Social Capital and
Economic Governance:
Japan, the US and Germany
Jeffrey Broadbent
Department of Sociology
University of Minnesota, USA
1
Overview of talk
Economic Governance and Growth
 Governance=State-Society Relationship
 II. Methods:
 Policy Network Survey
 Labor Policy “Domain”
 III. Findings
 Comparing network patterns
 Power in policy-making
 IV. Discussion: theoretical implication
 V. Conclusion: Social Capital, State and Growth
 I.
2
eories/Models of Economic Governanc
 Weak-state
Market Capitalism
 “Washington Consensus” (US)
 Strong-State Administered Economy (China)
 Problems of transition-”shock” or slow?
 Social corporatism: state-capital-labor
 Tripartite policy-making (Germany)
 East Asian “economic miracles” (Japan)
 Puzzle of East Asian growth
 Led to theory of Developmental state.
3
Big Questions—”Governance”
Is there “one best way” of
 relationship between:
 State and business?
 State and wider society?
 One best balance of freedom and order?
 Competition and regulation?
 Or does what is “best”
 For a given country and time period
 Require building on “what is there” -4
 The existing institutions, society and culture?

Example--East Asian Growth
Challenged US global economic dominance
 Confounded neo-classical economic theory:
 East Asia: lots of workers,
 but little capital, land or resources.
 Why East Asian “economic miracle?”
 Challenged weak-state market-led theory.
 Not strong state-administered economy.
 A form of corporatism?
 Raised questions about “best” governance.

5
East Asian Developmental State
Basic Idea:
 State is autonomous – not corrupt.
 And embedded, in networks with business.
 State ministries “guide” businesses
 Toward national economic goals
 While retaining “enough” competition.
 Variants: Japan, South Korea, Malaysia,
Singapore
 More state-led than social corporatism
 But less that state-centralized economy

6
Difficulties--Developmental State Model
Japan example:
 Until 1990 Japan succeeded.
 But 1992-present -- “lost decade.”
 Cannot restructure economy
 Supports ailing firms
 Bad-loan problem (near 100% of GDP)
 If government can “guide” businesses,
 why was Ministry of Finance not able to
 guide banks to stop making risky loans?

7
Varieties of “Mechanism”
 to
explain Development State governance
 State-rule approach
o Johnson, MITI & the Economic Miracle
o State control of currency exchange
 Cultural approach
o Okimoto, Between MITI & the Market
o “Habits of compliance to state”
 Neo-institutional approach
o Evans, Embedded Autonomy
o “State uses existing networks”
o A form of “social capital”
8
Social Capital Networks
Traditional capital – land, labor, money.
 Factors of growth and power
 Social capital– personal relations that
 Bring about trust or assurance in the other.
 Facilitates communication and cooperation
 Can also be exclusive, only for “members”
 Example: voluntary associations (Putnam)
 Affected by cultural and social patterns.

9
This Research Project
Investigate the presence and effect
 of social capital networks
 on information flow, political support
 And state role in the economy
 in three types of political-economies:
o Weak state market-economy (USA)
o Social corporatism (Germany)
o Developmental state (Japan)
 Do they differ in social capital?
 If so, Why? Rules, social patterns, culture?

10
II. Methods – data source

Policy network survey:
 Japan,
United States, Germany
Labor policy “domain” in mid to late 1980s
 Respondents: all organizations in domain.
 government agencies;
 business & labor associations;
 political parties;
 civil society groups,
 About 120 in each national case.
 Knoke, et al. Comparing Policy Networks

11
Survey Questions
Three networks among organizations:
 Transfer of public political support
 Transfer of vital information about
politics
 Expectation of reciprocity--long-term
mutual-aid (a form of social capital)
 Reputation for influence
 Organizational data (membership, etc.)

12
Question -- Expected Reciprocity (ER)

“Sometimes in politics, another organization
will ask yours for political support, and even
though your organization has no direct
interest in the issue, you will give it. Then
you will feel that you can expect a return of
that support sometime in the future. Check
off all organizations with which your
organization has such a relationship.”
13
Thinking like a Network
Holistic qualities of networks
o Density (% of all possible connections)
o Reachability (% of all possible actors)
o Path distance (average # of links)
o Pattern
 Qualities not reducible to members
 Members distinct positions in diverse networks
 Distinct networks in tension within polity.

