clearly lost their lustre since the 2008 financial crisis and post-DPJ Japan is back in a pragmatic mode with strong expectations that the state will serve as catalyst and leader in a new direction. It is likely that Japan will continue to cycle to some phases of experimentation until it can settle on a new stable equilibrium. That equilibrium remains elusive.

Notes 1 See also Sako (2007) and Streeck (2009) for a discussion of concept of liberalisation as disorganisation. 2 See Aoki (1988) and Chapter 3 of this book. 3 This section relies in part on two articles published earlier by the present author (Tiberghien, 2005, 2006). 4 We should, however, note that the creation of Rengo- was accompanied by long preliminaries, and was followed by a profound evolution of the union movement, which itself was responding to a transformation of the economic structure. For an analysis of the transformations that occurred in industrial relations and in the Japanese labour market, see Bouissou (1997); Kume (1998). Since 1987, unions have been unified but incapable of undertaking radical action. 5 As indicated below, Prime Minister Koizumi would follow the same logic of using postal privatisation in 2005 as a political instrument, in the framework of the effort to weaken political opponents and to take control of the LDP. 6 In our opinion, there was very strong continuity between policies led by these three prime ministers, whereas most analyses (for instance Cargill & Sakamoto, 2008), tend wrongly to concentrate exclusively on the reforms of the Koizumi period.

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7 See Amyx (2004) and Amyx & Drysdale (2003). In the system of indirect regulation thus classed during the 1980s, the control of financial operations was conducted by regular informal exchanges between banks and the Ministry of Finance, without being considered as hard rules and obligatory inspections. A system of direct regulation such as was put in place after 1997 in Japan is an impersonal and heavier system, comprising clear objectives, transmissions of formatted information, strict audits by supervision teams intervening in the banks. This is a system based on strict rules rather than flexible and indirect co-ordination, whose failure was shown by the financial bubble. 8 The Kantei represents the office of the prime minister, his Cabinet and staff. It is the government directorate. The Kantei is spoken of much as we speak of Matignon (and the Élysée) in France, or 10 Downing Street in the UK. 9 See Curtis (2001). In an important work on Koizumi’s first years in office, another well-known author reached a similar conclusion, estimating that the reformist ambitions of Koizumi would hit the wall of well-established interests and ideologies opposed to what he was trying to do: see Mulgan (2002). 10 This section on the DPJ draws on Tiberghien 2011. 11 Interview with DPJ political adviser, Tokyo, 21 January 2011. 12 The Democratic Party of Japan (2009) ‘2009 Change of Government: The Democratic Party of Japan’s Platform for Government – Putting People’s Lives First’ (so-called DPJ Manifesto), 21–23. 13 The Democratic Party of Japan (2010) ‘Restoring Vitality to Japan: The Democratic Party of Japan’s Policy Platform for Government – Putting People’s Lives First’, 2–24. 14 Personal interviews with two political experts on the law, 21 January 2011. 15 Interview, 21 January 2011. 16 Discussion in the Committee of Health, Labour and Welfare in the House of Representatives (HR, 衆議院), 23 April 2010, mainichi.jp, 16 June 2010. 17 See Chapter 3 and Lechevalier (2007b).

2

Is this the end of the J-model of the firm? Sébastien Lechevalier

How firms are organised is an essential element in defining different forms of capitalism. Indeed, each national form of capitalism has been identified in terms of the organisation of its firms, which are assumed to be homogeneous, or even defined in terms of their organisation. This is particularly true for the Japanese firm, which tends to embody Japanese capitalism in its very self (Hall & Soskice, 2001; Jackson, 2010). However, this is not without its problems, as is emphasised by Robert Boyer (2005b), or Sébastien Lechevalier (2007b, 2012a). Indeed, not only did this way of putting it constitute an oversimplification in the 1980s, but it is in fact more and more false today given the increasing diversity of Japanese firms. This should lead us to re-think how to define the forms of capitalism. It should not be restricted entirely to how firms are organised, but rather it should also include the ways firms are coordinated at the macro and meso levels, as well as taking into account the question of the social compromise (Chapters 3 and 4). In this chapter we shall concentrate on the evolution of the model of the Japanese firm. First of all, we shall present the classic model, that of the 1980s. This should not be seen as a ‘traditional’ model, as this mode of organisation emerged between the two wars, was consolidated during the war and under the American Occupation, before evolving during the high growth period (1950s–60s) and the period of adjustments to various shocks (Nixon shock, oil shocks, endaka, etc.) in the 1970s and 1980s (Okazaki & OkunoFujiwara, 1999; Gordon, 1988, 1998). Second, we shall show that the principal transformation between the 1980s and today is not the disappearance of the classic Japanese model of the firm, but the growing heterogeneity of organisational forms and the ways in which they operate. Next, we shall try to list the different models of the Japanese firm today and analyse their respective characteristics. Finally, we shall attempt to evaluate the role of the neo-liberal transition in this transformation. In summary, the paradox revealed in this chapter is the following: whereas certain of the initiators of neo-liberal policies aimed to make the Japanese model converge towards the Anglo-Saxon model of the firm, the launch of these policies has led to growing diversity in Japanese firms, and the Anglo-Saxon model can be found at best only among a minority of firms.

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The classic model of the Japanese firm in the 1980s: from facts to theories It is reasonable to consider that there are at least as many theories of the Japanese firm as there are economists, numbers of whom have produced several theories … However, the one that has had the biggest impact, well beyond the circle of Japan specialists, is without any doubt that set out by Masahiko Aoki. We shall not present it here in detail. In this book we shall only mention two aspects of it. On the one hand, while being organised in a fashion contrary to that of the American firm, the Japanese firm is no less replete with impressive economic rationality. In other words, its specific type of organisation is not to be explained mainly in terms of cultural underpinning or a form of archaism. On the other hand, the peculiarities of the Japanese firm correspond to a certain balance of power, which should be studied from the perspective of political economy (Aoki, 1990a).1 At a concrete level of observation, the Japanese firm may be described in terms of a set of practices, organisations and institutions, listed by Aoki: the kanban, the enterprise union, long-term employment and seniority wage, the shunto- (co-ordinated spring wage negotiations), bonuses, the main bank, intensive recourse to sub-contracting, etc. (Aoki, 1990a). Going beyond these characteristics, which are far from being anecdotal, what we should keep most in mind is the long-term orientation of the classic firm, which sharply distinguishes it from the model of the American firm, as idealised for this comparative purpose.2 This is the point on which we shall place most emphasis, considering mainly the management of human resources and, in complementary fashion, the way financing was handled. In these two cases, the key is the rationality of the practices concerned. In any case, the classic Japanese system of employment is proof that security of employment is not necessarily the enemy of productivity. In this system of employment, wage and career incentives play an essential role. At any rate, the personal involvement of workers who are assured of not being fired does not arise out of respect for ‘Confucian’ values, but rather from what is an implicit contract by virtue of which they can benefit from permanent education, long-term employment, a ‘guarantee’ of salary and career progression, and less hierarchy in the firm, at the heart of which teamwork and autonomy are favoured (Itoh, 1994). In other words, what we should remember is that in this model there is economic rationality and a ‘win-win’ contract between employees and their employers in a certain historical and bargaining context. The description of the employment system is too often limited to analysis of the three ‘treasures’ of long-term employment, seniority wage and enterprise unions (though the present author has never understood why the enterprise union should be considered as a treasure … ). This is to be unaware of the work of one of the best specialists on human resources in Japan, Kazuo Koike (1988, 1991). According to him, what differentiates Japanese practices

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of human resource management from that in the United States and in Europe is the fact that the blue-collar workers benefit from the same advantages as the white-collar workers, to the point that Koike speaks of the ‘white-collarisation of the blue-collar workers’ as characteristic of the Japanese system of employment. This is another way of describing a highly inclusive set of wage relations, and this has some relation to the emergence of a vast middle class by the early 1970s. Above all, the contribution of Kazuo Koike is to have focused attention on skills formation at the heart of the Japanese firm. The rationality of its organisation concerns mainly the fact that it favours skills that increase with practice, and from this stems the importance of long-term orientation, in the service of productivity improvements. Another way of analysing Japanese wage labour nexus starts with the contrast between the external flexibility that characterises the American firm – again, as idealised for comparative purpose – and the internal flexibility that marks the Japanese firm (Dore, 1986). The classic Japanese firm has recourse to an assembly of instruments, in the first rank of which is worker internal mobility (between different sections of the enterprise, and to sub-contractors), which is preferred to downsizing pure and simple. This aspect should not be interpreted in terms of rigidity, but rather as an alternative method of flexibility, which also has a crucial advantage in terms of skill training, since the loss of skills through inactivity is avoided (Dore, 1986). If the management of human resources is an important characteristic of the classic model of the firm, it is not the only one. The counterpart of this dimension is corporate financing and governance (Sheard, 1989; Aoki & Patrick, 1994). The classic model of the Japanese firm is in fact marked by the importance of self-financing, and especially by long-term bank finance in the framework of the ‘main bank’ system. Among the lenders, Japanese firms have a referential lender who often holds the greatest percentage of the credits of the firm. He may intervene in the management of the enterprise in the case of repeated losses that might ultimately lead to failure, and this implies a relationship of confidence and of long-term information sharing. Finally, let us insist, following Masahiko Aoki, on the existing complementarity between these two dimensions of Japanese firm organisation: employment practices, and corporate finance (Aoki, 1989). A firm that seeks to develop the skills of its workforce internally, committing itself to the long term, needs stable finance that avoids short-term pressure over profitability. This firm will in fact have a tendency to adjust slowly to demand and profit shocks in order to preserve skills accumulated internally. Conversely, a firm raising finance essentially from financial markets will not be able credibly to guarantee longterm employment in the sense that it will need to adjust rapidly to fluctuations in demand. The existence of these complementarities reinforces the idea that the practices and organisational methods of Japanese firms are rational.3 This organisational rationality of the classic Japanese firm has appeared ever since its origins, as has been shown in the works of Andrew Gordon

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(1988) and of Tetsuji Okazaki and Masahiro Okuno-Fujiwara (1999). In the inter-war years the main difficulty confronting firms was to limit the turnover of their best-qualified workforce. They had every interest in retaining qualified workers in offering them salaries that increased with tenure, and in developing a certain type of skill. This mode of organisation was consolidated after the war, in the context of heightened social tensions up to the ‘red purge’ at the beginning of the 1950s. It was then, after struggles and negotiations, that security of employment became the key variable around which the social compromise came to be defined at the heart of a certain number of leading firms. After rationality, the second characteristic of the Japanese firm’s organisational approach was to be the result of a social compromise at the level of the firm. This was the basic idea contained in the ‘company-ist’ hypothesis proposed by régulation analysis of Japanese wage labour nexus (Boyer & Yamada, 2000). In a particular historical context, marked by certain balance of power and certain needs on the part of workers and employers, a way of organising firms corresponding to a social compromise, which guaranteed employment security for regular workers (who constituted a kind of worker aristocracy), and which required a flexible adjustment of non-regular workers, is progressively set.4 This also corresponded to a type of firm management characterised by a de facto alliance between managers and a part of the workforce … to the detriment of the shareholders (Aoki, 1990a, 1990b).5 It was this alliance that was questioned by neo-liberal policies, with a double theme that was partly contradictory: the issue of archaic practices, and that of efficiency loss in a rational model that had entered a new context more favourable to the short-term orientation of the firm. In conclusion, if we try to formulate a proposition of sufficient generality to characterise the Japanese firm in the two dimensions that we have just distinguished (economic rationality and social compromise), then we should be able to find it in the ideal synthesis of two major works, both published in 1994 – that is, before the star of the Japanese model had completely faded: Growth through Competition, Competition through Growth, by Hiroyuki Odagiri (1994) and The Japanese Firm, published under the direction of Masahiko Aoki and Ronald Dore (1994). We may summarise the propositions contained in these two works in the following way: the classic Japanese firm is characterised by long-term relations between stakeholders, whose goal is the growth of the firm (rather than short-term profit). In other words, the form of social compromise in the classic Japanese firm has consequences for its behaviour: it is, for example, more oriented towards growth, which makes it favourable to the employment of regular workers, under certain conditions (Aoki, 1990b). This is the way in which we may describe most simply the classic model of the Japanese firm. Doubt was thrown on this model from the start of the 1990s, to the point that some observers now estimate that the model no longer exists.

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End of the classic model of the J-firm, or increasing diversity of Japanese enterprises? Many characteristics of the classic Japanese firm have been put into question from the early 1990s. We will limit ourselves here to two examples: long-term employment and main bank-dominated corporate finance. On the first, various indicators suggest a profound change in this practice.6 The first indicator is the rise in the number of non-regular workers. Certainly, the classic system of employment included a non-negligible part of the workforce that did not benefit from long-term employment. This part, however, tended to increase in number from the 1980s to the point that Jeff Kingston and Machiko Osawa commented: ‘The future Japanese employment system is likely to more resemble the on-going adjustments at the edges than the core they are designed to sustain’ (Kingston & Osawa, 1996: 8). This rise in non-regular employment, which represents now more than one third of total employment, has particularly concerned part-time positions, essentially occupied by female workers. This type of evolution may be observed also in the wage system, in so far as many firms have introduced systems of remuneration based more on individual performance than on seniority (Fujimura, 2003). The main bank system has been made fragile by the bursting of the bubble in the early 1990s. We may observe in fact the erosion of a certain number of practices that had been seen as intrinsic characteristics of the Japanese model. The most striking change concerns the keiretsu-type structure whose weight in the economy has been declining rapidly; another phenomenon has been the reduction in cross-shareholding.7 These changes lead us rightly to pose the following question: are we witnessing a convergence of the model of the Japanese firm with the Anglo-Saxon or liberal model of the firm? In our view, it is nothing of the sort. The main weakness of earlier analyses is that they confine themselves to average relations without looking at the dispersion of practices. This is all the more detrimental to the analysis that the major stylised fact since the mid-1990s is precisely the increasing diversity among Japanese firms. Of course, classic Japanese firms were more diverse than the image we have given would suggest. Thus, from the 1950s, profound differences of organisation according to firm size were pointed out. This was the famous dualism of the years 1950–60 (二重構造 – niju- ko-zo-). The aspect most often cited in this regard was the wage differential between large firms and small and medium-sized enterprises (SMEs), coupled with differences in productivity and in capital intensity. Moreover, many works have shown particularly high productivity differentials between manufacturing and nonmanufacturing sectors in Japan relative to other countries. To put it differently, if Japanese manufacturing sectors were very competitive at the global level, this was not the case for non-manufacturing industries (Yoshikawa, 2002). What, however, is new since the 1990s is not so much the diversity of Japanese firms but rather the two following characteristics. First of all, this

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diversity is growing. This is particularly evident in respect of productivity performance. Keiko Ito and Sébastien Lechevalier demonstrate this, mobilising a firm-level panel dataset taken from a large-scale administrative survey (the Basic Survey of Japanese Business Structure and Activities or KigyoKatsudo- Kihon Cho-sa), including around 20,000 firms from manufacturing and non-manufacturing industries between 1994 and 2003 (Ito- & Lechevalier, 2009). For each sector, they measure the productivity gap (labour productivity and total factor productivity) between a group of firms with the highest level of productivity and a group of firms with the lowest level of productivity, and analyse how this difference evolves over time. Their main result is that this gap within each sector has on average significantly increased since 1998. This tendency varies according to industry but is valid for a great majority of them. Second, what is striking is that this growing disparity is evident for firms of similar size and belonging to the same narrowly defined sector. The bestknown case is certainly that of the automotive sector. Work by GERPISA (Permanent Research Group on the Automobile Industry and its Employees) reveals great diversity, with the Toyota model having spread very little in the Japanese automotive sector (Boyer et al., 1998). What is less well known but also very striking is the growth of diversity in the electronic sector (Lechevalier, 2002). Thus, a comparison between the way the sector adjusted to sectorwide shocks at the end of the 1970s and the end of the 1990s sharply reveals profound evolution. In the first case, there was a very great homogeneity of reactions, with Matsushita as the model of reference. From the point of view of external flexibility, the leaders of the electronic sector, Toshiba, Canon, NEC and Hitachi, adjusted very slowly to the negative shock in terms of sales and profits. There was only one exception, Sony, whose management of human resources outside crisis periods was structurally different from practices of other enterprises in what was seen as a high turnover rate.8 At the end of the 1990s, the mode of adjustment to crises had profoundly changed, in the following sense: for a group composed of Matsushita, Canon, Hitachi and Toshiba, the mode of adjustment was more or less identical to that described previously. By contrast, for a certain number of firms – for example, Kyocera, IBM Japan, Fujitsu and Ushio – the model was closer to the practices of Sony. Finally, a firm like NEC seemed to be placed between these two models. It is in this sense that we may speak of a growing diversity of practices. Going beyond the electronic sector example, this kind of observation may be easily generalised. For example, a survey by the Ministry of Labour, Health and Welfare in 1999 – the Survey on Employment Trends – helps us to understand that the increasing percentage of non-regular workers does not concern all firms. Thus, in 1998, among 10,000 firms in the manufacturing sector, it is noted that the number of regular wage earners fell by 0.9% on average from the preceding year, whereas that of non-regular wage earners rose by 2.1%, which seems to back the thesis that, little by little, the non-regulars are tending to

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replace the regulars. It is, however, nothing of the sort, as may be seen by the following breakdown: in a third of the firms, the two forms of employment were increasing at the same time; for 40% of them we may observe a simultaneous reduction. The average result in fact only fits 8% of firms (whereas for the other firms, we observe a contrary tendency). Another study confirms this trend by estimating the speed of employment adjustment among about 600 manufacturing firms between the 1990s and the 2000s (Lechevalier, Hurlin, Dossougoin & Takaoka, 2014). According to the authors, one observes a slight decrease of the average speed while the standard deviation of individual speeds significantly increased. Concerning growing diversity of the corporate finance and governance of Japanese firms, Masahiko Aoki, Gregory Jackson and Hideaki Miyajima (2007) give a fairly complete picture of it, analysing it on several dimensions. Let us take two of them here. The first dimension concerns relations between banks and firms. Despite the deregulation of the bond market in the second half of the 1980s, the recourse to bank credit by Japanese firms has in its totality increased during the 1990s. The large firms have loosened their links with banks and have had recourse in a growing fashion to the market for their financial needs. Even so, the smallest firms, including those quoted on the stock exchange, continue to prefer bank credit to other financing modes. Thus, in this dimension, size is an important criterion of differentiation, but it is not the only one: firms that already had high levels of bank debt before the 1990s have broadly contributed to the increase in the role of bank finance in the financing of firms as a whole. Second, the institutional investors (and among them American and British pension funds) play a more and more important role. They are concentrated on a relatively narrow segment of large manufacturing and exporting firms, with a high level of capitalisation and good performance. By virtue of the complementarities that exist between employment system and corporate finance, we may estimate that these changes in the management and financing of the firm will have durable consequences for the organisational choices within firms. It is on this basis that we may try to define the emerging models of Japanese firms. In fact, these changes legitimately lead to us asking ourselves the following question: are we witnessing a convergence of the model of the Japanese firm with the American or liberal model?

What are the models of the Japanese firm today? Before attempting to reply to this question by reference to empirical studies, it may be useful to give a representative example. At the beginning of the 2000s the Japanese business executive world was riven by open debates and equally vigorous opposition between different visions of what the Japanese firm ought to be like in the future. To summarise, and at the risk of caricaturing, we may contrast the views of Jiro Ushio, president of Denki Ushio, an enterprise in the electronic sector, and one time president of the Keizai Do-yu-kai (1995–99), with those of Hiroshi Okuda, president of Toyota between 1995 and 1999,

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then of the main business organisation Keidanren (2002–6), before the fusion of the different business organisations.9 For Ushio, Japanese firms should adopt the model of American management, notably in matters of employment, because it demonstrated its superiority in the 1990s. The position of Okuda was more nuanced. If it was necessary to reform the system of employment, favouring most notably the mobility of qualified workers, then it was necessary at the same time to preserve that which had created the success of the Japanese model in the past, that is to say the accumulation of skills at the heart of firms and the responsibility of firms towards their employees. Of course, this was not the first time that the Japanese business executive class had been split by debates, whether between the two wars or in the immediate post-war period (Gordon, 1988; Thomann, 2008). Certainly, the position of Okuda was not only nuanced, but also ambiguous, in so far as he was to become relatively close to Koizumi, in the context of his role as a member of the Council for Economic and Fiscal Policy between 2001 and 2006, attached to the cabinet of the prime minister. In addition, his careful recommendations to some extent contradicted the policies being pursued at the same time in Toyota, involving a remarkable increase in the number of temporary workers. A large number of them were brutally dismissed in 2008, creating a scandal at the time, especially as they often found themselves deprived also of their housing.10 However this may be, the variety of views present among Japanese executives has never been so visible as at the time of this public debate between Okuda and Ushio, for it reveals the questions being asked of Japanese business executives and the diversity of the replies given. Many editorials bore witness to this in the business newspaper Nihon Keizai Shinbun, which, while being a valuable supporter of neo-liberal policies, gave plenty of scope for the expression of dissenting opinions (Dore, 1999, 2000). It means that it is not possible to consider that Japanese employers as a whole have been supporting the introduction of neoliberal policies in Japan. On the contrary, their internal division may explain the very progressive neo-liberal transition and its non-linear nature. Apart from this example, many studies have attempted to set out the different models that were emerging. Without entering into the detail of technical problems, we should here emphasise a fundamental methodological difficulty. The transitional phase that Japan has gone through resulted in the emergence of hybrid models, meaning that the complementarities identified above tended to become weaker and no longer allowed us to identify models just in those terms. In these conditions, there are various methods possible to identify the plurality of models beyond a tautological assertion of absolute diversity or of anecdotal analyses. The one which, up to the present, has produced the most ‘suggestive’ results (given the difficulty of being more rigorous), is an empirical inductive method, cluster analysis, brought into play, among others, by Aoki, Jackson and Miyajima (2007). Using indicators from enterprise management (financing method, employment policies, composition of the board of directors), and a database of approximately 900 firms quoted on the Tokyo stock exchange, Aoki, Jackson

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and Miyajima identified three groups of firms. The first corresponded to the classic model described earlier. It was still adopted by 26% of the firms, and corresponded to 10% of employment, indicating that the firms following this model are of a relatively modest size by the mid-2000s. In addition, their performance is, on average, mediocre. The second model is what the authors call a ‘hybrid’ model, marked both by a classic system of employment, of a ‘relational’ type, and oriented towards the long term, but also by market financing. This model accounted for 23% of firms and covered 67% of employment. In other words, it is relatively large firms that have adopted it. In total, the performance of these firms is good, just like those of the last group of firms separated out by the authors. These constitute an inverse hybrid model, characterised by long-term relational financing and a marketbased employment system. According to their results, 21% of the firms analysed had adopted this model, representing barely 10% of employment. On the other hand, Aoki, Jackson and Miyajima were unable to identify firms that had fully converged towards the liberal-type model (market-oriented employment systems and corporate finance), and this invalidates the idea of a convergence towards the Anglo-Saxon model.11 What should we say today about the firms that best represent these different models? We have seen that the classic model of the Japanese firm was, above all, a sort of norm, built by some of the most influential firms of postwar Japanese capitalism, in the first rank of which were electronic giants like Matsushita, Toshiba and Hitachi, but also, of course, Toyota. Several recent books on management (for instance, that of Ulrike Schaede (2008)) have tried to identify the most significant Japanese firms between the middle of the 1990s and today, among which we may most notably cite Rakuten, Softbank, Kakaku.com, SBI E*Trade Securities Co., Takeda, Astellas, Kyocera, Toray and Pasona. To summarise, the classic model of the Japanese firm was characteristic of very big, diversified, conglomerate enterprises. Today, in the manufacturing sector in particular, it seems that the most dynamic Japanese firms follow a model close to that of Kyocera or Toray – that is, the model of a firm specialising in most innovative niches and oriented towards international markets.12 It is this category that emerges, for example, from the analysis of Keiko Ito- and Sébastien Lechevalier on the performance of Japanese firms: whereas 44% of 11,000 firms in the manufacturing sector, which made up their panel, neither exported nor dealt in research and development (R&D), and 30% of them only did R&D and 5% only exporting, the 21% of firms that concentrated on these two types of investment (R&D and exports) had the best performance (Ito- & Lechevalier, 2010). This study does not tell us anything about the model of enterprise management or of the political economy of these firms. Even so, studies of management show that they are often family firms and very strongly affected by the personality of their founder, which may give them a quite idiosyncratic character. It remains to be seen what their normative contribution will be in terms of the ‘model’.

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Why did the diversity of firms increase in Japan? About the role of neo-liberal policies The principal aim of this book is to analyse the impact of neo-liberal policies on the evolution of the diversity of capitalism, through the Japanese case. This is why it is particularly important to understand why Japanese firms have become more diverse and eventually to relate this evolution to changes that occurred in the political economy of Japan. Going beyond these policies, the consequences of which we would like to study, we should also take into account an assembly of centrifugal and centripetal forces of which the result is a dynamic equilibrium translated into an increase or reduction in the diversity of firms. Indeed, there are no universal rules, following which enterprises would become more and more, or less and less, diverse. Ito- and Lechevalier (2009) propose a systematic study of what determines how far corporate performance evolves and diversifies, taking into account a set of factors identified by economic theory, in the framework of an econometric analysis. Even so, this did not allow them to include neo-liberal policies, the impact of which may be regarded as indirect in this matter. The dominant explanation of the evolution of heterogeneity in the performance of firms is well summarised in an article by Timothy Dunne and his collaborators: the growing dispersion of productivity and wages in the firms is linked to differences in the rate of adoption of new technologies (Dunne et al., 2004). The authors confirm this theory in the case of the United States, but Ito- and Lechevalier (2009) show that it is not the case at all in Japan. At any rate, the introduction of information and communication technology has not led to greater dispersion of performance among Japanese firms. To explain this paradox, the authors establish a parallel between Japan and Germany. Indeed, their result is very close to that obtained by John Haltiwanger and his colleagues, who compare the behaviour of American and German enterprises in this domain (Haltiwanger et al., 2003). They show that if the dispersion that results from it is stronger in the case of American firms, the reason is that, taken as a whole, they have gone in for much more experimentation in management practices, for instance systematically giving workers access to the Internet. The second classic explanation for why dispersion of firm performance should have grown is globalisation. More precisely, following the dominant analysis, globalisation is supposed to lead to a convergence of practices at the global level and a fortiori at the national level as well. After the market is opened, the least performing domestic firms should either improve their performance, or leave the market. However, we see the reverse in Japan from the mid-1990s, as shown by Kyo-ji Fukao and Hyeog Kwon (2006), as well as Keiko Ito- and Sébastien Lechevalier (2009). Internationalisation of the Japanese economy contributed positively and significantly to a widening gap in productivity among Japanese firms. Among the possible reasons for this unexpected effect of internationalisation, we may suggest two: first of all, there is a selection effect, according to which it is the most productive firms in

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the national market that go international. There is also a learning effect, according to which the experience of international markets helps improve the productivity of Japanese firms (Kimura & Kiyota, 2006). It is the coincidence of these two effects that may be at the origin of the growing gap in productivity between firms that has been observed. Moreover, theoretically, macro-economic and sectoral fluctuations have had just as much of an impact on the dispersion of the results. In a Schumpeterian perspective, depression should lead to a convergence of the corporate performance, after the poorest performers leave the market. However, in the case of the Japanese crisis, that was not what we observe, as Kiyohiko Nishimura and his colleagues show. During the period 1996–97, that is to say at the bottom of the cycle, firms that had quit the market were on average more productive than those that had remained (Nishimura, 2005a). This in fact led to an increase in divergence, following a mechanism that contradicts the Schumpeterian hypothesis. Among the numerous possible ways of explaining this paradox, it is certainly the hypothesis put forward by Caballero, Hoshi & Kashyap (2008) that has attracted most attention. It was the excessively weak pressure exercised by the banks (themselves in difficulty) on the least performing enterprises – the ‘zombies’ – that explains why they were able to keep themselves in the market. Finally, among the paradoxical results obtained by Ito- and Lechevalier (2009), we should mention the following: one of the determining factors in the growth of performance dispersion between Japanese firms has been the trend towards a more oligopolistic (or at least, less competitive) structure in certain sectors, which may seem surprising in a context where the bulk of markets have been the object of deregulation. Part of the reason for this may be found in a quite remarkable article by Kiyohiko Nishimura and his collaborators (Nishimura et al., 2009). These researchers show, in fact, that a more competitive environment may at the same time result in ‘domination’ by a limited number of firms. For example, in the 1990s, the automobile sector in Japan was marked by the domination of Toyota, whereas 20 years before, in a less deregulated environment, the positions of Toyota, Nissan and Honda, not forgetting Mazda and Mitsubishi, were more balanced. The quantitative approach to the increase of performance dispersion of Japanese firms from the late 1990s can be fruitfully complemented by a more qualitative but also more comprehensive approach as the one proposed by Sako & Kotosaka (2012a). Among the possible general causes of the increasing diversity distinguished by the authors, two appear particularly pertinent: ‘diversity increases also because the process of institutional change may afford different timing for individual actors to defect from the old institutions, dictating the extent to which “layering” may persist … [O]rganizational diversity is introduced due to different settlements that result from local contests between management and labour’ (Sako & Kotosaka, 2012a: 74).13 In this process, new entrants are particularly to proceed by ‘layering’ when promoting new institutions while not directly contesting existing institutions, whereas incumbent players may try to ‘convert’ some existing institutions, whose

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legitimacy is put into question in unsettled times (Sako & Kotosaka, 2012a; Streeck & Thelen, 2005). This takes place in a context of liberalisation, which is particularly favourable to this evolution. This leads us to analyse more precisely the impact of neo-liberal policies in general on the evolution of heterogeneity of firms, especially in their type of organisation (and not only from the point of view of their performance). In this area various analyses have been made, but they tend for the most part to emphasise the role of deregulation. Although this is not the purpose of their analysis, it is possible to interpret the contribution of Aoki, Jackson and Miyajima (2007) in this way as a help to understand the following mechanisms.14 First of all, the firms are not equally exposed to pressures that might bring about changes in their organisational modes. Thus, foreign investors concentrate on a certain type of firm, leaving the others shielded from pressures exercised by investors on corporate governance or on the management of human resources. Then the very nature of a certain number of reforms, which do not impose new obligatory practices but give more choice to enterprises, introduce de facto greater diversity. This was, for instance, the case with the reform of the board of directors in 2002 and with the legalisation in 1997 of holding companies, which had been banned after the war. In these two cases, the reforms had the effect of opening up a range of organisational choices for firms. May we go further and analyse the links between the evolution of Japanese firms and the neo-liberal vision of the firm? It is possible to summarise the neo-liberal vision in several propositions, of which the four following appear to be the most important:15 1 Firms must be able to be flexible, for example being able to dismiss labour when necessary. 2 The government should not intervene; firms are the best placed to understand their own needs. 3 Each firm is in a particular situation; there are no general rules, for instance over wage policies or, more generally, the management of the workforce at firm level. 4 The same is true for the firm’s internal organisation, at the level of relations with employees. The employer must, for example, be able to fix salaries in a completely individualised fashion. What was the position of the Japanese firm concerning these precepts at the beginning of the 1980s? On the one hand, its ‘typical’ organisation (the classic model of the Japanese firm) was the antithesis of this model. We should note in passing that the ‘Fordist’ type of American firm was also rather distant from this model, as John K. Galbraith (1967), Alfred Chandler (1977) or William Lazonick (1991) have shown. On the other hand, the terrain was most fertile for a neo-liberal revolution, for at least two reasons. First, balance of power was already very favourable to employers (Dore, 2000; Sako &

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Kotosaka, 2012a). Second, and perhaps most importantly, the system as a whole was very decentralised and there were only a few centripetal forces to counterbalance centrifugal forces both at the sectoral level (e.g. through shunto-) and at the national level. In the latter, a minimum framework was brought in by the government after the war, because the labour law as defined in the 1947 labour code created rather few constraints. Relations between workers and their employers were rather the object of implicit contracts, the only major constraint being perhaps that concerning the doctrine of abusive dismissal (Kambayashi, 2010). This situation allowed some key incumbent actors on the management side to use the ambiguity of institutions and to convert them for other purposes, as convincingly shown by Sako & Kotosaka (2012a) in the case of shunto- and more generally on long-term employment. More precisely, how was a firm like Toyota, whose analysis had led to the theoretical formulation of the classic model of the Japanese enterprise, placed in relation to the above liberal precepts? To the extent that this firm has never been close to government (except perhaps in the most recent period, under Prime Minister Koizumi), it obviously fits precept number 2. On precept number 3, this was quite dominant in the framework of a highly decentralised form of capitalism, and despite the co-ordinating role of shunto- (Chapter 3). By contrast, precept number 1 is much more controversial, even today, whereas precept number 4 was debated and experimented with in the 1990s, but many enterprises, such as Fujitsu, eventually backtracked as it was difficult to measure the individual productivity of workers in the context of a collective organisation of labour, and in the sense that such a reform at the firm level introduced a certain number of dysfunctional elements (Lechevalier, 2002). In sum, if neo-liberal policies introduced into Japan since the beginning of the 1980s were far from being the only factor bringing about growth in the diversity of Japanese firms, they did create an environment more favourable to it.

Rupture in the alliance between employees and managers, and the growing diversity of firms In concluding this analysis of the evolution of the Japanese firm model, what conclusions may we draw from this combination of results, from the viewpoint of an understanding of capitalist diversity and the impact of neo-liberal policies? More exactly, in this chapter, we have sought to respond to the following questions: what competing models of firms do we have today within the Japanese capitalism? In particular, have certain Japanese firms converged towards the Anglo-Saxon model? Are we still in a transitory phase? May we define the new Japanese capitalism on the basis solely of analysis of the models of firms that compose it? The main result of our analysis is that we are not seeing the end of the classic model of the Japanese firm. Rather, we are witnessing a growing diversity of the organisation and performance of Japanese firms. In other words, the classic model of the Japanese firm has not disappeared but it is now no more than one option among others.

