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Page 1 of 40 The Pacific Review

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Industrial Associations as Ideational Platforms: 17 18 For Peer Review Only 19 20 Why Japan Resisted American-Style 21 22 23 24 Shareholder Capitalism 25 26 27 28 29 30 31 32 33 34 35 36 37 Fumihito Gotoh 38 39 40 [email protected] 41 42 +44 (0)1926 713697 43 44 45 Department of Politics and International Studies, University of Warwick, 46 47 48 Coventry, CV4 7AL, United Kingdom 49 50 51 52 53 54 55 56 57 58 59 60

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1 2 3 Introduction 4 5 6 7 Japan’s stakeholder capitalism, which emphasises employment stability (long-term or ‘lifetime 8 9 employment’ for regular workers), has been in dire straits since the mid-1990s. Hatarakikata 10 11 Kaikaku or ‘labour reforms’, which tackle three labour issues – excessively long working hours, 12 13 14 significant wage and treatment disparities between regular and non-regular workers, and labour 15 16 shortages – have been a major policy agenda for Japan’s Abe administration since August 2016. 17 For Peer Review Only 18 The number of non-regular workers (low-waged, easily dischargeable labour) doubled from 19 20 9.7 million in 1994 to 20.4 million in 2017, while regular workers decreased from 38.1 million 21 22 23 to 34.2 million. Consequently, according to the Comprehensive Survey of Living Conditions 24 25 by the Ministry of Health, Labour and Welfare (MHLW), the average household income in 26 27 Japan fell from ¥6.64 million in 1994 to ¥5.60 million in 2016, which epitomises the ‘lost two 28 29 30 decades’. 31 32 33 Many scholars (for instance, Imai 2011; Watanabe 2012; Shibata 2015) claim that 34 35 deregulation or neoliberal reform of the Japanese labour market has caused these phenomena. 36 37 Some scholars (Okada 2009; Hasegawa 2011) further argue that neoliberal reform has been 38 39 40 driven by Nippon Keidanren (the Japan Business Federation, hereafter Keidanren), the largest 41 42 industrial association (business lobbying group) in Japan. In contrast, other scholars (Keizer 43 44 2010; Yun 2015) claim that Keidanren has continuously supported the practice of lifetime 45 46 employment but used a low-waged non-regular workforce in order to reduce personnel costs 47 48 49 and protect existing regular workers. I share the latter perspective and contend that most 50 51 scholars have failed to indicate that from the mid-1990s until the mid-2000s, neoliberal thought 52 53 was promoted by Keizai Doyukai (the Japan Association of Corporate Executives, hereafter 54 55 56 Doyukai), another major industrial association, but that Japanese society has resisted 57 58 neoliberalism, an ideology that emphasises market efficiency and economic liberalisation. My 59 60 research puzzle here is why Japan has resisted American neoliberal hegemony, which advances

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1 2 3 the convergence to American-style shareholder capitalism promoting higher international 4 5 6 capital mobility and capital markets, and how the resistance has resulted in the rapid increase 7 8 in the working poor. This article focuses on the conflict between Japanese-style stakeholder 9 10 capitalism and American-style shareholder capitalism, which are based on different social 11 12 norms, in the Japanese political economy since the 1990s. 13 14 15 The combination of liberal international trade and restricted international capital mobility 16 17 18 during the Cold WarFor was conducivePeer for Review Japanese-style stakeholder Only capitalism based on the 19 20 combination of the economic bureaucracy’s administrative guidance (non-legally binding but 21 22 highly influential recommendation), long-term focused corporate management, committed 23 24 25 labour, patient capital and keiretsu (interlocking business relations), often described as ‘convoy 26 27 capitalism’. As Japan was a bulwark against communism, the United States provided Japan 28 29 with extensive support, including accommodative trade policy, the dollar-yen exchange rate 30 31 32 very favourable for Japanese exporters (US$1 = ¥360) and generous technology transfer. 33 34 However, Japan’s strategic importance for the United States was lessened, and the United 35 36 States increasingly showed less tolerance towards the closed nature of the Japanese market in 37 38 the 1980s. Since then, neoliberalism led by the United States has been an external pressure on 39 40 41 Japan to change its form of capitalism. In the 1990s, Japanese-style stakeholder capitalism 42 43 faced significant adversity, such as the enormous bad debt problem, the economic slump and 44 45 the Ministry of Finance (MOF) wining and dining scandals.1 An increasing number of market 46 47 48 liberals in the parliament, bureaucracy, and business community tried to transform the Japanese 49 50 economic system by introducing American-style financial and business practices under the 51 52 Hashimoto (1996-8) and Koizumi (2001-6) administrations. 53 54 55 However, Japan has resisted neoliberalism, which legitimises shareholder primacy, and the 56 57 58 influence of market liberals in Japan has weakened since 2006. Neoliberalism advocates free 59 60 capital mobility between sectors, regions and countries, which suggests the restoration of

