The Society for Japanese Studies
Leader or Strategic Follower: What Role for the Japanese State?
Japan's Capitalism: Creative Defeat and beyond by Shigeto Tsuru; Strategic Capitalism: Private
Business and Public Purpose in Japanese Industrial Finance by Kent E. Calder; The East Asian
Miracle: Economic Growth and Public Policy
Review by: John Zysman and Eileen M. Doherty
Journal of Japanese Studies, Vol. 22, No. 1 (Winter, 1996), pp. 234-245
Published by: The Society for Japanese Studies
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234
Journalof JapaneseStudies
22:1 (1996)
Whatis missing from the picturehere is some analysis of news content
on key topics. The book relatesthe patternsof interactionbetweenreporters
and politicians without demonstratingexactly what sort of reportingthis
interactionproducedon key subjects such as corruption,elections, or new
taxes. The authorcollected a wealth of data to provide the clearestpicture
yet of the relationshipsbetween Diet membersand newspaperpeople, but
the book doesn'tlink these relationshipsadequatelyto newspapercoverage
of specific issues. The characterizationseems abstractin parts,not relating
concretelythe impactof the relationshipsthatthe book documentsso well.
The challengethatremainsis to integratethe patternsof interactionbetween
reportersand politicianswith the substanceof political news stories.
What the book omits is far less noteworthythan what it offers. Despite
the paucityof anecdotes(the authoris carefulto protecthis sources),readers
will come away with the feeling thatthey have looked over the shouldersof
some of Japan'smost importantpolitical actors as they went about their
work. The author'spainstakingresearchhas producedan intimateinsider's
accountof the process of political reporting.The only majorplayersto remain out of sharpfocus were Japan'sbureaucrats,who are evidently less
prone than conservativepoliticians to bare their operationsto the prying
eyes of the press or foreign scholars.
LEADEROR STRATEGICFOLLOWER:
WHATROLEFOR THE JAPANESESTATE?
Japan's Capitalism:CreativeDefeat and Beyond.By Shigeto Tsuru.CambridgeUniversityPress,New York,1993. xii, 277 pages.
Strategic Capitalism:Private Business and Public Purpose in JapaneseIndustrialFinance. By KentE. Calder.PrincetonUniversityPress,Princeton, 1993. xxii, 373 pages. $35.00.
TheEast Asian Miracle: EconomicGrowthand Public Policy. OxfordUniversityPress,New York,1993. xvii, 389 pages. $19.95.
Reviewedby
JOHN ZYSMAN AND EILEEN M. DOHERTY
Universityof California,Berkeley
Those interestedin the Japanesepolitical economy must answerfor themselves threequestions.First,what model does one hold aboutthe operations
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235
of the Japanesepolitical economy at the apex of its high-growthera? The
demarcationsof thatera are admittedlyfuzzy; nonetheless,studentsof contemporaryJapanmust have a baselineby which to compareJapan'spolitical
economy duringits developmentalheydaywith thatof today.One reference
point is the perioduntil roughly 1975, before Japanbegan to loosen its tight
capitalcontrols,therebydismantlingsome formalinstrumentsof protection.
The model must depict the criticalinstitutionsandpolicies thatdefineda set
of constraintsand possibilities for the centraleconomic actors.It must identify the "marketlogic" ' that emerged from the interplayof actors as they
respondedto that set of incentivesand constraints.The growthmodel must
also demonstratehow the costs and benefits of growth, the pain and gain,
were allocated.How were the losers kept frominterferingwith the processes
of development?If they were compensatedor insulated,then how were the
marketincentives for winners kept sufficientlystrong to generatenew economic activities, firms,and sectors?
Second, with that baseline in mind, how substantiallyhas the market
logic that characterizedthe pre-1970s period changed? Certainly,formal
governmentregulationshave been loosened in Japan.More recently,the rise
in the value of the yen has drivenproducersto reorganizeproductionwith
significantoperationsoutside Japan.Japaneseimportshave also increased.
