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

4. Japan: Of Change and Resistance

4 Japan: Of Change and Resistance Since the mid-1990s, under new global incentives, Japan has responded with a transformed political discourse focused on the necessity of structural reform and with some significant institutional change. However, the actual change has remained selective and has kept the major pillars of Japan’s system in place: What explains this relative endurance of the core institutional structure in Japan, despite a sweeping change of discourse? Why has Japan taken a more partial and limited course than France and Korea, as it faced the new incentives of the golden bargain? By the late 1990s, it was common knowledge that Japan was stuck in the postmiracle doldrums and could not change easily. The forces of inertia, complementary linkages, and an unstable political system repeatedly thwarted reform attempts. Yet just as the idea of a paralyzed Japan was taking hold, a wave of corporate reform began to sweep Japan. Since 1999, reformers and advocates, with the support of a growing cohort of foreign investors, have actively pushed corporate reform forward and succeeded in bringing it to the top of the policy and corporate agenda (Dore 1999, 2000). They argued that Japan’s economic structure was ill suited to a post catch-up period marked by quickly evolving technology, financial globalization, and intensified global competition.1 Japanese firms needed to join the global restructuring wave2 and reorganize their corporate structure, labor management systems, and keiretsu networks. The government had to step in to facilitate the process of creative destruction. 1. Bouissou 2003; Katz 1998, 2003; Lincoln 2001; Morishima 2000; Mulgan 2002; Schoppa 2001. 2. Roach 1998. Years later, despite deep linkages and opposition to change, it is clear that significant reform has taken place in Japan. Firms across the board unveiled large restructuring plans, closing some factories and reorganizing supply chains. Some traditional firms, such as Nissan and Sony, took more drastic steps, including severing ties with long-term keiretsu suppliers (Nissan ). Although large firms avoided direct layoffs, they reduced their labor force through attrition, and a relative increase in part-time and temporary staff. They also induced layoffs in subsidiaries and suppliers through the removal of financial support and ensuing bankruptcies. As a whole, the total manufacturing workforce reached its postwar peak in April–June 1999 with 11,855,000 workers (up from 9,764,000 in January–March 1990 at the time of the bubble collapse). By April–June 2005, the manufacturing workforce was down to 9,593,000, although it came back up to 9,916,000 in January–March 2006.3 From the 1999 peak to the 2005 bottom, the manufacturing workforce dropped by 18 percent. Other indicators of active restructuring included new corporate structures, new shareholding structures in large firms, a budding market for corporate control (with active mergers and acquisitions), and an active use of new bankruptcy laws. Total stable shareholding among firms declined from 45 percent in 1994 to 24 percent in 2003.4 Yet core elements such as lifetime employment, main bank and keiretsu linkages, and the signaling and coordinating role of the government remained in place. Politically sensitive small firms in local areas (except in some areas such as Hokkaido) have also avoided drastic restructuring. Accompanying and facilitating these partial changes at the firm level, signi ficant institutional change took place in the regulatory framework across the board. The government played a crucial role in enabling change by removing obstacles and by transforming the incentives of firms and other economic actors through a cumulative process of structural reform. The significance of these structural reforms is considerable because they aim at undoing the very features of the Japanese political economy that were once recognized as the foundations of the three-decade long economic miracle. However, in contrast to countries like Korea, the process was slow and gradual. Enabling measures were chosen over mandatory change, allowing for partial change in only parts of the economic system, while preserving some of the strategic institutional linkages. As a result, the Japan Inc. model fragmented into several components headed in different directions. On the whole, large manufacturing firms restructured more than small and medium companies, financial institutions, and some domestic service Japan 105 3. Ministry of Finance, “Financial Statements Statistics of Corporations by Industry Quarterly ,” www.mof.go.jp/english/ssc/historical.htm. 4. Schaede (forthcoming) uses data from Nihon Life Institute’s annual survey. companies. Firms...