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1 2 3 dominance by narrowly defined capitalists, such as major shareholders (Harvey 2005). One 4 5 6 salient example of Japan’s resistance to market liberalization is the stalled financial 7 8 disintermediation (i.e. the shift from a bank-cantered to market-based financial system) since 9 10 the mid-2000s, despite the Japanese government’s financial deregulation during the 1980s and 11 12 1990s. Ikeo (2003: 92-5) claims that a market-centred financial system is more efficient than a 13 14 15 bank-centred financial system when the economy requires a drastic shift from low growth to 16 17 high growth industries. However, the outstanding Japanese domestic corporate bonds 18 For Peer Review Only 19 moderately decreased from 62 trillion yen in 2000 to 60 trillion yen (11% of GDP) in 2016 – 20 21 22 dwarfed by bank loans for companies (roughly 400 trillion yen) – when the US proportion of 23 24 outstanding corporate bonds to GDP was 45%. Another example is the very low proportion of 25 26 Japan’s outstanding inward foreign direct investment (FDI) to GDP (3.8% at the end of 2016), 27 28 29 which is much smaller than those of the United States, Britain, China, and South Korea at 30 31 35.2%, 55.7%, 24.5%, and 12.4%, respectively. In contrast, FDI in China has significantly 32 33 contributed to its rapid economic growth. Due partly to US pressure, since the 1980s the 34 35 Japanese government has campaigned to increase inward FDI, but the increase has been only 36 37 38 incremental. Japan’s slow industrial upgrading due to the constrained capital mobility, its 39 40 intense international competition in the manufacturing sector with emerging economies, and 41 42 the rapid appreciation of the yen (US$1 plummeting from ¥249 in June 1985 to ¥85 in June 43 44 45 1995) have resulted in a serious strain on its labour market. 46 47 48 I utilise the concept of systemic support, which has enabled Japanese society’s anti-liberal, 49 50 anti-free market norms to resist American-style shareholder capitalism, as a solution to the 51 52 research puzzle (Gotoh and Sinclair 2017). Since the mid-1990s, there has been an ideational 53 54 55 conflict among Japanese elites between the anti-free market and market liberalisation camps. I 56 57 particularly focus on the ideational contestation between the two major industrial associations, 58 59 the largest, conservative Keidanren and the neoliberal-oriented Doyukai, as key ‘ideational 60

