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Content THE JAPANESE ECO NO M Ys A MODIFIED FO R M O F CONTEM PO RARY M A N A G ED CAPITALISM by Tatsuya Ohmori A Dissertation presented to the FACULTY O F THE GRADUATE SCH O O L UNIVERSITY O F SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DO CTO R O F PHILOSOPHY (Economics) August 1983 UMI Number: DP23324 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these w ill be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI DP23324 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 UNIVERSITY OF SOUTHERN CALIFORNIA T H E G R A D U A T E S C H O O L U N IV E R S IT Y P A R K L O S A N G E L E S . C A L IF O R N IA 9 0 0 0 7 This dissertation, written by TATSUYA OHMORI BvD' ' 0 3 £38 under the direction of Dissertation Com mittee, and approved by all its members, has been presented to and accepted by The Graduate School, in partial fulfillm ent of requirements of the degree of D O C T O R O F P H I L O S O P H Y Dean DateL DISSERTATION COMMITTEE .......... AC KN O W LED G EM EN TS I would lik e to acknowledge the help and assistance of many people, without w hom this dissertation would not have been in itiated or brought to completion. I began m y studies on the Asiatic mode of production, a continuing interest in m y research, with Professor Marvin Lee, at California State University at San Jose. At the University of Southern C alifornia, where I embarked on m y doctoral studies, I focused on p o litical economy. Professor John E. E llio tt was m y major professor in this fie ld , and became chairman of m y dissertation committee. I would like to acknowledge Professor E llio t's patience and guidance in m y work. I would also lik e to acknowledge the kind help and guidance .■ of Professor Takahiro Miyao, Economics, and George Totten, Political Science. The section in m y dissertation on the views of contemporary | Japanese Marxists about the Japanese economy was aided immeasurably by I materials and sources supplied by Professors Kazuyoshi Uehara and Shoshichi Sugimoto, Institute of Economic Analysis, Kyoto University. Ms. Patricia Malsack helped m e improve English style and grammar. All of these people helped in innumerable ways in this dissertation, , although the present author is , of course, fu lly responsible for whatever deficiencies of content or form remain. Lastly, I would like to express m y heartfelt appreciation for the loving devotion of m y wife, who has patiently accepted the several months of separation which the completion of m y dissertation in the United States required, and the generous support of m y parents during m y ten years of study in the United States, who thereby made my dreams come true. i i i CO NTENTS Page LIST O F TABLES v ii LIST O F FIGURES v iii LIST O F CHARTS v iii Chapter 1. INTRODUCTION I Chapter 2. CLASSICAL PERSPECTIVES O N CAPITALISM 7 1. Marx: Individualism and Capitalism 8 The Emergence of Capitalism 9 The Asiatic Mode of Production 13 2. Weber: Rationalism and Capitalism 15 The S p irit of Capitalism 15 Rationalism and Bureaucracy 18 3. In stitu tio n alists 21 Veblen: The Evolution of Capitalism 22 Commons: Contemporary Capitalism and 25 Bargaining Negotiation Chapter 3. CO NTEM PORARY M A N A G ED CAPITALISM 31 1. General Structure of Contemporary Managed 31 Capitalism 2. Contemporary U.S. Capitalism: Contending 39 Vi ews Corporate Planning 39 ' * The Separation of Ownership and Control 41 Growth (Sales) Maximization 44 Labor Unions and Government 46 Critics 48 3. Social Processes for Economic Coordination 53 and Control Hierarchy 53 Bargaining 55 Polyarchy 57 Market (Price) System 60 4. Concluding Comment 62 Chapter 4. TH E JAPANESE ECO NO M Y: GENERAL VIEW A N D 69 COMPARISONS 1. ,\A General View of the Japanese Economy Large-Scale Corporations The Central Government i v Chapter 5. 1. 2 . 3. Chapter 6. 1. 2. 3. 4. Chapter 7. 1. 2 . General Comparisons 77 Ownership of Means of Production 77 Locus and Organization of Economic Power 78 Motivational System 79- Income Distribution 80 Social Processes for Economic Coordination 81 and Control THE JAPANESE ECONOM Y: SOCIO-ECONOMIC STRUCTURE 87 "Non-Individualistic" Concept of Social Group 87 Historic Setting 88 Main Aspects of "Ie" Structure 93 Consanguinity of the Japanese Style 96 Summary 101 Incidental Administrative Systems 101 The Seniority System and Life-Time Employment 102 The Ringi System and the Nemawashi Process 107 Summary H I Communitarian and Inter-Group Competition 113 THE JAPANESE ECONOM Y: G R O W TH ORIENTATION 128 Contending Perspectives on the Japanese 128 High-Growth Economy State Monopoly Capitalism 129 Growth Oriented Economy 136 DiscretToiyAutonomy of Economic Bureaucrats 143 Status of Japanese Bureaucrats 143 The Adivsory Commissions 145 The Process of "Amakudari" 146 The Politics of the Liberal Democratic Party 148 Bureaucrats' Control of Government 181 High-Growth System 186 The Overloaning System 187 The Fiscal Investment and Loan Plan 188 The Foreign Trade and Exchange Control System 160 MITI's Industrial Policy 181 Administrative Guidance 183 H G S and Zaibatsu Groups 184 Concluding Comment 188 ASSESSMENT OF THE JAPANESE EC O N O M Y 174 Resource Allocation 174 Economic S ta b ility and Employment 182 v 3. 4. Chapter 8. BIBLIOGRAPHY Equity and Equality 188 Economic Growth 191 SU M M A R Y A N D CONCLUSIONS 200 211 LIST O F TABLES Table 1. ZAIBATSU GROUPS: M AJO R PARTICIPATING INDUSTRIES 2. THE COMPARISON O F JAPANESE A N D UNITED STATES CORPORATIONS IN ELECTRIC INDUSTRIES 3. FILP: SOURCES A N D USES ' 4. SOURCES O F INDUSTRIAL CAPITAL9 1953-1961 LIST O F FIGURES Figure Page 1-A. LINE HIERARCHY 1199 1-B. EXUDING HIERARCHY 119 2. CIRCULATION O F RINGI DO CUM ENT 120 LIST O F CHARTS Chart Page 1. Capital Structure: Manufacturing Industry (1968) 225 1 I vi i i I CHAPTER 1 I INTRODUCTION i j Economics is as old as the existence of mankind and is essential to any society. However, mainstream economics devotes very l i t t l e attention to explaining the economic existence and development of non- Western c iv iliza tio n s which existed before and along with Western society. As the etymological origin of the word "economics" implies,^ most texts in the history of economic thought usually start with the ancient Greeks, and focus on the development of Western c iv iliz a tio n , j From this viewpoint, the modern economics discipline which started withj ! Adam Smith has its roots in the emergence of capitalism, and this | ] • i ■capitalism is an indigenous socio-economic system of the West developed] ! i : from European feudalism. Thus, the study of economics is considered ; , \ j as having developed in the West, as a Western discipline. Consequent- ; ; I J ly , those who apply economic analysis to non-Western society may have j j to c la rify cultural and historical heritages which d ifferen tiate non- J J | Western from Western societies and which affect economic structure, behavior, and performance of non-Western society. In today's world, there exists a handful of industrialized, c a p ita lis t nations. Generally, the Japanese economy is ranked among these nations. Japan began her industrialization about a century later than the Industrial Revolution of B ritain. At that time, Japan's domestic conditions were not ready to break away from a feudal past and start industrialization through institutional arrangements similar to jthose of B ritain. But, Japan adapted herself to a modified ca p ita list 'mode of production and, with state guidance, successfully industrials. i ized long before World War I I . Moreover, despite devastating losses during the war, Japan recovered at an astonishing speed, and today has established an economy which, in overall Gross National Product, is i i ! behind only the United States and the Soviet Union. What makes Japan an interesting and important case-study, however, is not only its postwar economic performance but also its non-Western heritages, both ; 3 + cultural and histo rical. In this sense, Japan is the only non-Western : I i | society to have taken a (modified) c a p ita lis t road to industrialization,1 ! j and today can be ranked among the industrialized, c a p ita lis t nations. As a c a p ita lis t economy, Japan shares basic characteristics with her i • ; Western counterparts. But the Japanese economy has both structural and' i l behavioral features distinguishing i t from other Western in dustrial, i c a p ita lis t economies. This is because of Japan's non-Western cultural i f I j and historical heritage. Assuming that Japan is at the same historical i . stage as the Western economies in c a p ita lis t development, the Japanese economy is thus designated here as a modified form of contemporary managed.capitalism. The economic performance of postwar Japan has seemed amazing to Western observers. Through th eir studies, many scholars have noticed \ that there are significant features differen tiating the Japanese economy from those of the West. These scholars disagree about the nature and cause of these features. 'In general, th eir opinions are 2 J divided into two. One emphasizes economic conditions of postwar Japan,, i j and the other focuses on Japan's non-Western heritages. Unfortunately, there is l i t t l e lite ra tu re , except that of the Japanese Marxists, which discusses the present stage of the Japanese economy in relation to the development of capitalism. Consequently, i ; Japan often is described simply as an industrialized, modern society. r S Likewise, there is l i t t l e lite ra tu re examining the Japanese economy in I t ' terms of an economic system (that is , in terms of ownership and control of means of production, locus and organization of economic power, ! » [ distribution of income and wealth, and social processes for coordi-v.:: ! nation and control), and evaluating the economy according to such I c rite ria as economic efficiency, s ta b ility and employment, equity and ; I i quality, and growth. j An examination of Japan in terms of economic systems is essential I I . for a discussion of historical stages. For example, the Western i ’ economy has evolved from laissez-faire capitalism to contemporary 'capitalism , and this evolution involves qualitative and quantitative, ; i f not revolutionary, transformation as an economic system. Without examination in terms of economic systems, i t is d iffic u lt to analyze j such transformation and, thereby, define the present stage of Western economy, namely, contemporary managed capitalism. In addition, assessment of economic versus cultural interpretations of Japanese economy should be considered in this context, and without i t may be meaningless. Thus, the purposes of this dissertation are (1) to I t 3 determine the present stage of the Japanese economy, (2) to examine the | Japanese economy as an economic system, and (3) to describe the | behavior and assess the performance of the Japanese economy in accord with evaluating c rite ria mentioned above. To achieve these purposes, i t is necessary to review and characterize Western c a p ita lis t economy. As noted above, this is j ! because economic analysis of capitalism has been based upon observation j i of Western economies. These c u ltu rally conditioned analyses have > established the d e fin itive character and c rite ria of capital ism. The ! I I ' 1 I theory of the c a p ita lis t economic system and its evaluating c rite ria I ■ have developed in the same manner. Furthermore, those who give an i * economic interpretation emphasize sim ila rities between the Japanese ; ! | economy and those of the West, while those who present a cultural . I interpretation emphasize differences between the Japanese and the | i < Western economies. Thus, i t is necessary to compare the Japanese economy with Western capitalism as an economic system, and the t I analytical method used in the dissertation is that of comparative I economic systems. Based upon this method, i t w ill become clear that I I the Japanese economy has significant non-Western heritagesE and, j consequently, important differences in both structure and performance from the contemporary managed capitalism of the Western nations. The following chapters can be divided into two parts. The f ir s t part consists of Chapter 2 and 3, and deals with perspectives on both j classical capitalsim and contemporary managed capitalism. Chapter 2 4 provides an expository review of the ideas of such theoristsas Karl Marx, Max Weber, Thostein Veblen, and John R. Commons, and raises the question whether there is a cultural presupposition in Western economic thought. Chapter 3 discusses contemporary managed capitalism and, more particularly, provides contending views on the contemporary capitalism of the United States. i ; The second part consists of Chapter 4, 5, 6 , and 7. Its subject J i i is the Japanese economy. Chapter 4 gives a general view of the ! Japanese economy as an economic system, and compares Japan with . ! i structural characteristics of contemporary Western managed capitalism. The following two chapters focus on two non-Western heritages of the Japanese economy. While an indigenous concept of the social group, namely, the "ie ," is discussed as a basis of the economy in Chapter 5, j i I the Japanese economy is further described by its growth orientation ; : in Chapter 6 . The behavior and performance of the Japanese economy is • j assessed in Chapter 7 according to evaluating c rite ria of economic | systems analysis. Chapter 8 provides a b rie f summary and overall conclusion of the dissertation, and a short comment on the future of the Japanese economy as an economic system. FO O TNO TES F O R CHAPTER 1 The word "economics has its origin in the Greek word '’okonomia," which was defined by A ristotle as the a rt of household management. 6 CHAPTER 2 CLASSICAL PERSPECTIVES O N CAPITALISM i I i What is capitalism? Capitalism frequently is perceived as a i static economic system. But since the time of Adam Smith, capitalism has developed from an individualistic economy to an economy with c o lle c tiv is t organizations, such as giant corporations and labor unions.) Public policy, also, has changed from that of la is s e z-fa ire , market ! I oriented policies, to that of managed, or planned, policies. In other j Jwords, capitalism went through a transformation in social and p o litical j terms as well as an economic system. Thus, capitalism should be : reviewed in a broader socio-economic context. ! t ( I While the structural character!sites of contemporary capitalism, | I { [ especially those of the United States, w ill be discussed in the next i i I chapter, this chapter provides an expository review of prominent ; ! ] 'economic perspectives of capitalism, notably, those of Karl Marx, Max I Weber, Thorstein Veblen, and John R. Commons. Examination-of theories i ; of both classical and contemporary, managed capitalism make clear that there is a hidden assumption underlying Western economic thoughts about the c a p ita lis t system, namely, "individualism',1 " that is , viewing t individuals as independent decision-making agents. This presupposition d istin ctiv ely distinguishes Western capitalism from the Japanese I economic system. In turn, i t essentially warrants designating the Japanese economic system as a modified form of contemporary managed capi talism. L 7 Using Hegel' s terms of "property," "civil society," and "the state," Marx discussed the formation and character of c a p ita lis t i ! society. Especially important is the proposition that its formation is | connected with the emergence of c iv il society, that is , a sphere of I , autonomous economic a c tiv ity unrestricted by p o litic a l and religious ! ' I j tutelage which might lim it its freedom of economic choice. Such c iv il I society emerges when "property relations had already extricated themselves from the ancient and medieval communal society."^ In communal society, the property relation appears as social ! | id entificatio n . In other words, i t indicates man's positive relation | t I to his fellow-members of the community, because the property relation j i i i ! is mediated through membership in the group. Consequently, the i i J * individual cannot "disengage himself from the generality of society i : i and establish a s e lf interest d istin ct from the general interest of 9 ; society." Because of its communal and co-operative form, the property i j relation becomes a lim iting factor for intensive economic a c tiv ity and the growth of the market economy. Thus, the bifurcation of c iv il society and the state does not occur in the communal society. In feudal society, however, the individual exists as a "self- sustaining member of the community." There exists family and individual ownership of arable land. This form of ownership is defined as estate property, in which the individual feudal no bility resided over the enserfed small peasantry. Since pasture ground exists as 8 communal property to supplement individual possession^of' laTid^- ft~Ts rather easy for the individual family, as a complete economic unit, to become independent from the community; and families themselves bring jprivate individuals into being through plundering such communal land. Jliere, ownership of landed property is established upon the existence of j 4 ‘the individual, and private property sim ilarly develops with the i 'private individual. This may be the most important basis for the I 'commercialization of land and agriculture and, in turn, the emergence . i jo f c iv il society. This point w ill be c la rifie d further in relation to i i jthe Asiatic mode of production. Given this premise, Marx discusses how i |c iv il society began to emerge in Medieval towns. i | The Emergence of Capitalism j The medieval towns, characterized by corporate property and the i ‘ guild system, are thus organized upon the basis of a community. In ; this sense, these towns were true "associations" and, thereby, constituted urban corporations with administration, police, taxes, and Iso forth. However, the growth of the town is associated with the ♦ {continuous inflow of serfs, who escaped from prosecution and oppression of their feudal lords, and the consequent development of day-labor. This is because serfs were unorganized against the guild system, and without choice; they had to become day-laborers under the control and 5 according to the interests of guild masters. While there existed in the guild system a patriarchical relation among masters, journeymen, i and apprentices, the relation between escaped serfs and guild masters 9 was already that of Capital-Labor. In other words, this relation indicates the emergence of modern capital based only upon labor and t exchange, even though the accumulation of such capital was s t i l l bound 'by guild regulations. The development of Medieval towns — in terms of both population ! and production - - was soon followed by the separation of production and i ■ I ! commerce and, in turn, the emergence of a merchant class. Because the ; capital of merchants was from the beginning "movable" or, more precisely, money, the development of commerce brought monetary economy into the countryside, and thereby caused the countryside's commerciali zation. Furthermore, commercialization gradually broke down the local j j restrictions of e a rlie r times and stimulated the towns entering into ; * 6 ' j relations with one another. These consequences resulted in the j I emancipation of urban corporations from their dependence upon the : feudal p o litic al arrangement, and also the!establishment of nation- .I states, which not only constituted national or hom e markets but also provided the security of production and commerce within national boundaries. According to Marx, the relation between individual towns gave a new division of labor between them each of which exploited a predominant branch of industry and, in turn, manufactures, that is , t branches of industry which had outgrown the guild system. While absorbing day-labor excluded from, guilds, manufactures were established with the accumulation of merchant (or commercial) c a p ita l, and carried out in villages and market centers without guild 10 \ • * - ‘ Q regulations. Because they combined with commerce produced for hom e markets from the beginning, the development of manufactures stimulated the establishment of guild-free towns and, on the other hand, the decline of the guild system. Unlike the patriarchical relation between guild masters and journeymen, moreover, the relation of worker and employer in manufactures was established upon the basis of a monetary g relation between worker and c a p ita lis t. As a resu lt, the development I ; ' I ; of manufactures accelerated the accumulation of movable capital and j ; i the commercialization of the national economy, both of which started I ! '| jwith the development of commerce and merchants. The extension of the nation-state as a colonial power had a powerful impact upon "quantitative and qualitative expansion of 10 * manufacture." Especially, the concentration of colonial power and j { i j 'manufacture, developed in the hands of Britain during the seventeenth j I j century, created a relative world market for this country, and thereby j a demand for the manufactured products of this country. This demand i i outgrew the productive forces hitherto existing and, thus, became the motive power which called forth the application of machinery and the 11 most complex division of labor. This development resulted in the establishment of big industry and, in turn, of classical industrial capital ism. Civil Society and Capitalism To summarize, Marx discussed the formation of capitalism in accord with the emergence and development of c iv il society. In the 11 feudal society of Europe, individuals of a feudal community became private individuals with the development of productive forces; the i corresponding emergence of private ownership of land stimulated the I commercialization of land and agriculture. However, this commerciali- jzation began with the separation of production and commerce in the i {guild-dominated towns and, in turn, the development of manufactures in ; j {villages and market centers without guild regulations. Amidst | t commercialization, the town economy began to dominate the countryside, jand the feudal relation was gradually broken down. This chain of i {developments gave rise to legal and institutional arrangements that I imade c iv il s o c ie ty — and the accumulation of capital — possible, and I [thereby established c iv il society its e lf as a sphere of autonomous i ' {economic a c tiv ity . : I ' ; In contrast to communal society, Marx thus characterizes capitalist; 1 j isociety as one where c iv il society is emancipated from church and state,; I and correspondingly where human l i f e is bifurcated into two spheres, that of the citizen and that of the bourgeois. Within the state, man as a citizen is expected to overcome his economic egoism and liv e up to universal c r ite ria . And in c iv il society, man as bourgeois is supposed to behave according to his egotistical needs and interests; his private l i f e , including economic a c tiv ity , becomes completely independent of .. any consideration relevant to the commonwealth. Such a bourgeois existence appears in eighteenth century individualism, which implies "a model of m an as an entity whose social relations are only means to his private ends; i t regards individual existence as man's supreme purpose, 12 and juxtaposes society to the individual existence as something 12 external and formal." In .x a p ita lis t society, characterized by the i | pro!iferation of individualism, the state thus becomes a partial organization among the other powerful interests of c iv il society, even though i t should incorporate the universality of social l i f e ; in other words, "the state reconciles and synthesizes the competing interests of c iv il society, but in re a lity i t is the bulwark of 13 private interest." I 14 J The Asiatic Mode of Production According to Marx, the most significant characteristic of the i i I Asiatic Mode of production is the absence of private ownership of land. 15 In the Asiatic society, the basic production is rice cultivation. Since concentration of the labor force is necessary not only for ; production its e lf but also for acquisition of water, based often on \ " ■ large-scale irrig atio n systems, the social order can be established no ; other way but upon a communal relatio n . Because of these necessities, I j people are bonded together and forced to organize a basic communal i I society. 16 Even the state, which represents the p o litical snide of i society, exists as a communal society. More fundamentally, "individuals" in the Europe sense to not exist in the Asiatic society. Because people cannot gain their individual identities in the communal relation , they do not become divided members of the community, that i s , 'individuals. Without such an existence of individuals, i t is impossible to establish private owner ship of property, especially, landed property.1^ In the Asiatic I 113 [society, ownership thus takes the only form possible, namely, a ll property belongs to one man, called the despot, who symbolizes the to ta lity of society, but personifies society at the same time. The order of Asiatic society is established upon social strata consisting of the state, the basic communal so ciety,’ .the family, and jmembers of the family. Only in such a socially, organized order can man ; extend his p o ss ib ilities , and also be assured his social nature. As a i [res u lt, people regard i t "noble" when a man serves his society in 1 i [accordance with what is good for the society, and "evil" when he, lik e : i J i ) !a private individual, pursues only his own interest. Much more than : ' . i the general people, the managerial class, including the despot, must j think of and act for what is "good for the society." ! i I | Unlike the bifurcation of human l i f e which characterizes the ! ! i | c a p ita lis t society, here exists a very unique unity of "private" and j ! I communal." This unity restricts the a c tiv ity and thought of man; in ! ; I i other words, man does not become an individual in the positive i i | [European sense, much less a private individual. Without them, i t is j impossible for private ownership of property to be established and consequently for c iv il society to emerge and to be emancipated from the state and church. According to Marx, c a p ita lis t economy emerged ' out of c iv il society, and, conversely, countries which did not evolve, c iv il society were unable to develop on c a p ita lis t lines. Thus i t is concluded that the Asiatic society is unable to develop on c a p ita lis t 1ines. Weber:- Rationalism and Capitalism j While accepting Marx's dialectical relationship between economic ! r 'a c tiv ity and other human a c tiv ity , Max Weber rejected the view (some times attributed to Marx) that a ll cultural phenomena are based on an economic substratum. Weber reasoned that the sector of economic phenomena is flu id and d iffic u lt to delim it precisely, but also that the ! economic aspects of a cultural phenomenon are never exclusively shaped by the economy — just as the effects which they give rise to are never 1 1 8 ' jpurely and solely economic in character. In this context, Weber f ; ' j •discusses the importance of the Protestant doctrine in the emergence o f! I (capitalism, namely, what he called "the s p irit of capitalism." The S p irit of Capitalism j In essense, what "the s p irit of capitalism" represents is 1 j"rationalism." Simply speaking, "rationalism" means a mode of conduct ( ;which adapts available means to desired ends. Weber did not consider I [“rationalism" unique to capitalism nor consequently to Western c i v i l i - jzations. However, Western rationalism was unique, in his mind, in that i other civ ilizatio n s have remained static and confined to a limited number of actions. The rationalism of capitalism is not cofined to a particular or privileged sector of human a c tiv ity but permeates the (whole l i f e of society. Moreover, i t exerts a permanent action, 19 developing and transcending it s e lf ceaselessly. Rationalism is thus considered a dynamic concept which stimulated, among other things, the development of modern-day sceince and technology, as well as the systematic administration of both public and private organizations and, 15 jin turn, which characterized Western c iv iliz a tio n . A dditionally,, the I i (dynamics of capitalism are based upon rationalism. Therefore, | ^ (capitalism represents economic rationalism, which i t measures in terms 20 of efficiency and production, in contrast to economic traditionalism , represented by the aspect of leisurely work habits, a "1ive-and-let- live" type of economic calculation, or by another facet, an avarcious- Iness, a completely unscrupulous, acquisitive drive. In order to j I ; in stitu te economic rationalism, "'the s p irit of capitalism' had to (originate somewhere so that i t is adapted not by a few individuals but ' 21 as a way of lif e to whole group of men." ; ; i i Undoubtedly, the great reformers had no idea that th eir doctrines j | i jwould shape "the s p irit of capitalism," but Weber nevertheless : J ! considered that th eir doctrines contained an im p lic it incentive for ! this purpose. The Calvinist doctrine of predestination opined that each individual's state of grace was determined by God's inexorable choice: I t could not depend upon man's cooperation or upon the I quality of man's faith and w ill. In essense, what the doctrine did to man's l i f e was to stress.isolation of the individual before God. According to Weber, this formed "one of the most important foundations 22 of modern ' in d iv id u a li s m t h e emphasis of the existence of m an as \ a creative and an autonomous agent. In addition, the doctrine praised ! work as a defense against a ll temptations, such as religious doubts, the sense of unworthiness, or sexual desires, and, in turn, i t gave rise to a detailed code of conduct especially prohibiting wasteful!ness 23 and idleness. For Weber, the Protestant doctrine thus introduced a 16 disciplined>v6cational attitude to the mode of conduct which is a t I feature of "the s p irit of capitalism." Furthermore, the doctrine was I probably responsible for secularization and rationalization of i ! individual economic a c tiv ity , which in turn brought about a radical ! cultural break from "traditionalism ." i i : Catholicism did not e li c i t as high a degree of behavior regulation t i t as Protestantism demanded nor did i t induce as vigorous a degree of i i ; discipline and religious influence in a ll facets of l i f e . European I I business leaders and owners of capital plus technicians and highly | skilled laborers were overwhelmingly Protestant from the sixteenth ! century, the period of the early stages of c a p ita lis tic development. i i At that time, the shedding of tradition and religious institutions \ ; i 1 impelled the Protestant away from monastic isolation and was responsi- ! j j ble for the rejection of temporal Catholic ideals and the acceptance | ' I ; of a realm of worldly pursuits. I t is rationalized, therefore, that i j the Reformation placed the d u tifu l! pursuit of mundane a c tiv ity at i ' center stage and led in a role of introducing "the calling" which J " f u lf ills the individual's duty to God through everyday moral \ 24 ; conduct." I t was one's duty to heed a calling; to choose poverty was to choose i l l health. The Calvinist theology was predicated on three major tenets which, b rie fly , are: (1) the Universe was created to glory God and was meaningful only to God's purpose, (2) the A!mighty.reveals that i which he wishes to man, and all else is beyond human understanding, and (3) the chosen receive eternal grace, divinely given at creation, and 17 - 25 this predestination is not subject to human alteratio n . Applying j these principles to everyday l i f e , i t was the duty of the individual to j approach his callin g , his vocation, in a methodical fashion as the i ; instrument of God. Accumulation of wealth was morally condemned i f i t J provided enticement to l i f e in idle luxury. Material p ro fit was ! encouraged and morally recommended i f i t was gained through the ascetic [ pursuit of duty in a calling. These psychological consequences of the predestination formula and the unique moral qualities of Calvinism, i : I ' ] probably account for the influence that "the calling" had on entre- | 1 v 1 j prenuers and this influence distinguished these unique qualities of the i Calvinist doctrine for other forms of c a p ita lis t acquisition. i j Essentially, one decided that he was one of the 'chosen', "to show p l fa ith saving grace," and, moreover, to work intensely to show s e lf- ! I : confidence in being one of God's chosen few. Good works,in this sense,] ■ equated with eliminating doubts of salvation. ; ' ! ! Rationalism and Bureaucracy As Weber suggested, modern capitalism has broken away from the background of the ascetic idea and started its own l i f e which generates its own motivation; thus, modern capitalism no longer needs any religious stimulation to keep it s e lf aliv e . The reason is "rational-^- ism," which has made this control possible, brought systematization, standardization, and consequent dehumanization into individualism, such as c re a tiv ity and autonomy. For Weber, "rationalism" eventually manifests its e lf in organizational form, namely, bureaucracy. The spread of bureaucracy is a cause and effect of the ra tio n a li- 18 zation of law, p o litic s , and industry. Bureaucraticization is the concrete administrative manifestation of action which has penetrated 27 a ll spheres of culture, including a rt, music, and architecture. I t is not an absolute, however, that a large administrative unit must develop a wider spread of "rational bureaucratic organization"; rather i t is the efficiency of bureaucracy that occasions the spread. The West took the lead in the use of rational concepts, andiin a ll probability i t is this overall trend toward ra tio n a lity which the West 1 i i j practiced and furthered that is responsible for the monumental spread i < ! 1 of bureaucracy in the in dustrial, p o litic a l, and legal framework of I ; i , * : modern capitalism. i i i . More precisely, modern bureaucracy is considered to have evolved in a world characterized by an extraordinary development of technology and specialization, based upon ever-expanding division .of labor. The j ' development of technology and specialization, in both industry and ! I j government, involves the coordination of more people and increases the I | number of variables and information required for decision-making. Even • though there are benefits in proper coordination and prompt decision- j making, rapid development makes i t d iffic u lt for leaders to coordinate, and for individuals to make competent decisions. Thus, i t becomes necessary to establish bureaucratic organization and hierarchical chainsof control, with numerous links of leaders and subordinates, each of whose extent of control is specified by an organization chart. To elaborate, Robert A. Dahl and Charles E. Lindblom have identic 28 fied the major characteristics of modern bureaucracy as follows: (1) specialization of s k ills and functions, (2 ) hierarchy, (3) prescribed and lim ited discretion, and (4) conscious adaption of means to ends. In addition, they considered separation of ownership and control as a necessary pre-condition, since ownership is power which makes hier archical control d if f ic u lt . Furthermore, modern bureaucracy is ' .. i depicted classically as having costs and lim itation s, such as "red 29 tape," "passing the buck," "impersonality," and "over-concentration." Despite these, and other, lim itation s, the main advantage of modern bureaucracy is that i t enables a re la tiv e ly small number of people to coordinate the actions of a re la tiv e ly large number of i j people, and thus i t makes easier "conscious deliberate attempts to : | adapt the structure and personnel of the organization to the most I J e ffic ie n t achievement of goals prescribed by the top leaders." j Moreover, Weber's primary discussion is of government bureaucracy. J He explains the indispensibility of bureaucracy in contemporary capitalism as follows: . . . The development of the modern form of the organiza tion of corporate groups in a ll fields is nothing less than identical with the development . . . of bureaucratic administration . . . However many forms there may be which do not appear to f i t [the pattern of bureaucratic adminis-:' tra tio n ] . . .and however much people may complain about the 'e v il of bureaucracy, 1 i t would be sheer illusion to think for a moment that continuous administrative work can be carried out in any fie ld except by means of o ffic ia ls working in offices. The pattern of everyday l i f e is cut to f i t this framework. For bureaucratic administration is , -20 other things being equal, always, from a formal, technical point of view, the most rational type. For the needs of mass administration today, i t is completely indispensable. To a greater extent than even Weber anticipated, individuals in contemporary society find themselves belonging to some kind of • bureaucratic organization, in the neighborhood community, at th eir ; job, and elsewhere. In addition, for Weber, the superiority of modern I bureaucracy is in the technologically oriented industrial society; i ; [consequently, its dispensibility does not change by whether the | economic system is organized along a c a p ita lis tic or a so cialist l i j . ; ^ 32 ' j lin e . Thus, contemporary industrial society is considered to be in | "the age of bureaucracy." , In stitu tio n alists \ > Both Veblen and Com m ons are known today as founding fathers of i the In s titu tio n a lis t school of economics. The In s titu tio n a lis ts were ; c ritic s of Neo-classical/Margnial is t thought, and focused upon broader i j social topics — law, education, and politics - - as well as economics. | Because they did not focus solely on economics, th eir theories have ! often been accused of not being pertinent to economics. Nevertheless, they continued th eir broad approach, beginning by questioning | static in s titu tio n a l, technological, and economics assumption , and in i turn they developed a dynamic theory of the effect of societal change on these factors. In order to find the pattern of change, they employed an.ii nductive method— this made them differen t from most previous economists. Consequently, they relied more on empirical information to formulate th eir theories. Exploration of Veblen1s leads 21 on the evolution of capitalism and Commons's concepts of "bargaining I negotiation" of contemporary capitalism w ill comprise the following j section of this chapter. ' Veblen: The Evolution of Capitalism i | Veblen considered himself as an "evolutionalist" because this t j study was focused-upon the history of material c iv iliz a tio n in which the material condition of a society determines human behavior and j consequently forms the c iv iliz a tio n it s e lf . Accordingly, i t is said j ! that "Thei'material framework of modern c iv iliz a tio n is the industrial ^ ; j j system, and the directing force which animates this framework is j 34 ! business enterprise." In Veblen's view, the application of the j 'machine process shaped the material condition of capitalism, since i t J i ' ! | not only made increasing economies of large-scale production possible, | i I 1 but also changed the purpose of business to the pursuit of p ro fit for j < | continuous investment and the work of the businessman to adapt the course^ ' of a ffa irs to meet his own goals. Thus, Veblen's view of the evolution ; J i of capitalism is a study of in stitutional changes on the basis of I productive and technological advancement. Veblen's main concern is an economic dichotomy, namely, physical production versus business and monetary values. Reviewing the situ ation at the time of Industrial Revolution, the productive capacity of industry began visibly overtaking market capacity form the middle of I J ; the nineteenth century; consequently, the importance of the financial end of business became so apparent that the chief point of attention for businessmen shifted to a redistribution of investments' from less to 22 more gainful ventures and to strategic control of the conjuncture of business. The necessity of concentration of interest and capital for such purpose makes businessmen choose the most effective way possible, namely, the corporate form of business organization. As a resu lt, they t position and design th eir organization not only to create and maintain | t pure economic p ro fit through the restriction of the rate and volume of J output, but also to make exploitation possible through greater control \ i of resource markets. j As the scope of corporation finance widens, some important t i | j in stitutional changes take place. The f ir s t is the separation of j I J j ("absentee") ownership and management as well as of the entrepreneur I I ! | and the industrial expert; the second is the expanded business role of | financial in stitu tio n s, based upon loan cred it; and the la s t is the | development of labor unions as a business-like attempt to control the i | supply and remuneration of labor. The f ir s t and the second i n s t i - .'r. r j tutional changes of technological advancement leads the modern corpor-::, j rate system toward depression and monopoly. Since i t mainly forms | capitalization of unmaterial earning capacity, namely, powers of i monopoly and monopsony, loan credit in the aggregate "serves only to widen discrepancy between business capital and physical industrial 35 equipment." Consequently, loan credit accentuates the management of industry by business-like methods and for business ends, which results in an ever-increasing volume of waste and misdirection in the use of equipment, resources, and manpower. The extension of loan credit thus causes the corporation's over- and under-capitalization, and collectively creates business fluctuation, eventually leading toward depression. With the high fixed cost of large-scale production and the decreasing cost of technology-based production, business fluctuations and depression make cut-throat competition severe and, in turn, the industry monopolized. While lines of waste and misdirection increase and intensify, the modern corporate system is increasingly alienated from the techno!ogicalj I forces which are largely responsible for its emergence, as well as from I I (the underlying population. This raises the necessity of a new in -,. i I ' : Idustrial order devoted to maximum production. For Veblen, "Any ( (substantial or effectual overturn in the twentieth century w ill | l I jnecessarily be an industrial overturn, and by the same token, any i I (twentieth century revolution can be combated or neutralized only by i I (industrial ways and means." In turn, any overturn or revolution must ! I j be led by„ an. organization "which is competent to take over the country's^ (productive industry as a whole, and to administer i t from the sta rt on 36 ja more e ffic ie n t plan." Thus, a new industrial order should be laid I i idown by the Soviet of Technicians, because they are d ire c tly responsible | for production and technology and consequently, th e ir workmanlike attitudes and habits of thinking are shaped by production and technology. As'alternative scenario is the emergence of a business- m ilita ry complex or, more strongly, the fa c ist regime in the modern corporate system. Whatever the prospective outcome w ill be, the modern corporate system in Veblen's mind is growing more extensive and complex and continuously becoming a more close-knit, interwoven, systematic 24 whole, because of the development of technology. I Commons: Contemporary Capitalism and Bargaining Negitiations j I According to Commons, economics is the study of in stitu tio n s, j defined as "collective action in control, lib eratio n , and expansion of | individual a c t i o n . F o r the purpose of investigation, the minimum unit of collective action is the "transaction," which "must contain in I 38 ! its e lf the three principles of c o n flic t, dependence, and order." I , "Transaction" is defined as a man-to-man social relation and classified i in three ways: bargaining (transactors as legal equals), managerial i (transactors as individual legal superior and in fe rio r, for example, I i i foreman and w o rk e r)a n d rationing (transactors as collective legal | superiors and in ferio rs, for example,a legislature and the citizenry;,,' i a labor union and its members). Since its three classifications are | considered to constitute not only an economizing process but also a | power system, collective action in contemporary capitalism thus ranges j I ubiquitously from unorganized custom to the many organized "going ; concerns," such as the fam ily, the labor union, the p o litic a l party, 39 and the state. Succinctly, "This is an age of collective action." Among the three classificatio ns, the bargaining transaction is regarded as the most important, because i t is based on scarcity. Interacting with scarcity, ownership of tangible and intangible assets creates conflicts of interest. Since transactors are mutually dependent as well as conflictin g, the transfer of ownership is con sidered to be negotiated according to the working rules of the society. 