Yet for the most part, Japan'stightly woven supply networks seem to be
firmly in place. Japaneseinstitutionsand practices have certainly evolved
since the developmentalheydaybaseline,but which changes aresignificant?
Third,how extensively does the story of Japaninterminglewith that of
the rest of Asia? Until recently,Asia was neithera significantmarketnor a
significant source of components and subsystems for Japanese firms. Increasingly, it has become both. What does the development of the Asian
marketimply for Japan'seconomic and political arrangements?And what
does Japan'seconomic success imply for the rest of Asia?
Japan's Capitalism addresses the first of our three questions head-on
and presents an exceptionally valuable discussion of the creation of the
postwar Japaneseeconomic system, how its critical mechanisms worked,
and the marketdynamics that resulted. Shigeto Tsuru,formerpresidentof
the InternationalEconomic Association and professoremeritusof Hitotsubashi University, was also vice-minister of the Economic Stabilization
Board in the immediate postwar years. He does a masterfuljob of combining the insight of an insider with the analytic tools of an academic
professional.
Standingout in Tsuru'sstory of the reconstitutionof postwarJapanis
the influence of the U.S. government,which was determinedto rebuildJa1. See John Zysman, "How Institutions Create Historically Rooted Trajectories of
Growth,"Industrialand CorporateChange, Vol. 3, No. 1 (1994).
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pan as the "workshopof Asia" to standagainstcommunismin the region.
Equallyapparentis U.S. naivete.For example,the decision to apply American civil service rules to traditionalJapanese institutions reinforced the
power of the elite bureaucrats,an ironic turn given the powerful influence
that bureaucratic"administrativeguidance" played in Japan'spostwarindustrial growth. Similarly,with regardto exchange-ratedecisions, Tsuru
remindsus that althoughthe yen/dollarrate was bound to be very low, the
exceptionallylow valuationof the yen was an Americandecision. ThatundervaluationamplifiedJapan'sindustrialdevelopment.
Tsuru'sanalysis of rapidgrowthincludes, of course, a discussion of Japan's high saving rates. But he pushes beyond the ritualisticto ask other
basic questions.Whatwere the majorsourcesof demandthatwarrantedthe
high rate of growth?Whatwas the role playedby the governmentto stimulate growth? What were the implications of postwar changes for Japan's
industrialstructure?What was the evolution and consequence of business
organizationalstructures?And what was the role of exports in drivingJapan'sgrowth?The result is an argumentabout the critical role of exports,
combinedwith domestic competitionin an insulatedmarket,in creatinginternationallycompetitivemanufacturersin a series of sectors.
Tsuru'smost valuablecontributionis that he discusses throughthe sophisticatedeyes of a Japanesegovernmentinsiderthe criticalinstitutionsof
the economy and theirinterplay.For instance,he tracesthe recreationof the
zaibatsu system (note that he uses the term zaibatsu ratherthan the less
loaded postwarterm keiretsu)but emphasizesthe emergence of the "oneset" principle by which each corporategroup established a firm in each
majorsector.Before the war,the majorzaibatsuwere specialized and hesitated to launchnew industrialventures.The one-set principleprompteddiversificationin the keiretsu,with banksas the majorsourceof medium-and
long-termfinancefor industries.This sparkeda distinctivepatternof competition. Groupscompeted with each other by vigorously pursuingmarket
share.The result was overinvestmentand excess capacity,followed by the
developmentof governmentstrategiesto managecompetition.
Using the story of the sewing machineindustry,a firstinstanceof "targeting," Tsuru suggests how distinctive features of Japanese industry
emerged.Governmentsubsidies-aimed both at assuringadvancedproduction technology and at supportingexports-created a distinctivedynamic
of domestic competition and aggressive exports in that sector: "Japanese
governmentofficials assisted and backed the sewing machine industry at
every step of this process to become virtually the first successful export
industryin the postwaryears" (p. 81). In reviewing other sectors that became export staples-steel, autos, ships-Tsuru concludes that "we find
thatthe basic elementin the success storyof the sewing machineindustrynamely how paternalisticadministrativeguidance enabled it to strike a
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237
happy balance between competition at home and governmentsupportfor
sales abroad .... was essentially repeatedin the leading industriestoo"
(p. 82).
