In just 160 pages of their new book The Fables of the Keiretsu, Tokyo University economics professor Yoshiro Miwa and Harvard Law School professor J. Mark Ramseyer manage to raise doubts about almost all conventional wisdom regarding the structure of the Japanese economy.
A summary of their arguments in Q&A form:
Are Japanese firms organized into informal industrial groups called keiretsu?
Keirestu have never existed, and the concept was invented by Marxists at the Economic Research Institute who wanted to identify a source of “monopoly capital” for the Japanese market.
Do firms in keiretsu arrangements cross-hold other firms stocks, therefore allowing them to pressure each other towards beneficial relationships?
Was the pre-war economy controlled by zaibatsu financial cliques?
These firms were only deemed “zaibatsu” because they were successful in the market when other companies were struggling through the Depression.
Do Japanese firms have a “main bank” which will rescue struggling companies even without the explicit contracts to do so?
There is no such thing as a “main bank,” and banks do not automatically bail out their clients.
Is the Japanese economy directed by the soft authoritarian guidance of the central bureaucracy (especially MITI)?
Japanese firms ignore MITI’s direction, and the courts back these firms up when the bureaucracy gets decides to press them.
For the most part, Miwa and Ramseyer supply an abundance of data and objective measures to show that the Japanese economy has never really operated in the “unique” way depicted by fifty years of mainstream scholarship in both Japan and abroad. In the case of keiretsu, they make a very strong case that the characteristic cross-shareholding is actually very rare, the so-called “lunch clubs” are rarely used for group decision-making, and most parts suppliers working under automobile companies make products for a large number of different rivals — not just their supposed keiretsu “parent.” The authors re-analyze the Sumitomo Metals case study, which is supposed to show that MITI punished Sumitomo for refusing to enter into a production cartel. Instead they find that not only did Sumitomo freely challenge MITI’s guidance but got away with it scotch-free.
I find Miwa and Ramseyer’s arguments convincing for the most part, but as someone previously partial to the idea of the Japanese economy being a “developmental state” model rather than a complete “free market,” I would like to see a heavyweight on the other side of the fence argue the opposing view. They are most certainly right about the narrow topics they picked up, but perhaps end up overselling their bigger conclusions. Instead of just correcting the record, they are obsessed with aggressively belittling a certain kind of cultural relativistic economic view where Japanese firms “sacrifice profits for the sake of cultural norms” etc. Chalmers Johnson’s theories on MITI guiding the Japanese economy could maybe benefit from more attention to hard data, but Miwa and Ramseyer seem less interested in dealing with scholars like Johnson and instead channel their wrath towards a more extreme and less existent animal:
“East is east, and west is west, and never the twain shall meet, till earth and sky stand presently at God’s great judgement seat.” As politically incorrect as Sylvester “Rambo” Stallone and Mae “Peal-Me-a-Grape” West, Kipling nonetheless remained a cultural relativist to the end. Dumb down his verse six levels and it captures most of what passes for “theory” among modern cultural relativists and much of what passes for analaysis about Japan. And stripped of their political baggage, the modern cultural relativist and the old-school colonialists like Kipling fascinate for the same reason: they indulge our lust for the exotic and free us from the rules of social science (156).
The authors’ main methodological advice is praiseworthy: Economic theories about certain institutional systems need to incorporate inductive data and match behavior to pre-existing universal understanding before assigning behavioral choices to the black box of “culture.”
That being said, Miwa and Ramseyer show little interest in acknowledging the much bigger question that emerges in light of their refreshed view: Aren’t there many places in the Japanese economic and consumer structures that are drastically different than what is seen in the other mature capitalist economies? Maybe MITI does not completely control industrial policy in Japan, but did the American government ever proclaim that there should be only two car companies and that they would not assist new entrants? Honda, of course, ended up ignoring MITI’s warnings about manufacturing cars and still went on to unbridled success. But I think it still says something about the nature of the Japanese government that it believes it has the power to shape the industrial marketplace, to allow cartels, to essentially not ever prosecute monopolies and oligopolies. This could be a product of historical circumstances (rebuilding after a war, late development, etc.), idiosyncratic decision-making, or ingrained cultural traditions, but Miwa and Ramseyer leave themselves open for attack by failing to mention that there are, at the end of the day, still differences and points of divergence.
The authors maintain that economic actors tend to follow the same logic all over the world, but if we accept this on general terms, it means that differences in output must thus depend on particular market arrangements. On this blog, I have made claims in this vein. For example, Japanese pop music sounds like it does because of the dominance of oligopolistic artist management companies like Johnny’s Jimusho that continually use their market power to crush rivals and keep tastes stable. Johnny’s behavior is no different than what can be expected among firms in the West, but American music companies, for example, never are able to achieve the same kind of economic power over the media to be able to sustain such actions.
What I want to know after reading The Fable of the Keiretsu is, what are the structures of the economy, the government decisions, the particular historical circumstances that are different than what are seen all over the world? Even if keiretsu do not exist, why do you see so much tolerance and/or esteem for monopoly and centralization? This may not be “Confucian” per se, but the sources of these kinds of macro behavior still need to be clarified.
So yes, let us clear the dead weight of myth and the laziness of evoking deep-seeded cultural voodoo. But once we have gone back to the data and put our knees on the ground, we then still have to ask, why and how is a set of universal reactions being shaped and altered to produce a particular result?