25 Even, though they are leg ally equal, the result of bargaining negoti-V! ation is certainly influenced by their relative powers of duress (the use of physical force), coercion (the use of economic power to withhold something from someone else who wants), and persuation (the use of moral power). In addition, bargaining negotiations of contemporary capitalism take place more frequently between individuals and repre- i sentatives of organizations. Consequently, the emergance of giant j business organizations reduce the relative power, of individual laborers j 1 and consumers while at the same time they increase scarcity through j t ( i th e ir monopolistic positions. As a resu lt, proper bargaining J negotiation depends upon the emergence and the existence of what is ' known as a countervailing power,^ especially, the labor union; in other words, the balance of power including collective bargaining is I j its pre-condition in contemporary capitalism. Furthermore, i t rests t ■ upon the sovereign power of the state as exercised through judicial | systems, because sovereignty as collective action in control of t j physical force interprets whether its process and result are lawful in i 41 (correlation with law, economics, and ethics. Thus, bargaining i | negotiation creates a certain security of expectation or order — I ! representing "reasonable values," but not the equilibrium of market competition — and "reasonable capitalism" as the only workable ! alternative to some variety of to ta lita ria n dictatorship, namely, Soviet communism or fascism, which destroys lib eral and democratic i values alltogether. 26 Both individuals and contemporary economic organizations, such as j labor unions and corporations, are involved in bargaining, managerial, | j and rationing transactions. Therefore, in Commons's view, they I constitute collective action in the form of a private economic government with le g is la tiv e , executive, and judicial powers which i i ! govern th e ir own economic domains and constituents. But, th eir I ! j | organizational form is predominately based upon bureaucratic adminis- i I ! I tra tio n , because the managerial transaction assumes efficiency as its j | i universal principle and hierarchy as its order. As a resu lt, the j emergance of corporations, labor unions, and many other a ffilia te d j I . interests, widens among individuals the difference of p o litic a l power, j j and, in turn, makes i t d iffic u lt to in tern ally control the leaders of | I I j organizations. Here, bargaining transactions also provide a ground for! negotiation in the form of the reciprocal control of leaders. In an age of bureaucracy, bargaining negotiation is thus an essential means \ 1 : to .both countervailing power and economizing. 27 FOOTNOTES FO R CHAPTER 2 1. Karl Marx and Frederick Engels, The German Ideology, edited by C. J. Arthur, (New York: International Publisher, 1970}, p. 57. 2. Schlomo Avineri, The Social and P o litical Thought of Karl Marx, (London: Cambridge University Press, 1976) p. 113. 3. Karl Marx, Grundrisse: Introduction to the Critique of P olitical Economy (New York: Vintage Books, 1973), pp. 476-477. 4. Seimei Hi rate, Shimin-Shakai to Shakai-Shuqi [C ivil Society and Socialism] (Tokyo: Iwanami-Shoten, 1979), p. 141. j 5. Marx and Engels, o jd. c i t . , pp. 70-71. ! 6 * Ib id ., pp. 71-72. 7. Ib id ., p ..72. 8 . Ib id ., p. 73. 9. Ib id ., p. 74. 10. Ib id ., p. 76. 11. Ib id ., pp. 76-78. 12. Avi neri » OR* c it . 13. Melvin Rader, Marx's Interpretation of History (New ;York: Oxford University Press, 1979), p. 166. 14. Marx discussed sketchily the Asiatic Mode of Production. .This concept was elaborated by such la te r scholars as W ittforgel, Polanyi, and others. Many c ritic s question Marx's description of the Asiatic society as a static one where in d ivid u a listic property cannot develop. In this sense,:the Asiatic Mode of Production does not f i t the case of Japan. But here, i t is used to explain by Marx's own term the importance of individualism and c iv il society in the emergence of capitalism. 15. I t is not necessarily rice cu ltivatio n . But because rice cu ltiva tion requires water and labor force more than the cultivation of any other grain, i t typifies conditions of Asiatic society. 16. Hirata, op. c i t . , pp. 144-145. 28 17. Ib id . , p. 148. 18. Fulien Freund, The Sociology of Max Weber (New York: Pantheon i Books, 1968), pp. 152-153. 19* Ib id . , pp. 141-143. 20. See "economic traditionalism ," in Reinhard Bendix, Max Weber: An Intellectual Portrait (Berkeley: University of California Press, 1977), pp. 53-54. 21. Max Weber, The Protestant Ethic and the S p irit of Capitalism (New York: Scribner, 1958), p. 55. 22. H. H. Gerth and C. Wright M ills , From Max Weber: Essays in Sociology (New York: Oxford University Press, 1975'), jf). 321. 23. Bendix, o£. c i t . , p. 62. 24. Anthony Giddens, Capitalism and Modern Social Theory: An Analysis of the Writings of Marx, Durkheim arid Max Weber (London: Cambridge University Press, 1971), p. 127. 25. Ib id . , p. 128. 26. Freund, 0£. c i t . , pp. 143-144. 27. Giddens, op. c i t ., p. 183. 28. Robert A. Dahl and Charles E. Lindblom, POlItiCS, Economics and Welfare (Chicago: The University of Chicago Press, 1976), p. 235. 29. Ib id . , p. 247. 30. Ib id . , pp. 235-236. 31. Max Weber, The Theory of Social and Economic Organization (New York: Free Press, 1966), p. 337. 32. Ib id . , pp. 337-338. 33. See John E. E llio t t , "Institutionalism as an Approach to P olitical Economy," Journal of Economic Issues, Vol. 12 (March 1978), pp. 91-114. 34. Thorstein Veblen, The Theory of Business Enterprise (New York: Charles Scriber‘ s Sons, 1904), p. 1. 35. Ib id ., pp. 104-105. 29 36. Thorstein Veblen, The Engineers and the Price System (New York: The Vi.king Press^, In c ., 1954), p. 99. 37. John R. Commons, The Economics of Collective Action (New York: The MacMillan Company, 1950), p. 21. 38. John R. Commons, In stitutional Economics: Its Place in P olitical Economy (New York! The MacMillan Company,1934), p. 58. 39. Commons, The Economics of Col 1ectives Actions, p. 70. 40. See John K. Galbraith, American Capitalism: The Concept of Countervailing Power (White Plains: M. E. Sharpe, In c ., 1980). In his book, Galbraith acknowledges the danger of collusions among countervailing powers, which threaten third parties, for example, corporations and labor unions against consumers. Here, the government becomes the important countervailing power to protect third (unorganized) parties. 41. Commons, Institutional Economics, p. 719. 30 ! CHAPTER 3 CONTEM PORARY M ANAG ED CAPITALISM In the previous chapter, i t was observed that contemporary capitalism is characterized, though p a rtia lly , by c o lle c tiv is tic organization and processes, namely, bureaucracy (Weber) and collective bargaining (Commons). The transformation from laisse z-fa ire icapitalism to contemporary capitalism suggests s ig n ific a n t,'if not I Jrevolutionary, qualitative institu tio nal change; in fa c t, there are significant deviations in the structure of contemporary capitalism from] i that of laissez-fa ire capitalism. These changes and deviations are ! | recognized by many students of contemporary capitalism and, in :turn , < contemporary capitalism has been crowned by many labels, including I "corporate capitalism," "collective capitalism," and "welfare capitalism"" Here, i t w ill be called "contemporary managed capitalism" .(which w ill be often abbreviated as "contemporary capitalism "). In this .chapter, changes and deviations of contemporary capitalism from ! ] la is s e z-fa ire capitalism w ill be discussed, f i r s t , through identifying the general structure of contemporary managed capitalism, second, through examining contending views of contemporary United States capital ism. General Structure of Conemporary Managed Capitalism According to John E. E llio t t , a prominent and strategic dimension in the transformation from laiss e z-fa ire to contemporary capitalism "has been the emergence and growth in the size and importance of large- scale c o lle c tiv is tic organizations concerned with making and executing t economic decisions and promoting or protecting the economic interests of th eir members. ” 1 This transformation was spearheaded by the emergence and growth of large-scale corporations. Moreover, contempo rary capitalism is characterized by the dominance of large-scale corporations within the economy as a whole. Corporate dominance means that corporations are the dominant form of business and industrial organization and, in turn, are "dominant producers, se llers, owners, investors, and employers as well as the 2 vehicle of technological change." There are other forms of business organizations, namely, the individual proprietorship. In contrast to j corporations, those individual proprietorships have predominant numeri cal superiority, but control and direct a re la tiv e ly small share of total output, industrial assets, capital formation, and so fo rth. Cor- porate dominance also indicates that there exists a considerable degree! of concentration and centralization of economic power among a re la tiv e ly 3 small number of large-scale corporations. This concentration and centralization of economic power includes control of tra d itio n a lly market determined variables, such as prices of commodities and resources, and, to some extent, consumer tastes and preferences through sale promotion. In other words, large-scale corporations are considered to have some degree of monopoly (as well as monopsony) power. More importantly, large-scale corporations have power to determine "the location of corporate a c tiv ity , and, thereby, the creation, industrials ization , or economic denuding of entire towns or regions" and "the extent and rate of capital investment and technological development, 4 and thereby, in large part, the rate of economic growth." I t is thus i said that concentration and centralization of economic power enable, to some extent, large-scale corporations to promote economic growth and development through "conscious, planful human choice and action." Because of th eir large-scale, corporations are further character ized by ( 1) hierarchical control within the organization and ( 2) the separation of ownership and control. While indicating control over employment, wages, and working conditions, hierarchical control also ! induces the emergence of a professional management-executive group and, in turn, the inequality of power, income, and so on. O n the other hand,; ownership of the large-scale corporation is dispersed among a large number of stockholders who perform an essentially passive and receptive 5 function of beneficial ownership. Thus, control over and power in i large-scale corporations often are effec tiv e ly in the hands of the i [ management-executive groups, who are largely s e lf appointive and own l i t t l e stock in the corporations which they control. In other words, a re la tiv e ly small number of executive managers have decision-making responsibility of a re la tiv e ly small number of large-scale corporations and, in fa c t, make planful decisions which have profound effects on the functioning and behavior of the entire economy. Indeed, the phenomena stated above are often described as a corporate or managerial "revolution." The growth of the large-scale corporation was accompanied by the j emergence and development of various other organizations in the private sector, such as trade and business associations, professional associ-r ations, labor unions, agricultural organizations and cooperatives, and so forth. In the public sector, the size and role of government was profoundly affected by the growth of large-scale organizations in the private sector and, thereby, the transformation of capital ism it s e lf , which was in turn affected by the size and role of government. In laisse z-fa ire capitalism, government played a lim ited ro le , in such areas as law and order, national defense, and public services. In other words, economy and po litics constituted more or less separable i I ! parts of society. In addition to those roles, government in contempo rary capitalism constitutes a major sector within the economy and plays a strategic role in guiding, regulating, and controlling the processes of resource allocation, income d istrib u tio n , economic growth, employment, and s ta b ility . Concerning economic growth and f u ll- employment s ta b ility , government engages in macroeconomic policy through control over money, taxes, and government spending. Government employs monetary and fiscal policies to guide or manage the aggregate level of economic a c tiv ity . Concerning resource allocation and income distrib u tion , government engages in microeconomic policy to promote "efficiency, equity and equality, balance of power, and freedom."^ t . Government policy and strategy, for example, includes an titru st law, legalization of labor unions, provision for subsidies, and so fo rth . Government in contemporary capitalism in the United States plays a very I small role in the ownership of means of production. Extensions of i j government ownership are most lik e ly to be restricted to areas such as pub! ic uti 1 itie s and services. However',- an increase in~the size and roles of government (especially, at the national and executive levels) and governmental-political organizations (p o litic a l parties, adminis tra tiv e agencies, and others) has occured not only in absolute terms, but also in relation to the economy as a whole. Concerning government (or public) expenditure, government is a major constituent of Gross National Product, and thereby a major buyer of goods and services from the private sector, namely, private enterprises and households. In this sense, government is as important as large-scale corporations in contemporary capitalism. The transformation from '.laissez-faire capitalism to contemporary capitalism has had significan t effects on ( 1) ownership and control of means of production, (2) locus and organization of economic power, (3) (motivational system, (4) distribution of income and wealth, and (5) l social processes for economic coordination and control. Even though contemporary capitalism has evolved from la is s e z-fa ire capi tal ism, there, are significant deviations from lais se z-fa ire capitalism which can be : found in these structural aspects of contemporary capitalism. F irs t, the corporate and managerial revolutions have had | significant effects upon ownership of means of production. Similar to laisse z-fa ire capitalism , contemporary capitalism is characterized predominantly, i f not exclusively, by the private ownership of means of production. However, contemporary capitalism is also characterized by the dominance of corporations. Thus, ownership of the means of production in contemporary capitalism is predominantly private and, at i t the same time, corporate, which in turn is characterized by the separation of ownership and control. Second, the growth of large-scale private organizations and the increase in the size and role of government in conremporary capitalism has had a significant impact upon the locus and organization of {economic power. In laissez-fa ire capitalism, power to make decisions i is dispersed so widely that no one has power to control or rig the market, or exploit his customers, riv a ls or suppliers. In contemporaryj capitalism, there is s t i l l dispersion of economic power among various j | I decision-making units, such as consumers, workers, businesses, and | i governments. This dispersion indicates decentralization in making and ! carrying out economic decisions, and thereby in organization of . . . economic power. However, there is also concentration of economic power in the hands of a re la tiv e ly small number of large-scale private i i and public organizations. This concentration of economic power means ; the existence of centralization in economic decision-making and exe* j cution, and thereby in the organization of economic power. Thus, the : locus of economic power in contemporary capitalism is dispersed, yet ! centralized, in large-scale private and public organizations; likewise, its organization of economic power is characterized by a mixture of centralization, and decentralization. Third, the motivational assumption of laisse z-faire capitalism was the maximization of individual economic gain through market exchange. Business enterprises maximize p ro fit; resource owners maximize earnings; and consumers maximize u t ilit ie s . However, i t is ["sTaid that individual economic gain, though s t i l l recognized, is I modified by ( 1 ) the separation of ownership and control in large-scale ; I j •corporations, and ( 2 ) the concentration and centralization of economic | power. For the f i r s t , the executive managers of large-scale corporations are neither owner-proprietors nor major stockholders. I t has been suggested that th e ir motivational framework "includes such aspirations as managerial salaries, maintaining of managerial control i over the corporation, sales maximization, growth and enlargement of j market share, harmonious labor-management relations, and avoidance of j 7 1 an titru s t prosecution." Thus, p ro fit maximization by the owner- , t manager is decreased in contemporary capitalism. For the second, the j concentration and centralization of economic power means, to some j i extent, "the capacity to control and shape economic development through ! 8 : conscious, planful human choice and action." This has encouraged and I , enabled large-scale organizations to pursue goals for large sectors 1 ■ and/or the entire national economy. In this aspect, government plays | lan essential role in the pursuit and promotion of social w elfare, which includes " s ta b ility , income and employment security, income equali-: zation, and some roughhewn balance in the power, position, and 1 ’ 9 interests of private economic groups." Thus, individual economic maximization is supplemented but modified by the.pursuit of group and social goals. Fourth, income distribution in laisse z-fa ire capitalism is determined by the market system and according to resource ownership. By contrast, contemporary capitalism is characterized by a blend of 37. ____ I market-determined resource prices and group action by, for example, corporations, labor unions, agricultural organizations, and cooper-:' r atives, to affec t income distribution . In addition, government plays a sig nifican t, though lim ited, role in income redistribution through various social security programs. F ifth , the market system plays an exclusive role in economic j I coordination and control in la is se z-fa ire capitalism. No one in j i laissez-faire capitalism is supposed to have any concentration or j centralization of economic power to control or rig the market. However) large-scale corporations have concentration and centralization of j economic power and, to some extent, exercise monopoly (as well as j i monopsony) power in contemporary capitalism. In many instances, those • i large-scale corporations form oligopoly markets, in which the number o fj enterprises is not large but, most probably, dominating. But there is ! ! ' another type of market, namely, monopolistic competitive market, in which many sellers sell a related but d ifferentiated product. Even though both types do not constitute the pure case of the market compe titio n , the market system of contemporary capitalism is characterized by both types (and mixtures of both types) and, thereby, "an in te r- blending of competition ,arid monopoly, or monopolistic competition, with Oligopoly as the special and stra teg ically important: form of monopolistic com petition."^ Besides market competition, there are other social processes for economic coordination and control in contemporary capitalism. These are hierarchy, bargaining, and poly archy, which may serve as potential complements to or substitutes for j the market system. These social processes, including the market j ! system, w ill be elaborated la te r in this chapter. Contemporary United States Capitalism: Contending Views i With the technological development and expansion of specialization, brought about by the transition from small business to modern large- scale mass production, the role of the classical entreprenuer has diminished. Once absolutely necessary in a role which embodied and I junified such functions as risk taking, reward receiving, and operation- |a l decision-making, a functional u n ifie r, i f you w ill, he imposed jsevere 1 imitations on economies of scale. Limitations are derived "not I : only from d iffic u lty of delegation [of control] but also from the I inevitable emphasis on internal financing and consequent restric tio n on ; the firm's rate of growth."^ The emergence of modern corporations has 1 solved financial lim itations by issuijng marketable stocks with limited j I ! ; lia b ilit y , and managerial lim itation by establishing collective owner- I i ship and delegated control. I t is in this manner that the modern corporate form is suitably adapted to technological development and to expansion of specialization, thereby achieving large-scale mass production. Corporate Planning However, i t must be asked how the theory of market competition applies to large-scale corporations. In the early stages of capitalism, individual entreprenuers had to adapt themselves to whatever prices the market posed. I f some producers were in e ffic ie n t, they were driven out of the market. Or, i f some saw more p ro fit than others, j~capital was switched to the market of higher p ro fit. The entreprenuer j I was guided by the “judgement of the market place," which was the only | and most effective market coordination mechanism. But, through the I corporate form, large-scale corporations have accumulated and concentrated productive assets of the economy within th e ir control. In a broad sense, this concentration of productive assets means that the corporation possesses a degree of market power that determines how many of what kinds of products w ill be made available at what prices and in what markets. (Notably, the concentration of productive assets gives modern large-scale corporations monopsonistic, as well as monopolistic,.power.) As a res u lt, th e ir market power enables these corporations to manage p r o fit, and, by that means, to make corporatej planning feasible. i i According to John K. Galbraith, corporate planning not only is ' indicative of market power, but i t is also "imperative0 because of the 1 enormous technological development which large-scale corporations face. ; O n the one hand, the market mechanism may cause serious fa lte rin g of i product demand or resource supply i f le f t alone to coordinate the i i economy. O n the other, modern large-scale corporations are involved I i in the "application of increasingly in tric ate and sophisticated I 12 j technology to the production of things." This technology* in turn, i i ! is characterized by "the increasing commitment, [and] the increased r; I i 13 need for specialized manpower and organization." All of these - re factors make dependency on the market mechanism risky and unreliable, i I and make meticulous planning absolutely "im perative" fo r large-scale j [corporations. In order to function effec tiv e ly in the new environment, | large-scale corporations employ various strategies, which includes (sales promotion, vertical integration, internal financing (to insulate I {themselves from interventions of stockholders and creditors), imperial t 'control over raw materials in Third World countries, and multinational I [operations. Through these and other strategies, the corporations ! supercede, suspend, or control the market and, in turn, they replace 1 the market mechanism with th e ir corporate planning. The Separation of Ownership and Control j W ho then, controls modern large-scale corporations? With the I i iemergence of the large-scale corporation, the separation of ownership I and control was considered one of the most crucial factors. As out standing stocks increase and spread among a large number of people, the j [form of control changes from majority to minority control. Today's I : large-scale corporations are characterized prim arily by managerial control, in which "ownership is so widely distributed that no in di vidual or small group has even a minority of interest of large enough 14 to dominate the a ffairs of the company." Adolf Berle explains the 1 5 ownership of large-scale corporations as follows: ". . . when an individual invests capital in the large corporation, he grants to the corporate management a ll power to use that capital to create, produce, and develop, and he abandons a ll control over the product. He keeps a modified right to receive a portion of the p ro fit . . . and highly enhanced righ t to sell his participation for cash. He is almost completely inactive re c ip ie n t.1 , ! For Berle, the executive-management group is thus considered to have virtual autonomy to run modern large-scale corporations. While |acknowledging the managerial control rooted in passive ownership, jRobin Marris explains the position of the executive-management group in I i relation to the bureaucratic structure of these.;corporations. * I Because modern large corporations are b u ilt upon large-scale I production, they in turn depend upon enormous specialization of s k ill and function. Marris explains that i t is necessary that the corpora- j tion is bureaucratically structured and the executive-management group I I consists of professionals or business bureaucrats separated from I jcapital and ownership. The executive-management group Of modern large- j scale corporations is described as follows: 6 j "... . The majority of professional top managers spend a '1; ■ large part of th eir working lives in a single firm , and ; at any one time only a few are seeking to move. W hen | they do move, th eir method of transfer is professional I rather than c a p ita lis tic ; that is , they do not take | capital with them." [Being professional specialists in the executive-management groups, they accumulate knowledge and experience to supplement th e ir managerial a b ility . As a matter of fa c t, profits and dividends depend upon the knowledge, the experience, and the a b ility of the executive-management group; and in the extreme sense, the modern corporation cannot be operated without those q u a litie s . Thus, the executive-management group exerts a considerable degree of influence over corporate policy making and i t has bargaining power against owners. 17 In addition, executives are able to assimilate into the directorial system and manage to appoint some senior executives to directorships on the board of th eir own firm and/or other firm s .- In this way, the executive- management group is able to create an interlocking directorship of senior executives. Trad itio nally, the board of directors plays a key : role in keeping the executive-management group in accord with the interest of the owners, and i t is for this reason that Robin Marris considers that the board it s e lf recedes into the background and the I I executive-management group takes over corporate operations. J 1 ! Galbraith, however, believes that modern large-scale corporations j I j are not controlled by either the owner or the executive-management I j group, but by the "technostructure"" The application of modern j technology to production causes further expansion o f the division of i j labor; and consequently modern large-scale corporations necessarily j involve great numbers of specialized experts of both technology and i i : organization. In Galbraith's view, the involvement of specialized ; experts gave rise .to the term "technostructure," which includes most ' 18 j of the executive-management personnel in the corporation. Reasonably, then, the expansion of specialization makes decision-making complex and beyond any individual's competence, while at the same time, the expansion of specialization leads each expert to know a lo t about I a l i t t l e , and in turn to have only a fraction of experience and i . information about design, production, marketing, or other specialized s k ills . In this manner, i t is d if f ic u lt for individual experts to have enough information or experience to make a decision for the whole corporation. I t is thus concluded that making meaningful decisions for i | the modern large-scale corporation necessitates an adept, organized, i 43 and collective decision-making committee of specialized experts. Accordingly, the ’.'technostructure" is described as an organization t which "embraces a ll who bring specialized knowledge, talent or experience to group decision-making. This, not the management, is the - 1 9 guiding intellegence — the brain — of the enterprise."' Growth (or Sales) Maximization j The separation of ownership and control means that modern icorporations are controlled by the executive-management group or the "technostructure." I f this is the case, is th er§,lthen, a separation i of interest between the ownership and those who control the corporation? jRelative to the bureaucratic structure of modern large-scale ! corporations, Marris explains.the bias toward the interest of the i i 1executive-management. i « While the classical entreprenuer is bound by p ro fit maximization, t ; the executive-management group of a modern corporation tra d itio n a lly has more interest in corporate growth. i ! In his book, The Economic Theory of "Managed Capitalism, Marris ! explains that corporate size uniquely and d ire c tly affects the salaries of executive management in the bureaucratic structure of modern :: 20 corporations. The salary system in this structure is organized on a position or office basis (rather than a basis of personal q u ality), with the superior paid a ? . Hanger salary than the subordinate. I t i i s in this modern large-scale corporation design of pyramidal salary structure that the corporation reflects the status and hierarchy of its management. More posts are provided at any given salary, more 44 positions are provided by the gradational structure” — the wide bottom pyramid. In the structure of the small-scale corporation, the salary is based upon personal quality with a narrow operational base. As a re s u lt, there are no high posts and fewer offices in any given level. S p ecifically, the expansion of corporate size increases opportunities for personal advancement; thus, i t is considered that transferring to : I 1 t another organization is rather restricted for executive-management I personnel:. The bureaucratic salary system creates a powerful motive for the executive-management group to expand corporate size and, in turn, to select growth rather..than p ro fit maximization as its ! corporate p o lity . j 1 In Galbraith's opinion, the interest of the "technostructure" is j also growth maximization, which accompanies technological innovations, while maintaining "a;certain minimum level of earning" to pay reasonable! dividends to stockholders and in turn to protect security and inde--.. pendence from them. As stated by Marris in his analysis on growth maximization, i t is because technocrats (that is , members of the "technostructure") are normally paid fixed salary which does not vary with the amount of p ro fit made, and corporate growth has great effects on "promotion, pay, perquisities, prestige, and power" of technocrats. Galbraith contends that, coupled with corporate pianning,' this has changed the relationship of modern large-scale corporations: with th eir trade unions and the government ,'vdescribed in an e a rlie r work as 21 countervailing powers against corporations. 45 .-Labor Unions and Government Galbraith posits that the interests of the labor union began to assimilate with those of the corporations because of growth maximization * and corporate planning. Three factors make this position feasible. F irs t, growth maximization as the corporate policy affects promotion, 22 pay, and job security of individual members and also provides for the growth of the union and its membership. This in turn has a great effe c t on "promotion, pay, perquisities, and power" of the executive- management of the labor union. Second, in the case of an industry-wide union, collective bargaining sets and standarizes wage' increases of | workers for a ll the corporations belonging to the same industry; j subsequently, collective bargaining fa c ilita te s price-setting and j maintenance for corporate planning. Third, relative to both growth jmaximization and corporate planning, modern large-scale corporations „ j have the power to pass on wage increases in the form o f price boosts | 23 while avoiding interrupted production caused by a prolonged s trik e . In this manner, the labor union has reasons to cooperate with the corporation and does not find it s e lf in the old Capital-Labor c o n flic t, in which cap italists attempt to exploit labor in lordef.to maximize p ro fit. I t is therefore considered that labor unions face a diminishing role as countervailing powers, and that they assimilate with growth maximization and corporate planning policies. In this situation, moreover, the interest of the labor union, which is reflected by leg is la tio n , becomes nothing less than that of the corporation and its 24 organized power. This gives those who control the corporations ‘ leverage to shape public policy. In the modern state , the executive is more powerful than the leg isla tu re, but i t cannot function without executive bureaucracies. At the same time, powerful'members of the legislature are veterans with much seniority and have the backing of administrative bureaucracies. Without such backing, the particular interests of th e ir constituents could not be served by these politicians and they would possibly lose th eir seats in the leg islature. I t is because of this that the : administrative bureaucracies are considered to be dominant .in the jmodern state. While classical entreprenuers d irec tly sought and bought favors of politicians in th e ir pursuit of business interests, the "technostructure" is considered to have come to control public policy more pervasively and more powerfully through extablishing symbiotic j relationships with administrative bureaucracies. The sameness of goals i between those of the government and modern large-scale corporations i | constitute the major reason for symbiotic realtionships. However, in order to supplement and reinforce corporate planning, the corporations seek and depend upon appropriate government actions for "the regulation 1 ! of aggregate demand, the provision of trained manpower through the 1 educational system, the underw riting of new capital and technology, , 25 and to some degree, the promotion of wage-price s ta b ility ." In turn, the modern state has its aims and goals, as explained by Galbraith: "The state is strongly concerned with the s ta b ility of the economy. And with the technical and s c ie n tific advancement. And, most notably, with the national defense. These are the national goal s. The symbiotic relationship between the "technostructure" and the adminis- • 27 I tra tiv e bureaucracies are futher described by Galbraith: j . . . The modern state . . . is not the executive j committee of the bourgeoisie but i t is more nearly the executive committee of the technostructure. I C ritics | i Consideration shall now be given to two interrelated criticisms i !regarding the corporate policy of growth maximization: one, the Iseparation of ownership and control; the other, the incom patibility of j p ro fit and growth. Addressing the f ir s t point, i t is generally accepted that the separation of ownership and control is not clear in modern i i larga-scale corporations. The three factors, or phenomena, that affect t 28 jthe separation are: ( 1) the emergence of ownership control in times of broad corporate policy decision-making or in case of confrontation |with the executive-management (despite the clear dominance of the ! executive team in day-to-day corporate administration); ( 2) ' the .intense !concentration of total stock ownership among a small proportion of the total population (5 to 10 percent) and the re la tiv e ly small proportion of these stockholders owning the majority of the stock, which in turn enhances the potential of minority control; and (3) the concentration of pension trust funds and mutual funds for formerly dispersed stock holdings by professional trust fund managers, thereby allowing them (these financial managers) the potential for corporate control of the companies in which they invest th eir funds: and possible board member ship in these same firms. These factors question the "separation" of 48 management and ownership and consequently divergence of in terest of the executive management from that of ownership. Turning to the second criticism — p ro fit and growth incompait- t b ilit y — attention should be focused on e a rlie r statements regarding the attempt of the executive-management group to minimize outside financing through an internal accumulation of funds and in this manner to strengthen executive power within and over the corporation. I f the management team is successful in this corporate balancing act, they '! w ill show high and growing profits above the dividend level while at the same time including or sustaining the growth of th eir corporation. From the viewpoint of executive-management, i t is essential to ’ have, i f not to maximize, high growth p ro fits . From the viewpoint of < ownership, a corporate growth policy becomes highly beneficial, because growth enhances the value of stock as long as dividends are maintained at a conceived-Standard. l e v e l I n ' t h i s : instance, p ro fit and growth are 'not only compatible but also inseparable parts of corporate policy, and the interest of the executive-management is closely associated with the interest of ownership. However, Paul Baran and Paul Sweezy . 29 c r itic iz e the conventional theory of p ro fit maximization as follows: . . . The conventional notion of p ro fit maximization has been tied to a more or less e x p lic itly stated assumption that the maximizing entrepreneur [or corporation] has complete knowledge of a ll alternatives open to him and of the consequences of choosing any combination of them . . . [In ] a given historical situation , with lim ited knowledge of changing conditions . . . the search for maximum profits can only be the search for the greatest increase in profits which is possible in the given situation , subject, of course, to the elementary proviso that the exploitation of today's p ro fit opportunities must not ruin tomorrow's. 49 Considering that even modern large-scale corporations are engaged- in some form of competition, that is , oligopolistic or monopolistic, growth maximization may be perceived as the maximization of present p ro fit while at the same time enhancing the corporation's competitive position in the future market. Since modern large-scale corporations can minimize or avoid price competition and investment risk through corporate planning, Baran and Sweezy thus conclude that the economy of large-scale corporation is "more, or less, dominated by the logic of 30 p ro fit making than the economy of the small entrepreneur was." In addition, Sweezy id entifies the wealthy and interlaces them with the corporate rich (stockholding are th eir com mon bond) who j p o litic a lly and socially share the same life s ty le and, thus compose a j "re la tive ly homogeneous class which derives its wealth and privileges 31 from the economic status quo." This class analysis shows staffing of high bureaucratic offices by the dominant economic class; p o litical parties controlled by "vested interests" at every level and these I interests gaining by lo cal, state, and federal protection and favors. These facts, coupled with innumerable empirical studies, posit that the United States is owned "lock-stock and barrel by . . . . the richest and most powerful ruling class in the history of the world," and in turn, Galbraith's theory of the "technostructure" is a dubious way of saying 32 . . le t us have universal monopoly." In contrast to criticism s by Baran and Sweezy, A. D. Chandler and Oliver E. Williamson examine p ro fit maximization strategy by the structural change in large-scale corporations from the unitary (or 50 U-form) to the m ultidivisional structure, the U-form structure is id en tified with the emergence of large-scale corporations and, in turn, the establishment of hierarchically centralized, "line and staff" 33 organizations. The U-form structure indicates the bureaucratization jof large-scale corporations; thereby its development involves the functional merits of bureaucracy. Because of its functional merits, moreover, the U-form structure gives rise to professional managers who emphasize functional and operational goals. I t is often contended that 1 ■growth maximization is in general'consistent with the U-form structure ) : i jo f large-scale corporations. However, the U-form structure involves an ; inherent weakness, That is , as a corporation further increases its (Size, the administrative load on managers may increase to such a point ! that they cannot perform th e ir responsibility e ffic ie n tly . In other \ words, as the Size of the corporation increases, the a b ility of the I managers becomes strained and even collapsed because of the volume and j 34 complexity of the demands placed upon i t . I f the U-form corporations was dominant in the prewar economy of the United States, the emergence of an M-form structure among large- scale corporations is considered largely as a postwar phenomenon — i • though its f i r s t implementation was at Du Pont and General Motors during the early 1920's. Notably, according to Williamson, the M-form structure characterizes postwar development of conglomerates and 35 multinational corporations. The M-form structure involves "the creations of semi-autonomous 51 __i [operating divisions . . . organized along product, brand, or geographic 36 llin es." Also, there is a general 1 office "consisting of a number of ! 