At the core of governmentaction was a policy of administrativeguidance. According to Tsuru,the ability of the governmentto direct or induce
privatefirms or persons to take or refrainfrom taking certain actions has
been a "more widely accepted and solidly established feature of government administrationthan in other countries" (p. 97). Tsuru discusses several of the administrativemechanismsused: privilegedfinance,tax arrangements, infrastructureinvestment, land reclamation, and even selective
allocation of sugarquotas as a means of supplementaryfinance. "Window
guidance" was the monetary arm of administrativeguidance: a series of
financial controls, incentives such as low-interest finance, and informal
"suggestions"by the Bank of Japandesigned to channel domestic savings
into industrialinvestments.In the end, Tsuru shows us all the pieces of a
system of protectionand promotionthat created massive productioninnovation and internationallycompetitiveindustries.
Not surprisingly,the strongest part of the book is the section on the
immediatepostwarperiod. The nuanceddiscussion of the reforms,political
debates, and decision-makingprocesses during the Occupationand highgrowth years provides us with a rich understandingof the forces that produced the institutional foundations of modern Japan. Tsuru's aim shifts
slightly in his discussionof Japan'shistorysince the 1972 oil crisis. Because
his goal is to demonstratethe social problemsinherentin Japanesecapitalism, he devotes somewhat less attention to historical details and more to
economic argumentsaboutthe welfare effects of high growthand the "pitfalls of affluence."
Consequently,the book sheds little light on the specific ways Japanhas
changed since the high-growth era. The Japanese system has evolved,
pressedby oil shocks, land-priceinflation,corporateprofits,financialscandals, and multiple yen appreciations.Although Tsuru touches on all these
factors,those interestedin understandingchanges in the way Japan'sindustrial structureand political institutionsshape economic outcomes must look
elsewhere for theiranswers.
Strategic Capitalism:Private Business and Public Purpose in Japanese
Industrial Finance, by Kent Calder, also focuses overwhelmingly on the
firstquestionwe outlined:How did Japan'seconomy work duringthe highgrowth era? Calderpresentsa radicallydifferentpictureof the logic of the
developmentalheyday.His focus is on the fracturesinside the Japaneseindustrialpolicymakingsystem and the autonomousstrategiccapacity of the
privatesector in drivingthe creationof new sectors. Using credit allocation
as his lens into public/privaterelations, he argues that the capacity of the
stateto strategicallyallocatecapitalhas been constrainedby rivalrieswithin
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the state and "by the natureof the private sector, the influence of party
politicians,and occasionallyby foreign actors"(p. 14). On the whole, "industrial strategists within the governmenthave lacked the wide-ranging
ability to shapethe financialsystem to theirvision of priorities"(p. 14).
It is not thatJapanis a liberalmarketeconomy,arguesCalder,but rather
thatthe capacityfor strategyanddirectionlies in "a formidableanddistinctive set of private-sectorinstitutions," especially in the financial sector
(p. 16). Japan'seconomic success rests on a public-privatesystem that is
predominantlydrivenby private-sectordecisions. In this simple form, and
as a correctiveto the sometimesoverdrawnpopularargumentsthatthe Japanese governmentcan simply impose outcomes on domestic and international markets,this book is useful. But the real question must be whether
Calderprovidesa convincing argumentregardingthe extent of government
influence.Here, analyticdifficultiesemerge.
Calder's argument rests on the distinction between "strategy" and
"regulation."Governmentrivalries exist between the strategists (in this
story essentially the Ministry of InternationalTrade and Industry[MITI])
and the regulatoryministries (in this story essentially the Ministry of Finance [MOF]). MITI has the visions; MOF has the tools but a regulatory
bias of maintainingfinancialstability.Calderarguesthat the strategistsare
institutionallyconstrainedin theirattemptsto directpolicy outcomes.
