Page 180 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
though the Japanese economy is highly regulated, compartmentalized,
and overprotected, this market is in fact extraordinarily competitive.
For example, Japan has a number of automobile companies, whereas
the United States has only three. Competition in Japan does tend to
be oligopolistic and Schumpeterian; that is, it is based on technologi-
cal innovation and is quality-driven rather than based on price com-
petition; consumer prices are kept high by government policies to in-
crease the profits of the corporate sector.
In his book on the governance of Japanese corporations, Carl Kes-
ter makes a convincing argument that the keiretsu is a highly efficient
and rational mechanism for organizing economic activities, and its
distinctive characteristics make it a formidable competitor in world
markets. 34 Mutual trust, for example, substantially reduces transac-
tion costs. Information exchange within the keiretsu decreases uncer-
tainties and is conducive to innovative activities. Intragroupcross-
shareholding protects members against hostile takeovers and signifi-
35
cantly reduces the cost of capital. The system is a mutual assistance
society, and when a member firm gets into trouble, other members
come to its rescue.
Corporate leadership’s independence from outside shareholders
permits the firm, unlike American management, to pursue a corporate
strategy based on maximizing market share rather than short-term-
profit maximization. As Ronald Dore has argued, the keiretsu con-
tributes greatly to Japan’s remarkable capacity to adjust to economic,
technological, and other changes. 36 Certainly, no other country was
as successful as Japan in adjusting to the two oil price rises of 1973–
1974 and 1979–1980. Despite the troubles of the Japanese economy
in the 1990s, the keiretsu has proved to be a successful innovator of
new products and production techniques because of its immense in-
ternal resources and long-term perspective. The keiretsu mechanism
has effectively joined the financial and other advantages of the large
firm with the flexibility and innovative capabilities of the small firm.
Although (or perhaps because) the keiretsu is a highly effective
means of industrial organization, it has been deeply resented by non-
Japanese. One reason for this resentment is that the keiretsu is a
closed system that excludes all outsiders. The term “outsider” in-
cludes not only non-Japanese firms, but any Japanese firm that is not
34
Kester, Japanese Takeovers.
35
Robert Zielinski and Nigel Holloway, Unequal Equities: Power and Risk in Ja-
pan’s Stock Market (New York: Kodansha International, 1991).
36
Ronald P. Dore, Flexible Rigidities: Industrial Policy and Structural Adjustment
in the Japanese Economy (London: Athlone, 1986).
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