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In this chapter we have deliberately concentrated on the Japanese case. An international comparison of the evolution of diversity in firms would, however, take us far beyond the purpose of this book.16 Nevertheless, do we now have indications allowing us to determine whether the evolution observed in Japan is exceptional or not? It is difficult to respond unequivocally to this question, but we may in fact refer to several relevant studies. These tend to show that, certainly, the Japanese trajectory is not unique in this matter, but that growth in firm diversity has been stronger during the Japanese ‘lost decade’ than in other countries for the recent period. This is confirmed by a qualitative comparison between organisational changes in Germany and Japan (Jackson, 2003), as well as a comparison between two quantitative works on the growth of productivity dispersion, respectively, in the United Kingdom (Faggio et al., 2010) and in Japan (Ito- and Lechevalier, 2009). Whatever may be the case in relation to the exceptional or non-exceptional character of Japan, this makes it difficult to define the emerging model of Japanese capitalism. At this stage, however, it is possible to conclude, following Ronald Dore, that the great transformation that Japanese capitalism has experienced since the beginning of the 1980s lies in the transition from an objective alliance between wage earners and managers to a greater acknowledgement of the interests of shareholders (Dore, 2000). This last statement is deliberately ambiguous because it is not possible to confirm that Japanese capitalism has become ‘shareholder-based’ in the context of a prolonged stock exchange depression. It is, however, clear that wage earners are no longer at the heart of the wage compromise, and that this has consequences in the area of human resource management, modes of adjustment and skills formation. Such prudence in forming conclusions comes back to the fact that if Japanese capitalism is no longer in a transitional phase, it is no less true that the present situation corresponds to a state of multiple equilibria at the micro level. In other words, if it is no longer correct to describe the Japanese régulation mode as ‘company-ist’, neither is it possible to define precisely what might be ‘post-company-ism’, as we have already emphasised in the Introduction.17 Nothing suggests that we are likely to see in the future a convergence towards a given model of enterprise organisation (being American or European, if it has a meaning, given the internal diversity of these forms of capitalism); quite the contrary. In our opinion, this heterogeneity will persist and will even be an essential part of the emerging model that will be defined by an equilibrium, necessarily unstable, between different, and not necessarily compatible, aspects of Japanese capitalism.18 This definition also operates on at least one other level – that of the forms of co-ordination, at meso and macro levels, between heterogeneous firms. As we have begun to see in this chapter, implicitly, these forms of co-ordination do not just play an ex post role in the compatibility of different forms of organisation; they have just as much of an impact on the evolution of firm heterogeneity. To analyse these forms requires an approach in terms of political economy allowing us to

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consider the articulation between neo-liberalism and the (heterogeneous) organisation of firms. What can we say about the impact of neo-liberalism on the ways in which Japanese firms are organised? The growing diversity of Japanese firms is a phenomenon too complex to be interpreted as merely the result of neo-liberal policies put into practice in Japan since the beginning of the 1980s. These policies, however, occupy a dominant place in this dynamic, as for instance Jackson’s (2003) analysis indirectly shows, as well as that of Aoki, Jackson and Miyajima (2007). In addition, the neo-liberal view of the firm is coming into line well with this growing diversity. Indeed, one of the neo-liberal arguments against any attempt at regulation on the national level insists on firm diversity, and this cannot be accommodated by regulation intended to go beyond individual cases. Neo-liberal policies play, in fact, a role on two levels: they have a direct impact on the diversity of enterprises; and they have an indirect impact via the changes introduced in the forms of co-ordination. Neo-liberal reforms applied to this system have led to a growing and above all radical diversity, and this has brought with it the decay of the kinds of complementarity that characterised the Japanese economy, and that was its strength, as we shall see in the next chapter, in which we shall propose an interpretation of the lost decade as a lack of co-ordination in the context of growing micro diversity (Lechevalier, 2007b, 2011b). This leads us back to a final question. Is the increasing diversity of enterprises good from the point of view of macro-economic results? According to an evolutionary view based on Schumpeter, it is the very heart of economic dynamism (Nelson, 1991; Aoki, 2000). In our opinion, this view is too simple, as the impact at the macroeconomic level depends fundamentally on the conditions for co-ordination: even going beyond the question of selecting the most efficient forms of organisation, co-ordination is what in concrete terms allows n firms to derive benefit from the complementarities that exist between them, for instance, between a lower cost of labour among some firms and more advanced technology among others (Lechevalier, 2007b). It is there that the political economy of forms of co-ordination is played out, and this will be the subject of the next chapter.

Notes 1 The perspective adopted by Aoki (1990a) is far from being the most representative of his work, but it is the nearest to what we wish to show here. Among numerous other references, we may also cite Aoki (1986, 1988, 1990b). For an introduction to this theory, see Lechevalier (2012a). 2 For a more nuanced characterisation of the ‘classic’ American firm see for example Galbraith (1967), Chandler (1977) or Lazonick (1991). 3 It is possible to demonstrate the rationality of the Japanese firm in a more specific but also precise fashion, in the case of the Toyota production system. This is not the system adopted by all Japanese firms, even in the automobile sector, as has

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been well shown in various works of GERPISA (Permanent Research Group on the Automobile Industry and its Employees), for example in Boyer et al. (1998). Lechevalier (2005) shows, in fact, that this system of production is permanently on a razor’s edge, and that it needs elements of stability to function correctly. The principal function of long-term relations in employment and finance is to give a firm basis to this form of work intensification. In Chapter 4, we propose a concept of social compromise significantly different from that put forward by the classic régulation approach, in that it takes place not at the level of the firm, but between different groups, thanks to political mediation. Contrary to certain interpretations of the Japanese firm that make it the archetype of an enterprise controlled by the workers, Aoki’s view is much more balanced: ‘The corporate management decisions of Japanese firms are subject to the dual control (influence) of financial interests (ownership) and employees’ interests rather than to unilateral control in the interests of the ownership. It means that although there is a strong continuity between employees and executive managers (the top management being considered as the highest rank for the career advancement of employees), the impact of financial control (through the main bank) over Japanese firms should not be neglected. As for the distribution of a firm’s revenue between wages and profits, the question to know if it is determined by a certain sense of fairness or the relative bargaining power of enterprise union vis-à-vis management’ Aoki (1990b: p. 20). For a synthesis of these changes as well as an original interpretation, see Nohara (1999a). See also, for a comparative analysis with the United States based on micro data, Kambayashi & Kato (2011), or Kawaguchi and Ueno (2013) for the most recent data. These two aspects will be developed in Chapter 3. Thus, in the 1970s, it is estimated that the probability for a young wage earner to be still employed at Sony ten years after hiring is 40%, whereas it was 90% at Hitachi. These two executive organisations are not comparable, in the sense that Keidanren is the equivalent of the British Confederation of British Industry (CBI), whereas the Keizai Do-yu-kai plays the role rather of a think tank. The position of Ushio was not simple either, in that it participated in the creation of the Matsushita Seikei Juku, where young politicians, such as Noda, Maehara and Haraguchi were trained, and later became ministers in the Hatoyama and Kan governments, after the change of government in 2009. This explains why Ushio has seemed to be relatively close to the Democratic Party during the period 2009–12, after having been one of the symbols of the neo-liberal conversion of the Japanese business class in the preceding years. On these questions, see Culpepper (2010). The conclusions of Aoki, Jackson and Miyajima, which concentrate on corporate governance, are similar to those of a team of researchers at the Massachusetts Institute of Technology (MIT) interested in the evolution of organisational models of production: see Berger (2005). We acknowledge François Jackow, who suggested this idea to us. Although we agree with the general conclusion of Sako & Kotosaka (2012a) regarding the links between institutional change and organisational diversity, we are not completely convinced with their statement that liberal market economies accommodate greater internal diversity, for example through greater experimentation, as explained by Aoki (2000). While the process of liberalisation implies more diversity for the reasons well explained by Sako & Kotosaka (2012a), the degree of diversity within the system has little to do with the dichotomy between liberal and co-ordinated economies, to us. A more important criterion is the degree of decentralisation, which is in a sense even higher

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Sébastien Lechevalier in a co-ordinated economy such as Japan than in a liberal economy such as the United States. See also Sako (2006). For a more thorough analysis, see Coutrot (1998). On this point, see for example Lane & Wood (2009, 2012). The difficulties faced by studies that the régulation approach inspired, attempting to define post-Fordism, suggest to us that we should not focus on this question. See also Sako (2007) and Sako & Kotosaka (2012a) on this point.

3

Is Japanese capitalism still co-ordinated? Sébastien Lechevalier

This chapter is devoted to the second dimension – that of co-ordination – of the Japanese model previously outlined, which sees it as a co-ordinated form of capitalism. We presented in the Introduction the foundations and the theoretical nature of this concept. Here we shall concentrate on the concrete forms of co-ordination and the ways in which they have evolved, distinguishing principally five: the structure of keiretsu, sub-contracting, the shunto-, ‘bureau-pluralism’ and industrial policy. We should make two preliminary remarks at this point. Co-ordination outside the market is not the same thing as government intervention in as far as three of these co-ordination devices (the structure of keiretsu, sub-contracting and the shunto-) are independent of government intervention. As far as the impact of neo-liberal policies are concerned, if it was indirect in the case of firm diversity (Chapter 2), it is here much more explicit, as several of these policies were specifically meant to reinforce co-ordination by the market in place of these forms of extra-market co-ordination.

The forms of co-ordination in classic Japanese capitalism To understand contemporary changes in the co-ordination of the Japanese economy, we must first specify what were its forms in the earlier period, that of rapid growth (1950s and 1960s), and of successful adjustments (1970s), which we may call the golden age of co-ordination in the Japanese economy. It is possible to distinguish three types of co-ordination depending on the actor and level concerned: the level of industrial structure (keiretsu, sub-contracting), that of sectors and of industrial relations (shunto-), and finally, that of government (industrial policy and bureau-pluralism). Even if these three types of co-ordination are very different in nature and motivation, their effects, both practical and theoretical, are fully comparable. The first type was organised by the firms themselves, and concerned the keiretsu-type industrial structure and sub-contracting. This is certainly the most studied and best-known type of co-ordination. The point in common between these two forms of co-ordination, which should not be confused with each other, is that they were located at the level of groups, not of a given

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industry. The keiretsu was a form of ‘conglomerate’ with, at its centre, a main bank that played a role equivalent to that of the holding company in the framework of pre-war zaibatsu (Okazaki & Okuno-Fujiwara, 1999). This main bank was defined less by its participation in the capital of the group (which was legally limited to 5% of the capital) than by its position as privileged creditor; the main bank exercised weak control when the group was doing well, but could intervene in the management of enterprise concerned when it was in difficulties. The contribution of the keiretsu-type structure from the point of view of co-ordination may be summed up in the following way. First of all, we must emphasise that firms belonging to a keiretsu have always been a minority in Japan. So, if we deal with the six principal keiretsu (Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa and Dai-Ichi Kangyo-), it is estimated that their contribution to total value added in the middle of the 1980s was between 15% and 20%, with an even lesser contribution to employment (Ko-sei Torihiki Iinkai, 1992). There, however, we have a strict definition of ‘network capitalism’ which does not take account of other forms, such as vertical industrial networks (like that of Toyota), or vertical distribution networks (such as that of Shiseido-). From these facts we can see that the structure of keiretsu understood in the broad sense has had a major influence on the functioning of classic Japanese capitalism overall (Gerlach, 1992; Lincoln & Gerlach, 2004). It is even truer that belonging to a keiretsu has important implications at the level of firm behaviour. Many studies have shown that, in consequence, relations with suppliers were more stable and that this led to forms of agglomeration when firms are being set up overseas (Ahmadjian & Lincoln, 2000; Belderbos & Carree, 2002). Besides, from the point of view of the innovation capability, it has been proved that the structure of keiretsu favoured spillovers among the members of the keiretsu, or in other words the diffusion of innovation (Suzuki, 1993). Finally, it had the virtues of redistribution and solidarity in reducing ex post diversity in the performance of different members of the group. A firm in temporary difficulty could count on the aid of the other members of the keiretsu in terms of financing, human resources, or even spare parts and primary materials (Dewenter, 2003; Lincoln & Gerlach, 2004). On the other hand, the keiretsu structure introduced a certain number of constraints for its members. For example, it supposed that there were not too many permanent differences between members of the group, so that each one could get something out of it. It also implied that its members gave up some of the potential short-term gains related to deals outside of the keiretsu (such as cheaper parts, for example). Despite these constraints, the keiretsu were a major element of coordination outside the market in the classic Japanese model, as much from a qualitative viewpoint (firm behaviour) as from a quantitative viewpoint (firm performance). As for the system of sub-contracting, it is by no means peculiar to Japan. Even so, a simple comparison between General Motors and Toyota is revealing. In the 1980s, when 50% of the value added of vehicles produced by

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General Motors was down to its sub-contractors, in the case of Toyota the figure was 70% (Clark & Fujimoto, 1991). There were other, more qualitative differences that need to be noted, like the fact that ‘British-style’ sub-contracting was more centred on the bargaining process (Nishiguchi, 1994). More precisely, in Japan, sub-contracting made it possible to put in place mechanisms to reduce costs and improve quality, as it is well known in the case of Toyota. On the one hand, generally speaking, in a context of economic dualism marked by a strong differential in productivity and wages between large firms and small and medium-sized enterprises (SMEs), it is easy to understand the interest of the former in sub-contracting some of their activities to the latter. On the other hand, the sub-contractors benefited from the technology and prosperity of those who ordered from them, which led some of them to experience an exponential development. The best-known case of this was that of Denso-, a former Toyota sub-contractor specialising in automotive electronics, today being ‘relatively’ independent and the global number one in the sector. This example leads us to emphasise that the advantage for the sub-contractor was not only technological but also organisational. Many studies have shown, in fact, that sub-contracting, as practised by Toyota, was an effective source of the diffusion of ‘Toyotism’ (Lechevalier, 2005). Analysing Japanese-style sub-contracting in terms of ‘pure exploitation’ is thus, from this point of view, inappropriate, even if it is true that it was essentially the sub-contractor that bore the burden of flexibility (Lechevalier, 2003).1 At the same time, sub-contracting in Japan also implied a certain number of constraints. In this system, the sub-contractor was very highly dependent, in his production as in his strategy, on the decisions of those who ordered from him. The latter was unable to benefit from short-term advantages associated with deals with alternative sub-contractors offering specific parts of superior quality and/or at a better price. In a general sense, the border between ‘win-win’ solidarity and the existence of situational rents was often ambiguous and depended very much on the management of the relationship between the sub-contractor and the firm placing orders. Rather than sub-contracting as such (which we find, for example, in Anglo-Saxon capitalism), it is the specific forms that it took in the industrial economy of classic Japanese capitalism that played an essential role in non-market co-ordination, to the extent that they reinforced the existing complementarities between large firms and SMEs. The second form of co-ordination is to be found at the sectoral level and has tended to be underestimated in comparative studies of Japanese capitalism. We are talking here of the shunto-, or ‘spring struggle’ – in other words co-ordinated wage negotiations in the spring – which constituted an essential element of co-ordination between unions and employers in the 1960s and especially 1970s (Sako, 1997). This way of co-ordinating is rather specifically Japanese, even if co-ordinated wage rises exist in other countries.2 This mechanism, which assured a co-ordinated increase in wages stemming from productivity rises, notably allowed productivity gains to be distributed

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between the sectors and inflation to be contained, while permitting wage rises (Boyer & Yamada, 2000). Its effective functioning lay in regular exchange of information between employers and unions, which allowed, if not a relationship of confidence, at least a shared conviction of the existence of common interests to be established. From this perspective, the shunto- was an effective tool for the regulation of conflict, not only between labour and capital, but also between the leaders of a given sector and other enterprises. Again, however, this practice involved a certain number of constraints. It supposed that employers accept the loss of part of their freedom to control wage policy. It impelled them to make concessions way beyond what should result from a concatenation of forces favourable to them at the level of the firm. In general terms, it corresponded to a certain conception of industrial relations and of social democracy, typical of an economy still largely closed. However, in general terms, the shunto- was a formidable tool of co-ordination, whose positive impact at the macro-economic level has been confirmed by numerous studies (Boyer & Yamada, 2000). Finally, a third type of co-ordination concerned the government’s contribution. We may distinguish here two dimensions. The first was ‘bureaupluralism’, defined by the representation of different regional and sectorspecific interests within the administration. It made it possible for a kind of solidarity to be played out between the different sectors of the economy, for rents to be distributed throughout the economy, while also contributing to a kind of solidarity between the sectors (Aoki, 1988). The weakness of this form of co-ordination lay, however, in the difficulty of reforming and going beyond particular interests. The second kind of governmental co-ordination was industrial policy, whose best known (but not exclusive) exponent was the Ministry of International Trade and Industry (MITI), which played a more aggressive co-ordinating role in choosing priority sectors and facilitating certain forms of collaboration between firms. We are thinking here of public programmes of collaboration in research and development (R&D) between firms (R&D consortia) under the aegis of MITI, which inspired numerous equivalent programmes in the United States and Europe. The role of state co-ordination found here a field of application that was most appropriate, to the extent that technology was not perfect, because, for instance, of high costs of entry and the existence of externalities. Even so, several works long ignored in the United States and Europe emphasised the limits to Japanese industrial policy (Komiya et al., 1988). Indeed, nothing indicates that the state is best placed to anticipate and understand technical change. Moreover, relations between the bureaucracy and certain firms are so tight that we may doubt whether the granting of subsidies is free from collusion. To summarise, bureau-pluralism and innovation policies were the major forms of co-ordination available to the ‘development state’ in classic Japanese capitalism (Johnson, 1982; Sautter, 1996). The latter was not, however,

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entirely dirigiste, because private forms of co-ordination outside the market also played a major part. In sum, even if classic forms of co-ordination in the Japanese economy were subject to constraints, especially in the short run, they were a decisive factor in allowing spillovers to be promoted and in limiting fluctuations, as well as playing a role in mutualising risks.

The decline of classic forms of co-ordination Each of the forms of co-ordination outlined above experienced decline from at least the beginning of the 1990s. First of all, the structure of the keiretsu went through major changes, to the point that it is very difficult to determine today the limits of the keiretsu that have survived, and we may even question how appropriate this concept is to describing contemporary Japanese capitalism (Schaede, 2006). We may observe in particular a decline in keiretsu coherence, which we can measure at the level of cross-shareholdings and intra-group participation, as well as at the level of the shareholders. Their components are no longer as stable and reciprocal, but now more dispersed and more sensitive to various trade-offs. Schaede (2006) thus established that at the beginning of the 1990s reciprocal shareholders constituted more than 17.5%, but less than 7.0% in the middle of the 2000s, while stable shareholders declined from 45% to less than 25% during the same period. As far as sub-contracting relations are concerned, they have become more fluid (Isogai et al., 2000). In other words, if Japanese large firms always have recourse to a large number of sub-contractors (on average more important than in the case of large American and European firms), the relations between prime contractors and sub-contractors tend to be less stable, and the conditions of purchase in the short term are given priority over other considerations. The renovation plan for Nissan, announced on 18 October 1999, symbolised this evolution in itself and was certainly a turning point in this domain. It was in fact translated into a reduction in the number of suppliers over three years (1,145 in 1999, but 600 in 2002), and the putting into effect of a new principle: ‘purchasing materials and parts at the most optimal place’ – as well as the selection and competitive placing of suppliers from outside Japan. To summarise, market principles won out over the forms of solidarity that previously existed. Can we say that Carlos Ghosn was the Trojan horse of neo-liberalism in Japan? This would indeed be a caricature. What is important is that the government had given its green light for an ‘alliance’ between Nissan and Renault, thus explicitly favouring new practices that were very close to Anglo-Saxon ones (Tiberghien, 2007). Certain bureaucrats had then profited from a tight situation to favour the emergence of new practices. However this may be, the changes are not without consequences for firm performance. Kyoji Fukao and Hyeog ug Kwon (2006) recall in fact that up to the middle of the 1990s, big firms and many small firms were linked by sub-contracting and keiretsu relations, which allowed the transfer of advanced

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technologies by assemblers and producers of key components to suppliers, through networks. These two scholars think (without being able to prove it yet) that this mechanism of technology transfer has certainly slowed down, to the extent that large enterprises have delocalised part of their production and have rationalised their processes of supply. Moreover, the shunto- experienced a severe decline, whether in terms of its spread – fewer and fewer firms were involved in the process – or in its object – negotiations brought about less and less in terms of wage increases related to productivity gains, which was its principal purpose, and more and more on issues that were indeed important, like working conditions, but on which the unions were not able to go beyond relatively vague declarations of principle (Boyer & Yamada, 2000; Takanashi, 2002). This development conformed perfectly with the recommendations included in a Nikkeiren report in favour of wage management reflecting the situation of individual firms, which explains the de facto opting-out by employers (Nikkeiren, 1995). In addition, the decline of the shunto- as a mode of co-ordination appears just as much in the results to which it led. We may observe in the 1990s a growth in inequality of wages and of bonuses between different ro-ren (sector-specific federations of enterprise unions) and within a given ro-ren. The main explanation put forward by both enterprises and unions is that wages and bonuses are determined more and more by firm performance. Thus, it is possible to say that the main function of the shunto- has changed from co-ordinated wage fixing to a process of legitimising wage moderation and greater wage inequality (Sako, 2006). Finally, the position of industrial policy as a major form of co-ordination has been eroded (Lechevalier, 2006). Indeed, we may note, up to the middle of the 1990s, relative stagnation or decline in certain MITI budgets and less ambition of these programmes. This development is explained by at least three factors: the failure of certain programmes of MITI (for example, in computer science and engineering – see Lechevalier 2006), the undermining of the very foundations of industrial policy by a certain number of academic critics (Komiya et al., 1988), and the neo-liberal ideology of small government, which seeks to limit to the bare minimum the spheres of government intervention. Nevertheless, in the meantime we have also observed a renewal of reflection on the bases of industrial policy (see the following section). So far as bureau-pluralism is concerned, it has broken down, and the principal loser is without any doubt the Ministry of Finance, in the context of financial crisis (Toya, Aoki and Toya, 2003). What are the implications of the decline in these ways of co-ordinating? If we return to the benefits and limits of co-ordination, we may retain the following points (see the Introduction). Of course, there have been evident shortterm gains for the most efficient actors who were inhibited in the framework of the previous arrangements. Even so, the negative effects, perhaps more widespread, are no less strong. We may observe in particular a reduced importance of the effects of spillovers in the Japanese economy, to the point

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that some researchers are asking themselves whether the Japanese innovation capability has not declined during the period considered (Branstetter & Nakamura, 2003). As far as the diffusion of ‘Toyotism’ is concerned, its history is paradoxical. On the one hand, the dynamism of an enterprise like Toyota has benefited the Japanese economy as a whole rather little, with the exception of the Aichi region; on the other hand, attempts to transfer Toyotism, including those outside the manufacturing sector, have in general had very modest results from the point of view of productivity growth in the medium and long term (Lechevalier, 2005).

The emergence of new forms of co-ordination Since the beginning of the 1990s, in a context of crisis and institutional change, new forms of co-ordination have emerged in parallel with the decline of the former forms that we have just described. If our analysis is correct, it is at this level that the future of Japanese capitalism is being played out, still as co-ordinated capitalism, and that a new regime of growth is potentially emerging. Let us here take some examples, before attempting to make a synthesis of the developments that are taking place. These developments first of all concern the forms of financial co-ordination that are gradually replacing the keiretsu structure. Many scholars have forecast that finance in Japan will be dominated more and more by market logic. This is the case, for example, of Takeo Hoshi and Anil Kashyap in a leading work in this field, which describes a process in three stages, marked by the primacy of financial markets before the war, the domination of ‘intermediated’ (or bank-centred) financing after the war, and a transition towards market financing from the 1980s (Hoshi & Kashyap, 2001). However, recent developments tend rather to contradict these predictions, as we can see in the stagnation of the Tokyo stock exchange, which only very imperfectly plays the role of financing the economy. Even so, Aoki, Jackson & Miyajima (2007) demonstrate the continuation of credit financing, essentially for SMEs, and the crucial nature of self-financing, for all firms. Rather than a transition towards market finance capitalism, what we observe is the potential resurgence of holding companies, following the law of 1997 authorising them once again, after holding companies had been banned for more than 50 years, whereas this form of co-ordination had been the privileged way used by the zaibatsu between the two wars (Okazaki, 2000, 2004). Now the structure of holding companies is indeed an alternative to the main bank, but it is also a mechanism outside the market, just like the latter. Moreover, since 2005 we have seen a revival of crossshareholdings (Nitta, 2009), after more than 15 years of decline. This revival operates differently from the ways prevalent between the 1950s and 1980s: cross-shareholdings are more diffuse and concern firms themselves rather than banks. At this point, it is still difficult to measure the scale of the phenomenon and its impact. However that may be, it seems to indicate that the analysis proposed by some authors such as Dore (2009) is too radical in its

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diagnoses: if the wave of fusions and acquisitions at the end of the 1990s and the beginning of the 2000s could be interpreted as a turning point in the trajectory of Japanese capitalism, in that it signalled a growing recourse to market discipline, more recent developments reveal a new change in the behaviour of actors, who adapt to the new environment and feel the need to form new solidarities in order to escape in part the discipline of the market. In matters concerning production, as such, the most original development is what several scholars describe as ‘fragmentation of production in Asia’. We may define this as the regional division of labour in the process of production and the growth in trade in intermediary goods with different factor inputs. This typically corresponds to the development of vertical intra-branch trade. In this process, Japanese firms occupy a most particular position, marked by specialisation in high value-added products and advanced technological content. Japan is in fact the largest exporter of capital goods in Asia (Fukao, Ishido & Ito, 2003). Our interpretation is that this movement has the same function as post-war sub-contracting: it is its extension to the regional level. In a context of relative decline in classic sub-contracting we here witness the emergence of a more complex phenomenon at the regional level, whose function, however, is much the same. Moreover, we may observe the emergence of new forms of co-ordination in R&D. Collaboration between firms in the area of innovation is far from being new to Japan. It tended, however, to be limited to firms in the same group. Globally, it was possible to characterise this R&D system as ‘autarchic’ (Motohashi, 2005; Odagiri, 2006). In addition, a peculiar Japanese characteristic, particularly by comparison with the United States, was the very low level of collaboration between firms and universities. During the 1990s, new forms of collaboration emerged, notably between firms and universities and between competing firms, in part as a reaction of incentives introduced by the government’s new policy of innovation, and in part for reasons specific to the strategy of firms: in a context of increasing complexity of products and techniques, it became more and more necessary to seek knowledge and know-how outside the firm and the group, especially as the competition from Korean companies, for example, is becoming more intense. Motohashi (2005) thus shows that the case of collaboration in R&D between universities and firms significantly increased between 1995 and 2000. In the more specific case of robotics, Lechevalier, Ikeda & Nishimura (2011) found a similar result. In addition, while this type of collaboration between firms and universities mainly concerned large firms, it has recently been extended to small firms which, according to Motohashi (2005), play an essential role in the development of these practices. Finally, and marking a still greater break with previous practices, some of the leading and competing companies in the electronics sector started to set up scientific and commercial agreements after the 2001 recession in this sector. For example, Hitachi and NEC signed an agreement at the end of 2005 to begin joint production of new generation integrated microcircuits (Berger, 2005).

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In addition, several signs bear witness to a renewal of the industrial and innovation policies in the 1990s and of the desire evinced by the government to play a new role as co-ordinator. Bureaucrats responsible for the conception and the implementation of these policies have taken note of past failures and come to an uncompromising analysis of their causes. The reform consisted of changing the very structure of those involved in research policies and of innovation, by reorganising the two principal ministries in charge of these policies, MITI and the Ministry of Education, which respectively became the Ministry of Economy, Trade and Industry (METI) and the Ministry of Education, Culture, Sports, Science and Technology, or MEXT (after the fusion of the Ministry of Education and the Science and Technology Agency, or STA); and above all by reviving and developing an institution attached to the Cabinet of the prime minister, in charge of the co-ordination of policy between the different participants, the Council for Science and Technology Policy (CSTP). This role of co-ordinator of public policy in the area was further affirmed through the setting-up of framework policies for science and technology (the first, the second and the third Science and Technology Basic Plans, covering respectively the periods 1996–2000, 2001–5 and 2006–10). These plans gained in effectiveness by comparison with the practices of the 1980s, to the extent that the definition of strategic sectors was accompanied by affirmed budgetary choices, which formed a very concrete way of coordinating the participants (Lechevalier, 2006). We see, moreover, the emergence of new forms of co-ordination at the level of the administration, on the cinders of bureau-pluralism. Thus, among the numerous implications of the administrative reform in 2001, we should note the rise in power of the Cabinet of the prime minister, which had been bereft of real administrative power up to that point and which found itself given a co-ordinating role, in place of the Ministry of Finance, up to a certain extent. This new role, which from many points of view indicated centralisation contrary to the logic of bureau-pluralism, was put into practice by the creation of new positions of secretaries of state attached directly to the prime minister. The best known of these was Heizo- Takenaka, minister of state in charge of economic and fiscal policy under Koizumi, who was the man who most notably piloted through the reform of the postal services. We should also mention the setting-up of commissions attached to the prime minister, of which the most influential was certainly the Council for Economic and Fiscal Policy (CEFP), which represented the views of the different ministries, heads of firms and of the academic world (with the exception, however, of workers and consumers). However, this new role of co-ordination for the Cabinet of the prime minister was strongly conditioned by the personality and, more importantly, the political position of the prime minister, who could decide whether or not to utilise these new tools of power. For example, Koizumi used it, whereas it was less the case for his successors, Prime Ministers Abe, Fukuda and Aso. Nevertheless, the emergence of new forms of co-ordination was limited in two respects: on the one hand, nothing replaced the shunto- at the level of

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sector-specific co-ordination. On the other hand, fiscal decentralisation was proceeding and posed certain problems for co-ordination. The shunto- nominally survived, but in a slightly pathetic fashion, as witnessed in the spring offensive in 2010. Rengo- indeed backed the necessary wage increases while renouncing any unified proposal, and this symbolised the effective end of the shunto-, to the extent that it sought co-ordinated wage increases.3 We might argue that the context of exceptional crisis justified such an attitude by Rengo-. This would, however, be to forget that even during the years 2005–7, marked by recovery, the employers refused any co-ordinated wage increase. This was the case especially with Toyota, which certainly increased (moderately) the bonuses of its employees in the context of record profits, but refused to increase the fixed part of their remuneration, the main object of wage negotiations during the shunto-, and this had a profound impact on the negotiation conditions in the automobile sector and in the rest of manufacturing industry. To sum up, today the shunto- is no more than an empty shell. We should, however, note that Rengo- was one of the principal supporters of the Democratic Party of Japan (DPJ) during the victorious electoral campaign of the summer of 2009. In this context, the unions had the potential power to reinvent new forms of co-ordination, which were in the interest of wage earners but also of the firms themselves, even if the dominant neo-liberal ideology tended on the contrary to promote the idea that the best wage relationship was one that respected the diversity of firms. In other words, the action of Rengo- and of the other unions needed to respond to the only real issue, that of defining a true employment policy at the national level in the framework of a welfare state still to be invented (Boyer & Lechevalier, forthcoming). We shall return to this point later (see Chapter 4). The second limit to the revival of ways of co-ordinating concerns fiscal policy. In any case, in a neo-liberal context that seeks a reduction of the role of the state, we see a reform of fiscal policy put into effect by greater decentralisation. This process was assuredly very complex and cannot be reduced to the impact alone of neo-liberal policies. Even so, the incompleteness and the disequilibria that characterise it were clearly linked to this. To summarise the Japanese fiscal situation, we may recall the following figures from the beginning of the 2000s: the central government received about 60% of the total revenue from taxes, whereas the municipalities spent about 60% of total public expenses (Doi, 2004). The process of decentralisation was broadly initiated by the central government searching for means of reducing public spending and therefore public debt, which reached its height in the course of the lost decade and after. Although a public debt representing 200% of gross domestic product (GDP) was once considered as a limit, it had reached 230% in 2013 and the question of its sustainability was a particularly hot issue (Doi et al., 2011). The central government has interestingly started by reducing transfers in favour of the regions, the instrument for policies of equilibrium between them. At a later stage, prefectural governments increased local property taxes: since the 2003 Ko-chi initiative, more than half the prefectures

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have also increased these taxes. In our opinion, this development creates new problems for co-ordination, to the extent that the inter-regional fiscal policies of the central government were one of the central elements of ‘bureau-pluralism’. In a context of transition in the economic geography of the country, the government loses a lever of co-ordination, which can only add to the disparities between regions. From this point of view, the definition of the model emerging through new forms of co-ordination today remains hypothetical.

Neo-liberalism and its contradictions: interpreting the Japanese crisis Is it possible to go further and to argue that neo-liberal policies initiated over the past 30 years in Japan have promoted the decline of previous forms of coordination, without them being replaced in their entirety by the market? On the first point, it is clear that directly or indirectly, neo-liberal policies in Japan have contributed to the decline of classic forms of co-ordination in Japanese capitalism. The most obvious case is that of the types of government coordination, both bureau-pluralism and industrial policy: in these two cases we are tempted to conclude that it is rather the power of neo-liberal ideas that in a context of relative failure of these two forms of co-ordination, have tended to legitimise their decline. In the case of the shunto-, the causes of its weakening are more complex but we find a similar logic: even if unions such as Rengo- bear a part of the responsibility, the main issue concerns the wage policies of firms (characterised in this period by a general reduction in costs and above all a process of differentiating between employees), backed up by neo-liberal-inspired recommendations. Finally, the increased fluidity of subcontracting corresponds to a re-formulating of trade-off in favour of shortterm gains and relations with the market to the detriment of the long term. Indeed, the only case for which the link with neo-liberal policies is much more ambiguous is the decline of the keiretsu, in the sense that we are here dealing with the internal logic of firms. In addition, if numerous American researchers have sought to prove that this form of co-ordination was at the origin of American trade deficits with Japan (see for example, Lawrence, 1993), American pressure affected deregulation of financial markets and goods, rather than the organisation of firms. The decline of earlier forms of co-ordination outside the market does not in itself pose problems if market co-ordination can take up the slack. In our opinion, the problem posed by neo-liberal policies in Japan concerns to a great extent the inefficiency of this alternative way of co-ordinating. The symbol of market failure in the area of co-ordination is the link between financial deregulation and the creation of bubbles (1986–91). Aglietta (1992) shows convincingly that in the absence of a supervising agency having extensive powers, the new rules did not lead to changes in the behaviour of participants. It is, in his opinion, this discrepancy that has been particularly important in the formation of economic bubbles in Japan. In other words, it is

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the fact of not having understood and acknowledged that freer markets must go along with more regulation that largely contributed to the Japanese crisis (Vogel, 1996). Another example of the failure of market co-ordination is the fact that the lost decade did not have the ‘cathartic’ effect that Schumpeterian approaches attribute to crises; this is shown by the fact that the relatively worst-performing firms remained in the market (Nishimura et al., 2005a; Caballero et al., 2008). There is, however, a counter-example to this general ineffectiveness of neo-liberal policies: that of the deregulation of the labour market, which allowed a very low level of unemployment to be maintained by comparison with Europe and the United States, allowing firms recourse to a spectrum of non-regular employment contracts. We should not, on the other hand, forget the importance of undesirable side effects, especially wage stagnation, of which various studies have shown that it may be considered one of the causes of deflation (see, for example, Canry et al., 2010). If our analysis is correct, it should lead to a questioning of the idea that the Japanese crisis is one of co-ordination outside the market. This is the thesis defended by Witt (2006), for whom too much co-ordination slowed down institutional change and weakened the possibility to reform the Japanese economy, as well as its innovation capability. We do not deny that the duration of the crisis is explained in part by the co-ordinated character of Japanese capitalism and a lesser compatibility between the different forms of co-ordination that tended to emerge over time (Boyer & Yamada, 2000). Even so, in our view, the crisis was unleashed in conjunction with financial deregulation policies that led to the formation of financial and land asset bubbles. In a general sense, it was the lack of co-ordination of the growing diversity of firms that is problematic. Indeed, the growing heterogeneity of Japanese firms requires more, not less, co-ordination. If the developments currently taking place, analysed in Chapter 2, lead to the emergence of a dual or segmented structure comparable with that of the 1950s, an essential difference relates to the strong co-ordination that prevailed at the time and which then allowed different segments of the Japanese economy to grow with similar rhythms, or to converge. This is no longer the case today. From this perspective, the emergence of new forms of co-ordination is the key to future growth in Japan. In addition, neo-liberal policies did not have an immediate effect of fostering escape from the crisis. It was only right at the end of the period, from 2005, that positive effects could be felt, as witnessed by the return of export-led growth in a context of revived competiveness. This new growth regime, however, was found to be particularly fragile in the context of the world crisis, given that it depended essentially on external demand. Above all, the positive effects of the growth that returned from 2005 were not shared, the non-competitive parts of Japan did not benefit from it, and this resulted in a serious rise in inequality. The next chapter will be devoted to the analysis of this essential dimension in the transformation of Japanese capitalism.

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The future of co-ordination outside the market In concluding this chapter, we should suggest an answer to one of the questions posed in this book: is Japanese capitalism still a co-ordinated capitalism? The answer that we are able to give at this stage is the following: in a first step, the classic forms of co-ordination in Japanese capitalism (keiretsu, sub-contracting, shunto-, industrial policy, bureau-pluralism) have indeed experienced a marked decay. However, in a second step, we have seen the emergence of new types of co-ordination following a different logic (holding companies, fragmentation of production in Asia, new forms of collaboration in R&D between firms, and new policies of innovation). This revival of coordination leads us to confirm the co-ordinated nature of Japanese capitalism, and even more so as we have emphasised the inefficiency of ways of coordinating through the market. However, at the same time it is important to recognize and to emphasize that the forms of co-ordination have significantly changed and that compatibility between them is not without its problems. How ought we to interpret this emergence of new ways of co-ordinating outside the market in a neo-liberal context? Our hypothesis at this stage is that it corresponds to a type of institutional and organisational innovation by economic actors in a new context of incentives and of trade-off between the short term and long term. Neo-liberal policies have of course contributed to the decline of earlier forms of co-ordination, but they have not worked to promote forms of co-ordination through the market that would be efficient and shared between all the actors. In this context, they have really invented new types of co-ordination whose mutual compatibility remains to be demonstrated.

