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

1. Political Entrepreneurs and the Corporate Restructuring Dilemma

1 Political Entrepreneurs and the Corporate Restructuring Dilemma Corporate restructuring involves high political risks in stakeholder or coordinated economies.1 These systems integrate a complementary set of industrial organizational features (large groups, cross-shareholdings), stable employment practices, bank-centered corporate finance, and welfare corporatism that set them apart from the more liberal systems in the United States and the United Kingdom. The liberal Anglo-Saxon systems contained radically different practices, in particular, direct financing through capital markets, dispersed corporate ownership, and more flexible labor markets. The contrast is one between stakeholder capitalism and investor capitalism (Dore 2000). Corporate restructuring in its far-reaching manifestation affects key pieces of these systems. Most important, it weakens the political compact between the core socio-economic constituencies and the state. Therefore, engaging with large-scale corporate restructuring may appear paradoxical and costly in stakeholder economies given the complex interdependence between institutions of capitalist systems revealed in varieties of capitalism and regulation theory (Amable, Barré, and Boyer 1997; Boyer 2004; Hall and Gingerich 2004; Hall and Soskice 2001; Vogel 2006). The dilemma for firms and policymakers is how to enable a smoother process of creative destruction and effect a higher degree of capital allocation , while preserving key linkages that lie at the core of the national com1 . Stakeholder economies have also been defined as “non-liberal,” or “coordinated-market economies.” See Berger and Dore (1996); Hall and Soskice (2001); Schmidt (2002); Streeck and Yamamura (2001); Yamamura and Streeck (2003). parative advantage. Firm organization, labor management, cross-firm networks , main bank relations, and interactions with the government all form a coordinated whole that linked firms to other actors and provided the basis for Japanese economic competitiveness. Can key components of the system , such as corporate governance, be overhauled without jettisoning other components, such as labor policy and in-company training? In recent work on Germany, Hall and Gingerich (2004) argued that a coordinated market economy (CME), which abandoned some of the strategic institutional complementarities through partial reforms of components of the mix, could end up at the bottom of the U-shape efficiency curve. Unless an economy transforms completely from a CME to a liberal market economy (LME), prospects of success are grim. In addition, long-term economic institutions are buttressed by norms and beliefs that have come to shape the behavior of economic actors (Aoki 2001; Milhaupt 2001). Changing rules without affecting such norms and beliefs can lead to a dysfunctional and decoupled outcome. A smooth process must be partially driven by change in the focalizing norms of participating actors, although such a process starts with a stage of institutional crisis (Aoki 2001). The Core of Post–World War II Stakeholder Systems: The Social Contract At the core of stakeholder systems lies a political bargain involving all social actors and the state as guarantor. The so-called social contract refers to a set of formal regulations and informal norms that ensures both economic competitiveness and social stability (lifetime employment, stable industrial relations, and a stable financial system). This postwar social contract is often called the compromise of embedded liberalism (Ruggie 1982). This modern social contract has roots in both the Great Depression and World War II. The Great Depression of the 1930s shattered the nineteenthcentury belief in self-regulating markets.2 The postwar economic system was built around one key priority: preventing another Great Depression or at least limiting its social and political impact. At a global level, the decision was made to encourage free trade while building a stable exchange rate regime and controlling capital flows (Helleiner 1994; Ruggie 1982). At the national level, governments in Japan and Western Europe chose to organize their domestic socio-economic systems around a stable social contract. 2 Entrepreneurial States 2. See, for example, Carr (1939); Eichengreen (1996); Helleiner (1994); Kindleberger (1986); Polanyi (1944). Over decades, both widespread public support and a dense network of vested interest groups served to solidify this compromise. In Japan, the social contract has roots that reach as far back as the late Meiji period. As demonstrated by Samuels (2003b, 88), Shibusawa Eiichi, the “father of Japanese capitalism,” saw the mission of entrepreneurs as guarantors of the social order in addition to profit maximizers. Unlike in the United States, capitalists should embed samurai values and concern for society in their approach to business. In 1919 the government of Hara Kei brought the state into the social contract arena...