37 Ipowerful general executives and large advisory and financial s ta ffs ." jwhile the operation of each division is managed separately, the roles I of the general o ffice are to monitor performance of each division and to engage in strategic planning resource allocation among divisions. In other words, the M-form structure promotes a division of labor i f Ibetween divisions and a general o ffic e , and thereby decentralization in Jorder to eliminate the inherent weakness of U-form, large-scale > I (corporations. In the M-form structure, a general!office is largely ■ j i separated from the operations of divisions and evaluates the performance of each division in terms of overall financial returns. As a re s u lt, a j g e n e ra lo ffic e reallocates capital among divisions to favor high yield users, and in turn exercises internal incentive and control instruments I 28 ! in a discriminating way. This means essentially the establishment of ; I ) (financial capital within large-scale corporations, though miniature in ! (comparison with financial capital represented by commercial banks. Since a general office exists in essense as a miniature financial c a p ita lis t in the pursuit of p ro fit, :the M-form structure is considered not only to eliminate the inherent weakness of U-form structure, but also to a lle v ia te the co n flict of interest between stockholder and management. In the United States, i t is said that the M-form structure 39 "was substantially in place by the 1960's." Accordong to this view, large-scale corporations are s t i l l p ro fit rather than growth-maximizers. 52j Social Processes for Economic Coordination and Control I In'-the previous discussion, i t was stated that the contemporary capitalism of the United States has been more or less dominated by large-scale business corporations. These corporations have a high concentration of market power and are largely free from market control. United States corporations have entered into collusive relations with i |both labor unions and government bureaucracies. Another perspective j 1 j Jfor characterizing the structure of contemporary capital ism is provided » |by Robert A. Dahl and Charles E. Lindblom. In th eir now-classic book, ; P o litic s , Economics, and Welfare, Dahl and Lindblom describe alterna-:' | _ _ _ _ _ _ jtiv e ly four major social (s o c io -p o litic a l) processes for economic ! I |coordination and control in contemporary capitalism. These are: (1) f i i : hierarchy, (2) bargaining, (3) polyarchy, and (4) the market system. j i \ Each of these w ill be now discussed, in turn, j Hierarchy Hierarchy is a social process in which leaders exercise a very high degree, but not. necessarily complete, of unilateral control over jnon-leaders. Dahl and Lindblom s ta rt th e ir discussion by saying that "hierarchy is a fa m ilia r, wide-spread, and important social process for [economic coordination and control] . " 40 Today, hierarchy is pervasive because of the widespread incidence of bureaucracy. Notably, a ll bureaucratic organizations contain hierarchical processes, but not vice versa. For example, patriarchical families are hierarchical, but not bureaucratic. As Dahl and Lindblom state, bureaucracy "is the ‘ ubiquitous organization within which hierarchical processes are most 53 commonly encountered; bureaucracy is also one of the most widely used I and portentous social instruments for economizing found in contemporary 41 societies." The emergence of contemporary, managed capitalism has been associated with an enormous expansion of specialization in s k ills and functions. With this expansion, in both business and government j organizations, more people must be coordinated and the number of vari-. ( jables and the amount of information required for decision-making has increased. Such increased size and complexity of organizations make informal and spontaneous methods of personal contact rather d if f ic u lt . Further, increased size and complexity make i t d if f ic u lt for leaders to coordinate and for any individual to make competent decisions. Even I f jthough control exercised by any one person is lim ited , the gain from I jspecialization depends upon coordination;and prompt decision-making. |For many aspects of contemporary capitalism, spontaneous control is not only d if f ic u lt , i f not impossible, but also ineffective or infeasible. (See the characteristics of bureaucracy in the previous chapter.) To elaborate, Dahl ..and Lindblom identify three major benefits of bureaucracy (1 ) a re la tiv e ly small number of people can coordinate the action of re la tiv e ly large numbers of people, (2 ) complex decision-making can occur, beyond the competence of any one person, (3) gains from specialization can be maximized through conscious, deliberate attempts to adapt means to end. 43 However, there are also major defects of bureaucracy. One is that the hierarchical structure of bureaucracy generates inequality between leaders and non-leaders in"terms of economic power and control, income, ■and wealth. A second is that these economic inequalities in turn cause 'inequality in p o litic a l control between leaders and non^leaders. This j ;is further enhanced by the plain fact that the preferences of a j ■hierarchical leader "count f.or sig n ifican tly more than those of any I 44 , . one of his subordinates." A third is th at, because of these economic and p o litic a l in e q u a litite s , bureaucracy creates extreme d iffic u ltie s for those outside (such as citizen s, stockholders, workers) to exert j i effective control over those within (such as p o litic a l leaders, ; i k corporate'.managers, labor union o f fic ia ls ) . On-':the other hand, j lbureaucracy, though pervasive, is countervailed by other social • 45 I processes, namely, bargaining, polyarchy, and the market system. I i Bargaining i j Bragaining is a social process of "reciprocal control among I j jleaders." Dahl and Lindblom state that "the extent to which I [bargaining] takes place is inversely related to the amount of 46 hierarchy and the extent of in itia l agreement." Because of the .. enormous expansion of specialization, there exists various large- scale organizations; thus, i t can be said that contemporary capitalism has a:;tendency to organize it s e lf hierarchically. However, the 55 existence of these organizations makes bargaining an essential coordi nation and control process for contemporary capitalism. These large- scale, bureaucratic organizations also constitute a form of "social pluralism." Notably, major bargainers in contemporary capitalism are leaders of large organizations. Social pluralism means that a number of d iffe re n t organizations have a large measure of autonomy with respect to each other. I t is elaborated that social pluralism "exists in a society to the extent which there exists a .number of d iffe re n t organizations through which control is exerted and over which no unified body of leaders exerts 47 control." Accordingly, social pluralism in contemporary capitalism consists largely of large-scale bureaucratic organizations. In the j I case of the United States, there are numbers of d iffe re n t bureaucratic j I I I organizations, such as business corporations, labor unions, trade and i t I |professional associations of agriculture, medicing, and education, and government bureaucracy. To supplement social pluralism, there is also jp o litic a l pluralism in terms of the separation and division of powers I Jbetween federal and state governments, between the executive and 1 leg isla tu re, and between the two houses.of congress. While they have autonomy with respect to each other, these organizations or in s ti-- v : tutions, both private and public, are mutually dependent. As a resu lt, the power and welfare of one organization are most lik e ly to be affected by the actions and reactions of other organizations. Even though they disagree in i t i a l l y , leaders of these organizations thus negotiate as long as they "expect that further agreement is possible 56 and w ill be profitab le - - and the p ro fit sought may accrue^ not merely to the individual s e lf but to the group, an alliance of groups, a 48 region, a nation, unborn generation, 'the pbulic in te re s t'." In conclusion, i t can be said that existence of large-scale bureaucratic organizations has increased the importance of bargaining as a social process of reciprocal control among’ leaders in contemporary capitalism. In contemporary capitalism , there are several types of bargaining, for example, collective bargaining between business corporations and labor unions, p o litic a l bargaining between elected o ffic ia ls of govern ment, and national bargaining between government and organized groups. The la s t two types of bargaining are especially important, because the size and role of government have been increased in contemporary capital ism. (This point w ill be elaborated in relation to polyarchy in the next section.) As a re s u lt, bargaining takes place around government ■ and its elected o ffic ia ls . I t is said that,.because of social pluralism, ; the career of an elected o ffic ia l in government depends upon successful 49 negotiation of bargains. Dahl and Lindblom elaborate as follows: . . . To win office he must negotiate electoral alliances. To satisfy his electoral alliance he must negotiate alliances with other legislators and administrators, for his control depends upon negotiation This is the s k ill he cultivates; i t is the s k ill that distinguishes the m aster-polttician from the p o litic a l fa ilu re . Polyarchy According to Dahl and Lindblom, polyarchy is a social process in which non-leaders exercise a re la tiv e ly high degree of control over 1 ‘ f j leaders and, in turn, democratic goals are, though roughly and crudely, : 50 approximated. However, polyarchy means essentially the delegation of power to leaders and the existence of inequality in power. How do non-1 eaders exercise a re la tiv e ly high degree of control over leaders? There are two major conditions: (1) leaders must compete with one another for the support of non-leaders and, thereby, th eir power, and (2 ) non-leaders must have an opportunity to switch th e ir support from I ' t incumbent leaders to th e ir riv a ls . I t is said th at, given these I I conditions, leaders w ill be highly responsible to the preferences of | 51 ' non-leaders or, otherwise, they w ill lose th e ir power. According to j t this description, what are known as democracy and democratic government ; of contemporary capitalism are, in e ffe c t, polyarchy and polyarchical } government. i As discussed previously, contemporary capitalism is characterized by social as well as p o litic a l pluralism. This character of pluralism, combined with mutual dependency, provides reciprocal control among leaders, and thereby, lim its the capacity of officeholders to extend th e ir control over ordinary citizen s. However, why is polyarchy considered as a social process for economic coordination and control? To answer, there are three roles of polyarchy to be discussed: (1) . polyarchy as a process for economic reform, (2) polyarchy as a process j for social choice, and (3) polyarchy as a process for economic c ’ 52 control. Concerning the f ir s t , polyarchy has been largely responsible for the transformation of society from la is s e z-fa ire to contemporary 58 capitalism. With the emergence of large-scale business organizations, jfor example, the United States government has responded to popular pressure and, in turn, brought such measures as a n titru s t leg is la tio n , legalization of labor unions, minimum wage laws, social security programs, and so on. Dahl and Lindblom thus state that "polyarchy is one of the major processes for shaping and changing the method of 53 economizing in the rest of society." Second, however, such social transformation has caused government to increase its size and economic i ■role and, thereby, has made polyarchy a process for social choice and « i ieconomizing. Through the federal budget, for example, the United States j (government not only exercises a strong influence upon economic stab'iTi’ ty, isize and distribution of incomes, and investment, but also determines |the size of such non-marketable goods and services as national defense, j public education, and road service. Third, Dahl and Lindblom state that- i 54 jpolyarchy is a means fo r controlling hierarchy." Under contempo r a r y capitalism , large-scale private organizations exercise significant i jcontrol over the market and, in turn, are largely independent from !market controls. However, i t is said that because of th e ir p lu ra lity , i !those organizations "lack the scope of economic power or purpose to i I function viably as agencies for economic s tab ilizatio n and fu ll employ- I 55 ment." Since polyarchy is a social process in which the citizen ry controls th eir elected o ffic ia ls , polyarchy provides a mechanism for th eir control, through in d ire c tly , over the functioning of the economy and its constituent private organizations. ' "Market (Price) Systems * ~ The market system is a social process of "control over leaders by non-leaders, control over non-leaders by leaders, and control over 56 leaders by other leaders." The market system discussed here is not that of la is s e z-fa ire capitalism. As discussed e a rlie r, contemporary capitalism is characterized by the existence of numbers of large-scale business corporations. In a sense, those corporations have a high ^concentration of market power and, thereby, are largely free from market ’controls. In this circumstance, i t is easy to see that leaders exercise ! i jcontrol over non-leaders (consumers). At the same time, leaders induce jworkers and resource owners, through the payment of wages, rents, and lin terest, to submit to the hierarchical control of corporations. I 3 However, the questions remains as to how the market system serves as a process of control over leaders by non-leaders, and control over leaders jby other leaders. Dahl and Lindblom state three major mechanisms provided by the market system: (1 ) spontaneous primary control, (2 ) spontaneous supplementary control, and (3) competitive and non-competi-' i itive bargaining. i | Spontaneous primary control is based upon tha availab il i.ty of [substitutes.- There are several types of substitutions, for example, ;second hand products, foreign (imported products), simple substitution, such as plastic for glass and coal for o i l , and generalized su bs ti ‘ ' tu tion, in which, the consumer turns away from a commodity and switches to buy an alternative with no relation to the former. I f the price of a commodity or product is high, then these substitutions may take 60 place. Thus, Dahl and Lindblom state that "To control a s e lle r, not all buyers need to turn to substitutes; there must only be substantial loss 57 of sales at the margin." Spontaneous supplementary control is what economists call market competition. This case necessitates a su ffic ien t number of producers to yield control by non-leaders of other leaders. However, i t is easy to see that spontaneous primary control increases d ire c tly or in directly market competition and, thereby, supplements spontaneous supplementary control. Lastly, bargaining in one way or another controls the market power {of organization! Competitive bargaining is the case where a buyer or I (seller poses the threat of substitution to achieve control and, more-'- . jover, there is a threat of entering into business of those whom., he is (dealing w ith. W hen he actually enters:.into business, he both buys from 1 1 ( land sells to himself and, thereby, his decision does not require : ‘ control. In other words, competitive bargaining may force or entice new entry from other industries and, in turn, increase market competition. O n the other hand, non-competitive bargaining reduces the market power of an organization or increases the market power of those dealing with i t . In the f i r s t , the government often controls market power through i (antitrust regulations or the Federal Trade Commission. In the second, i t is necessary to form countervailing power, such as labor unions and milk producers" cooperatives. According to Dahl and Lindblom, even a monopoly-ridden market system (except natural monopolies such as public u t ilit ie s ) is "one in 61 which the businessman is controlled by the spontaneous primary control," and thereby, i t is not an uncontrolled market or a market permitting unlimited discretion to its entreprenuers , 58 In contemporary capitaH . jism, moreover, large-scale corporations have some degree of monopoly J power over the market, and in most industries, they form oligopoly markets. Thus, i t is considered that large-scale corporations in contemporary capitalism are not completely free from, but are subject i to,s(some degree of) control by three major mechanisms of the market j i system. Concluding Comment j In the previous chapter, the theories of Marx, Weber, Veblen, and Com m ons were discussed in relation to the emergence of capitalism and ; i the characteristics of contemporary capitalism . Notably, the basis of ; [capitalism's emergence is "individualism" for Marx, and "rationalism" | ' I I for Weber, and the key characteristic of contemporary capitalism is "bureaucracy" for Weber and "bargaining" for Commons. In this chapter, . jcontemporary managed capitalism as an economic system has been charac^ jterized by corporate dominance, increased size and roles of government, i • {social processes for economic coordination and control, ans so forth. i As a resu lt, i t became clear that the transformation from la is se z-fa ire capitalism to contemporary capitalism involved significant q u a lita tiv e, in s titu tio n a l, and structural changes. Although there are differences in the analysis of historical stages of the schools of economic thought examined in the preceding two chpaters, a presupposition in a ll Western discussions of capitalism is "Individualism." I t is easy to see how la iss e z-fa ire capitalism is i j "in d iv id u alis tic ," but d if f ic u lt to understand how contemporary capitalism is "in d iv id u a lis tic ." Partly, this is because Western scholars regard bureaucracy and bargaining as c o lle c tiv is tic organiza tions and processes. Certainly the bureaucratic organizations of contemporary capitalism are "c o lle c tiv is tic " in terms of th e ir col-.;:':i' lective goals and processes, such as bargaining, to achieve them. A s a res u lt, contemporary capitalism has subdued individualism in the locus and organization of economic power, and promoted c o lle c tiv is tic ! aims and processes. Yet, in an important sense, these c o lle c tiv is tic j i .organizations and processes are s t i l l based upon "individualism." j j "Individualism" here means essentially to view the individual as an; l I jindependent decision-making agent and consequent responsibility bearer, j !In a bureaucratic organization, individuals are organized hierarchically and assigned domains of discretion in accord with th eir s k ills and [functions. Within th e ir domains o f discretion, individuals are s t i l l lre.S-pons.tble or accountable for th eir conduct of business and, thereby, iremain independent decision-making agents, a lb e it in the context of [collectivist organizations. Likewise, i t is the job and, thereby, the individual responsibility of each individual engaged in the bargaining process to represent collective aims or goals. Thus, contemporary capitalism is s t i l l based upon "individualism" concerning responsibility for actions, and thereby may be characterized as "in d iv id u a lis tic ," despite collectivism in the locus and organization of economic power. 63 Distinctions based upon "individualism versus collectivism" are undoubtedly essential in characterizing differences between laissez- jfaire capitalism and contemporary capitalism of the West. However, this jdistinction may not be very enlightening for comparisons of c a p ita lis t [development in Western and non-Western societies. Indeed, the socio- . t economic structure of Japan, which w ill be discussed in Chapter 5, 1 < cannot be examined simply in terms of "individualism versus c o lle c tiv ism." In order to describe accurately the economy of Japan, i t is nedessary to introduce the category "non-individualism," that is , relations in which individuals are not viewed as either independent decision-making agents or consequent responsibility bearers. Distinctions based upon "individualism versus non-individualism" are very useful in characterizing differences between Western and non- i Western capitalism , and provide a fru itfu l basis for distinguishing ! I I jthe Japanese economy from economies o f the West. FOOTNOTES FO R CHAPTER 3 1. John E. E llio t t , Comparative Economic Systems (Englewood C liffs : Prentice-Hall In c ., 1973), p. 356. 2. Ib id . , p. 358. According to E llio t t , this aspect of corporate dominance means that corporations "produce over 50 percent of the Gross National Product, account for over 50 percent of business sales, own over 50 percent of total industrial assets, make over 50 percent of total annual investment, and employ over 50 percent of the total labor force." 3. According to the estimation by Berle and Means, 200 largest corporations in the United States of the early 1930's controlled about 50 percent of corporate assets, 38 percent of the total business, and 22 percent of to tal national wealth. I t is “ considered that these figures have not changed d ras tic a lly since i then. See Adolf A. Berle and Gardiner C. Means, The Modern ! Corporation and Private Property, Revised Edition, (New York: i Harcourt, Brace and World, In c ., 1957), pp. 109-111. j 4. E llio t t , o jd. c i t . ,^p. 358. I ! 5. Berle and Means call this stage of development of corporations I "management x o n tro l." See Berle and Means, o g _ . c i t . , 3pp. 78-84. j 6 . E llio t t , op. c i t ., p. 375. ! 7. Ib id . , p. 377. 8 . Ib id . 9. Ib id . TO. Ibid'. , p. 381. 11. Michael D. Reagan, The Managed Economy (New York: Oxford University Press, 1963), p. 47. 12. John E. E llio t t , "Institutionalism as an Approach to P olitical Economy," Journal of Economic Issues, Vol. 12 (March 1978), p. 97. 13. Ibid,,' 14. Berle and Means, op. c i t . , p. 78. L____________________________________________________ 65 .15. Adolf A. Berle, J r. , ' The 20th Century C ap italist Revolution (New York, Harcourt, Brace and Company, 1954), p. 30. ' 16. Robin Marris, The Economic Theory of "Managerial" Capitalism (New York: Basic Books , Inc. , 1968), p. 33. 17. Ib id . 18. John Kenneth Galbraith, Economics and the Public Purpose (Boston: Houghton M ifflin Company, 1971), pp. 81-91. 19. John Kenneth G albraith, The New Ihdustrial S tate, Second Edition, (Boston: Houghton M ifflin Company, 1971), p. 71. 20. Marris, o£. c i t . , pp. 89-126. 21. See, for countervailing power, John Kenneth Galbraith, American Capitalism: The Concept of Countervailing Power (Boston: Houghton M ifflin Company, 1956), Ch. 9-10, for the dec!ine of labor unions and the role of government, Galbraith, The New Industrial S tate, Ch. 23-24 and 27. 22. Galbraith, Economics and the Public Purpose, p. 161. 23. Ib id ., p. 187. 24. Ib id . , p. 161. 25. E llio t t , 0£ . c i t . 26. Galbraith, The New Industrial S tate, p. 311. ■ : 27. Galbraith, Economics and the Public Purpose, p. 172. 28. John E. E llio t t , Comparative Economics Systems, Second Edition (Xeroxed), (Belmont: Wadsworth, forthcomi ng), Ch. 10, pp. 12-13. 29. Paul A Baran and Paul M. Sweezy, Monopoly C ap ital: An Essay on The American Economic and Social Order (New York: Modern Reader Paperbacks, 1968), p. 27. 30. Ib id ., p. 28. 31. Paul M. Sweezy, "Utopian Reformism," Monthly Review, Vol. 25 (November 1973), p. 9- 32. Ib id . , p. 28. i I 33. Oliver E. Williamson, Markets and Hierarchies; Analysis and A ntitrust Implications"(New York: The Free Press, 1975), pp. 133-136. Al so see A. D. Chandler, J r . , Strategy arid Structure; Chapters in the Hi story of the Industrai l EnterprTse [Garden City: Doubleday and Co., 1966), Ch. 1. ~ ” 34. Chandler, op. c i t . , p. 156. 35. Oliver E. Williamson, "The Modern Corporation: Origin, Evolution, A ttributes," Journal of Economic L iteratu re, Vol. 16 (December 1981), pp. 1557-1563. 36. Ib id . , p. 1555 37. A. D. Chandler, J r . , The Visible Hand: The Managerial Revolution in American Business (Cambridge: Belknap Press, 1977), p. 460. 38. Williamson, o£. c i t . , p. 1556. I 39. Ib id . , p. 1559. 40. Robert A. Dahl and Charles E. Llndblom, PO litics, Economics and Wei fare (Chicago: The University of Chicago Press, 19767, p. 227. 41. Ib id . , p. 232. 42. Ib id . , pp. 236-243. | 43. Ib id . , pp. 253-261 44. Ib id . , p. 2.56. 45. E llio t t , op. c i t .. Ch. 10, p. 22. 46. Dahl and Lindblom, op. C it. , p. 324. 47. Ib id . , p. 302. 48. Ib id . , p. 326. 49. Ib id . , p. 333. 50. Ib id ., p. 275. I ' " 1 t i 5 1 • ’Ib id . , pp. 282-285. 52. E llio t t , op. c i t . , Ch. 10, pp. 29-31. i L____ 53. Dahl and Lindblom, 0£. c v t., pp. 275-277. 54. Ib id . , p. 277. 55. E llio t t , o£. ci_t., Ch. 10, p. 30. 56. Dahl and Lindblom, op. c i t . , p. 175. 57. Ib id ., p. 179. 58. Ib id ., p. 196. I 6 8 CHAPTER 4 THE JAPANESE ECONOMY: GENERAL VIEW AN D COMPARISONS This chapter describes a general view of the Japanese economy and then contrasts Japan with contemporary managed capitalism , in accord i': with the c rite ria id entified in Chapter 3. A General View of the Japanese Economy The Japanese economy has been described in terms of "economic dualism" or as a "dual economy," that is , "substantial differences in output per worker by sector or by firm size within the same industry, differences greater than can be explained by differences in the quality j o f lab or. " 1 In other words, there has been a co-existence of tradition-:! al small-scale units (lik e household manufacturing), engaging in labor- | j intensive production, and modern large-scale corporations, employing ( ^capital- i ntensive systems. In the 1970‘ s, production per worker in J ! agriculture was approximately 20 percent of that in the manufacturing | 1 industry. There has been substantial difference in productivity by firm size. Some authorities believe that there may be substantial, monotonic increases in labor productivity by size of firm up to the large-scale corporation, although clear s ta tis tic a l data is lacking on this point. Richard Caves and Masu Uekusa describe this economic dualism in 2 manufacturing industry as follows: . . . In 1967 only 3 percent of U.S. manufacturing employment was in establishments with.fewer than ten workers; the figure for Japan was 16 percent, . . . Value added per workers in these small plants was about 25 percent of that in Japan's largest manufacturing establishment, whereas in the United States the proportion was 70 percent. pivcontrast with small United States manufacturing, the Japanese jcounterpart was s t i l l labor-intensive and in e ffic ie n t. i I i Certainly, rapid growth and industrialization of the Japanese j economy caused an out-flow of the labor force from and, at the same r time, mechanization in agricultural production. In fa c t, out-flow of i the labor force is s t i l l continuing at the present time. As a resu lt, i I i Ithere has been an increase in agricultural productivity per worker as Igreat as the national average. In manufacturing industry, however, i rapid growth and in d u strializatio n have brought mechanization but have i i not caused an out-flow of the labor force. Even though there has been ! i an out-flow of the labor force from agricultural production, medium- j land small-scale manufacturing enterprises have been facing labor ! [shortages, and thereby wage increases, since the mid 1960's. In other words, they have been under strong pressure to invest in labor-saving ! \ [technologies and machines, and in turn to improve labor productivity. j j ;In contrast to out-flow of the labor force from agricultural production, {the labor force in small househould-type manufacturing has been l increasing and maintains above 15 percent of the to tal labor force in 3 industry. This strong persistence of small enterprises characterizes the economic dualism of Japan and d ifferen tiates her economy from other i industrialized Western nations. Large-scale Corporations in Japan Hugh Patrick and Henry Rosovsky state that "A'.common but mistaken impressions is that in Japan giant corporations predominate in produc- 4 tion and labor force use." According to th e ir estimate of the 1970's G D P figures, almost 70 percent of the labor force in the private sector works for small-scale units of fewer than 100 workers and produces approximately h a lf of the gross value added by the private sector as a whole; by contrast, large-scale corporations with more than 1 ,000 . . workers employ one-sixth of the total and produce s lig h tly more than one-thi rd . However, these numbers somewhat understate centralization and centralization of economic power of Japanese large-scale corporations. F irs t, Caves and Uekusa studied s e lle r concentration in ninety-nine comparable Japanese and United States industries and, as a re s u lt, state that "Concentration in a Japanese industry is closely related to that in the comparable U.S. industry even a fte r accounting for variation in the size of Japanese plants and markets and the capital intensity of pro- 5 :duction in Japan." Second, in the fiscal year 1963, the 100 largest ! non-financial corporations in Japan controlled 53.2 percent of a ll paid-! iin corporate c a p ita l, that is , preferred and common stocks, of which 39.4 percent is d ire c tly controlled and 13.8 percent is through a f f i l i - ates. According to A.D.H. Kaplan, the 100 largest U.S. industrial 7 ; corporations in 1960 controlled 30.8 percent of corporate assets. Thus, i ! i t is said that "Japanese concentration appears to exceed American unless Japan's concentration of paid-in capital greatly exceeds its 8 concentration of total assets. Third, large-scale corporations have concentrated and centralized economic power through theiformation of I . . . J industrial groups. O n the one hand, the majority of medium- and small- ! firms have been subcontractors of large-scale corporations in manufac- I i I I g turing industry. O n the other, large-scale corporations have formed groups around the set of commercial banks and trading companies in control of investment capital and imported raw m aterials. But in essense, those organizations have close relations with the government and, in turn, th e ir business policies are formulated in accord with economic policies of government. In other words, they play an.important role in implementing government policies and, thereby, in leading the economic growth and in d ustrializatio n of Japan. The formulation of industrial groups around commercial banks and trading companies has had profound effects upon the separation of owner ship and control in Japanese large-scale corporations. After World War I I , the occupation authority dissolved the old Zaibatsu as familyfholding companies and, at the same time, dispersed concentration of industrial j assets by Zaibatsu fam ilies. 10 During the 1950's, however, old Zaibatsu i I companies were reorganized around old Zaibatsu banks and trading compan ies without Zaibatsu fa m ilie s *.c o n tro l. This was because there were not enough capital funds and raw materials to launch massive economic development. In order to coordinate the economyas a whole, 3 th'e govern ment reorganized Zaibatsu groups around commercial banks and trading companies, and thereby supplied necessary investment capital and raw materials to large-scale corporations with high growth potential. This reorganization of Zaihatsu groups had great impacts upon the method of financing by and the ownership of large-scale corporations. F irs t, commercial banks supplied capital funds to th e ir associated enterprises through loans fueled by the credit expansion oftheBank of Japan. Both banks and enterprises financed capital funds to an unusuaTly- *heavy extent — sometimes, in the process of establishing new businesses, .to an extent greater than current assets. This has been often referred to as "overloaning" or "overborrowing. At the same time, trading companies provided necessary raw materials to th eir member enterprises on cred it. As a re s u lt, large-scale enterprises as members of Zaibatsu groups engaged in h ig h -u tiliza tio n of debt financing in order to.promote th e ir growth. Second, at the same time, debt financing by large-scale i corporations delayed the development of a capital market and al so reduced the average equity-capital ratio of large-scale corporations to less 12 than half that of United States counterparts. Even though stock ownership has been widely dispersed and highly passive, this low equity- j capital ra tio makes large-scale corporations susceptible to minority C control from outside. In order to solve this problem, enterprises of groups hold major block of stocks of each other. For example, in te r group stockholding appears in Zaibatsu groups as follows: In the 1980's figures, the Mitsui group held 18.4 percent of total corporate stock; the Mitsubishi group held 26.2 percent; the Sumitomo group held 26.2 percent; the Fuyo group held 19.1 percent; and the Sanwa group held 11.7 13 percent. This inter-group stockholding is not restricted to Zaibatsu groups but can be traced to a decline of stock ownership by individuals and non-business organizations in contrast to increases by business and financial corporations. From 1965 to 1973, stock ownership of the former declined from 44 percent to 37.7 percent; by contrast, that of the la tte r increased from 41.8 percent to 61.4 percent. C ertainly, the high incidence of debt financing and inter-group stockholding makes large-scale corporations susceptible to extra-management control, es pecially by commercial banks. But these largely result from the forma tion of (especially, the Zaibatsu form of) industrial groups. The establishment of cohesive minority control within a group ts essential'to increased group s o lid a rity and, in turn, reduces interference from out side the group. Thus, executive-managers within groups have high dis cretion and autonomy to manage th e ir enterprises. The Central Government of Japan As discussed in Chapter 3, the central government pl&ys an im portant role in the control and coordination of contemporary capi talism , | which i t shares with large-scale corporations. Does the Japanese i I government play a sim ila rly important economic role? I t is true that j the Japanese government has consistently spent a lower percentage of I Gross Domestic Product than other industrialized states of the West, even a fte r accounting for differences in m ilita ry expenditure between Japan and the Western states. Until the early 1970's, moreover, the i rate of growth in public expenditure has been kept lower than the ! general rate of economic growth in Japan. These facts normally ... ” indicate less involvement of government in the economy. In fa c t, they understate the importance of government in the Japanese economy. Even though there has been a gradual s h ift in government policy in Japan, the main policy since the war has been the promotion of . economic growth and in d u s tria liza tio n . But unlike Western contemporary 74 capitalism , the Japanese government did not rely prim arily upon monetary and fiscal policies to control aggregate demand (and supply) and there by promote economic growth. Instead, the government has d ire c tly intervened in the private sector o f the economy. O n the one hand, the government provides loans to those enterprises and industries with a high growth potential d ire c tly through government financial i n s t i - . 'l : t tutions, namely, the Japan Development Bank, and in d irectly through 14 the Bank of Japan, which supplies loans to commercial banks. O n the ; other,'th e government allocates resources to enterprises and industries j in dicatively through government loans. Until the la te 1960's, the j government used the foreign trade and exchange control and had control ; ’ 15 I over imported raw materials and foreign patented'technologies. Since Japan lost a ll her empire during the war and, in turn, came to j depend almost completely upon foreign sources of raw m aterials, i t was » t 1 v ita l for those enterprises to get allotments of foreign exchange from i the government. In e ffe c t, the Japanese government had control over capital funds through the Bank of Japan and the commercial banks, and i also over resource allocation through government loans and foreign trade and exchange controls. Even though its control has diminished with economic growth, the Japanese government s t i l l exercises stronger control over the allocation of capital and resources than other industrialized states of the West. In addition, the Japanese government has encouraged the establishment of large-scale, technically proficient enterprises to promote economic growth and in d u s trializa tio n . This includes the encouragement of corporate mergers, designed to increase s e lle r * 16 concentration in industry. By doing so, the government established very e ffic ie n t large-scale enterprises which compete e ffe c tiv e ly within both domestic and international markets. This means only that the Japanese government is less concerned with monopoly, not that i t never exercise a n titru s t regulations. Especially, public u t ilit ie s such as gas and e le c tric ity are regionally monopolized by several large-scale private corporations, arid are subject to government regulations. However, the development of those corporations in the postwar period ihas been sponsored and in turn financed by the government; as a re s u lt, ! they have become semi-government organizations, of which top level executives consist of retired bureaucrats. This phenomenon is not restricted to public u t i l i t y companies, but appears widely in large- i 17 'scale corporations which accept government sponsorshipiarid guidance. tin short, the Japanese government, lik e that in contemporary capitalism jin general, has played an important role in the control and coordina tion of the economy as a whole. But there are differences in government involvement in the economy. In contrast to the United States government, the Japanese government has more centralized power and authority. This is p a rtia lly because the te r r ito r ia l size of Japan is much smaller than that of the United States, and also because the Japanese are c u ltu ra lly and ra c ia lly homogeneous. But given these conditions, the main reason/is that there is not so much separation of power between national and prefectural governments; moreover, no 76 separation of power between le g is la tiv e and executive branches of national government occurs because Japan, lik e Great B ritain , has a I pariiamentary (D iet) system. The concentration-.arid centralization of p o litic a l and economic power and authority by the national government j has induced and been accompanied by the emergence of large-scale organizations in the private sector, such as corporations, business and trade associations (for example, medium-:.and small-scale enterprise associations), agricultural cooperatives, and professional associations'. » I ■ j Som e of those organizations have developed under government support and, in turn, have become strong pressure groups in Japanese p o litic s . : I I In essense, the concentration and centralization of p o litic a l and i I j economic power by the national government has made large-scale : I ! ♦ i | organizations focus th e ir attention upon the national p o litic s . Thus, j government is in a strategic place to coordinate and control the : t i I ; various economic interests of the society. General Comparisons In this section, the Japanese economy is compared to contemporary managed capitalism in accord with c rite ria discussed in the previous chapter, namely, (1 ) ownership of means of production, (2 ) locus and organization of economic power, (3) motivational system, (4) income d istrib u tio n , and (5) social processes for economic coordination and control. Each, o f these c rite ria w ill now be discussed, in turn. Ownership of Means: of Production Even though government ownership and enterprise can be found in such forms as tobacco and sa lt monopolies, telephone and telegram service (monopoly), and the Japan National Railroad, government owner ship of means of production is lim ited in the Japanese economy. Like contemporary capitalism , Japan is characterized predominantly by private i [ownership of means of production. But the dominance of small-scale enterprises in both number and production suggests at least that the corporate form is less dominant in Japan than in the United States. In addition, large-scale corporations, including financial in s titu tio n s , ihold a large part of the stocks of each other and, in turn, constitute I inter-group stockholding. Because of the formation of industrial groups centered around commercial banks, this inter-group stockholding in effect strengthens the cooperation of corporations with a group and also the autonomy and discretion of the executive-management of a business group or corporation from outside interferences such as those of individual stock owners. LocuS and Organization of Economic Power In Japan, economic power is dispersed among a variety of decision- making units such as consumers, workers, business, and government. At the same time, there are large-scale private organizations, such as large-scale corporations, labor unions, business and trade associations, and agricultural cooperatives, with highly concentrated and centralized economic power. Likewise,-the government (and political-governmental organizations such as p o litic a l parties, administrative bureaucracies) I ;has concentrated and centralized economic power. In this sense, the i Japanese economy, lik e contemporary capitalism , can be characterized by saying that (1 ) the locus of economic power is dispersed, yet concen- 78 trated in large-scale private and public organizations; (2) the I organization of economic power is structured upon a mixture of jcentralization and decentralization. However, Japanese society is I ;organized hierarchically and has a pyramidal structure headed by large- j jscale private and public organizations and, in turn, the central jgovernment. In contrast to other variants of contemporary capitalism, |the Japanese economy is more centralized. Motivational Systerrr i I i Individual economic gain is undoubtedly a strong motivational i ;force in the Japanese economy. This is one of the reasons why small- i iscale enterprises constitute a major part of the economy. Large-scale I. i (corporations, however, are characterized by inter-group stockholding, i |and thereby (though modified) separation of ownership and management. |Even though the executive-management is interested in p ro fits , its main in te re s ts are corporate growth, sales maximization, and enlargement o f I ;market share, which result in increasing social prestige of its i personnel. Besides corporations, there are other large-scale organiza tions, including the government, with concentrated and centralized economic power in the Japanese economy. In a sense, a ll those organizations have "the capacity to control and shape economic 18 development through conscious, planful human choice and action." This fact encourages those organizations to pursue "goals for large 19 sectors of and/or the entire national economy." In contrast to Western society, moreover, Japan is often described as a group (as well 79 as h ierarchically) oriented society. This group orientation is more lik e ly to make the pursuit of individual economic gain subject to group I jand social goals. I I j Income Distribution As for distribution of income, the Japanese economy, lik e contemporary capital ism,"is characterized by^a "blend of market- determined resource prices, group action (by, for example, corporations, labor unions, and farm organizations) to affec t income distribution and j 20 * government measures to redistribute income." However, there are two j special elements to be considered for the Japanese economy. One is .that* the government d ire c tly intervenes in the allocation of capital funds J t and resources. In e ffe c t, there are two prices for capital funds and imported raw materials; (1 ) government controlled prices which are favorable to large-scale corporations, and (2 ) market-determined prices, iwhich are higher than government controlled ones, for medium-;.and ■small-scale enterprises. A second special factor is th a t, since the I lend of World War I I , there has been a consensus among the Japanese I about one social goal, that is , economic growth and in d u s trializa tio n . Given this consensus, -the government has been enabled to intervene -d ire ctly in the market process, and at the same time has not been required to engage in income redistribution measures. In a sense, i t can be said that the Japanese government has successfully promoted economic growth and in d u s tria liza tio n , and thereby muted emphasis upon income redistribution as a social goal. 80 ' Social Processes "for Economic Coordination and Control Like contemporary capitalism , the Japanese economy has a ll four social processes for economic coordination and control, namely, hierarchy, bargaining, polyarchy, and the market system. But as discussed e a rlie r , the Japanese society is group as well as hierarchi ca lly oriented. This suggests that hierarchy is lik e ly to overshadow other social processes, especially bargaining and polyarchy. Considering hierarchy, i t is said that bureaucracy is "the ubiquitous modern organization within which hierarchical processes are i 21 most commonly encountered." In Japan, bureaucracy certainly appears in large-scale organizations, both private and public. Given a i hierarchical orien tation, however, these organizations have a cluster ,, jo f subordinate groups. In large-scale corporations, for example, this chain of groups is considered to reach to the level of household I 22 manufactures with fewer than 10 workers. O n the other hand, the !hierarchical orientation goes further than just the organizational [structure in the private sector. In fa c t, large-scale private jorganizations look for leadership and guidance from and, in turn, are i organized under government bureaucracies. These bureaucracies - - not the party in charge o f the Diet — have authority to lead and guide constituent organizations, and bear actual responsibility to administer the government. In other words, the Japanese economy is hierarchically organized around the government bureaucracies. Even though the economy is hierarchically organized, large-scale private organizations are essentially autonomous', e n titie s and, thereby, constitute social pluralism. Moreover?