Notes 1 From this point of view, sub-contracting in Japan is not of the same type as that in Korea, where the dominant relationship between those who order and their subcontractors is much more marked (Lee, 1993). 2 See the seminal article Taylor (1979). This is not an empirical analysis but a model, strongly influenced by the American experience. 3 Nikkei Shinbun, 26 January 2010.

4

What is the nature of the Japanese social compromise today? Sébastien Lechevalier1

In our approach to the diversity of capitalisms, inequalities are neither one of the outcomes of a given form of capitalism, in the same way as growth, nor a fact that goes beyond the diversity of capitalism, because determined by the impact of globalisation or of technological progress. In our view inequalities (their intensity, their form) reveal something profound about the very nature of each kind of capitalism, in that they allow us to comprehend the nature of the underlying social compromise, notably concerning the division of value added and of risks (Lechevalier, 2011c). The social compromise is present in the concept of the Toyotist wage labour nexus developed by the régulation theory (Boyer & Yamada, 2000). Even so, in following Amable and Palombarini (2009), it seems more relevant to separate the analysis of the firm from that of social compromise, to study the latter in the perspective of political economy, even in the framework of the company-centred analysis of Japanese capitalism. The least that we can say is that the debate on the nature of the Japanese social compromise has been lively. This debate has not been concluded even today, in the sense that the most recent developments have led to a revision of the bases of post-war capitalism, which requires a new kind of analysis (Lechevalier, 2011c). In our opinion, although it was segmented in the classic form of Japanese capitalism, it was fundamentally egalitarian in outcome, and even in intention. This is shown by the low level of inequality reached during the 1970s, comparable to what we could then observe in Scandinavian countries, following the admittedly imperfect indicator of the Gini co-efficient (OECD, 1976; Tachibanaki, 2005). However this may be, it is in the sphere of inequality and social compromise that the turning point, or even the real rupture in contemporary Japanese capitalism, is most visible. This is characterised by a remarkable increase in the level of inequality, whose evaluation, however, is the object of heated debate.2 We interpret this rise in terms of ‘re-segmentation’ of the labour market, which is essentially the consequence of implementing neo-liberal policies as a whole, and in some smaller measure, of the crisis, following on from restructuring. The change of government in August 2009 nevertheless revealed the demand and the possibility of constructing a new social

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compromise, namely the establishment of a real Japanese-style welfare state (Boyer & Lechevalier, forthcoming). This was the main manifestation of growing unhappiness in the population concerning the new level attained by inequality but also of a more general fear of downward social mobility (Lechevalier, 2014). The fact that this political change led to a failure, as symbolised by the coming back of Shinzo- Abe as prime minister in December 2012, does not mean that the dissatisfaction with the level of inequality reached during the Koizumi administration and its aftermath was not real (see Chapter 1).

The social compromise as a constitutive element of the definition of classic Japanese capitalism The Japanese social compromise has most often been defined at the enterprise level, particularly within large enterprises. If it is true that that is where we find the centre of this compromise, it is important to take into account at least four extra dimensions. It also means that the analysis of the social compromise has to be distinguished from the one of wage labour nexus. First of all, it is necessary to take into account all the firms, including the smallest of them, because the post-war Japanese social compromise is fundamentally dual. Second, we should not only focus on production, but consider just as much the reproductive sphere, that is the family, in a perspective that takes account of gender (the differences between men and women). In addition, if by the promotion of saving, this compromise has sought to favour investment and industrial development, consumption has been another essential component, with some characteristics to be specified. Finally, if the social compromise is characterised by the absence of a welfare state in the European sense, this does not mean that all ambition for social security has been forgotten. We must then specify the nature of this social protection, in the perspective of an understanding of the diversity of capitalisms. The social compromise characteristic of classic Japanese capitalism has been defined as ‘company-ist’ by analyses inspired by the régulation theory (Boyer & Yamada, 2000). At the level of the firm and of its organisation, it lay in the promotion of skill training and innovation. Prior to a concern with wages, this compromise concerned above all employment security (Lechevalier, 2001). As we have seen in Chapter 2, it was also marked by the social integration of the working class or, to use the expression of Kazuo Koike, the ‘white-collarization of the blue-collar workers’ (Koike, 1988). At the same time, Marxist analyses maintained that the conditions of existence of this compromise, and most particularly the advantages from which workers in large enterprises benefited, rested in fact on the insecure situation of a part of the workforce and of the economy. This is really what we call the dualism of the Japanese economy (二重構造 – niju- ko-zo-). To summarise, the employment security of regular workers in large firms was conditioned by the flexibility of employment of non-regular workers of these firms and also of the employees

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of the small firms, these often being sub-contractors to the larger firms (Sako & Sato, 1997; Isogai et al., 2000). At the same time, it is possible to show that some of the non-regular workers have been able to get a regular status, their non-regular status being then only a step of their career; moreover, some of the sub-contractors (and their employees) have benefited from the growth of the prime contractors (see Chapter 3). At least four other dimensions of this social compromise merit analysis. First of all, it is surely undeniable that the dualism of the Japanese economy embodies an unequal component of the Japanese social compromise. Even so, the analyses that focus on this dimension tend to forget that dualism was generally less salient from the 1960s, in the context of a decline in the labour surplus. As a result, in the 1970s, a social compromise emerged that was fundamentally equal (Lechevalier, 2003). This is shown by an Organisation for Economic Co-operation and Development (OECD) report that appeared in 1976, identifying in Japan a level of inequality comparable with that of Sweden, while emphasising the different mechanisms in play: an inclusive wage labour nexus in the case of Japan vs. redistribution in the Swedish case (OECD, 1976). As Ronald Dore himself pointed out, it seemed that Japan had arrived at the point where it was going beyond classic trade-off between efficiency and inequality (Dore, 1994). More specifically, the increase in inequality during the process of development (which was achieved during the 1970s) was kept within bounds by mechanisms of non-market co-ordination, which did not act as a brake on growth. The contrast is striking with the Chinese trajectory of development today, which is up to the Japanese trajectory in terms of rate of growth, but which resulted in a surge in inequality (Minami, 2007). The second correction that should be made to the analysis in terms of company-ist wage labour nexus concerns reproduction. In any case, the company-ist hypothesis tends to focus exclusively on the enterprise and forget the second pillar of classic Japanese wage labour nexus, namely the family (Arai & Lechevalier, 2005a, 2005b). Contrary to what is often believed, the average rate of Japanese female participation in the labour market before and after the Second World War was approximately equivalent to the average of that time in Europe (Thomann, 2005). In fact, the feminisation of the workforce is not a recent reality for the Japanese economy. Nevertheless, the Japanese economy is clearly distinguished from other countries in terms of female participation by age, which rises sharply up to about 25 years old, then declines strongly until 40 years old, before rising again. This M-pattern profile shows how far female labour is broadly conditioned by the cycle of family life. It is made possible in the framework of the ‘male breadwinner’ model, in other words a household whose budget depends principally on male paid work. Important consequences flow from this from the viewpoint of a wage system based on seniority. The return to the labour market for women who have raised their children is in fact done in ‘non-regular’ conditions (essentially part-time work), the unstable nature of which used to be mitigated

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by the fact that the husband’s salary was seen as sufficient for the family as a whole.3 In these conditions, it is essential not to separate arbitrarily the labour market and the family in the analysis of classic Japanese wage labour nexus. Indeed it may be classified as patriarchal as much as company-ist. In trying to reach a better understanding of the role of the family in the company-ist social compromise, we should define more precisely the social protection system in classic Japanese capitalism. A recurring difficulty in this area is to classify Japan within existing typologies, of which the best known is surely that of Gosta Esping-Andersen, based on a distinction between three regimes: social democratic, conservative and liberal (Esping-Andersen, 1990). This approach, though, is particularly ill-adapted to the Japanese case, and has led to what authors like Goodman, White & Kwon (1998), or Takegawa (2005) call ‘welfare orientalism’ – in other words, the simplistic view of European and American researchers concerning systems of social protection in Asia.4 For instance, if we confine ourselves to social expenditures as a proportion of gross domestic product (GDP), we can say that social protection in classic Japanese capitalism is characterised by a lower level of state intervention than in the United States (15.1% in 1997 as against 15.8% in the United States, 29.2% in Germany and 35.7% in Sweden). Taking this criterion on its own would lead us to identify the Japanese social protection system as an archetype of the liberal model. We need, however, to add nuance to this result on several levels.5 First of all, at the level of expenditure itself, the situation is very variable depending on the types of risks covered. Levels are comparable to those in Europe in the areas of pension and health, even though the latter is broadly cheaper in Japan than in France, for example, partly because it is more efficient, as Campbell & Ikegami (1997) argue. Expenditure is on the contrary much lower in the areas of work accidents, family policies, social assistance and housing subsidies. As far as unemployment insurance is concerned, expenditure is also lower because unemployment levels are much less on average than in Europe or the United States, in a context where public works expenditure (representing more than 6% of GDP at the end of the 1990s against 2% in Germany and the United States) plays a role of shock absorber in the labour market. This links with the more general fact that redistribution in Japan takes place more between regions than between social classes (Boyer & Lechevalier, forthcoming; Takegawa, 2005). Going beyond the expenditure approach, if we consider other dimensions of the welfare state, aspects specific to Japan also appear. First of all, we may note a low level of social regulation (even by comparison with the United States), compensated for by substantial economic regulation. The social sphere is in fact marked by laissez-faire, the only exception being dismissal, whose framework is relatively strict (Kambayashi, 2010), whereas bureaucracy in general – and the Ministry of International Trade and Industry (MITI) in particular – had an important role in economic regulation, at least before the neo-liberal transition. It leads us to consider the political construction of the welfare system in Japan. In fact, the paradox is that since the

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mid-1950s, neither the unions nor Japanese left-wing parties have played the main role in the construction of the welfare system. In conformity with what has been labelled ‘productivist welfare capitalism’ or ‘welfare developmental state’ (Holliday, 2000; Peng, 2005), it was essentially the conservative party (Liberal Democratic Party – LDP) and the bureaucracy that took control of these subjects, without any real public debate, nor even alternative proposals, although competitive pressures from other parties and ‘political crises’ often play a role of incentive for the LDP and the bureaucracy (Peng, 2005). From this viewpoint, seen as a whole, the Japanese welfare system is neither social democratic, nor liberal, nor even conservative. The way of describing it most recently proposed by Esping-Andersen (1997), that of a mixed liberalconservative welfare state is not satisfactory either. To our view, the only way to go beyond this methodological cul-de-sac in order to understand the Japanese welfare system and its evolution properly is to adopt a structuralist perspective (Théret, 2011) and to introduce the political sphere besides the two pillars that are company-ism at the firm level (economic sphere), and the family (domestic sphere), as in Boyer & Lechevalier (forthcoming). These are the three dimensions that have been affected in an original fashion by neo-liberal policies. Finally, a necessary fourth extension of the analysis in terms of companyist wage labour nexus means taking into account the place of consumption in this compromise (Sala, 2010). Consumption has of course been analysed, but in a relatively limited number of studies (Mizoguchi, 1970; Bronfenbrenner & Yasuba, 1987; Horioka, 1989, 1990, 2004; Akaishi & Steinmo, 2006). The issue is here to go beyond the apparent contradiction between, on the one hand, frugal wage labour nexus putting the accent on saving and, on the other, the reality of (surely progressive) access to consumption goods that American and European consumers were also able to buy, until the final point of the bubble economy (1986–91), which saw a consumption frenzy. On the same broad subject, we may observe an apparent contradiction between, on the one hand, the weak development of official (or mainstream) consumer credit (while ‘unofficial’ consumer credit de facto exists and is managed by people more or less related to organised crime), and the low level of indebtedness of Japanese households, and on the other hand, the fact that in Japan, in the 1980s and 1990s, the luxury market was not only aimed at a well-off minority, but also to a large part of the middle class. In order to go beyond these apparent contradictions, it is required to improve our understanding of the Japanese consumption model, which is the counterpart of productivism in Toyota-style wage labour nexus. To do this, we should keep some distance both from marketing-type approaches and from cultural approaches. We shall now give two examples to show how interesting analysis of consumption is for a better understanding of the Japanese social compromise and its development. First, analyses of Japanese household budgets suggest that their consumption model shows an Engel coefficient (i.e. broadly speaking, the proportion of family income that is spent on food) even higher than

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international standards of the member nations of the OECD. This is explained, among other reasons, by a high price level for some domestic food products as well as for housing (Horioka, 2004). It is there that we may find a first approach to the social compromise. Second, a systematic analysis of interest groups and their influence shows that producer interests trump consumer interests (Horioka, 1990). This is demonstrated in the absence of consumers in political debates that took place over the introduction of the consumption tax in 1989 and its increase in 1997 (Akaishi & Steinmo, 2006), and by the pursuit of a protectionist agricultural policy to the detriment of the interests of consumers, (Horioka, 1994), and again by the near absence of official consumer credit until 1992, in conformity with the public policy of encouraging saving (Horioka, 1990; Bronfenbrenner & Yasuba, 1987; Sala, 2010). Apart from taking account of the different dimensions of this social compromise, it is also important to understand how it was formed. Should we see in it archaic remains of a Confucian vision of society? In this area as well, cultural explanations find it hard to explain the changes that have affected the Japanese social compromise. Indeed, as the long-term history study by Moriguchi & Saez (2008) has shown, Japan between the wars was very unequal, and marked by remarkable concentration of income.6 It was, in fact, at the end of the Second World War and during the post-war period that the classic Japanese social compromise emerged. More precisely, we may distinguish three strata. We should first of all acknowledge the existence of a ‘traditional’ base which, on the one hand, constitutes the foundation of forms of intergenerational solidarity and, on the other hand, ensures a place for all men and women, whatever this place is. In the post-war context, this was manifested mainly in ‘jobs for all’, in other words an absolute and radical preference for full employment that acts as a dimension of welfare (Kume, 1998; Miura, 2012). In addition, the classic Japanese social compromise was also the result of social struggles which most of all made it possible to reach a compromise on employment security (Gordon, 1988, 1998). Finally, we must not forget the contribution of the American occupation, whose democratic dimension we often recall, but of which we tend to forget that it contributed very strongly to the formation of a egalitarian compromise and to the establishment of a structure less unfavourable to wage earners, notably by putting in place a real labour law (Tsuru, 1996; Takemae, 1982). We should recall here that the American administration was much influenced by the ideas of the pre-war New Deal, in the sense that some American representatives came from the left wing of Franklin D. Roosevelt’s team. In our opinion, it was the essence of this social compromise that came to be put in question progressively from the 1980s.

The social compromise in the Koizumi years As we saw in Chapter 1, we should not exaggerate the role of Koizumi in the implementation of neo-liberal policies, to the extent that his numerous

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reforms had been prepared well in advance by his predecessors. Even so, he was able to incarnate, more than any other person, neo-liberal principles not only in policy terms but also at the level of social compromise and of a social vision. Thus, we may read in some of his statements the negation of the state’s responsibility in the protection of the weakest members of society. It was during the Koizumi era that duality between winners and losers (kachigumi/ makegumi – 勝ち組・負け組) took hold in media discussions. We may also say that it was the rejection of these policies that made possible the change of government in 2009. Japan, an unequal society The principal manifestation of the break-up of the social compromise was the growth of inequalities. The term ‘unequal society’ (fubyo-do- shakai – 不平等社 会) became a popular expression following the publication of the book with the same title by the sociologist Toshiki Sato (2000). More precisely, the 2006 issue of the OECD study of Japan estimated that wage inequality in Japan had surpassed the OECD average and had experienced the strongest growth of any developed country (OECD, 2006). Moreover, the percentage of persons living in absolute poverty grew by 5% between the mid-1980s and 2000, Japan being the only country in the OECD having experienced such a rise of poverty. This tendency only became more marked during the course of the 2000s. While there was a debate about it in the 1990s (see below), this growth in inequality was indisputable from the 2000s, both in terms of wages and incomes and in terms of employment security (Lechevalier, 2011c). This was even more the case when we consider subjective data. The survey conducted by the Cabinet Office since 1963, in which a sample of individuals are asked to place themselves in a social class (upper, upper-middle, middle, lowermiddle, lower), shows that from the second half of the 1990s fewer and fewer individuals have considered themselves to belong to the middle class, whereas the figure had been more than 90% at the end of the 1970s.7 Genders, generations and class struggle In the general context of a rise in inequality, we might think that women, ‘dominated’ in the context of a patriarchal wage labour nexus, would be the first ‘victims’ or losers. In fact, this was not observed. Inequalities between men and women were broadly stable, whereas a rise in inequalities between women themselves was observed. The origin of this phenomenon relates to the fact that more and more women make a career for themselves, and this is only achieved at the expense of family life, whereas those who choose to have a family more or less only have access to non-regular jobs (Arai & Lechevalier, 2005a, 2005b). To put it differently, the contemporary paradox of Japanese women may be summarised in the fact that on the one hand they benefit from a greater set of

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choices but on the other they face rising levels of inequality among themselves (Tachibanaki, 2010b). More profoundly, this leads us to ask ourselves about the nature of the family in a neo-liberal society.8 While the family was considered to be a risk absorber in classic Japanese capitalism, it is itself seen as a risk within the structure of the neo-liberal compromise (Yamada, 2001). Thus, the associated risks are essentially those of the financial and emotional dependence of women at home. They also concern what Masahiro Yamada calls the ‘parasite singles’ – that is, young people who remain with their parents even after leaving university. In fact, several government reports attempt to define alternative models of the family not unrelated to Yamada’s vision.9 These may be described as neoliberal visions of the family. To some extent they are contradictory in that they do not completely exclude a conservative approach to the family, as is shown in this citation from a book written by the prime minister who succeeded Koizumi in 2006, Shinzo- Abe, himself a former member of the Koizumi government: ‘The form of the family is not always ideal. But I think that we should preserve a vision of the family consisting of a father, a mother, children and grandparents. Also, we should maintain a sense of value that considers living together in such a family to be the best way of being happy’ (Abe, 2007). To simplify, according to these reports, the classic model of the breadwinner should give way to that of a family at the heart of which independent individuals make personal choices based on sentiment rather than on the sexual division of work. Witness to this is the fact that the ‘reformers’ proclaim their desire to create numerous jobs by removing from the family domain a series of functions that are to be given to the market. These reflections on gender and the family are the best way into an understanding of the demographic evolution in Japan that has attracted an attention that is certainly both exaggerated and biased. The themes of ageing and of the decline of the Japanese population are indeed greatly over-worked, whether as a symbol of Japanese decline, or in order to promote a certain number of public policies, from immigration to the promotion of personal robots – but, surprisingly enough, relatively rarely family and pro-birth policies – as solutions to the future lack of workforce. Indeed, these discourses and ‘analyses’ of demographic decline in Japan rarely make a link with questions of gender. The link, however, is evident (Arai & Lechevalier, 2003, 2004). To summarise: women have a choice between two more and more exclusive options: either they found a family, and in this case they are severely limited in their choice of work, which would be mainly part time; or they decide to embark on a career, and then this will reduce the possibility of founding a family. In the 1990s, more and more women chose not simply to work, but also to prioritise their career. It is in this incapacity of Japanese capitalism to allow individuals, essentially women, to balance career and family, that lies, in our opinion, the principal cause of the declining birth rate, of demographic decline, and in consequence, of the ageing society (Arai & Lechevalier, 2005a, 2005b).

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The neo-liberal social compromise is also marked by a bigger and bigger gulf between the generations, breaking with the classic social compromise which would imply inter-generational solidarity. Without doubt, the main victims of this new state of affairs are the young (Brinton, 2010; Genda, 2005).10 To put it a bit crudely, the question increasingly asked is how to be young in an ageing society (Genda, 2003). Whereas the classic system offered a guarantee of employment to university graduates, it has not been systematically the case since the end of the 1990s, notably in the course of each crisis of the labour market, during which firms drastically reduced the number of hiring as a mode of adjustment of their workforce (Genda & Kurosawa, 2001; Kariya & Honda, 2010). This was particularly the case in 2008–9, when certain firms preferred to give financial compensation to young people who had been promised employment, rather than fulfil the promise. The real problem is that the cohorts that encounter structural difficulties in finding employment in a given year are also handicapped in following years, because being one year late in the labour market is perceived as a negative signal, whatever its causes might be. In other words, entry into the labour market once frustrated had long-term effects (Genda et al., 2010). In these conditions, the hypothesis popularised most notably by Masahiro Yamada, according to which the appearance of freeters11 and NEETs12 is due to changes in the work ethic, is largely invalidated by the facts. It was the deterioration of labour market conditions that were at the origin of this kind of deviant behaviour. Another problem of inter-generational problems in a neo-liberal society concerns the situation of the elderly. Even if they are on average less affected by the crisis than the young, we should note the appearance of cases of extreme poverty, although at this juncture we cannot distinguish between the effects of neo-liberal reforms and the consequences of the classic system which de facto maintains certain categories in a state of insecurity. More than the behaviour – extremely unusual, despite the media attention it has been given in the United States or in France, for example – of elderly persons who have got themselves arrested in order to benefit from relatively better conditions in prison, it is especially the problem of the retired that raises the question of inter-generational solidarity. Beyond the dramatic administrative bug revealed in 2007 that led to the loss of millions of pension records during the period 1997–2007, it is the survival of a hybrid system that is at issue in a context of a rapidly ageing population (Estienne, 1996). Finally, the 2000s have been also marked by the success of a book typical of proletarian literature of the inter-war period. Kaniko-sen by Takiji Kobayashi. To an amazing extent, many young people jumping from job to job identified with the protagonists of the book, who worked on a fishing boat (which also served as a cannery) and who rose in revolt against their conditions of work. It would certainly be exaggerated to conclude that we are seeing a return to class struggle in a country that was, at the beginning of the 1970s, described as almost entirely middle class. More modestly, we may

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speak of a return of the social question, as witnessed by numerous articles and reports on poor workers or homeless people (Malinas & Gill, 2004).

How has an egalitarian compromise become a neo-liberal compromise? The causes of increased inequality How may we explain this increase in inequality in Japan, in the more general context of a transition in the social compromise? Here again, it is particularly interesting to place the issues in historical perspective, as has been done in various works of Chiaki Moriguchi.13 Her studies, inspired by the methodology developed by Thomas Piketty and Emmanuel Saez in the case of France and the United States, and focusing on the analysis of high incomes on the basis of fiscal data, led to several conclusions essential for our understanding of the development of inequality (and of the associated social compromise) in Japan over more than a century. The first collection of results concerns chronology. The concentration of revenues was very high during Japan’s industrialisation, from the Meiji period up to the Second World War. It was during the war (notably between 1938 and 1945) that a drastic reduction in high income concentration could be observed, in the context of the collapse of revenues from capital due to inflation and regulations put in place during the war. Concentration of revenues remained at low levels during the second half of the 20th century, even though at the end of that period some modest signs of growth could be observed. The second type of result concerns the composition of high incomes, which showed a transition from revenue from capital to revenue from work. The third result was that by contrast with developments in the United States from the 1970s, the extent of high incomes in Japan remained relatively stable over the past 30 years. Two further results emerge from this comparison between the United States and Japan: technological change and new fiscal situations do not explain the differences between Japan and the United States. Rather than this, it was institutional factors, such as internal labour markets and the union structure, that were the most important determinants of the concentration of income from work. Various studies conducted by Ryo- Kambayashi support this analysis (Kambayashi et al., 2008; Kalantzis et al., 2012). The point of departure is the following. In the 1990s, increasing inequality was considered an important problem in almost all developed societies. Skill-biased technical change, especially, seemed then to have affected many economies and to be a good candidate to explain growing inequalities in OECD countries, of course to varying degrees. Numerous studies have found that the institutions of the labour market (unions, minimum wage), as well as globalisation have also played a role, whose evaluation has been a matter for scientific debate. The Japanese case was at the very least more ambiguous. Of course, we have observed a growth in inequality in Japan in the 1990s, to the point where Japan became one of the most unequal societies among OECD countries

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according to the criterion of the Gini coefficient, as we have seen above (Tachibanaki, 2005). It has been proved, however, that it was in fact the ageing of the population that was the principal engine of the growth in inequality during that period (Ohtake, 2005). This implied that Japanese society had not been fundamentally transformed, despite this apparent rise in inequality, and that policies of struggle against inequalities were not a priority. Even so, this situation completely changed in the course of the 2000s. Wage inequality began to rise strongly without ageing, globalisation and technical progress actually accelerating. This means that the literature that explained the rise in inequality in the world up to the 1990s can no longer explain either Japan or even the OECD countries as a whole, in that the development seen in Japan may correspond to what we may come to see later in other countries. The central point is that in the Japanese case, it is the labour market that is the matrix of inequalities. Analysis thus should focus on it, directly or indirectly. How then should we analyse more systematically the causes of the rise in inequality in Japan? We must first of all eliminate a certain number of explanations.14 Whatever their details may be – intra-industrial effect linked to outsourcing of production not needing particular qualifications, or interindustrial effect linked to change in the industrial structure, for instance in the case of the delocalisation of the textile industry as a whole – the explanations associating globalisation to skill-biased technical progress are invalidated as a whole, as we do not observe a significant rise in inequality related to the level of qualification.15 However, it is worth noting that a new generation of studies that use micro-data identified some effects of globalization on wage inequalities and more generally on labor market outcomes (Lechevalier, forthcoming). As far as explanations based on the ageing population are concerned, we have seen that this was confirmed up to the end of the 1990s (Ohtake, 2005). Even so, from the 2000s, we observe a rise in inequality within given age groups, notably among the young, which this kind of analysis does not allow us to explain. Finally, one of the most popular explanations of the rise of inequality in Japan emphasised the increasing employment insecurity symbolised by the development of non-regular work (part time, temporary, etc.), which today represents more than 30% of the total work force and more than 80% of jobs created. To this may be added the phenomenon of working poor, which constitutes a new stage in the growth in inequality and the labour crisis in Japan, in that in the preceding model, employment was the basic factor of social integration. This double phenomenon – insecurity of the workforce and growth in the number of working poor – needs to be studied in detail, by reference to analyses of wage labour nexus changes in France and in Europe more generally.16 However, this explanation is limited as it does not take account of the rise in inequalities among regular workers themselves (Kalantzis et al., 2012). Even so, at the moment, we do not know of any systematic comparison between these two types of inequalities – between regular and non-regular workers, and within regular

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workers – so that we are unable to arrive at a conclusion at this stage. So here is one of the possible research paths on the development of inequalities in Japan. This point leads us to introduce our own interpretation of the rise in inequalities in Japan, the ‘re-segmentation of the labour market’. A labour market is considered ‘segmented’ when it is divided by a cleavage between two or several segments between which there is very little mobility, and characterised by differentials in wages, in employment security and more generally in conditions of work and career possibilities. This segmentation concerns both jobs and workers. The problem is not so much that the jobs are different, but that a part of the workforce is confined to a certain type of work. The key for the segmentation hypothesis is the discontinuity between the different segments (Berger & Piore, 1980; Lechevalier, 2003). The point of departure for our analysis is the idea that the debate on inequalities in Japan is too much focused on wage inequalities and that it has left aside the essential point that in Japan, more than in other countries, because of the characteristics of the employment system, wage inequalities are essentially determined by inequalities in employment security. This needs to be analysed in three dimensions: the job status (regular or non-regular), which forms in a sense the basis of inequality of job security; second, mobility (voluntary or involuntary, upwards or downwards), which is an aggravating factor; and third, the risk of unemployment, which has played a key role in each of the crises that the Japanese labour market has experienced. In other words, to focus on wages or job status is not sufficient. It is imperative to analyse conjointly and in a structured way the different dimensions of employment security. Following this perspective, we need to recognise two types of loser from labour market dynamics: first of all, those who have lost their jobs and who have therefore experienced an interruption to their career (Lechevalier, 2003); second, young people for whom it is more difficult to enter the labour market (Genda, 2003). The hypothesis of the re-segmentation of the labour market concentrates on the former category. Without denying the importance of the problems facing young people, our aim is to challenge an interpretation of the Japanese labour market dynamics in terms of insiders and outsiders,17 because it assumes that the insiders are able to manipulate the turnover rates in the labour market, and this does not remotely fit the Japanese case, which is marked by a general decline in the bargaining power of workers (Dore, 2000). It is possible to show that the most significant determinants of lay-offs are the characteristics of firms rather than individual characteristics such as sex, age or education (Arai & Lechevalier, 2005a, 2005b; Suruga, 1998; Chuma, 2002; Lechevalier et al., forthcoming).18 It remains to determine the characteristics of firms that matter. This research is complicated by the fact that we have treated as crucial in Chapter 2 – namely, the growing heterogeneity of firms, and more precisely the growth in the productivity dispersion that concerns firms of similar size and belonging to the same sector. In fact, following earlier works about the United States and the UK (Mortensen, 2003; Faggio et al., 2010), Kalantzis et al. (2012) show that the rise in wage

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inequalities correlates significantly with increases in the dispersion of firm-level productivity, following a negative productivity shock at an aggregate level. Going beyond the impact of the crisis, this collection of results may be interpreted in the framework of a political economy of analysis of inequalities in Japan, inspired both by Krugman (2007), Dore (2000), and the analysis of the development of forms of co-ordination of the Japanese economy presented in Chapter 3.19 This interpretation is summarised in Figure 4.1. If the labour market is really the matrix of inequalities in Japan, we should at the same time recognise that the increase in inequality also plays out in other areas, principally at the level of the industrial structure, described in Chapter 2. In its turn, it is determined in part by neo-liberal policies that have contributed to the decline in forms of co-ordination.20 Finally, it is important to insist on the historical dimension of interpreting labour dynamics in Japan in terms of ‘re-segmentation’. On the one hand, it means that segmentation is not a given but that it evolves. On the other hand, this interpretation aims to make, at least implicitly, a parallel between the contemporary period and the period 1910–30, in the course of which the differentiated introduction of foreign technologies was the basis of the dual structure of the Japanese economy in the 1950s (Shinohara, 1970). In the context of the 1990s, it was less the impact of the introduction of information and communication technologies (as shown by Ito- & Lechevalier, 2009) than that of financial innovations and the diffusion of international accounting norms. The contemporary mechanism at the base of the re-segmentation of the economy concerns the differentiated introduction, by firms, of opportunities created by the new financial environment (Lechevalier, 2003). Moreover, it has been aggravated by the global side of de-industrialization (Lechevalier, forthcoming).

