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The Japanese model in retrospective: industrial strategies, corporate Japan and the ‘hollowing out’ of Japanese industry

2011; Taylor & Francis; Volume: 32; Issue: 6 Linguagem: Inglês

10.1080/01442872.2011.601208

1470-1006

Keith Cowling, Philip R. Tomlinson,

Japanese History and Culture

Abstract This article provides a retrospective look at the Japanese model of industrial development. This model combined an institutional approach to production based around the Japanese Firm (Aoki's, J-mode) and strategic state intervention in industry by the Japanese Ministry of International Trade and Industry (MITI). For a long period, the alignment of state and corporate interests appeared to match the wider public interest as the Japanese economy prospered. However, since the early 1990s, the global ambitions of the corporate sector have contributed to a significant 'hollowing out' of Japan's industrial base. As the world today looks for a new direction in economic management, we suggest the Japanese model provides policy-makers with a salutary lesson in tying the wider public interest with those of the corporate sector. Keywords: corporate JapanJ-modeindustrial policy keiretsu networksglobalisationhollowing out Notes 1. Indeed, during the recent G20 summit in London in April 2009, Gordon Brown, the then UK Prime Minister, called for a new global approach to economic management from both policy-makers and business leaders (The Guardian, 10 April 2009). The election of the Obama administration in the United States has also signalled that a new economic direction (i.e. away from neo-liberalism) is required. 2. More generally, in searching for new (alternative) development paths, a sense of historical perspective is required and it is perhaps important for policy-makers and business leaders to learn from previous experiences of development strategies such as those employed by Japan. 3. The Japanese Firm continues to attract interest and attention among scholars – see, for instance, Jackson (2009 Jackson , G. , 2009 . The Japanese firm and its diversity . Economy and society , 38 (4), 606–629 . [Google Scholar]). 4. Rewarding workers in this way is seen as enabling J-mode firms to retain employees with firm specific skills, thus helping to explain the long-standing tenure of Japanese employment. This is contrasted to the H-mode, where promotion incentives generally lead to a removal of skills from the shop-floor (Aoki 1990 Aoki, M. 1990. Toward an economic model of the Japanese firm. Journal of economic literature, 28(1): 1–27. [Web of Science ®] , [Google Scholar]). 5. This issue – along with relevant data – is explored in further detail by Coffey and Tomlinson (2003a Coffey, D. and Tomlinson, P.R. 2003a. Globalisation, vertical relations and the J-mode firm. Journal of post Keynesian economics, 26(1): 117–144. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar], pp. 125–132). Drawing upon earlier work by Cusumano (1985 Cusumano, M.A. 1985. The Japanese automobile industry: technology and management at Nissan and Toyota, Cambridge, MA: Harvard University Press. [Crossref] , [Google Scholar]), they argue that if one considers an assembler's controlling equity stake in a supplier to be 20% (as suggested by Berle and Means, 1932 Berle, A.A. and Means, G.C. 1932. The modern corporation and private property, New York: MacMillan. [Google Scholar]), rather than the standard 50% ownership threshold, then it could be construed that the degree of vertical integration in the Japanese automobile industry is actually higher than that recorded in the North American assemblers. 6. Indeed, it is worth noting that Japanese assemblers rely upon multiple sourcing of production to a far greater extent than their North American competitors. For instance, Womack et al. (1990 Womack, J.P., Jones, D.T. and Roos, D. 1990. The machine that changed the world, New York, NY: Rawson Associates. [Google Scholar], p. 157) report that for Japan just over 12% of parts were single sourced by assemblers compared to almost 70% in the United States – this refers to the situation for first-tier suppliers, although it is recognised that multiple sourcing is also the norm further down the chain. 7. For instance, Adio Kodani, a former Nissan – appointed President of the Nissan – affiliated supplier Ikeda Bussan, notes that 'the keiretsu served to create a comfortable vertical supply structure for Nissan, rather than as a structure to make affiliates stronger' (Nikkei Weekly, 21 August 2000). A similar perspective is offered by Kono (1984 Kono, T. 1984. Strategy and structure of Japanese enterprises, London: Macmillan. [Crossref] , [Google Scholar], p. 127) who remarks that the keiretsu supplier 'perceives that Toyota's policy is "not to kill, neither to keep alive easily" '. Lincoln and Gerlach (2004 Lincoln, J. and Gerlach, M. 2004. Japan's network economy, Cambridge, MA: Cambridge University Press. [Crossref] , [Google Scholar]) have recently expressed similar concerns in relation to vertical keiretsu. 8. In terms of Japanese corporations, analysis by Sheard (1994 Sheard, P. 1994. "Interlocking shareholdings and corporate governance". In The Japanese firm, sources of competitive strength, Edited by: Aoki, M. and Dore, R. 310–349. Oxford: Oxford University Press. [Crossref] , [Google Scholar], p. 310) suggests that the major equity holdings are concentrated among a few shareholders who exercise joint control (which is similar to Western corporations). 