However,the distinctionbetweenstrategyandregulationis farless clear
thanCaldersuggests. Regulatorydecisions and structuresoften reflectgovernmentpurposesbeyond maintainingmarketstability.More importantly,
when ministries are responsiblefor regulatingthe industriesthey nurture,
"strategic"goals (such as protectionor industrysupport)are impossible to
separatefrom regulatoryfunctions.The Ministryof Post and Telecommunications is at once regulatorand promoterof Japan'stelecommunications
industry.2The Ministry of Health, which includes the Japaneseequivalent
to the U.S. Food and Drug Administration,has regulatorygoals that intermingle with the purposesof promotingthe interestsof the pharmaceutical
industry.The fact that MOF is a regulatoryagency does not mean it lacks
strategicpurposesor will not workto facilitatethe purposesof others.There
are many mechanismsfor assuring the integrity of the financial markets.
Differentmechanismshave differentobjectives.
In addition to analyticalproblems such as the strategy/regulationdistinction, Calder'sanalysis suffersfrom his exclusive focus on creditallocation. Administrativeguidancethroughfinanceis not simply a matterof the
2. See ChalmersJohnson,"MITI,MPT,andthe Telecom Wars:How JapanMakesPolicy
for High Technology,"in ChalmersJohnson,LauraTyson, and John Zysman, eds., Politics
and Productivity:The Real Story of WhyJapan Works(Cambridge,Mass.: Ballinger, 1989).
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initial allocation of loans. Mechanisms also exist that allow government
actorsto micro-managecrisis situationsfor troubledbanks.The handlingof
the thirdworld debt crisis revealedsuch mechanisms;the currenteconomic
crisis reemphasizesthem. These mechanismsgenerateenormous influence
for governmentactors. They often also requireMOF to accommodateand
strike bargainswith other ministries.The point is that administrativeguidance goes deeper than mere credit allocation decisions and is not always
characterizedby bureaucraticrivalry.Ministerialcooperationalongside rivalry is an importantcharacteristicof Japan'spolitical economy.
The importanceof those interministerialarrangementsis not reflected
in Calder'sdiscussion of Japan's"Bankers'Kingdom." Calder argues that
the structureof Japan'sfinancial system during the high-growth era was
characterizedby the predominanceof indirect financing that made bank
loans the majorform of corporatefinance, domestic interestrate controls,
controls on exchange rates, an imbalance of liquidity between city banks
and otherpartsof the financialsystem, overlendingfrom the Bank of Japan
to city banks, and a bifurcatedsystem of privatefinancial intermediaries,
with city banks lending to large firms and local banks to small firms
(p. 136). The result, he argues,was a centraland influentialrole for private
financialinstitutions:a bankers'kingdom.
Perhaps.But while Japanmay have been a bankers' kingdom, it was
also an industrialdevelopmentheaven. MOF regulationscreatedchannels
and mechanismsthat assuredboth high, stable marginsfor banks and lowcost, long-term investmentfunds to the industrialsector over several generations.The bankers'kingdom was characterizedby channels that linked
undercompensatedsavings to underpricedindustrialinvestment;these were
nonmarketmechanisms operating with administeredprices. The array of
interministerialdecisions linking finance and industrialdevelopmentwere
elements in the reciprocalbargainsthatcharacterizeJapan.
If we focus our analysis on regulatorypurposes and the interaction
among ministries, we come to a very different conclusion than Calder, a
conclusion consistent with Tsuru'shistory. The assuranceof readily available industrial finance through the regulation of the financial system
amountedto a crucialnationalstrategicdecision. A distinctindustriallogic
emerged from this combination of readily available low-cost capital, the
assuranceof bankingprofits,and the managementof industrialrisk so that
lending losses would not disrupteither the financial system or particular
financial houses. Japanesefirms were able to pursue aggressive strategies
aimed at capturingmarket share precisely because they had implicit and
explicit governmentassurancesthat the risks of these strategies would be
muted.As Tsurunotes, the structureof industrialfinancehad a logical consequence:excess capacityas a result of the rivalryof industrialgroups and
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theirbankingallies. That excess capacitypressed firms towardproduction
innovation in order to gain new marketshare and to remain competitive.