-each government bureaucracy -.rfl also has autonomy in its administration from others. In this sense, bragaining is an essential process in the Japanese economy. However, the Japanese bargaining processes represented by a consensus approach, in which the hierarchical relation between individuals or organizations 23 assures success in reaching consensus among participants. Considering the hierarchical orientation of the society, this indicates that each (bureaucracy has responsibility in reaching consensus among and v. ♦ irepresenting the interests of its constituent organizations. As a (res u lt, government bureaucrats are the essential bargainers in the |Japanese economy. ! Like Great B ritian , Japan has a parliamentary (D iet) system, and I (thereby polyarchical processes. As discussed above, however, the I government bureaucracy is the core of economic coordination'.and control I i j in Japan. This fact is further enhanced by two phenomena in the Diet. One is that the government bureaucracy is regarded as the actual bearer of a ll the responsibilities of government administration; in turn, the Diet becomes merely the extension of bureaucracy. The other is that the Liberal Democratic Party ahs been in charge of the government since 1955, and over one-third of its Diet members have consisted o f retired bureaucrats, who have dominated party and government positions. These phenomena make the relationship between the Liberal Democratic Party and the government bureaucracy very close; in turn, the party depends upon and respects policies in itia te d by bureaucrats. 82 Even though there is dominance of the government bureaucracy in the Japanese economy, this dominance does not negate the market system as a social process for economic coordination and control. Seller jconcentration suggests that there is not much difference in market I structures between Japan and the United States. In other words, large- jscale Japanese corporations have monopolistic power sim ilar to that of I United States counterparts, and also market competition is characterized as monopolistic and o lig o lo lis tic . However, Japanese economists often describe the market structure as "competitive oligopoly." In general, this means that no enterprises have a clear advantage in market share i or productive efficiency and, in turn, even large-scale corporations become susceptible to price competition. Overall, i t can be said that the Japanese economy shares essential characteristics o f contemporary capitalism . However, there can be found some differences of her economy from other examples of contempo- jrary capitalism. Even though these differences are not major obstacles i in characterizing the Japanese economy as a form o f contemporary !capital ism, they are s ig n ific a n t. Moreover, these differences can not be discussed completely in terms of the economic situation of postwar Japan. They are derived from a non-individualistic socio-economic structure of Japan and the growth orientation of her economy. These non-Western heritages are not separable parts o f the Japanese economy. Together, they constitute a complete picture of the distinguishing features of the Japanese economy. In the next two chapters, the 83 Japanese economy is further discussed in terms of its non-individual- is tic character and growth orientation . For now, i t w ill suffice to designate the Japanese economy as a modified form of contemporary managed capitalism . The reasons why the term "modified" is used w ill become clear as discussion proceeds through the next three chapters. FOOTNOTES FO R CHAPTER 4 :;1. Hugh Patrick and Henry Rosovsky, "Japan's Economic Performance: An Overview," in Asia's New Giant, edited by Hugh Patrick and Henry Rosivsky, (Washington, D.C.: The Brooking In s titu tio n . 1976), p. 21. 2. Richard E. Caves and Masu Uekusa, "Industrial Organization," in Asia's New Giant, p. 462. 3. Takafusa Nakamura, Nippon-Keizai: Sono-Seicho to Kbzo (Japanese Economy: Its Growth and S tructure), (Tokyo: Tokyo Daigaku Shuppankai, 1978), p. 281. 4. Patrick and Rosovsky, "Japan's Economic Performance: An Overview," in Asia's New Giant, p. 22. 5. Caves and Uekusa, ££. c i t . , p. 472. 6 . Ib id . 7. A. D. H. Kaplan, Big Business in a Competitive System, Revised Edition, (Washington, D.C.: The Brooking In s titu tio n , 1964), p. 120 and 124. j 8 . Caves and Uekusa, 0£ . c i t . , p ..47 0 .- : 9. Nakamura, ££. c i t . , pp. 283-284 10. See Eleanor M. Hadley, A ntitrust in Japan (Princeton: Princeton University Press, 1970), especially Ch. 3. 11. Henry C. Wallich and Mable I Wallich, "Banking and Finance," in Asia's New Giant, p. 284. 12. James C. Abegglen and William V. Rapp, "The Japanese Managerial and Excess Competition," The Developing Economy, Vol. 8 (December 1970), pp. 428-429. 13. Nobuyoshi Namiki, Nippon-gata-KeiZai o Toku (To Solve the Japanese Style Economy), (Tokyo: Purejidento-sha, 1981), pp. 204-205. 14. Direct loans have been made as a part of the Fiscal Investment and Loan Plan, which is formulated by the M inistry of Finance and the M inistry of International Trade and Industry, while loans supplied j by the Bank of Japan constitute the overloaning system. See Ch. 6 of this dissertation, especially the High-Growth System. 15. Also see Ch. 6 , especially the High-Growth System. 16. Caves and Uekusa, 0£. c i t . , pp. 473-475. 17. This phenomenon is called the process of "amakudari See Ch. 6 , especially Discretion/Autonomy of Economic Bureaucrats. 18. John E. E llio t t , Comparative Economic Systems (Englewood C liffs : Prentice-Hall In c ., 1973), p. 377. 19. . Ib id . 20. Ib id . 21. Robert A. Dahl and Charles E. Lindblom, P o litic s , Economics and W ei fare (Chicago: The University of Chicago Press, 1976), p. 232. 22. Chie Nakane, Japanese Society (Berkeley: University of Californial Press, 1970), pp. 95-96. 23. This approach is called the "nemawashi" process. See Ch. 5, especially Incidental Administrative Characteristics of the Ie Group. CHAPTER 5 THE JAPANESE ECONOMY: SOCIO-ECONOMIC STRUCTURE In Chapter 3, i t was stated th a t, regardless of its stage of development, Western capitalism always had a basic presupposition, namely, "individualism." Here, "individualism" does not mean that of la iss e z-fa ire capitalism, but defines the individual as an independent decision-making agent and a consequent responsibility bearer. In other words, the individual is viewed as an independent responsible or accountable u n it, whether he is at the job of in society. In Japan, \ j however, the individual has been tra d itio n a lly de-emphasized and is i * much less the basic unit of the society than in the West; as a re s u lt, » i Japanese society and organization do not involve such "individualism"" 1 i In this sense, Japan's socio-economic structure may be defined as "non-j l I I in d iv id u a lis tic ." This "non-individualistic" character is related to ; i [the trad itional concept of the social group", namely, "ie ." Thus, this I (chapter ( 1) discusses the concept of the ie group, ( 2 ) links the ; concept of the ie group and the administrative system of bureaucratic > | organization, and (3) discusses the coordination mechanism of the | Japanese economy in relation to the concept of the ie.group. j | Non-Individualistic Concept of Social Group The term "ie" is used to define a general concept of a Japanese social group. In English, "ie" is translated to mean fam ily, household, dwelling, and home, and this d e fin itio n , in turn, creates an image of a small group based upon common q u a litie s , such as kinship or residence. 87 < There is also a conscious attempt to define the ie group as a single ... I family or household unit against the seemingly more general form, i I"dozoku," which describes a c la n -lik e organization of Japanese society. A dozoku group consists of several p a trilin e a rly related families and also involves non-kinship fam ilies. The organization of the dozoku group is based upon "hon-ke" and "bun-ke" relationships. Simply defined, hon-ke means main family and bun-ke means branch family. The i J ♦ Chinese character used for "ie" is the same character that is used for j "ke" (which is used in both family terms), and for this reason, i t is I theorized that the roots of the dozoku group stem from the ie group; j that the dozoku group is made up of several small ie sub-groups. This ! t general concept, the ie , is the Japanese social group, varying from a i I i single fam ily, or household based on kinship, to the large-scale j i organization of today involving heterogeneous people in terms of j I kinship, residence, and individual quality, i Historical Setting ! Despite disagreement over its emergence, the roots of the ie group 1 1 j are considered to have developed in an agricultural society where t co llective works were necessary for the development and maintenance of the society's administrative problems, such as protecting the water source.^ O riginally then, from this theory of the e a rlie s t ie group roots, the form of the group was based upon the need for co llective works in a com mon in terest of its members, and, in turn, the ie group required more from people than kinship. While i t is clear that increases in productivity with in d u strializa tio n reduced the number of 8 8 . people involved in agricultural production, i t is also clear that i t lessened the responsibility of the individual who resided in the community. I t is necessary, however, to emphasize and keep the per petuity of its members in order to remain a viable social group. This is , of course, true not only of an agrarian society but of an i j industrial society as w ell. In the case of the ie group, this means j that the group is capable of employing economic sanctions which, in ' j turn, also allow the people to function as a cohesive social group. In this manner, the group c la rifie s and strengthens the perpetuity of | the group a f f ilia t io n , while disregarding kinship, residence, and ’ | individual qu ality. * Japan's modernization and in u s tria liza tio n began in 1868, about a century la te r than the B ritish Industrial Revolution. Before 1868, t I j Japan experienced about two and a half centuries of feudalism, namely, ! the Tokugawa period. Notably, Max Weber points out that the purest I forms of feudal ism were estab!ished in Europe and Japan. I t is true that the development of urban centers lik e Osaka and Tokyo (at that time, called "Edo"), combined with a rise of commerce and a merchant class, brought commercialization and, in turn, the erosion of feudal economy. But the industrial capital capable of supporting a .new modern society was s t i l l very much underdeveloped at the time of the M eiji Restoration (1868). In simple-terms, i t was the Western im perialist powers which fo rcibly broke down the .isolation of Japan's feudal societyM and, in turn, stimulated her drive (or urge) for modernization and in d u s trializa tio n . 89 I ' . The concept of the ie group was formalized for the warrior class, or "samurai," in the Tokugawa feudal period, which preceded the M eiji Restoration. However, this concept was not only preserved but also strengthened by the M eiji government. There are two reasons: One was the necessity of establishing a modern centralized society, and the | other was the necessity for rapid capital accumulation to promote i j in d u s tria liza tio n . I F irs t, whatever its form, feudalism is a decentralized system in j i comparison with the structure of modern industrial society; thus, the j ( j transformation from feudalism to modernity requires the centralization | of society. In addition, the Tokugawa feudal system was class- ! structured, even though the class boundaries were very loose compared j I with the caste system of India. This class structure was a barrier to l j | modernity and in d u s trializa tio n , and thereby had to be broken down. t For this purpose, the ie group was considered by the new government ! leaders as the best way to achieve desired results, because this phenomenon emphasizes genealogical linkage as a determinant of family status. In Japan, i t was clear that the imperial family had the most respectable such linkage, one which supposedly could be traced back to the beginning of Japanese history. Under this superior imperial genealogical linkage, the old feudal class status lost its meaning. All fam ilies became le g a lly equal despite th e ir former class status. ! Because the imperial family was at the top of the social hierarchy in | accordance with the concept of the ie group, society became centralized 90 ;through organizing the government, centered around the imperial family. Second, i t is said that the concept of the ie group "had a good deal to do with the in d u s trializa tio n of Japan a fte r the M eiji 2 period." Under this concept, the elder sons are favored to in h e rit the family headship and property. In practice, the younger sons may * I recieve a small portion of family property and, in turn, establish branch fam ilies. But when the family property is very small, this d ivisio n .o f family property may indeed endanger the longevity of the i [ family linkage. Consequently, as long as there exist employment I j opportunities somewhere else, then younger sons leave the family and ! seek a livelihood elsewhere. This practice ensured the steady supply ! < J of a labor force necessary for in d ustrialization for a long period of i ! time. Under this inheritance system, the head of the family has an I ! , obligation to take care of younger sons i f they f a ll on hard times. i * ■ i j This permitted considerable savings in social welfare expenditure in I ! the course of Japan's in d u s tria liza tio n , and also reduced the social : unrest caused by the transformation of society from feudalism to t | modernity. More importantly, there was another advantage in this I | inheritance system, which the government exploited for the promotion of I | in d u s tria liza tio n . This was to avoid the dispersion of capital and the decentralization of its formation. I t is p a rtic u la rly financed by taxes upon agricultural production, and thereby the division of land below a certain acreage might undermine the tax-paying capacity of families engaged in agricultural production. But the inheritance 9 1 j system in the concept of the ie system enabled the family property to be kept in ta c t, and therby also th eir tax-paying capab ility. In short, i f the transformation of feudalism to modernity in the West was based upon the establishment of individual freedoms and-rights i I |and the accumulation of industrial c a p ita l, Japanese society was I transformed upon the concept of the ie group because of its late s ta rt in modernization and in d u s tria liza tio n . In addition, comment should be made on Japanese employment • : practices, namely, the life -tim e employment and seniority system, in | i relation to this historical background of the concept of the ie group. } i (These practices w ill be elaborated in the next section.) I t is sometimes said that the"1ife-tim e employment and seniority system began * i | to emerge during the 1920's, based upon the demand of domestic workers i I who f e l t the threat of immigrant labor brought from Korea and Taiwan- | (at that time, parts of the Japanese empire). But the emergence of I | these practices cannot be explained without reference to the soial structure based upon the concept of the ie group and effects of in d u s trializatio n upon i t . By the 1920's, Japanese society has already experienced over f i f t y years of in d u s trializa tio n l This in d u s tria l ization caused a breakdown of family relations in two ways. One, industrialization supported by taxes upon agricultural production caused the impoverishment of tenant-farmers and th e ir fam ilies. In relation to th is , a second factor was the gradual breakdown of family relations between elder and,younger sons and, in turn, between farm and 92 c ity . Thus, workers in c itie s became gradually unable to depend upon th e ir family ties at times of hardship, and, in turn, they started to lose th e ir id e n titie s with their-natural farm fam ilies. In this s itu atio n , i t is no wonder that workers looked for alternative sources of th e irid e n titie s and,in turn,called for th e ir employers or companies to provide such id en titie s in terms of the life -tim e employment and seniority system. Moreover, i t is not d if f ic u lt to see that this tendency was aecentua;tbdii under the new postwar constitution, which emphasizes individual freedoms and rig h ts 5and, thereby, promotes nuclear fam ilies. i i Main Aspects of Ie Structure j In his book, Iemoto, Francis Hsu observed the group a f filia tio n of 1 3 the Japanese, and stated as follows: . . . For a m ajority of Japanese the secondary group away > I from the household of th eir origin is primary, . . . How- ! ever, in contrast to the Western individual's urge for | j a f filia tio n in non-kinship groupings, the desire of the j Japanese for such non-kinship a f filia tio n involves no rejection of kinship either as an ideology or in practice. For Hsu, the non-kinship a f f ilia t io n of the Japanese is defined as "k in -tra c t," because the act- of joining is considered as a voluntary decision, lik e the decision of making a contract, while relationships between members of a group are lik e those between parent and child despite th e ir fic titio u s or psuedo-kinship nature. Pseudo-kinship, indicated by the term, "no rejection of kinship," does not necessarily exclude real kinship relations; but, i t does d e fin ite ly assume an unlimited involvement of a ll the members of a group for an unspecified period of time. Usually, an unspecified period of time indicates 93. __ total involvement, both emotional and physical, for a life tim e . In short, pseudo-kinship is a non-kinship a f filia tio n that assumes the', i • 4 perpetuity of the group. I t i i s for this reason that Hsu's "kin- tract" is considered an essential quality of group a f f ilia t io n employed by the ie group. The traditional manner of geneological perpetuity of the ie group — a continuous linkage from father to son as a pattern of succession — is not absolute. Genealogical linkage does not guarantee a capable leader, and i t is for this reason that the linkage should remain J somewhat open. This openness allows a capable man the opportunity to i j become a member of the group. Harumi Befu, in'.her examination o f the i dozoku group, explains the alternatives to genealogical linkage 5 succession and c la rifie s three d is tin c t phenomena of these choices: (1) "muko-yoshi," (2) "kai-yoshi," and (3) "saiko." Muko-yoshi is the j : . ! J term that describes the making of a man (often without kinship or other ‘ relatio n sh ip ), through adoption or marriage, the heir of an ie group. W hen there is no h e ir, or i f the heir is judged incapable or incompe te n t, muko-yoshi is the manner of selection of an heir. Kay-yoshi occurs i when a total stranger buys an ie group and, thereby becomes the heir. Usually, the group is a small group on the verge of bankruptcy, and this purchase guarantees its perpetuity. Saiko describes the re establishment of an ie group by a total stranger. For Befu, these phenomena indicate that perpetuity of the ie group is of primary importance while continuity of the blood'.line is secondary. 94, ;.v / C haracteristically, the second and third of these phenomena do ! not create ie groups based upon pseudo-kinship, while the f ir s t phenomenon uses the pseudo-kinship relationship for perpetuity of the g group. According to Seiichiro Kitano, the reasons are as follows: v '.-.-. the authority within the family is supreme and fin a l, but the family headship and the family property are considered to belong to the family it s e lf in order to unite and maintain the family as a group permanently, though both are under the control of the fam ily, which demands its [the family head's] contribution, [who] is obliged to contribute [to] i t [the family] through the proper exercise of ie authority entrusted to him. In addition, the separation of genealogical and functional 1 7 ; hierarchy is important for perpetuity of the ie group. (The ; hierarchical order of the ie group and its administrative structure ; | w ill be explained la t e r .) Genealogy assumes a kinship hierarchy, | which determines the rank or the status of each member and his family | or fam ily's relatives in terms of a genealogical linkage. Genealogical I hierarchy correctly reflects the structure of control as long as i t is j functional in terms of its'.capabil i ty for perpetuity. Even though the j head of a family ie group, as Kitano indicates, may have real power in a decision-making process, i t is also true that genealogical hierarchy tends to become a rig id structure of control and, in turn, endangers perpetuity of the group. This tendency is probably more apparent in a large, rather than in a small, ie group. As a re s u lt, the separation i i i of genealogical and functional hierarchies makes the separation of ownership and co n trol, stated by Kitano, closer to the c a p ita lis t d e fin itio n of separation and control, and the ie group sim ilar to corporate separation and control. Consequently, the ie group is formed not only upon a pseudo-kinship basis, but also upon a r t if ic ia l genealo gy. This type of a f f ilia t io n employed by an ie group may be described as "consanguinity of the Japanese style." Consanqui h ity of the Japanese Sty!e Among the members of an ie group, "consanguinity of the Japanese style" has two aspects — in terms of kinship, residence, and/or individual quality — equality and hierarchical order. These aspects clearly contradict each other, because equality means full-merabership | and, in turn, equal status, while hierarchical order indicates in equality of members. There are always these contradicting aspects in any family or family type structure. In the ie group, the family relation is replaced by a pseudo-kinship relationship resembling that of parent and ch ild. For example, the Japanese words "oya-bun" and i "ko-bun" are translated in English to mean boss and subordinate (oya- I I kata and ko-kata, and yado-oya are other Japanese terms with the i , ♦ meaning of boss and subordinate.) These translations are also used to indicate th e ir hierarchical relation to each other; the parent, oya, and the c h ild , ko. When these words are paired with another, such as oya-bun or ko-bun, the relationship expressed is based upon pseudo kinship; thus, the relationship is considered to assume hierarchical order but also equality among members of the family or family type group. In contrast to the in d iv id u a lis tic societal concept of the West, consanguinity of the Japanese style might seem to be a weak group a f f ilia t io n , making its members a motly crowd rather than a genuine ; social group. However, the blend of hierarchy and equality in Japanese groups contributes to th e ir cohesion. The strong sense of equality among group members reinforces th e ir dependency upontthe group for th e ir id entity and support. This results in a cohesive group a f f i l i ation or "amae." Hierarchical order also strengthens group a f filia tio n because an individual's sense o f bondedness to a group derives its practical content from relationships with members of the group hier- i i archy. Additionally, both equality and hierarchy co-exist in the ie 1 I group because they are fused through the behavior of "amae" and the ! i ! Confucian concept of "on," as shall be described. I A strong emphasis on equal ity'lleads to the distinction of a j member or a group against non-member or an outside group. For example,! j the words, "mi-uchi" or "uchi4no-mono" are often used to d iffe re n tia te ! membership in.an ie group from people outside the group. In this I context, the "uchi" means household and, in turn, group; both mi-uchi l and uchi-no-mono mean member of a family or group. The distinction between member and non-member is further strengthened through inducing dependent behavior for g ra tific a tio n among members of the group. This 8 dependent behavior, as noted, is called "amae." For Takeo Doi, freedom for Japanese tra d itio n a lly has meant the freedom to "amaeru," that is , a verb form of "amae." While the Western concept of freedom presupposes the presence of individual existence over that of the r.::; group, the Japanese concept of freedom exists only in the group, the 97 uchi. The behavior of amae thus indicates the member's dependence- !upon land, thereby, in a b ility to distinguish himself from the group. Concisely, equality becomes the basis to induce dependent behavior of members of an ie group in order to strengthen the distinction between member and non-member and, in turn-oto raise the unity of the group. In order to understand the concept of "on," the meaning must be c la rifie d . The lit e r a l meaning is "the benevolence of favor of the ru le r, feudal lo rd , or parent, but its meaning has altered in most I usage to signify the unlimited debt of gratitude or obligation of the g recipient to the bestower of this grace." The concept of "on" is | derived from Japanese feudal society and is regarded as a code of 1 ; ethics among the Japanese. With this concept in mind, i t is easy to ! understand that underlying the existence of a hierarchical relationship ! i between the recipient and the bestower is the acceptance of constituted I I authority. In this sense, the concept of "on " blends easily with I j the hierarchical order of consanguinity of the Japanese s ty le . ! According to Takie L e b ra ,^ however, the concept of "on" is based upon a . unilateral and asymmetric obligation, which the recipient views as lim itless and unpayable; consequently, i t generates social strain and, in turn, necessitates some mechanism to operate against the strain. Lebra id en tifie s several balancing mechanisms. Among them is the "manupulation o f dependency-dependability expectation," which pertains d ie rc tly to the concept of "amae" and "on." Lebra explains this mechanism as fo llo w s :^ As we characterized asymmetric reciprocity in terms of one 98 u* way dependency, the on relationship tolerates or even pre supposes one party's total dependence upon the other. The benefactor w ill see to i t that his favor is accepted, or else suffers a loss of face. Dependency, therefore, which • generates receptivity to an on is status appropriate j expectation of a potential on-receiver. For Lebra, the concept of "on" is thus considered to encourage, rather than reduce, the behavior of "amae" as a stru ctu rally imposed norm, violation of which is punished. I t is in this way that equality and hierarchy are fused together upon a basis of symmetric reciprocity of » j "on" and "amae." j The fusion of equality and hierarchy makes the administrative structure of the ie group amazingly delicate and in tric a te because, while there exists an apparent hierarchical order, equality assumes a council system as a basic decision-making process of the ie group, j However, equality and, in turn, the council system are restricted by ; the symmetric reciprocity of "on" and "amae." Symmetric reciprocity is | performed ideologically between a head of a group and its members; but in r e a lity , each member senses the "on" of a head and exercises "amae" 1 through relationships with his superiors with whom he is in constant j touch. In this manner, the symmetric reciprocity is actually performed | by the relationship of superior and subordinate. While relationships are hierarchically chained toward a head of a ie group, the application of equality and the council system are thus lim ited within each relationship. The administrative structure of the ie group is characterized by "exuding hierarchy" (shown Figure l.B ) , in which sub groups, formed upon the basis of equality, overlap hierarchically. 99 Traditional lin e hierarchy, illu s tra te d in Figure 1 .A, excludes such overlapping. | In the administrative structure of the ie group, the ethic of "on" and the norm:, of "amae" determine the actual roles and obligations for each member to perform in his relationships with his superiors and/or subordinates. In his book, Socialization for Achievement, George De 12 Vos discussed this aspect of the Japanese society as follows: . . . Living in accordance with one's prescribed role within the family and social hierarchy was the ultimate basis of moral"values, subjectively sanctioned by one's own conscience and objectively reinforced by the informal sanctions of the community and the state. Thus, the fa ilu re to perform one's role and obligation w ill e l i c i t sanction — personally, in the sense of shame or g u ilt, so c ia lly, I j | j and/or economically. In turn, consanguinity of the Japanese style is j ! the basis of personal, so cial, and economic sanctions. However, the * ! roles and obligations of each member exist in relations with superiors and/or subordinates, but not by' themselves,„ amd characterize the member as a lin k in the hierarchical chain of the ie group. Moreover, i f some member fa ils to perform a particular role or obligation assumed in his relationship with a particular superior, i t w ill result in the immediate superior losing face and also losing the confidence of his superior in terms of his fa ilu re to adequately supervise the member. Because of the administrative structure of the ie group, responsibility for the performance of subordinates' roles and obligations are h ier archically chained toward the head of a group; in turn, the group as a whole becomes responsible for the social conduct of its members (re la tiv e to those outside the group). Thus, the internal administra tiv e structure of an ie group is based upon the principle of jo in t resp o n s ib ility, because responsibility of a member to, perform sub-'. . ordinate roles and obligations is always shared by one's superior. Summary In summary, the concept of the ie group is defined by three interrelated characteristics; ( 1 ) ( a r t i f i c i a l ) genealogy, as a goal or purpose, (2) consanguinity of the Japanese s ty le , as an a f f ilia t io n basis, and (3) functional (exuding) hierarchy, as an administrative structure. I t should be noted th a t, even though they exist regardless of group sizes, these characteristics are more apparent in large groups than small groups. However, a ll ie groups are d is tin ctiv e and, j j in turn, independent e n titie s of society, sim ilar to, but more cohesive than, the corporations of the West. This is due to the fact that the groups are the bases of th e ir members' social id en titie s and, as such, are responsible for the social conduct of th eir members. In society, a man does not have his own id en tity and resp onsibility; in the group, he is characterized by roles and obligations. His responsibil ity to perform .his duties is shared by his superior. Thus, because the ie group is based upon the principle of jo in t responsibility, i t may be considered a non-individualistic social group. Incidental Adriiinistrative Systems The "incidental administrative systems" are defined here as the in s titu tio n a liz a tio n of various necessities or accompanying aspects of TOT the ie group which appear in modern bureaucratic Japanese organization. iThere are criticism s of these administrative or managerial systems;in Japanese organizations, especially in industrial relatio n s, in the context of the Japanese culture. F irs t, these administrative procedures are re la tiv e ly new practices. They emerged a fte r World War I , became prominent a fte r World War I I , and re fle c t the economic and market conditions of those times. Second, these procedures are confined to re la tiv e ly large organizations. In general, the criticism s are based upon some version of economic and/or technological determinism. i Whereas the Japanese outlook appears quite d iffe re n t from th at of ; others, c ritic s stress the ifunctional equivalence between the Japanese and other Western systems* However, those criticism s fa il to answer why the administrative systems are enforcable and acceptable in Japan but, in general, do not appear in other industrial societies of the [West. Even though these criticism s are not to ta lly in v a lid , i t is necessary to examine these administrative systems in relation to the iconcept of the ie group, the widely accepted basis of the Japanese i society. To more easily explain and fa c ilita te understanding of the administrative system of the ie group, two procedures must be examined: ( 1) the seniority system and life -tim e employment; ( 2 ) the ring! i * system and the nemawashi process. 13 Seniority System and Life-Time Employment In Japan, both public and private bureaucratic organizations employ a substantial number of high-school and university graduates every 102 spring, and the promotion and replacement of personnel are administered jWithin the organization. Presumably, personnel management of this 'magnitude involves a conscious attempt at making long-term investment of personnel possible and profitable while avoiding the discontinuity of business by bringing in people from outside. The seniority system and life -tim e employment are considered as integral parts of this type of personnel management. In turn, this kind of management is widely attributed with contributing s ig n ific an tly to Japan's spectacular economic performance. For this reason,vthe seniority system and l i f e time employment of Japan, plus enterprise unionism, have come to be 14 called the "three sacred treasures." Essentially, the seniority system and life -tim e employment are designed to maintain a stable labor force within the organization. These systems were p articularly i isuccessful during the labor shortages of the 1950's and 1960's, caused by Japan's rapid economic growth. Such successes are achieved through reinforcing the employee's sense of belonging and lo yalty to his/her organization. Thus, the seniority system and life -tim e employment are considered to be well-adapted to the ie group-based society. The seniority system, or "nenko-joretsu-seido," in its purest form, is an in s titu tio n to determine the rank, and the wage, of an employee according to the duration of his/her service, rather than of s k i l l , past experience, position, or responsibility. In her book, Human Relations in Japan, Chie Nakane explains the seniority system with regard to 15 social relations of the Japanese as follows: 103 In fa c t, the re la tiv e strength of the functioning of human I relations in Japanese society tends to be proportional to I the length and intensity of actual contacts. This is the I very aspect that frequently becomes an important factor in determining an^individual's position in a group » . . This also provides the breeding ground for the seniority system. Nakane continues to comment on :the importance of the individual's 1 fi membership in the group as follows: i . . . in any social group in any fie ld in Japan the length of an individual's membership in the group always has a substantial e ffe c t on his position, on his rig h t to speak, and on the use of his righ ts. In other words, the length of the individual's actual contact with the members of the group has, in it s e lf , become his private social c a p ita l. Since, however, this capital is not transferable to any other group, a move from one group to another would result in a heavy loss to him. i jFor Nakane, duration of service is considered as a corollary to the . length of an individual's membership in a group — notably, in an ie group; the length of membership also constitutes the hierarchical |difference in members otherwise characterized by equality. However, why is actual contact with members of the group so important? Or, why is private social capital untransferable? In order to answer these questions, i t is necessary to examine the phenomenon of life -tim e . employment in Japan. Life-tim e employment, or "shushin-koyo-sei," does not mean only to |hire the labor.power of an individual until retirement age. I t connotes employment of the person as a whole. This is expressed in Japanese by the term, "marugakae," and translates to mean, to embrace and support com pletely.^ Whether or not i t is a contractual agreement between management and a labor union, an organization becomes responsi- 104 jble for looking a fte r a ll the details of employees' business and c.; personal liv e s , including th e ir fam ilies. In turn, i t regulates, in accord with its trad itio n or standard, not only the conduct of th e ir lives but also th e ir ideas and ways of thinking. However, the actual daily responsibility is borne by supervisors who are in constant touch with th e ir employees, because the relationship between superior and subordinate does not constitute a simple hierarchical order but a * family relationship based upon the symmetric reciprocity of "on"and "amae." A relationship of this nature is most often typified by the working relationship between the_;superior and the subordinate with job assignments based upon that association. Because the superior's status is not threatened by the performance of subordinates, work relationships tend to be more cooperative and equable, and the division of labor less l rig id than in trad itio n al Western hierarchies. Consequently, assign ments are completed with dispatch. Of course, the relationship is also considered a basis of sectionalism and a cause of power struggles in Japanese organizations. However, the two main purposes of the rela tio n ship are: ( 1) to provide security of future expectations for em-'’ \ . ployees, which, in turn, reinforces the mechanical promotion system based upon se n io rity, and ( 2 ) to establish a collective id en tity which a ll the employees share and id e n tify with. Since "the individual's actual contact with members of the group" is based upon the rela tio n ship of superior and subordinate, the loss of "private social capital" would cause insecurity of future expectation and a loss of id e n tity . Even i f this were only a move to another organization, i t involves [serious considerations for a man and his fam ily. While the seniority i | i ^system or life -tim e employment independently would make l i f e more > I I .desirable for employees of Japanese organizations, the two together constitute the superior-subordinate relationship, the symmetric reciprocity base of "on" and "amae." Moreover, this relationship raises the sense of the employee's belonging and lo yalty through providing security of future expectations and establishing th e ir organizations as a major source of id e n tity . Concisely put, Japanese bureaucratic organizations have been consciously, or unconsciously, designed to J j create and in s titu tio n a liz e consanguinity of the Japanese style through th e ir personnel management practices. Japanese bureaucracies are organized to take the approach of the generalist rather than the s p e c ia lis t, because they reshuffle annually I not a l l , but many, personnel from one section, bureau, or branch o ffice to another. In addition, the generalist approach is an indispensable jpart of th e ir personnel administration, that is , the seniority system and life -tim e employment. F irs t, the generalist approach, in any individual instance,!is more time-and-money consuming than the specialist approach. However, life -tim e employment makes a generalist approach feasib le. The investment a company makes in an individual yields sig n ifican t benefits over the individ ual's working life tim e — benefits which are captured by the company because of the life -tim e employment system. Second, i t makes the seniority system a very 106 J deliberate promotion process in terms of judging each person's a b ilitie s not only to handle his assigned business but also to relate to and with his colleagues. Third, i t reinforces the sense of belonging and lo y a lty , since i t enables every person to experience many aspects of an organization and to work with others in various sections, bureaus, or branch offices at one time or another. .. Essentially, the generalist approach stimulates horizontal communi cation between sections, bureaus, and branch o ffice s, while the . seniority system and life -tim e employment provide the basis of the hierarchical system. I t is clear that, even though i t is not primary, the generalist approach reduces the d iffic u lty of making unanimous rule a principle of the decision-making process of the Japanese bureaucratic organizations. 