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Japan, disincorporated: The economic liberalization process
Focus o n B o o k s
Y
85
Reviews of c~lrrent books discussing subjects on the horizons of business activities, particularly those on controversial issues being encountered by both practitioners and teachers, will be considered for publication. Manuscript guidelines are available upon request.
Japan, Disincorporated: The Economic Liberalization Process by Leon Hollerman
Leonard H. Lynn, the reviezoer, is an associate professor of management policy in the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio. eon Hollerman sketches a disturbing scenario in Japan, DisinL corporated. He suggests that the pressures on Japan to liberalize its economy are indeed speeding the dismantling of much of what was identified as "Japan, I n c o r p o r a t e d . " However, the new "Japan, Disincorporated" may soon become a "Japan, Reincorporated," the world headquarters for the finance and service industries. The U.S. and Japan would not simply move to increased interdependence as equals. The U.S. could choose to be dependent on Japan or be left "a beleaguered island in the world economy . . . . " Hollerman is not one of the all-tooabundant crop of instant experts on Japan. He is a respected authority on the Japanese political economy; his experience includes a five-year stint as international trade economist on General MacArthur's staff some 40 years ago. And this book is not an-
other superficial restatement of stereotypic images with a new twist and new catch phrases to feed American paranoia. It goes far beneath the surface.
"'This book is not another superficial restatement of stereotypic images with a new twist and new catch phrases to feed American paranoia. It goes far beneath the surface." In describing the processes by which his scenario is unfolding, Hollerman says some things that might surprise us. He emphasizes not a national consensus of industry and economic policymakers, but rather an anarchic battlefield with shifting alliances fighting for the future of Japan. Sometimes the Ministry of Finance (MOF) battles the Bank of Japan (BOJ). Sometimes MOF and BOJ unite against the Ministry of International Trade and Industry (MITI). MOF's International Finance Bureau is sometimes in conflict with MOF's Budget Bureau. Banks are often arrayed against securities firms. Bureaucrats often find themselves opposing politicians. And so it goes. MITI may yet come to a position of preeminence in a Japan that is the world economic headquarters, and thereby occupy the role some foreigners have already as-
Business Horizons / September-October 1988 J
86
signed to it. But, so far, it has been far less important than MOF. There are paradoxes here. H o w is it that liberalization can lead to a more tightly controlled economic environment? H o w does all this conflict lead to an outcome similar to that foreseen by those who see an insidious consensus in Japan? Part of the answer to the first question is that the "administrative guidance" component of economic policy is far stronger in Japan than in the United States. Hollerman quotes a high-ranking Ministry of Finance oftidal as saying: "Before revision of the old Foreign Exchange Law in 1980, all foreign transactions were subject to Ministry of Finance license. At present, the prior notice system replaces the license system. Primarily, this is for statistical purposes. However, we can use this information to apply our influence to individual cases. For example, if a Japanese bank would like to extend a loan to a less developed country (LDC), we may be aware that it has already borrowed heavily from other banks. Or for other reasons
known to the Japanese government but not to the bank, there may be a great deal of country risk attached to the proposed loan. In this situation we may say, 'This transaction would be against the national interest.' By means of administrative guidance we can achieve consensus with banks and corporations" (p.32). The revised law liberalizes the e c o n o m y by giving banks the freedom to make loans without a government license; yet it still requires them to file a notification with the government, and it leaves control firmly in governmental hands. H o w does all of that conflict result in an apparently well-coordinated strategy that results in Japan's becoming the world's economic headquarters? The conflict is Darwinian. Weak enterprises and weak industries, together with their bureaucratic or political protectors, are eliminated or reduced in importance. Those pursuing the "external option" strategy for Japan (achieving dominance in the international finance and service sectors) are growing stronger through this competition. The result may not
be desirable from a U.S. standpoint, but (ironically) U.S. trade policies are increasing the strength of those favoring the external option. Hollerman has come up with a highly provocative thesis based on long experience in Japan, extensive interviews, and some questionnaire data. The substantive chapters of the book, unfortunately, are tough going; the implications of what the author is saying are not clearly spelled out. The idea of the U.S. becoming a client state of Japan is disturbing, but what exactly are the Japanese doing that Americans can reasonably object to? What is it that will make the increasing Japanese influence in finance greater than we consider legitimate? Is it the role of government? Or is the real target of Hollerman's concern U.S. policy? []
Leon Hollerman, Japan, Disincorporated: The Economic Liberalization Process. Stanford, California: Hoover Institution Press. 1988, 185 pp. $12.95.