Excess capacity also encouragedthe emergenceof mechanismsto support
aggressiveexporttactics.
Another difficulty emerges from Calder's assertion that government
spendingon infrastructureand traditionalsectors is evidence that the strategic focus of lendingwas limited.Therearetwo problemswith this conclusion. One is an "accounting"issue; the otheris one of politics. First,many
of the categories of funds dismissed as nonindustrialcategories are in fact
used to supportindustrialventures,and not just in Japan.When the French
built seaside steel complexes in the north and south of the country,enormous investments in land reclamation,urban development, and rail and
other transportlinks had to be made at the same time. Those were hugely
expensive public investments.Similarinvestmentswere made for the Disney complex outside Paris. A similarargumentcan obviously be made for
Japan.
Second, and as important,is the political story of how the promotionof
rapid industrialgrowth was politically sustained.Economic development
always implies social dislocations.Unless those who aredislocatedand disadvantagedare bought off and co-opted throughcompensation(or simply
beaten politically), an endless series of conflicts and disputes will disrupt
the market.The policy trickis to containoppositionbut not to subsidizethe
losers to such an extent that positive marketsignals are muted.We cannot
dismiss the funding of the declining sectors as simple captureor as lack of
strategicpurpose.Before acceptingCalder'sargumentthatfundingto infrastructureandtraditionalstructuresreflectsthefailure of strategicability,we
must be able to identify Japan'smechanisms for allocating the pains and
gains of growth.As the governmentattemptedto managethe politicalproblems associated with economic winners and losers, what was the place of
financialinstruments,bureaucraticaction, and political agreements?
In sum, Calderprovidesa richerand more complex pictureof the actors
in the Japaneseindustrialfinance system, emphasizingtheirrivalryand the
significantinfluenceof private-sectoractorsin shapingeconomic outcomes.
What is missing, though, is a sense of the politics in which the story is
embedded.How did the marketdynamicevolve over the years?Partof this
omission is a conscious choice by Calder,who deliberatelyavoids writinga
chronologicalaccountof Japaneseindustrialfinance:"A chronologicalapproachcould not presenta succinctcritiqueof the developmental-statecon3. For an interestingversion of this line of argument,see YasusukeMurakami,"Toward
a Sociocultural Explanationof Japan'sEconomic Performance,"in Kozo Yamamura,ed.,
Policy and Trade Issues of the Japanese Economy: American and Japanese Perspectives
(Seattle:Universityof WashingtonPress, 1982).
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241
cept. Such treatmentwould simply yield the unexceptionalconclusion that
the Japanesestate is slowly losing control capabilitiesover time. The more
fundamentalpoint is ... the surprisinglyreactivecharacterof the Japanese
state and the contrastingactivism of its privatesector at any point in time"
(p. 17).
Yet the conclusion thatthe Japanesestate is slowly losing control is not
"unexceptional,"as Calderclaims. It is clearly truethatthe dynamicsof the
Japanesefinancialsystem have evolved. But other authors,such as Steven
Vogel, have contendedthat the supposedfinancialderegulationhid a more
fundamentalreregulationthat reassertedbureaucraticpower ratherthan a
loss of governmentalcontrol.4As in the Tsuru volume, there are elements
of change in Calder,but we cannot from his book derive a new model to
understandhow Japan'sfinancegame now operates.