14
III. Findings
 Comparison
of three networks
 Social Capital Networks
 Measured by Expected Reciprocity (ER)
 Visual image of ER networks:
 US, Germany and Japan
 Quickly shows differences
15
NETWORK
Country
VITAL INFORMATION
U.S. Japan Germany
Density
11.47
3.81
6.29
Connectivity
96.59
69.33
74.82
11.88
3.81
54.77 30.03
29.08 27.85
1.26
6.44
0.00
1.07
0.14
3.41 30.67
13,572 14,762
6.29
34.64
28.86
4.96
0.06
25.18
15,750
1 (direct)
2 (two links)
3
4
5
6
 (no link)
Dyads (N)
16
Network
Country
Density
POLITICAL SUPPORT
U.S.
Japan Germany
4.14
4.77
4.52
Connectivity
42.00
55.00
53.00
1 (direct)
2 (two links)
3
4
5
6
7
9.8
20.6
25.6
24.2
15.0
4.4
0.5
58
13,572
8.6
29.4
37.0
23.1
1.8
0.1
45
14,762
8.5
27.2
38.9
18.7
5.3
1.1
0.1
 (no link)
Dyads (N)
47
15,750 17
NETWORK
Country
SOCIAL CAPITAL
U.S.
Japan
Germany
Density
0.96
2.40
0.37
Connectivity
4.70
37.60
1.18
1 (direct)
20.0
6.4
33.0
2 (two links)
46.5
32.8
22.7
3
27.1
38.7
11.4
4
6.5
18.6
0.91
5
-
3.4
0.80
6
-
0.2
0.91
7
-
-
0.57
8
-
-
0.11
 (no link)
95.3
62.4
98.82
Dyads (N)
13,572
14,762
15,750
18
Expected Reciprocity in
the US
19
US SC Network Properties
Small social capital sector in whole polity
 Low density, low reachability (27/117)
 Only labor unions & public interest groups
 Overlap with political support networks
 Has intuitive plausibiity
 Echoes the core strategy of labor: solidarity
 Lack of social capital in whole polity
 Reflects individualism (rational opportunism)
 of typical U.S. actors

20
Expected Reciprocity in G
21
German ER Network Properties
Scattered around polity
 Low density, low reachability (29/126)
 Ruling party linked to welfare associations
 “Upper” house of provincial gov’ts (laender)
 Constitution requires “cooperative relationship”
 Hypothesis: Reflects “rule of law” culture,
 Multiple party representation and coalitions,
 And strong social welfare institutions

22
Expected reciprocity in
Japan
23
The “Butterfly State” (labor policy domain)
In Japan,
the pattern of ER ties
takes the shape of a “butterfly.”
24
Japan SC Network Properties
Butterfly pattern in labor policy domain:
 Two sectors (business and labor)
 Corporatist (pyramidal) organization
 Few direct cross sector connections
 Government agencies in between
 Network theory: “structural hole”
 Gov’t bridge-keeper or broker role
 Enhances government guidance power
 Political parties on periphery of network

25
Depth of Networks
Distances in network are
 Social distances, based on
 Number of connections
 And number of paths to reach.
 Image is 2 dimensional projection
 Of mulit-dimensional reality
 Can show in 3 dimensions
 To give better sense of complexity
 Of the social reality

26
Mage projection

Of Japan social capital network
27
Inter-Network Correlations
Networks
SC*VI
SC*PS
PS*VI
SC3*VI3
U.S.
0.071**
0.249**
0.153**
0.003
SC3*PS3 0.022
Germany
0.092**
0.138**
0.183**
0.020
Japan
0.302**
0.262**
0.203**
0.139**
0.101**
0.142**
SC=Social Capital Network
VI=Vital Information Network
PS=Political Support Network
ER3, etc.= a third party in common
28
Network Overlap Tendency--Japan
SOCIAL CAPITAL
A
VITAL INFORMATION
POLITICAL SUPPORT
B
C
29
Networks and Political Power
Survey used measure of
 “reputation for influence” (RI)
 Asked all 120 expert respondents to
 Check off all organizations they thought
 “Especially influential in labor politics”
 Total score (0 – 120) is influence measure.

