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

Preface and Acknowledgments

Preface and Acknowledgments When do governments choose to pursue reforms that promise uncertain and long-term benefits, yet assure short-term costs? When do they get away with them? How do political leaders evaluate their chances of getting away with them? These questions lie at the core of the corporate restructuring dilemma, particularly in the stakeholder economies of Asia and Europe. In a narrow sense, corporate restructuring refers to steps taken by firms to improve their profitability. These steps include layoffs, factory closures, disinvestment from less profitable units, mergers and acquisitions, and the introduction of new management methods. Since competition is the essence of capitalist economies, firms are constantly reassessing their asset and liability structures and making such adjustments. When many firms make similar adjustments at the same time, they aggregate into a visible economic phenomenon, be it at the national or global level. The 1970s and early 1980s saw a wave of such adjustments sweeping across most developed countries. In the 1990s, however, corporate restructuring came to represent a deeper process of change. In a broad sense, corporate restructuring is a fundamental transition in the internal organization of firms and in the relations between firms and other social and economic actors. When fully carried out by many firms and encouraged by national policy, it aggregates into a structural transformation of the social and economic institutions of the postWorld War II system. It largely amounts to a transformation of the corporate governance structure. Corporate restructuring is a highly political process (see Gourevitch and Shinn 2005). At one stroke, it affects power relations within the firm, the social and political pact embedded in the postwar system, and ultimately the competitiveness of nations. Governments have the power to slow or accelerate the process and to shape its direction through myriad policy instruments . Conversely, political leaders are held responsible for layoffs and social dislocation, and also for any national competitiveness or welfare loss incurred through a slowing of the process. Measures taken by governments to facilitate corporate restructuring, both the removal of obstacles and the adoption of new inducements, are the focus of this book. Since the early 1990s, a transformation in the global financial environment has made the corporate restructuring dilemma more salient. Financial deregulation in all developed economies and technological change have led to the rise of global equity and bond markets. For large competitive firms, these markets offer a cheaper source of capital than do traditional domestic banks. For governments, tapping into these global equity markets, in addition to attracting the more traditional foreign direct investments (FDI), brings the promise of cheaper capital, higher firm competitiveness , and greater national welfare. In this book, I introduce a novel interpretation of global capital flows, namely, the concept of a golden bargain. De facto, global investors offer domestic politicians a deal whereby abundant and cheap capital flows come in exchange for corporate reforms that guarantee the rights of minority shareholders and a high return on investment through the facilitation of corporate restructuring. This bargain may also be seen as a Faustian pact or devil’s bargain, given the far-reaching social and political consequences involved . The concept here represents merely an empirical set of incentives, not a positive outcome. Global equity flows are a conditional displacement. While policy actors cannot ignore the new global forces, a range of policy options is available to them. They can take the full menu of recipes offered by global investors (and formalized by the Organisation for Economic Co-Operation and Development , OECD), refuse most of it, or pick only parts of the menu and add new ones. This book underscores the variety of choices in the face of this new challenge and the differentiation of pathways within hitherto stable clusters. I focus on the differences among three countries, France, Japan, and South Korea, long seen as relatively similar in their political economic structures— bank-centered stakeholder systems with significant state involvement and some degree of labor stability (Katzenstein 1985; Krasner 1977; Wade 1990; World Bank 1993; Zysman 1983). It concentrates on the following puzzles: • What explains the variation in national responses to the golden bargain , even among relatively similar economies? xii Preface and Acknowledgments • Why is France willing to implement some deep changes in its postwar structure without changing its discourse, whereas Japan is willing to change its discourse without deeply affecting its actual structure? • And why can Korea amplify the...