| Review of: | Japan Remodeled: How Government and Industry Are Reforming Japanese Capitalism by Steven K. Vogel |
|---|---|
| Reviewed By: | Hironori Sasada |
| Reviewed in: | Governance |
| Date accepted online: | 10/04/2008 |
| Published in print: | Volume 20, Issue 04, Pages 703-715 |
Book Reviews
Japan's prolonged recession in the 1990s had a significant impact on the unique structure of Japanese capitalism, often referred to as the Japan model. Despite its high effectiveness during the rapid growth era (the 1950s-1980s), the Japan model seemed to have become a major impediment to Japan's recovery from the recession. Many pessimistic journalists and scholars within and outside of Japan argued the model had become obsolete in today's globalized economy and predicted that Japan would assimilate into the U.S. model. The decade-long recession did force Japan to reform its economy; however, as Steven Vogel points out, Japan reformed its economy to reinforce its existing institutions in many areas. Also, its reaction to the challenges of new economic environments varies from issue area to issue area, and even from company to company. Vogel's groundbreaking study presents a sophisticated model to explain the pattern of Japan's economic reforms and corporate restructuring.
Vogel argues that institutional change occurs at two levels: the micro level (corporate restructuring) and macro level (policy reform). Changes in the two levels are closely related, as a policy reform modifies and constrains corporate adjustment, which in turn modifies industry preferences for further policy reforms. He also argues that actors' decisions are affected by three types of cost-benefit calculations: material, institutional, and social. This relatively simple yet subtly structured model has various analytical advantages. First, it allows us to think beyond a simple cost-benefit analysis based on rational assumptions. It is significant because policymakers and corporate executives do not pursue reforms solely based on the material costs and benefits associated with institutional change. Rather, they are constrained by other factors such as institutional and relational constraints (long-term relationships with other firms, banks, etc.) and social norms. Second, it allows us to make sense of the wide variety of possible reforms. As mentioned above, Japan's policy reform and corporate restructuring varies across sectors and firms. By closely looking at the specific structure of relational constraints and social norms in each sector (or each company), one can draw a more convincing explanation for reform outcomes.
However, there are a few concerns I have about the study. First, compared to his carefully articulated explanation for corporate behavior, Vogel's explanation for the behavior of political actors, particularly the prime minister, seems less clear. Vogel lists factors that make it difficult for the Liberal Democratic Party (LDP), Japan's long-time ruling party, to introduce radical reforms including the broad range of its constituencies, the constraints imposed by its coalition partner, and the party members' mixed attitude toward economic liberalization. In fact, the LDP acted indecisively in many occasions. However, in some cases, policymakers carried out radical reforms in spite of these difficulties and fierce opposition. Prime Minister Koizumi Junichiro privatized the nation's postal service in 2005, although it invited tremendous opposition from the association of local post offices, a longtime support base for the LDP. Koizumi succeeded in significantly cutting public projects, seriously damaging construction firms, another longtime support base for the party. Furthermore, Koizumi's successor, Prime Minister Abe Shinzo recently succeeded in reforming the Education Basic Law and upgrading the status of the Defense Agency to a Cabinet-level Ministry of Defense, and he is even planning further constitutional revisions. It is not specified in Vogel's book under what conditions political leaders take bold actions and initiate fundamental reforms. On the corporate side, Vogel's regression analysis finds that a few factors (i.e., foreign ownership and the nature of sector) make fundamental corporate restructuring more likely. A similar specification for the behavior of political actors would give extra explanatory power to Vogel's model. It is particularly important because the Japanese prime minister and the Cabinet seem to have become less vulnerable to opposition from vested interests today than before and have increased their political salience.
My second concern is Vogel's analysis of ideational factors. Vogel talks about social norms and ideology as important factors that affect actors' decisions. His argument is plausible, but his approach to ideational factors seems to have some problems. For instance, Vogel argues that the officials of the Ministry of Finance (MOF) had a strong ideational commitment to fiscal balance, which prevented them from using large fiscal stimuli in the late 1990s. First, the alleged causal effect of ideology needs more empirical support. Vogel assumes the MOF officials' ideology led to their reluctance toward fiscal stimulus and he does not present sufficient evidence to support the causal link. Readers may wonder whether such an ideological commitment was really significant as the MOF had allowed Japan to accumulate huge deficits over several decades. Second, Vogel uses ideology and preference interchangeably. For example, he refers to "ideological commitment to fiscal balance," "preference for balanced budgets," and "desire to reassert fiscal balance," as if they were the same thing (46). If there is no difference between ideology (his third circle of rationality) and interest (the first circle), why would one take ideology or social norms into consideration?
Despite these minor concerns, the book's contributions are outstanding. Vogel's extensive study of structural reform and corporate restructuring encompasses an impressively wide variety of sectors including labor, banking, finance, accounting, and corporate law, just to name a few. His cross-sectoral analyses are supported by interviews with Japanese policymakers and corporate executives, which students of Japanese political economy would find very valuable. Although the book surely satisfies the intellectual interests of academics, a general audience would also enjoy the book. The Japanese economy is still in the process of transformation and many more studies need to be conducted to enhance our understanding of this process. This book certainly offers a number of insights, from which future studies can greatly benefit.