Japan Remodeled: How Government and Industry Are Reforming Japanese Capitalism [Paperback]

Twenty years ago, Japanese management wall all the rage. Then came a long, protracted slump and attention turned elsewhere. Japan fell into oblivion. But while nobody took notice, an interesting thing happened. The Japanese model implemented its own transformation. It was remodeled into something new, but still distinctly Japanese. How this transformation occurred and what kind of new model came into being form the story of this book.

The Japanese traditional system differs from the liberal market model in important ways. It emphasizes the benefits of long-term relationships in labor, banking, and supplier relations. You have an active external labor market on the one hand, a lifetime employment system and a dual economy on the other. A market for corporate control dominated by shareholders' rights versus a main bank system and stakeholders governance. Free market entry and exit versus supplier networks. No model is intrinsically better, although the liberal model may be better adapted to a fast-changing economy at the technology frontier or to sectors where radical innovations occur, whereas the Japanese model has an institutional advantage in a catching-up phase or in sectors that rely on incremental improvements in production processes, such as automobiles and consumer electronics.

Contrary to what some expected, the Japanese model did not converge toward the U.S. one. Nor did it become an hybrid, although elements of flexibility were introduced at various levels. In fact, Vogel shows that liberal market reforms have very few natural advocates in Japan: even groups with the greatest apparent stake in liberalization, such as large manufacturing exporters or consumer associations, are reluctant to embrace reforms that might affect social stability or undermine relations with workers, financial institutions, other business partners, and the government. The Koizumi administration nevertheless succeeded in introducing important reforms, but with a distinctive policy pattern. Japanese authorities proceed with reforms slowly and cautiously; they package delicate compromises, including substantial compensation for those who might be disadvantaged by the reforms; they design reforms to preserve the core institutions of the model as much as possible; and they seek new ways to build on the strengths of existing institutions.

The remodeled Japan differs from the earlier version in at least three important ways. It is more selective: In the face of hard times, companies have become more discriminating in their Partnerships. They have reevaluated their long-term relationships with workers, banks, and other firms, and they have loosened some and tightened others. They have shifted from a reflexive acceptance of these partnerships to a more rational assessment of their costs and benefits. It is more differentiated: Companies have become more variable in their practices. There never was a uniform Japanese model that applied equally to all sectors and all companies, but the model has fragmented further. And it is more open: Japanese corporations have more foreign owners, managers, and business partners than ever before, and these foreign actors bring with them different practices and norms.

Apart from telling a compelling story, this book also distinguishes itself by its extensive use of the comparative case method. It compares patterns of institutional change across countries (Japan versus the United States and Germany), across policy issues (labor market reform versus financial reform, for example), across industrial sectors (automobiles versus retail), across companies (Toyota versus Nissan, etc.) and across time (Seiyu before and after allying with Wal-Mart). This variation across issue areas allows the author to test several hypotheses about the impact of reforms, with sometimes surprising results. The author's scholarship also spans across disciplines, and the result is a fine example of how political science can blend with business studies and institutional economics.

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