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1 2 3 platforms’ of the respective camps. The anti-free market camp has endeavoured to preserve 4 5 6 stakeholder capitalism, including job security of regular workers, whilst the market 7 8 liberalisation camp has tried to enhance return on capital through neoliberal restructuring. 9 10 My research puzzle is associated with the convergence-diversity debate over whether 11 12 coordinated market economies (CMEs), including Japan, which rely on mutual cooperation 13 14 15 among economic actors connected by a dense network of institutions, would converge with 16 17 liberal market economies (LMEs), including English-speaking countries, which rely on the 18 For Peer Review Only 19 market mechanism (Hall and Soskice 2001; Laurence 2001; Yamamura and Streeck 2003; 20 21 22 Schoppa 2006; Rosenbluth and Thies 2010; Vogel 2018). LMEs (or American-style 23 24 shareholder capitalism) have become the global norm since the 1980s, and CMEs’ financial 25 26 practices have gradually converged with those typical of LMEs. However, tensions have been 27 28 29 intensified between liberal global norms and anti-liberal domestic social norms in the Japanese 30 31 political economy since the 1990s. I contend that anti-liberal, anti-free market Japanese social 32 33 norms have been more persistent than many scholars anticipated and have resisted convergence 34 35 towards LMEs. 36 37 38 The findings of this paper have important implications for other constrained market 39 40 economies in Asia, where the tension between liberal global norms and anti-liberal domestic 41 42 social norms can be witnessed whilst they clarify the characteristics of American-style 43 44 45 shareholder capitalism. This paper showcases the persistence of social norms, which 46 47 characterize specific types of capitalism. 48 49 50 I first illustrate the significance of social norms and the role of industrial associations as key 51 52 ideational platforms. Then, I discuss an ideational conflict between the two industrial 53 54 55 associations, the similarity in the backlash to liberal global norms between pre-war and present- 56 57 day Japan, and the robustness of the Japanese corporate system based on systemic support and 58 59 in-group favouritism. 60

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1 2 3 4 5 6 Social norms and industrial associations 7 8 9 10 Rational choice approaches are often effective in analysing cause-effect relations, but their 11 12 weakness is that the criteria for rationality vary by country and social norms constitute the 13 14 boundary of rationality. Constructivism, which emphasises the importance of ideas, norms, and 15 16 17 identities and views rationality as a relative phenomenon, can make up for the above weakness 18 For Peer Review Only 19 of rational choice approaches. However, constructivism cannot fully answer the question of 20 21 why certain ideas are generally accepted in a society and others are not (Bieler 2001: 94). Neo- 22 23 Gramscian perspectives shed light on which actors utilise which ideas as weapons to achieve 24 25 26 their goals – ‘theory is always for someone and for some purpose’ (Cox 1981: 128). Neo- 27 28 Gramscian perspectives are effective for unveiling the links between Japanese social norms 29 30 and major actors’ interests. The formula is: global hegemony (American neoliberal hegemony) 31 32 33 versus counter-hegemony (Japanese social norms) and latent social class conflicts (Cox, 1981). 34 35 The continuity of a historic bloc is underpinned by not just dominant elites’ coercion, but also 36 37 subordinates’ consent to social norms created and disseminated by dominant elites. Neo- 38 39 40 Gramscian scholars claim that the power of capital stems from the relative mobility of capital 41 42 and the relative immobility of labour (Gill and Law 1988). Capital mobility can be witnessed 43 44 in capital market activities, mergers and acquisitions, corporate restructurings, and 45 46 bankruptcies. Capital is often decoupled from the real economy to seek short-term profit in the 47 48 49 United States. 50 51 In contrast to English-speaking societies where capitalists are a ruling class, anti-free market 52 53 elites (‘administrators’), such as interventionist bureaucrats, conservative Liberal Democratic 54 55 56 Party (LDP) politicians, and corporate executives who share similar characteristics to 57 58 bureaucrats, are dominant in Japanese society (van Wolferen 1989; Noguchi 2010).2 59 60 Immediately after WWII, Japan’s major capitalists, such as landlords and executives of