Y
85
Reviews of c~lrrent books discussing subjects on the horizons of business activities, particularly those on controversial issues being encountered by both practitioners and teachers, will be considered for publication. Manuscript guidelines are available upon request.
Japan, Disincorporated: The Economic Liberalization Process by Leon Hollerman
Leonard H. Lynn, the reviezoer, is an associate professor of management policy in the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio. eon Hollerman sketches a disturbing scenario in Japan, DisinL corporated. He suggests that the pressures on Japan to liberalize its economy are indeed speeding the dismantling of much of what was identified as "Japan, I n c o r p o r a t e d . " However, the new "Japan, Disincorporated" may soon become a "Japan, Reincorporated," the world headquarters for the finance and service industries. The U.S. and Japan would not simply move to increased interdependence as equals. The U.S. could choose to be dependent on Japan or be left "a beleaguered island in the world economy . . . . " Hollerman is not one of the all-tooabundant crop of instant experts on Japan. He is a respected authority on the Japanese political economy; his experience includes a five-year stint as international trade economist on General MacArthur's staff some 40 years ago. And this book is not an-
other superficial restatement of stereotypic images with a new twist and new catch phrases to feed American paranoia. It goes far beneath the surface.
"'This book is not another superficial restatement of stereotypic images with a new twist and new catch phrases to feed American paranoia. It goes far beneath the surface." In describing the processes by which his scenario is unfolding, Hollerman says some things that might surprise us. He emphasizes not a national consensus of industry and economic policymakers, but rather an anarchic battlefield with shifting alliances fighting for the future of Japan. Sometimes the Ministry of Finance (MOF) battles the Bank of Japan (BOJ). Sometimes MOF and BOJ unite against the Ministry of International Trade and Industry (MITI). MOF's International Finance Bureau is sometimes in conflict with MOF's Budget Bureau. Banks are often arrayed against securities firms. Bureaucrats often find themselves opposing politicians. And so it goes. MITI may yet come to a position of preeminence in a Japan that is the world economic headquarters, and thereby occupy the role some foreigners have already as-
Business Horizons / September-October 1988 J
86
signed to it. But, so far, it has been far less important than MOF. There are paradoxes here. H o w is it that liberalization can lead to a more tightly controlled economic environment? H o w does all this conflict lead to an outcome similar to that foreseen by those who see an insidious consensus in Japan? Part of the answer to the first question is that the "administrative guidance" component of economic policy is far stronger in Japan than in the United States. Hollerman quotes a high-ranking Ministry of Finance oftidal as saying: "Before revision of the old Foreign Exchange Law in 1980, all foreign transactions were subject to Ministry of Finance license. At present, the prior notice system replaces the license system. Primarily, this is for statistical purposes. However, we can use this information to apply our influence to individual cases. For example, if a Japanese bank would like to extend a loan to a less developed country (LDC), we may be aware that it has already borrowed heavily from other banks. Or for other reasons
known to the Japanese government but not to the bank, there may be a great deal of country risk attached to the proposed loan. In this situation we may say, 'This transaction would be against the national interest.' By means of administrative guidance we can achieve consensus with banks and corporations" (p.32). The revised law liberalizes the e c o n o m y by giving banks the freedom to make loans without a government license; yet it still requires them to file a notification with the government, and it leaves control firmly in governmental hands. H o w does all of that conflict result in an apparently well-coordinated strategy that results in Japan's becoming the world's economic headquarters? The conflict is Darwinian. Weak enterprises and weak industries, together with their bureaucratic or political protectors, are eliminated or reduced in importance. Those pursuing the "external option" strategy for Japan (achieving dominance in the international finance and service sectors) are growing stronger through this competition. The result may not
be desirable from a U.S. standpoint, but (ironically) U.S. trade policies are increasing the strength of those favoring the external option. Hollerman has come up with a highly provocative thesis based on long experience in Japan, extensive interviews, and some questionnaire data. The substantive chapters of the book, unfortunately, are tough going; the implications of what the author is saying are not clearly spelled out. The idea of the U.S. becoming a client state of Japan is disturbing, but what exactly are the Japanese doing that Americans can reasonably object to? What is it that will make the increasing Japanese influence in finance greater than we consider legitimate? Is it the role of government? Or is the real target of Hollerman's concern U.S. policy? []
Leon Hollerman, Japan, Disincorporated: The Economic Liberalization Process. Stanford, California: Hoover Institution Press. 1988, 185 pp. $12.95.