18 The Ringi System and the Nemawashi Process In contrast to the m ajority rule of the West, the general ' decision-making process of the Japanese is considered to be based 1 Q upon the unanimous rule system. Simply put, m ajority rule decides the winner and the loser through open confrontation of two or more sides; but the rule is so contentious that i t bruises the ego of the loser. Through the discussion in the previous section, i t is clear that Japanese society, based upon the concept of the ie group, emphasizes harmony and, in turn, has to avoid the creation of bruised egos. P articu larly in p o litic s , such bruised egos may hamper regular administration of the government. 107 _ _ _ i Even though i t is a corollary of the council system of the ie group, unanimous rule has p articular importance for modern bureau cratic organizations in Japan. This is because they practice l i f e time employment. In the Western context, bureaucracy is considered to be based upon hierarchical control. Assuming the life -tim e employment practice, harmony becomes an essential quality for smooth operations, and thereby unanimous rule becomes necessary for the decision-making process in Japanese bureaucratic organizations. For the implementation of unanimous ru le , there are two procedures: One is the ringi system, and another is the nemawashi process. The ringi system is sim ilar to the clearance system and the memorandun-distribution-for-information system in the public bureau cracies (and m ilita ry ) of the United States. M. Y. Yoshino, in his book, Japan's Managerial System, describes the ringi system as -c n 2 0 follows: . . . [the ringi system] is a term used to describe a particular process of decision-making widely used in large Japanese corporations. . . I t represents a basic philosophy of management deeply rooted in Japanese tra d itio n . The word ringi consists of two parts - r in , meaning "submitting a proposal to one's superior and receiving his approval," gi meaning "deliberations and decisions." The ringi system has, indeed, a ll of these features. The'ringi system is a process to which the parties a ffix th e ir seals as signs of th e ir agreements. In the case of a government m inistry, for example, a document called "ringi-sho" is circulated in the sequence shown in Figure 2. As the figure indicates, the ringi system is an in stitu tio n alized exuding hierarchy. This form of 108 a hierarchy seems suitable for an organization based^~p^^h^^enu)Fity system and life -tim e employment, both of which stimulate widespread participation in decisions. I t is clear that the ringi 'system*is devised to allow wide participation of members in the decision making process as a decision-making process, the ringi system does not guarantee unanimous agreement, with the collection of the necessary seals, i t there is even one opposition to the content of the document. I t therefore becomes most important that basic agreement is reached before the document is circulated through the ringi system. C learly, the system is a part, but not the whole, of'-the decision-making process based upon unanimous rule. The word "nemawashi" means "the preparation made in advance of -r 21 transplanting a large tree." In a decision-making process, the term usually refers to informal consultations in bureaucratic practice,which are sim ilar to "behind the scenes" le g ils a tiv e maneuvering to garner support or backing for a measure in the United States. Since unanimous rule is assumed in the decision-making process,it is necessary for i p a rtici pating members to reach basic agreement beforehand, that * i s , 22 through the nemawashi process. But the question is , how does this process ensure that basic agreement is reached among the participating members? Referring again to Figure 2, i t is shown that agreement c cumulates in each section and bureau u ntil i t becomes unanimous; conse- jquently, in the nemawashi process, i t is necessary for superiors to mediate and unite subordinates' opinions. I t is in^such instances that the symmetric reciprocity based upon the cohesive relationship between 109, superiors and th e ir subordinates comes to tfie“?ore. Because of this relationship, the principle of "give and take" w ill be applied; there by, subordinates w ill be persuaded by there superiors. After agreement is reached in each consecutive section or bureau, the fa ilu re for a superior to persuade his subordinates would mean loss of face for him and loss of support for his subordinates. I t is , then, the reciprocity based on "on" and "amae," the relationship between superior and sub ordinate, that makes unanimous agreement reachable in the nemawashi process and practical in the ringi system. In short, the ringi system and the nemawashi process together constitute a complete process of "decision-making for consensus" and in s titu tio n a liza unanimous rule in Japanese bureaucratic organizations. C learly, the formal side must involve an informal side to complete the « decision-making process based upon unanimous ru le. Even though the ringi system and the nemawashi process have sim ilar in stitutions in the ! West and are not unique independently, the combination of these techniques makes the Japanese decision-making process d iffe re n t from that of the West. However, the personnel management of the Japanese bureaucratic organization is credited with highly unanimous ru le. Thus,, the ringi system and the nemawashi process are considered the decision making processes that in s titu tio n a liz e the administrative structure of the ie group. In contrast to the ringi system, which seems to depend upon t in itia tiv e s of the lowest echelon and, in turn, to indicate a bottom- up process in the Japanese bureaucratic organizations, leadership in these organizations is provided by junior executives. Notably, this does not mean that the top executives can not or w ill not exert th eir leadership in making business policy or le g is la tiv e measures, but rather that actual responsibility to run an organization tends to fa ll upon junior executives. In an organization in which hierarchical order consists, of relationships based upon the symmetric reciprocity of "on" and "amae," or superior-subordinate partnership, junior executives are positioned to exert great influence upon th e ir sub ordinates in drafting documents or executing policy or measures while at the same time complying with the views of top executives. However, the greater the exertion of leadership by junior executives, the larger the degree of the junior executives' responsibility. Summary I t has been explained that the seniority system, life -tim e - employment, the ringi system, and the nemawashi process, are incidental administrative systems of ie groups. Moreover, these systems : characterize contemporary large-scale Japanese organizations, such as business corporations and government m inistries and, in e ffe c t, constitute bases of bureaucratic organizations, both private and public. Because of these systems, however, there arises a number of differences between Japanese and Western bureaucratic organizations. In short, these differences are summarized as follows: F irs t, the Japanese take a generalist approach to organized personnel, while the Western approach is based upon "specialization of s k ills and function." Second, the hierarchical order of the Japanese is largely established upon the seniority system. Third, the discretion of personnel in the Japanese organization is more lik e ly to be influenced, and thereby determined, by reiations to superiors. Concerning the "conscious adaption of means to ends," f o u r t h ju n io r executives tend to have more control of organizations in Japan than in the West. Besides these "incidental" differences, two fundamental differences ex ist between bureaucratic organizations of the Japanese and the Western. One is that the Japanese organizations are essentially communitarian, and the other is that they are based upon the principle of jo in t responsibility. The seniority system, 1ife-time,employment, the ringi system, and the nemawashi process, raise interdependently the sense of an employee's belonging and lo yalty to an organizationsand, thereby, make the employee's and his/her fam ily's lives depend heavily upon the organization. While the organization has responsibility to look a fte r the welfare of individual employees and th e ir fam ilies, th e ir future prospects depend upon how well the organization w ill do in its business and, thereby, how hard they work for the organization. I t is thus considered that Japanese organizations provide a communitarian framework for th eir employees. O n the other hand, these systems together make unanimous rule an administrative principle of Japanese organizations. Under unanimous ru le , the number of personnel involved in the decision-making process depends upon who w ill be affected by the decision. In turn, responsibility fa lls upon the relationship between superior and subordinate, since superiors actually have _______________________________________________________________________________________________________117]' responsibility for looking a fte r th e ir subordinates. In other words, Japanese bureaucratic organizations are based upon the principle of jo in t, not in d iv id u a lis tic , resp onsibility. In contrast to the modern bureaucracy of the West, the Japanese bureaucratic organizations are thus considered no n-individualistic. Communitarianism and Inter-Group Competition In :the previous section, i t was explained that both private and public bureaucratic organizations in Japan establish and in s titu tio n alize th e ir administrative systems upon the concept of the ie.group. As a re s u lt, they are characterized as non-individualistic and communitarian. Now, the question is how the Japanese economy, consisting of these bureaucratic organizations, is coordinated. Its economic coordination is often described as "Japan In c .," which indicates the strong leadership or command of the government over the business community. However, the Japanese government spends a much smaller percentage of Gross National Product than those of the West. According to the amount of public spending, i t cannot be said that Japan's role is more decisive than that of other Western states. Then, why does the image of "Japan Inc." emerge? In this section, the question w ill be answered in terms of the dynamic of the ie group, namely, communitarianism and inter-group competition. As e a rlie r discussed, bureaucratic organizations emphasize the importance of harmony, unanimity, and jo in t responsibility among th eir employees, which is secured and strengthened by the relationships of superior and subordinate. I t has often also been observed, however, 113. that Japanese hierarchies exhibit considerable competitiveness among employees, notably among those hired in the same year. In Western hierarchies, such competitiveness normally is associated with f d iffe re n tia l pay, based upon presumed differences in a b ility and performance. Japanese organizations, by contrast, are characterized by equality as well as hierarchy. This equality is reinforced by Japanese hiring practices, namely, attempts to annually rec ru it employees with sim ilar age, educational and social backgrounds. According to Chie Nakane, this equality (Nakane calls i t "egalitarianism ") stimulates competitiveness, because " i t gives individuals (the competent and the incompetent) confidence while 24 causing them to continue to put forth effo rts unsparingly." The bases of' this view are as follows: F irs t, the seniority system and life -tim e employment minimize inequalities and pay d iffe re n tia ls on a short-term basis. However, at retirement age, the most successful employees are retained as executives and become members of the board of directors, whereas the overwhelming m ajority are retired with a lump-sum payment. The lure of a large prize at the end of one's career — equivalent, in e ffe c t, to becoming a "favorite son" of the family — provides a strong incentive to succeed and progress in the hierarchy. Second, although d iffe re n tia l rates of promotion (and, thereby, also salaries and bonuses) are small, they do e x is t. More-* over, because a b ilitie s of colleagues are presumed to be equal, differences in performance are associated with differences in e ffo r t, and are rewarded by faster promotions. Third (a point not mentioned 114 by Nakane), this stimulus of d iffe re n tia l performance may appear to be nothing more than in d iv id u a lis tic competition of the Western society. But this appearance is deceptive because employees are necessarily organized upon the relationship of superior and subordinate as long as th e ir relationship is bound by the principle of jo in t responsibility. An important consequence of jo in t responsibility is that superiors spur subordinates on to greater e ffo rt and achievement because, in the system of jo in t resp o n sib ility, their performance.is assessed in combination with that th e ir subordinates. Since superiors have responsibility to look a fte r th e ir sub ordinates, including th e ir private liv e s , i t is natural that relatio n ships continue u n o ffic ia lly or at a private level a fte r o ffic ia l relationships are dissolved by an annual personnel reshuffle. Whether i t is o ffic ia l or personal, the relationship between superior and subordinate means an opportunity for a subordinate to gain a superior's personal patronage and for a superior to acquire a subordinate's personal lo yalty; consequently, subordinates gather around able superiors who have promising futures and who take care of subordinates w ell. Such gatherings are organized through the hierarchical order of the past and the present and emerge as factions, or "habatsu," for 25 future power and leadership of an organization. As long as superior and subordinate are bound by the ' principle of jo in t responsibility, the factional competition is thus a form of competition in Japanese bureaucratic organizations. 115 c As jo in t responsibility with an organizatio n 'leadsinto group responsibility in society, factional competition is unified within an organization and directed toward other organizations engaged in the same business or social a c tiv ity . Since organizations in the ie society are independent (and, in turn, d is tin c tiv e ) and have communitarian frameworks, the sense of belonging or lo yalty they raise among th e ir members is considered to have two purposes: One is to unify the factional competition upon a basis of each organization, and the other is to channel the factional competition into competition between organizations. However, competition between organizations is essentially the same as factional competition, because the boundaries of both competitions are determined by the sameness of a c tiv ity of business. In other words, factions or organizations compete with each other within an organization or the society (or market), because they engage in the same a c tiv ity or business. Like the relationship of an organization to its factions, the society (and its market) becomes the communitarian frame for organizations when they face a com mon th reat, such as, for example, recession or foreign competition for business corporations. (This aspect of industrial organization w ill be explained la te r in relation with roles of the government bureaucracy.) 2 6 Here, such a form of competition is called "inter-group" competition. Through the above explanation, i t is clear that inter-group competition indicates an ascending expansion not only of it s e lf but also of communitarianism. However, Nakane has described another 27 consequence of inter-group competition as follows: 116 i . . the competitive urge [drives] every in s titu tio n or group of in stitutio ns to im itate the pattern of the sim ilar in s titu tio n which stands rig h t at the top of the hierarchy: rivals and competitors seek for the source of the success of the in s titu tio n at the top in its operational pattern. Hence, a 'standard pattern' always tends to appear in every fie ld of a c tiv ity . While Nakane describes this phenomenon in relation to the "one-set" principle (which w ill be explained sh o rtly), the standardization of operational patterns is considered to widen the domain of commun- itarianism and to enlarge the unit of inter-group competition. In turn, i t appears as two types of industrial groups: One is the vertical type, in which a business corporation and its subcontractors are organized s e lf-s u ffic ie n tly , and the other is the horizontal type, in which a number of corporations (or subsidiaries) gather in comple mentary fashion. The two types do not necessarily exclude each other. I t is often the case that a corporation as a head of the vertical type is also a member of the horizontal type. In the vertical type, f i r s t , the relations between a corporation and its subcontractors (including subsidiaries) are based upon a hierarchical linkage, usually expressed in that subcontractors are "keiretsu" or of the line of a corporation. S ufficien t size must exist for each subcontractor to have its own subcontractor or number of subcontractors. In any event, the hierarchical linkage continues until i t reaches the bottom, that is , the household manufacturer employing only its own members. Thousands of subcontractors are in this way lined up to and constitute a pyramid under one giant corporation. For the vertical type, however, the hierarchical linkage 117 resembles basically characteristics of the relationship between superior and subordinate bound by the principle of jo in t responsi-” ‘ b ilit y ; in turn, the flows of business orders and parts supplies are restricted along and within the hierarchical linkage. Necessarily, subcontracters are integrated into the corporation's communitarian framework and are organized as competitive units, headed by a corpora tio n , in inter-group competition. In other words, the vertical type internalizes production and supplies of parts and constitutes s e lf- su ffic ien t production and supply lin es . I t is thus considered that hierarchical linkages and the vertical type are operational patterns standarized for Japanese enterprises. The horizontal type is further divided into two forms: One is the (contemporary) Zaibatsu form, in which a number of corporations are 28 involved in d iffe re n t industries. The other;is a complex form, in which a number of subsidiaries engage in business related to each other's. (Examples of both forms are shown in Table 1 and 2, . respectively.) However they may seem, both forms are considered to be based upon the "one-set" prin ciple. In relation to the standard- 29 ization of operational patterns, Nakane comments as follows: "The outstanding characteristics of the standard pattern is that i t shall cover a wide range of interests and include many varying items or services, thus completing a 'one-set' service that in it s e lf can f u l f i l l a ll the needs of a customer." Even though the complex form deals with a narrower scope of business than the Zaibatsu form, both forms are clearly complementary, and are 118 ------j Fiqure 1-A line“hierarchy Figure 1-B EXDUCING HIERARCHY Source: Yasusuke Murakami, Shunpei Kumon, and Seizabaro Sato, Bunm ei toshiteno Ie-Shakai [ i.e . Society as a C ivilization], Chuokoron-Sha, 1980, p. 247. Minister or President Vice-Minister or Vice-President Bureau Chief Section Chief Sub- Section Chief M > Figure 2 CIRCULATION O F RINGI D O C U M EN T Source: Kiyoaki Tsuji, Nippon-Kanryoseino Keukyu [The Study of Japanese Bureaucracy]. Tokyo: Tokyo Diagaku Shuppankai, 1980, p. 156. designed to f u l f i l l "all the needs of a customer" in the industry or the society, respectively. This characteristic of the horizontal type group makes the organization s e lf-s u ffic ie n t not only for its customer but also its member corporations. Because of theocomplementary nature of such corporate relationships, each member corporation refrains from inter-group competition with other members of its group; rather, each one is so organized as to be able to help others d ire c tly or in d ire c tly . In other words, the role and obligation of each member corporation are specified within a group so as to secure each other's existence, even though the relations of member corporations are more of a horizontal than of a hierarchical nature. In inter-group competition, the horizontal group provides a larger domain of communitarianism for enterprises to join and becomes a bigger (perhaps looser) unit of inter-group competition. Thus, the "one-set" principle of the hori zontal type is an operational pattern which has become standardized for Japanese enterprises. In order to distinguish the horizontal type from the vertical one, i t was e a rlie r stated that the horizontal type is the complementary gathering of corporations or subsidiaries. But as well as the vertical type, the horizontal type is also characterized by se lf-s u fficie n c y . Although the bases of se lf-su fficien cy are d iffe re n t in the two types of groupings, both types may be considered as a corollary of communitarianism and inter-group competition and, in turn, as a conse quential operational pattern standardized for industrial groups. In ____________________________ : ____________________________________________ m j other words, industrial groups are organized and coordinated through communitarianism and inter-group competition and, in turn, upon the basis of s e lf-s u ffic ie n c y . In Japan, i t can be said that the majority of giant corporations belong to industrial groups of one type or another (or both types); thus, communitarianism and inter-group competition are essential organizational and coordinative mechanisms in the Japanese economy. Moreover,'-i t is clear that the standardization of operational patterns and resulting parallelism of industrial group behavior tend to increase the number of enterprises engaged in the same industry or market beyond the number that would exist without standardization. A s u ffic ie n t number of enterprises or industrial groups would reduce market concentration and enhance market competition. But at the same time, standardization and accompanying parallel industrial group behavior pose a great danger of causing excess investment and, in turn, excess productive capacity, with which the market cannot deal fast enough to avoid severe damage in flic te d upon the industry. Since i t is d if f ic u lt for corporations or industrial groups, engaged in in te r group competition, to reach consensus without a communitarian frame, i t becomes necessary for contending corporations or groups to seek government leadership to solve the problem. As a re s u lt, communi-. i tarianism and inter-group competition standardize this dependent relationship between industry and government. But in which branch of the government does the industry seek the leadership? The answer is 122 government bureaucracy, namely, the M inistry of International Trade and Industry. In short, communitarianism and inter-group competition create an ascending process which makes the industrial organization of Japan hierarchically structured. 123 ___ < FOOTNOTES FO R CHAPTER 5 .1. . In the'i r book;, Bunmei-to-shiteno Ie-Shakai, Murakami, Kumon, and Sato state that the formation of the ie group is based upon the emergence of local feudal warriors in the tenth or eleventh century, and that there is a difference between societies before and a fte r the emergence of the ie group, namely, "u ji" society versus "ie" society. O n the other hand, Seimei Hi ra ta , a prominent Marxist Professor at Kyoto University, indicated in an interview with the author that the ie group developed from the Asiatic Mode of Production. The general.consus is closer to H irata's idea, since the ie group is often viewed as reminiscence of agricultural village-communal l i f e . See Yasusuke Murakami, Shunpei Kumon, and Seizaburo Sato, Bunmei-to-shiteho Ie-Shakai (The Ie Society as a C iv iliz a tio n ), (Tokyo: Chuokoron-sha, 1980), especially Ch. 5. 2. Tadashi Fukutake, The Japanese Social Structure: Its Evolution in the Modern Century translated by Ronald P. Pore, (Tokyo: University of Tokyo Press, 1981), p. 27. 3. Francis Le K. Hsu, Iemoto: The Heart of Japan (New York: Halstead Press, 1975), p. 62. 4. Murakami, Kumon, and Sato, op. ci t . , p. 229. j 5. Harumi Befu, "Corporate Emphasis and Patterns of Descent in the | Japanese Family," in Japanese Ctilture, edited by Robert J. Smith ! and Richard K. Beardsley, (London: Methuen and Company Limited, 1963), pp. 35-38. 6 . Seiichiro Kitano, "Dozoku and Ie in Japan: The Meaning of Family Genealogical Relationships," in Smith and Beardsley (e d ito rs ), op. c i t . , p. 44. 7. Murakai, Kumon, and Sato, 0£. c i t . , p. 234. 8 . Takeo Doi, The Anatomy of Dependence (Tokyo: Kodan-sha International L td ., 1973), pp. 42-43. 9. Edwin 0, Rieshauer, The Japanese (Cambridge: The Belknap Press of Harvard University Press, 1980), p. 13V. 10. Takie Lebra, "Reciprocity and the Asymmetric Principle: An Analytical Reappraisal of the Japanese Concept of On," in Japanese . Culture and Behavior, edited by Takie Sugiyama Lebra and William P. Lebra, (Honolulu: The University Press of Hawaii, 1974), pp. 194-196. 124, 11. Ib id . , pp. 198-199. 12. George A. De Vos, Socialization for Achievement: Essays on the Cultural Psychology of the Japanese (Berkeley: University of C alifornia Press, 1975), p. 12. ~ 13. See the following works for detailed study of Japanese labor- management relations: James C. Abegglen, Management and Worker: The Japanese Solution (Tokyo: Sophia University, 1960); Robert E. Cole, Japanese Blue Collar: The Changing Tradition (Berkeley: University of C alifornia Press, 1971); Ronald Pore, B ritish Factory - Japanese Factory: The Origin of National Diversity in Industrial Relations (Berkeley: University of California Press, 1973); Tadashi Hanami, Labor Relations in Japan Today (Tokyo: Kodan-sha International L td ., 1981); Robert M. Marsh and Hiroshi Mannari, Modernization and the Japanese Factory.(Princeton: Princeton University Press, 1976); and M. Y. Yoshino, Japan1s Managerial System: Tradition and Innovation (Cambridge: The M ITPress, 1971). 14. See the following works for discussion of the "three scared treasures": Haruo Shimada, "Japanese Employment System," Japanese! Industrial Relations, series 6 , (Tokyo: Japan In s titu te of Labor, 1980); and Organization for Economic Cooperation and Development, The Development of industrial Rdlatiohs Systems: Some Implications of Japanese Experience (Paris: OECD, 1977). 15. Chie Nakane, Human Relations in Japan: Summary Translation of "Tateshakai no Ningen Kankei" (Tokyo: Ministry of Foreign A ffa irs , 1972), pp. 24-25. 16. Ib id . 17. Ib id . , pp. 17-18. I t is widely believed that a ll Japanese social organizations have a tendency to practice.1ife -tim e employment. In fa c t, large-scale organizations have in stitu tio n alized this practice, since small ones can not bear the economic cost. Also there is .a tendency to consider life -tim e employment as a type of "paternalism." See, for detailed study of "paternalism," John W . Bennet and Iwao Ishino, Paternalism in the Japanese Factory: Anthropological Studies of Oyabun-Kobun Patterns (Minneapolis: University of Minnesota Press, 1963). - 18. See the following works for detailed study of the Japanese decision-making process: Koyoaki Tsuji, Nippon-Kanr.yo-Sei no Kenyu (The Study of the Japanese Bureaucracy), (Tokyo: Tokyo Daigaku Shuppankai, 1980), especially Ch. 4 ; Toyoako Qno, Nippon- teki-K eiei to Ringi-Seido (Japanese Style Management and Rihgi 125 System), (Tokyo: Daiyamondo-sha, 1958); Ezra F. Vogel, Japan as Number One: Lessons for America (Cambridge: Harvard University Press, 1979); Ezra F. Vogel (e d ito r), The Japanese Organization :: and Decision-Making (Berkeley: University of C alifornia Press, 1975); and Yos h ino, op. c it y , especially Ch. 9. 19. Murakami, Kumon, and Sato, op. c i t . , pp. 248-252. Aslo Chie Nakane, Japanese Society (Berkeley: University of C alifornia Press, 1970), pp .:144-145. 20. Yoshino, opu c i t . , p. 254. 21. Albert M. Craig, "Functional and Disfunctional Aspects of Government Bureaucracy," in Modern Japanese Organization and Decision-Making, p. 128. i 22. The importance o f the nemawashi process depends upon or increases with the importance of the matter to be decided, and also the number of people, sections, and/or bureaus to be involved in the execution of the decision. Thus, i t is understandable that daily routine paper work is managed by the ringi system. See Kazuo Noda, "Big Business Organization," in Modern Japanese Organization and Decision-Making, edited by Vogel, p. 128. And Yoshino, op. c i t . , pp. 255-257. j 23. According to Cole, because of life -tim e employment, employees are ! j under great pressure to make accomodations, in order to liv e with j ; one another, with consequential effo rts for continuous cooptation I of opposition. Furthermore, the situational ethics of the Japanese (that is , they do not think in terms of absolute good and e v il) is helpful for such e ffo rts . See Cole, op. c i t . , pp. 136-139. 24. Nakane, Human Relations in Japan, p. 47. 25. Yoshino, op. c i t . , pp. 208-210. 26. Nobuyoshi Namiki, Nippon-gata-Keizai o Toku (To Solve the Japanese Style Economy), (Tokyo: Purejidento-sha, 1981~)~ p. 99. 27. Nakane, Japanese Society, p. 99. 28. In comparison with the vertical group, subsidiaries or "kogaisha" may have considerable indepence in the complex form. Some of them become so successful that th e ir status equals that of th e ir parent company. 126 Nakane, 0£ . c i t . , pp. 99-100. The relationship between buyer and s e lle r is also a kind of social capital sim ilar to that found between subordinate and superior. Even though market contacts are more demanding than simple market transactions lacking this quality of social c a p ita l, such contacts are quite important and, once established, are very d if f ic u lt to break up. CHAPTER 6 THE JAPANESE ECONOMY: G R O W TH ORIENTATION In the previous chapter, the socio-economic structure of the Japanese economy was discussed in terms of its "non-individualistic" character.; However, this "non-individualistic" character is ju st one side of the Japanese economy which d iffe rs from other contemporary managed c a p ita lis t economies. Another side is the "growth orientation" of the Japanese economy. In this chapter, three in terrelated topics w ill be discussed: (1) contending perspectives on the Japanese high- growth economy, ( 2) discretion/autonomy of economic bureaucrats, and (3) the High-Growth System, In e ffe c t, the discussion in the previous chapter was based upon a micro approach in which the Japanese economy was considered from the perspective of the "non-individualistic" concept of the social group. By contrast, the approach of this chapter is macro. Here, the Japanese economy is discussed as a whole in terms of its overall tendencies and government policies. Contending Perspectives on the Japanese High-Growth Economy In this section two contending schools of thought concerning * Japan's high-growth oriented economy w ill be examined. The f i r s t school is the Japanese Marxists. They discuss the Japanese economy and its high-growth processes and experience in terms of the development of capitalism , and find Japan at the stage of "State Monopoly Capitalism." The second school is the Western p o litic a l economists. They percieve the Japanese economy as a late developing nation within a 128| modified managed c a p ita lis t framework. Although more pronounced in the second school than the f i r s t one, growth orientation is strategic for both perspectives on the Japanese economy. State Monopoly Capitalism ! Japanese Marxists analyze the Japanese economy;in terms of the dynamics of "Capital" and in turn characterize Japan as "State Monopoly Capitalism." In the dynamics of "C apital," capital is described as a dynamic social relationship between capital and labor which seeks s e lf-p ro life ra tio n of value of perpetual accumulation of c a p ita l. I t is often stated that the emergence of the modern corporation means the end o f the classical c a p ita lis t and the •' establishment of managerial control because both phenomena are derived from modern large-scale corporations. But considering the ca p ita lists as those who carry the dynamics of "Capital," the executive-management group in e ffe c t are the c a p ita lis t regardless of the form of ownership. C ap ita lis t development is thus s t i l l viewed as a result of the dynamics of "Capital." state monopoly capitalism According to the Japanese Marxists, under State Monopoly Capitalism monopoly (fin a n cia l) capital attempts to overcome p o litic a l and economic crises through the administration of fiscal policy based on a collusive relation with governmentJ The p o litic a l c ris is is the s o c ia lis t movement. Although suppressing the s o c ia lis t movement, monopoly capital accepts universal suffrage and legalizes trade unions in order to appease the middle and working 129, classes. This appeasement policy is the basic strategy to govern the society, and a high economic cost can be expected for its maintenance. Especially, the leg alizatio n of trade unions makes co llective bargaining on wages possible and in turn puts pressure upon the rate of profi t . Considering that cyclical downturns leading to depressions are caused by the sequence of wage increases and diminished rates of ~ : : p r o fit, the appeasement policy for the working class is expected to cause economic crises, without appropriate offsettin g government actions. In order to avoid economic c ris is , government administers fiscal policy on behalf of monopoly c a p ita l. This presumes that fiscal policy enables the government to manage the in fla tio n rate according to the needs of monopoly c a p ita l. In turn, this government management of the in fla tio n rate means for monopoly capital the management of real wage rates and, consequently, the maintenance of the rate of o p r o fit. In other words, fiscal policy is designed for relieving the depression mechanism, namely, the sequence of wage increases and diminished rate of p ro fit. I t is thus considered that State Monopoly Capitalism is a stage and a set of in stitutio ns which capitalism has adopted in order to deal with p o litic a l and economic crises. However, the Japanese Marxists do not elaborate precisely how fiscal and monetary policies (though they emphasize fiscal policy) work for the administration of real wage rates and, in turn, the r e lie f of the depression mechanism. But considering the viewpoint of • 130 | c a p ita lis ts , the effectiveness of both policies depends upon two premises; one is that wage in fla tio n lags behind price in fla tio n , and another is that the p ro -cap italist strategy results in productivity increases. I t is clear th at, a.t fu ll employment, expansionary fiscal and monetary policies create excess demand for commodities and, thereby, price in fla tio n . But such expansionary policies also result in excess demand for labor and, thereby, wage in fla tio n . Consequently, i t is considered that fiscal and monetary policies enable the government and the ca p italists to administer real wage rates as long as wage in fla tio n lags behind price in fla tio n . However, this process cannot be assured because of the existence of labor unions, which may demand increases in wages larger than in prices. Especially given co llective settlement of wages, i t is thus essential for c a p ita lis ts to pursue a strategy to implement labor-saving technologies which result in productivity increases. Even though the Japanese Marxists question the survival of State Monopoly Capitalism, the premises stated above cause other problems for capitalism to sustain economic growth. One problem is the continuous price-wage in fla tio n s p ira l; another is the creation of excess \ productive .capacity. Considering the postwar Japanese economy, the f ir s t problem has been essentially ignored by placing top p rio rity on economic growth and involving workers in the logic of growth. The second problem has been solved by the coordination of individual enterprises based upon government guidance, which encourages, from'time to time, scrapping of existing equipment or plants. As State Monopoly Capitalism, the postwar Japanese economy showed phenomenal success. However, real world uncertainty, such as the o il embargo of 1973, can cause the malfunction of State Monopoly Capitalism, including Japan. This reinforces the question, raised by the Japanese Marxists, can State Monopoly Capitalism survive (at le a s t, in its present form)? governing body In Japan, the business community (that is , monopoly capital for the M arxists), the administrative bureaucracy, and the". Liberal Democratic Party (LDP) are separate and d is tin ctiv e organiza tions. But constituents of these organizations not only have frequent meetings to communicate with each other but also are interwoven, especially through the movement of retired bureaucrats to business and p o litic s . Thus, the lin e which separates these organizations is very unclear. According to Japanese Marxists, these in stitu tio ns form the 3 - governing body of State Monopoly Capitalism. This governing body is ch aracteristically represented by the LDP, which has held the reigns of the government since 1955. At the time of its formation, the LDP defined it s e lf as a national party which did not represent any p articular interests in society. But 30 percent of the le g is la tiv e members o f the LDP are former bureaucrats, and 20 percent of them are former businessmen. Since le g is la tiv e members are largely responsible to select the party president-prime m inister, i t is thus concluded that the LDP is a bureaucrat-busi ness party, but not a genuinely national party. In 132 Japanese State Monopoly Capitalism, i t is 'sa id that the administrative bureaucracies not only constitute the major part of the government administration, but also become the most important source of talented manpower for the governing body. In other words, both the LDP and the business community view retired bureaucrats as essential for the management of business and p o litic s in State Monopoly Capitalism. Also, the business community not only sends its members to the LDP and the le g is la tu re , but also supplies over half o f :.the LDP's finance as p o litic a l contributions. I t is thus easy for the business community (as a pressure group) to re fle c t its interest via its le g is la tiv e members of the LDP and, thereby, in government policy and budget. labor-capital relation The Labor-Capital relatio n of postwar Japan has been characterized by "three sacred treasures," namely, the seniority system, life -tim e employment, and enterprise unionism. Japanese Marxists believe that these relations were promoted under the strong incentive and leadership of management, and essentially were constituted to establish management authority to re s tric t union power 4 and regulations. According to Japanese Marxists, the relationship since the 1950's has centered upon two systems; the Labor-Capital consultation system, and the periodic pay-hike system. The consultation system is not to solve Labor-Capital c o n flic ts , and has a purpose d iffe re n t from that of collective bargaining. In essence, its purpose is the promotion of cooperation between workers and management in order to improve 133 productive efficiency according to each firm 's situ ation . Since the Labor-Capital relation in a firm became separated into consultation and bargaining, the establishment of the consultation system is believed to diminish the domain of union regulation over management authority. The periodic pay-hike system was promoted to curb pay-hike pressure and to s ta b ilize wage costs. Even though the formulation o f, or any change in , the system is negotiated between workers and manage ment, the periodic pay-hike system also provided management authority over co llective bargaining on wages. The reason is the personnel evaluation system, upon which pay-hikes are determined. In the personnel evaluation system, each worker is evaluated individually by his superior in terms of performance and behavior both inside and outside of the firm . This individual evaluation system makes workers compete against each other, and in turn induces them to depend upon th e ir firm . Thus, i t is believed that both the Labor-Capital consul tation system and the periodic pay-hike system enhance management authority in collective bargaining and, in turn, over union regulations. In other words, establishment of management authority means diminished power of unions and th e ir relegation to the status of enterprise unions. growth orientation During the 1960's, Japanese bureaucrats began to lose th e ir power and control based upon the foreign trade and exchange control system, and came to rely upon administrative guidance. According to Japanese Marxists, administrative guidance is based upon two essential ideas.