Towards the emergence of a new social compromise: can a new ‘Japanese-style’ welfare state be built? Whatever the results might be of neo-liberal policies in Japan in terms of efficiency (and we have seen, in Chapter 3, that they need to be strictly qualified), an essential question arises in the framework of this programme of reforms: what to do with the non-competitive part of Japan? This is another way of posing the question of the nature of the social compromise, insisting on solidarity between different social groups defined by income, age, etc., which must lead us to consider the evolution of the Japanese social security system (Osawa, 1993; Okazawa & Miyamoto, 1997; Shinkawa, 1993; Takegawa, 1999; Izuhara, 2003; Tachibanaki, 2004; Boyer & Lechevalier, forthcoming). According to the dominant theory, all countries benefit from globalisation, in that it constitutes an extension of the market; however, it poses problems of redistribution within each country. In simplifying a great deal, it is possible to oppose the American way with the European way on this question, the first consisting of allowing the market to operate freely,

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including domestically, whereas the second tends to attempt to correct the unequal effects of globalisation. As far as the ‘Japanese way’ is concerned, if indeed there is one, we may distinguish two approaches. The first we have already sufficiently described, and we may call it neo-liberal. The second is ‘traditional’, in the sense that it corresponds to the policies of the LDP before the 1990s, which sought to protect its clientele (farmers and small and

Rising inequalities

LABOR MARKET (MACRO LEVEL) : RE SEGMENTATION Firms' characteristics are more important than individual determinants

-Intra group wage inequalities (defined by individual characteristics) -Employment security inequalities (unemployment risk, job status, involuntary quits)

Increasing heterogeneity of firms, basis of the reseg mentation

FIRMS (MICRO LEVEL): INCREASING HETEROGENEITY (within sector and size class)

Increasing organizational diversity

Increasing dispersion of performance

No strong correlation

•Human resources management

•Increasing dispersion of productivity

•Corporate governance

•Records of bankruptcies •Records of profits

Channel: financial constraints (fmancialisation)

Institutional context EXTERNAL PRESSURES (outside the w a g e labor nexus)

• Deregulation • Decay of previous coordination forms •Diffusion of international norms of management and of corporate governance

Figure 4.1 The ‘resegmentation’ of the Japanese labour market

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medium-sized enterprises (SMEs), for example). A recent representative of this approach is Prime Minister Fukuda (2007), who introduced a break (relatively speaking) with the policies of Prime Minister Koizumi.21 In a context of crisis marked by economic stagnation, this ‘traditional’ way has clearly reached its limits, whether we consider effective social welfare or the ‘inefficiencies’ weighing on the economy. We touch here on a general problem well explained by Cohen (1995). The question is indeed to know whether it is systems of social welfare that made for growth during 1945–75 in many parts of the world, or whether it was this growth that made it possible to put in place systems of social welfare that were generous in light of the history of capitalism. The originality of the Japanese trajectory during the lost decade is that, after a period of retrenchment in the 1980s, one observed rather a phase of welfare expansion, despite tighter fiscal constraints (Peng, 2005; Boyer & Lechevalier, forthcoming).22 Two often-quoted examples are child care and long-term care (Peng, 2005). Let us focus on the latter and also include the case of health insurance, which is particularly interesting from the viewpoint of regulation (Campbell & Ikegami, 1997). If the cost of the Japanese health system is low relative to that of other OECD countries (8% of GDP against 12% in France and 16% in the United States), this was above all because of a very strict regulation of the price of consultations (which are never allowed to exceed that fixed by the health insurance) and of medicines (which the state fixes every year, with a base coefficient for the least up-to-date medicines). In other words, if for practitioners and hospitals the system is liberal, the way in which prices and reimbursements are fixed creates a highly regulated system. It also brings in a strongly egalitarian dimension, because there is a system of compensation between the various health insurance plans to limit the difference between payment and coverage. In the case of long-term care, it is considered a fifth risk (after family, illness, unemployment and old age) since the passage of the law of 1997 (and its entry into force in 2000). Its inspiration came from Scandinavian and German experiences. Even so, the progress of constructing a welfare state in Japan since the beginning of the 1990s should be considered in relative terms, especially if we compare it with the Korean experience in this area over the same period (Peng, 2004; Takegawa, 2005; Boyer & Lechevalier, forthcoming), marked by the construction of the welfare state in sharp contrast with neo-liberal precepts that the Korean government applied perhaps more than any other governments in the world (Tiberghien, 2007). In a general sense, the form of the welfare system is a key element in the analysis of the diversity of capitalisms, especially in Europe (Palier, 2010; Amable, 2003; Hall & Soskice, 2001; Estévez-Abe, 2008). We have seen that social protection in Japan was not accompanied by massive public expenditure (Sautter, 1996) and was essentially based on the firm and the family. This way of effecting social protection, without large-scale transfers, revealed numerous advantages up to the beginning of the 1990s, especially by controlling costs and by efficiency. The most conclusive result showing the benefits of

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this system was certainly the integration of a large part of the working class into the middle class. However, it also showed its profound limits in a double context of the transformation of the family and the crisis in the labour market (Peng, 2005; Boyer & Lechevalier, forthcoming). The ‘holes’ in classic Japanese social protection are directly responsible for the dramatic rise in inequality. In other words, the rise in inequality in Japan came from the introduction of neo-liberal policies without a corresponding establishment of a real welfare state, despite the expansion that has been mentioned in some domains. According to Boyer & Lechevalier (forthcoming), the emerging Japanese model is thus close to an unbalanced version of the Danish model, as the increased flexibility is not accompanied by an increase in protection (for persons, not jobs). In this context, the ‘Japanese-style’ welfare state remains to be invented. There are various possible ways of doing this (Miyamoto, 2003; Estévez-Abe, 2008; Boyer & Lechevalier, forthcoming).23 One of these derives its inspiration from the abortive attempt in the early 1970s. At that time, reacting to various initiatives at the local and regional levels that were perceived as increasing competitive pressures from other political parties, the Liberal Democratic government attempted to establish an original form of welfare state that was announced by Prime Minister Tanaka as the First Year of Welfare (Fukushi Gan’nen), as recalled by Peng (2005). To summarise, and at the risk of simplifying, it included the essence of the system described above, while increasing to a marked extent social contributions in the European sense. In the context, however, of the oil shock, of strong inflationary trends, of budgetary problems and of a tense debate within the LDP, this attempt remained a dead letter. Of course, the economic, social and ideological contexts have greatly changed and the budgetary constraints are even greater; this aborted attempt should nonetheless be kept in mind while thinking of the future of the Japanese welfare system. Another possible way might be described as a European-style ‘third way’. Indeed, it is inspired very strongly by the Blair experience in the United Kingdom, as is argued by one of the promoters of this model in Japan, Professor Jiro- Yamaguchi of the University of Hokkaido- and adviser to Ichiro Ozawa before the Democratic Party (DPJ) victory of August 2009.24 The interest of this perspective lies in the fact that it takes account both of the initial conditions of the Japanese system of social protection and the impact of 30 years of neo-liberal policies. However, besides the fact that the idea that Japan of the 2000s more and more resembles the UK, as Estévez-Abe (2008) points out, is questionable, the two principal problems with this perspective are that it does not bring into question either the link between work and social protection (Miura, 2012), nor the disequilibrium in allowances, of which in fact 70% goes to the elderly in the form of pensions and health insurance (Cargill & Sakamoto, 2008). In our opinion, the two ways put forward above do not fully address the issues with which Japan is faced. The first issue is that of even defining areas of social protection, to the extent that there is in Japan a tendency to confuse

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labour policy and social policy (see also Miura, 2012). This is a confusion that has not been overcome; rather the opposite, since the fusion in 2001 of the ministries of labour and health in a single ministry, the Ministry of Health, Labour and Welfare (MHLW). The second issue is that of the complete overhaul of the system of social protection according to quite different logic depending on the five risks covered (family, illness, unemployment, old age, long-term care). Every project to establish a new system of social protection in Japan, to make it more comprehensive, goes through an overhaul of the old system and a harmonisation. The basic question is that of how to finance it, and that is the third issue. Reform of social protection is inconceivable without a simultaneous reform of the fiscal system (Jinno- & Ide, 2006). In other words, the Democratic Party reforms since August 2009 (establishment of a parental allocation, project of reforms of medical and retirement systems) perhaps begin to tackle the problem. However, they were far from being sufficient, and the fact that the LDP won the election in 2012 and a personality like Shinzo- Abe again became prime minister led us to consider that it was just a parenthesis (see also Chapter 1). The symbol of this powerlessness is certainly the concept of fraternity (yu-ai – 友愛), put forward by Hatoyama, which is not so helpful to conceive a new welfare system. We have here the central issue for the future of Japanese capitalism, as well emphasised by Schaede (2004: p. 277): Japan’s steep postwar growth was nested in a political economy built around producer-oriented policies … The government spent more resources on supporting exporting industries and compensating domestic ones than on building a forward-looking welfare system. Japan’s decadelong economic downturn marks a structural transition towards a postindustrial society … the country also lacks a welfare system to handle increasing structural unemployment that this transition brings about. Without a commitment towards a welfare system and a welfare society, and a reorientation of the social contract towards citizens, Japan is unlikely to transition successfully. To put it simply, the issue is how to make the welfare system more central in the emerging post-neoliberal régulation mode – if Japan has already entered the post-neoliberal era, which is far from certain – and a key component of the associated growth regime, besides unstable investment-led or export-led growth regimes (Boyer & Lechevalier, forthcoming). Making the welfare system more central requires having a broader vision than the one of the DPJ in 2009, for example, in better including gender issues (Miura, 2012). It is also necessary to fill the gap between the discontent of Japanese citizens regarding the level of inequality and their unwillingness to establish a more comprehensive government-led redistribution system (Lechevalier, 2014). Finally, we need to know the place of firms in this social compromise. Our perspective aims to separate the question of the social compromise from that

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of wage labour nexus defined within firms. It is no less true, however, that firms have played an essential role in the social compromise that characterised classic Japanese capitalism. This explained in part the peculiarities of the system of social protection. In the context of crisis of the 1990s and 2000s – and above all, in the framework of the neo-liberal attempts at reconstructing society – some firms attempted to escape from the ‘traditional’ responsibilities to their workforce, both regular and non-regular. The symbol of this tendency is of course the break with paternalism embodied in the violent restructuring at Toyota at the time of the world crisis of 2008. This was manifested in the dismissal overnight of non-regular workers who at the same time lost their housing that had been guaranteed by Toyota. This attitude by the leading car maker was perceived as being even more unacceptable in that Toyota was at the same time at the head of the business world opposed to a reform of the tax system that would mean an increase in taxes weighing on firms. Anyway, the least that may be said is that discussion of the social responsibility of firms is far from being convincing and turning into action that may structurally modify the social compromise in Japan.

The ‘re-segmentation’ of the labour market and the new social contract In this chapter, we have shown the main transformation introduced by neoliberal policies, which have contributed to the transition from an egalitarian society to an unequal one. This trajectory of a country that was one of the most equal in the 1970s and that has now become one of the least equal today among OECD countries is the heart of the message and of the lessons that we should take from the Japanese experience. Of course, we should treat this development in relative terms, to the extent that exclusion does not take the forms seen in the United States, and that the definition of poverty is relative (Cargill & Sakamoto, 2008). Even so, we have seen unprecedented growth in the disparity of wages and employment security between wage earners of comparable status, working in firms of similar size and belonging to the same sector. De facto, a part of the population that had been included in the postwar social compromise finds itself in an unaccustomed situation of insecurity, in which work is no longer associated with a guarantee of social integration. It is to take account of this form of social change that we have proposed the concept of re-segmentation of the Japanese labour market in order to understand the transformations that are occurring. This interpretation leads us to reject the idea that it is the nature of Japanese wage labour nexus to be unequal. Putting this into historical perspective since the end of the war allows us to see, on the contrary, that if the segmentation of the labour market is a structural given, it has deeply evolved in intensity and along lines of cleavage. In other words, the contemporary debate on inequalities in Japan was not born in the 1990s, but has roots going back to another debate, much older, on the nature of the employment system

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established after the Second World War and the structure of inequalities that was associated with it. The question is whether Japanese wage labour nexus need segmentation to create employment security, or whether they are fundamentally inclusive, even if they are to pass temporarily through a situation of insecurity for certain categories of workers. Our own view is that segmentation was central to the post-war social compromise. This is why it is more appropriate to define the Japanese employment system as the articulation of different segments of the labour market, by an equilibrium between stability and instability, rather than by the ‘three treasures’ (Sanshu no jingi – 三種の 神器) of lifetime employment, seniority wage and enterprise unions. It is this equilibrium and this compromise that has been questioned, directly or indirectly, by neo-liberal policies as a whole. It is these policies that are at the origin of a real rupture, even more than the crisis. There is another important issue for the re-segmentation hypothesis. It corresponds to a growth in inequality following other lines of cleavage than the famous Japanese economic dualism in relation to firm size differentials that was evident in the 1950s. To fight against these inequalities, it follows that earlier forms of co-ordination, which had in part corrected the more negative effects on populations in an insecure situation, are now inadequate (see Chapter 3). From then on, the issue was the building of a new system of social protection that did not lie solely in work, family or transfer policies set in place by the former LDP regime. This redefinition of the welfare state will have deep consequences for Japanese capitalism (Boyer & Lechevalier, forthcoming). Finally, the hypothesis of re-segmentation of the labour market that has been developed in this chapter has deliberately put to one side the question of the entry of young people onto the labour market, but in fact, this question is essential. As Toshiaki Tachibanaki shows in several recent books, it is largely conditioned by the development of the education system, which is one of the major sources of inequality, in a sense that we need to specify (Tachibanaki, 2010a). This essential point is the subject of the next chapter. In addition, the question of the reform of the education system does not only concern the creation of inequalities – not even of social compromise. This is why it needs to be dealt with as a topic on its own.

Notes 1 This chapter has benefited most particularly from discussions with Yves Tiberghien. We are also grateful to Hiroko Takeda for her numerous comments on the Japanese reproductive system, as well as to Bruno Amable for his theoretical discussions on the understanding of the social compromise through approaches in terms of the diversity of capitalisms. 2 See, for example, the debate among the economists Tachibanaki (2005) and Ohtake (2005), or among the sociologists Toshiki Sato (2000) and Kazuo Seiyama (2000). 3 To this characteristic should be added another, namely the fact that female labour plays the role of a buffer throughout the economic cycle, and this means increased instability of employment for women. See Houseman & Abraham (1993).

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4 Representative of this problem are Jones (1993) or Rose & Shiratori (1986). 5 See Estévez-Abe (2008) for a systematic discussion of the limits of this approach. 6 See also studies done by the School of Economic History of Hitotsubashi University, notably Mizoguchi et al. (1991), and Mizoguchi & Takayama (1984). 7 The next section discusses in detail the causes of the growth in inequalities in Japan. 8 What follows is mainly inspired by various contributions of Hiroko Takeda, including Takeda (2008a, 2008b). See also Rebick & Takenaka (2006). 11 Among these reports, we may cite: The Review of the Family-Related Systems as Part of Structural Reform, The National Life Bureau, Prime Minister’s Office, 22 June 2001; 2002 White Paper on the Quality of Life of the Family, Handbook, 2002; Great Life Voyage: The Guideline for Future Life, 2002. 10 See also the conference organised by the Fondation France-Japon de l’EHESS (ffj. ehess.fr) on the theme ‘Youth in the Crisis: A Lost Generation?’ (15–17 March 2011). 11 Freeter is a Japanese term that designates people aged between 15 and 34, employed part time or unemployed, with the exception of housewives and students. 12 NEET signifies ‘not in education, employment or training’. 13 See for example Moriguchi and Saez (2008). 14 For a critical and clear review of these different hypotheses, see Uni (2008). 15 This is one of the side results of Kambayashi et al. (2008). 16 See, for example, from very different perspectives, Castel (2003) or Supiot (2012). 17 See, for example, Saint-Paul (1996). 18 See also Kambayashi et al. (2008: p. 1347): ‘Although simple aggregate statistics may give the impression that wage inequality did not change during the period, the decomposition analysis reveals that the seemingly steady trend is a product of two opposing trends: (1) declining between-group (defined by education, experience, tenure, and firm/establishment size) wage inequality for both sexes; and (2) increasing within-group inequality among male workers and increasing observed heterogeneity among female workers.’ 19 See also Lechevalier (2011a, 2011c). Even though there are points in common, notably the emphasis on labour market mechanisms and the political economy perspectives, this analysis and the one proposed by Uni (2008) are different. Indeed, while Uni places the accent on the reform of the training system for wage earners, with the introduction of a wage system based on the evaluation of individual performance (within firms effect) and the weakening of the shunto- (betweenfirms effect), we emphasise inequalities in job security as well as various effects of neo-liberal policies, including those outside the labour market (impact of deregulation on the growth of diversity of firms, for example). 20 We should, however, note that this hypothesis has not yet been confirmed by a systematic econometric analysis. 21 Cargill & Sakamoto (2008) show that Prime Minister Fukuda of course did not put in question the essentials of the Koizumi reforms, but that he embodied the beginning of a rupture in the treatment of their effects, declaring that the government must ‘pay attention to the problem of inequalities and correct that which ought to be corrected’. 22 This was not without debate: see Fujimura (1999). 23 For a more general and comparative reflection on the development of social protection systems, see Guillemard (2008). 24 See the presentation of Jiro- Yamaguchi at the colloquium ‘Penser la crise’, organised by the Fondation France-Japon de l’EHESS, Paris, 14 November 2009, on the theme ‘Collapse of the Predominant-Party System and Challenge for Neo-Welfare Regime in Japan’.

5

Which education system in a neo-liberal world? Sébastien Lechevalier and Arnaud Nanta

Theories of the diversity of capitalism accord a central place to the education system and to the system of skill formation within the firm when they discuss the different forms of capitalism. For example, Hall & Soskice (2001) identify education and vocational training as one of the five areas in which firms must resolve problems of co-ordination (together with industrial relations, corporate governance, inter-firm relations and intra-firm co-ordination).1 In the same way, theories of national systems of innovation emphasise the complementarities between, on the one hand, the education system (especially higher education), which is supposed to provide workers trained in firms, and on the other hand, modalities of innovation (Nelson, 1993). Besides, the education system is evidently not limited to the training of a competent workforce for firms. Above all else, it is a determining element of the social compromise that affects the level of inequality (Tachibanaki, 2010a; Kariya, 2010, 2011). It follows from these different dimensions of the education system that it merits a complete analysis, per se. In order to describe the Japanese education system and its evolution, we need to respond to the following questions: how is it organised? How is it articulated with other institutions? What are its objectives? In general terms, the ‘classical’ Japanese education system has been described as a system that is ‘egalitarian with a broad base’ (Lam, 2002), in which the importance of vocational training was understood, going beyond academic education (Koike, 1991). An important part of education was taking place in firms, in the sense that they might be regarded as integral parts of the education system, which was significantly different from what is observed in other countries such as France or the UK. In the same way, Boyer (2003) shows that it was possible to differentiate German and Japanese capitalisms just on the basis of their systems of innovation and of skill training. In the first case, the accent was placed on the training in technical skills of ‘professionals’, who could circulate from one firm to another, whereas in Japan, the training of generalists was promoted, and their skills were acquired within a given firm and were specific to it. At the same time, the Japanese system of education had a certain number of points in common with systems of education in other co-ordinated types of

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capitalism. For example, it was highly centralised, as in France. This distinguished it from education systems in liberal Anglo-Saxon capitalisms. Since the early 1990s, however, the Japanese education system has experienced a set of reforms aimed at promoting more competition and the introduction of market mechanisms while turning the state aside, and in redefining even the objectives of school and university systems. In short, these reforms aim to promote convergence toward Anglo-Saxon education systems (while recognising the differences between American and British systems). The assembly of reforms had its origins in the 1970s and 1980s, when the Japanese education system was the object of repeated criticism, from various points of view, from the need for effective education connected to ‘reality’, to a claimed perception that morals were declining and violence increasing. At issue was the transformation of the post-war system, pyramid shaped but based on equality of chances through competition, to a different system, officially liberalised but de facto more closed and characterised by more marked social reproduction. The object of this chapter is to analyse the changes that have come about in the Japanese education system since these policies were put into effect. In return, these changes have begun to have consequences for innovation and the labour market. Beyond these indirect effects, it is one of the bases of Japanese society that has been affected by these reforms. Having set out what we may define as the ‘classic’ system of education and the criticisms that in the 1980s signified the start of the reforms to come, this chapter will concentrate on the broad parameters of reform from the 1990s, the effects of which it will seek to identify. Finally, we shall attempt to draw conclusions from this analysis in order to pinpoint the new Japanese capitalism.2

The ‘classic’ Japanese system of education and the pre-history of the reform Classic school and university systems The Japanese education system since 1945 to the early 1990s was based on the Fundamental Law of Education of 1947, which was supposed to guarantee the autonomy and respect of the pupil.3 It was strongly influenced by the American occupying forces, in a progressive sense, with the aim of realising the social ideal of equality of opportunity. Up to the end of the 1980s or the beginning of the 1990s, the Japanese education system was praised by American sociologists like William Cummings, for its success in educating pupils, whose level was very high as evaluated by various international tests, and with very narrow performance dispersion, thus demonstrating success as for result equality (Cummings, 1980). The system, combining a high level of performance and a great equality of results and opportunities, was thus seen as the history of a success worth imitating by other countries.

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At the same time, it was not without problems, and Ronald Dore’s expression ‘examination hell’ became widely accepted for describing a system where competition for success in entrance examinations to the best schools and universities was intensified to a point of crisis (Dore, 1976). The education that pupils received in order to survive this hell was based on memorising and did not sufficiently value their creativity and individuality. Kariya (2011) shows that there is no contradiction between the two characteristics of this education system, namely egalitarianism and meritocracy. The egalitarian perspective has become little by little a most powerful engine to put into operation a ‘mass meritocracy’ (gakureki shakai, credential society). This is not specifically Japanese: an international comparison shows that all advanced societies are credential societies, no more and no less than Japan. What distinguishes Japan is the belief of the population that everything can change thanks to a diploma, and that everybody has a chance. However, the correction of social inequality through the school system is only partial and the questioning of this system will lead later to more inequality (Kariya, 2010, 2011). However this may be, the result of this popular belief was that more and more families got their children onto diploma courses, resulting in intensification of competition and examination hell. This credential society is composed of two complementary blocs: on the one hand, school, where what matters is less the nature of what is learned than the process of meritocratic grading; on the other hand, the world of work, in which employment and career were strongly determined by academic results (Kariya, 2010). Between the two lie universities, access to which amounts to a new birth, after a social birth (Kariya, 1995). Japan has a dual system of universities, with 25% being public universities (national, prefectural and municipal) and 75% being private. What differentiates the public from the private system is less the level of excellence, in the sense that both categories are hierarchical, but rather the costs of competition and schooling, which are much lower in the former (Chapter 6). The winners, those who get into the best universities, can not only aspire to the best positions in the best universities, but also to a stable career with prospects. This leads us to analyse the links between the classic education system and the corporate world. Contrary to what is sometimes written, the classic Japanese education system was no less directed towards the economic world than it is today, but it was treated like a sanctuary, as shown in the laws governing public universities strictly limiting links with corporate actors in the area of research (Odagiri, 2005). In the post-war context, which was also that of Japan’s success in catching up technologically with Europe and the United States, the education system was asked to provide the economy with a workforce having a similar level of education and a real capacity to accept and absorb incremental technical progress, rather than a minority of highly talented and creative individuals. Koike (1991) emphasises also the essential role of firms in training their employees, which was the responsibility neither of school nor of university. From the viewpoint of individuals as much as from

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that of firms, this system was fully rational, as Lester Thurow (1975) showed with his job competition model. In this system, schools were not supposed to teach individuals knowledge that would be useful for the firm; they were just able to detect, as accurately as possible, individuals who had the greatest capacity to learn and to progress, whereas it was for firms to train them later. This division of labour between the education system and the corporate world would be overturned by reform policies with a prehistory that lay in the 1980s. Prehistory of the reform: the role of the Ad Hoc Council on Education and the arguments in favour of reform The origins of the reform of the school system go back to the beginning of the 1980s. The Ad Hoc Council on Education (AHCE, or Rinji kyo-iku shingikai), set up as a consultative organ for Prime Minister Nakasone (1982–87), played a key role in mobilising a number of arguments that were taken up later. A central point in the reform discussions, which appeared from the inauguration of the AHCE, was liberalisation and deregulation. Nakasone explained why he had set up this body: the principal political goal of Japan between the end of the war and the end of the 1970s was to overtake the West from an economic viewpoint. When these aims had been more or less fulfilled, the need to put in place new goals, a new national plan and a new strategy, became most evident. In this context, the education system set up after the war, controlled by bureaucrats from the Ministry of Education, was no longer considered an effective means of catching up, of ensuring equality and responding to the needs for a qualified work force in a rapidly growing economy, but rather as an overly standardised system that was hindering the development of the spirit of innovation, local diversity and individual creativity (Nakasone, 2002). Another argument for the reform was criticism of the ‘examination hell’ and the ‘diploma disease’ by scholars and progressive teachers (notably teachers’ unions). The AHCE took up this theme and linked it to the discourse on the supposed lack of creativity (so-zo-sei) and individuality (kosei) in the classic education system. This approach found a most positive echo among Japanese employers, for whom Japan could never go beyond the import of Western technology without creative thinkers, engineers and designers, which was even more important in a context of globalisation. This was, for example, the case of the business think tank Keizai Do-yu-kai, which published in 1984 a report entitled A Proposition from Businessmen for Educational Reform: In Pursuit of Creativity, Diversity and Internationality. In this report we see the emergence of the idea that what students study has no relationship with their real life, nor even with what they will do later in life. This type of argument would have a great deal of influence during the lost decade. Among other arguments advanced by the partisans of reform, we may recall also an increase in delinquency among ‘the young’,4 in violence on the

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part of minors in the family home and truancy from school, the whole thing being seen as the consequence of a lowered moral sense. In brief, the motivations underpinning the reform were diverse and were hardly coherent as such. The classic system was of course not without fault. It is, however, striking to note that the arguments put forward by the partisans of reform were not directly linked to issues and problems that Japanese society in the 1990s needed to confront, except in the realm of fantasy, like, for instance, the case of globalisation (Kariya & Rappleye, 2010). Thus, as Takehiko Kariya argues, no serious study has proved that this system was responsible for social problems such as violence (Kariya, 2011). For instance, arguments concerning the rise in youth criminality have not been confirmed by the facts. Its level remains low by comparison with developed countries such as France, Germany, the United States or even South Korea. The discussion emphasising youth violence is thus without empirical foundation and seems rather to have emerged in order to legitimise a moral reform at school, and as something that could be added to old criticisms of the post-war education system. Historically, it is more appropriate to note that this idea of violence appeared in Japan at a period when increases in violence were registered in the United States and the UK, in the 1960s and 1970s (Fujita, 2001). As for the approach according to which the Japanese school would be no longer capable of educating students and would be ill-adapted to the real world, we have seen above that a knowledge learning unconnected to reality corresponds to a logic whereby the education system served essentially to grade individuals. The reformers’ arguments were thus biased. Therefore, behind the discourse about the school crisis, we see other motivations emerge, largely disconnected from the reality of the classic education system. However this may be, the recommendations of the AHCE in favour of liberalising the system and giving it greater flexibility did not eventuate because of the opposition of the Ministry of Education, but they served as the base of reforms in the 1990s, in the course of which the ‘philosophy’ of new public management gained in influence. Eventually, that would result in fiscal decentralisation policies under Koizumi (Kariya, 2011). So there was a great continuity between the arguments put forward during the 1980s and the reforms effected from 1992, which arrived in a new context, that of the crisis, which opened up de facto the agenda of reforms. These were thus not a response to the crisis; it was the crisis that allowed them to be put in place.

Implementation of school reforms since 1992: relaxation, liberalisation and disengagement First phase of reform, 1992–2000 The first phase of the school reform, between 1992 and 2000, has been summed up in terms of ‘relaxation’ (danryoku-ka). It was put into practice with the reduction of the school week to five days, as well as by policies of

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course simplification known as yutori kyo-iku, which we may translate as ‘less stressful education’ (Fujita, 2001; Hirota, 2005).5 The aim was to develop among pupils self-learning skills in terms of critical discovery and the capacity to resolve problems. One key was to promote a new relationship between teachers and pupils. This policy sought to respond to left-wing critiques of examination hell, but also to those of firms concerned that education should be more oriented towards creativity. The idea of an ‘effortless learning’ was also promoted, and this turned into a lowering of the average level of education delivered to pupils.6 The stated goal was to put an end to the credential society in favour of a society in which each individual could expand fully. Policies of ‘less stressful education’ were not put forward as pursuing the goal of a global reduction of standards, but rather as a first step towards differentiating the school system, considered by the reformers as the foundation of a more effective society. This orientation appeared in two other dimensions of the first phase of the reform, which developed further after 2000: the implementation in 1998 of liberalising the choice of school (not restricted by zoning); and the introduction, first of all in test zones, of classes and courses that differed in intellectual level – that is to say, the creation of classes of different levels with separate curricula. Second phase of the reform from 2000 In 2000, the Japanese school reform moved into a second phase marked essentially by liberalising (jiyu-ka), by differentiating content and by budgetary decentralisation.7 Whereas the projects of reforming the education system were not realised in the 1980s and their implementation was limited in the 1990s, the 2000s were marked by important advances in this area, well synthesised in a 2002 report of the Ministry of Education: Education Reform for the 21st Century (21 seiki no mirai o hiraku kyo-iku kaikaku). The context doubly changed with the duration of the crisis, forming an essential argument (even if the crisis had nothing to do with the supposed problems of the education system) and with the growing influence of the neo-liberal faction in the Liberal Democratic Party (LDP) (see Chapter 1). It is in this context that the second phase of the educational reform began, placing the accent on ‘the logic of reducing educational expenditure’ (Galan, 2011). The culmination of this second phase of the reform was the thorough revision of the Fundamental Law of Education of 1947 in December 2006. First of all, after 2000, the reform sought ‘officially to establish education that should be no longer egalitarian … but differentiated’, thus breaking with the post-war system (Galan, 2011: p. 53). This was put into practice with the massive introduction of courses that were distinct according to level of difficulty, and these, at the end of 2006, were extended to two thirds of primary schools and secondary schools. This logic of differentiation also appeared with the establishment of state schools in which junior and senior high schools are combined (chu-ko- ikkan ko-). This may be compared with

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American charter schools, which select pupils from primary level (competitive entry to junior high, even though the schools are in the public sector), and strictly limit any social mobility beyond that, by removing competition to enter senior high school. This gives to pupils of these schools (who come primarily from well-off backgrounds) not only a guarantee of graduating from senior high school, but also of substantially enhancing their chances of entering the best universities. These ‘elite state schools’ are destined by their nature to remain in the minority, with the majority of pupils confined to the rest of the system. As far as liberalisation of choice of school is concerned – in other words the suppression of school zones in order to favour competition between establishments – it was introduced progressively starting at 2000. In parallel, the state created competition between state schools via assessments made either by teachers or persons linked with the local authority, or, more and more, by private agencies following criteria made uniform. Moreover, financial inequality between schools was enshrined by the reforms to the way public schools were financed in 2005 (Kariya, 2010). Up to 2004, the state subsidised up to two thirds of school budgets, the remaining one third being paid by the prefecture following regulations on remuneration of teachers. In addition, the law standardising the size of classes and education personnel established rules for calculating the number of personnel in education required in each prefecture, so that in this system the annual cost of education for each pupil, in terms of education personnel, varied greatly between the poorer rural prefectures and richer urban ones. Thus in 2004, the cost was about €6,500 in the first case (for instance in Ko-chi), and €3,500 in the second case (for example in Saitama, an urban zone in the Tokyo suburbs). From this there resulted a system of compensation that was extremely progressive and egalitarian. From 2006, through transfers of finance to authorities in the form of tax exemptions, the state no longer bore more than one third of this charge, the second third being paid directly to local authorities which could use them as they wished. These payments have been used to finance extra-curricular activities, or for repaying debts, with some departments having proceeded to reduce teachers’ salaries, or even to modify their status.8 In parallel, a reform of higher education was set up in 2004 aimed at privatising national universities by giving them the status of corporate entities (kokuritsu daigaku hôjin).9 Up to that point, even though they amounted to only a quarter of universities, public universities accounted for three quarters of teaching staff accredited as researchers, and trained three quarters of those graduating with a doctoral degree. The issue is one of a general reorganisation, on the one hand of relations between universities and the state, and on the other hand of the very functioning of universities. Their administrative and financing methods, as well as their research framework, were reorganised with a view to confining payments to specific projects. Indeed, Japanese universities (public and private) were subject to numerous criticisms in the 1970s, somewhat reminiscent of the criticisms directed at

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schools, summarised above. Among these criticisms, we may mention the lack of commitment on the part of both lecturers and students, conflicts between lecturers, between faculties, between management and academic staff, lack of initiative on the part of executives, educational immobilism, student entry criteria too much centred on pure memorising and discouraging individual initiative, lack of diversity in the curricula and a paltry number of doctoral graduates. The official aim was to improve innovative capacity and to bring about synergies with firms. However, as we shall see in the next chapter, analysis of the history of the reform shows that the initial objective was in fact to reduce the number of civil servants in order to cut public expenditure. In short, the main aim of these policies was neither educational nor scientific. It was a matter of disengaging the state.

The effects of the reform since 2000–2: the emergence of a new education system In order to analyse the effects of reforming the education system, it is essential to make a double distinction. First of all, we should try to distinguish, so far as possible, the effects of the reform from a number of structural changes that have nothing to do with it. We may give two examples. First, we can see over several years that the number of students has been decreasing for demographic reasons: the number of junior high school pupils rose from about 4.5 million in 1980 to 5.5 million in 1990, but then had fallen rapidly to about 3.4 million by 2006 (So-musho- To-kei Kenshu-jo, 2008). This had notable consequences on the difficulty of entering university. It led, in fact, to the closure of a number of establishments in the least dynamic regions. Second, changes in the industrial structure and employment conditions (marked by greater insecurity) have profound consequences for the career prospects of graduates. A second distinction concerns desired and undesirable effects of the reform. To take just one example, whereas reforms along the lines of yutori kyo-iku were defended by progressives such as Ronald Dore or the teachers’ union Nikkyo-so (Nihon Kyo-shokuin Kumiai), many analyses emphasise a number of perverse effects of this reform initially conceived as a means of escaping from the diploma disease. For example, the empirical analysis by Takehiko Kariya shows that these reforms resulted in a growth of family background influences on academic success, which in turn was a powerful engine in the reproduction of inequalities (Kariya, 2010). In a more systematic fashion, statistical studies carried out since the beginning of the 2000s by Japanese teachers opposed to the reform (Fujita, 2007, 2005), by economists (Tachibanaki, 2010a), or by journalists (for instance the Asahi Shinbun), show what were the first effects of liberalisation of school zoning for the public sector, of the establishment of ‘elite public schools’, and of state withdrawal from funding. Even if these reforms are still relatively recent, we may nevertheless note certain trends.

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The first of these effects has been the differentiation of the public sector, accompanied by reinforcement of the private sector, which has experienced significant growth in demand for enrolment. This phenomenon has been that much more significant in that liberalising school choice has encouraged competition between schools and has reinforced their differences. In this context, the private sector is favoured with independent funding and with a much greater margin of manoeuvre, because it suffers fewer restrictions from the Ministry of Education. Indeed, the more sought-after private schools establish their curricula with university competition in mind, while imposing very high enrolment costs. Only ‘elite public schools’ can rival them, bringing together junior and senior high schools by special dispensation, but choosing pupils very early. As a result, gaps between pupils and between social classes tend to become structural. Thus, in the Kanto- region, the percentage of pupils passing the competition to enter private junior high schools rose from 8.5% in 1986 to 18.5% in 2006. In Tokyo, 25.7% of junior high school pupils were educated in the private sector in 2006.10 Another effect of the school reforms is the displacement of upper middleclass populations and categories of the better-off from urban centres to certain well-placed suburbs or sectors of Tokyo or Osaka. This phenomenon has been described as ‘rich flight’ by Japanese teachers and economists, by reference to ‘white flight’ of post-war America, and especially of the 1960s, after the Civil Rights Act of 1964. In Japan, this development was made possible by the liberalisation of school choice. Evidence of this is shown by the creation ex nihilo of areas closed in on themselves, and where the construction industry and estate agencies in their publicity invoke easy access to a particular well-regarded public or private school. Conversely, the centres of big Japanese cities (notably in the Kanto- and the Kansai) are increasingly inhabited by lower middle-class people, among whom insufficient financial means are strongly correlated with a weaker level of academic achievement, as well as more and more frequent use of juku, discussed below.11 These pupils have no other option than to attend the school of their school zone, less wellendowed and academically inferior as a result of competition between public schools, reduction in finance, flight of the best pupils (pupils and also teachers), and the introduction of courses differentiated by academic level, tending to entrench differences between schools and make them structural. These developments are the main consequences of the reforms that have sought to increase academic choice for families. Complementary to this is the development of juku, which form a real ‘shadow education’, to use the expression of Stevenson & Baker (1992), taken up by Dierkes (2008). The juku are private schools both for school support and preparation for entry to the best high schools and universities. They were first established with the ‘diploma society’ and experienced their first boom in the 1970s. The important fact is that the reform of the Japanese education system, marked by differentiation and yutori kyo-iku policies, led to a second juku boom at the end of the 1990s and in the 2000s. Thus, in 1995, 770,000 pupils benefited from

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juku, that is 6% of the total student population; in 2004 this figure increased to 1,340,000 individuals, or 13% of primary and junior high school pupils, according to figures from the juku Nichinoken. So private school support had doubled in 10 years. Besides, analysis of its territorial distribution has shown that these increases were unequal between regions. Juku enrolment remained limited to at least 10% of pupils in some prefectures such as Aichi, but rose to 25% on average in ultra-urban zones like in Osaka or Tokyo, and even to 40% in some wards in the centre of Tokyo. This development can be interpreted as the ultimate manifestation of the privatising of the education system. Indeed, Dierkes shows that the juku system is a real marketing laboratory applied to teaching, whose equivalent is not to be found anywhere, even in the Anglo-Saxon countries (Dierkes, 2008). When we come to universities, apart from a de facto weakening of provincial ones since 2004, to the advantage of the large and recognised universities in the capital and old state universities in the west of Japan, the reform’s opponents have noted that the ‘class’ effects of school reforms have brought about a change in the composition of the student body of the best universities. This is the case, for instance, in Tokyo University, the most prestigious university in the country. Annual fees have increased from 12,000 yen in the 1970s (comparable to fees in France) to 500,000 yen today, which is about €5,000 (approximately £4,000). In this context, the social characteristics of the student population of this university, which after the war played a non-negligible role as social elevator, have now become more like a private establishment patronised by families with very high incomes like Keio University. Besides, these students come to a growing extent from private high schools (Tachibanaki, 2010a). In parallel, less well regarded private high schools have also experienced an increase in their enrolment, and have picked up pupils who are stuck within ‘free schools’ (jiyu- gakko-), which do not permit access to university. The effects of school reform thus are reinforced by the effects of rising social failure within Japanese society, ending up in both social and academic fracturing (Tachibanaki, 2005, 1998; Kariya, 2001). Taking into account the totality of these effects of the reform, both desired and undesired by the reformers, how should we describe the new Japanese education system? According to Kariya (2009), Japan has passed progressively from a credential society (gakureki shakai) to a ‘learning capital society’. This new inter-relationship between the education system and the rest of society was supposed to be a response to more global changes, such as the transition to a knowledge society, for instance. In this system, it is no longer the responsibility of firms to train their workforce. It is the employees who should carry the responsibility and the risk of their own training. The problem is that the deterioration of conditions of access to the labour market no longer guarantees the possibility of being trained. Parallel with the development of the learning capital society, we may observe in fact that the labour market has become polarised between positions where one can learn and other jobs where one stagnates, and this corresponds neatly with what we

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have called the re-segmentation of the labour market in Chapter 4. Even so, paradoxically, firms use universities more than ever as a tool with which to select their future employees, to the point where the recruitment of employees from the best universities is made not at the end of the third year but often from the second. In these conditions, what was a strength of the Japanese economy – the smooth transition from school to work on the part of university graduates – is becoming more and more problematic in terms of the investment made by students in the university courses. Globally, this new system is less egalitarian than the credential society, even if the credential society was far from able to correct inequalities to perfection. Thus, Kariya (2009) shows empirically that in the learning capital society, pupils’ results depend more on their social, family and cultural environment. In this sense, reforms to the Japanese education system that have accompanied the transition to this kind of society have contributed to an increase in inequality, which was not the aim of the progressive critics of the credential society. In the new system, the evaluation of students is more difficult, more subjective. In addition, given the more flexible functioning of the labour market the benefits of education become less clear, which discourages some individuals (especially the least favoured) from investing in their education.