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1 2 3 Zaibatsu conglomerates and large firms, were eliminated by US occupation forces, which 4 5 6 reinforced the power of administrators. Noguchi (2010) argues that anti-free market norms and 7 8 institutions of the ‘1940 system’ developed for total war have remained in Japanese society, 9 10 and can be witnessed in the bureaucratic intervention, the bank-centred financial system, and 11 12 the Japanese-style corporate system. Japanese-style stakeholder capitalism is based on a 13 14 15 management-labour alliance against capitalists and interlocking business relations, supported 16 17 by the confederation of administrators (Gotoh and Sinclair 2017). Capital mobility is 18 For Peer Review Only 19 constrained by administrators, and capital tends to be tied to specific organisations in Japan. 20 21 22 In order to supplement macroscopic neo-Gramscian perspectives, I use ‘guardian and 23 24 commercial morals’, philosophical concepts identified by Jacobs (1992), which are 25 26 characteristic precepts of the public and private sectors, respectively. While guardians, such as 27 28 29 bureaucrats, soldiers and police officers, who could also be described as administrators, mainly 30 31 protect the territory, the commercial camp includes capitalists and entrepreneurs (Jacobs 1992: 32 33 28-9). Guardian morals value loyalty, obedience, largesse (including support for subordinates) 34 35 and exclusiveness to maintain stable long-term relationships among people, whereas 36 37 38 commercial morals, which promote opportunistic short-term relationships, appraise fairness, 39 40 efficiency, competition and openness (Jacobs 1992: 22-34). Although the distinction between 41 42 collectivist and individualist societies is relative not dichotomous, collectivist societies, 43 44 45 including Japan, have an orientation towards guardian morals, while individualist societies, 46 47 such as English-speaking countries, are oriented towards commercial morals (Gotoh and 48 49 Sinclair 2017). 50 51 52 Toshio Yamagishi, a social psychologist, argues that Japanese society’s collectivist, 53 54 parochial and risk-averse features were presumably shared by most societies during the pre- 55 56 modern period, but that some societies, especially Anglophone countries, nurtured a liberal, 57 58 individualist and more risk-taking culture through the expansion of commerce.3 Yamagishi and 59 60

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1 2 3 Yamagishi’s survey (1994), which had 1136 Japanese and 501 American respondents, and 4 5 6 subsequent empirical research (Cook et al. 2005; Gheorghiu et al. 2009) clearly demonstrate 7 8 the weakness of general trust in Japanese society relative to the United States. Collectivist 9 10 societies are dependent on long-term dense social ties, in which individuals are assured by 11 12 mutual surveillance that others will comply with social norms (i.e., guardian morals), strong 13 14 15 in-group favouritism produces security within group boundaries but destroys general trust 16 17 between people outside of them (Yamagishi 2011: 1-6). 18 For Peer Review Only 19 Weak general trust in collectivist societies needs to be compensated by ‘systemic support’, 20 21 22 which originally meant government and bank support for financially strained financial 23 24 institutions and companies in the credit markets. After WWII, when large Japanese firms and 25 26 financial institutions faced a financial crisis, most (particularly major manufacturers) were 27 28 4 29 bailed out by creditor banks and the government (Kurosawa 2001, Gotoh 2014). The 30 31 broadened definition of systemic support is dominant elites’ support and protection of 32 33 subordinates in exchange for the latter’s loyalty and obedience, exemplified in Japan by broad- 34 35 ranging domestic social relations, such as the main bank system,5 lifetime employment, and 36 37 38 long-term subcontracting between small and medium-sized enterprises (SMEs) and large firms 39 40 (Gotoh and Sinclair 2017). Although systemic support can be witnessed in any country, in 41 42 Japan it is much stronger and wider than in LMEs. Systemic support is closely linked with 43 44 45 guardian morals. 46 47 In terms of the ideational conflict among Japanese elites, the anti-free market camp consists 48 49 of interventionist bureaucrats, conservative politicians, Keidanren, legal elites, banks and local 50 51 52 Japanese credit rating agencies, whilst the market liberalisation camp is comprised of reformist 53 54 bureaucrats and politicians, neoclassical economists, Doyukai, non-Japanese firms and 55 56 American credit rating agencies. These two major industrial associations are key ideational 57 58 platforms of their respective camps, displaying different types of corporate governance in Japan. 59 60