^ One is equal opportunity. This means that the 1 34| government (or public)!investment and loan systems are open to those firms which are considered capable to deal with international compe titio n . N aturally, these firms are restricted to large-scale : r corporations. The other is self-adjustment. This means to respect the independence of firms and th e ir concerning m inistry. These ideas are promoted in order to induce f a ir competition among firms and, thereby, establish a rational process of policy-making. However, i f any particular firm or industry has special ties with the LDP, then this may break the unity of the governing body and certainly makes rational policy-making d if f ic u lt . As a re s u lt, the business community organizes it s e lf to make orderly p o litic a l contributions to the LDP; likew ise, the state policy and goals are decided upon the consensus of the governing body. Given equal opportunity, f a ir competition leads individual firms into the logic of growth. I f every participant has an equal chance to get a piece of the economic pie, then the size of the pie must be large in order to have large pieces. In other words, individual firms seek to increase th eir production and sales. In such a situation , individual firms also attempt to increase th eir productive efficiency through technological improvement. Consequently, this necessitates management authority against union regulations in order to gain control over personnel allocation and the''formation of s k illed manpower. Under the management authority and enterprise union system, workers are also urged to participate in the logic of growth. Since the goal of rapid 135 growth is shared by the state , the firm , and the workers, Japanese Marxists conclude that the logic of growth is the form of the governing 6 body's hegemony. Likewise, the economic structure of postwar Japan is .considered as State Monopoly Capitalism, designed to stimulate high economic growth rather than to administer an appeasement policy to the s o cia lis t movement. ’ ; Growth-Oriented Economy conceptual setting of growth-oriented economy In the view of Western scholars, the growth-oriented economy of the twentieth century is l often associated with the Soviet type of s o c ia lis t economy. But there has been also the c a p ita lis t type, for example, Nazi Germany. Today, the fact is that most, i f riot a l l , growth-oriented economies have emerged in developing nations. According to Ernest G eller, the reason 7 is as follows: . . . The need for economic growth in a developing country has few ,‘ i f any, economic springs. I t arises from a desire to assume fu ll human status by taking part in an industrial c iv iliz a tio n , participation in which alone enables a nation or an individual to compel others to tre a t i t as an equal. In a b ility to take part in i t makes a nation m ilit a r ily powerless against its neighbors, adm inistratively unable to control its own citizen s, and I c u ltu ra lly incapable of speaking the international language. In a growth-oriented economy, economic interests are thus e x p lic itly subordinated to p o litic a l objectives. In other words, growth orientation is a reflectio n of the n a tio n alis tic in terest of a developing state and its c itizen s; thereby, economic growth is given 136 the f ir s t p rio rity of a nation. H is to ric a lly speaking, there have been some market c a p ita lis t economies which achieved high economic growth, for example, nineteenth century England and West Germany a fte r World War I I . These examples only show that high growth rates can be attained under la is s e z-fa ire capitalism or managed capitalism . But they are not growth-oriented economy as defined above, because economic in te re s t, p articu larly economic growth, is not subordinated to p o litic a l objectives in these countries. In a sense,the in dustrialized, growth-oriented economies of the twentieth century are the Soviet Union, Nazi Germany, and Japan. In the growth-oriented economy, i t is most lik e ly that the government has highly concentrated economic power and plays an extensive role in economic administration at both micro and macro levels. The reason why economic power is concentrated in the hands of government is that concentration of economic power makes i t easier to mobilize and allocate natural resources, labor, and c a p ita l, toward the promotion of large-scale, rapid in d u s trializa tio n and economic growth. (This w ill be further discussed in relation with the assessment of the Japanese economy.)^ In general, such concentration of economic power appears as a centrally directed and/or planned system. Furthermore, such ■ - concentration of economic power can be found under the growth-oriented economy, whether s o c ia lis t or c a p ita lis t, in such forms as the supremacy of state or party bureaucracy, and a p o litic a l and m ilita ry d ictato r ship. Notably, the developing nations lack the experience of laissez- 137 fa ire capitalism; thereby, they are free from ideological restrictio n upon roles of the government and/or types of the economy. historical setting of japan As discussed in the previous chapter, Japan's drive for modernization and in d u s trializa tio n did not emerge from domestic economic conditions, but was a necessity to counter the threat posed by the im p e ria lis tic , industrial powers of the West. The Western powers forced the feudal regime of Japan, namely, the Tokugawa Shogunate, to conclude tre a tie s ; consequently, Japan lo st her t a r i f f O autonomy until 1911, and thereby was resigned economically to semi independent status. Whether the Western powers had actually intended i t or not, Japan's independence as a state was threatened, and the only way to regain fu ll independence status was for Japan to become a modern in dustrilized society. Notably, there were only c a p ita lis t nations and economies as models of in d u strializa tio n in the world of the nineteenth century. In order to regain her status, Japan had to take a (modified) c a p ita lis t road to modernization and in d u s tria liza tio n . Since the middle of the nineteenth century, the paramount national objective of Japan has been to establish herself as equal to the ’ industrialized states of the West. This national objective was translated into social goals propagated by the government. These goals were: /( ] ) "shokusan-kogyo" (increase industrial production and establish industrial enterprises) and (2) "fukoku-kyohei" (enrich the nation and strengthen the m ilita ry ). What the historical facts ; . .. indicate is the subordination of economic interests to p o litic a l 138 objectives. In other words, Japan was not only a developing nation but also a growth-oriented economy at the early stage of her modernization and in d u s tria liza tio n . The M eiji Restoration (1868) meant the re-establishment of imperia' ru le, though figurative in practice, to replace the feudal regime. In turn, i t marked the beginning of Japan's modernization and in d u s trial izatio n . But i t was neither based on a clear class struggle nor was 9 i t a bourgeois revolution. The restoration was carried out by the warrior or "samurai" class, who has suffered disadvantages because they belonged to lower status or were not members of a family with hegemony. Even though i t was triggered by the advent of Western powers, the restoration movement at the beginning was directed toward the reorganization of the feudal system and was supported by the motivation of lower-status samurai based upon the pursuit of fortune. However, the superiority of Western arms and technology became evident very rapidly for many of those who led the movement and became leaders of the new government. According to Barrington Moore, the "question of national survival and the need to take appropriate steps to defend i t pushed th e ir way to the forefront with dramatic s p e e d . I n addition, leaders of the new government saw the domestic conditions, yet prepared for modernization and in d u s tria liza tio n ; thus, the government it s e lf was an essential source to promote modernization and industrialization for national survival and defense. The new government objective was to establish Japan .as equal to 139 the industrialized nations of the West, but the strategic purpose of in d u s trializa tio n was undoubtedly to strengthen m ilita ry power. As a re s u lt, the promotion of in d u strializa tio n by the government fostered a m ilita ry -in d u s tria l complex from the beginning. The relation between the m ilita ry and industry is cle a rly shown by the fa ct that though the economy until 1930 was dominated by lig h t industries, there was a dramatic increase in production of heavy‘ industry from 1930 to 1940. This increase inrproduction of heavy industry corresponded with the emergence of m ilitarism . In other words, the m ilita ry -in d u s tria li complex gradually steered Japan to an im perialistic in dustrialization strategy, that is , expansion of markets and sources of cheap resources through establishment of colonies. This course continued, and resulted in World War I I . Even though Japan became acknowledged as an industrial nation and gained her status among the Western nations, World War I I not only caused devestating economic losses, but also cost Japan her power status at its end. In addition, the occupation authority prohibited, through the enactment of the new constitution, Japan from emerging as a m ilita ry power in-the near future. In such a circumstance, i t is , natural that Japan has committed its energies once again to in d u s trial ization and economic development in order to regain her international status. Accordingly, postwar Japan has e x p lic itly postulated a commitment to the pursuit of national objectives through economic means. I t is said that this posture of Japan is reflected in the government's industrial policy or "sangyo-seisaku." 140 industrial policy and hiqh-qrowth system According to Robert Ozaki, industrial policy is "an indigenous Japanese term not to be found in 11 the lexicon of Western economic terminology." I t refers to a complex of micro/macro economic policies formulated and.pursued in the cause of the national in terest. There are two basic industrial policies: (1) "sangyo-gorika-seisaku" (industrial ratio n alizatio n policy); ( 2 ) "sangyo-kozo-seisaku" 1 (industrial structure policy).- The f ir s t policy is concerned with the micro level of the economy. Through i t , the government attempts to discover the most e ffic ie n t procedures and . . . techniques for a particular industry, and then to cause a ll the firms of an industry to adopt them. The second policy is concerned with the macro level of the economy. I t indicates the government's attempts to change the proportions of the Gross National Product's components (that is , ag riculture, mining, manufacture, and service) "in ways i t deems 12 advantageous to the nation." In other words, the purpose of the f ir s t is to establish large-scale, technologically e ffic ie n t production in the economy, and of the second is to build the nation as a highly industrial economy. However, the postwar environment, both domestic and in tern atio n al, was too harsh to promote major economic advancement through the market system. The domestic environment was characterized by in su fficie n t capital and natural resources to launch a ll-o u t economic recovery and, in turn, promote economic growth. The international environment was represented by the IMF-GATT system, in which domestic industries would 141 be.exposed to competition from foreign large-scale capital as economic development proceeded. Because of this postwar environment, the government had to play an essential role in the allocation of capital and other resources and, thereby, implement its industrial policy e ffe c tiv e ly in a short period of time. Whether accidental or in ten tio n al, the government established the High-Growth System (HGS) to execute its industrial policy. (The H G S w ill be elaborated in the third section of this chapter.) In simple terms, the H G S is charac terized as the economic bureaucrats' seizure of control of the allocation of capital and other resources. But th eir control is neither extensive nor intensive in comparison with concentration of economic power in a centrally directed economy. Moreover, the H G S is not intended to eliminate the market system. I t has been used to establish large-scale, technologically e ffic ie n t enterprises and, in turn, to encourage those enterprises to engage in market competition. Unlike many other growth-oriented economies, Japan thus cannot be characterized as a centrally directed or planned economy. In addition, postwar Japan has undoubtedly been committed not only to c a p ita lis t ideals, such as private ownership of property and the market system, but also to democratic principles, such as individual rights and freedoms. Whether these commitments have had real impacts upon people's lives and organizational structure is not the question. These commitments have made the Japanese economy d iffe re n t from other growth- oriented economies and, in e ffe c t, the government refrains'from using 142 the strong controls and regulations which are prone to emerge in a centrally directed economy. As a growth-oriented economy, Japan has chosen a (modified) contemporary c a p ita lis t road to in d u s trializa tio n and economic development in order to pursue national objectives. In fa c t, Japan has proven that economic growth can be promoted under contemporary capitalism as well as or more vigorously than under a contrally directed economy. Discretion/Autonomy of Economic Bureaucrats In the Japanese government, there are several ministries dealing with economic matters. The term "economic bureaucrats" refers to a ll those m inistries but, here, especially indicates the Ministry of Finance (MOF) and the Ministry of International Trade and Industry (M ITI). Characterizing Japan as a growth-oriented economy, the question of discretion/autonomy can be raised for economic bureaucrats, t especially MITI. Since MITI is considered mainly responsible for drafting industrial policy, i t is essential for MITI to have high discretion/autonomy in order to pursue policy consistently. In order to discuss discretion/autonomy of economic bureaucrats, three cases are selected; (1 ) "shingikai-seido" (the system of advisory commission, (.2) the process of "amakudari," and (3) the p o litic s of the Liberal | Democratic Party. Status of Japanese Bureaucrats Before discussing these cases, i t is necessary to explain a few things about Japanese bureaucrats. In order to become a bureaucrat, an applicant has to pass a c iv il service te s t. But there are two 143 fkinds of c iv il service tests; one is" for non-career bureaucrats, the other for career bureaucrats. The distinction between these two types of bureaucrats is as follows; Non-career bureaucrats are mainly for j cle rical work. They rarely reach positions higher than section chief. O n the other hand, career bureaucrats work mainly in policy and leg isla tio n drafting and thereby dominate v irtu a lly a ll the high posts 1 in a m inistry. This is already set for individual bureaucrats when they have chosen the type of test to take at th eir entry into c iv il service. In addition, most career bureaucrats are graduates of Tokyo j University and come from either Law or Economics Departments. The influence of Tokyo University is substantial. I t is the most p re s ti gious center of higher education in Japan. A s discussed e a rlie r, Japanese society tends to be organized hiera rc h ic ally . S im ilarly, the educational, system is structured as a pyramid, with Tokyo University at the top. Accordingly, the university sends its graduates into not I j only government bureaucracy but also large-scale business enterprises. In fa c t, many of its graduates are considered to become executives of th e ir enterprises. This naturally enhances communication between j economic bureaucrats and private enterprises. The other is that the university is a public in s titu tio n . Combined with its prestige; this certainly induces the most talentedhiigh school graduates from a ll over Japan, whether from wealthy or poor fam ilies, to go to Tokyo I University. At graduation, only a handful of graduates from Law and Economics departments are screened and, thereby, enter into c iv il service a career bureaucrats. Considering the Law and Economics departments as preeminent in social sciences in the University, career bureaucrats are considered as the e lite of the e lit e . Notably, M O F and MITI take top applicants who passed the career type c iv il service te s t. These factors not only raise the career bureaucrats' sense of the pursuit of national in terests, but also establish th e ir position; | as leaders (the brains of the nation). The Advisory Commissions The system o f the advisory commission was f ir s t introduced by the occupation authority. I t is the o ffic ia l in s titu tio n to control the government bureaucracy, but is considered in effectiv e for the purpose. Members coff the commissions consist of representatives of various fields such as business and academic communities, semi government in s titu tio n s , labor unions, and other social organizations. Many advisory commissions are dominated by the business and government- 13 ; related organizations. i There are two types of advisory commission. One determines basic national policy in advance of government legislation', the other formulates actual le g is la tio n . As many scholars and former bureau crats have stated, the system of the advisory commission is ineffective in terms of control over the bureaucracy. The most important reason is that the responsible ministry provides the administrative funds and secretariat of the commission. Besides, the ministry selects the members of the commission. In other words, the respoinsible ministry has virtu al control over the administration of the commission. While undoubtedly serving an important communication function between the 145 ■* ministry and c iv ilia n groups, the advisory commission thus becomes the place for bureaucrats to r a lly or co-opt support for policies 14 that they have already drafted. The Process of "Amakudari" Since "amkudari" li t e r a l l y means "descending from heaven," the process of "amakudari" indicates usually the movement of retired bureaucrats to jobs in industry, p a rticu larly to those enterprises 15 with which they or th e ir m inistries have had working relations. Besides such a movement, retired bureaucrats go into p o litic s (this point w ill be discussed la te r in relation to the LDP) and take jobs in government sponsored organizations. There are two apparent reasons why retired bureaucrats seek jobs in business. One is the early retirement practice of bureaucrats. Even bureaucrats who achieve the highest positions r e tire by age f i f t y - f i v e . In relation to the retirement practice, the other is the steep ladder toward positions of the upper echelon. P ra ctic ally , one bureaucrat cannot serve under another who is recruited into the ministry at the same year or la te r . Considering the seniority system, many bureaucrats have to r e tire before age f i f t y - f iv e . Thus, "some degree of career mobility from government to business is the consequence not of business-government collusion or of business efforts to penetrate 16 dyanmics of the Japanese bureaucratic system." At the same time, this internal dynamic also involves inter-group competition as long as the bureaucracy is administered in ways described in the previous chapter. In other words, there is factional competition in the 146 Japanese bureaucracy. Then, i t becomes undeniable that retired bureaucrats have influence over policy-making of and exercise of power by active bureaucrats, even though th e ir influence depends upon th e ir former position. But there is no simple measure to determine how in flu e n tia l they are in real l i f e . Concerning M ITI, for example, there are two apparent cases in which private enterprises seek to hire retired bureaucrats. One is the case of an industry which is the subject of a government development program and, thereby, tax credits, lib eral depreciation allowances, public loans, and so on. The other is the case of a depressed industry which seeks or is under government i guidance. In both cases, bureaucrats o f MITI actually draw/implement these programs and guidelines. From the viewpoint of individual enterprises, th e ir major benefit from hiring ex-bureaucrats of MITI is th e ir fa m ilia rity with administrative procedures concerned with business. From the viewpoint of M ITI, i t is also beneficial to place its retired bureaucrats in those industries. Placement might be motivated by a desire by active bureaucrats to secure th e ir post retirement employment. But in both cases noted above, MITI is expected and required to give detailed guidance to industries and individual enterprises, while monitoring and analyzing th e ir condition continuously. Consequently, the placement of retired bureaucrats enhances MITI's control over them and, thereby, the effectiveness of its programs and guidelines. In e ffe c t, the process of "amakudari" constitutes the personal channel between individual enterprises and concerned m inistries. Thus, the process of 147 "amakudari" is very important in,promoting mutual understanding between business and economic bureaucrats. i The Politics of the Liberal Democratic Party Like Great B ritia n , Japan has the parliamentary (D iet) system. This means that the party in control of the Diet selects the party president-prime minister to head its government. Further, members of i the Diet are elected by male and female constituents over twenty years of age. Consequently, they are subject to th eir respective constitu^ ents; so is the party-government. In this sense, Japan is considered as a democratic nation or, in the language of Dahl and Lindblom, a polyarchy. In addition, as Dahl and Lindblom observe, polyarchy, combined with social plural ism.makes p o litic a l bargaining more or less an essential characteristic of government. In order to discuss discression/autonomy of economic bureaucrats, the po litic s of the LDP f w ill be examined in terms of social pluralism and p o litic a l bargaining. ; Si nee 51 955, when the Liberal and the Democrats parties merged into j a party, the Liberal Democratic Party (LDP) has been "the standard- I * | “ J bearer of p o litic a l conservatism [in the Japanese sense of the term]". The party has continuously held the reigns of government while other parties,:, such :as;.socialistLand communist parties, have been fragmented (and not serious challenges to the LDP. As a party in charge of i ' .. government, however, the LDP consists of members whose p o litic a l thoughts range very wide from fa r right to moderate lib e ra l; thus, i t 18 is often -said th a t "the LDP is fa r from being mono!ith." In fa c t, this nori-monolithic character is further strengthened by two 148 factors. One is the variation of social interests which the party as a whole represents. The other is the factionalism which creates the internal dynamics for power contention. Notably, the non-monol ith ic characteristic is considered as a source of the LDP's success. i In general, the variation of social interests represented by the LDP is divided into those of party veterans and ex-bureaucrats. While Jparty veterans climb the partyLhierarchy slowly, ex-bureaucrats rise rapidly to the upper echelons of the party. In inverse proportion to th e ir number, they clearly dominate government posts and the party's policy-making bodies. Their fast progress is due to "their greater fa m ilia rity with the administrative process and with sources of informa- 19 tion on national issues." Thus, ex-bureaucrats, lik e experienced m inisters, are accustomed to taking a national viewpoint on issues, while party veterans represent local and p articular interests which are Jprobably shaped by the constituents of th eir d is tric ts . However, ex- i (bureaucrats are backed by and represent interests of th eir respective I i iministries and, in turn, private or public in stitu tio ns over which I th e ir m inistries have authority. In other words, the social interests which ex-bureaucrats representare d ifferen tiated in terms of m inisterial , association. Thus, the LDP represents a wide range not only of . . 1 I ' p o litic a l thoughts but also of social interests. < The factionalism of the LDP is often described by the expression "parties within the party." Accordingly, Philip Trezi.se and Yukio 20 Suzuki describe factionalism as follows: . . . I f factionalism in Japan is d iffe re n t [from those in the Western society], i t is in the degree to which i t provides j the locus for so much of the substance of p o litic s . . . ! Changes in the size of the factions are taken as indicative of p o litic a l trends, and shifts in factional ra il iances are :-i - signals of impending reshuffles of m inisterial positions, including that of prime m inister. Decisions of the main p o litic a l issues of the day must command the assent of a coalition of factions before they can be taken. For TreZise and Suzuki, real p o litics are considered to be administered with the LDP rather than in the Diet. Considering that !the.LDP has been in control of the Diet since 1955, the polyarchical I t government of Japan consists of factions of the LDP rather.:than p o litic a l parties. Combined with the non-monolithic p o litic a l views j and social interests of the LDP's Diet members, factionalism seems to ;provide the democratic process and, thereby, constitutes polyarchy. However, each faction consists of a number of Diet members who have d iffe re n t p o litic a l views and represent various social interests, iThe factionalism of the LDP is thus characterized by power contentions of factional leaders for the post of party president-prime m inister, and personal patronage for faction members in terms of financial i support and m inisterial or party posts. Likewise, factional ism makes the party president-prime m inister (as well as!factional leaders) expend much energy in balancing factions, thus becoming unable either ! ■ 'to exercise strong leadership or to in itia te major policy changes. I t thus becomes very doubtful whether factionalism provides the locus of the substance of p o litic s . O n the other hand, factionalism clearly interweaves the p o litic a l ambition of leaders and members with various p o litic a l views and social interests and, thereby, makes the non- 150 monolithic character of the LDP further complex. Since the LDP is in control of the D iet, the passage of 1 leg islatio n in the Diet becomes v irtu a lly a matter of form ality. However, the non-monolithic character of the LDP f a ir ly well represents the plural interests of the society. As a re s u lt, opportunity is provided for organized groups (such as business corporations, farmers' associations, and so forth) to promote or block policy and legislation within the party, while th e ir intentions may be countered by other groups. S im ilarly, Diet members of the LDP are considered to represent the plural, interests of the society and, thereby, , form groups in laccord with policy and leg isla tio n they are concerned with. Because of this non-monolithic process, policy and le g is la tio n , before i t reaches the D iet, involves extensive p o litic a l bargaining and, thereby, has to gain broad support among the factions and/or Diet members of the LDP. jIn other words, the non-monolithic character of the LDP embodies social plural ism,and, in turn, provides a place for (national) p o litic a l bargaining. In Japan, however, Diet members, even of the LDP, are not essential actors in p o litic a l bargaining, and p o litic a l bargaining is overshadowed:somewhat by hierarchical control of the government bureaucracy. Bureaucrats' Control of Government In contrast to p o litic a l parties in the B ritish Parliament, the non-monolithic character of the LDP makes the party incohesive. This incohesiveness means largely the in a b ility of the party to in itia te policy changes; or le g is la tio n . Then, who in itia te s policy changes and 151 leg islation in Japan? The answer is : government bureaucrats. There are two apparent reasons for this phenomenon. One is, that the factionalism of the LDP necessitates frequent personnel changes in m inisterial posts, in order to maintain factional balance. Besides the post of prime m inister, other ministers' posts are normally occupied for about a year and then become subject to reshuffling of the Cabinet. In other words, no Diet member of the LDP has the time to accumulate the knowledge and s k ill to administer the government bureaucracy. Even though;some members have these q u a litie s , they are i jmost lik e ly to be ex-bureaucrats and, thereby, to share the view of the bureaucracy. The'Other reason is th a t, unlike the legislature of the United States government, the Japanese Diet does not have its own research s ta ff. I t depends upon bureaucrats to perform its s ta ff work. Thus, bureaucrats make themselves available for the Diet; thereby, the Diet is essentially an extension of the bureaucracy. Because of these reasons, i t is bureaucrats in Japan who actually in it ia t e , d ra ft, and execute v irtu a lly a ll public policies and leg isla tio n . The fact that bureaucrats are in itia to rs of policy and leg islatio n increases the likelihood for p o litic iz a tio n of bureaucrats. P o litic iza tio n means that i t is necessary for bureaucrats to be involved in .p o litic a l bargaining with the LDP, its factions arid Diet members, and in terest groups surrounding the LDP. P o liticiza tio n of economic bureaucrats may indicate that they are not free from the LDP and, in turn, business interests. But because bureaucrats in it ia t e , d ra ft, and implement policy and le g is la tio n , the framework of p o litic a l 152- ___ i bargaining is determined beforehand by bureaucrats. I f there is strong opposition in the LDP, including interest groups, and p o litic a l bargaining is not possible within the framework, then i t is certain that p o licy /leg islatio n w ill not be brought to the D iet. But because [bureaucrats are in fact in itia to rs and drafters of policy and le g is la tio n , Diet members of the LDP Gooperate with bureaucrats more often than oppose them concerning the passage of le g is la tio n ; otherwise, they w ill not get the necessary cooperation from bureaucrats to satisfy the constituencies and interest groups they represent. i In addition, the status of bureaucrats in g'overnment is further I enhanced by the socio-economic structure of Japan. As discussed rrr; e a rlie r , the socio-economic structure of Japan tends to be organized hierarchically and points toward the government bureaucracy. The reason jfor this is clear by now, because bureaucrats are largely responsible Jfor the administration of government. Accordingly, most in terest jgroups involved in p o litic a l bargaining are organized nationally and i connected with respective m inistries. Examples are those interest groups based upon local and prefectural in terest, agriculture, medical professions, small and medium size business, large-scale industries, . and so on^ To a certain extent, government bureaucracy it s e lf embodies and thereby represents in terest groups. Consequently, m inistries them- j selves engage in p o litic a l bargaining with each other, when policy/ leg isla tio n in itia te d by some m inistry affects other m inistries. This p o litic a l bargaining between bureaucrats (m inistries) is further accentuated by te r r ito r ia l consciousness, or ".nawabari-ishiki," 153 21 between m inistries, bureaus, and/or sections. In other words, bureaucrats not only determine the framework of p o litic a l bargaining, but also engage in p o litic a l bargaining among themselves before policy/ legislation is brought to the LDP. For example, the annual fiscal budget is drafted by MOF. Before the d ra ft is fin alized by MOF, a ll the m inistries have to submit th e ir budget plans to and negotiate them with MOF. The way in which they negotiate is that the budget plan of each ministry is examined by each section, bureau, and m inistry, while section and bureau chiefs of each m inistry consult with section and bureau chiefs of MOF. By thectime that m inisters, as Diet members of the LDP, come to negitiate with the Minister of Finance, there is not much l e f t to be negotiated. Thus, ministers serve formally to give final approval to the annual fiscal budget drafted by M O F in n e g o ti-'i atiom w itn other m inistries. Even though the term "p o litic a l bargain^', ing" has been used until this point, bureaucrats in fact engage in the nemawashi process discussed in the previous chapter. Although there are s im ila ritie s between Western style p o litic a l bargaining and the nemawashi process as approaches to gaining agreement among participants, there are strategic differences as w ell. In Japan, bargainers are d is tin c tiv e ly not equal. Through hierarchical personal relationships, the nemawashi process creates a basic agreement or consensus among concerned parties and participants, f i r s t among imiddle and (then) top levels, then among subordinates who, by the very character o f'th e nemawaship process, are under great pressure to acquiesce. Thus, i t is 154; possible th at, even i f there is serious opposition among subordinates, agreement or consensus can be made through the nemawashi procsss. In ‘this sense, factions of the LDP are very important-for bureaucrats who go through the;.nemawashi process to gain support for th e ir policy or leg isla tio n . I t is because faction leaders; have certainly strong hierarchical relationship with and, thereby, make agreement for the j ■ ' j jpassage of p o licy/leg islatio n among th eir respective faction members j who might otherwise.oppose proposed policy or le g isla tio n . Considering jail these factors stated above, government bureaucrats are essential i lactors in p o litic a l bargaining, and, through the nemawashi process, are | positioned to coordinate p lu ra lis tic interests h ierarchically. . .Moreover, i t was also discussed e a rlie r that leadership is provided by junior executive personnel in Japanese bureaucratic organizations. Considering the whole economy as one organization, for example, the I LDP, M ITI, and individual enterprises (in du stries), in e ffe c t, can be percieved respectively, as executive, junior executive, and clerk or worker. In fa c t, MITI is positioned to have constant contacts with both the LDP and each enterprise. O n the one hand, MITI keeps close contact with each enterprisermot only through the process of "amakudari," but also through having frequent meetings with enterprises. O n the other, p o litic iz a tio n (in turn, the necessity of the nemawashi process) makes MITI keep close contact with Diet members of the LDP. In this kind of relationship, the LDP can exert it s influence over broad policy-making, but has to depend upon MITI for the actual drafting and implementation of policy and le g is la tio n . The business sector may seem to exert its 155 influence systematically over the LDP, because i t organizes not only its p o litic a l contributions to the LDP, but also the opinions of its members I over public policy and le g is la tio n . But its significance seems over- 22 stated. William Lockwood has aptly stated as follows: l i . . . Powerful as Big Business may be, . . . i t is it s e lf divided in its interests and counsels. Only on the broadest issue can i t present an unified front. In p o litic s , too, i t faces a more open and competitive situation in which strong, though often unequal, countervailing forces come into play from other^sectors of Japanese society. I In other words, business, lik e the LDP, is non-monolithic and, thereby, can not exert much influence over either the LDP or the economic bureaucrats. C ertainly, i t can not be said that either the LDP or business (or other interest groups) has no power to influence (economic) bureaucrats. However, the argument and evidence above indicate that (economic) bureaucrats have re la tiv e ly high discretion/autonomy to jadminister th e ir m inistries and the business of th e ir m inistries. i Hi-gh-Growth System. Facing the postwar environment, the government established the p rio rity production system ("keisha-selsan-hoshiki") in the late 1940's to speed economic recovery. The p rio rity production system was designed “to concentrate a ll the economy's assets in a few strategic sectors, regardless of the effects this might have on c iv ilia n 23 consumption or in fla tio n ." This is the immediate prototype of the High-Growth System which economic bureaucrats forged during the 1950's. The High-Growth System (HGS) consisted of three integral parts; (1) the overloaning system, (2) the Fiscal Investment and Loan Plan 156 ("zaisei-toyushi-keikaku")» and (3) the foreign trade and exchange control system. The f ir s t two parts were designed to control and, in jturn, channel scarce capital continuously to those industries which I MITI gave p rio rity for the promotion of in d u s trializatio n and economic development. The la s t .part was used to control and, thereby, allocate imported raw materials among industries. Notably, foreign patented technologies were.also subject to this part. All three parts were carefully coordinated by economic bureaucrats, especially M ITI, and constituted probably the most comprehensively guided economic system among c a p ita lis t nations. The Over!oahi ng System The overloaning system is essentially based upon commercial banks' borrowing practices through the discount window of the Bank of Japan (BOJ). This practice started during the late 1940's when the deflation ary measure, known as the "Dodge Line'^" caused a severe shortage of i capital funds for industry. In this system, i t is possible that "a group_of enterprises borrows from a bank well beyond the individual companies':, capacity to repay, or often beyond th eir net worth, and the (bank in turn overborrows from the Bank of Japan [as the ultimate 24 guarantor of the system]." O n the one hand, the overloaning system jc e rta in ly caused a delay in the development of the capital market and, moreover, made large-scale enterprises depend heavily upon debt as th e ir financing. Since this practice started, Japanese enterprises, unlike those of the United States, have promoted th eir growth strategies \ . . . . upon debt financing rather than internal financing. In e ffe c t, such high u tiliz a tio n of debt financing has reduced the importance of stock ownership and, thereby, the. power of stockholders over management. Thus, i t is said that "At least in terms of [enterprise] financing and [ownership structure, Japan was a more of c a p ita lis t country in 1930's P R and 1940's than i t was in the 1950's and I960's ." On the other, the BOJ's loans through its discount window is a p rivileg e , but not a righ t of commercial banks — the BOJ can refuse to extend or renew its loans to commercial banks. Thus, the overloaning system has enabled the BOJ not only to control lending policy and practice of its dependent commercial banks, but also to exercise monetary policy i {effectively through the discount window. Notably, monetary policy has been tuned by the government, namely, the Ministry of Finance. However, the most significan t development came from the BOJ's administrative jpolicy over the overloaning system. In order to avoid excessive loans and, in turn, monetary c ris is , the BOJ began following the capital ifinance plan of MITI as its guideline. The capital finance plan is M ITI's estimation of the amount of capital funds necessary for each industry and, in fa c t, states how much capital funds the industry can raise by it s e lf and how much the government has to provide for industry. As.a re s u lt, the overloaning system linked with the Fiscal Investment and Loan Plan so that capital funds flow into p rio rity industries via commercial banks. The Fi seal Investment arid Loan PI an The Fiscal Investment and Loan Plan (FILP), which began in 1952, is based upon capital funds accumulated through various; government 158 ______________ i [operated in s titu tio n s , such as postal savings and postal annuity funds i ' on deposit, the Japan Development Bank, the Export-Import Bank of 26 Japan, and so fo rth . In fa c t, the postal Savings; system means that people can deposit th eir money at post o ffice s, as at banks, and thereby the system has enabled the government to control substantial amounts of private saving. During 1980, the estimated total postal savings reached ¥55 t r i l l i o n , approximately four times the assets of the [Bank of America. Since this capital fund had been separated from the Jgeneral government budget, the FILP had been separated from the general i {government account and, thereby, i t had not necessitated the approval of the D iet, until 1973. Concerned with the promotion, of economic development, the FILP became the major instrument of the economic jbureaucrats, who have been responsible for drafting the plan. Table 3 jshows where those capital funds have been used and also the percentage jo f total funds in the GNP. Moreover, a part of the FILP has been channeled d ire c tly !in to industry through the Japan Development Bank (JDB). In the early days o f the FILP (see Table 4 ), i t was clear that jthe amount of the capital fund, supplied by the JOB, was comparatively ♦ !