The central importance for capitalism of reforming the education system Discussed since 1980, supported by neo-liberal and neo-conservative trends in the LDP, by business organisations, as well as by some left wingers critical of the overemphasis on examinations, the reform of the school system has been conducted in stages since the beginning of the 1990s. Even if it may seem to lack coherence, given the diverse character of its proponents, it clearly constitutes an historic rupture with the 1947 school system that guaranteed to pupils equality of opportunity (at least theoretically). In a context of deepening economic crisis, the ‘structural reform’ of the education system was really implemented after 2000, mobilising various arguments such as the risks of disaggregating the body social, or the loss of economic competitiveness in a globalised environment. The reform, which appeared in a more general context of state reform, principally consisted in disengaging from the state, promoting competition between establishments, with, in the background, the implementation of a differentiated system from the time of junior high school, by opposition to the old system which was pyramid shaped but allowed mobility to senior high school. In fact, the new system gives secondary priority to the promotion of equality of opportunity. Policies of liberalising school zones have had a particularly important impact in this very urbanised country, where inhabitants of large towns have a large choice of schools, which contribute to the increase of inequality. Of course, the previous system, which we may describe as a credential society, was not without its faults, which could have been corrected

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by targeted reforms. In education, however, contrary to other areas, it is ideological arguments in favour of competition and of market logic that have in the end triumphed, even though they are disconnected from the reality of the problems of the education system. The fact that the origins of the reform go back to the zenith of the Japanese ‘model’, and that its aims have been shared for the past quarter century with very different countries, show this with clarity. From this point of view, the reform of the education system is central in the programme of transforming Japanese society as a whole – this concerns also the family and the firm – towards a society more differentiated, more individualist, more competitive, but also more unequal. Although it was targeted towards the education system, this reform also contributed to the profound transformation of Japanese capitalism, given the complementarities between the education system on the one hand, and on the other, for instance, the functioning of firms and social compromise. To the extent that it is inspired by the vision diffused by international common wisdom, which says that all reform of the education system should value new types of skills in the context of the so-called knowledge economy and society, it was possible to predict a convergence towards Anglo-Saxon systems, so much has this vision been a powerful argument for implementing a raft of reforms inspired by neo-liberalism. That is not, however, how it turned out, mainly because of differences in initial conditions and the way the reforms were implemented.12 As we shall see in the next chapter, the same arguments were used to reform the innovation system, ending up with a similar result of profound transformation without convergence towards liberal systems of innovation.

Notes 1 Amable (2003) distinguishes the institutional area ‘education and training’ among the constituent elements of the diversity of capitalism, together with product markets, the labour market, social protection and financial markets. 2 In this chapter, we shall treat the education system as a whole, covering the school system, the university system and vocational training. Emphasis, however, will be on the first of these areas. The reform of the university system will be dealt with in part in Chapter 6, in relation to the innovation system proper. 3 On the general evolution of the school system since 1945, see Nanta (2007), Galan (2011), Ota (1978), Horimatsu (1985). 4 See the special issue: ‘Hanzai fuan shakai Nippon’ [Japan, a Society that Fears Criminality], Sekai, 728, July 2004. 5 Yutori means ‘having enough time’. 6 An emblematic example was the decision to round up ‘case by case’ the value of π to 3 instead of 3.14. 7 In this chapter we do not deal with reforms that sought to reform morals, nor with those concerned with ‘patriotism’. On these points, see Nanta (2008). 8 Prime Minister Abe wanted to go even further in this logic of differentiating payments by the state, in proposing to set up a system of points for each establishment in order to determine its payment, the points being calculated on the basis of the number of pupils enrolled. This proposal, which has not been put into practice at this juncture, was inspired by the voucher system proposed by Milton Friedman.

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9 The reform of state universities is also discussed in Chapter 6, in the context of reform of the innovation system. On this subject, see Galan (2008) and Lechevalier (2006). See also the dossier Daigaku – ‘kaikaku’ to iu na no ho-kai (‘Reform’ – the Name Given to the Destruction of Universities), Sekai, 708, December 2002. 10 Asahi Shinbun, 25 March 2006. 11 Asahi Shinbun, 23 March 2006. 12 Among the numerous differences, one can quote the egalitarian nature of the postwar system in Japan as for the initial conditions and the progressive nature of the reforms as for the implementation.

6

Is convergence towards the Silicon Valley model the only way for the Japanese innovation system? Sébastien Lechevalier

With globalisation, analysed in the next chapter, technological revolutions, notably on the Internet and in biotechnology, have formed one of the two bases of neo-liberal argument for putting into practice policies of structural reform, both in the world in general and in Japan in particular. The idea is that the world has entered into a new era, that ‘external’ conditions – technological and international – in each type of capitalism have changed, and that socio-economic systems should therefore adapt in the same direction. When we get into the detail, the two arguments of globalisation and the technological revolution have developed differently in the Japanese context. In the case of globalisation, the initial argument comes from the trade partners of Japan, especially the United States, and to a lesser extent Europe, which call for greater openness both for trade and for foreign direct investment in Japan. The argument later extended to the incapacity of the Japanese system to confront global competition in the context of the rise of newly industrialised countries (in the vanguard of which was South Korea), and of China. We may distinguish a third period, more radical and less precise, in which was the idea that Japanese capitalism was ill-adapted to globalisation and should converge in the direction of Anglo-Saxon capitalism. As for the technological argument, it can also be split into two time periods. In the first period, it depended on the perception that the new technologies of the 1990s were developed mainly in the United States and not in Japan. In the second time period, the argument was extended to the innovation system as a whole and the emergence of new industries in general, for which the Japanese system was allegedly ill-adapted.1 The question of new industries is essential in that it represents a case where innovation not only changes the industrial structure of economies, but also responds to latent demand and thus has an impact on well-being (Krafft et al., forthcoming). It is in this background that a major reform of the Japanese innovation system was put in place. It recalls to some extent the Lisbon strategy adopted in Europe in 2000, in that it was narrowly associated with financial market and labour market deregulation, which should make it possible to take full advantage of the knowledge society and economy. It was, however, different in the fact that in terms of expenses, the means were granted to favour innovation.

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The technological argument is at the very least paradoxical. Indeed, at the end of the 1980s, the entire world looked to Japan to predict the technological innovations to come. At a micro and commercial level, it was thought at that time that a firm like Sony – which was of course not the most typical Japanese firm but from which many innovations, such as the Walkman, had revolutionised the great public electronics market in the 1980s – would be at the origin of the next technological revolutions that could directly affect the well-being and organisation of societies. In a more general sense, the innovative capacity of Japanese capitalism was raised to the level of a model, especially in matters of industrial policy and research and development (R&D) consortia. In this area more than in any other, Japan disappointed us. So whereas everyone thought it was predestined that Sony would bring out products like the Apple iPhone or iPad, nothing of the sort emerged. Everything happened as if the innovation capabilities accumulated in Japanese firms could not be translated into innovative products on the market, i.e. corresponding to a latent demand from the consumers. More generally, a double technological revolution indeed took place, with the emergence of information and communication technologies (ICT) and biotechnology, but Japan did not drive it. Most notably in the ICT area, this revolution took place in Silicon Valley, where the innovation system was raised to the level of a model. Analysis of national and social systems of innovation occupies a special place in the literature on the diversity of capitalism (Nelson, 1993; Amable et al., 1997; Casper & Soskice, 2004). On the one hand, innovation systems are quite central, given especially institutional complementarities with the labour market and the financial system. On the other hand, these two approaches – on the diversity of capitalism and on national and social systems of innovation – are also very different from each other: everything is not technological in capitalist dynamics; but also, the determinants of innovation often differ greatly according to sector, and consequently go beyond national frameworks (Malerba, 2004). The best known example of a ‘national’ innovation system is that in Silicon Valley, even if its national character is a matter for discussion. We should indeed not confuse the American system of innovation described by Mowery and Rosenberg (1993) with the Silicon Valley system, even if the latter certainly could not have been initially developed in any institutional environment other than the American one. We normally cite the following characteristics to define the Silicon Valley model: the role of individual entrepreneurs and of start-ups (that is, new firms of modest size that experience exponential growth thanks to a particular technology or product); the importance of interaction between firms and universities; and specific financing based on venture capital. In many respects, the classic Japanese system of innovation is the antithesis of the Silicon Valley model (see below). With nuance, the dominant hypothesis is that co-ordinated capitalism, such as Japanese or German capitalism, is ill-adapted to the ICT and biotechnology revolutions. Some authors go further and argue that co-ordinated capitalism

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creates an environment unfavourable to the emergence of new industries. The conclusion follows from this that they must be made to converge with the Silicon Valley model which was shown to be effective in the 1990s. Does this mean that there is a neo-liberal system of innovation of which the Silicon Valley model is the ideal-type? No, as is shown by the importance of the government’s role (notably in the field of defence) in this model. Thus, Mowery and Rosenberg argue that ‘the contrast between the position of the Reagan government newly elected in 1981, denying any role for the federal government in the development and commercialisation of new civil technologies, and the Reagan administration in the years 1987–88, is remarkable’ (Mowery & Rosenberg, 1993: p. 58). Even so, two elements lead us to argue for the ideological similarity between the Silicon Valley model and the neoliberal model of innovation. First of all, the emphasis placed on intellectual property and patents is not peculiar to neo-liberalism, but is to some extent linked with its ideology, for which the extension of the rights of private property is the necessary counterpart to free enterprise and to market competition (Coriat & Orsi, 2002). Second, the promotion of a Silicon Valley type of system meshes tightly with the neo-liberal programme in the area of labour and financial market reform. The promotion of start-ups and of innovation in small and medium-sized enterprises (SMEs) goes in the same direction. If we add to these two facts that neo-liberal ideas, in the same way as the objective recognition of certain errors, have broadly contributed to the decline of industrial policy in Japan, which was central to the classic Japanese system of innovation (Lechevalier, 2006), the question arises of whether this system has itself also experienced a neo-liberal revolution. The dominant thesis concerning the necessary reform of the Japanese system of innovation may be summarised as follows, in three steps. The classic Japanese system of innovation was once well adapted to a period of transition and to slow technical progress. Japan completed its catch-up period in the 1970s and 1980s. Moreover, the world entered into a new phase of technical progress, more rapid and crucially linked to science, from the end of the 1980s. In these conditions, actors in the Japanese innovation system had no other choice but to reform this system. On the direction of this change, there did not appear to be another option possible except to guide it towards the model shown to be the best in this new environment, that of Silicon Valley. It thus remained to understand how to reform the system to make it converge with this model – and this is the third step of the argument. The reinforcement of the regime of intellectual property rights, liberalisation of public universities and the promotion of start-ups were judged to have priority. In addition, it seemed important to liberalise the labour market to favour worker mobility (and thus to contribute to training in new skills) and to reform financial markets to favour the development of firms based on venture capital. This is one of the basic arguments for the implementation of neoliberal policies in Japan. This chapter seeks to show the limits of the dominant vision.

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The innovation system in classic Japanese capitalism: strengths and limitations2 The innovation system in classic Japanese capitalism has been considered one of the keys to its success. Broadly speaking, it is in a sense the antithesis of the model of Silicon Valley. The classic Japanese innovation system was in fact characterised by essentially private R&D, dominated by the large (and very large) firms, by financing methods broadly similar to other investments (Hall et al., 1999), the central role of industrial policy (without this translating into high government spending), the relative weakness of universities as an engine of innovation, and intellectual property rights disadvantageous to inventors but favourable to diffusion of knowledge (in a catch-up logic). Seen as a whole, this system favoured incremental innovation (as opposed to the kind of radical innovation typical of Silicon Valley), allowing Japan to catch up technologically with Europe and the United States. Symbolic of the strength of this system were Sony among private firms (even if not so representative in terms of organisation and strategy), and the Ministry of International Trade and Industry (MITI) for its role in industrial policy. How should we understand the way the Japanese innovation system has evolved, from an historical and evolutionary perspective (Odagiri, 2005)? Japan’s post-war technological development can be divided into three periods. In the first period, up to the beginning of the 1970s, the priority was catching up by importing foreign technologies. In this context, catch-up was brought about through incremental innovation and by kaizen (improvement of practices). In the second period, from then until the early 1990s, large Japanese firms concentrated on developing their own innovations, in an autarchic logic. Finally, from the beginning of the 1990s, innovations have been increasingly based on science, especially in some sectors and technologies such as biotech, where the number of citations of scientific articles in patents has dramatically increased. In the first period, parallel with the growth of technological imports, Japanese firms increased their R&D expenditure, improving their absorptive capability. Indeed, imports of technology and R&D expenditure increased by 17% per annum between 1951 and 1972. From the 1970s, we see a double phenomenon: on the one hand, R&D increased (from 1.8% of gross domestic product (GDP) in 1970 to 2.9% in 1990), and Japan overtook the United States in this in 1987. On the other hand, the ratio of exports to imports of technology significantly increased, with exports of technology being principally destined for foreign subsidiaries of large Japanese firms. Two other characteristics of R&D expenditure should be emphasised. First of all, they were mainly from the private sector: in 1991, private-sector R&D expenditure represented 73% of the total as against 18% from the government, whereas in the United States the figures were 57% and 39%, respectively. Second, in Japan R&D was very much dominated by large firms: in 1991, 69% of private-sector R&D came from large firms (more than 10,000 employees),

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whereas the figure was 55% in the United States. In fact, many Japanese firms spent nothing on R&D, especially SMEs (Nishimura et al., 2005b). However this may be, at the end of the 1980s, most economists forecast that the next technological revolution would be Japanese if there was to be one at all. At that time, Japanese industrial policies were much praised, as well as the role of private firm consortia in the R&D area. Yet, from the end of the 1980s, some criticism appeared. An early example of this was criticism of industrial policy, the bases of which were taken to task in an important work by Ryu-taro- Komiya, Masahiro Okuno and Ko-taro- Suzumura, first published in Japanese in 1985, then translated into English in 1988 (Komiya et al., 1988), at the very time when industrial policy was the object of rather uninformed admiration in the United States, as in Europe. The conclusion of this book was indeed fairly balanced. On the one hand, Komiya and his colleagues recognised the contribution of industrial policy in terms of coordination of R&D efforts and of the formulation of a vision common to all the participants, but on the other hand they emphasised the failures of industrial policy to organise sectors considered to be suffering from ‘excessive competition’, the best example being that of the car industry. Even so, we may recall this as practically the first no-holds-barred criticism of a practice that was the source of reputation and pride for Japanese bureaucrats, criticism that would be radicalised subsequently (Okimoto, 1990; Porter et al., 2000). Just taking one example, the Japanese government, and MITI in particular, was rightly criticised for having encouraged the attempts of the large Japanese electronics firms to catch up with IBM (for instance, through launching the supercomputer programme in the 1980s), at the time when a quite different model was being set up in California, which would give birth to Apple, Microsoft and other seminal enterprises of the new economy. Recognition of this historic error would have major consequences for an understanding of how to reform the classic system of innovation. This would feed the argument according to which, in a world where everything was changing very fast, those best placed to comprehend the direction to go are the entrepreneurs themselves and not the bureaucrats, even if the 1990s and 2000s have shown that entrepreneurs also do not know which way to go in a context of technological ‘turbulence’. Another well-known problem at the time did not specifically concern MITI, but more broadly the architecture of industrial and innovation policy which was in fact decentralised between many different actors, most important of which were MITI, the Ministry of Education, and their satellites, leading to massive duplication of research efforts and defects in co-ordination (Goto- & Odagiri, 1997; Lechevalier, 2006). A further well-recognised weakness of the classic Japanese innovation system concerns the lack of implication of universities in innovation connected to firms’ activities. The process is of course rather distorted, since as Odagiri (2005) shows, universities were considered after the war as autonomous entities in relation to the rest of society, especially regarding private firms, even though the importance was understood of providing large firms

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with a workforce of quality. At the end of the 1980s, however, the gap between universities and private enterprises was tending to grow. Thus, in 1990, universities accounted for 27% of Japanese researchers but only represented 12% of R&D expenditure (as against 18% some years before), while R&D expenditure by firms went from 69% to 77% of the total over the same period. Indeed, a growing gap was observable between the obsolescence of research equipment in universities, especially public universities, and the use of up-to-date technologies in private firms, especially during the period of the bubble. In these conditions, researchers were motivated to prefer a career in private firms rather than in the public research sector. To summarise, the classic Japanese system of innovation was not without its faults and presented a number of problems requiring reform. Even if some authors, however, attempt to link the reduction in the rate of growth of total factor productivity to a decline in the capacity of innovation in Japan (Branstetter & Nakamura, 2003), the long Japanese crisis is not primarily a crisis of the innovation system (Lechevalier, 2006). In addition, as we shall see below, the problems emphasised above were not given priority by Japanese reformers. We should nevertheless understand that, objectively, the scientific environment has changed. The key fact is that links between innovation and science have been reinforced, especially in certain areas, as is shown by the spectacular growth in the number of citations of academic articles in American patents, which have gone from 0.31 in 1985 to 2.15 in 2002 (Odagiri, 2005). Even if it is false to think that all new industries depend on science to the same degree as the biotechnology industries, we need to understand that more and more innovations derive from basic scientific advances, an area in which Japan is far from excelling, so much so that Japan’s position centred on technical applications is at risk, as Robert Boyer argues in his Foreword.

The neo-liberal-inspired reform of the innovation system It would be useless to try to define a neo-liberal system of innovation. There assuredly exist, however, reforms inspired by neo-liberal ideas. They typically assume that an innovation model exists that is superior in all times and all places. It finds its inspiration in the 1980s reform of the American innovation system, which was a response to the technological changes that were starting to become evident, and especially to the challenges posed by Japanese competition, which became even more pressing once Japan had completed its period of catch-up. American firms thus became much more resistant to simply selling their technology to their Japanese competitors. Meanwhile the federal administration had radically changed its position, now defending the importance of industrial policy. The United States also reinforced the rights of intellectual property, expressed in sensational court cases, like that brought against the American subsidiary of Sumitomo Electric Industries by Corning in 1984, which ended in a fine of US$25 million.

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Even if the reform of the Japanese innovation system is neo-liberal in inspiration, it is nonetheless pragmatic in its implementation. These two dimensions, pragmatic and ideological, are inseparable. Nevertheless, some reforms have been a response to problems that had been previously identified, whereas others have been rather disconnected from reality and essentially influenced by the American experience in this area. Simplifying a little, we shall separate out these two types of reform below. Pragmatic reforms Among ‘pragmatic’ reforms, we may cite the reform of the architecture of public innovation policy and the reorganisation of the public budget for science and technology, and also promoting collaboration between firms outside classic industrial groups. On the first point, neo-liberal influence or the one of a fantasised model of Silicon Valley did not exist, with one possible exception. The essence of the reform consisted of promoting better co-ordination between the different actors in innovation policy, namely MITI, the Ministry of Education and the Science and Technology Agency (STA), but also other ministries, by reviving the Council for Science and Technology Policy (CSTP), directly attached to the Cabinet Office of the prime minister. In addition, as part of the 2001 administrative reform, these three actors saw their duties redefined, this involving the disappearance of the STA and the reinforcement of the Ministry of Education (which became MEXT), handling two thirds of the science and technology budget. In the process of administrative reform, the government also gave in to a fashion – we may dub it ‘ideological’ – namely, the process of converting national research institutes into ‘agencies’, that is to say transforming them into independent administrative institutions (dokuritsu gyo-sei ho-jin). In this area, the model is not American but British. Among the reasons invoked, we may cite efficiency (supposed to emerge from independence, from budget decentralisation and new modalities of managing human resources, as well as from more effective evaluation), and the question of the appropriateness of patents. This reform most particularly concerned institutions attached to MEXT (RIKEN and the Japan Science and Technology Agency, JST) and to METI (AIST and NEDO). The facts, however, show that the reform has not led to a greater independence of these institutions, but much more to increased control by the ministries that guide them (Motohashi, 2003b). As for gains in terms of efficiency and economy, they remain to be proved. Another dimension of this reform concerns the budget for research and innovation, its total amount and its allocation. The first striking fact is that this public budget tended to grow during the lost decade, in a particularly unfavourable context from the viewpoint of public finance. The Japanese government wished to catch up with the United States. As for its distribution, it has been better co-ordinated by the CSTP, which was in charge of the drafting of three framework plans for science and technology (1996–2000;

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2001–5, 2006–10), and this allowed priorities to be defined (highest priority given to life sciences, ICT, environmental technology and nanotechnology). From this point of view, the appraisal of the reform is positive, even if we can observe that the choice of technologies judged to have priority is more modelled on the conclusions of the US National Science Foundation (NSF) than the result of an in-depth analysis of the strengths and weaknesses of the Japanese system of innovation. A final aspect of the reform, finding its justification in the analysis of problems of the earlier system, concerns promoting collaboration between firms. Such collaboration has existed in Japan for a long time, both on a privatesector basis and in the framework of public consortia (Branstetter & Sakakibara, 1998, 2002). What the Japanese government has been trying to promote from the 1990s is a new type of collaboration, on a regional base, between actors of different types: firms, universities and public research institutes. We acknowledge here the influence of the work of Michael Porter on clusters, of which one of the best known in Japan is certainly that of the Tama region. Whatever may be the role of fashion in these policies, we can in fact note progress in collaboration in R&D in Japan, which has taken on new forms, notably between firms and universities, notably within a cluster-type environment. This is, for example, the case in robotics (Lechevalier, Ikeda & Nishimura, 2010, 2011). Ideological reforms Other aspects of the reform are clearly inspired by the Silicon Valley model, without always being linked to previous analyses of the problems of the classic Japanese innovation system. Among them we could mention the reform of the intellectual property regime, promotion of start-ups and of new firms specialising in particular technological areas, as well as university reform. The Japanese system of intellectual property had a reputation for weakness and for favouring the diffusion of innovation rather than the protection of inventions (Okada & Asaba, 1997). The new policies of innovation put in train in the 1990s, influenced by the American experience, sought to modify this arbitrage to the advantage of inventors. The basic argument was that policies in favour of patents were adopted by the American authorities in the 1980s, at a time when a relative decline in American competitiveness had been part of the motivation for a renaissance of the American innovation system in the 1990s. In Japan, these policies were enthusiastically introduced from the end of the 1990s with the enactment of the ‘Japanese Bayh-Dole Act’ in 1999, but the real turning point was in 2003 with the publication by the government of the first Strategic Framework for Intellectual Property Policy, just after the enactment of the Basic IP law in November 2002. The basic concepts were the creation, dissemination and effective use of intellectual property to favour the development of new industries. Four principal changes were introduced: the application of patents on new technologies, a

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widening of the field covered by the patents, reinforcement of protection of patents and simplifying their use. Concretely, we can mention two examples: in 1997, software could be patented, which was not the case before. As for greater protection, it took the form of increased fines in the case of proved infractions. What should we think of these policies? We should emphasise that even its promoters, like Akira Goto-, recognised that the effects of patentbased policies were more ambiguous than they appeared to be (Goto-, 2000). In the case of problems arising from patent-based policies, we may in particular stress the question of innovation diffusion and the difficulties in establishing an open system of innovation (Coriat & Orsi, 2002, 2005). As for start-up promotion, this is certainly the policy from which we may expect the greatest effects in the short term, but it also resembles most of all a pious vow like the ‘Lisbon strategy’, as it does not much correspond to the reality of the Japanese industrial structure, which is fundamentally dual, and public authorities have few levers in this area. In 1999, the government passed a law facilitating the creation of new enterprises, a law that organised a system of debt guarantee for investment by SMEs that developed and put on the market new technologies. Besides, a law accords fiscal advantages to individuals who invest in start-ups (the ‘Angel Tax System’). The policy thus essentially consists of facilitating access to capital for innovative SMEs in general and new technological enterprises in particular, in the form of tax credits or access to loans on advantageous conditions. However, government institutions established for this kind of purpose (such as the Sho-ko- Chu-kin Bank) only provided effectively 10% of the loans accorded to the SMEs. Even if the incubators and science parks sometimes granted real support to these innovative SMEs, we have to note the considerable gap between the intentions and the realities on the ground. A system of innovation pulled by start-ups is not simply decreed. It depends on such a large number of factors (such as the industrial structure, the bankruptcy law, the financial system and the labour market, without even mentioning the accumulation of skills at the firm level) for the government to be able to act in an effective manner. Finally, university reform is an important key for the innovation system. In a general context where technological innovation relies more and more on science (and is shown by the rising coefficients of science linkage), and in the more special context in which Japan has caught up technologically with the United States in a number of areas, it seems reasonable to accord greater value to scientific activities of universities on the technical and commercial levels, promoting their collaboration with firms. It is a question of making concrete potential complementarities between universities and enterprises. This is why a first dimension of the reform seeks to favour the commercialisation of scientific discoveries in universities, by allowing them to apply for patents in their own name. On the slightly mythical model of Silicon Valley, an assembly of other measures aims to promote the possibility for professors and researchers in universities to create their own firm, or to sustain the creation of technology licensing organisations (TLOs), within universities. In

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short, it is a question of eliminating all constraints holding back public universities from conducting applied research and establishing links with firms with the goal of joint research and commercialisation of the results. The most spectacular reform was the transformation of public universities into private entities (the University Law: Kokuritsu Daigaku Ho-jin Ho-, passed in April 2003 and implemented in April 2004). Officially, it was a matter of lifting all obstacles to relations between universities and firms in order to promote innovation. According to the terms of this law, professors in former national universities were no longer civil servants, whereas the centre of power in universities passed from councils of academics at faculty level (kyo-jukai) to the university council of administration which could bring in external individuals, especially business people. This meant a process in which the governance of universities became presidential, whereas previously they had been marked rather by self-governance. Even so, if we go back in detail over this history of this reform, we notice that its origin may be found in the Obuchi government, which in 1998 announced the aim of reducing the number of civil servants by a quarter in 10 years. Well, one sixth of the total number of civil servants are academics and administrative personnel of national universities. This reform, which paradoxically resulted in an increase in control by MEXT, is thus the result of the conjunction of at least two political objectives. However this may be, this reform of universities corresponds thoroughly to a programme of deregulation that seeks to lift a number of constraints regulating their functioning of universities, notably in their relations with the private sector. A preliminary evaluation of the Japanese innovation reform Evaluating public policies in the area of innovation is a particularly perilous exercise in that its effects are felt in the long term and are diffuse (to the point that it is a very delicate matter to establish causality). What is certain is that the accumulation of reforms has contributed to modifying the logic of the system of innovation as a whole. By contrast, it is too early to say whether this has been expressed in an improvement in the Japanese innovative capacity. It is, however, possible, even at this early stage, to make a judgement about policies if considered separately from each other. For example, it is certain that the reform of the public architecture of innovation policies, of course imperfect, has reinforced co-ordination between actors (see Chapter 3). On the contrary, it is accepted that policies of promoting start-ups are a failure: there has not been a boom in technological entrepreneurship in Japan to be compared with what we saw in the United States in the 1990s, and the innovative firms that developed owed almost nothing to government policies. In fact, as Imai & Kawagoe (2000) show, the decline in the rate of new firm creation since the beginning of the 1970s was not reversed until the end of the 1990s. As for policies aimed at promoting clusters, they were able to put together certain actors with complementary skills, but it did not result in the

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creation of a Japanese Silicon Valley. As for the reform of public universities, it indeed resulted in an effective reduction in the number of officials and change in power relations within the university, to the detriment of academics, but seems to have had a real impact on the capacity of (especially former public) universities to contribute to innovations that may have commercial potential. Regarding the reform of intellectual property rights, it has brought about a significant increase in the number of patents taken out, comparable to what has been seen in the United States and Europe (to the order of 40% between 1992 and 2002). The question remains open, however, of whether this means a real improvement in the Japanese capacity to innovate (Lechevalier, Ikeda & Nishimura, 2011).

How has the Japanese innovation system turned out? Most of the reforms of the Japanese innovation system have been inspired by the reforms of the American system of innovation in the 1980s and the Silicon Valley model, which emerged at that time. We have not, however, seen a convergence of the Japanese system towards the American system, praised though it has been by the promoters of neo-liberal policies, partly in a functionalist and strategic perspective, even though the Silicon Valley model does not entirely correspond to liberal principles, mainly because of government intervention. How should we explain this absence of convergence which contrasts with the goals of the reform programme? This does not relate to the lack of reforms but rather to differences in initial conditions and perhaps also to the detail of these reforms.3 Above all, the Japanese innovation system has a certain logic in a given form of capitalism. Odagiri (2005) explains this convincingly: the evolution of the innovation system does not entirely result from technology. In other words, the vision according to which it is the technological environment that dictates all further developments is false. It is better to think in terms of co-evolution. For example, changes in the corporate field have had consequences for the model of innovation. Thus, in the context of the end of the 1990s, when hostile takeovers became less rare and the rate of bankruptcy increased, the long-term orientation of firms was less secure, and this made it less sensible to accumulate skills internally, which favoured new types of collaboration between firms. Genuine technological developments are of course also important, and developments in the Japanese system have been influenced by the following two facts: first, it has become difficult for Japanese firms to acquire foreign technology, especially American, in the context where intellectual property rights have been strengthened. Second, the scientific content of technology (science linkage) has been increased, especially in biotechnology, ICT, environmental technology and nanotechnology. However, these developments are not general and are counterbalanced by other changes that have nothing to do with technology.

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Speaking in general terms, the new Japanese innovation system resembles neither the classic system, nor the Silicon Valley model, nor again European models. How should it then be described? We use three levels of analysis: that of the actors, that of the sectors and that of the system as a whole. As for the actors, the Japanese innovation system is always dominated by the (very) large firms, especially in the electronics, car and machinery sectors. Even so, among the largest actors some changes are evident. During the period, Toyota has become the leader in terms of R&D expenditure, whereas in other sectors a relative decline has been observed for companies like Matsushita, or even more pronounced for Sony. As for other firms, less known, Ito- & Lechevalier (2010) have reached the following conclusions based on an econometric analysis: on average, the innovation capacity of some mediumto-large firms has also increased since the beginning of the 1990s, whereas the situation of SMEs is in general always problematic in this field, with just a few exceptions. As for universities, they are less peripheral than in the previous system, but they do not occupy a position equivalent to that of American universities in the Silicon Valley system. What is striking is the domination of a few actors (notably the University of Tokyo, Waseda University or the Tokyo Institute of Technology). Besides, some criticism of this development has emerged, as the increased power of certain universities in the area of innovation has happened in part to the detriment of other tasks, such as teaching, for instance. Finally, the role of government has also changed, as shown by changes in vocabulary, from industrial policy to innovation policy. The system is better co-ordinated, even if the power of the CSTP depends to a great extent on the commitment of the prime minister. METI and MEXT have emerged somewhat strengthened from these developments, to the disadvantage of other ministries. By contrast, the situation of agencies affiliated to these two ministries (RIKEN, JST, NEDO, AIST) is more ambiguous, as they have been relatively more constrained in terms of means and are more controlled by their respective ministries in charge. As for the system seen as a whole, what can we say? We need first of all to emphasise the increased level of R&D expenditure and the relatively weak effectiveness of this expenditure, partly shown in declining outcomes (OECD, 2005b). Also, the new system of innovation took a less autarchic approach to innovation on the part of large firms. This change was in part caused by growth in R&D costs, which firms had increasing difficulty in facing individually. This also corresponded to a voluntarist strategy, in the context of growing competition from Asian competitors such as Korea, particularly in some electronics sectors, or even China, in other sectors. This development appears especially in the case of forms of collaboration between private actors, as has been argued in Chapter 3. In short, the present situation is the apparent paradox between a system more favourable to open innovation but in which the inventors are more protected, which tends to impede the way innovation is diffused. In the area of innovation, we thus get the impression of

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a system still in a state of transition, and not yet stabilised. Another important point is that it is no longer oriented towards catching up with the United States, but that it has been adapted rather toward the desire not to be overtaken by Chinese and Korean competitors (see also Chapter 7). Finally, what could we say about the Japanese innovation system in a sectoral perspective?4 Do we, in particular, see specialisation conforming to the Silicon Valley model or something more specific? First of all, Japan has made good some of the ‘backwardness’ that it had fallen into by comparison with the United States in biotechnology and ITC during the 1990s. This does not mean that the industrial and technological structure of Japan is modelled on that of the United States in these areas. On the contrary, even if Japanese industrial policy has not abandoned the ambition to cover all sectors (Cabinet Office, 2010), Japan does particularly well in certain niches (personal robots, video games, etc.), as Cornelia Storz shows in various of her writings (Storz, 2008, 2009; Lechevalier, Nishimura & Storz, forthcoming; Storz & Riboldazzi, 2010). Also, we see major continuity in the areas that were the strength of the classic innovation system, in the car, general electronics and machinery sectors. This does not impede the emergence of new industries whose best example is perhaps that of personal robots (Lechevalier, Nishimura & Storz, forthcoming). Finally, in other areas, such as nanotechnology and materials, as well as environmental technology, we also see some specific developments, marked especially by advanced forms of technological convergence (Okuwada, 2008). This is not without connection to what Helpman (1998) calls ‘general purpose technology’ – that is, technologies that have reached a certain level of maturity and whose combination may lead to further progress. Our bet is that Japan may excel in combining existing technologies, which require a high level of co-ordination among heterogeneous and complementary players.

Is convergence towards the Silicon Valley model the only way possible for the Japanese innovation system? The Silicon Valley system is not neo-liberal. It is, however, more liberal than the Japanese innovation system, in that it appeals more strongly to market principles, to entrepreneurship and to intellectual property rights. Above all, it was born, regionally it is true, in a more general institutional environment (with its characteristics concerning firm organisation, the labour market, finance, the education system) that is in itself liberal. In addition, promoting the Silicon Valley-type system strongly serves the neo-liberal reform programme of labour market and financial market reform, for example. Promotion of start-ups and innovation in SMEs goes in the same direction. In other words, whereas promoters of structural reforms have above all concentrated their attacks on state intervention in the 1980s – this is how neo-liberal ideas broadly contributed to the decline of industrial policy in Japan (Lechevalier, 2006) – they subsequently adopted an approach that was both global and

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indirect, the symbol being here the Reagan Administration’s U-turn regarding its criticism of state intervention in the area of innovation (Mowery & Rosenberg, 1993). Entirely typical of this approach was an article by one of the best-known specialists on innovation in Japan, Akira Goto-, published in 2000. In this article, the author develops an argument covering three steps: 1 the classic Japanese innovation system had its qualities but was ill-adapted to new industries such as biotechnology and ICT; 2 to change the industrial and enterprise system was necessary in order fully to gain advantage from the new wave of technical progress embodied in these new industries; 3 in any case, the key reform was deregulation, which had already made progress in Japan and which ought to continue (Goto-, 2000). The evolution of two other Japanese intellectuals on this subject is also characteristic. Masahiko Aoki, the best-known theoretician of the Japanese firm and perhaps of the Japanese model in general (Chapter 2) became one of the fiercest partisans of the promotion of the Silicon Valley model and was even one of the greatest supporters of Japanese university and innovation system reform (Aoki, 2000, 2001), to which he contributed directly when he was at the head of RIETI, the METI think tank (2001–4). It is true that at that time he was a professor at Stanford University, in a position that allowed him to observe directly what was really going on in Silicon Valley. Even more surprising was the path taken by Hiroyuki Odagiri, the author of a major book on the Japanese firm (Odagiri, 1994), and in-depth work on the Japanese innovation system (Odagiri & Goto-, 1996; Goto- & Odagiri, 1997), who had developed a complex argument influenced by evolutionist thoughts. Although he does so in a measured fashion, he supports the convergence of the Japanese innovation system towards the Silicon Valley model in various works such as his article ‘National Innovation System: Reforms to Promote Science-based Industries’ (Odagiri, 2006). The reasoning, which started from the relative failure of the Japanese innovation system in the 1990s to promote a complete reform of the system on the Anglo-Saxon model, is typical of an ideological approach to the question of innovation. It rather reminds us of the Lisbon strategy launched in 2000 in Europe, with the ‘success’ with which we are familiar. In this document, the link is established between innovation and structural reform to develop better a knowledge economy and society. How should we judge such reasoning? If the aim is only functional and seeks to find arguments to establish more general policies of structural reform, then there is nothing to say from a theoretical point of view. If, in contrast, it corresponds to a belief in the possibility of institutional catching up, then it is not only headed for failure, but it also risks destabilising the system as a whole, including the parts of it that work well.5 This does not mean that the Japanese system of innovation lacked weaknesses and that there was no need to reform it. It simply indicates that the Silicon Valley model is not suitable for all types of capitalism and above all that it is not the only possible way of promoting innovation.