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1 2 3 In May 2002, Keidanren absorbed Nikkeiren (the Japan Federation of Employers’ 4 5 6 Associations), an industrial association specialised in management-labor relations. Many large 7 8 Japanese firms are members of both Doyukai and Keidanren.6 Doyukai’s opinions and 9 10 ideologies have changed drastically since its founding, partly because of its personal (rather 11 12 than corporate) membership of business leaders, unlike Keidanren’s corporate membership. 13 14 15 Over the last seven decades, Doyukai has advanced pro-American positions and has been 16 17 affected by US ideologies, starting with broad-ranging Marxist thought, including the New 18 For Peer Review Only 19 Dealers immediately after WWII, and neoliberalism since the 1980s (Okazaki et al. 1996). 20 21 22 Keidanren’s predecessor was Juuyou Sangyo Tousei Dantai Kyogikai (the Important 23 24 Industry Control Council), an umbrella organization of ‘control associations’ that assisted the 25 26 government in controlling procurement from key industries, boosted collaboration between 27 28 29 related key industries and promoted key industries to form cartels during WWII. Therefore, 30 31 Keidanren naturally inherited anti-free market ideas. As the largest industrial association, 32 33 Keidanren has been centred on wide-ranging manufacturing industries with a large number of 34 35 employees, which has made it difficult to change its ideational stance. In particular, the 36 37 38 investment goods sector, including industries producing plant, machinery, equipment, raw 39 40 materials (metals, chemicals, etc.) and civil engineering goods, which rapidly developed in the 41 42 wartime-controlled economy, has been politically vocal and significantly influenced economic 43 44 45 policy and credit allocation by the government and financial institutions in Japan (Matsutani 46 47 2009: 111-3; Teranishi 2003: 202-8). Keidanren (including the export sector) asked the 48 49 government for trade liberalisation, the lifting of small retail store protection, and the 50 51 52 deregulation of temporary staffing at the expense of outgroup members (e.g., farmers, SMEs, 53 54 and non-regular workers). Keidanren’s underlying norms, however, which are reflected in the 55 56 protection of regular workers and the opposition to free capital mobility, are anti-free market. 57 58 59 60

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1 2 3 Growing influence of Doyukai 4 5 6 7 Doyukai’s transformation from stakeholder capitalism to shareholder capitalism was made 8 9 clear in the key-note address, entitled ‘Determination to Restructure Japan: Setting Global 10 11 Perspective, Market Functions and Creative Management as Parameters’ (Okazaki et al. 1996), 12 13 14 given by Doyukai’s chairman (1991-5) Masaru Hayami (Chairman of Nissho Iwai), at its 15 16 annual meeting in April 1993, after the bursting of the bubble economy (1991-3) and the LDP’s 17 For Peer Review Only 18 money politics scandals, leading to its defeat in the July 1993 House of Representatives election. 19 20 The malfunctioning of the 1940 system was a catalyst in making market liberals more 21 22 23 influential within Doyukai, resulting in its ideational change. Hayami insisted that Japanese- 24 25 style management, the effectiveness of which depended on a high economic growth 26 27 environment and social uniformity, had reached a dead end and needed to be restructured. 28 29 30 Hayami’s proposal included deregulation in the retail, real estate, healthcare, food, financial, 31 32 transportation, utilities, information and telecommunications industries, the development of 33 34 new social infrastructure regarding R&D, and information and telecommunications and 35 36 37 cultivation of a flexible labour market. 38 39 Jiro Ushio, Doyukai’s chairman (1995-9) who followed after Hayami, pushed the 40 41 association’s neoliberal orientation one step further. Ushio had obtained a postgraduate degree 42 43 in political science from the University of California, Berkeley in 1957 and founded Ushio 44 45 46 Electric, a manufacturer of lamps and lighting systems, in 1964. Given its relatively small 47 48 corporate size, Ushio Electric was not a major actor within Keidanren, whilst Ushio has long 49 50 been recognised as a liberal leader of Doyukai. He was involved in the privatization of Japan 51 52 53 National Railways, Nippon Telegraph and Telephone Corporation and Japan Tobacco under 54 55 the Nakasone administration (1982-7) as well as the further deregulation of the 56 57 telecommunications industry. 58 59 60