■ jlarge and very important. Since then, however, the real importance of j Jthe FILP has been shifted to indicate the p rio rity industry of the time. In relation to the role of the JDB, Chalmers Johnson has stated 27 about this: aspect of the FILP as follows: I - . . . even as the size of [JDB's] loans declined re la tiv e to the expansion of city-bank funding, the bank retained its power to "guide" c a p ita l through the indicative effe c t of its decision to support or not support a new industry. A JDB 159, r loan, regardless of its size, becomes MITI's seal of approval | om.an enterprise, and the company that had received a JDB ! loan could easily raise whatever else i t needed from private | resources. I jIn other words, a JDB loan enables an enterprise to raise necessary •capital funds from commercial banks via the over-loaning system. Thus, I i t becomes possible for an enterprise to enter into a new industry without spending any of its own capital funds, i f i t can get a JDB loan f i r s t . Thus, use of JDB loans is more lik e ly to generate further dependency o f ;individual enterprises upon debt‘ financing. The Foreign Trade and Exchange Control System The foreign trade and exchange control system was instituted by jthe occupation authority in the postwar years, and in 1949 was " transferred to M ITI. „ At present, the system has been replaced by the policy of free trade and exchange - - in prin ciple. But, as Leon ]Hollerman puts i t , Japan has "the most restricted foreign trade and 28 exchange control system ever devised by a major free nation." The isystem was a major instrument of MITI during the 1950's and 1960*5 in order to allocate necessary resources. Since Japan lost her empire during the war, she has become dependent upon the importation of raw materials from abroad and, thereby, foreign exchange earned through the exportation of domestic products. While Japan's economic development has been based upon how much raw materials can be imported, production of domestic industries has depended upon those imported materials and, thereby, foreign exchange. In the foreign exchange control system, each enterprise had to apply to MITI for an allotment of foreign exchange to 160 buy overseas resources or for approval to get licenses on foreign , ; ' i patented technologies. In other words, even i f i t raised the investment capital domestically, the enterprise could not use the capital without M ITI's allotment or approval. Thus, the foreign trade and exchange control system became the major instrument for MITI to allocate necessary resources to p rio rity industries and, thereby,:to guide and 29 control a wide range of industrial a c tiv itie s . ; t MITI'S Industrial Pol ic.y j I I t is clear now th a t, whether d ire c tly or in d ire c tly , the three integral parts of the H G S have been coordinated through the industrial policy of MITI. IDuring the 1950's and 1960's, the H G S gave MITI the power to control c a p ita l and resources and, in turn, promote the £ development o f the domestic economy according to its industrial policy. As a re s u lt, Japanese industry under the H G S has been structured as iwhat the Japanese called "competitive oligopoly." In simple terms, "competitive oligopoly" is the type of market competition involving several large-scale enterprises, none of which has . clear advantages in terms of scale of production, technological e fficie n c y, and.thereby ' cost performance. The reason why the industry was so structured is i that the H G S was open for any enterprises which had the capability to participate in M ITI's industrial policy. This openness of the H G S means two things. F irs t, theiIndustrial policy not only forced participation of a ll the enterprises in a particular industry, but also those of enterprises from other industries. For commercial banks, loans to enterprises which participate in M ITI's appointed industry are 161 very safe and also p ro fitab le, because those loans are in essence J * guaranteed by the BOJ and, also, the government. Thus, commercial banks either extend loans to enterprises already in the industry or encourage others to enter into the industry. Especially, inter-group competition accentuates further not only this banking practice but also individual enterprises, because the im itation of investment patterns provides potential success of both banks and enterprises in inter-group competition. Second, Mines' industrial policy encourages a ll the participating enterprises to use the most e ffic ie n t processes and | technology available in the world and, thereby, often the same process j land technology. This means that a ll the enterprises build production systems or plants with sim ilar economies of large-scale production arid, thereby,,cost performance. In other words, none of the enterprises has a clear advantage over others. Thus, "competitive oligopoly" indicates that several large-scale enterprises (oligopolists) constitute a highly competitive market structure. However, the openness of the H G S resulted in MITI's concern with what is called "excess competition." Even though the term "excess" is not used any more, MITI argued during the 1960's that competition, i f j l e f t alone, would become excessive and cause tremendous waste in the allocation of resources harmful to economic development. C ertainly, the openness; of the H G S has clearly posed a danger of creating productive capacity well beyond the market to absorb and, thereby, price war among enterprises. I f this danger m aterialized, i t was contended, then resource;.allocation and economic development could be hampered. For M ITI, "excess competition" was used to indicate this danger. Administrative Guidance In order to solve such apparent danger of over-productive capacity, the ministry used administrative guidance or "gyosei-shido." About 30 administrative guidance, Johnson states as follows: . . . [Administrative guidance] refers to the authority of the government, contained in the laws establishing the various m inistries, . . . [and] constrained only by the governmental ju ris d ic tio n , and although i t is not based upon any e x p lic it law, i t cannot violate the law (fo r example, i t is not supposed t to violate the Antimonopoly Law). . . . In_a sense, adminis- i tra tiv e guidance was nothing more than a continuation by MITI of its established practice through other means. In other words, administrative guidance has been used to promote MITI's industrial policy. Administrative guidance does not have legal power to bind : industries or individual enterprises; consequently, whether to accept such guidance from MITI is th eo retically l e f t to decisions of those enterprises which belong to an industry subject to administrative i guidance. I t is easy to see why individual enterprises cooperate with MITI in its practice of administrative guidance, however, when they are facing possible over-capacity or when th e ir industry is particularly depressed. Even though administrative guidance may involve not only a (reduction in production le v e l, but also scrapping physically ■ ; i undepreciated productive c a p ic ity, a ll the enterprises in an industry can expect certain levels of prices and production and further government help in terms of loans, tax cred its, and lib eral depreci- ' ation, as long as they follow MITI's guidance. Likewise, MITI has 163 promoted mergers through administrative guidance in order to achieve economies of large-scale production. There are several reasons why administrative guidance has. been effective incthe promotidn: o f-M IT I' s industnial.poTicy. The f ir s t is the m inistry's claim that i t is engaged Jin the national in terest. The second is the m inistry's a b ility to ' ri ! [bring various informal pressures upon those enterprises which do not I I ' follow its guidance. These pressures are foreign allotments, government jloans, and so on. The la s t is the most important and the way.yih which j both government and industry consider the principle of administrative 31 jguidance quite natural. In other words, an industry (or large-scale private enterprise) expects the government to step into situations which i t can not solve independently. This way of thinking isvvery consistent with socio-economic structure and coordination of the Japanese economy discussed in the previous chapter. j In.;short, the HGS, combined with administrative guidance, has ! jprovided MITI enough economic power to control and maneuver a wide range of business and industrial a c tiv itie s of large-scale enterprises in accord with its industrial policy. Even though MITI has lo st the foreign trade and exchange control system through a free trade policy of .its own, the fact is that MITI s t i l l plays an important role in directing industrial development through the JDB loan, the overloaning system, and administrative guidance. H G S and Zaibtsu Groups To supplement discussion of the HGS, the importance of the Zaibatsu group, should be examined. Under the industrial policy of the 164 1950's, the Zaibatsu were reorganized around a set of commercial bank and trading companies. Comparing prewar and postwar Zaibatsu, Johnson states that "[Zaibatsu groups] differed from the old Zaibatsu in that th e ir internal organization was much more business-like than old family- 32 centered empire." In the HGS, the commercial banks are a major source of capital funds for industrial enterprises. However, loan practices of commercial banks are subject to the BOJ, and th e ir overall administration is under s tr ic t regulations of MOF. Especially, MOF's regulations control a ll interest rates and dividend rates, the scope of a bank's operation, and permission to open new branches. The reason for MOF's s t r ic t regulations is presumably to reduce the risks which operate at low reserves caused by the overloaning system. Consequently, commercial banks have been running th eir business re la tiv e ly ris k -fre e and, thereby, competitively overexpand deposits and loans. In other words, they have to keep a number of enterprises and encourage them to 33 participate in MITI's industrial policy in order to expand loans. Trading companies also have an important role for the HGS. Their business is to supply raw materials on cred it to industrial enterprises,, and to promote exports of domestically stocked products. Under its industrial policy, MITI encouraged the business a c tiv itie s of trading !companies, and, at the same time, promoted mergers of dissolved Zaibatsu trading companies and formation of industrial groups around them. In addition, those industrial groups, were further organized according to th eir relation to commercial (former Zaibatsu) banks. Apparently, the reason why Zaibatsu groups were reorganized around sets 165 ___i of (former Zaibatsu) commercial banks and trading companies is th eir power to control capital funds and raw. m aterials. In other words, i f economic bureaucrats are defined as superstructure of the economy in terms of th eir control over capital and resources, the commercial bank i and trading company constitutes a superstructure of the Zaibatsu group and a substructure of the economy under the control of economic bureaucrats. As discussed e a rlie r, moreover, the Zaibatsu group i incorporates both vertical and horizontal types of industrial group. In fact six Zaibatsu groups, listed in the previous chapter, have been dominant in economic structure and cover the major part of modern industries. Thus, MITI has controlled and maneuvered not only those enterprises which have direct contact with i t , but also those manu factures close to the bottom of the economy through the structure of industrial groups. In other words, the H G S does not seem to constitute extensive control, but given the structure .of industrial groups, the system of control has been very extensive. Concluding Comment Until the f i r s t oil shock of the early 1970's, the postwar '..,1 c a p ita lis t states of the West (including Japan) had experienced an unprecedented long period of economic growth and prosperity. In tern atio n ally, the establishment of the IMF-GATT system based all foreign exchange upon the American Dollar and, in turn, supported the expansion of free foreign trade among the industrialized nations of the West. More important, domestically;,\;was the increased size and roles 166 [of central governments, combined with planning capab ilities of large- i scale corporations, which enabled the advanced c a p ita lis t countries to coordinate and control the aggregate economy and, thereby, to sustain economic growth and prosperity. Considering this domestic condition, the question rises: Is the contemporary managed capitalism of the West a growth-oriented economy? Through the previous discussion of Japanese economy, i t is clear that the answer is "no, i t is not." But in Chapter 3 , i t was discussed th a t, with the establishment of managerial control, large-scale corporations in the United States have shifted th eir strategy from p ro fit to growth maximization. I f Japanese corporations are taking a growth strategy, what are differences between growth strategies of the United States and the Japanese corporations? Because the next chapter elaborates differences between contemporary i jmanaged capitalism and the Japanese economy, our comments here w ill be b rie f. Large-scale United States corporations emphasize internal rather * jthan external financing for investment purposes. I f they take a t ' - growth strategy based upon internal financing, th eir growth rates are d e fin ite ly influenced by the profits they can generate and, in turn, invest. In other words, th eir pursuit of corporate growth is essential ly compatible with p ro fit maximization as long as internal financing is emphasized as an investment method. Byjcontrast, large-scale corporations in Japan u tiliz e debt (external) financing as an investment method. Further, since these corporate debts have been ultim ately guaranteed by the JOB, corporations can renew th e ir debts with and, 167| in turn, acquire new investment capital from commercial banks, as long as they meet th eir payments. In comparison with the United States counterparts, the growth strategy of Japanese large-scale corporations does not depend upon the amount of p ro fit they can generate. But then, why do large-scale corporations in Japan take the growth strategy? Plausible reasons are both high u tiliz a tio n of debt financing and employment practices, namely, the 1ife-tim e employment and seniority system, based upon "non-individualism". j Combined with th e ir employment practices, high u tiliz a tio n of debt (financing constitute large fixed costs, for operations of large-scale 1 . ' I (corporations. With high fixed costs, i t is essential for corporations j (to pursue e ffic ie n t production arid, in turn, invest in technology. i (Since the implementation of new technology leads to increases in both J |efficien cy and production, i t is also v ita l for them to have larger (markets than before. In addition, th e ir employment practices favor ! . [the fast-growth firm more than the slow-growth one, because the fast-- ;growth firm hires more workers at the bottom of the seniority system i and, thereby, reduces cost per worker more than the slow-growth firm . From the worker's side, the corporate employment practices make the implementation of new technology and the corporate strategy of growth maximization easily acceptable to workers. This is because these employment practices make the workers' w ell-being, both present and future, exclusively depend upon how well the business of thei.r corporation is /w ill be. In this sense, the bureaucratic theory of 168 I growth maximization by Marris is applied to the executive-management group in the United States case, but because of corporate employment practices, can be applied to a ll the levels of large-scale corporations in Japan's case. Thus, there is in the Japanese economy a strong incentive for corporations to take, and also for workers to participate in , a growth strategy. As discussed e a rlie r , the investment drive (and growth strategy) |of large-scale corporations was created by the H G S administered by the M.ITI in accord with its industrial policy. The H G S was designed to |coordinate and control the allocation of capital and resources, and in jturn to promote economic growth and in d u s trializa tio n . But the H G S has been used mainly to guide the Japanese economy at the macro-level, for example, at the level of corporations or industries. This is almost exactly opposite to the approach of contemporary managed capitalism , (in which the government promotes economic growth largely through fiscal ! and monetary policies at the macro-level of the aggregate economy. Focused upon micro-level economies, the HG S enables the economic t bureaucrates to exercise hierarchical control over industries and corporations. But the H G S also has created the market of competitive oligopoly and, in turn, stimulated competition among large-scale corporations. Even though these two social processes seem contradicto ry to each other in a pure sense, the economic performance of postwar Japan indicates that hierarchical control and market competition are well coordinated within the HGS. The reason why this coordination 169 became possible is that these two social processes are based upon and, lin turn, supported by indigenous socio-economic coordination, namely, Icommunitarianism and inter-group competition, both of which are derived I from non-individualism. Within_a communitarian organization, there is strong hierarchical control, but between communitarian organizations, there is strong competition. Furthermore, communitarianism and in te r group competition are the bases of the industrial groups, lik e Zaibatsu groups, and make a ll organizations seek the authority of the government. Since MITI has real control over the HGS, corporations and industries look toward M ITI, which has been promoting economic growth and i in du strializatio n in accord with its industrial policy. Considering the'growth strategy of corporations and socio-economic coordination, these aspects of non-individualism and growth orientation complement each other.. As discussed e a rlie r , Japan as a growth- oriented economy can not be characterized as a centrally directed or i planned economy, but has chosen a modified contemporary c a p ita lis t road to economic development and in d u s trializa tio n . The reason why Japan, unlike other growth-oriented economies, is able to do so is that there exists a complementary relation between non-individualism and growth orientation. In short,-the Japanese economy is described by both non-individualism and growth, orientation. 170 FOOTNOTES FO R CHAPTER 6 1. Tatsuo Naruse, "Gendai-Nippon no Kanryo-Kiko" (Structure of Contemporary Japanese Bureaucracy), in Koza: Gehdi-Shihonshuqi- KokkO 2: Gendai-Nippdn rto Kokka-Kozo (Course: Contemporary C ap italist State 2: State Structure of Contemporary Japan), edited by Samon Kanehara, Jo,ji Kobayashi, Hikoharo Takahashi, Tokuji Taguchi, Hideo Fukui, and Isamu Fujita (Tokyo: Otsuki- Shoten, 1980), p. 189. Kazuo Shibagaki and Masaru Kaneko, "Nippon no Kokka-Kokusen-Shihonshugi to Shihai-Kozo no Mekanizumu" (Japanese State Monopoly Capitalism and Mechanism of Governing Structure), in Koza; Konnichi no Nippon-Shihonshuqi Volume 4: Nippon-Shihonshugi no Shihai-KO^a (Course: Present Japanese Capital ism Volume 4: Governing Structure of Japanese'Capital ism), edited by Kazuo Shibagaki and Hideaki Ouchi (Tokyo: Otsuki- Shoten, 1982), pp. 9-12. Notably, the Japanese marxists1 studies on State Monopoly Capitalism s ta rt with Tsutomu Ouchi, Kokka- Pokusen-Shihonshugi (State Monopoly Capitalism ), (Tokyo: Tokyo Daigaku Shuppankai, 1970). 2. Shibagaki and Kanedo, 0£. c i t . , p. 11. 3. Ib id . , pp. 20-23. Also see Shujiro Yazawa, "Gendai-Nippon no Seisaku-Kettei-Kiko" (Policy-Making Process of Contemporary Japan), in Koza: Gendai-Shihonshuqi-Kokka 2. 4. Shibagaki and Kaneko, op. c i t . , pp. 33-35. Fusao Shimoyama and Kushi Hyodo, "Nipponteki-Roshi-Kankei to Rodo-Undo" (Japanese Style Labor-Management Relation and Labor Movement), in Koza: Konnichi no Nippon-Shihon-shugi Volume 4 , pp. 255-258. | 5. Shibagaki and Kaneko, op. cit". , .pp. 31-33. | j 6 . Ib id . , p. 35. 7. Ernest Gellner, "Scale and Nation," Philosophy Of the Social Sciences, Vol. 3 (1973), pp. 15-16. 8 . Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 (Stanford: Stanford University Pres s',” 1982), p. 25. 9. Barrington Moore, J r . , Social Origins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World (Boston: Beacon Press, 1959), p. 243. 171 10.. Ib id . , p. 251. 11. Robert S. Ozaki, "Japanese Views on Industrial Organization," Asian Survey, Vol. 1 0 ,(October 1970), p. 22. 12. Johnson, ojp. c i t . , p. 28. 13. Yazawa, 0£. c i t . , pp. 123-126. 14. Philip H. Trazise and Yukio Suzuki, "P o litic s , Government, and Economic Growth in Japan," in Asia's New Giant, edited by Hugh Patrick and Henry Rosovsky, (Washington, D.C.: The Brooking In s titu tio n , 1976), p. 785. Also see the following works: Gerald L. Curtis, "Big Business and P o litical Influence," in Modern Japanese Organization arid Decision-Making, edited' by Ezra F. Vogel, (Berkeley: University of California Press, 1975), pp. 43- 44; Chalmers Johnson, "Japan: W ho Governs? An Essay on O ffic ia l Bureaucracy," Journal of Japanese Studies, Vol. 2 (Autumn 1975), pp. 9-10; and, for detailed study, Kazuo Nukazawa, Government- Busi ness Relatlons in Japan (Tokyo: Keidanren, 1971 ) , ~ ~ 15. See cases of "amakudari" in Chalmers Johnson, "The Reemployment of Retired Government Bureaucrats in Japanese Big Business," Asian Survey, Vol. 14 (November 1974), pp. 953-965. 16. C urtis, 0£ . c i t . , p. 45. j 17. Tresize and Suzuki, o£. c i t . , p. 759. 18. Ib id . , p. 761. 19. Ib id . , p. 768. 20. Ib id . , p. 763. Also see the following works for the LDP's Factionalism: Nathaniel B. Thayer, How Conservatives Rule Japan (Princeton: Princeton University Press, 1969), especially C h.,2; and Haruhiro Fukui, Party i ri Power: The Japanese Liberal - Democratics'and Policy-Making (Berkeley: University of California Press, 1970), especially C h . 5. 21. William E. Steslicke, Doctors in P o litics: The P o litica l Life of the Japanese Medical Association (New York: Praeger, 1973), p. 28. 22. William W. Lockwood, "Japan's 'New Capitalism '," in The State and ECbnOmic EnterpriSe in Japan, edited by William W . Lockwood, (Princeton: Princeton University Press, 1965), p. 498. Also see C urtis, op. c i t . , p. 60. 172 23. Johnson, MITI and the Japanese M iracle, p. 182. 24. Ib id ., Also see Henry C. Wallich and Mable I . W allich, "Banking and Finance," in Asia!s New Giant, pp. 284-290. 25. Johnson, 0£. c i t . , p. 203 26. Takafusa Nakamura, The Postwar Japanese Economy; Its Development arid Structure, translated by Jacqueline Kaminski, (Tokyo: University of Tokyo Press, 1980), pp. 136-139. Aslo see Garder Ackley and Hiromitsu Is h i, "Fiscal, Monetary, and Related ( Policies," in Asia's New Giant, edited by Patrick and Rosovsky, pp. 284-290. 27. Johnson, 0£. c i t ., pp. 210-211. 2 8 . Leon Hollerman, "International Economic Controls in Occupied Japan," Journal of Asian Studies, Vol. 38 (August 1979), p. 719. 29. Eugene J. Kaplan, Japan: The Government-Busi ness Relationship (Washington, D .C .: U.S. Department of Commerce, 1972), op. 146- 148. 30. Johnson, op, c i t . , pp. 265-266. And Kaplan, op. c i t . , pp. 77-158. 31. Nakamura, op. c i t . , p. 83. j 32. Johnson, o£. c i t , p. 206. Also see Richard E. Caves and Masu I Uekusa, "Industrial Organization," in Asia's New Giant, edited by Patrick and Rosovsky, pp. 494-504; and, for detailed study, Eleanor M. Hadley, A ntitrust in Japan (Princeton: Princeton University Press, 1970). 33. Kaplan, op. c it , Ch. 4. Organization for Economic Cooperation and Development, The Industrial Policy of Japan (Paris: OECD, 1972), Ch. 2. C ertainly, i t isrreasonable to assume that "the principles assembling a group [a bank] have some of the spects of portfolio policy." But the role of banks in the groups is considered to be broader than what portfolio policy indicates and analogous in many aspects to "conglomerates." See Wallich and Wallich, op. c i t . , pp. 293-298. I f 173 CHAPTER 7 ] ASSESSMENT OF THE JAPANESE EC O N O M Y ! j In this chapter, the Japanese economy w ill be assessed according i to such c rite ria as resource allocation , economic s ta b ility and employment, equity and equality, and economic growth. Since the i ; Japanese economy is a form of contemporary managed capitalism , the approach to assessment is (1) to describe contemporary Japanese capitalism in terms of these four c r ite r ia , and ( 2 ) to characterize differences between Japanese and United States forms of contemporary ! capitalism , incorporating some ideas of the previous chapters. i j According to John E. E llio t t , contemporary capitalism lie s both j between and beyond market capitalism and centrally directed socialism . 1 j In order to give a general description of contemporary capitalism , i t ( I is thus useful to sta rt with a description of market and centrally r directed economies. i i Resource Allocation In economic lite ra tu re , the allocation of resources is associated with and discussed in terms of "efficien cy." According to E llio t t , i the discussion of "efficiency" consists of "two major dimensions: (1 ) minimizing cost of producing any level of output (and thus maximizing output for any level of cost); ( 2 ) producing that composi- 2 tion of output most corresponding to society's preferences." In a market-directed economy (whether i t is c a p ita lis t or s o c ia lis t), the allocation of resources is l e f t to and depends upon 174 __j the market system. In order to achieve desired results for both dimensions, the system is supposed to coordinate numerous economic s elf-in teres ts through market competition and market prices. I t is thus said that the merit of the system is the autonomy to allocate resources according to consumer preferences and market values. However, the market-directed economy has d iffic u ltie s (in turn, demerits) to achieve desired results for both dimensions of "e ffic ie n cy." Autonomy of the system presupposes that the size of the decision-making unit is small enough to have no economic power to rig the market or to diverge from its control. Consequently, however, the size "may well be too small in many instances (1 ) to yield substantial economies of large-scale production, much less to function at technically optimum scale of plant; ( 2) to meaningfully consider, much less incorporate in individual calculation, external social costs 1 4 and benefits." By contrast, the allocation of resources is administered p o litic a lly under a centrally planned economy. Accordingly, the cen tra l authority is supposed to have highly concentrated economic power and a national plan which achieves desired results for the two dimensions of "efficiency." I t is often said that the merit of of a planned systemisthe capability to mobilize and allocate resources for large-scale, rapid change. However, the planned system also has d iffic u ltie s (in turn, demerits) to achieve desired results for the two dimensions of "efficiency." In contrast to the autonomy of the market system, the capability of the system presupposes that 175 the size of the decision-making unit is large enough to draw and <execute the national plan e ffe c tiv e ly . Consequently, however, the I size can be so large as to ,:,{1 ) generate diseconomies of large-scale, with attendant costs, and ( 2 ) exclude or gloss over cost and benefit 5 relations requiring knowledge of the circumstances of time and place." I Moreover, "efficiency" depends upon the dedication and dynamism of those involved in drawing and executing the plan. Thus, i f dedication 6 should fa lte r , the foundations of the system may dissolve, j Contemporary capitalism lie s between and beyond market-directed and centrally planned economies. I t thereby incorporates advantages and disadvantages of both economies. The size of decision-making units is lik e ly to be larger under contemporary capitalism than in the market-directed economy. Consequently, for example, the larger size ! increases its a b ility to capture economies of large-scale production and, moreover, to function at a technically optimum scale of plant, * (while being less sensitive to "localized and concretized circumstances i 7 than the market directed economy." O n the other hand, economic power is dispersed among many organizations, namely, the government and business corporations. Thereby, the basic organizational structure of contemporary capitalism is characterized as "p lu ra lis tic ." j As a re s u lt, for example, this p lu ra lis tic character makes contem porary capitalism less lik e ly to suffer from diseconomies of large- scale than centrally planned economy, even though i t is less equipped to "mobilize and allocate resources for large-scale, rapid, changes 8 than centrally planned economy." 176 The Japanese economy is a form of contemporary capitalism. Thereby, i t shares the essential characteristics stated above. J ! Concerning the second dimension, however, preferences of the Japanese society have taken a special form. Notably, Japan is not only a c a p ita lis t, but also a growth-oriented, economy. Accordingly, i t is ! (necessary for the economy to mobilize and allocate resources to those firms and industries which are most lik e ly to have great impacts upon economic growth. Furthermore, the postwar economy had to deal with I scarcity of domestic resources while facing eventual participation in international competition. The f i r s t dimension of "efficiency" has thus become an essential theme for the Japanese economy. As discussed e a rlie r, the Japanese government has been involved in the promotion of economic growth and, thereby, the establishment of e ffic ie n t production in industry. The government has had economic j power based upon the High-Growth System to mobilize and allocate ! I capital and, thereby, resources. In essence, the High-Growth System has been used to (1 ) create shifts in resource allocation from obsolete firms or industries to those with high technology and growth potential (this s h ift includes the scrapping of physically unde preciated plant and equipment), and ( 2 ) establish the size and scope of the decision-making u n it.la rg e enough to yield economies of large- scale production and to function at a technically optimum scale of plant. Until the la te 1960s, the government had control over resource allocation through the foreign trade and exchange control system, because Japan depends upon imported raw m aterials. Since then, government control has become indicative, through its allocation of investment c a p ita l. The deep government involvement in resource allocation characterizes the Japanese economy as d iffe re n t from other forms of capitalism. Even though i t emerged amidst capital scarcity among private firms, the overloaning system has made firms depend heavily upon I !debt financing. This has a significan t effec t upon the behavior of private firms in Japan. The high u tiliz a tio n of debt financing means that small percentages of total capital are owned by stockholders. I Thereby, a small amount of p ro fit is necessary to be paid as dividends. O n the other hand, the high u tiliz a tio n of debt financing requires high interest payments. However, these debts of private firms are f iu ltim ately guaranteed by the Bank of Japan, and, in turn, private i | firms can renew debt and get more capital as long as they meet interest payments. In other words, the high u tiliz a tio n of debt j financing means that private firms do not need to depend so much upon i jp r o fit in order to promote th e ir growth. According to James C. Abegglen and William V. Rapp, the high u tiliz a tio n of debt financing has enabled the Japanese firms to operate and grow at low margins on sales. j However, the high u tiliz a tio n of debt financing, combined with j the life -tim e employment practice, creates high fixed costs for Japanese firm s. In other words, high fixed costs indicates l i t t l e room for the Japanese firms to cut^costs and, in turn, maintain p ro fit margins by reduction of production. Consequently, high fixed costs generate strong incentives for them to operate at fu ll capacity, so long as output can be sold above variable costs. Thus, Japanese firms are more lik e ly to respond to decreases in demand by price reductions than by production cuts. In other words, the consequence of the h ig h -u tilizatio n of debt financing is that Japanese firms are susceptible to price competition. This puts considerable pressure upon less e ffic ie n t firms. The same can be said for firms growing slower than the rest of an industry. Slow growth means for firms less of both market share and opportunity to expand th e ir production. I Combined with the seniority wage system, the Japanese recruitment practice favors fast growing fir m s .^ Since recruited workers are youngest and lowest in the seniority system, fast growing firms hire more of these workers, and thereby may reduce costs per worker more than slow growing firms. Slowly growing firms may thus become in e ffic ie n t in comparison with others growing at rates equal to or higher than the industry average. This is also true for industries growing at lower rates than the economy as a whole. Thus, the high u tiliz a tio n of debt financing increases pressure upon Japanese firms to pursue more e ffic ie n t processes and technologies. In e ffe c t, this creates strong incentives for firms to invest at rates equal to or higher than those of average rates in industry and/or the economy. | According to Harvey Leibenstein, productive efficiency consists of not only allocational efficiency but also "X -efficiency." Given allocational efficiency, em pirically i t is s t i l l possible that levels of unit cost, and thereby production, vary with worker's incentives 179 or motivations. "X-efficiency" means such variation in productive efficiency, where motivation is a major, but not the only element. Leibenstein has c la rifie d further the difference between allocational efficiency and "X-efficiency" as fo llo w s :^ ...firm s and economies do not operate on an outerbound production p o ssibility surface consistent with th e ir resources. Rather they actually work on a production surface well within that outer bound. . . [Thus] one is along a production surface toward greater allocative efficiency and the other is from a lower surface to a higher one that involves greater degree of X-efficiency. The reason why "X-efficiency" is discussed here is that workers' pursuit of efficiency in Japanese firms can be explained partly in t relation to th e ir motivational element, namely, communitarianism. Positions and salaries of individual workers are protected within the communitarian framework of th e ir firms, p a rtic u la rly , by the seniority system and life -tim e employment. At the same time, th e ir well-being depends upon how well th e ir firm does/will do. I f th e ir firm does not keep up with others in the pursuit of production efficiency, th e ir firm w ill lose ground in the market. This means that workers w ill not improve th e ir future liv e s . A s a resu lt, workers not only cooperate with management for the installment of more e ffic ie n t equipment or processes but also engage in increasing efficiency and eliminating waste in th e ir production processes. Thus, workers are concerned with the performance of th e ir firm and are motivated to participate in the promotion of increased efficien cy. In other words, the communitarianism of Japanese firms exploits "X-efficiency." Notably, inter-group competition enhances 180 "X-efficiency." According to the idea of inter-group competition, ja group of workers competes against other groups within th eir factory, I iwhich in turn compete against other factories within an enterprise, which in turn competes against others in the same industry. Conse quently, inter-group competition increases workers' awareness of i others' pursuit of efficiency and, thereby, of th e ir own pursuit of efficiency. While the Japanese economic system may have been successful in reducing d iffic u ltie s of both market and centrally directed economies, i t has other d iffic u ltie s of its own. Most of these d iffic u ltie s are prone to emerge in contemporary capitalism , where large-scale corporations have discretionary economic power and in turn characterize the society as "pluralism." These are sales promotion, collective bargaining, and public regulation. In addition, unlike the market- directed and the centrally planned economies, contemporary capitalism I "has no clear mechanism for rendering economic power publicly 12 responsible." In the socio-economic structure of Japan, however, large-scale firms are characterized as communitarian (and semi government) organizations and, in turn, they are required to assume public (e th ic al) resp o nsib ilities. This is an unwritten social agreement among the Japanese. As a re s u lt, the breach of this agreement creates serious d istrust and criticism by the public against such firm s. As well as these firm s, concerned government bureaucracies are c ritic iz e d by both the public and the legislature for th e ir neglect of supervision over these firms. 181 For the Japanese economy, a major d iffic u lty emerges in the !consensus approach. In order to deal with pollution or an o il embargo, for example, i t is necessary to have policy amendments and/or public regulation, which in turn requires consensus among a wide variety of social in terests. Once the problem is acknowledged by a ll concerned interests, i t is certain that consensus w ill be reached and the problem w ill be dealt with very e ffe c tiv e ly . Unlike the market- directed economy or the centrally planned one, the Japanese economy deals with such problems neither through the automony of the market system nor the capacity of the planned system. Thus, Japan's system | requires time-consuming consensus-building processes. In other words, the system is vulnerable to breakdown in social consensus and/or 13 sudden unexpected changes in the economic environment. ; Economic S ta b ility and Employment. I 1 The market-directed economy requires f le x ib ilit y in prices and wages in order to maintain s ta b ility in output and employment. "In e ffe c t, deflation is the price that competitive market economy, 14 functioning at its best, pays to prevent or cure depression." As discussed e a rlie r , however, decentralization of decision-making is essential for the autonomy of the market system. Decentralization is most lik e ly to (1 ) cause divergence between aggregate desired saving and investment, and ( 2 ) compound the uncertainties generated by dyna mic changes (or expectations of changes) in such exogenous factors as technology, weather, population, taste, social p rio rity , and so 15 fo rth. In other words, the market-directed economy does not always 182 function at its best, and may indeed result in cycling between unemployment and recession on one hand, and in fla tio n on the other. Even though changes in exogenous factors w ill also generate uncertainties in a planned system, the centrally planned economy w ill not experience divergence between aggregate desired saving and invest ment. This is because "savers and investors (the Central Planning Board) are the same person and are saving and investing for the same reason."^ As discussed e a rlie r , however, the power to mobilize and allocate resources are largely concentrated in the hands of public (auth ority. Consequently, changes in p o litic a l leadership may cause changes in public policy, indeed, in stitu tio n al changes. Thus, the source of in s ta b ility is largely p o litic a l rather than economic in a cen trally planned economy.