Entrepreneurial States: Reforming Corporate Governance in France, Japan, and Korea

6. Political Entrepreneurs and the Great Transformation of the Automobile Industry

6 Political Entrepreneurs and the Great Transformation of the Automobile Industry This chapter brings the analysis to the level of the firms and focuses on the implications on the ground of the variety of national responses to the golden bargain. It focuses on one major industry that is both economically significant and politically salient in all three countries: the automobile industry . The size and stakes involved in this industry are so high that all governments (including the U.S. and UK governments) have intervened in the process of automobile restructuring at one point or another. However, the French, Japanese, and Korean governments ended up intervening very differently and using different tools. The Korean government directly affected all dimensions of restructuring (labor, finance, corporate governance, even mergers and acquisitions) in at least two major automobile corporations: Daewoo and Samsung Motor . The French government under Strauss-Kahn and Jospin only affected Renault because it was a state company in the process of restructuring. Political decisions allowed Renault to engage in the takeover of Nissan’s management, using the state’s patient capital. However, the government had less impact on the labor side of the equation. By contrast, the Japanese government had no direct role in the restructuring of automobile corporations. Toyota remained entirely autonomous, following its own Japanese management methods without major transformation. In the case of Nissan, political leaders did not have the ability to get involved directly in restructuring the company. They chose instead to facilitate the process of foreign-led restructuring through signals and framework legislation , while retaining some constraints on labor and corporate governance . What explains the variation in national responses to the golden bargain at the firm level, even among relatively similar economies and within a similar industry? All three governments were responsive to global signals from financial investors and to global competitive pressures. First, the three respective governments have recently come to understand the importance of global credit ratings and stock market investors and this has changed their behavior. Second, the three governments’ behavior has also been driven by a growing awareness of the importance of crossnational mergers and acquisitions in transforming the automobile industry. The cost of acting against these two developments has become prohibitively high and this reality has changed the political logic behind structural reforms . In response to these incentives, the political entrepreneurs studied in the previous chapters took automobile restructuring on directly. However, their capacity to act decisively in such a politically sensitive industry was shaped by their degree of political autonomy within parties and relative to support groups, particularly industry and labor. The ability to delegate part of the process to national or even international institutions (such as the EU) also proved to be an important differentiating factor. Through the comparison of the actions of governments over time and across the three countries, I demonstrate the relevance of the variation in national underpinnings of political entrepreneurship for issues of industrial restructuring and national competitiveness. Political Significance of the Automobile Industry Manufacturers, it is widely believed, set the tone for Japanese corporate change. Not only are they closest to cyclical changes in demand, but they are often headed by trend-setting managers. If Sony, Toyota, and Honda are doing it, somewhere down the line other companies and industries will probably be singing the same tune. Financial Times, 13 July 1999 In Japan there remains a deep understanding that the manufacturing industry is the core of the economy and the source of Japanese economic strength.1 Similar statements could be made about France and Korea. Within the manufacturing sector, the automobile industry can be seen as a crucial industry in each of the three countries. The most noticeable characteristic is its sheer size in the economy. It is usually estimated that the automobile industry (including the network of subcontractors) employs The Transformation of the Automobile Industry 181 1. Interview with former MITI vice minister, 1 December 1999. directly or indirectly 10 percent of the entire workforce in Japan and France.2 This reality is further amplified in local areas surrounding large automobile factories. Because of the hundreds of suppliers and related companies that are usually clustered around each factory, the local economy and employment situation in a city such as Nagoya (Toyota), Pusan (Samsung Motors), or Le Mans (Renault) are entirely dependent on the health of one automobile company. As a result, national and local politicians in each...