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One possible objection, however, concerns the emergence of new industries, such as those of communication and information, or those linked with biotechnology, the emergence of which the Silicon Valley model appears to favour. This is the central issue in an article by Marie Anchordoguy, with a quite revealing title: ‘Japan’s Software Industry: A Failure of Institutions?’ According to the author, the classic Japanese system of innovation was focused on catching up, and was for this reason efficient in certain industries (such as the car industry) but not in those that emerged in the 1990s, for the following reasons: in these industries, foreign firms were the first in the field and were able to impose the dominant design; in addition, these technologies cannot be the object of legal reverse engineering; learning cannot be carried out just by copying; finally, technical change is rapid. Worse still, according to Anchordoguy, the classic Japanese innovation system discouraged entrepreneurs, and yet they are the key to developing typical industries of the new economy. Among the system’s weaknesses, could be mentioned a financial system centred on banks (and the concomitant absence of venture capital), employment practices based on seniority with lifetime employment as the norm, feeble guarantees of intellectual property that did not protect inventions, emphasis on conformism in education and socialisation in general. In these conditions, the only solution for Japan was to favour convergence towards the Silicon Valley model, even if the process was difficult (Anchordoguy, 2000). These theses call for some commentary. On the first point, Anchordoguy’s position was quite classic and is found, for example, in Hall and Soskice (2001) and in Aoki (2000), who defend also the idea that each national system of innovation has comparative advantages in certain sectors or for certain technologies. On the one hand, however, recent works have shown that even in technologies in which Japan should not excel given the characteristics of its innovation system, we sometimes find counter-examples. This is the case in video games, a sub-sector of the software industry, in which Japan has innovated impressively and since the 1990s has been the leader in the field, with actors such as Nintendo, Sony Entertainment and SegaSammy. Storz and Riboldazzi (2010) show that this sub-sector is organised differently in Japan, by comparison with its American and British equivalents, especially with regard to vocational training, incentive systems and mobility of engineers.6 In other words, if this sector has been able to emerge in Japan, this is not because the sectoral system of innovation that characterised it was the closest to the Silicon Valley system. All in all, this sector works well within the Japanese system of innovation (Storz, 2008, 2009). In this case, however, peripheral actors have place a major role and given major plasticity to the sector-specific system of innovation, diverting some institutions away from the labour market, and these institutions have then been not constraints but resources.7 The second thesis is even more subject to criticism, and typical of the use made of the success of the Silicon Valley model to introduce reforms in finance or labour markets, or more generally to give wider scope to the

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market. It rests on the argument according to which the entrepreneurial regime is able to facilitate the emergence of new industries. However, Lechevalier, Nishimura and Storz (forthcoming) show that a quite different type of regime, which they call ‘intrapreneurial’ – resting not on individual entrepreneurs, start-ups and venture capital, but on very large firms – is also capable of promoting the emergence of new industries. In other words, the argument that only the Silicon Valley model is capable of promoting the emergence of new industries is too strongly influenced by two very specific cases: those of biotechnology and ICT. However, the Japanese case shows that they are not representative of all potentially emerging industries. Besides the case of personal robots, it is, for example, possible to cite the one of renewable energy in a post-Fukushima context: although it is impossible at this stage to see how this potential new industry may emerge in Japan – given the strong political and economic constraint exercised by incumbent players – what is remarkable is that the new actors that may support this emergence are not of the same type as typical Silicon Valley start-ups but rather linked again to outsiders of the energy sectors (e.g. Softbank) or to local initiatives and associations (Fukasaku, 2012).

Organisational innovation, R&D investment, and co-evolution of institutional systems and systems of innovation In concluding this analysis of the reform of the Japanese innovation system and of the use that has been made of it to justify the implementation of neoliberal policies, we can draw several conclusions. An initial series of lessons concerns analysis of the Japanese system of innovation and of its reform in relation with the more general topic of institutional changes that characterised Japanese capitalism. Whatever may have been the motivations of the reformers and the effective results in terms of innovation quality, the reform of the system is certainly the best example of institutional change in Japanese capitalism. Above all, the mobilisation of a large number of actors to map out a ‘common vision’ – without this meaning a ‘consensus’, as shown by the virulent opposition to the reform of public universities – is an excellent example (Lechevalier, 2007a). In other words, the goals were the same as those of the Lisbon strategy, but the method was different, as also the results. Thus an achievement unanimously welcomed was the maintenance of a high level of expenditure on R&D despite the crisis, which corresponded indeed to an increase in this expenditure expressed as a percentage of GDP, contrary to what happened in France or the UK, for example, over the same period. We are equally entitled to discuss the goals of this reform. We shall not return here to its neo-liberal goals, except to emphasise the weaknesses of the technological argument: the classic Japanese system of innovation revealed certain limits at the beginning of the 1990s and needed to be reformed. What is, on the contrary, more debatable is the path chosen, the attempt to converge with the Silicon Valley model, as well as the use of this reform to

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promote deregulation in other domains. However this may be, what deserves to be discussed is the reform of the innovation system and the priority given to it. One question, rarely posed but in fact essential, is the following: up to what level is it legitimate to devote scarce resources to innovation, the outcome of which is by definition uncertain, when other public policies, social policies for instance (see Chapter 4), would perhaps have a lower level of potential positive externalities but a more certain level of outcome? At the completion of this reform, how should we describe synthetically the new system of Japanese innovation? We ought to consider two aspects. The first may perhaps be summarised by the following paradox: we have gone from an innovation system compartmentalised at the level of firms by broadly favouring innovation diffusion thanks to a weak intellectual property system, to an open system but one in which inventions are more strongly protected, which is an impediment to the spread of innovation. The second aspect is more specific and concerns public policies: with the passage, in both vocabulary and practice, from industrial policy to innovation policy, the Japanese government has equipped itself with the means to structure the scientific sector (especially universities) with an innovation marked by ever-closer involvement with science. At the same time, however, it has perhaps lost industrial ambition structured towards involving Japan closely in the world economy (see Chapter 7). A second series of lessons looks at the model of Silicon Valley. The reference to the Silicon Valley model leads us to focus almost exclusively on radical innovation, putting aside anything that smacks of innovation that is incremental. The latter is of course less prestigious, but corresponds, in the great majority of cases, to what researchers and companies are able to achieve. In addition, in the end, it tends to lead to major changes, in conformity with the predictions of the model of gradual change proposed by Streeck & Thelen (2005). Besides, under the influence of the Silicon Valley model, we too often tend to focus on the technological dimension of innovation. A widely held view is indeed that the destiny of nations depends essentially on their capacity to create technological innovations and to diffuse them throughout the economy. This, however, neglects the fact that the strength of the Japanese economy is essentially bound up in another form of innovation, that of organisation, of which the Toyota production system (TPS) is merely the best known. The Japanese case shows us also that organisational innovations are just as important from the viewpoint of productivity of firms and their competitiveness. Another consequence of the domination of the Silicon Valley model is sector-specific. Innovation is not limited only to biotechnology and ICT. Whereas concentration on these two sectors very largely influenced reforms of innovation systems throughout the world in the direction of convergence with the Silicon Valley system (which was supposed to be the most effective in these areas), we need to broaden our conception of innovation when taking account of other sectors, such as robotics, for example. We should distinguish

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at least two regimes of innovation: the entrepreneurial regime specific to Silicon Valley and the ‘intrapreneurial’ regime corresponding rather well with the Japanese model, including the model after its reform (Lechevalier, Nishimura & Storz, forthcoming). These two regimes have substantially different properties which spread out into different sectors. This is the basis of sectorspecific specialisation in the different types of capitalism (Hall & Soskice, 2001; Casper & Soskice, 2004). In short, the Silicon Valley model is not adapted to all technologies and to all industries. Another argument that makes the Silicon Valley model the absolute reference point for contemporary innovation systems is that it should be better adapted to technological revolutions closely bound up with scientific developments. However, the Japanese innovation system does not hinder the development of industries having technologies closely linked with science. This is what Odagiri (2006) shows through the example of Kirin, one of the leading firms in the beer industry, which applied its savoir-faire concerning fermentation to the mass production of medicines based on biotechnology. A more specific point concerns the dynamics of firms and innovation, with implications for industrial policy. The idea according to which small firms should be the most productive of innovation is clearly invalidated in the Japanese case. In addition, the creation of innovative start-ups does not happen by edict. Moreover, its effective impact on the innovation process strongly depends on sector-specific and national conditions for the innovation systems. In this area, as in others, history counts and it is quite illusory to ignore it in trying to ‘construct’ a system of innovation ex nihilo. This broadly explains the absolute failure of policies of promoting start-ups. Finally, a third lesson is more general. We should urgently abandon scientific and technological determinism. This is true from the viewpoint of the performance of the economy. Certainly the problems of the classic Japanese innovation system were real, but they were not at the origin of the crisis. As for the recovery of the early 2000s, if one puts aside the most important factor – the building of an export-led growth regime – it was structurally caused less by reform of the innovation system than by the fact that R&D expenditure has been kept at a certain level or even increased in a period of crisis which helped to preserve innovation capabilities. In this area, as in many others, we tend to throw the baby out with the bathwater. Japanese technological advances, however, are such that these reforms have not much disturbed the system as a whole. They have not improved it, but neither have they attained a capacity for innovation, as it remains fundamentally confined to large manufacturing firms in the electronics and automobile sectors. The technological vision is also at the base of the argument according to which Japanese capitalism must adapt to new technological conditions. Yet not all institutional change is uniquely determined by technology. A more satisfactory approach is to reason in terms of co-evolution between the institutional and national system of innovation (Odagiri, 2006). The first determines how firms are organised, how financing and human resources are allocated; the

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second determines at the same time the supply of an educated workforce, scientific progress (at the level of the university system), and legal, economic and social conditions on which are based the speed and direction of innovation. Thanks to this approach, we can also understand why innovation system reform was unable to transform in parallel and in depth the conditions in which the institutional system found itself.

Notes 1 A more subtle argument is that the new technological environment is liable to modify the comparative advantages of each form of capitalism (Motohashi, 2003c). 2 The best references on this subject are Odagiri & Goto- (1996), and Goto- & Odagiri (1997). 3 The most convincing example concerns university reform. On the one hand, the Japanese university system was much influenced not only by the conditions of its creation in the Meiji period, but also by the conditions of its reform in the post-war period (Odagiri, 2005). In addition, the reform of public universities paradoxically led to much greater power of control on the part of MEXT, which has been the main artisan and beneficiary of the reforms. 4 On problems of de-industrialisation and the difficulties of making an analysis in terms of the ‘flying geese’ metaphor, see Chapter 7. 5 This type of approach is found, for instance, in an influential report: 21st Century Innovation Systems for Japan and the United States. Lessons from a Decade of Change (Nagaoka et al., 2009). Among the institutions that have supported the implementation of this report, we may include the Committee on Comparative Innovation Policy: Best Practices for the 21st Century. This report sought to create institutional benchmarking with the American innovation system, of which the Silicon Valley model was seen as the keystone. 6 On the mobility of engineers and the differences between the United States and Japan, see Fujimoto (2005). 7 On the concept of institutions as resources, see Streeck & Thelen (2005) and Vogel (2006).

7

Should Japanese capitalism adapt itself to globalisation?1 Sébastien Lechevalier

Among the numerous received ideas about globalisation, one of the most popular is certainly that national economies must adapt to this exogenous and ‘inevitable’ process, in order to survive pressures of international competition and escape decline. In the case of Japan, we may distinguish two senses of this idea which, implicitly, poses the momentous question of the very survival of Japanese capitalism within a globalised world. During the lost decade, it meant that Japan was represented as a ‘victim’ of globalisation, because its institutions adapted to the new international context too slowly and incompletely. After the lost decade, the original question gradually shifted to another one: could Japanese growth based on the export of manufactured products be sustained, when China had the ambition of becoming the factory of the world? It is true that this question was raised not only in Japan and may be reformulated in a more general way: Can countries such as Japan, Korea, Germany and France maintain comparative advantage in the manufacturing sector in the 21st century without significant negative side effects on their domestic labor markets (Lechevalier, forthcoming)?2 It is striking that this question was not posed in Japan in the 1980s; quite the contrary. In fact, two arguments prevail about the relations between globalisation and Japanese capitalism.3 They share a concern with the crisis in the latter. According to the first argument, classic Japanese capitalism should change because it was not well adapted to a globalised world; it is this difficulty in adapting that explains the long Japanese crisis. As for the second argument, it assumes that the change in the course of globalisation – principally trade-led in a first stage but later becoming more and more financial and liberal – that precipitated the Japanese crisis (Boyer & Souyri, 2001). One aim of this chapter is to show that these two arguments are both equally unsatisfactory, in that they miss an essential fact: Japan itself has participated in the new course of globalisation given the size of its economy and its own earlier withdrawal from the elaboration of its rules. Indeed, globalisation is not a ‘natural’ phenomenon.4 It is characterised by growing integration in goods markets, capital markets, labour markets and services markets, associated with a movement of liberalising trade and financial flows at the international level, by a deepening of the international

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division of labour (manifested in the internationalisation of production, in which multinational enterprises play a key role) and in pressures for convergence of various norms (e.g. corporate governance). It is also, and above all, an assembly of rules, and a kind of global order able to be modified by the actors themselves in function of certain balance of power. This is why, for example, the dominance of finance has become one of the essential factors in globalisation. By preserving an element of mercantilism within globalisation, based on the goal of being competitive, Japan has participated, by default, in changing the course of globalisation towards a more liberal phase, basically because it was not actively engaged in the definition of rules at the global level, despite its status as the world’s second economic power (until it was overtaken by China). As for Japan’s international involvement – or its ‘international regime’, to refer to one of the five institutional forms in régulation theory – contrary to a common belief, it has experienced profound changes, as much in terms of opening up the economy to the rest of the world as in terms of the evolution of its trade partners. Up to the beginning of the 1990s, Japan seems to have been one of the main beneficiaries of globalisation, in that its growth was driven by exports from 1980, the United States being its largest trade partner. It is in this context that the lack of opening, as well as asymmetric opening by Japan, attracted sharp criticism. We believe that from the end of the 1990s, the ‘opening’ of Japan could no longer be doubted. It was most clearly manifested in the growth of foreign direct investment (FDI) in Japan, as well as imports from China. In fact, the rise in Chinese (and Korean) competition is more evident in certain sectors, at the very moment when China became the primary trade partner of Japan in 2004, if we include Hong Kong (see Figure 7.1). More generally, this chapter seeks to respond to a double series of questions. The first group of questions is specifically linked to the nature of Japanese international involvement. How has Japan gone from an international regime dominated by a relationship with the United States to an international regime dominated by a relationship with China? Has Japan gone from the status of a ‘winner’ in globalisation to that of a ‘loser’? A second series of questions comes back to the general issue addressed in this book. Was the classic Japanese model ill-adapted to the new phase of globalisation? What has been the impact of globalisation on institutional change in Japan? What margins of manoeuvre does Japan (the Japanese government) have in today’s globalised world? How has globalisation been used to implement neo-liberal policies in Japan? In order to attempt a response to these questions, this chapter focuses on the evolution of Japan’s international regime. At the same time, going beyond the economic dimension, it is necessary to take into account the evolution of international relations and Japanese policies in this domain. The image of a closed, protectionist Japan that only reacts to external pressure needs to be challenged. Even if it corresponded to a kind of reality in the 1970s, it has not taken account of a major evolution of the system since then.

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The international regime of the Japanese economy in the 1980s: did Japan benefit from globalisation without respecting its rules? The international regime of classic Japanese capitalism was marked by internationalisation but also by a certain kind of protectionism, and this may be classified as asymmetric opening (Inoguchi & Okimoto, 1987). In addition, at that time the Japanese economy was highly complementary with the US economy, which was its primary trade and financial partner. In this area, the real turning point occurred at the beginning of the 1970s, as Edward Lincoln (2007) recalls. Before 1973, one could describe the international regime of Japan as insular in so far as its interactions with the rest of the world were limited: the capital account was strictly regulated; apart from the so-go- sho-sha, few companies had representative offices abroad. In this context everything that smacked of the international was considered exogenous. This progressively changed from the 1970s. One reason was that the size of the economy reached a critical level, and from this point on it was evident that domestic dynamics had non-trivial impacts on the rest of the world. The world hastened to exert pressure on this country that had become the second economic power in the world. Whereas the balance on the current account was zero in the 1950s and the first half of the 1960s, trade surpluses began to grow during the 1970s with the slowing of the economy, which brought with it a surplus of savings over investment.5 At the end of the 1980s, Japan was put forward as the principal beneficiary of the globalisation then taking place, to the point that globalisation rhymed with ‘Japanisation’ – in other words with the development of Japanese exports

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and the diffusion of its model of production (Elger & Smith, 1994). In the United States at this time, a widespread idea was that Japan, having completed its catch-up phase, would now directly compete with the American hegemony (Krugman, 1990; Thurow, 1993). The cheeky success of Japanese capitalism was demonstrated in the accumulation of commercial surpluses from the beginning of the 1980s, especially in relation to the United States (Figure 7.2). More exactly, the Japanese trade balance came into surplus in 1981, the date from which there was a boom in trade surpluses, which increased sixfold between 1981 and 1986. Analysis of the ratio of trade balance to gross domestic product (GDP) (Figure 7.3) shows in addition that from 1980, GDP growth in Japan was effectively brought about by exports (which themselves influenced the rate of investment), whereas the high growth regime of the 1950s and 1960s was basically caused by investment (Yoshikawa, 1995).6 A second aspect of the Japanese success story has to do with the diffusion of the Japanese model of production organisation, via the internationalisation of Japanese production with the rise in Japanese direct investment throughout the world, the annual flows of which grew more than sevenfold between 1984 and 1990 (Figure 7.4). Some of this direct investment corresponded to purchases of foreign firms, of which the most spectacular was without any doubt that of Columbia Records by Sony in 1988. In a general sense, this period was what we may describe as the ‘golden age’ of Japanese multinationals (Yamawaki, 2007; Belderbos, 1997). Finally, the third aspect of Japan’s success is Japanese financial power at the international level, which perhaps forms the most striking aspect of

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globalisation for the Japanese economy. The remarkable appreciation of the yen from spring 1985 (endaka), which in less than two years went from 260 yen to the dollar to 130 yen to the dollar, did not seem to upset the competitiveness of Japanese firms, whereas it contributed to enriching Japanese abroad. From the middle of the 1980s, in terms of the size of their balance sheets, Japanese banks were the first in the world. Japan then appeared able to ‘buy the world’. The country was in fact the world’s banker, which is shown by the fact that the net value of its assets abroad went from US$10 billion in 1976 to $328 billion in 1990 (Kawai, 1998). This Japanese success in globalisation fed a debate between two hypotheses, of which two stories occurring at the same time may make sense. According to the first, Japan would take full advantage of globalisation without respecting its rules, and would also show all the characteristics of a disloyal competitor at the global level. In fact, although Japan benefited from the growth in trade of goods at the international level, which favoured its exports, imports from the rest of the world did not experience the same kind of development until the beginning of the 1990s (Figure 7.2). To explain this situation, the most convincing story is the story of ‘barriers’: the asymmetry that characterised the international involvement of Japan was not the result of a simple problem of protectionism or domestic regulation. There were also structural obstacles concerning the behaviour of consumers, the structure of inter-firm relations, notably the structure of keiretsu (Fung, 1991; Lawrence, 1993), and the internal labour market (and possible problems of intercultural management). According to the second hypothesis, Japan had in fact acquired perfect control over its comparative advantages. The structure of Japanese international commerce was eminently Ricardian, in other words strictly defined in function of its comparative advantage, as it is shown by the analysis of the structure of exports and imports, marked by a very weak contribution on the part of intraindustry trade, contrary to countries like France or Germany. Japan imported principally primary materials, energy and agricultural products, as well as manufactured products having low-level technological content (for example, textiles). In return, Japan exported manufactured products, principally in the car, electronics and machine-tool sectors. If this explanation is correct, the international involvement of Japan was wholly rational and did not correspond in any case to a perversion of globalisation rules (Saxonhouse, 1993). What can we conclude? Was Japan’s international regime mercantilist, or did it obey a Ricardian logic? On the one hand, the structure of Japanese exports reminds us to some extent of that of another co-ordinated form of capitalism, that of Germany, which is also one of the greatest global trade powers. On the other hand, it is true that the Japanese economy remained relatively more closed than that of Germany, notably from the point of view of intra-industry trade. This is explained by differences in endowments and environment – the position of Germany within the European Union (EU) is not the one of Japan within Asia – and by ‘barriers’, which were not all put in place by the Japanese government.

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Japan’s opening: the result of American pressures or of endogenous change by a major participant in globalisation? However this may be, according to the dominant view, the problem of Japan’s international involvement does not come down to the issue of Japanese exports or outward FDI, but rather to imports and FDI into Japan. In other words, what causes a problem is the question of Japan opening. This is shown by the different reports published by the American Chamber of Commerce in Japan (ACCJ) or the European Business Council (EBC), including that edited by the EU-Japan Business Dialogue Roundtable Working Group, which not only insists, in traditional fashion, on the need to create an environment open for commerce and investment, but also sets out as a condition a wider opening of the economy as a condition for Japan to gain advantages from globalisation (see, for example, EU-Japan Business Roundtable Working Group One, 2002). Still, contrary to what chambers of commerce in the United States and Europe continue to insist, Japan has opened up considerably since the end of the 1980s. Of course, it is easy to show by international comparisons of many different indicators, that Japan is less open than the majority of European countries. As we have seen above, however, with the German case, it is not certain that this comparison is appropriate. Above all, the growing opening of Japan shows that its international regime has significantly changed (Okabe, 1995). The most obvious sign of opening concerns the penetration of FDI into Japan at the end of the 1990s (Figure 7.4). Although FDI was at a very low level up to the middle of the 1990s, it exploded between 1996 and 1998 (a sixfold increase between the two dates, though they were close to zero in 1995), and overtook outward FDI in 2004. The most spectacular dimension concerns Japanese firms taken control of by foreigners – among which we could mention the alliance between Renault and Nissan in 1999, that between DaimlerChrysler and Mitsubishi in 2000, and also the acquisition of the Nichidan Life Insurance Co. by AXA in 2000 – which constitutes a break with the earlier situation (Olcott, 2005). The inward FDI case is in fact typical of the controversy about the openness of the Japanese economy and therefore deserves a specific discussion. Those who consider that the evolution is not significant or very fragile will emphasise the fact that after 2004, the inward FDI declined while outward FDI boomed (Figure 7.4). Even more importantly, a key argument refers to international comparisons in terms of inward FDI. For example, according to data collected by the United Nations Conference on Trade and Development (UNCTAD), Japan ranked 23rd in the world in 2007 in terms of inward FDI (stocks), just after Poland. However, this argument has, at least, two flaws. First, there is no theory allowing us to determine the optimal level of inward FDI. It is normally motivated either by growing market perspective or by low production costs, two determinants that are not particularly attractive in the

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case of Japan. Second, the ranking of inward FDI cannot be used as a normative ranking of the best-managed or most open economies. It fundamentally depends on different economic structures and/or economic strategies and policies. It is indeed striking that Belgium and the Netherlands are respectively fifth and sixth, before Germany, Canada, Italy or Brazil. From this, it is indeed not possible to infer that Belgium or the Netherlands are ‘models’ to be followed. This is a typical misuse of international comparison. As for imports to Japan, they doubled between 1986 and 1997, and then again between 1997 and 2008. The ratio between imports and domestic consumption went from 10% in the 1980s to 20% in the 1990s (Lincoln, 2007). Of course, Japan continued to import less than other countries, especially the United States, but it also continued to export relatively less. This was so to the extent that in constructing a standardised index of imports taking account of exports by sectors, James Harrigan and Rohit Vanjani show that in fact Japanese imports are a good deal bigger than those of the United States, so much so that we cannot consider Japan to be closed (Harrigan & Vanjani, 2003). Another conclusive sign of the opening of the country is its exchanges with China: with the exception of the trade conflict in 2001 over mushrooms and tatami matting, Japan can be shown to be much more open to Chinese imports (especially in textiles) than the United States and Europe, if we analyse tariff and non-tariff barriers (Xing, 2009). How should we explain this growing openness of the Japanese economy? The most common explanation is that globalisation is a form of external pressure (gaiatsu) on Japan. This view appeared to be validated by the dynamics of the 1990s. Of course, the country affirmed its trade and financial strength, but it was merely the result of its excellence. On the rest of the story, it has been largely constrained by its partners, especially the United States, to open up its capital account, to revalue the yen upwards and to buy US Treasury bonds, in order to finance the US public debt. The Plaza Accords signed in September 1985, which redefined on a broad front the international position of Japan, symbolised this external pressure. For some Japanese commentators, the purchase of Japanese firms by foreign enterprises in the 1990s was also a symbol of pressure by international finance on the integrity of the nation (Lechevalier & Onaka, 2004). We do, however, tend to forget that Japan is one of the major actors of globalisation (Curtis, 2001). In addition, to use the expression of Berger, Mochizuki and Tsuchiyama (2007), Japan is less and less a reactive state, and more and more an adaptive state. We thus need a more dialectical interpretation of Japan’s opening, and this is what Kohno (2007) proposes in his analysis of the success of the notion of Japan’s international contribution (kokusai ko-ken). This was less the result of external pressure than of changes that intervened at the level of the dominant social blocs on the national scene, following on from the effects of globalisation. In any case, globalisation benefited the most competitive sectors of the economy and enhanced their power over policy, relative to that of traditional sectors, which tended, on the

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contrary, to experience negative consequences from it. This may be seen in changes in the orientation of the Ministry of International Trade and Industry (MITI, and later the Ministry of Economy, Trade and Industry, or METI), which little by little abandoned its policies of protecting the less competitive sectors and established itself as the institution most favourable not only to globalisation but also to the ‘necessity’ of Japan adapting itself to it. This is even more evident in the strategy of the Liberal Democratic Party (LDP), which itself in the past had been an obstacle to Japanese internationalisation, under the influence of its electoral support based on farmers and small and medium-sized enterprises (SMEs). The LDP changed its position to the extent that changes in the international environment affected the power relationships between different groups of national actors. In short, the LDP progressively sought to attract the urban middle classes, whose weight in society grew, and who were consumers rather than producers. This second interpretation seems to be confirmed if we concentrate not on the increase in imports but on the changes that intervened in where they came from (Figure 7.5). In 1980, imports from North America represented 40% of total imports, whereas imports from Asia only accounted for 20%. In 1990, the percentage was around 30% for both continents. Then in 2000, it became 20% for North America and 50% for Asia. We can distinguish two phases in this growth in imports from Asia: in the 1980s, the most striking fact is the growth in imports from the ASEAN4 (Association of Southeast Asian Nations: Thailand, Malaysia, the Philippines and Indonesia) and, to a lesser extent, the newly industrialising countries of Taiwan, Korea and Singapore; in the 1990s, this was essentially accounted for by imports from China. In short, the major part of the opening of the Japanese economy was selective and 100% 90% 80%

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profited first of all from imports from Asia, and then, later on, from China. This had an impact on daily life that was visible through the appearance of 100 yen shops (in which you could find items for less than €1, mostly coming from China) and on almost all the distribution channels. Should we then conclude that the principal beneficiaries of this opening were Japanese consumers? This is certainly true if we compare it with the situation in 1980. Japanese consumers at that time paid the highest prices in the world, not so much because of the archaic distribution system, but rather because of a conservative system of social protection that was not revealed in the form of a welfare state as such, but rather as a protection system for sectors such as agriculture and small-scale commerce (Bouissou, 2000).7 An analysis, however, of legislative debates in the 1980s and 1990s shows that the well-being of consumers was not the principal reason for the reforms (Sala, 2010). It is especially in this area that we are able to see how far Japanese politics was dominated by the interests of the large firms, well represented on all ad hoc committees organised by the government (Culpepper, 2010). To summarise, then, not only is Japan more open today, but this openness corresponds less to a Japanese response to external pressure than to the endogenous development of the economy. In short, we can only note the major advances in the opening of the economy (which renders null and void the idea of ‘closed Japan’, sakoku), as well as the mediocre results of this at the level of the economy’s performance. On the one hand, the lost decade does not prove that Japan was too much closed in upon itself, or insufficiently internationalised or liberalised, as witnessed by the significant ‘advances’ in the area of financial deregulation. On the other hand, policies of liberalisation have not produced the expected results. To be fair, trade has been a key component of the Japanese growth regime in 2004–5 after years of liberalisation and opening; however, the crisis of 2008–9 has shown how fragile this regime was and a better balance had to be found with domestic engines of growth. Hence our suspicion that the mode of opening decided upon was largely inappropriate. This does not mean that the Japanese crisis was provoked by the new Japanese international regime. We must indeed place in a relative context the impact of external factors in the Japanese crisis. If, from a business cycles viewpoint, the rise in imports in 1994–96 had a negative impact on economic recovery, and if, in a structural sense, it appears that the growth regime was not derived from exports, we still need to acknowledge that exports were the most stable component of demand in the 1990s (Yoshikawa, 2002). As to the strength of the yen, which essentially resulted from the high level of productivity of the exporting sectors, it cannot be held responsible for the long stagnation of the 1990s, which resulted basically from sluggish investment. Although a high yen (especially to US dollar and euro but also to yuan) is certainly very detrimental for the price competitiveness of domestic production by Japanese firms, especially in the most recent period, the exchange rate issues should not be overestimated as they do not

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summarise by themselves all the issues that Japan has to face from the viewpoint of its international regime. Nevertheless, whatever may have been the modalities of Japan’s opening from the beginning of the 1990s, it was especially in matters relating to Japan’s economic partners that we may observe the most important transition.

Japan’s new international regime since the second half of the 1990s, or how to deal with China’s rise The perception of globalisation and the Japanese crisis as the result of an American strategy was replaced, from the end of the 1990s, by the fear of seeing Japanese hegemony in Asia menaced by the development of Asian countries, most of all China (Meyer, 2011). One statistic alone allows us to summarise the new regional situation of Japan. In 2000 the Chinese economy was the second economy in Asia. It size measured in terms of GDP was around one third of the Japanese economy, whereas it was about one eighth of it in 1990. History will recall that in 2010 China overtook Japan to become the leading Asian economy and the second world economy, even if we have the right to doubt the reliability of Chinese statistics. From the viewpoint of Japan’s perception of globalisation, this development can be considered ‘good news’ in that it has led to negating the view that globalisation is Americanisation. Globalisation is now perceived as a much more complex and multi-polar phenomenon, accompanied by a certain ‘Asianisation’ of the word, including Japan. This trend is perceptible in the development of the structure of Japanese imports by place of origin, as we have seen above (Figure 7.5), but it is a more general phenomenon going beyond a strictly economic framework, as Karoline Postel-Vinay laid out perfectly already (Postel-Vinay, 1994). Nevertheless, over the same period, this development fostered a negative vision, especially strong in Japan since the end of the 1990s. The rise of Asian competition led those who thought Japan was declining to focus on problems of Japanese international competitiveness, analysed in terms of real wage cost indicators and not in terms of productivity, innovation or organisational capability.8 The vision of Japanese FDI in Asia is then reversed by comparison with what prevailed in the 1980s. It is interpreted less as a sign of affirmation of Japanese productive power, than as a risk of de-industrialisation, which makes the problem of de-localisation (ku-do-ka) of Japanese manufacturing industry very much noticed by public opinion.9 In this context, even if trade frictions with the United States have not disappeared (far from it), they have been overtaken by friction with China, which in 2004 became the largest trade partner of Japan, if we include Hong Kong (Figure 7.1).10 A revealing element is that we now use the term gaiatsu to describe Chinese trade pressures, whereas this term used to be reserved for pressure from more

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developed countries than Japan, in relation to which Japan was in a ‘catchingup’ perspective (Lechevalier & Onaka, 2004). Is this view really justified? It is interesting here to analyse a bit more precisely the development of exchanges between Japan and China, their quantities and their structure, taking into account the dynamics of Japanese direct investment in China. We shall confine ourselves here to the years 1980 to 2008, since 2008 was marked by a collapse in flows (and in the Japanese surplus on current account), essentially for exceptional reasons related to the global crisis. The most evident point is that since the beginning of the 1990s, trade between China and Japan grew in a remarkable fashion (Figure 7.1). There were at least three reasons for this development: the very strong growth of the Chinese economy, the full accession of China to the World Trade Organization (WTO) in December 2001, and finally, the growth of Japanese FDI in China (Sasaki & Koga, 2003; Xing, 2009). Between 1990 and 2007, Chinese exports to Japan increased by 14.9% on average per annum and those of Japan to China by 18.5%. In addition, the structure of trade between Japan and China substantially evolved during the same period. In 1990, unsurprisingly, China exported mainly manufactured products with high labour and resource inputs, whereas Japan exported machines and equipment to China. However, in 2007 these were the bulk of the products exchanged between the two countries, which takes account of strong growth in intra-industry trade (with differentiation in quality) in these industries, whose principal actors were Japanese multinationals implanted in China. The most important motivation for Japanese multinationals that invested in China was in fact exporting: between 1997 and 2007, more than 60% of the production of Japanese manufacturing firms located in China was exported either to Japan or to third countries. This figure reached 75% in the electronics sector. Trade between Japan and China, and more generally exchanges in Asia, constitute a kind of textbook case complementarity between trade of goods and FDI. In other words, the structure of exports and imports between China and Japan was strongly influenced, and in a positive fashion, by investments of Japanese firms in China. In fact, the systematic quantitative analysis proposed by Ito & Hahn (2010) on the impact of the surge of China on Asia, in terms of growth and employment, shows that together with Korea, Japan has been, until recently, one of the great beneficiaries of China’s surge both in terms of increasing demand (e.g. machinery) and in reduction of production costs. Analysis of the Japanese balance of payments allows us to go even further. It shows, indeed, that surpluses in the balance of revenues overtook that of the trade balance in 2006, whereas it had only represented about one third of it in 2000 and one fifth in 1990. In other words, the new phase of internationalisation of Japanese firms since the middle of the 1990s, which essentially took the form of FDI in Asia, implies that Japan had passed from the status of a country profiting from globalisation through trade, to that of an economy benefiting mainly from revenues and investments (JETRO, 2008; METI, 2008).