More fundamentally,the book does not fully succeed in its primary
goal: demonstratingthe reactive characterof the Japanese state. In his
specific case discussions, Caldernotes a broadrange of instances in which
governmentdid act and act powerfully-despite his argumentthat privatesector actors were the primarycatalysts for change. In the end, the reader
cannot really assess from this account the role of the governmentin influencing privateactorsor in setting the terms on which the financialmarkets
induced industrial behavior. It is not simply particularactions-assessments of whetherthe governmentdid this or that-that matter.Rather,it is
the structureof incentives and constraintsthat induced particularnational
marketlogics. By asking narrowlywhich actorswere makingparticulardecisions, Calderseems not to capturethe characterand dynamicsof strategic
competitionwithin Japanand then in world markets.
It is the interplayof choice that is so powerful. If we adjust the story
Caldertells for the types of concerns outlinedabove-such as the real successes of interventionnoted even in this book, the mixed packages of government aid that obscured the accounting of industrialvs. non-industrial
aid, the fact that limited intervention can powerfully affect corporate
strategy, and the reality of promotion within a regulatory agency-we
emerge with a very differentpictureof the government'srole in industrial
development.We come back to a picture,albeit one taken from a different
angle, of a developmentaleconomic strategyfilled with reciprocalconsent
by governmentand privateplayers.
The East Asian Miracle: Economic Growthand Public Policy was pre4. See Steven K. Vogel, "The BureaucraticApproachto the FinancialRevolution:Japan's
Ministryof Financeand FinancialSystem Reform," Governance:An InternationalJournalof
Policy and Administration,Vol. 7, No. 3 (July 1994), and Freer Markets,More Rules: The
Paradoxical Politics of RegulatoryReformin the AdvancedIndustrialCountries(Ithaca:Cornell UniversityPress, 1996).
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pared for the World Bank by a researchteam led by John Page (and supported at least in part by the Governmentof Japan).The book speaks directly to the third question outlined at the beginning of this article: How
does Japan'sstory interminglewith the stories of other Asian countries?It
is a significantcontributionto broaderdebatesaboutthe role of government
interventionin economic development.
For too long there has been a cartoon-like debate in which one set
of scholars attributedAsian economic growth to strong governmentinterventions, while another group of scholars claimed that growth occurred
despite those interventions.That in turn encouragedsome analysts to reconsider the interventionsand conclude that either they had not happened
or did not matter. The East Asian Miracle reopens these debates in a
more sophisticatedmanner.Although the book suffers from inconsistencies and occasional contradictions (due perhaps to multiple authorship
or perhaps to political compromises made at the World Bank during its
writing), it stands as a landmarkin the policy debates on developmental
economics.
The book examines eight "high performing Asian economies"
(HPAEs):Japan,Hong Kong, the Republic of Korea, Singapore,Taiwan,
Indonesia,Malaysia,and Thailand.Its task is to outline the causes of rapid
economic growth in these eight countries, which have since 1960 grown
more than twice as fast as the rest of East Asia and three times fasterthan
Latin America and South Asia. The report argues that the success of the
HPAEsrestedon two factors.First,the countries"got the basics right"with
sound macroeconomicpolicies, high levels of saving and domestic investment, andexpandinghumancapital.Second, governmentspursuedselective
interventionsin three broad areas:industrialpromotion,mild financialrepression,and export promotion.
TheEast Asian Miracle is clearin its conclusionthat "gettingthe basics
right" was the single most importantfactor in permittingAsian economic
growth.It is less consistentin its assessmentof governmentintervention.In
parts,the tone is positive, suggesting that carefulinterventionswere useful
complements to sound macroeconomicpolicies. In other parts, it takes a
more skepticaltone regardingthe wisdom of marketinterventions.
Given the fact thatthe final version of the book was a political compromise, it is perhapsfittingthatthe book's primarycontributionis also political. The East Asian Miracle has succeeded in introducingindustrialpolicy
as a legitimateareaof inquiryin the policy community.Accordingto Japan
Overseas Economic Cooperation Fund Vice President Masaki Shiratori
(who was one of the most vigorous campaignersfor the World Bank to
conductthe survey):"TheWorldBank is still dominatedby neo-classicists.