30
Fifteen Most Influential Organizational
Types in Japan, US and Germany
Organizational
Type
Government
Agency
Quasi-Gov’talGovernment
Political
Party
Business
Association
Labor
Association
Public Interest
Gp.
Japan US Germany
( 122) ( 117)
( 126)
5
2
1
3
0
3
2
3
6
2
3
2
3
5
3
0
2
0
31
Connections and Rep for Influence (RI)
Variables
SC*RI
VIsent*RI
PSrec*RI
PSsent*RI
VIbrok*RI
PSbrok*RI
SCbrok*RI
German
.146
.622**
.693**
.215*
.485**
.352**
.228*
US
.270**
.544**
.096
.565**
.490**
.213**
.287
Japan
.501**
.640**
.237**
.612**
.460**
.318**
.564**
32
Basis in Popular Culture?
Some argue Japan has:
 Strong habits of obedience and trust
 Toward government and people
 But international surveys show this not true.
 Lower trust toward major institutions
 than found in Germany & US

33
Figure 8.1 Confidence in Major Institutions:
Confidence
Japan, the US and Germany, 1991
70
60
50
Institution
Legal System
40
Press
Parliament
30
Civil Servants
Companies
20
West Germany
USA
Japan
COUNTRY
34
Source: World Values Survey
Discussion
35
Inter-Elite Networks
Lack of trust in popular values
 Indicates social capital networks
 Not derive from embedded popular values.
 Social capital networks inter-elite,
 They cultivate in-group mutual trust.
 And also channel important resources
 That cascade down membership hierarchies.
 Shows “duality” of social capital

36
Butterfly Pattern and Power
Guidance power of Japanese state
 Depends not purely on culture
 —habits of obedience- But on “butterfly” pattern
 of social capital network
 Giving state role as broker
 between two sectors.
 This pattern also held for (then) MITI
 between main business conglomerates

37
Butterfly not in all policy sectors
Not present in financial policy domain.
 Corporation sector grow, more independent
 No countervailing shareholder sector- One wing and central body only.
 As a result, despite many Old-Boy networks t
 Ministry of Finance could not restrain banks
 In late 1980s, banks made many bad loans
 Brought on Japan’s “lost decade”

38
落蝶羽
ち々落
るはと
哉どす
こ
The End
Lost a wing,
Where will the butterfly
Flutter down?
39
Socio-culture and Butterfly
High density and inclusiveness of
 Of social capital ties in Japan
 Stable pattern of vertical ties to third parties
 Family (ie) (Nakane Chie, Vertical Society)
 Peak associations negotiate policy
 Village model of decision-making (mura)
 Butterfly pattern negotiates class tensions
 With personal relationships

40
US: Individualism and market
US weak-state market-led model
 fits with information flow network rapid immediate one-step flow.
 and weak social capital network—
 lack of “sticky” relational commitments
 Permits constantly shifting alliances
 Among business and political interests

41
Germany: Law and Institutions
Very “solid” labor and welfare institutions
 Built like Mercedes cars-- to last.
 But organize labor market too rigidly
 To respond best to rapid technology change.
 Importance of law and order in German culture
 Transition from state to social corporatism
 Now slowly to more market-led organization

42
Institutional “Echoing”
Basic values and relational patterns
 Affect possibilities of formal institutions
 What types will function most effectively
 For public goods outcomes
 In a given society and nation.

43
Not automatic
Socio-cultural levels not
 entirely self-organizing (auto-poetic)
 But also not entirely
 imposed by authorities.
 Network patterns (and values, schema)
 Provide embedded rules and resources

44
“Steering” and Design
Intentional actors can use
 Embedded socio-cultural qualities
 To build institutions
 Example-Japanese officials “built”
 labor and business corporatist organization
 Using indigenous embedded models
 To “tame” 1950s surge of union growth
 And steer society toward maximal productivity.

45
Tensions between Networks
Networks as meso-level patterns
 Different networks can have different
 Patterns and included actors
 These can be in tension, cross-purposes
 Whole system not “integrated” like body
 How to have “creative tension”?