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What conclusions can we derive from this very simple statistical analysis? On the one hand, the idea that a massive de-localisation of Japanese manufacturing industries to China is the main cause of the de-industrialisation of Japan is not supported by the data. It is cannily maintained by Japanese business executives, who use it as an argument for maintaining a tax regime favourable to their firms. On the other hand, the phenomenon of deindustrialisation certainly exists in Japan. It is comparable to what we have seen in countries such as France for manufacturing employment, that is, a drop of around 30% between the beginning of the 1980s and the middle of the 2000s (Boulhol & Fontagné, 2006; Demmou, 2010), or even in the United States (Baily & Lawrence, 2004; Krugman, 1996). This is a complex phenomenon which was caused by concomitant developments: the outsourcing of certain industrial tasks towards the service sector, the distortion of the structure of demand over time (coupled with developments in the structure of production, related to differentials in productivity between manufacturing and non-manufacturing), and the effect of foreign competition on the performance of the industrial sector (Lechevalier, forthcoming). As shown by Bourdeaux (2012), who follows the same methodology as Demmou (2010) in the case of France, this last effect is real but is at about the same order of magnitude as the two other mechanisms (one third). As for the ‘Chinese sub-effect’ it is difficult to calculate it at this stage. The fact that Japan emerges from this at least as well as the European countries in face of competition in manufacturing from other Asian countries (and China in particular) is a bit paradoxical considering the basic rules of the international economy, such as the gravity equation (quantity of goods exchanged), and the rule of comparative advantage (nature of goods exchanged). In our opinion, there are at least two reasons. On the one hand, as Robert Boyer recalls in his Foreword, a division of labour between China and Japan appears to have come about, and is strongly upheld by the Japanese business world (Keidanren, 2001). This difference of specialisation tends to reduce the pressure exerted on Japanese firms of the manufacturing sector by the technological catching-up on the part of China. However, it is important to note here that this ‘happy ending’ may be thwarted by increasing tensions between the two countries, about which it is difficult to be optimistic. On the other hand, and even more importantly, Japanese multinationals established an original strategy to organise production in Asia, as we have already touched on in Chapter 3. It corresponds to the process of ‘fragmentation of production’, which results in a renewal of network capitalism dear to James Lincoln and Michael Gerlach (Lincoln & Gerlach, 2004). Fragmentation of production corresponds to an international division of labour in the process of production and to the growth of trade in intermediate goods with different factor content. This is, in a sense, a Ricardian type of intra-industry trade. Fukao, Ishido & Ito- (2003) confirm the existence of this specific type of economic integration in Asia. Inter-industry trade still constitutes the bulk of trade, but its proportion is diminishing to the advantage of intra-industry

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trade. This growth involves, in particular, vertical intra-industry trade (exchange of goods of different quality), which corresponds to the fragmentation of production, particularly important in the electronics and precision machine sectors. In this process, Japan occupies a privileged position, to the extent that it specialises in goods and components of high quality. It is the largest exporter of capital goods and the main origin of FDI in Asia. In fact, these are essential to explain the trade in components that mark the fragmentation of production (Aminian et al., 2007). What has been the response of Japanese manufacturing industry to the question of knowing how to survive the rise of China? Contrary to what people think, Japan has not explored the protectionist route, or at least has done so to a lesser degree than the United States or Europe. On the one hand, it has explored the route of competitiveness based on strict control of wage costs: in this domain success is ambiguous as the de facto stagnation of real wages was obviously not what allowed Japan to compete with China, but it has greatly contributed to deflation in Japan (Canry et al., 2010). On the other hand, Japanese multinationals have perfected an organisation of production in networks, which presents several advantages: it in fact permits Japan to be at the point of the pyramid, to create stimuli for innovation for Japanese firms and to develop a form of productive and trade complementarity with China. The analysis of these complementarities makes it necessary to propose a new scheme capable of taking account of the division of labour in Asia in general and of the fragmentation of production in particular. The classic scheme is that of the ‘wild geese’ model, proposed initially by the Japanese economist Kaname Akamatsu (Sautter, 1996; Kasahara, 2004). According to him, development in Asia can be explained by dynamic comparative advantage, and sequential catching up of the economic leader of the region, Japan, by the other countries, in the framework of hierarchical regional integration. The stability of this hierarchy, though, is today put in question. This is particularly true of the electronics sector, where competition is more and more direct for a given type of products (Tung, 2003). This must be generalised to industrial dynamics as a whole, as MacIntyre & Naughton (2005) show. The main change concerns the rise of China, which is now not only the first economy in the region in GDP terms, but which has also very rapidly caught up with Japan in technological terms and is becoming central in a large number of regional and international chains of production (Boyer et al., 2011). A possible theoretical way of going beyond the analysis in terms of the ‘flying geese’ model is that proposed by Fujimoto (2007), namely a designbased comparative advantage approach. In this perspective, the centre of the manufacturing process is to be found less in the manufacture of products than in design, in which Japan excels in the framework of integrated product architecture, as distinct from modular architecture, in which China has a comparative advantage. In short, to analyse new forms of division of labour

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on an Asian scale requires not only a nano-analysis by type of product, but also a change in our understanding of the essence of manufacturing. Another important point concerns the ability the actors – i.e. here the Japanese multinationals – to adapt to new environments, constraints and opportunities in creating new ways of organising themselves and their production. The fragmentation of production is one example of this ability. More generally, it means that industrial dynamics may be itself a source of institutional change, as well explained and theorised by Garry Herrigel (2010).

Globalisation and neo-liberal reform of Japanese capitalism From institutional comparative advantage to systemic incompatibility Objectively, classic Japanese capitalism seemed well ‘armed’ for the ‘economic war’ as it was seen in the United States in the 1980s and, conversely, seemed to be destabilised by financial globalisation.11 In the first stage identified, the dynamics of globalisation were essentially trade and industry led; the success factors were the identification and selection of strategic sectors, trade policies, competitiveness of industrial sectors, and innovation. In this game, as we saw above, Japanese capitalism seems to have benefited from institutional comparative advantage, notably thanks to a particular mode of organising production (i.e. Toyota-style), and a trade strategy that could be defined as a ‘modern’ form of mercantilism (Sautter, 1977). In contrast, Japan seems to have held far fewer trump cards in the context of global dominance of finance. Some institutionalist approaches did convincingly develop an argument for incompatibility between the present course of globalisation and the institutional infrastructure that had supported the economic rise of Japan (Boyer & Yamada, 2000). In the context of the new phase of globalisation around the years 1980–90, the factors of success for national economies were no longer only the efficiency of the productive model, the strategy of sector-specific development or trade power, but also and above all involvement in international capital markets. Thus, when different financial markets came to be in direct competition with each other, this destabilised Japanese finance. In fact, just before the sub-prime crisis, the comparative advantage of the Anglo-Saxon type of finance system for mature economies seemed obvious, in particular from the viewpoint of analysis of credit risk and of the cost of liquidity, which were the major issues in the context of the 1990s. The scientific argument that came to be developed is of course disputable, but what is problematic is not so much the argument itself as the distortion of it to promote a structural reform type of policy.12 We can recall here the argument of Kariya & Rappleye (2010) concerning the ideological use of globalisation to reform the education system. These two scholars distinguish the real effects of globalisation (for instance, the growing number of students

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of foreign origin) from imaginary ones (for example, the need to deregulate the education system), and show that the Japanese reformers carefully avoided treating the real effects to concentrate on fantasy effects, which they used for political ends. This analysis has a general application and may be easily extended to other areas than that of education. Globalisation as a basic argument of neo-liberal reform in Japan It is indeed in this context that globalisation makes its appearance as a founding argument for neo-liberal reform of the Japanese economy. In classic fashion, we may recall the influence of American pressure. Thus, in the 1990s, when FDI increased in Japan, a significant change was brought into the agenda of economic relations between Japan and the United States, where the emphasis passed from trade activities to American FDI in Japan. After the strategy of gaiatsu (external pressure) there followed the strategy of naiatsu (internal pressure). This was expressed by stronger and stronger American pressure, not against trade barriers, but on domestic reforms (boosting growth, ‘improving’ firm management, deregulating the care and health sectors, reform of the labour market, etc.). The fact that these reforms were at the heart of the Maekawa Report of 1986 (Chapter 1) suggests that going beyond American pressure, globalisation was being utilised, in an even more fundamental manner, for objectives of domestic politics. In fact, Nakasone himself established a strong link between, on the one hand, this development of globalisation and of Japan-US relations and, on the other hand, deregulation policies (Nakasone, 2002). The themes of globalisation and of the need for Japan to open up in order to deal with it led to the establishment of a liberalising and deregulating agenda from the time of Nakasone, thus before the lost decade even began. Whatever may have been the deep political motivations of a Nakasone, it is not insignificant that his argument in favour of deregulation began from the statement that the post-war economic strategy of Japan had succeeded and that now it was necessary to seek other unifying goals for the nation. When it caught up with the United States in terms of per capita income in the 1980s, Japan began what we might describe as ‘institutional catching up’, with American basic institutions of capitalism being judged at all points superior to those of Japan. In short, Japan was not able to escape from the dialectical relationship between its complex towards the United States and the priority of its desire to overtake the United States. However, apart from the fact that a catching-up process of this kind was illusory, as institutionalist-type analyses show (Boyer, 1996, 2005b), this kind of problem could have a major social cost resulting in strong social resistance, which could only be averted in the 1990s at the price of some immobilism permitting time to be gained, postponing important reforms and soaring public debt (Bouissou, 2000). Thus, the key to neo-liberal reform was not so much American pressure as the Japanese complex with regard to the United States.

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Globalisation seen from Japan The international regime of Japan is one of the areas in which we tend to underestimate the most changes that have occurred, certainly because this development has surprised more than one observer, but also because of the misuse of international comparisons, as seen above in the case of inward FDI. Proof of this is the discrepancy between recurrent discourses on the need for Japan to open up and its effective internationalisation, which appears not only at the level of inward FDI indicators and of imports, but also of Japanese international political economy. This was marked successively by a role as leader in public aid for development, activism in concluding bilateral free trade agreements with other Asian countries (Takahashi & Urata, 2008), and an ‘aggressive legalism’ at the level of multilateral accords (Pekkanen, 2008). In short, to call Japan today either protectionist or mercantilist is a long way from reality. We need to change the framework of analysis. In this sense, Thomas Berger’s description of Japan as liberal pragmatic or adaptive seems to us much more convincing (Berger, 2007). Is this to say that globalisation was one of the engines of transformation of Japanese capitalism? To raise this question implicitly makes us reflect on the impact of globalisation on the diversity of capitalism. We need, though, to note that globalisation introduces forces of convergence and of divergence. Today, it is the forces of divergence that dominate whereas globalisation also contributes to the growing heterogeneity of firms within each form of capitalism (Boyer, 1996; Lechevalier, 2007b; Lane & Wood, 2012). To return to the Japanese case, what we have sought to show in this chapter is that the direct impact of globalisation on the Japanese economy was limited overall, whereas the use of globalisation to promote policies of structural reform was essential. This discrepancy was symbolised by the considerable media interest aroused by the acquisitions of Japanese firms by foreign companies, contrasting strongly with the anecdotal effect that they had on the management of the enterprise (Olcott, 2005). Indeed, the main effect of globalisation on Japanese capitalism was indirect: it contributed to changing the power relations between the actors and so to modify the dominant social bloc, which led to the implementation of neo-liberal reforms (Kohno, 2007). From the Japanese perspective, globalisation signified a greater opening to international competition, rivalry with the North American model and finally the acceptance of financial dominance, which led to the bubble and the lost decade. The Japanese example invites us to reflect on the nature of globalisation. As we have seen, it makes sense to distinguish globalisation of the goods markets from financial globalisation, the latter having prevailed over the former at the transition of the 1980s to the 1990s, under the impact of the acceleration of financial innovations and the liberalising of financial flows, even if globalisation in the 1980s was already financial (Aglietta et al., 1990), and even if different aspects of globalisation are very closely linked. Globalisation is not neo-liberal by nature. It progressively changed in the course of

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the 1980s, with Japan’s participation. Japan was in fact far from being a passive victim of the course of events; quite the contrary. By its domestic neoliberal revolution, it largely validated its passage to the second globalisation, without, however, participating in the defining of its rules. Indeed, apart from the interdependence between economies, globalisation is, above all, a kind of global order, marked by rules of the game imposed by the dominant powers. In other words, the real international issue for Japan today is to participate in the definition of a new world order. However, until recently, Japan’s contribution to global order has been limited to say the least, as Akira Iriye argues, Japan ‘has not made a notable contribution to the international order. Its foreign affairs have tended to be devoid of a sense of purpose going beyond self-interest’ (cited by Mochizuki 2007: p. 3). One of the most common criticisms of Japan points to the weakness of its international contribution given its considerable economic power, and may be summarised in the expression, ‘economic giant, political dwarf’. In our opinion this expression is no longer appropriate. On the one hand, Japan is still an economic giant, but a bit less relative to other Asian countries, with China at the top. On the other hand, it is no longer a political dwarf, even if the main goal of its diplomacy over several decades – to obtain a permanent seat on the United Nations Security Council – has failed. The irony is that at the very moment when Japan is seeking to play a more active international role, it has experienced a crisis that has gone on for more than a decade. In short, the issue of globalisation for Japan is not one of adaptation but rather one of active participation in the formation of global rules.

Notes 1 This chapter focuses on the period up to the global crisis of 2008–9 as it has introduced significant disturbances in trade flows as well as in foreign direct investment, which are partly in rupture with the trends observed before. 2 See the three-year research project supported by Fondation France-Japon de l’EHESS (2011–14), ‘Is Deindustrialization Inevitable? The Future of Manufacturing in Japan, Korea, Germany, and France’, ffj.ehess.fr. 3 In Japan we may distinguish rather clearly two phases of globalisation by resorting to two terms: kokusaika and gurobaraize-shon. The latter is a transcription of the Anglo-Saxon term ‘globalisation’ which is used especially in the expression ‘antiglobalisation’ (see, for example, the title of Masaru Kaneko’s (1999) book Han gurobaraize-shon (Anti-Globalisation: Strategic Thought about Market Reform), which tells us much about the context of the 1990s crisis. The first term came into fashion during the Nakasone government (1982–87). It coincided especially with the bubble period (1986–91), but it is plausible a posteriori to say that it was typical of the 1970s and 1980s, particularly after the first oil shock, at the time of which Japan defined a new international strategy (Sautter, 1977). The second term corresponds, in its case, to the ‘lost decade’. Even if, rather than the one succeeding to the other, we should stress the inter-linkages between the two, a break was clearly evident from the crisis that began in 1992. 4 It is seen in this way, however, as shown by this quotation from Sakaya Taichi, cited by Mike Mochizuki (2007: p. 3): ‘Japanese learned the importance of using

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the world structure and international order and the danger of trying to change it. To contemporary Japanese, the world order seems to be a natural phenomenon, such as gravity, not something that can be controlled by mere human beings.’ The current balance, one of the components of the balance of payments, is the sum of the commercial balance, the balance of services, current transfers and revenues. We may recall that a surplus in the current balance is always the counterpart of a savings surplus, for simple accounting reasons. It is also manifested in financial flows, of the size of the surplus, vis-à-vis the rest of the world, which defines the position of a given country (e.g. Japan) from the viewpoint of international finance. We should nevertheless note that from the middle of the 1980s, the growth regime depended essentially on domestic consumption, especially during the bubble period (Uemura, 2000). In Figure 7.2, we see in fact that from the end of the 1980s, marked by the revaluation of the yen (endaka), the trade balance was always in surplus. However, in the same period, the relation between exports and GDP fluctuated so much that it is not possible to say the growth was caused by exports (Figure 7.3). See also our discussion in Chapter 4. We may easily understand why an analysis in terms of wage differentials is biased. This concerns in a general way approaches that focus exclusively on competitiveness (Krugman, 1994). See Nezu (2004). This interpretation was very largely invalidated by empirical analyses that show that de-localisation in certain sectors tended to have a beneficial effect on productivity, principally via specialisation and skills improvement for the activities that remain in Japan (Ito- & Tanaka, 2010; Head & Ries, 2002, pp. 81– 105). The effect on employment is more ambiguous (Kiyota & Matsuura, 2006; Ahn et al., 2008; Yamashita & Fukao, 2010). However, it should be noted that even if Japan-China negotiations concerning the exchange rate are to an extent reminiscent of Japan-US negotiations of the 1980s but in reverse, nevertheless there were differences that were obvious in terms of power relations. In addition, commercial frictions between Japan and China are officially as much concerned with the level of the exchange rate than with qualitative questions such as food safety. See Takeda (2008c). The concept of ‘economic war’ is not appropriate and is used here only in reference to the literature on the question. See on this subject the critique of Lorenzi (2008), Sébastien Lechevalier, ‘Globalization and Diversity: Towards Which World are we Heading?’ www.laviedesidées.fr, 25 November 2008 (in French). Such a distortion appeared, for example, in a quite representative article, Takenaka & Chida (1998), written shortly before the first of these two writers joined the Koizumi Cabinet. The article itself is a catalogue of arguments in favour of deregulation in the context of globalisation.

Conclusion Capitalisms and neo-liberalism – lessons from Japan Sébastien Lechevalier

The transformations of Japanese capitalism and the role of neo-liberal policies We may summarise in three propositions the principal results of this book: 1 Japanese capitalism has profoundly changed since the beginning of the 1980s, to the point that it is possible, since the early 2000s, to discern a break with the earlier model. The chronology is important from the viewpoint of economic history: the turning point did not occur under Koizumi’s administration (2001–6) but before, as shown by the evolution of the diversity of firms and key components of institutional change. The changes concern the three main dimensions that we have distinguished as constitutive of a given form of capitalism and whose analysis should be articulated in order to understand the nature of institutional change: the organisation of firms, forms of co-ordination and the social compromise. They also concern other dimensions such as the education system, the innovation system, or the international regime. 2 These changes stem less from responses to challenges posed by globalisation, by a new wave of technical progress or by the crisis, but rather by the implementation, in a progressive and non-linear fashion, of neo-liberal reforms since the beginning of the 1980s. 3 This transformation of Japanese capitalism does not signify convergence towards American or European capitalisms. After an idiosyncratic trajectory, Japan still constitutes a pole of capitalist diversity. To put this in different language, neo-liberal policies established in Japan since the beginning of the 1980s have contributed to transforming Japanese capitalism, and this despite a process of reforms marked by pauses and regressions. Even so, they have done it in a way that was not what was hoped for by those that promoted it. In short, we might have thought that the introduction of neo-liberal policies, whose principal point of reference was the Anglo-Saxon model, would lead to convergence towards that model. However, that was not what occurred. For example, we have rather seen growing

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diversity in the organisation of firms, although none of the different models that have emerged bear significant resemblance to the American model of the firm. We have here a quite general paradox, the fact that, often, institutional changes associated with liberalisation lead to increasing diversity of firms instead of convergence towards the liberal model of the firm’s organisation. To put it differently, most public policies that have been introduced in Japan and elsewhere and whose aim was to make the environment of firms more market based, have led to an increasing diversity of firms’ organisation, i.e. no convergence towards the model of the firm’s organisation that they had in mind. How should we explain this apparent paradox? In our view, the persistence of these differences does not stem from cultural characteristics, but rather from the Japanese historical trajectory and from a whole set of institutional complementarities. This book has proposed several complementary explanations. First of all, there was no consensus within the Liberal Democratic Party and the administration concerning the reforms. Furthermore, the very nature of these reforms led to a situation where various decisions about the reforms were not taken, and the field was opened up to various possibilities of organisational structure. The business world, which was far from having a unified view on the future of Japanese capitalism, was not displeased by this. From this viewpoint, the ambition of this book is to offer a very different account from what is usually accepted about the trajectory of Japanese economy since the early 1980s (e.g. in Cargill & Sakamoto, 2008): this trajectory is not one of a climax followed by a long decline because of a lack of adaptation to changing external – technological and global – conditions. It is rather one of an ambitious – but nonetheless failed – attempt to promote an institutional catching-up of Japan with the United States, after having achieved a catchingup in terms of gross domestic product (GDP) per capita. We hope that this book can be read as a contribution to the understanding of contemporary Japan from the viewpoint of economic history. This also means that the neo-liberal experience in Japan was significantly different, in its unfolding and in its effects, from equivalent experiences in the United States and Europe. We should thus conclude that neo-liberalism is itself diverse, seen from the viewpoint of the programmes of reform that it has inspired, to the point that it is necessary to consider ‘varieties of liberalism’ (see Konzelmann et al., 2012).

Lessons from Japan In concluding this analysis of the transformations of Japanese capitalism under the impact of neo-liberal policies, is it possible to draw more general lessons, going beyond the Japanese case? A great transformation – as a result of 30 years of gradual changes – such as the one observed for Japanese capitalism is certainly not exceptional. We shall confine ourselves here to lessons about the supposed limits of co-ordinated

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capitalism and their future. According to the dominant view, co-ordinated capitalism was viable in a closed environment, while modes of innovation made technical progress relatively slow and incremental. Its comparative advantage, however, has become problematic in the double context of a new phase of globalisation and technological revolutions. The best response thus could have been to introduce a neo-liberal programme (privatisation; deregulation of financial markets, goods markets and the labour market; reduction in the size of public service, etc.), with the intention of promoting the convergence of co-ordinated capitalisms towards liberal capitalisms. In this vision, market capitalism would in fact provide several advantages in this new environment, such as flexibility, improved capacity to react and also a larger decentralisation, the better to take the measure of the diversity of firms’ needs and situations. This book proposes a different response. The new forms of technical progress do not pose problems in themselves, even if they need to induce revision of some co-ordination methods, with the development of the Internet and other networks of communication, for example at the firm level. By contrast, the real challenge is created by the neo-liberal form of globalisation and the financialisation of the economy. These two developments led, in fact, to a comparison between the benefits of reducing costs in the short term and those of co-operating in the long term, which, in a context of instability and uncertainty, were not particularly favourable to co-ordinated capitalisms. From this point of view, neo-liberal policies are a priori capable of offering an appropriate response to several issues of our time. Their application, however, does pose some problems. First of all, several analyses have shown that financial deregulation has been a source of instability (through the formation of bubbles and their collapse), which themselves have had a long-term macro-economic impact (Orléan, 2009). Moreover, nothing guarantees the efficiency of market co-ordination, as the Japanese case demonstrates. Besides, neo-liberal policies have contributed to the decoupling of different parts of the economy, for example between firms that are performing effectively and those that are not, which requires more co-ordination – of whatever type – rather than less.1 Finally, the level of inequality in a large number of countries, including Japan, has brought about the demand to correct it, and to redefine the social contract at the national level. Provided we fully recognise these limits, we may try to define models of growth in co-ordinated capitalism after the crisis of 2008–9. These models are necessarily diverse, but certain principles may well emerge. The most evident of these is that growth induced solely by the financialisation of the economy is an illusion. A second illusion is the belief that innovation is the unique engine of growth, and that national economies can obtain advantage of it on condition of converging their innovation system towards the Silicon Valley system. On the one hand, there is no one model of innovation that is superior to all the others. On the other hand, taking part in technical progress requires the implementation of new forms of co-ordination, public and private, capable of

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assuring the diffusion of innovation. In fact, in most cases the potential for growth associated with the catching-up of the most productive national firms by less productive firms is higher than from shifting upwards the national technological frontier (Bartelsman et al., 2008). An exception may be nonetheless the positive outcomes of the exploration of renewable energy systems in a post-Fukushima context (Fukasaku, 2012). However, it is far from certain that the incumbent actors and the government will choose this direction. Another point concerns the argument about export-led growth, which is largely silent on two points. First, the impediments related to the deterioration of the relations of Japan with its neighbours, especially China, but also Korea. Second, the alternative constituted by internal engines of growth, such as the potential growth effect of reducing inequality and the positive impact of consumption created by improving purchasing power of deprived strata of the population by expanding existing welfare systems or/and by creating new forms of welfare. There remains a final option: that of negative growth or stagnation. The lost decade in Japan shows the extent to which this fails as a viable strategy, especially from the viewpoint of the working classes, when redistribution of income is unchanged. As a whole, a conclusion of this book is that not everything is determined by the global or technological environments. A plurality of possible ways exists … under the triple constraint of history, institutional complementarities (which define the comparative advantage of a given form of capitalism), and the ability of politics to present a goal to society as a whole, beyond inevitable conflicts of interest.

Towards a new research programme on Japanese capitalism within the diversity of capitalisms In his foreword, Robert Boyer outlined the broad trends and the principal results of the research conducted by the ‘French school’ on Japanese capitalism, including the régulation theory. Like in other intellectual traditions, in the 1980s the primary theoretical issue was to understand the specific aspects of the Japanese ‘model’, essentially by reference to the American model, in following more or less the seminal contributions of Masahiko Aoki. In the 1990s and 2000s, this research programme bit by bit lost its vitality and its interest. By this time it was considered urgent to understand the causes and forms of the long Japanese crisis (Boyer & Yamada, 2000). This programme of research should be renewed today and developed. We need to comprehend the place of Japan in the diversity of capitalisms and the nature of the responses given to the questions posed also for other forms of capitalism. Among these issues, we may cite de-industrialisation, relations with China in the context of the new international division of labour, interaction between the financial sphere and the rest of the economy, tax policy, the welfare state, inequality, but also a more comprehensive approach on natural resources and energy issues. To sum up, the issue is to define a new

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social compromise that may legitimise Japanese capitalism itself. We hope that this book will have contributed to a change of perspective. It remains to define a new programme of research on Japanese capitalism which always plays an essential role in our understanding of the diversity of capitalism and its evolution, whatever its performance relative to that of Chinese capitalism (Lechevalier, 2012b; Storz et al., 2013). In this book, in order to place emphasis on the thread of our argument, we have made the choice not to enter into the technical detail of the diverse methodologies and procedures that have allowed us to reach the results we have presented. At the same time, we have referred to a number of works that allow us to describe the emergence of a new programme of research – detailed in Lechevalier (2012b) – the eclecticism of which does not mean the absence of a clearly defined theoretical background in the tradition of the régulation theory but with some significant amendments. To summarise, the theoretical and empirical stance of this book is that the analysis of institutional change – in particular in its gradual or incremental dimension – requires articulating a political economy perspective and a micro-economic analysis. More precisely, it means that it is necessary to combine an analysis of the diverse forms of organisation at micro level, the forms of co-ordination of this diversity at meso and macro levels, and social compromise (inequalities). In other words, the theoretical contribution of this book is to attempt to reconcile two different traditions: micro approaches to diversity of capitalism, with political economy perspectives such as those proposed by régulation theory or Amable & Palombarini (2009). From our viewpoint, this is the prerequisite to solve the paradox of institutional change as liberalisation and increasing diversity within each form of capitalism, to some extent (Lane & Wood, 2012). If this book can arouse, in these directions, a new wave of research on institutional change in general and on Japanese and Asian capitalisms in particular, then one of its goals will have been achieved.

Notes 1 This result is also found in the case of German capitalism, for which Streeck (2009) proposes an analysis of liberalisation as disorganisation.

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Index

Abe, Shinzo- 24, 26–27, 45–46; Abe 2.0 26, 27; ‘Abenomics’ 26, 30, 51–52, 54 (first arrow, monetary expansion 51; second arrow, fiscal expansion 51; third arrow 26–27, 30, 51–52); family 93; macro-economic policy 26, 54; TPP 27, 50, 52 accounting reform 41, 42, 43, 98 Aglietta, Michel 83 Akamatsu, Kaname: ‘flying geese’ model 151 Albert, Michel 4, 12 Amable, Bruno 4, 6, 7, 9, 12, 16, 18, 20, 29, 86, 117, 161 American Occupation 12, 56, 91, 107 Anchordoguy, Marie 133 Aoki, Masahiko 6, 79, 132, 133, 160; Japanese firm 57–59, 62–64, 67, 70, 71 Asia: Asian capitalism 12, 23; Asian crisis xxxiii; division of labour and fragmentation of production 80, 85, 150–52; ‘flying geese’ model 151; intra-Asian regionalisation xxvii, xxviii, 150 Aso-, Taro- 45–46, 81 Baker, David P. 114 bank/banking xxi, 33, 143; 1982 Banking Law 35; 1997 Bank of Japan Law 41; Bank of Japan 38, 41, 51; financial deregulation 33, 34–35; financial liberalisation xxi, 33; Japanese firm and main bank system 58, 60, 62, 71; toxic bank loans 38, 39, 40, 41, 44 bankruptcy xxi–xxii, 38, 129; 1999 Bankruptcy Law 42 Berger, Thomas 145, 154 Boltanski, Luc 24

Bouissou, Jean-Marie 30 Boyer, Robert xiii–xxxv, 2, 4, 7, 12, 56, 90, 101, 106, 124, 150, 160; see also régulation theory Caballero, Ricardo J. 66 Cabinet of the prime minister 48, 49, 63; CEFP 81; CSTP 81, 125; Kantei 44, 55; new forms of co-ordination 81 Campbell, John L. 17, 89 Cargill, Thomas F. 25, 105 capitalism xv, xx; finance-led capitalism xv, xvi; German capitalism 12, 24, 120, 143, 161; inequality 86; liberal capitalism xxx, 4, 7, 12; market capitalism xv, 4, 11, 23, 79, 157, 159; new capitalism xiii; see also co-ordinated capitalism; diversity of capitalism; Japanese capitalism CEFP (Council for Economic and Fiscal Policy) 18, 81 Chandler, Alfred 67 Chiapello, Eve 24 China xxviii, 148; China/USA relations xxviii; inequality 88; yuan, revaluation xxviii; see also China/Japan relations China/Japan relations 148–52, 156, 160; division of labour xxvii, 150–51, 152, 160; foreign trade xxvii, 139, 140, 145–47, 149; global competition 119, 130, 131, 138; Japanese/China development comparison 10–11, 88; rise of China and Japanese de-industrialisation xxvii, 150 Claudel, Paul xv Cohen, Daniel 100

188

Index

competition xxxi; education system 107, 108, 112, 116, 117; global competition 119, 130, 131, 138; globalisation 23, 119, 138, 148, 151, 154; Japanese firm xviii, xix, xxxi, 66 Confucianism xvi, 11, 12, 57 consumption 9, 87, 90, 160; consumer credit 90, 91; consumption tax 91; Japanese consumption model 90–91; see also social compromise co-ordinated capitalism xv, 4, 7, 12, 13, 79, 120–21, 158–59; German capitalism 24, 120, 143; ICT and biotechnology revolutions 120–21; Japanese capitalism 10, 12, 15, 73–77, 85; liberal capitalism/co-ordinated capitalism distinction xxx; see also co-ordination co-ordination 4, 6–7, 13, 23, 24, 56, 73–85, 159; benefits and limits 7, 78–79; Cabinet of the prime minister 81; co-ordination in classic Japanese capitalism 73–77; decentralisation 71; decline of classic forms of coordination 2, 15, 77–79, 83, 85, 98; diversity of firms 84; education system 106; emergence of new forms of co-ordination 79–83, 84, 85; financial co-ordination 79; fiscal decentralisation 82–83; fragmentation of production in Asia 80, 85; holding companies 79, 85; increase in inequality 98, 104; innovation 79, 80–81, 84, 85, 123, 125, 128, 130, 131, 159–60; Japanese crisis, lack of co-ordination/ineffective co-ordination 15, 70, 84; labour union 82; market co-ordination 15, 21, 73, 83 (inefficiency 83–84, 85, 159); MEXT 81; MITI/METI 76, 78, 81; neo-liberal policies 70, 73, 78, 82, 83–84, 85, 98; non-market co-ordination 2, 10, 15, 73, 74, 75, 85, 88; political economy 70; R&D, new forms of collaboration 80, 85; state 73, 76 (as arbiter/co-ordinator 7, 30–31; bureau-pluralism 2, 31, 73, 76, 78, 81, 83, 85; industrial policy 73, 76, 78, 83, 85); see also co-ordinated capitalism; keiretsu structure; shunt; sub-contracting corporate governance 21, 67, 71, 139 crisis xviii–xxx; 2007 sub-prime crisis xxi, xxii, xxvii, xxviii, xxix, xxx,

xxxiii; 2007–8 global crisis xiii, xxii, 13, 14, 22, 103, 147; Asian crisis xxxiii; concept xxviii; economy’s structure 5; regulation xxviii; see also crisis recovery; Japanese crisis crisis recovery xxii, xxix; from structural crisis xxiii, xxxiii; government xxxiii; Japan xxii, xxvi, xxvii, 22, 39, 136 CSTP (Council for Science and Technology Policy) 81, 125, 130 Curtis, Gerald 44 debt 62, 127, 145; Japan xxii, 27, 82, 153 decentralisation 10, 17, 19, 21, 27, 71, 111, 125, 159; fiscal decentralisation 82–83, 110 deflation xviii, xxii, xxxii, 51, 52, 84, 151 Demmou, Lilas 150 demography 24; ageing population xxxiii, xxxv, 1, 24, 93, 94, 96; birth rate 1, 24; education system 113; female labour 93; population decrease 24, 93 deregulation 15, 17, 18, 21, 24, 67, 132, 135, 159; 1984 ‘Yen-Dollar’ Agreement 34; ‘Big Bang’ 40, 41; Deregulation Council 52; education system 109, 110, 111–12; financial deregulation 1, 31, 33–35, 52, 83, 84, 159 (LDP 34–35); globalisation 153; internationalization 24; Japanese capitalism 15; Japanese crisis 84; labour deregulation 46–47, 50, 52, 84, 119; Nakasone, Yasuhiro 15, 31, 33–35, 153; technical deregulation 39; see also regulation Dierkes, Julian 114–15 diversity of capitalism xv, xx, xxx–xxxii, 1, 3–10; Asian capitalism 12, 23; bases of 4–5; convergence towards market capitalism model 21, 23, 53, 157, 159; education and training 106, 117; institutional and organisational changes 8–10; institutional complementarities 4, 5, 120; Japanese capitalism within the diversity of capitalism 10–12, 18, 21, 157, 160; neo-liberalism 3, 65; path dependence 4, 5; permanent evolution xxxi, 12; three-level analysis 5–8 (forms of co-ordination 6–7, 15, 23, 24, 157, 161; micro-heterogeneity/organisation of firms 6, 15, 23, 157, 161; social compromise 6, 7–8, 15, 23, 157, 161);

Index typologies 4; VoC/Varieties of Capitalism approach 9, 12, 23, 24; welfare system 100; see also co-ordinated capitalism; firm; institutional change; social compromise Dobbin, Frank 19 dominant social blocs 7, 18, 20, 29, 52, 145 Dore, Ronald 9, 28, 59, 69, 79–80, 88, 98, 108, 113 DPJ (Democratic Party of Japan) 26, 46–50, 54; 2009 and 2010 manifestos 47–48; dispatch law 48–50; DPJ/SDP alliance 47, 49; employment insurance and minimum wage raising 48; Kan’s third way concept 48, 50; Noda’s shift to fiscal conservatism 50–51, 54; social welfare expansion 22, 28, 30, 46–50, 54, 92, 102; see also Kan Naoto; Noda, Yoshihiko Dunne, Timothy 65 economic history 13, 157, 158 economy, models xiii, xvi; convergence towards the same model xiii, 53, 56; Europe xiii; heuristic power and dangers of models xvi–xviii; international comparison xx; Rhineland model xiii, xxiv; Scandinavian social-democratic model xiii; search for ‘models’ xiii; USA xiii, xxxii, 25; see also diversity of capitalism; growth; Japanese model; Silicon Valley model education system xxiii, 23, 106–18; 1947 Fundamental Law of Education 107, 111, 116; ‘classic’ Japanese system of education 107–9 (classic school and university systems 107–9; criticism 107, 108, 109; diploma disease 108, 109, 113; egalitarianism 106, 107, 108, 116, 118; examination hell 108, 109, 111; meritocracy 108, 111); competition 107, 108; co-ordination 106; credential society 108, 111, 115, 116; diversity of capitalism 106, 117; inequality 106, 108; innovation and education xxvi, 106; Japanese crisis 110, 111; Japanese firm, skills formation xviii, xix, 58, 63, 87, 106, 108–9; see also education system reform; university