But I see a very tiny change. When I was at the Bank Board, and when
young Japanese economists tried to talk about subjects such as directed
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credit or industrialpolicy, they were put down. Now they can openly talk
aboutthe replicationor applicationof these policies."5
Consequently,even the lukewarmconclusions of the book are revolutionaryin theirattemptto bridgediscussionsof differentnationaleconomies
with analyticstudies of growth.While the researchteam emphasizes,properly, the broad macroeconomicconditions of saving, investment, and the
creationof humancapital,the volume lays out a foundationby which very
different analytical traditions may begin to speak to each other. A few
themes merit commenthere.
First, the volume begins to approachthe notion that a particularmix of
policies and institutionscan create a marketdynamic. But the authorsstop
short. For example, the volume acknowledges that most HPAEs began industrializationwith protectionistpolicies (althoughthe authorsalso stress
that most have also graduallyembracedmarket-openingpolicies). During
the high-growthera, participationin export marketspushed firms toward
greaterefficiency,while domestic protectionsimultaneouslyinsulatedthem.
According to the WorldBank study, these "mixed trade regimes" created
offsetting differences in the prices of exports and local goods: "Export
prices were set in the internationalmarketand were often substantiallyless
than currentmarginalor averagecosts. Losses on export productionoffset
profitsin the protectedmarket,while competition in the internationalmarket ensured that the firm would not suffer from loss of cost discipline"
(p. 295). In a mathematicalsense, the combinationof export subsidies and
protection/domesticpromotion may have resulted in relative price neutrality. But constructedneutralityand virgin neutrality are not the same
thing. Protection/domesticpromotion in large or relatively large markets
creates a solid home base that encourages particularkinds of company
strategies.The resultis a new marketdynamicthat is not neutral.
In the case of Japan,domestic policies createdinternal "contests" that
substitutedfor pure marketsin honing the competitivedevelopmentof national firms.Those contests rested, as Tsurunotes, on the broadavailability
of finance to rival zaibatsu or keiretsu groups. The resulting market dynamic generateda downpouringof exports (leading to enormoustradesurpluses with North America and Europe); that new dynamic also pushed
Japanesefirmsto compete for marketsharethroughcontinuousproductinnovation.The WorldBank studydoes not offer a conceptualframeworkthat
traces the way these institutionalarrangementsand policy choices shape
marketdynamicsin emergingAsian economies.
Second, the volume correctlynotes thatrapidgrowthand relativesocial
equity have run together.To many Westernobservers, the political weak5. Quoted in Edith Terry, "How Asia Got Rich: World Bank vs. Japanese Industrial
Policy," JPRIWorkingPaperNo. 10, JapanPolicy ResearchInstitute,June 1995.
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ness of Asian tradeunions obscuresthe fact that the HPAEshave achieved
low and declining levels of inequalitycomparedto otherregions. Although
the solutions have not always been democratic,the relativeincome equality
is certainlysurprising.This opens a broaderissue. The economic study of
growthmust be embeddedin an understandingof how, like a simultaneous
equation,the technicaland political problemsof growthare solved at once.
In this regard,the Japaneseexperience becomes a model, an alternateunderstandingof how marketsand governmentscan interconnect.
Third,it is criticalto understandnot only the ways thatJapanis a development model, but also the limits of that model. The authorsof The East
Asian Miracle do an impressivejob of exploringthe similaritiesamong the
HPAEs. Yet their decision to group the eight countries together into one
analyticalwhole obscuresimportantdifferencesamongthem. After all (and
as the volume notes), SoutheastAsian countriesmust pursuedevelopment
strategiesin a much differentenvironmentthan other countries did. Both
Japanand Koreabenefitedfrom U.S. economic and militaryassistance,as
well as easy access to the U.S. market.The United States is no longer as
willing to tolerate merchandisetrade imbalances;nor is the U.S. government flush with foreign assistanceas it was duringthe cold war.
