The Fable of the Keiretsu: Urban Legends of The Japanese Economy, and: Institutional Change in Japan (review)

For quite a few years now, Yoshiro Miwa and Mark Ramseyer have been dissidents in the field of Japanese studies. They have published a series of essays debunking the received wisdom on Japanese business and economy, questioning the existence of the keiretsu, denying the main bank system, and arguing that prevailing views of Japanese corporate governance are wrong. Their voices have been refreshing in a field where all too often assumptions go unquestioned, the work of big names is not tested, and the Japanese economic system is packaged as something unique, monolithic, and essentially connected to Japanese culture. Miwa’s and Ramseyer’s work has long enlightened me and forced me to question my own assumptions. It is because I have valued the work of these authors that I find their book such a disappointment. I found elements of their research misleading, their writing annoying, and their book a lost opportunity to bring good sense, balance, and a dissenting perspective into the field of Japanese business studies.

The Fable of the Keiretsu is more or less a collection of work that Miwa and Ramseyer have published elsewhere. It features a series of chapters, each debunking an aspect of the prevailing wisdom on the Japanese economy. Linking these chapters is a theoretical framework that combines neoclassical economics with large doses of contempt for scholars who do not share their views (that is, most scholars writing on the Japanese economy).

In Miwa’s and Ramseyer’s view, the Japanese economy operates according to the fundamentals of Economics 101: supply and demand, utility maximizing behavior, and free and frictionless markets. While I do not agree with their assessment of the Japanese economy, or any other real world economy, their perspective is theoretically coherent and, as a radically different take on Japan, a useful contribution. Maybe they are even right about some things. What is troublesome, however, is the way they deliver their views: with much gloating about their own intellectual rigor and derision for those who do not agree with them. For example, they dismiss research on the keiretsu as a “profoundly embarrassing intellectual disaster” (p. 37). This combination of over-the-top invective and self-aggrandizement can be amusing in small doses, but the authors’ efforts to be lively get tiring quickly.

Miwa’s and Ramseyer’s writing style might be merely annoying if they were presenting valuable content. Unfortunately, they support many of their claims with misleading data and reasoning, personal accusations, and pure speculation. A good example of their modus operandi is their exposé of the “myth” of the vertical keiretsu. They purport to demolish the myth that Japanese manufacturers, in particular auto manufacturers, are bound to a set of satellite suppliers that have made long-term investments in “relationship specific assets.” There is certainly room to criticize research on these groups, but Miwa’s and Ramseyer’s approach is misleading. To debunk this myth, they present a case study showing how Honda does not have a vertical keiretsu. Ergo, according to their reasoning, vertical keiretsu do not exist. Yet Honda is well known in the auto industry for not having a vertical keiretsu, at least not one on the scale of Toyota or Nissan. Honda’s lack of a group shows that not all auto manufacturers have keiretsu, but it does not prove much else.

Miwa and Ramseyer buttress their case studies with personal attacks. They imply that the late Asanuma Banri, a leading expert on auto industry keiretsu, developed his theories to curry favor with the economist Oliver Williamson, who in turn introduced Asanuma’s work in his treatise on transaction cost economics as some sort of academic quid pro quo (p. 29). This kind of speculation perhaps has its place over drinks...