189

education system reform 18, 22, 23, 107, 109–17, 157; Abe, Shinzo- 117; Ad Hoc Council on Education 109, 110; arguments in favour of 107, 109–10, 116; competition 107, 112, 116, 117; convergence toward Anglo-Saxon education systems 107, 117; decentralisation 111; deregulation and liberalisation 109, 110, 111–12 (liberalisation of school choice 111, 112, 114, 116); differentiation 111–12, 116; effects: emergence of a new education system 107, 113–16; globalisation 109, 110, 152–53; inequality 104, 113–14, 116, 117 (financial inequality 112); juku/ shadow education 114–15; labour market 107, 115–16; LDP 111, 116; learning capital society 115, 116; MEXT 125, 128, 130, 137; privatisation 112, 115; public/private school differentiation 114, 115; school reform 18, 22, 110–13, 116; state disengagement 107, 113, 116; see also education system; university elections: 2005 elections 45; 2009 elections 16, 29, 45, 46, 92, 101; 2012 elections 51, 102 employment see labour Esping-Andersen, Gosta 89, 90 Estévez-Abe, Margarita 101 Europe/European Union xxiii, 1; economic model xiii; ‘eurosclerosis’ 8, 9; globalisation 98–99; innovation xxiv–xxv, 119; neo-liberalism 19, 20; regional integration xxviii, 23; social compromise xxiii, 89 family 18, 91, 94, 117; neo-liberalism 22, 93; social compromise 22, 87, 88–89, 90, 93, 100 FDI (foreign direct investment) 18, 139, 141–42, 144–45, 148, 149, 151, 154 finance: dominance of 139, 152, 154; finance-led capitalism xv, xvi; financeled growth xxxiv; financial bubble 9, 13, 38–40, 55, 83, 84, 124, 154, 156; financial globalisation xxvi, 138, 152, 154, 159; financial regulation 30, 41, 53; financialisation 15, 159; see also financial liberalisation financial liberalisation xxi–xxiii, xxvii–xxviii, xxxiii, 35; Japan

190

Index

xvii–xviii, xxi, xxviii, xxxi, 20, 33, 34; Japanese crisis xxix firm: deregulation 15; diversity of 6, 15, 16, 21, 23; firm management 30, 40, 53; innovation 80, 122, 125, 126, 129, 130, 135, 136; inter-firm relations 30, 106, 143; ‘intrapreneurial’ regime 22, 134, 136; neo-liberalism 21; organisation of firms 6, 15, 23, 56, 69, 83, 157, 158, 161; restructuring 42, 43; see also industry; institutional change; Japanese firm; SMEs Fisher, Irving xxii Fordism xv, 2, 67 France xiv, xv; de-industrialisation 150; education xxiii, 107; employment and management xix; French research on Japan xiv–xvi, xx, 160; Japan/France comparison xix, 11; neo-liberalism xiv, 31; poverty 94; state intervention xiv, 11 Frieden, Jeffry A. 3–4 Friedman, Milton 117 Fujimoto, Takahiro 151 Fujitsu 61, 68 Fukao, Kyo-ji 65, 77–78, 150 Fukuda, Yasuo 45–46, 81, 100, 105 Galbraith, John K. 67 Garrett, Geoffrey 19 General Motors 74–75 Gerlach, Michael 150 Germany xiv, xv; German capitalism 12, 24, 120, 143, 161; Germany/Japan comparison 65, 69 GERPISA (Permanent Research Group on the Automobile Industry and its Employees) 61, 70 globalisation xxvi–xxviii, 23, 138–39, 155–56; 2007 sub-prime crisis xxxiii; benefits 98; dominance of finance 139, 152, 154; Europe 98–99; financial globalisation xxvi, 138, 152, 154, 159; global order 139, 155, 156; inequality 95–96, 98–99; intra-Asian regionalisation xxvii, xxviii, 150; neo-liberalism 9, 23, 159; a political process 23; USA xxxiii, 98–99; see also globalisation and Japan globalisation and Japan xxvi, 2, 14, 138–56; benefits 139, 140–43, 145, 147, 149; competition 23, 119, 138, 148, 151, 154; definition of rules of the global order 139, 155;

deregulation 153; education system 109, 110, 152–53; exports 139, 140–41, 143, 147, 151; external pressure as cause of Japan’s opening 145, 147, 148–49, 153; FDI 18, 139, 142, 144–45, 148, 149, 151, 154; globalisation seen from Japan 148, 154–55; gurobaraizshon 155; imports 139, 140, 141, 143–49 passim, 154; Japan as major actor of globalisation 145, 154–55; Japan/China relationship 138, 139, 140, 145, 146–47, 148–52, 156; Japan’s opening 139, 144–48, 153, 154; Japan/United States relationship 139, 140, 146, 153, 154; Japanese capitalism, ill adapted to a globalised world 9, 138, 139, 152; Japanese crisis xxvi, 14, 138, 147, 154, 155; Japanese firm 65, 154; Japanese international regime 139, 140–43, 144, 147, 148, 154, 157; kokusaika 155; Nakasone, Yasuhiro 153; neo-liberal reforms in Japan 33, 39, 52, 53, 152–53 (from institutional comparative advantage to systemic incompatibility 152–53; globalisation as argument of neo-liberal reform 1, 8, 9, 31, 119, 153, 154, 159, 160); regional integration xxvi–xxviii, xxxiii, 23, 150; trade xxvii, 14, 140–53 passim, 156; see also globalisation Goodman, Roger 89 Gordon, Andrew 58 Goto-, Akira 127, 132 growth xiii, xxxiii, 159–60; anthropogenic model xxxv; export-led growth 84, 102, 136, 139, 140–41, 143, 160; finance-led growth xxxiv; growth regimes xxxiv–xxxv, 84, 141; innovation-led growth xxvi, xxxiii, xxxiv, 159; post-war model of growth xiii, xviii; rise in inequality 84; stagnation xxxv, 9, 10, 21, 29, 100, 147, 160 Hahn, Chin Hee 149 Hall, Peter 4, 6, 12, 106, 133 Haltiwanger, John 65 Harrigan, James 145 Hashimoto, Ryutaro 15, 26, 30, 40–42 Hatoyama, Yukio 16, 40, 46, 47, 48, 49, 71, 102 Helpman, Elhanan 131 Hitachi 61, 64, 71, 80

Index Hoshi, Takeo 66, 79 Hosokawa, Morihiro 39 ICC (Industrial Competitiveness Council) 27, 42–43, 52 ICT (information and communication technologies) 3, 22, 120, 126, 129, 132, 134, 135; see also innovation, neo-liberal inspired reform; technology Ikeda, Yukio 80 Ikegami, Naoki 89 Imai, Yutaka 128 IMF (International Monetary Fund) 42 industrial policy: co-ordination 73, 76, 78, 83, 85; innovation 120, 121, 122, 123, 124, 130, 131, 135, 136; see also industry industry: 1999 Law on Industrial Revitalisation 42, 43; de-industrialisation xxvii, 148, 150, 160; de-localisation 148, 150, 156; intra-industry trade 143, 149, 150–51; MITI/METI 36, 39, 42, 43, 49, 52, 53–54, 89, 122, 123, 125, 130, 146 (co-ordination 76, 78, 81); neo-liberalism, responses to 27, 34–35; new industries 124, 126, 131, 133–34; see also firm; industrial policy inequality xx, 159, 161; capitalism 86; China 88; Gini coefficient 24, 86, 96; globalisation 95–96, 98–99; OECD countries 24, 92, 95–96, 103; social compromise 6, 86; Sweden 24, 88; see also inequality in Japan; social compromise inequality in Japan xx, 86, 160; ageing of population 96; causes of increased inequality 95–98, 103–4; coordination 98, 104; education system 104, 106, 108, 112, 113–14, 116, 117; evaluation 86; globalisation 95, 96; inter-war period 91; Japanese crisis 10, 86; Japanese firm xx, xxxii; Koizumi, Junichiro 10, 87, 91–95; labour market 15, 95–96, 98, 105; low level of 11, 24, 86, 88, 103; neoliberalism 28, 29, 46–48, 86, 92, 98, 103, 159; ‘re-segmentation’ of the labour market 86, 97–98, 99, 103–4; rise in inequality 2, 10, 15, 22, 84, 86, 87, 92, 95–96, 101, 103; poverty 92, 94–95; USA/Japan comparison 95;

191

wage inequality xx, 48, 78, 92, 96, 97–98, 103, 105; women, inequalities between 92–93; see also DPJ; inequality; social compromise innovation xxiii–xxvi, 23, 119–37; co-evolution of institutional systems and systems of innovation 129, 134, 136–37; co-ordination 79, 80–81, 84, 85, 123, 125, 128, 130, 131, 159–60; diffusion of 7, 74, 122, 126, 127, 130, 135, 160; Europe xxiv–xxv, 119; firm 80, 122, 125, 126, 129, 130, 135, 136; from basic science xxiv–xxv, 124; incremental/radical innovation 122, 135; industrial policy 120, 121, 122, 123, 124, 130, 131, 135, 136; innovation-led growth xxvi, xxxiii, xxxiv, 159; ‘intrapreneurial’ regime 22, 134, 136; Japanese classic innovation system xxiii–xxvi, xxxiii, 122–24, 131 (comparison xxiv, xxv, 122–23, 129, 131; weakness xxv, 123–24, 132, 133); MEXT 125, 128, 130, 137; MITI/METI 123, 125, 130, 132; organisational innovation 85, 135; R&D 122–23, 124, 125–26, 130, 134–35, 136; SMEs 127, 130, 131, 136 (start-up firm 23, 120, 121, 126, 127, 128, 131, 136); university xxvi, 106, 107, 113, 121, 127–28, 129, 137; university/firm interaction 80, 108, 113, 120, 123–24, 126, 127–28, 130; USA xxiv–xxv, 22, 119, 122–23, 124, 127; see also innovation, neo-liberal inspired reform; R&D technology innovation, neo-liberal inspired reform 18, 22, 124–34, 157; arguments 117, 119–20; assessment 128–31, 137; biotechnology 22, 119, 120, 124, 129, 131, 132, 134, 135, 136; convergence towards the Silicon Valley model 23, 117, 119, 121, 129–30, 131–34; globalisation 119; ICT 22, 120, 126, 129, 132–35 passim; ideological reforms 125, 126–28, 132; labour market reform 121, 131; new industries 124, 126, 131, 133–34; pragmatic reforms 125–26; sectoral perspective 131, 133, 135–36; technological argument 119–20, 134, 136, 137; see also innovation; intellectual property rights; patent; Silicon Valley model

192

Index

institution xviii, 5, 7; institutional complementarities 4, 5, 62, 120, 158, 160; see also institutional change institutional change 8–10, 152, 161; causes of 9; incremental institutional change 8, 122, 135, 159, 161; institutional catching up 108, 109, 122, 131, 132, 133, 149, 153, 158, 160; institutional change and organisational diversity 66–67, 71; interdependent nature of institutions 31; neo-liberal reforms in Japan xxxi–xxxii, 27, 29, 30, 52, 53, 134; neo-liberalism 9, 16, 17; political character 9; see also diversity of capitalism; firm intellectual property rights 121, 122, 124, 129, 131, 133, 135; 1999 Japanese Bayh-Dole Act 126; Strategic Framework for Intellectual Property Policy 126–27; see also innovation; patent internationalisation 24, 38, 65–66, 139, 140, 141, 146, 149, 154 Internet 65, 119, 159 Iriye, Akira 155 Ishido, Hikari 150 Ito-, Keiko 61, 64, 65, 66, 98, 130, 150 Ito, Takatoshi 149 Jabko, Nicolas 19, 10 Jackson, Gregory 62, 63–64, 67, 70, 71, 79 Japan, ministries: ICC 27, 42–43, 52 (RIETI 49, 132); MEXT 125, 128, 130, 137 (co-ordination 81); MHLW 46, 48–49, 61, 102; MITI/METI 36, 39, 42, 43, 49, 52, 53–54, 89, 122, 123, 125, 130, 146 (co-ordination 76, 78, 81); MOF 35, 36, 39, 41, 50, 78; MPT 36 Japanese capitalism xxxiv–xxxv, 1–2, 157–61; ‘capitalist’ nature 10–11; changes in xxxi–xxxii, 2–3, 13–16, 157–58; competition xxxi; co-ordinated capitalism 10, 12, 15, 73–77, 85; convergence towards the liberal model 8, 21, 53; cultural interpretation of xvi, 8, 11–12, 90, 91, 157; decentralisation 10, 19; deregulation 15; dualism of the Japanese economy 15, 84, 87, 98, 127; efficiency/equity relation 2, 15; evolution of real GDP, Japan/USA

comparison 13–14; ill adapted to a globalised world 9, 138, 139, 152; institutional catching up 108, 109, 122, 131, 132, 133, 149, 153, 158, 160; international regime 140–43; Japanese capitalism within the diversity of capitalism 10–12, 18, 21, 157, 160; Japanese firm xxxi–xxxii, 2, 56, 69; liberalisation xxxi, 15; main features xxxii, 2, 10; non-market co-ordination 2, 10, 15; return to the ancient model 18, 53; shareholder-based 69; social compromise 10, 87–91, 103, 160–61; state intervention 11; success 141–42; see also globalisation and Japan; inequality in Japan; Japanese firm; Japanese model; neo-liberal reforms in Japan Japanese crisis/’lost decade’ xv, xxii, xxiii, xxviii–xxx, 9, 13, 39, 160; 1997 financial crisis 41; co-ordination, lack of/ineffective 15, 70, 84; debt xxii, 82; diversity of firms, increase 69; economic growth xxii, 39; education system 110, 111; financial deregulation 84; financial liberalisation xxix; globalisation xxvi, 14, 138, 147, 154, 155; government disarray xxi, xxviii–xxix (slowness to take measures and to respond xxii, xxxiii); inequality 10, 86; labour xx, xxii; neo-liberalism as cause of 1, 10, 15, 21; neo-liberalism as solution to 1, 13; regulation xxviii, xxix, 84; specifics xxviii–xxix; see also crisis; crisis recovery Japanese firm 2, 56–72; American/ Japanese firm comparison 57, 58; Anglo-Saxon model 56, 67 (converge towards the Anglo-Saxon model 56, 60, 63, 64, 69, 158); classic model 56, 57–59, 64, 67; collaboration between firms 76, 80, 125, 126, 129, 130; ‘company-ism’ xix, xx, 2, 59, 69; competitiveness xviii, xix, xxxi, 66; corporate finance/main bank system 58, 60, 62, 71; distinctiveness xvi–xvii, xxxi; economic rationality 57, 58, 59, 70; end of 2, 59, 60–62, 68; enterprise union 57, 71; globalisation 65, 154; holding companies 67, 79, 85; inequality xx, xxxii; internationalization 24, 38, 65–66, 141, 146, 149, 154; Japanese

Index capitalism xxxi–xxxii, 56, 69; Japanese firm today 62–64, 68; longterm orientation 57–59; management xvii, xix, xviii, 30, 40, 53, 61; neo-liberal policies 65–70; political economy 57, 65, 69; purchase by foreign enterprise 42, 77, 144, 145, 154; skills formation xviii, xix, 58, 63, 87, 106, 108–9; social compromise xix, 59, 87–88, 94, 97–98, 102–3, 105; worker internal mobility xviii, xix, 58; see also entries below for Japanese firm; shunt; sub-contracting; wage Japanese firm, employment system xviii–xix, 57–59, 63, 67, 104; in period of crisis xix, xxii, 61; long-term employment xxxi, 5, 57, 58–59, 68, 71, 104; rise in non-regular employment 60, 61–62; unemployment xviii, xx, xxxii, 37, 89; wage system xx, xix, 57, 58, 60, 67, 88, 104; see also Japanese firm; labour Japanese firm, increasing diversity 2, 56, 60–62, 65–70, 84, 97, 158; dispersion of performance 15, 60, 65–66, 98; globalisation 65, 154; regulation 70; see also Japanese firm Japanese model xiii, xiv, xv, xvi, xxxii, 160; ‘arthritic Japan’ 8, 9; institutional and organisational changes xxxi–xxxii, 2; limits xvii; literature on 25; loss of confidence in 16; macroeconomic regime xvii–xviii, xx, xxiii; neo-liberal reforms and transformation of 30, 43, 53 (commercial code 40, 42; financial regulation 30, 41, 53; firm management 30, 40, 53; instability 30, 54; inter-firm relations 30; labour market 40, 53); origins of the notion xvi, xvii, 3, 25; stability of the model 8; USA, dependence on xxvii, xxxiii; see also Japanese capitalism Kalantzis, Yannick 97–98 Kambayashi, Ryo- 95, 97–98 Kan Naoto 16, 47, 49, 50, 71; Third Way 22, 46, 47–48, 50; trade liberalisation 50 Kariya, Takehiko 108, 110, 113, 115, 116, 152 Kashyap, Anil K. 66, 79 Kawagoe, Masaaiki 128 Keidanren 36, 42–43, 49, 63, 71, 150

193

keiretsu structure 2, 60, 73–74, 79, 83, 85, 143; anti-competitiveness xvii; decline 77, 83, 85; innovation 74; technology transfer 77–78; see also co-ordination Keynesian economics xxii, 17, 26, 38 Kingston, Jeff 60 Kirman, Alan 6 Kobayashi, Takiji 94 Kohno, Masaru 145 Koike, Kazuo 57–58, 87, 108 Koizumi, Junichiro: accounting and fiscal reforms 41; neo-liberalism 18, 21–22, 26, 33, 40, 41, 55, 91–92; postal privatisation 40, 43–45, 54; right to work 43; rise in inequality 10, 87; social compromise 91–95 (genders, generations and class struggle 92–95; Japan, an unequal society 92); structural reform 15–16 Komiya, Ryu-taro- 123 Korea 12, 31, 80, 100, 139, 160; global competition 119, 130, 131 Kotosaka, Masahiro 9, 66–67, 68, 71 Krugman, Paul 98 Kwon, Huck-Ju 89 Kwon, Hyeog 65, 77–78 Kyocera 61, 64 labour: 1999 Law on Temporary and Dispatch Workers, liberalisation 42; deregulation 46–47, 50, 52, 84, 119; dispatch law 47, 48–49; division of labour xxvi, xxvii, xxxiii (fragmentation of production 80, 85, 150–51, 152, 160); education system reform 107, 115–16; employment insecurity 96, 103; employment insurance 47, 48; employment security 53, 59, 87, 91, 92, 97, 103, 104, 105; female labour 88–89, 92–93, 104; flexibility xviii, xix, xx, 58, 75, 87–88, 101; France xix; freeters 94, 105; inequality 15, 95–96, 98, 105; innovation and labour market reform 121, 131; NEETs 94, 105; non-regular worker 53, 59, 60, 61, 84, 87–88, 92, 96, 97, 103; regulation/re-regulation 46–47, 49–50; ‘re-segmentation’ of the labour market 86, 97–98, 99, 103–4, 116; right to work 43; temporary staffing services law 49–50; temporary worker 42, 46, 47–50, 63; time worked xviii, 38; university graduate

194

Index

employment 94, 108, 113, 115–16; USA xix, xviii; workfare xviii; youth 71, 94, 97, 104; see also Japanese firm, employment system; labour union; unemployment; wage labour union 36–37, 53, 54, 95, 104; co-ordination 82; enterprise union 57, 71; Kokuro- 36–37; Nikkyo-so 113; Rengo- 37, 49, 54, 82, 83; So-hyo- 36, 37; see also labour Lazonick, William 67 Lane, Christel 9 Latin America xxviii, 21 LDP (Liberal Democratic Party) 26, 29, 39, 40, 146, 158; education system reform 111, 116; financial deregulation 34–35; opposition to neo-liberal reform 43, 44–45; privatisation 36, 37; welfare system 99–100, 101 liberalisation xxxi, 15, 20; education system 109, 110, 111–12 (liberalisation of school choice 111, 112, 114, 116); institutional change and organisational diversity 66–67, 71; liberalisation as disorganisation 24, 161; trade liberalisation 26, 30, 38, 50; see also financial liberalisation liberalism xiv; liberal capitalism xxx, 4, 7, 12; varieties of liberalism 158 Lincoln, Edward 8, 140 Lincoln, James 150 Lisbon Strategy xxxiii, 119, 127, 132, 134 Lorenzi, Jean-Hervé 3 lost decade see Japanese crisis/lost decade MacIntyre, Andrew 151 market 18, 29; Japan’s opening 139, 144–49, 153, 154; market capitalism xv, 4, 11, 23, 79, 157, 159; market co-ordination 7, 15, 21, 73, 83 (inefficiency 83–84, 85, 159); state/market balance 29; see also finance; neo-liberal reforms in Japan; neo-liberalism Matsushita 61, 64, 130 Meiji period xiv, 95, 137 Mitsubishi 53, 66, 74, 144 Miyajima, Hideaki 9, 62, 63–64, 67, 70, 71, 79 Mochizuki, Mike M. 145, 155

monetary issues xxi–xxii, xxvi, 39; ‘Abenomics’, monetary expansion 51; exchange rate issues 147, 156; yen, appreciation xxvii, 38, 143, 145, 147–48, 156; yuan, revaluation xxviii Moriguchi, Chiaki 91, 95 Morishima, Michio 8, 11 Motohashi, Kazuyuki 80 Mowery, David C. 120, 121 Mudge, Stephanie 16 Mulgan, Aurelia George 55 multinational corporation xxvii, 141, 150, 152 Nakasone, Yasuhiro 9, 18, 25, 26, 27, 28; 1982–87 reforms 29, 31–38, 42; deregulation 15, 31, 33–35, 153; globalisation 153; kokusaika 155; Maekawa Report 32, 38, 153; privatisation 15, 32, 36–37; Rincho- 37 Nanta, Arnaud 106–18 Naughton, Barry 151 NEC 61, 80 neo-liberal reforms in Japan 3, 13, 15–16, 18, 21, 26–55, 157–58; alliance of economic and technocratic elites 29, 32–33, 40–41; as cause of the Japanese crisis 1, 10, 15, 21; as solution for the Japanese crisis 1, 13; assessment 29, 40, 45, 52–54; coordination 70, 73, 78, 82, 83–84, 85, 98; counter-reforms 27, 28, 43; decentralisation 21, 27; diffusion of neo-liberalism 19–20, 28; eclectic nature 31, 38, 43, 51; family 93; genders, generations and class struggle 92–95; industrial sector, responses by 27, 34–35; inequality 28, 29, 46–48, 86, 92, 98, 103, 159; institutional change xxxi–xxxii, 27, 29, 30, 52, 53, 134; Japanese firm 65–70; neo-liberal ideas, role of 32–33, 40–41, 52; neo-liberal transition 17–20, 27, 52, 56, 59, 63, 69; non-linear track 26, 27, 63, 157; opposition to 20, 26, 27, 28, 34–35, 38, 42, 43–45, 46, 52, 63, 92, 113, 115; political economy 27, 28, 29, 30–31, 33, 35; political entrepreneurs 30, 32, 33, 37, 42–43; post-neo-liberal era 18, 24, 27, 45–52, 102; reform as political strategy 27, 32, 33, 36, 40, 41, 45, 49, 52, 54; state intervention 30, 40, 45, 53–54, 67; state/market balance 29;

Index transformation of Japanese model 30, 40–42, 43, 53; see also entries below for neo-liberal reforms in Japan; education system reform; globalisation and Japan; innovation, neo-liberal inspired reform neo-liberal reforms in Japan, chronology 23, 26, 29–30, 157; 1982–87 Nakasone reforms 29, 31–38, 42; 1987–96 pause and stability 29, 38–40; 1996–2006 structural reforms 29, 40–45, 54; 2006–9 inertia 30, 45–46; 2009–11 DPJ and social backlash 30, 46–50, 54, 92; 2011–12 transition: Noda’s shift to fiscal conservatism 30, 50–51, 54; 2013 ‘Abenomics’ 30, 51–52; see also Abe, Shinzo-; DPJ; Hashimoto, Ryutaro; Koizumi, Junichiro; Nakasone, Yasuhiro; neo-liberalism in Japan; Obuchi, Keizoneo-liberal reforms in Japan, motivating forces 26, 27–28; adaptation/survival of the Japanese model 28; diffusion of neo-liberalism 28; globalisation 33, 39, 52, 53, 152–53 (from institutional comparative advantage to systemic incompatibility 152–53; globalisation as argument of neo-liberal reform 1, 8, 9, 31, 119, 153, 154, 159, 160); institutional crisis 28; USA pressure 28, 31, 34, 35, 36, 153; see also neo-liberal reforms in Japan neo-liberalism 9, 21, 25, 158–60; definition 16–17; deregulation 17, 18, 21, 159; diffusion 19, 28; diversity of 17, 21; Europe 19, 20; family 22, 93; France xiv, 31; globalisation 9, 23, 159; institutional change 9, 16, 17; market co-ordination 15, 21, 73, 83 (inefficiency 83–84, 85, 159); neo-liberal causality 17–18; neo-liberal moment 3, 24; political entrepreneurs 19–20; privatisation 18, 21; Reagan, Ronald 18, 28, 121, 132; Silicon Valley model 22, 119, 121, 126, 129, 131; social compromise 22, 23, 99; state decentralisation 17, 159; state disengagement 17, 107, 113, 116; Thatcher, Margaret 16, 18, 27, 28, 40; see also decentralisation; deregulation; inequality; neo-liberal reforms in Japan Nikkei index 13, 14

195

Nishimura, Junichi 80, 134 Nishimura, Kiyohiko 66 Nissan 42, 66, 77, 144 Noda, Yoshihiko 26, 46, 50–51, 54, 71 Obuchi, Keizo- 15, 26, 40–43, 128 Odagiri, Hiroyuki 59, 123, 129, 132, 136–37 OECD (Organisation for Economic Co-operation and Development) xxiv, xxvi 33; inequality in OECD countries 24, 92, 95–96, 103 Ohira, Masayoshi 32 oil shock xxvi, 10, 56, 101, 155 Okazaki, Tetsuji 3, 59 Okuno-Fujiwara, Masahiro 3, 59, 123 Osawa, Machiko 60 Otake, Hideo 32 Ozawa, Ichiro 16, 101 Palombarini, Stefano 6, 7, 9, 18, 20, 29, 86, 161 patent xxiii–xxv, 121, 122, 124, 125, 126–27, 129; see also innovation; intellectual property rights Pedersen, Ove K. 17 Pempel, T. J. 24 Peng, Ito 101 Piketty, Thomas 95 political economy 6, 161; co-ordination 70; Japanese firm 57, 65, 69; neo-liberalism 9, 15; neo-liberalism in Japan 27, 28, 29, 30–31, 33, 35 politics: globalisation, a political process 23; Japan Communist Party 36; Japan Socialist Party 37; PNP 47, 49, 50; political entrepreneurs 30, 32, 33, 37, 42–43; reform as political strategy 27, 32, 33, 36, 40, 41, 45, 49, 52, 54; SDP 47, 49, 50; see also Abe, Shinzo-; DPJ; Hashimoto, Ryutaro; Koizumi, Junichiro; LDP; Nakasone, Yasuhiro; Obuchi, Keizo-; political economy Postel-Vinay, Karoline 148 poverty 92, 94–95; see also inequality private sector 32, 42, 53, 114, 122, 128; see also firm; Japanese firm privatisation 18, 21; education system reform 112, 115; JAL 18, 36; Japan National Railways 18, 32, 36–37; Japan Tobacco and Salt Public Corporation 36; LDP 36, 37; Nakasone, Yasuhiro 15, 32, 36–37; NTT 18, 32, 36; a political strategy

196

Index

36, 54; postal privatisation 18, 40, 43–45, 54, 81; university 112 R&D (research and development) xxiii–xxvi; innovation xxvi, 122–23, 124, 125–26, 130, 134–35, 136; Japanese firm 64, 120; MITI 76; new forms of collaboration 80, 85; productivity of xxiv, 120; R&D investment 122, 124, 125–26, 130, 134–35, 136; R&D spillovers 7, 24; university/firm interaction 80, 108, 113, 120, 123–24, 126, 127–28, 130; see also innovation; patent; technology Rappleye, Jeremy 152 regional integration xxxiii–xxxiv; Asian/ European integration distinction 23; from globalisation to co-ordination of regionalisms xxvi–xxviii; intra-Asian regionalisation xxvii, xxviii, 150 regulation xxviii; direct regulation 41, 52, 55; financial regulation 30, 41, 53; firm diversity 70; FSA 41; indirect regulation 55; Japanese crisis xxviii, xxix, 84; labour 46–47, 49–50; re-regulation 29, 41, 46–47, 49; social regulation 89; see also deregulation régulation theory xix, xxx, 7, 8, 23, 24, 59, 72, 86, 87, 139, 160, 161; see also Boyer, Robert Riboldazzi, Federico 133 Ricardian economics 143, 150 Rosenberg, Nathan 120, 121 Saez, Emmanuel 91, 95 Sakakibara, Eisuke 10 Sakamoto, Takayuki 25, 105 Sako, Mari 9, 66–67, 68, 71 Sato, Toshiki 92 Sautter, Christian 11 Schaede, Ulrike 64, 77, 102 Schumpeter, Joseph 66, 70, 84; creative destruction 31 shunt (spring struggle) xiv, 2, 57, 68, 73, 75–76, 81–82; decline 78, 83, 85; macro-economic level impact 76; see also co-ordination Silicon Valley model xiii, xxxii, 18, 22, 129, 131–34, 135–36, 159; 21st Century Innovation Systems for Japan and the United States 137; characteristics 120, 135–36; emergence of new industries 22, 119;

ICT 120; Japanese convergence towards 23, 117, 119, 121, 129–30, 131–34; national innovation system 120; neo-liberalism 22, 119, 121, 126, 129, 131; see also innovation, neo-liberal inspired reform; USA Simmons, Beth A. 19 SMEs (small and medium-sized enterprises) 60; innovation 127, 130, 131, 136 (start-up firm 23, 120, 121, 126, 127, 128, 131, 136); subcontracting 75; see also firm Smith, Adam xxv social compromise 6, 7–8, 22, 23, 56, 86–105; classic Japanese social compromise 91; ‘company-ism’ 87–89, 90; concept 71; consumption 87, 90–91; egalitarianism 86, 88, 91; family 22, 87, 88–89, 90, 93, 100; female labour 88–89, 92–93, 104; health insurance 100, 101; Japan/ Europe/USA comparison 89; Japanese capitalism 10, 87–91, 103, 160–61; Japanese firm xix, 59, 87–88, 94, 97–98, 102–3, 105; Koizumi, Junichiro 91–95; neo-liberalism 22, 23, 99; non-regular worker 87–88, 92, 96–97, 103; régulation approach 71, 86; social integration 58, 87, 96, 101; Tanaka, Kakuei 9–10, 101; UK 101; wage labour nexus 87–90, 96, 102–3, 104; see also DPJ; inequality in Japan; welfare system Sony 42, 61, 71, 120, 122, 130, 133, 141 Soskice, David 4, 6, 12, 106, 133 state xiii, 7, 10, 131–32; co-ordination 73, 76 (as arbiter/co-ordinator 7, 30–31; bureau-pluralism 2, 31, 73, 76, 78, 81, 83, 85); education system reform and state disengagement 107, 113, 116; France xiv, 11; neo-liberal reforms in Japan 30, 40, 45, 53–54, 67; protectionism 140, 143, 146, 147, 151; state/market balance 29; welfare state 9–10, 87, 101, 104; see also industrial policy Stevenson, David 114 Storz, Cornelia 131, 133, 134 Streeck, Wolfgang 8, 24, 27, 135, 161 sub-contracting 57, 58, 73, 74–75, 80, 85, 87–88; ‘British-style’ subcontracting 75; increased fluidity of 77, 83; SMEs 75; technology transfer 75, 77–78; see also co-ordination

Index subsidy xxii, 48, 76, 89 Suzuki, Zenko- 32 Suzumura, Ko-taro- 123 Tachibanaki, Toshiaki 104 Taichi, Sakaya 155–56 Takegawa, Shogo 89 Takenaka, Heizo- 18, 40–41, 44, 52, 81, 156 Takeshita, Noboru 38 Tanaka, Kakuei 9–10, 44, 101 tax system 82, 160; ‘Abenomics’, fiscal expansion 51; Angel Tax System 127; consumption tax 91; decentralisation 82–83, 110; Hashimoto’s tax system reform 42; Noda’s shift to fiscal conservatism 50–51, 54; tax reform 18, 41, 42, 43, 82–83; VAT xxxiii, 18 technology 9, 95, 159, 160; general purpose technology 131; neo-liberalism in Japan, economic/ technocratic elites alliance 29, 32–33, 40–41; technical deregulation 39; technological advance as argument of neo-liberal reform 1, 8, 9, 31, 119–20, 134–36, 137, 159, 160; technology transfer 75, 77–78; see also ICT; innovation; innovation, neo-liberal inspired reform Thelen, Kathleen 8, 27, 135 Thurow, Lester 109 Tiberghien, Yves 13, 15, 19, 20 Toray 64 Toshiba 61, 64 Toyota xvii, 61, 63, 64, 66, 68, 74–75, 82, 103, 130, 135; Okuda, Hiroshi 18, 62–63; Toyotism 7, 70–71, 75, 79; Toyotist wage labour nexus 86 TPP (Trans-Pacific Partnership) 27, 50, 52 trade 149; globalisation xxvii, 14, 140–53 passim, 156; intra-industry trade 143, 149, 150–51; trade liberalisation 26, 30, 38, 50; see also globalisation Tsuchiyama, Jitsuo 145 UK (United Kingdom) xiii, xiv, xvi, 31; Blair, Tony 16, 101; ‘British-style’ sub-contracting 75; social compromise 101; Thatcher, Margaret 16, 18, 27, 28, 40; UK/Japan comparison 69; workfare xviii

197

unemployment xiii, 89, 97, 100, 102; Japanese firm xviii, xx, xxxii, 37, 89; labour deregulation 84; mass unemployment xx, xxiii, xxxiii; rigidity of market institutions xviii; unemployment insurance 89; see also labour Uni, Hiroyuki 105 university 108; competition 108; criticism 112–13; employment for university graduate 94, 108, 113, 115–16; innovation xxvi, 106, 107, 113, 121, 127–28, 129, 137; privatisation 112; public/private system 108, 115, 128, 129; reform xxiv, 22, 112, 113, 115–16, 121, 127–28, 132, 137; university/firm interaction 80, 108–9, 113, 120, 123–24, 126, 127–28, 130; see also education system USA (United States of America): 2007 sub-prime crisis xxi, xxii, xxvii, xxviii, xxix, xxx, xxxiii; 2007–8 crisis xiii, xxii; Bush, George xxii; China/USA relations xxviii; deflation xxii, xxxii; economic models xiii, xxxii, 25; finance-led capitalism xv, xvi; financial liberalisation xxvii–xxviii, 35; globalisation xxxiii, 98–99; innovation xxiv–xxv, 22, 119, 122–23, 124, 127; Japan/United States relationship 139, 140, 146, 153, 154; neo-liberal reforms in Japan and USA pressure 28, 31, 34, 35, 36, 153; Obama, Barack xxii, xxx; poverty 94; Reagan, Ronald 18, 28, 121, 132; Roosevelt, Franklin D. 91; see also Silicon Valley model; USA/Japan comparison USA/Japan comparison: comparative/ historical analysis of Japanese economy xxi, xxviii, xxix, xxx, xxxii; evolution of real GDP 13–14; firm comparison 57, 58; inequality 95; social compromise 89; see also USA Ushio 61, 62–63, 71 Vanjani, Rohit 145 Vogel, Steven K. 29 Von Hayek, Friedrich 22 wage xviii, 38, 47, 48; Japanese firm xix, 58, 67 (individual performance 60; seniority wage 57, 88, 104; stabilised

198

Index

wage relations xx); wage increase 48, 82; wage inequality xx, 48, 78, 92, 96, 97–98, 103, 105; wage labour nexus 7, 8, 58, 59, 86, 87–90, 102–3, 104 (‘company-ism’ 59, 87–89, 90; patriarchal character 89, 92); wage stagnation 84, 151; see also labour; shunt Weber, Max xvi, 11 welfare system xxxiii, 17, 22, 87, 89–90, 160; benefits and limits 100–101; classic Japanese capitalism 89; DPJ, social welfare expansion 22, 28, 30, 46–50, 54, 102; LDP 99–100, 101; new social compromise 98–103, 104; social expenditure xxiii, 89; ‘welfare

orientalism’ 89; welfare state 9–10, 87, 101, 104; see also social compromise White, Gordon 89 Witt, Michael A. 84 Wood, Geoffrey 9 Yamada, Masahiro 93, 94 Yamada, Toshio 2, 7 Yamaguchi, Jiro- 101 Yosano, Kaoru 18, 42–43 Yoshikawa, Hiroshi 6 youth 93, 96, 109–10; labour 71, 94, 97, 104 Zimmermann, Jean-Benoit 6

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