46
Conclusions
47

Interaction between culture, social relational
patterns and “objective” political-economic
structures varies by nation/society
PoliticalEconomic
Social
Network
Patterns
Culture
Society 1
Society 2
48
To build most effective institutions
 For public goods production,
 And for private goods production,
 Institutional creators need to
 Pay attention to indigenous
 Embedded social patterns
 To work with them positively
 To create empowering institutions

49

finis
50
V. Conclusions








A. Given the critique and revision of the idea of NC in this paper, and the
findings from research, what remains of the idea of “national character?”
Cultural and NC boundaries (however measured) not necessarily contiguous
with national boundaries: can overflow, and can pluralize (and can do both).
However, continuing importance of culture/character is obvious. Just its
degree of overlap with “nation” and with “society” is variable. (Example of
Magyar ethnic group).
Same type of variation also true for social relational patterns, styles and
connective networks.
PE styles are also subject to the same variations.
Cross-national variation in degree of overlap, overflow and pluralization of the
three spheres (c, s and pe) seems worth taking notice of as a possible
principle affecting macro-variation in national behavior of various sorts.
Origins of this cross-national variation lies in historical paths – buildup and
transition process of nationally institutionalized cultural and social relational
patterns and character, interacting with p.e. opportunities.
Need to pay attention to these factors in giving advice on pathways of
institutional change. The failure of the “shock therapy” in Russia (advice
given by some prominent American economists) as a terrible example.
51
Theories of Economic Development (2)


Changing economic theory
Relational equilibrium (Nash)
Socio-cultural elements
Rules in formal institutions (North)
Social relational networks
Culture (continual reincarnation)
Rethinking the state--governance
52
US (Anglo-Amer)
NC Level
Japan (“core”)
hands off, regulation, East Asian Model:
State to
or being captured
State guidance
business
village council of
Community associational
Family
Group
Dyad
Self
Values
family heads (mura)
nuclear
patrilineal stem &
branch (ie)
team or vertical
vertical loyalty /\
conflict
(Nakane)
voluntary relation ascribed relation
independent
interdependent
freedom to pursue
“harmony” & belonging
own ideals, interests to a group (Lebra) 53
Comparing Policy Networks








Social relational network:
Expected Reciprocity (ER), as defined, indicates a longterm social relationship
(This can be either social capital or embedded)
Social commodity exchange networks:
Vital information -- “non-depleting” distributable commodity
(giving it out not reduce your stock)
Political support -- “depleting” distributable commodity
(giving it out depletes your stock).
VI or RS not require a long-term social relationship
Other important networks not directly measured: “payoff”
networks, idea networks, moral or normative leader or
modeling networks . . .
54
Key question of network analysis

relevant to the present inquiry—do the nodes
(as “actors” exercising “agency” determine the
shape and quality of influential networks (the
Western presumption), or do the network
patterns have some autonomy and determine
the role and presentation of self (perhaps even
core identities and values) of the node (“network
member”) (as implied by Japan NC model)?
55
NC Level
State to
business
Community
Family
Group
Dyad
Self
Values
Japan NC
Japan Policy
Networks
East Asian Model:
State guidance
village council of
family heads (mura)
patrilineal stem &
branch (ie)
vertical loyalty /\
(Nakane)
ascribed relation
interdependent
“harmony” &
56
What is the basis of persuasion?


If posit two rational “actors,”
 Expectation of good results?
 punishment?
 reciprocity?
If posit “culture” or “social
relationship” as defining motives,
 Trust of ministry?
 Legitimacy of ministry?
 Social capital?
 Embeddedness?
57
III. C. Trust in Japan




Given the density and inclusiveness of
expected reciprocity ties,
We would expect higher levels of
generalized trust toward other people and
toward institutions
And higher levels of community
organizational participation
in Japan than in US
58
Trust toward own
countrymen
Source: World Values Survey 1991
59
Figure 8.4 Community Group Participation
Participation
Japan, the US and Germany, 1991
60
50
40
Organizational Type
30
Social Welfare
20
Religious Organiz'n
Youth Work
10
Sports/Recreation
Education/Cultural
0
West Germany
USA
Japan
COUNTRY
60
Source: World Values Survey