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

Conclusion: From Social Contract to Golden Bargain?

Conclusion: From Social Contract to Golden Bargain? In the late 1990s, many OECD countries engaged in far-reaching corporate structural reforms. While these reforms may appear to be mere technical measures or legal revisions, their cumulative effect amounts to a major transformation of the post-1945 industrial and social contract. Corporate structural reforms are measures instigated by the state to facilitate the process of corporate restructuring and to bring flexibility and reactivity into the industrial structure. They aim to increase the competitiveness of the economy and ensure long-term growth. In most cases, structural reforms have happened discreetly and have not been the object of electoral debates during important elections. In this book, I have focused on the corporate structural reforms in three large state-led capitalist countries, namely, Japan, France, and Korea between 1995 and 2002. All three countries used to be seen as classic alternatives to the liberal capitalist model. In fact, France, in the 1960s, and Japan and Korea, in the 1980s, were considered a superior alternative and even a threat to the liberal capitalist model. Although their style of economic organization seemed to be more competitive, it was intrinsically a choice made for social reasons and as part of a post-war social contract. In return for hard work and strong regulations imposed by the state, workers were guaranteed stable employment and managers a secure financial environment. During the 1990s, all three countries faced new global incentives in the form of an explosion of global financial flows. They responded to external changes by taking important steps to reform the postwar structure, although each very differently. One acted to transform power relations within firms and in the larger political economy (Korea), while another maintained key power relations and only reformed selectively (Japan). What explains such different national responses to similar external forces? I have shown that in situations of globally induced uncertainty, interest group coalitions fragment and neither parties nor bureaucrats are able to steer the reform path. Political entrepreneurs step in and act as tipping mechanisms, creating new bargains and reorganizing underlying coalitions. Their capacity to act depends on the degree of political autonomy available in their relationship with their party, coalitions, and legislation. It also depends on the opportunity for bureaucratic delegation. Motivation for Change: The Golden Bargain and Political Entrepreneurship In this book, I have argued that national political leaders now face a golden bargain whereby equity investors promise abundant capital inflows to countries who engage in corporate reforms. The trends of financial deregulation and technological change have greatly reduced transaction costs and led to a massive increase in global capital flows. The 1990s have seen the emergence of global norms of corporate governance, norms that serve as focal points for global investors. Corporate structural reforms constitute the response of political entrepreneurs to these emerging global forces. In the face of a stalemate between coalitions of interest groups and a sticky status quo, the core proponents of reforms are political entrepreneurs in the executive branch. Political entrepreneurs identify the growing gap between the enduring national system and the global economic system and sense the potential long-term benefits involved in taking up the golden bargain. They are ready to discount the short-term costs of change and to gamble that structural reforms can create a new winning coalition in the long term. They also know that the costs of inaction are high and that adverse economic conditions may slowly reduce their existing coalition within party and interest groups. In addition, other political entrepreneurs are likely to rise up and seize the golden bargain for themselves. A political entrepreneur may come to power with an open promise to take on the golden bargain and to engage in structural reform. More often, however, political leaders become active political entrepreneurs once in power, since the golden bargain is not popular with militants in large parties . The exercise of power offers the opportunity for political entrepreneurs to bypass opponents within their party base, although this opportunity varies greatly across countries. I have argued that the success of political entrepreneurs in launching structural reforms that shift the status quo of their own support base Conclusion 207 depends on the degree of strategic political autonomy available within their party, their governing coalition, and the legislature. It also depends on the opportunities for bureaucratic delegation available within the political system. A strong and unified elite bureaucracy...