Page 178 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
of the most important differences are in the systems of industrial rela-
tions, of corporate finance, and of industrial organization. Although
these elements are closely tied to one another and reinforce one an-
other, it is useful to consider them independently.
The Japanese system of industrial relations has been characterized
by a dual labor market. The core workers in Japan’s large and highly
competitive corporations such as Sony and Toyota, have enjoyed life-
time employment, have been paid on the basis of seniority, and have
been considered stakeholders to whom Japanese firms have a social
responsibility. Although the system has been strongly criticized and is
being eroded by Japan’s economic problems, one advantage of this
system has been that, because lifetime workers are considered long-
term assets, Japanese firms have a strong incentive to invest in labor-
ers’ skills. However, a major disadvantage of lifetime employment has
been that it restricts the flexibility of Japanese firms and makes it
difficult to reward younger and more valuable workers; it has also
been nearly impossible to fire incompetent or redundant workers. On
the other hand, the majority of workers, especially women and work-
ers in smaller firms, have little job security and do not receive an
equivalent share of the benefits of the system.
Whereas American firms tend to obtain the largest portion of their
capital from the huge American stock market, Japanese firms rely on
retained earnings and, most importantly, on an affiliated bank. Bank
loans have generally been guaranteed by the government, either di-
rectly or at least implicitly. The Japanese banking system, including
the government-run postal savings system, tight capital controls, and
government macroeconomic policies have enabled Japanese firms to
enjoy very low capital costs. As Kent Calder has shown, this financial
system has been a crucial component in what he calls “Japan’s strate-
gic capitalism.” 30
Whereas American firms emphasize safeguarding both profitability
and the interests of shareholders, Japanese firms have considered their
primary responsibility to be toward a firm’s stakeholders, and stake-
holders include employees and subcontractors. American firms seek
to maximize profits; Japanese firms have attempted to maximize sales
and corporate growth. Differences like these led Alan Blinder, former
member of the Federal Reserve, to question whether or not the Japa-
nese economy was really capitalist! 31

30
Kent E. Calder, Strategic Capitalism: Private Business and Public Purpose in Japa-
nese Finance (Princeton: Princeton University Press, 1993).
31
Alan S. Blinder, “More Like Them?” American Prospect 8 (winter 1992): 53.
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