^ I Contemporary c a p ita lis t lie s between the market-directed and the centrally planned economies. Coupled with labor unions, the j economic power of large-scale corporations s ig n ific an tly reduces the * p ro c liv ity toward price and wage in fla tio n . Also through monetary and fiscal policy, the government can promote economic s ta b ility and fu ll employment. But there are s t i l l potential sources for in s ta b ili ty .or departures from fu ll employment. F irs t, contemporary capitalism is susceptible to p o litic a l and in turn economic s ta b ility , because of greater concentration of economic power by government. Second, con temporary capitalism is s t i l l subject to in s ta b ility of the market- directed economy, because of dispersion of economic power among independent decision-making units. In adition, contemporary capitalism may face "a Hobson's choice for government policy-m akers"curb in fla tio n , and thereby recession and unemployment: or promote fu ll i i 18 employment, and thereby, ‘r a t i f y ’ in fla tio n ." Because of economic j !power, corporations and labor unions can maneuver the market to a certain extent and also can influence the p o litic a l system and the choice of public policies. I A s a form of contemporary capitalism , the Japanese government engages in monetary and fiscal policies to maintain s ta b ility in prices and employment. Given that society's preferences have been focused upon economic growth, however, those policies are considered to have been executed to sustain "stable economic growth" rather than to promote s ta b ility in prices and employment peruse. This does not mean that economic s ta b ility is not important in the Japanese economy. However, some price in s ta b ility is tolerated as long as high growth i rates are sustained. Also, employment can be maintained at high levels i f the economy sustains high growth. In order to promote economic growth, the Japanese government has been (in d ic a tiv e ly ) allocating investment capital as well as other resources. As explained e a rlie r , i t has been also providing capital to private firms through the Fiscal Investment and Loan Plan and the overloaning system. In e ffe c t, the government has stimulated strong incentives for private firms to invest continuously. (The mechanism to promote economic growth w ill be elaborated la t e r .) Under this circumstance, the economy may be more susceptible to labor shortages. Consequently, the government may need to promote reallocations of 184 labor and e ffic ie n t use of labor. At the same time, continuous investment by private firms maximizes the likelihood of severe in fla tio n and creates problems in the balance of payments. For the l iJapanese economy, the balance of payments is more crucial than in fla tio n . This is because Japan lacks domestic sources of raw j m aterials, and, in turn, the import of raw material is essen tial‘ 'for Jher economic growth. In order to deal with this problem, i t is necessary for the government to engage in temporary but fine-tuned re s tric tiv e policy, which results in slowing down but not cu rtailin g i ■investments by private firms. For this purpose, the government employs monetary policy, and uses fiscal policy to indicate its intentions to the private sector. In Japan, monetary policy is managed by the Bank of Japan (BOJ). "Although the BOJ has nominal independence, its actions in a ll 19 fundamental policy are fu lly consistent with government policy." i iMajor instruments of monetary policy are discount policy and "window guidance." In simple terms, discount policy is the management of interest rates (usually called the "discount rate") charged upon i | the BOJ's loans to commercial banks. Notably, to borrow from the I BOJ is a p rivileg e , not a rig h t. Changes "in the discount rate have been very small, and the rate never reached 10 percent even in 1974 when Japan experienced severe in fla tio n caused by the o il embargo. However, increases in the discount rate have been used to signal that the government has decided to slow down the economy. O n the other hand, "window guidance" is the management of a qu alitative 185 . • 20 ceilin g set on the aggregate lending of each bank. In theory, i t is the BOJ's suggestion that banks can take or leave; but in r e a lity , i t has binding power for them to follow . I t is because banks, which are e lig ib le to borrow at the discount window, have been heavily in debt to the BOJ. Since banks have been major suppliers of capital to private firms and for the economy, "window guidance" has enabled the BOJ (in turn, the government) to control in detail the amount of investment capital available to private firms and for the economy. By contrast, fiscal policy is not an effective method for the government to deal with the problem of the balance of payments. There are two major reasons. F irs t, the effectiveness of fiscal policy may t be weak from the beginning, because there exist strong investment drives by private firms without expansionary fiscal policy. In relation to the second, fiscal policy is an indirect approach, with t j tim e-lags, to influence the economy; thereby, i t is not suited for executing temporary, fine-tuned re s tric tiv e policy. Nonetheless, fiscal policy has been coordinated with monetary policy and, in turn, l 21 - has tended to combat the business cycle. Notably, fiscal policy has been used to indicate the end of re s tric tiv e policy, which is f ir s t enforced through monetary policy. In contemporary capitalism , i t is said that economic power of large-scale corporations, coupled with labor unions, makes them price- makers rather than price takers, and sig n ifican tly reduces the deflationary pressures which is characteristic of the market-directed economy. In this sense, the typical response of private business to 186 (decreases in demand is to lay o ff workers and cut back production; thus, greater s ta b ility in prices arid wages is maintained at the cost of potential in s ta b ility in output and employment. Furthermore, economic power of large-scale corporations as price-makers may generate |in fla tio n a ry pressure from the side of cost and supply in addition to "demand pull" forces of the market-directed economy. In the Japanese version of contemporary captalism, by contrast, large-scale firms are susceptible to price competition and, in turn, reduce prices < i to meet decreases in demand. As discussed e a rlie r, the reason is that high fixed costs in production create a strong incentive for Japanese firms to operate at fu ll capacity le v e l. However, even i f they face f production cuts because of severe demand reduction, Japanese firms are ch aracteristically in a better position to respond, as shall now be explained. » ) Communiatrianism, which characterizes large-scale firms, makes I } both workers and management pursue a common goal, namely, growth of the firm . But cuts in production may reduce p r o fita b ility of the firm , I and indeed jeopardize its growth strategy. Given life -tim e employment, workers respond to cuts in production by accepting reductions in work hours (which usually starts in overtime work) and cooperate with management to eliminate waste and inefficiency in production processes. The labor-management re la tio n , based upon communitarianism, helps firms to deal with cuts in production. In Japan, large-scale firms are characterized as semi-public or governmental, as well as communitarian, organizations. This means two things. One is that they can expect 187 government help i f they cannot find any other solution to maintain th e ir production. In the case of a depressed industry, for example, the government steps in and draws guide!ines, firms can expect to maintain prices and production on one hand, and wages and employment on the other. As discussed e a rlie r, the second is that they cannot breach an unwritten social agreement. In this sense, they must avoid undue in flationary pressure on the economy. In 1974, for example, Japan experienced severe in fla tio n caused by the o il embargo of Arab nations. In this instance, in flationary pressure was curbed by reduction in profits of firms and, in turn, cuts in real wages of the 22 j worker. I I Equity and Equality Competitive market capitalism , at its best, may yield a form of equity — "from each according to his a b ility and property, to each 23 j according to his productivity and that o f his property" -- and lim it i the extent of inequality caused by anything but the market. But market capitalism does not always function at its best. There are factors such as inheritance, luck, and chance, which plausibly generate substantial in equ alities. In addition, ownership and control of industry can be concentrated, even under competitive market capitalism , generating inequities and in equ alities. Thus, competitive market capitalism has strategic lim itations to pursue consciously equity and equality as social goals. In centralized socialism, "Equity or equality can be approached 24 deliberately." One of the reasons is the absence of private property and reliance upon the market system for productivity evaluation. Another is that the distribution of income, as well as ; the allocation of resources, is clearly a "policy variable" under a I centrally directed economy. In contrast to other economic systems, including managed capitalism , centralized socialism plausibly has the highest degree of discretionary power in the pursuit of equity and equality. However, because of the great concentration of economic and p o litic a l power, i t is possible under centrally directed economy "for income to be distributed with a greater [inequity] and with a more 25 absolute inequality," than under other systems. Contemporary capitalism lie s between these two economic systems. O n the one hand, i t was e a rlie r discussed that there are greater concentrations of economic power by large-scale private organizations, an increased size and roles of the government, the importance of non- market social processes, and the separation of ownership and managerial control. O n the other* contemporary capitalism is characterized by a p lu ra lis tic structure and c a p ita lis t heritages, such as its maintenance of private property and reliance on the market system as an allocation- al process. The former increases contemporary capitalism's degree of i freedom for exercise of discretionary judgements in the pursuit of equity and equality, while the la tte r reduces its scope of discretionary power lower than centralized socialism. In addition, while contemporary capitalism 's "tendency toward inequality in income distribution is blunted by democracy and countervailing power, i t is 26 augmented b y large-scale concentration of private economic power." 189 Essentially, the Japanese economy shares the characteristics of contemporary capitalism stated above; consequently, the Japanese economy occupies an intermediary position between more decentralized and more centralized forms of economy. However, whether the question of equity/equality is raised in the Japanese economy is a d iffe re n t matter. This is because the question is based upon social and p o litic a l values. In contemporary capitalism , the movement toward greater equity/equality has been supported by the j social idea of the individual. Notably, the idea supposes that I individuals are sim ilar or have sim ilar q u a litie s , and given equal opportunities and liv in g environments from the time of th e ir b irth , they would be equally productive. In accord with this idea, social and p o litic a l values have been shaped to reduce inequities and inequalities generated in contemporary capitalism; in turn, i t is considered that the extent of the reduction in contemporary capitalism is greater than in more decentralized economy and less than in a more centralized economy. B y contrast, the question has been subdued in the Japanese economy. One reason is that society's preference has been focused upon economic growth and, in turn, social and p o litic a l values have been shaped according to rapid economic growth. As long as Japan is successful in the pursuit o f economic growth, people and firms alike share economic success and enjoy larger income than before. Certainly, communitarianism has played an important roie in making workers and management share this view. Another reason is that traditional ethics make the Japanese insensitive to inequalities in [the distribution of income. For example, there exists inequality i i [based upon age differences, which has apparently resulted in the ( Isen io rity system of modern bureaucratic organizations, both private and public. I t is because the age of individuals has been h is to ric a lly emphasized as an important determinant of rank in society or the organization. These factors do not mean that the Japanese economy has not engaged in discretionary action in the pursuit of equity and equality. Rather questions of equity/equality are subdued because of the overpowering preference of society for growth. Economic Growth The rate of economic growth is determined by two factors; (1 ) "the proportion of an economy's resources directed toward growth," 27 and (2) "the dynamic efficiency with which resources are employed." Notably, dynamic efficiency is allocational efficiency incorporating invention, innovation, and investment. Given allocational efficiency, I the growth rate w ill depend upon the ra tio of saving and investment to income and that of work to leisure. 28 In the market-directed economy, the rate of economic growth is determined by the market system. For the f ir s t facto r, individual preferences and market choice are determinants in the allocation of resources, c a p ita l, and labor. Given allocational efficiency, the rate of economic growth is consistent w ith, but bound by, individual preferences. For the second fa cto r, decentralization in the market system makes profits depend solely upon raising productivity and . reducing cost. Thus, "the motivational and in stitu tio n al structure 191 of the market-directed economy contains a powerful thrust for each 29 decision-maker to pursue dynamic e fficie n c y." However, decentrali zation makes the system least lik e ly to respond to external and I (uncertain benefits and, moreover, to benefit from large-scale economies, while maximizing the likelihood of drawing new blood into the market and responding spontaneously to local conditions. By contrast, the rate of economic growth is a policy variable 30 under the centrally planned economy. For the f ir s t facto r, the central authority (or CPB) has highly concentrated economic power to direct a ll resources according to the national plan. In addition, i t has a high degree of discretionary contra! over saving, investment, work and leisure. Even though resource allocation may be in e ffic ie n t, the centrally planned economy can generate high economic growth through stimulating people to save more and work hard. For the second facto r, the centrally planned economy lacks the motivational and in stitu tio n al structure of market-directed economy. However, its monistic character makes a ll costs and benefits in tern al; thereby, investment can be organized to capture a ll the benefits o f large-scale economies. In addition, "waste from duplication in research and uncertainties emanating from dispersion of investment are lower, and large-scale, 31 rapid technological transformations easier to execute." Contemporary capitalism lie s between and beyond market-directed and centrally planned economies. For the f i r s t facto r, individual preferences and market choices are s t i l l determinants in the allocation of resources, c a p ita l, and labor. But contemporary 192 capitalism incorporates some central control over economic growth. In the public sector, the government not only engages in monetary and fiscal policies to promote high employment of resources, but also employs various measures to encourage saving and investment. For example, these measures include not only easy monetary policy but also tax credits, lib eral depreciation and depletion allowances, and public j investment programs. In this sense, the rate of economic growth is a policy variable under contemporary capitalism , though less so than under a centrally planned economy. In the private sector, according j I i to E llio t t , "the corporate revolution and dominance of internal | financing, combined with the sales and growth maximization of o l i gopolistic enterprises, tends to increase the profit-investm ent- technology-profit sequence and, thereby, promote higher growth : 32 rates." The combination of private and public decision-making may enable contemporary capitalism to obtain higher ratios of saving and investment to national income and consequently, given its allocational efficien cy, achieve higher growth rates than those of l centrally planned economies. For the second factor, contemporary capitalism has some ad vantages and disadvantages of both market-directed and cnetrally planned economies. Under contemporary capitalism , the size of the decision-making unit is large-enough to engage in costly but productive technical research and development (R and D). O n the other hand, economic power is dispersed enough to avoid the potential s tu ltify in g impact upon motivation and experimentation which often appears 193 ■ ■ „ . . . — .-----— .— — — - i . . . . . . — .. ■ , . * 4 under centrally planned economy. In addition, contemporaryT;¥’ pTtaTTsm has a "new feature, that is , competition among autonomous R and D organizations and research departments of large-scale corporation, 33 thereby stimulating research and technical progress." To implement the result of R and D, however, may require large-scale corporations to scrap physically undepreciated equipment and/or plant and also face the threat of increases in competition. Since R and D results are private properties, these factors may become barriers to dynamic efficiency and, thereby, the rate of economic growth. In addition, despite concentration of private economic power, contemporary capitalism is s t i l l based upon the market system for allocation of resources and, thus, is characterized by externalities and uncertainty in science and education. For this reason, government has to provide basic science and general education to underwrite externality under ( j uncertainty, and has fostered research, invention, and innovation under contemporary capitalism. As a form of contemporary capitalism , the Japanese economy lies between and beyond market-directed and centrally planned economies. Further, her economy is essentially characterized by the above general description of contemporary capitalism. Because of its growth orientation, however, the Japanese economy has d ifferen t features from this general description. As discussed e a rlie r, the Japanese i government engages in monetary and fiscal policies (though less so than those of other contemporary capitalism s), not so much to promote high employment of resources as to curb imports. O n the other hand, 194 Jthe government d ire c tly participates in private saving and investment ; business to promote economic growth. The government controls substantial private savings collected by the postal savings system, and these savings have been invested through the Fiscal Investment and Loan Plan. Besides, the government generates and supplies large amounts of capital funds to private firms through the overloaning sys^ tern. The Fiscal Investment and Loan Plan and the overloaning system have enabled the government (namely, the Ministry of International Trade and Industry) to channel investment capital to private firms and and industries in accord with its industrial policy. To those firms which follow the industrial policy, the government not only supplies t investment capital but also permits tax credits and lib eral deprecia tion and depletion allowances. Thus, the Japanese government has a strong influence over investment decisions of private firms and, ; thereby, the promotion of economic growth, notably, its management of i i ! the micro level economy. Investment capital has been allocated to those firms and industries which, in accord with the industrial policy, are subject to the program of ratio n alizatio n described in the preceding chapter. Two crucial phenomena have emerged from such a c tiv ity of the govern- I i ment. F irs t, the ratio n alizatio n policy not only forces participation of a ll firms in a particular industry but also stimulates those of other firms from d ifferen t industries. This phenomenon of cross industry stimulus is not only caused by the government ratio nalizatio n policy. As noted e a rlie r, i t is also rooted in the organizational characteristics of Japanese firm s, namely, communitarianism and in te r- group competition. The ratio nalizatio n policy also encourages firms to use the most e ffic ie n t processes and technology and, thereby, to build production systems with approximately equivalent cost perfor mance. Consequently, no firm has a clear advantage in the market. Second, i f a firm can get a loan through the FLIP, then i t is possible that this firm may raise a ll necessary capital through the overloaning system. In fa c t, the overloaning system has made most large-scale firms dependent upon debt financing. As discussed e a rlie r, this high j u tiliz a tio n of debt financing has not only enabled such firms to operate and grow at low p ro fit margins but also, combined with l i f e time employment, has generated strong incentives for them to operate at fu ll capacity le v e l. In other words, the high u tiliz a tio n of debt financing maximizes the likelihood of those large-scale firms to j i be susceptible to price competition (reduction) in the case of reductions in demand. This puts pressure upon not only less e ffic ie n t firms but also those of slow growth. Thus, the h ig h -u tiliza tio n of debt financing places pressures upon large-scale firms in Japan to invest in more e ffic ie n t production processes and technologies. Implementing the results of R and D becomes crucial to enhance cost performance and e ffic ie n t production. In the Japanese economy, there is strong pressure on and powerful incentives for private firms to invest and grow. In order to in s ta ll new technologically e ffic ie n t equipment or processes, firms require retraining and/or relocation of workers. 196 The Japanese labor-management re latio n , based upon communitarianism, makes I t easier to f u l f i l l such requirements. Since individual workers' lives depend upon how well th e ir firms w ill do in the future, workers not only cooperate with management in such instances, but also engage in increasing efficiency and eliminating waste in th e ir produc tion processes. These workers' attitudes are further accentuated by inter-group competition within and outside th e ir firms. Within a firm , a group of workers competes against other groups, and one factory competes against others for the pursuit of efficiency. Out side of a firm , its enterprise union competes aigainst others in the I same industry. The Japanese labor management relation thus enables a firm to pursue not only dynamic efficiency but also, as discussed e a rlie r, "X-efficiency." 197 FOOTNOTES F O R CHAPTER 7 1. John E. E llio t t , Comparative Economic Systems, Second Edition (Xeroxed), (Belmont: Wadsworth, forthcoming), Ch. 10, p. 31. 2. Ib id . 3. Robert A. Solo, Economic Organizations and Social Systems (New York: The Bobbs-Merril Company, In c ., 1967), p. 34. 4. E llio t t , 0£ . c i t . , Also see Solo, op. c i t . , pp.-38^39 and 42-45. 5. E llio t t , cjd. c i t . Also see Solo, op. C it ., p. 61 and 63. 6. Solo, o£. c i t . , p. 59. 7. E llio t t , ££. c i t . , Ch. 10, p. 32. 8 . Ib id . 9. James C. Abegglen and William V. Rapp, "Japanese Managerial Behavior and 'Excess Competition1 The Developing Economy, Vol. 8 (December 1970), p. 430. 10. James C. Abegglen, Management ahd Worker: The Japanese Solution (Tokyo: Sohpia University, 1975), p. 45. 11. Harveyrleibenstein, "Allocative Efficiency vs. 'X-Efficiency' I American Economic Review^ Vol. 56 (June 1966), p. 413. 12. E llio t t , o^. c i t . 13. Chalmers Johnson, MITI and the Japanese Miracle (Stanford: Stanford University Press, 1982), p. 22. ; 14. E llio t t , op. c i t . , Ch. 10, p. 33. 15. Solo, op. c i t . , pp. 45-50 and 139-140. 16. E llio t t , o]3. c i t . 17. Solo, 0£ . c i t . 18. E llio t t , op. c i t . , Ch. 10, p. 34. 198 ____ J 19. Garder Ackley and Hiromitsu Is h i, "Fiscal, Monetary, and Related Policies," in Asia*s New Giant, edited by Hugh Patrick and Henry Rosovsky, (Washingotn, D.C.: The Brooking In s titu tio n , 1976), p. 195. 2°. Ib id ., p. 202. 21. Ib id ., p. 223. 22. Nobuyoshi Namiki, Nippon-qata-Keizai o Toku (To Solve the Japanese Style ECOnomy), (Tokyo: Purejidento-sha, 1981), pp. 21-23. 23. E llio t t , op. c i t / 24. Solo, 0£ . C it . , p. 69. 25. Ib id . , p. 70. 26. E llio t t , 0£. c i t . , Ch. 10, p. 35. 27. Ibidi 28. Solo, 0£. c i t . , Ch. 12. 29. E llio t t , 0£, c i t . , Ch. 10, p. 36. 30. Solo, 0£ . c i t . , Ch. 13. i 31. E llio t t , 0£ . c i t . i 32. Ib id . 33. Ib id ., p. 37. 199 CHAPTER 8 SUM M ARY A N D CONCLUSIONS Japan has been recognized as the only non-Western society which adapted herself to a (modified) c a p ita lis t mode of production and today is ranked among the industrialized, c a p ita lis t states of the West. This recognition comes from many scholarly studies indicating differences in structure, behavior, and performance, that distinguish the Japanese economy from contemporary capitalism of the West. However, there is l i t t l e lite ra tu re discussing the Japanese economy as an economic system and, in turn, comparing i t with contemporary capitalism of the West. In addition, there is l i t t l e lite ra tu re c la rifyin g non-Western heritages of the Japanese economy and incor- r porating these heritages in its analysis of an economic system. All the previous d i s c u s s i o n s were thus devoted to the analyses of the Japanese economy and its non-Western heritages, based upon the analytical method of comparative economic systems. Here, the discussions are summarized b rie fly in order to c la rify th e ir maj'or points. Modern economics!is based upon observation of Western c a p ita lis t economies; thereby, its analyses are c u ltu ra lly conditioned. This point was examined through expository reviews o f classical perspectives on capitalism, namely, those of Marx, Weber, Veblen, and Commons. In turn, these reviews indicate a presupposition, namely, "individual ism," underlying the analyses of Western capitalism. "Individualism" 200 ["here means viewing individuals as independent decision-making agents I and responsibility bearers. In this sense, "individualism" is I undeniable even in c o lle c tiv is t organizations (for example, bureaucracy) land social processes (for example, collective bargaining) characteriz- t ing contemporary capitalism in the West. Accordingly, Western capitalism can be described as an "in dividu alistic" economy. Given this form of "individualism," however, the transformation from la is s e z-fa ire to contemporary capitalism involved significant ! changes in economic structure, behavior, and performance. Contemporary Western capitalism is characterized by large-scale private organiza tions with highly concentrated economic power, such as corporations, labor unions, and trade and professional associations, and also by increased size and roles of the central government. As an economic system, today's capitalism of the West is thus defined as contemporary I 1 i managed capitalism. Through a general comparison, the Japanese economy was found to share essential characteristics of contemporary managed capitalism; th ereby,"it is considered as a form of contemporary managed capitalism. But there can be found some significant differences of the Japanese economy from other examples of contemporary capitalism. These differences cannot be discussed completely in terms of the economic conditions of postwar Japan, but are essentially derived from her non-Western heritages, namely, a non-individualistic socio economic structure of Japan and the growth orientation of her economy. 201 ___I The concept of the ie group is considered as the basis of the socio-economic structure of Japan. Within an ie group, each member is t jcharacterized by roles and obligations — symbolically to the group or its head, and r e a lis tic a lly to his senior or superior. Since the superior (or senior) has the actual responsibility to look a fte r his subordinates, each subordinate's responsibility to perform his roles and obiigations is shared by his superiors. This is not individ ualis t ic , but jo in t, resp onsibility. Thus, the concept of the ie group is based upon the principle of jo in t (non-individualistic) responsibility. Japanese bureaucratic organizations, such as large-scale corporations and government m inistries, practice the seniority system and Iffe -tim e employment for personnel management, and the ringi system and the nemawashi process for decision-making. These employ ment practices and decision-making processes are essentially characteristics of the ie group. The employment practices in s titu te j the principle of jo in t responsibility, while decision-making processes are based upon the unanimity ru le . Even though they may seem contradictory, the unanimity rule is enforced through the relationship between superior and subordinate based upon the principle of jo in t responsibility within ie-typ e, bureaucratic organizations. Moreover, this relationship between superior and subordinate becomes the basis of factions which compete against each other for future power and leadership of an organization. Since the organiza tion based upon the ie group provides a communitarian framework, factions within i t become unified and directed toward other 202. organizations competing against i t in the same a c tiv ity or business. Furthermore, when these organizations face a com mon th reat, for example, recession or foreign competition, the society or market e lic its communitarian response. This form of competition presupposes group existence and a communitarian framework, and, thereby, is defined as "inter-group" competition. Combined with communitarianism, inter-group competition creates an ascending motion of organizing smaller groups into one larger group upon the basis of se lf-s u fficie n cy. In the business fie ld , for example, this motion appears as the formation of industrial groups. There are two types of industrial groups; one is the vertical type, in which numerous subcontractors are organized pyramidally toward one large-scale corporation; another is the horizontal type, in which a number of corporations (or subsidiaries) are organized complementarily. In many of these cases, a member of the horizontal type is a large- scale corporation, and, thereby, has its own group of the vertical type. The formation of the industrial group makes large-scale corporations dominant in the Japanese economy. A s far as socio-economic structure is concerned, the Japanese economy is structured upon the concept of the ie group, and, thereby, the principle of jo in t responsibility. This principle means th a t, within an ie-type organization, each member's responsibility to perform his job is shared by his immediate su p erio r;’and thus does not indicate the "in dividu alistic" responsibility of the West. But as stated e a rlie r, the Japanese economy is considered as a form of contemporary 203 t (capitalism. Accordingly, in contrast to the Western capitalism, the JJapanese economy can be defined as "non-individualistic" capitalism. i However, the Japanese economy has another non-Western heritage, namely, its growth orientation. While Japanese Marxists discuss growth orientation in terms of the theory of State Monopoly Capitalism, I Western p o litic a l economists attrib u te growth orientation to the i historical circumstance of Japan as a la te developing nation, and perceive the Japanese economy as dominated by its p o litic a l p rio rity . Especially according to Western p o litic a l economists, growth- t I oriented economies are often id entified with the centrally directed or planned system. In this sense, the Japanese economy, unlike most growth-oriented economies, is a form of contemporary managed capitalism, and consequently cannot be defined as a centrally directed economy or j ' ! planned system. But the Japanese economy is atypical and certainly I ,a growth-oriented economy, because of the dominance of its p o litic a l p rio rity . This dominance is clearly shown in the industrial policy formulated by the Ministry of International Trade and Industry. In general, the industrial policy indicates the economic bureaucrats’ pursuit of national interests through promoting economic growth and i ! industrialization and, thereby, shifting national resources to industries with high-growth potential. The term "economic bureaucrats" is applied to the Ministry of Finance (MOF) and the Ministry of International Trade and Industry (M ITI). Even though the government is based upon the Diet (parliament) system, economic bureaucrats have a great amount of discretion/ autonomy of th eir own a ffa irs and business. The Liberal Democratic Party, which has held the reins of government since 1955, invites ex bureaucrats to become Diet members of the LDP. This is because the bureaucrats in it ia t e , d ra ft, and execute v irtu a lly a ll the policies and le g isla tio n , and thus th eir technical knowledge is essential for the administration of government. However, these ex-bureaucrats represent largely the interests of th e ir former ministries and constituents, and consequently become shields for the bureaucrats from p o litic a l harassments. Additionally, economic bureaucrats use the High-Growth System to guide large-scale corporations in accord ; with the industrial policy. * i t The High-Growth System ( HGS) consists of three integral parts: (1) the overloaning system, (2) the Fiscal Investment and Loan Plan (FILP), and (3) the foreign trade and exchange control system. Through the FLIP and the overloaning system, MITI channels capital j funds to those corporations which engage in industry with high growth potential. Based upon the. foreign trade and exchange control system, MITI controls the imports of raw material and foreign patented technologies. Under the HGS, large-scale corporations constitute "competitive oligopoly" markets, and also become susceptible to price competition. This made corporations very vulnerable in times of even mild recession. Since MITI began to lose the foreign trade and exchange control system, the ministry turned to "administrative guidance." Even though administrative guidance is not based upon a specific legal power to bind corporations, businessmen can expect not 205 only to get government support but also to maintain levels of price and production, as long as they follow the administrative guidance of MITI. Unlike the centrally directed economy, economic bureaucrats do not have power and authority to control and coordinate the entire Japanese economy. But they use the HGS, combined with administrative guidance, to coordinate investments; of large-scale corporations and, in turn, to promote economic growth and in du strialization in accord with the industrial policy. Since i t is a form of contemporary managed capitalism, the Japanese economy is thus a growth-oriented, as well as non-individu alistic, capitalism. In terms of economic structure and behavior, the non-Western f [heritages make the Japanese economy sig n ifican tly d iffe re n t from those of Western contemporary capitalism . The performance of the Japanese economy, as a form of contemporary managed capitalism , is basically I sim ilar to those of c a p ita lis t economies of the West. But like economic structure and behavior, the examination of the Japanese economy in terms of evaluating c rite ria indicates deviations of its performance signficant enough to distinguish i t from contemporary managed capitalism of the West. In contrast to contemporary managed | j capitalism of the West, which stresses a ll four evaluating c rite ria t as social goals, the Japanese economy emphasizes economic growth, and, thereby, resource allocation, while subduing economic s ta b ility and employment, arid equity and equality. Because of its non-Western heritages, the Japanese economy is considered to have better 206 performance in the pursuit of economic growth and e ffic ie n t resource allocation than contemporary capitalism of the West. A s a growth-oriented economy, the Japanese government (namely, economic bureaucrats) has the H G S to promote economic growth and In d u s tria liz a tio n through directing investments of large-scale j corporations to industries with high growth potential and, also, the establishment of technologically e ffic ie n t, large-scale production Since large-scale corporations are organized into industrial groups * j under communitarianism and inter-group competition:, the HGS, under which the formation of industrial groups is also encouraged, enables the government to extend its control throughout the industrial groups. In addition, the H G S made large-scale corporations depend upon debt financing for th e ir growth.and, in turn, encouraged th e ir par- i tic ip a tio n in industries with growth potential id entified by MITI. i Because of inter-group competition, the H G S created a strong investment drive among large-scale corporations, and thus a pattern ; of economic growth led by large-scale corporations. But at the same ! i time, large-scale corporations came to face a continuous danger of over-productive capacity and price competition. This danger puts strong pressure to search for e ffic ie n t processes and technologies. Because of the communitarian framework of corporations, workers are j motivated to pursue and share the goals of th e ir corporations, J including the implementation of new, more e ffic ie n t, processes and technologies, which certainly involve personnel reallocations. Moreover, th is motivation of workers enables corporations to exploit Fnot only allocative efficiency but also "X-efficiency." { I t is clear that growth orientation and non-individualism are inseparable in the structure, behavior, and performance of the Japanese economy. Furthermore, i t can be said that the growth orientation of the Japanese economy is based upon her non-individualis- tic socio-economic structure. H istorically speaking, the Japanese i government used the concept of the ie group for the accumulation of capital and the establishment of a centralized state, when Japan began her modernization and industrialization in the late nineteenth cen tury. In other words, the ie group was the basis for Japan's attempt to become a member of the modern, industrial states of the West. I t is certain that Japan's modern history as a growth-oriented economy is not a dim, past experience, even for today's Japanese, and undoubtedly the postwar Japanese economy. Thus, the postwar Japanese J | economy with its non-Western heritages may be described as a-modified form of contemporary managed capitalism. H istorically speaking, capitalism has shown its dynamism as an economic system and transformed it s e lf from la is s e z-fa ire to contemporary managed capitalism. Consequently, i t can be considered that capitalism is s t i l l in the process of transforming it s e lf to another economic system. N o c a p ita lis t economy is free from changes in structure, behavior, and performance. Concerning Japan, her postwar economy started from the ashes of World War I I and has grown to the second largest among c a p ita lis t economies. The economic growth 208 of postwar Japan has been regarded as "miraculous" by many Western ♦ ; scholars. However, i t is often forgotten that this "miraculous" j economic growth it s e lf may have been creating internal pressures on the Japanese economy to change as an economic system. The rapid growth of the postwar Japanese economy has stimulated an enormous accumulation of investment capital and induced the consumerization of the economy. P articu larly, these have had effects upon the emergence of large-scale re ta il and discount stores, and the reorganization of the wholesale system. More importantly, however, capital accumulation and consumerization have created a situation which small entrepreneurs can exploit and, thereby, where they can strike sudden wealth. These small entrepreneurs are increasing their numbers in the economy, and are gradually replacing traditional household-type manufacturers'arid'traders. They emphasize p ro fit and then growth, because they are essentially modern, in d ivid u a listic c a p ita lis ts . In this sense, the Japanese economy may turn toward in d ivid u a listic capitalism from the movement of its bottom layers. Moreover, the postwar economic growth of Japan has been so successful that large-scale corporations have become fie rc ely com p e titiv e , even in the world market; in turn, they no longer need government guidance and help. This does not mean that economic bureaucrats do not have any power to control or coordinate large-scale corporations. In fa c t, economic bureaucrats s t i l l have economic powers to control and coordinate corporate a c tiv itie s in establishment of future industries, and price and production of depressed industries. 209 But with enormous economic growth, numbers of industries became matured and, in turn, more independent from control and coordination Jof economic bureaucrats. Thus, i t can be said that the balance of jpower between corporations and the government is getting closer to, especially, that of contemporary United States capitalism. The question is not whether the Japanese economy is converging to in d iv id u a lis tic , contemporary managed capitalism. Like the Japanese economy, contemporary managed capitalism is in the process of changes. Also, i t is undeniable that this process of change is influenced by the success of the Japanese economy and the threat posed by such ! success. Thus, the question is whether the Japanese economy and the Western economies are in the course of convergence as an economic system. In order to answer this question, further studies are necessary to c la rify present and future trends of both economies. f 1 210 BIBLIOGRAPHY 1. Abegglen, James C., Management and Worker: The Japanese Solution, Tokyo, Sophia University, 1975. 2. Abegglen, James C., and William V. Rapp, "The Japanese Managerial Behavior and 'Excess Competition'," The Developing Economy, Vol. 8 (December 1970), p. 427. i 3. 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Itoh Steel The Japan Steel Works Mitsubishi Steel Sum i tomo Metal Industries Kobe Steel Ni ppon Kokan Kawasaki Steel Electric Tokyo Shibaura Electric Mitsubishi Electric Nippon Electric Sharp Hitachi Oki Electric Industry Fujitsu Transport Equipment & Machine Mitsui Engineering & Ship- Building Mitsubishi Heavy Industries Hitachi Shipbuilding & Engineering Kawasaki Heavy Industries Ishikawa- Jima Harima Industries (Automobile) Toyota Motor Mitsubishi Motor . Daihatsu Motor Nissan Motor Isuzu Motor *The number indicates the number of major corporations participating in the group. Table 1 (continued) Source: Shujiro YazaWa, "Gendai-Nippon no Seisaku-Kettei-Kiko ’1 (Policy-Making Process of Contemporary Japan) , in Koza: Gendai-Shihonshug1 - Kokka 2: Gendai- Ni ppon no Kokka-kozo (Course: Contemporary C apitalist'S tate 2: State Structure of Contemporary Japan), edited by Tokuji Kanehara, Jo.ji ' ; Kabayashi, Hikoharu Takahashi, Tokuji Taguchi, Hideo Fukui, and Isamu Fujita (Tokyo: Otsuki-Shotten, Y980), pp. 108-109. 222 Table 2 COMPARISON O F JAPANESE A N D UNITED STATES CORPORATIONS IN ELECTRIC INDUSTRIES Nam e of Corporation Industries Communication Computer i . e . .. Hom e Appliance Industrial Appliance (Japan) Hitachi * ** ** ** Ni ppon ... Electric ** ** * Fuji tsu ** ** * Matsushita Electric * * ** (U.S.) IBM ** ** ATT * * ** Texas Instrument ** G E * ’ * ** * - not high status but participating in the industry. * * = high status and performance in the industry. Source: Nippon Keizai Shinbun, April 6 , 1982. 223 Table 3. FILP: Sources and Uses Sources (V b i l l i o n s ) _______________ Uses (component ratios */,) Total Treasury funds Public bond issue borrow ings Hous ing En viron mental im prove ment Public Edu- wel* ca- fare tional facili- facili ties ties Small busi ness Agri culture, fores- try. & fish eries Natio nal lands con serva tion & dis aster relief Roads Trans porta- Re- ' tion gional Basic it, de- indus- com- velop- tries muni- ment cations Pro- Ex- por- port tion pro- of motion G N P (% ) 1953 337.4 298.9 38.5 2.23 54 285.8 251.4 34.4 3.65 55 297.8 246.2 51.6 13.9 7.7 2.1 4.6 8.2 8.9 7.6 3.7 12.3 8.6 15.1 7.1 3.36 56 326.8 241.0 85.8 15.0 7.7 2.0 3.6 9.3 7.3 5.7 4.2 12.2 14.2 13.8 5.0 3.28 57 396.8 351.6 45.2 13.8 9.3 1.7 3.1 16.9 6.2 4.2 2.7 11.4 9.6 20.2 0.9 5.00 58 425.2 371.6 53.6 15.4 9.6 1.5 3.1 14.6 7.1 4.8 3.4 9.7 9.4 21.4 — 3.61 59 562.1 466.2 95.9 13.8 8.4 1.3 2.8 14.1 8.6 6.3 3.9 12.0 7.4 15.7 5.6 4.13 60 625.1 506.8 118.3 12.6 9.1 1.7 3.4 12.5 7.0 6.4 4.4 14.6 7.0 13.4 7.8 3.86 61 830.3 666.2 164.1 11.6 10.2 3.0 2.6 13.7 6.4 5.6 5.7 13.4 8.0 10.7 9.3 4.18 62 951.3 759.1 192.2 12.8 10.3 3.0 2.5 13.8 5.6 5.0 6.5 14.2 7.7 12.7 5.9 4.39 63 1,209.2 950.0 259.2 12.6 10.2 2.9 2.5 12.4 5.7 3.8 8.0 16.0 7.7 10.6 7.5 4.73 64 1,403.5 1,128.5 302.0 12.6 11.3 3.1 2.8 13.2 6.1 4.0 7.8 14.4 8.1 8.5 8.1 4.73 65 1,776.4 1,339.8 436.7 14.4 11.5 3.3 2.7 12.8 5.8 3.8 8.0 13.9 6.4 8.9 8.5 5.41 66 2,085.4 1,471.6 613.8 15.4 11.6 3.3 3.0 13.3 6.1 3.5 9.0 12.7 5.2 . 7.8 9.1 5.43 67 2,496.8 1,887.4 609.4 16.0 11.1 3.2 3.0 13.8 5.9 2.6 9.9 13.3 4.7 6.6 9.9 5.51 68 2,783.3 2,238.1 545.2 16.3. 11.5 3.2 2.3 14.4 5.7 2.2 9.7 13.2 4.4 6.6 10.5 5.22 69 3,180.5 2,665.5 515.0 17.3 11.3 3.1 2.4 14.9 5.5 1.7 8.8 12.7 4.3 5.9 12.1 5.11 70 3,799.0 3,301.7 497.3 19.3 11.6 2.8 2.2 15.4 5.0 1.6 8.6 13.2 4.0 5.7 10.6 5.20 71 5,008.7 4,338.1 670.6 20.2 12.1 2.7 2.3 15.4 5.1 1.4 8.2 13.2 4.2 5.4 9.8 6.14 72 6,037.8 5,408.6 629.2 20.4 14.0 2.7 1.9 14.5 4.8 1.9 9.4 12.2 3.9 4.7 9.6 6.37 73 7,413.4 6,983.4 430.0 18.1 16.4 1.9 2.0 14.8 4.6 2.3 9.4 13.1 3.9 3.6 8.9 6.41 74 9,457.8 9,058.0 399.8 19.7 16.4 3.1 2.5 15.5 4.1 1.0 8.7 13.6 3.6 3.0 8.8 6.94 75 11,465.5 11,001.6 463.9 21.4 16.7 3.4 2.9 15.6 4.1 1.2 8.0 12.7 3.3 3.0 7.7 7.67 76 12,403.1 11,565.5 837.6 22.7 15.9 3.7 2.4 16.6 4.8 1.1 7.6 11.4 2.8 2.8 8.2 7.34 Source: Takatusa Nakamura, The Postwar Japanese Economy: Its.Development and Structure {Tokyo: University of Tokyo Press, 1981), p. 137. ro ro u -fe . Table 4. Sources of Industrial Capital, 1953-1961 (Hundred m T 'I 1 i on "Yefl--------------- 1953 1954 1955 1956 1957 1950 1959 I960 1961 Private financial organs: Banks only 1,945 1,592 1,767 3,387 3,559 4,125 4,808 6,427 7,053 (49%) (42%) (40%) (49%) (44%) (44%) (42%) (42%) (39%) All other organs 511 969 1,289 1,913 2,351 3,029 4,132 5,849 7,286 (13) (25) (29) (28) (29) (32) (36) (39) (40) SUBTOTAL 2,456 2,531 3,056 5,300 5,910 7,154 8,940 12,276 14,339 (62) (66) (69) (77) (74) (76) (77) . (81) (80) Public financial organs: Japan Development Bank 871 575 464 448 632 589 681 650 862 (22) (15) (11) (7) (8) (6) (6) (4) (5) Ail other government banks 415 455 559 716 930 1,009 1,338 1,555 1,850 (11) (12) (13) (10) (12) (11) (12) (10) (10) Special accounts 195 274 341 431 569 716 587 651 986 (5) (7) (8) (6) (7) (8) (5) (4) (6) SUBTOTAL 1,481 1,303 1,364 1,595 2,131 2,314 2,606 2,85fa 3,697 (38) (34) (31) (23) (27) (24) (23) (19) (20) TOTAL 3,937 3,835 4,420 6,8% 8,040 9,468 11,547 15,132 18,036 (100) (100) (100) (100) (100) (100) (100) (100) (100) Source: Chalmers Johnson, MITI and the Japanese Miracle (Stanford: Stanford University j Press, 1982), p. 212. ! Chart 1. Capital Structure: Manufacturing Industry (1968) West Japan U.S. U.K. Germany Net Worth Source: James C. Abegglen and William V. Rapp, "Japanese Managerial Behavior and 'Excessive Competition'," The Developing Economy, Vol. V III (Dec., 1970), p. 428. 226

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