Asia's Flying Geese: How Regionalization Shapes Japan (review)

In 2010, Japan surrendered the position of the world’s second-largest economy, which it had held since 1968. Indeed, Japan’s long-term economic stagnation, which is shown in its shrinking share of the world’s gross domestic product (GDP) and the declining world competitiveness ranking of the International Institute for Management Development (IMD), was directly triggered by the bursting of the bubble economy in the 1990s. However, the decline of economic power including technological capabilities needs to be examined from a comprehensive standpoint that takes into account Japan’s responses to external forces. Walter F. Hatch’s book provides valuable insights in this context.

The main purpose of this book is to explain the continuity and discontinuity in the Japanese political economy from an outside-in perspective. Indeed, this research work explores the evolution of Japan’s political economy, but its analysis is based on deep insights into economic sociology and corporate management as well as a firm understanding of major characteristics in Japanese social structures. Hatch shows that Japanese bureaucratic and business elites managed to maintain administrative and production networks, which underpinned the domestic relational structures that privileged them, by extending those networks into developing Asia.

Hatch presents a model of network politics with two key concepts for analysis (chapter 1). The first is “selective relationalism,” which refers to “the extent to which social relationships dictate the character and conduct of political and economic exchange” (p. 13). Hatch regards this thick web of ties—not the market nor the state—as the driving force that enables long-term economic development. The actors make choices about their social relationships including who is allowed to enter those linkages, and therefore the modifier “selective” is used. The second concept is “positional power,” which is defined as “a kind of structural power that is determined by relative access to information and other resources embedded in a network of relationships” (p. 28). Here, power is regarded as a relational attribute that an actor can acquire in relation to others in a given social network. These two concepts are populated by two actors: networks and elites. Hatch explains the values of these concepts in application to the Japanese case by referring to the utilitarian and institutionalist approaches.

Chapter 2 investigates Japan’s political and economic exchange networks that defined the systems of network capitalism in the postwar period and establishes a baseline to use in measuring the amount of change or continuity in the domestic political economy in the 1990s. This chapter explains the history of how the “three-legged stool” of cooperation between state and industry, between legally independent firms, and between management and labor inside the firm was formed and developed. The author claims that Japanese bureaucratic and business elites locked in information and other resources through closed network mechanisms such as amakudari (“descent from heaven”), administrative guidance (gyōsei shidō), intercorporate keiretsu, and long-term employment (shūshin koyō). In chapter 3, Hatch gives an overview of the history and major features of the advancement of Japanese firms in Asia. Unlike non-Japanese firms, Japanese firms made their affiliates serve in a regional division of labor formed and controlled by the headquarters in Japan. Japanese affiliates in Asia also maintained close intrafirm and interfirm ties, which were sustained by political ties with Japanese government officials. These ties provided the foundation for enabling Japanese firms and government to enjoy positional power in the region through resources such as foreign direct investment, technology, official development assistance (ODA), and policy advice.

Chapter 4 shows how Japanese business and government elites sought to maintain the status quo of relational networks in the 1990s. The government elites did not abandon intervention in the market, and superficial liberalization was reregulation in substance. The elites in the business sector also maintained exclusive interfirm relations, particularly in vertical subcontracting keiretsu networks, and avoided laying off their workers through the transfer of surplus employees to affiliated firms...