9. We might also point out that, in terms of employment conditions, the benefits and privileges afforded to Japanese workers have tended to be only available to those in the leading firms: those employed in lower-tier sub-contractors are excluded and typically endure worse employment conditions (see Ruigrok and Van Tulder 1995, pp. 25 and also 46–51). Moreover, in the automobile industry, Womack et al. (1990 Womack, J.P., Jones, D.T. and Roos, D. 1990. The machine that changed the world, New York, NY: Rawson Associates. [Google Scholar], pp. 158–159) applaud the use of Japanese assemblers using multiple sourcing strategies to mitigate the threat of trade union militancy; a strategy that suppresses the ability of workers to bargain effectively for better employment conditions (see also footnote 14). 10. For a recent review of Japanese political economy and economic growth before World War II, see Grabowski (2007 Grabowski, R. 2007. Political development and growth: Japan until World War II. Journal of Asia Pacific economy, 12(4): 522–547. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). 11. On this, it is also worth considering Ruigrok and Tate's (1996) account of activities within MITI's publicly funded testing and research centres for small firms in the automotive industry. The authors reveal that these centres ultimately became the preserve of Japan's giant assemblers and a mechanism by which to exert further control over their suppliers. 12. The nature of competition has predominantly been one of regional and global oligopolistic interdependence and it is interesting to note in this regard the behaviour of Japanese corporations in so much as – like their Western rivals – they have strategically undertaken both 'aggressive' and 'defensive' investments to expand and protect their local, regional and (ultimately) global market share. Some evidence of this so-called Knickerbocker (1973 Knickerbocker, F.T. 1973. Oligopolistic reaction and multinational enterprise, Cambridge, MA: Harvard University Press. [Crossref] , [Google Scholar]) effect for Japanese corporations is provided by Yu and Ito (1988 Yu, C.M.J. and Ito, K. 1988. Oligopolistic reaction and foreign direct investment: the case of the US tire and textile industries. Journal of international business studies, 19: 449–460. [Crossref], [Web of Science ®] , [Google Scholar]), in the case of Japanese investments in the US tyre and textile industries, Dunning (1994 Dunning, J.H. 1994. "The strategy of Japanese and US manufacturing investment in Europe". In Does ownership matter? Japanese multinationals in Europe, Edited by: Mason, M. and Encarnation, D. 59–86. Oxford: Clarendon Press. [Google Scholar]) for the entry of Japanese machinery firms in Europe and Tomlinson (2005) for the global entry patterns of Japanese automotive corporations. 13. The overseas production ratio (as with the overseas investment ratio discussed in Section 'In conclusion') is calculated using data from METI's annual survey of Japanese transnationals. Given that these surveys are typically vulnerable to variance in coverage and response rates, it is wise to treat such statistics with caution (Ramstetter 1996 Ramstetter, E.D. 1996. Estimating economic activities by Japanese transnational corporations: how to make sense of the data. Transnational corporations, 5(2): 107–143. [Google Scholar]). Nevertheless, in the absence of alternative data sources and taken in conjunction with the other evidence presented here, the overseas production ratio is a useful indicator of the internationalisation of the Japanese economy. 14. A case in point was Toyota's ability – in the late 1990s – to successfully play off both the UK and French governments in the pursuit of a 'lucrative' investment package for their new European production site (which was eventually built in Lens, Northern France). As far as bargaining relations with workers is concerned, James (1989 James, B.G. 1989. Trojan horse: the ultimate Japanese challenge to Western industry, London: Mercury. [Google Scholar]) notes that by locating new production units in areas characterised by low trade union density, low wages and high unemployment, Japanese transnationals have successfully been able to play the 'international wage game'. Further evidence on this is provided in Coffey and Tomlinson (2003b Coffey, D. and Tomlinson, P.R. 2003b. "Co-ordination and hierarchy in the Japanese firm: the strategic decision making approach vs. Aoki". In Competition, monopoly and corporate governance, essays in honour of Keith Cowling, Edited by: Waterson, M. 3–19. Cheltenham: Edward Elgar. [Google Scholar], pp. 13–14). 15. Given the discrepancy in the outward to inward stock of Japanese FDI of 12:1, it is unlikely that any inward investment flows will reverse the process. Moreover, inward FDI might even exacerbate de-industrialisation in Japan. For instance, Renault's purchase of a controlling interest in Nissan and General Motors' increased equity participation in Isuzu led to automobile plant closures and substantial redundancies in Japan's major industrial belts. 16. According to METI (2003 Ministry of Economy, Trade and Industry (METI, formerly MITI) , 2003 . Summary of the 32nd annual survey of overseas business activities of Japanese companies . Tokyo : METI . [Google Scholar]), 85% of re-imports are from low cost Japanese affiliates based in East Asia. 17. If we also consider the indirect effects of global outsourcing, the loss of jobs in Japanese manufacturing due to overseas expansion is likely to be much greater than 600,000. The 'safe haven' here refers to the traditional keiretsu structure that, although highly exploitive (see Section 'The Japanese corporation (the J-mode)'), at least to some extent provided – for the majority of sub-contractors – a minimum guaranteed income stream.