Moreover,the technologicalrequirementsfor competitivesuccess have
changed.In the past, it was possible to follow a developmenttrajectorythat
utilized second-generationtechnology, along with low domestic factor
prices, to be internationallycompetitive.Today,most developing countries
see the electronicsindustryas key to their development.The technological
learning, economic spillovers, and large export markets associated with
electronics have propelled that sector into the center of nationaldevelopmentpolicies all over the world.Yetthe industryrequireshuge initialcapital
investments-and mistakes in capital allocation can be fatal for a firm. In
such a competitive environment,Southeast Asian countries are finding it
necessary to insert themselves into the internationaldivision of labor that
has been createdby the expansion of cross-borderproductionnetworksof
multinationalcorporations(MNCs) operatingin Asia.
Domestic differencesalso make it impossiblefor Asian countriesto embrace a "Japan-style"developmentstrategy.Japan'sindustrializationin the
nineteenthcenturywas based on domestictechnologicalinnovation.Taiwan
and South Korea,by contrast,relied on achieving competitivenessthrough
low wages, and theirindustrialexpansionwas based on learningratherthan
indigenousinnovation.6SoutheastAsian countriesconstituteyet a different
"thirdtier" of late developers.These countries do not have the history of
6. See Alice Amsden, Asia's Next Giant: South Korea and Late Industrialization(New
York:OxfordUniversityPress, 1989).
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domestic manufacturingthat developed indigenouslyin Japanand that was
createdthroughsuccessful import substitutionindustrializationpolicies in
South Koreaand Taiwan.This lack of historicalmanufacturingexperience
rendersSoutheastAsian countries more dependenton MNCs for their industrialdevelopment.7
Thus, the WorldBank study sets the stage for a series of conversations
in the academicand policy communitiesaboutthe ways the Japancase can
shed light on the experiencesof otherAsian countries.These revolve around
severalthemes:the ways governmentscan shapemarketdynamics;the ways
governments can simultaneouslymanage the political and economic demands of industrialization;and the ways Japan'seconomic development
serves as a model yet at the same time changes the policy options for "thirdtier" Asian industrializers.
How have our initial three questions fared in these volumes? While it
seems that we have a good model for the rapid-growthyears, as proposed
both by Tsuru and (more guardedly)by the WorldBank study, the Calder
volume certainly suggests that the debate is not closed. Because debates
about that baseline will continue to provoke disagreementabout optimal
governmentpolicies (and will continueto fuel academiccareersby encouraging "productdifferentiation"),the debateis likely neverto be closed. Our
second question-how government-industryrelations change at the postdevelopmentalstage-remains unansweredby these volumes. Indeed, the
debateover the extent and characterof changein the Japanesesystem is just
beginning. As these debates progress, it will be critical to rememberthat
outstandingdisagreementsregardingthe high-growthyears will inevitably
affect our discussions and understandingof contemporaryJapan. Third,
with regard to Japan'srole in Asia, the World Bank study lays out some
interestinghypotheses-and themes for furtherdiscussions-about the lessons and "non-lessons" that Japan'sdevelopment holds for other Asian
countries.Just as importantin those futurediscussionsis the role of Asia in
Japan'scontinueddevelopment.More must be learnedabout the way Japanese firmshave respondedto yen appreciationsand othercompetitivepressures by reconstructingtheir productionnetworksin Asia. These activities
may fundamentallyalter the internationalimplications of Japan'spostwar
domestic marketlogic. For example, are Asian marketsfor final products
expandingrapidlyenough to absorbsome of the exports currentlytargeted
for NorthAmericanand Europeanmarkets?Increasingly,the place of Japan
in Asia's economic development, and of Asia in Japan'scontinuing economic development,have become entangledstories.
7. See Mitchell Bernardand John Ravenhill, "Beyond ProductCycles and Flying Geese:
Regionalization,Hierarchy,and the Industrializationof East Asia," WorldPolitics, Vol. 47,
No. 2 (January1995), especially pp. 195-200.
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