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1 2 3 After the bubble economy ended, Doyukai nominated four market liberals to be its vice- 4 5 6 chairmen: Yotaro Kobayashi (chairman of Fuji Xerox), Yoshihiko Miyauchi (chairman of Orix 7 8 Corporation, the largest leasing company in Japan), Takeo Shiina (chairman of IBM Japan) 9 10 and Yuzaburo Mogi (CEO of Kikkoman), all of whom had experienced American university 11 12 education and were ideationally close to Hayami and Ushio.7 These nominations made Doyukai 13 14 15 clearly neoliberal-oriented, and coincided with an epochal political event, i.e., the fall of the 16 17 LDP and the birth of the Hosokawa administration (1993-4). The LDP administration failed to 18 For Peer Review Only 19 address public concerns over corruption, and the LDP lost power following the 1993 general 20 21 22 election, which also caused significant turmoil in terms of political parties splitting, forming 23 24 and merging. Prime minister and leader of the reformist Japan New Party, Morihiro Hosokawa, 25 26 formed a non-LDP coalition of eight parties, and his administration focused on deregulation 27 28 29 and the election law amendment to prevent political corruption (Tiberghien 2007: 109; 30 31 Rosenbluth and Thies 2010: 99-101). Because of the growing trade deficit in favour of Japan, 32 33 the US government demanded Japan open its markets and change its economic structure from 34 35 export-led to domestic demand-led through the Structural Impediments Initiative of 1989-90 36 37 38 and the US-Japan Comprehensive Economic Council of 1993. 39 40 41 Ryutaro Hashimoto (prime minister 1996-8) was known as a conservative politician, but 42 43 when he became prime minister, his LDP faced public criticism over its political scandals and 44 45 the financial sector’s bad debt problem. The LDP also had to compete against the New Frontier 46 47 48 Party advocating neoliberal reform of the Japanese system and the New Party Sakigake 49 50 proposing a departure from the bureaucracy-led system. Hashimoto set up the Administrative 51 52 Reform Council under the Cabinet Office and chaired the council in order to tackle six major 53 54 55 reforms in the areas of administration, fiscal structure, the financial system, social security, 56 57 economic structure and education. Hashimoto had to appeal to the public by implementing 58 59 major reforms in order to regain the LDP’s lost ground (Toya 2006: 174-5). Core members 60

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1 2 3 (mainly manufacturers) of the industrial associations were generally supportive of financial 4 5 6 deregulation because they believed that unlike the world leading Japanese manufacturing sector, 7 8 the Japanese financial sector lagged behind global progress due to excessive government 9 10 protection (Kawakita 2011: 139-40). At that time, few large Japanese companies fully 11 12 understood the kind of impact financial deregulation would have (Shima 2006: 124-6). 13 14 15 The Deregulation Committee was established as part of Hashimoto’s Administrative 16 17 18 Reforms in 1996, For and Miyauchi Peer chaired Review the committee onOnly Doyukai’s recommendation. He 19 20 believed strongly that bureaucratic authorization, control and regulation were nothing more 21 22 than obstacles to corporate and economic development (Kawakita 2011: 151-3). Miyauchi’s 23 24 25 capitalist perspective was in stark contrast to that of most Japanese business executives, who 26 27 were internally promoted administrators. The Deregulation Committee gradually expanded and 28 29 was renamed the Council for Regulatory Reform under the Koizumi administration in 2001. 30 31 32 Miyauchi maintained the chairmanship of the committee/council for an unusually long time, 33 34 1996-2006, thanks to his close relations with Prime Minister Koizumi, although he was 35 36 criticized for his political position and ties, which were seen as contributing to Orix’s expansion 37 38 (Kawakita 2011: 151-2). During this period, the Council for Regulatory Reform included 39 40 41 Doyukai members, potential beneficiaries of deregulation, from temporary staffing, financial 42 43 services and property development industries, and scholars close to Doyukai.8 44 45 46 I argue that Doyukai’s political influence was at its peak when Ushio served as one of the 47 48 four private sector members on the Council on Economic and Fiscal Policy under the Koizumi 49 50 51 administration from 2001 until 2006. Koizumi was not in the LDP mainstream, which 52 53 advocated systemic support. He encountered public distrust of politics and the lengthy 54 55 economic slump and made ‘structural reform’ his political slogan (Kamikawa 2010: 1-10). 56 57 58 Prime Minister Koizumi rolled out extensive economic reforms, such as deregulation in the 59 60 financial, telecommunication and retail sectors, a reduction in public work, and the October

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1 2 3 2005 privatization of the postal savings system and the highway building authority. Whilst the 4 5 6 average income of workers substantially declined from the late 1990s onwards, many regular 7 8 workers in the private sector regarded public servants, bankers, farmers and small- and 9 10 medium-sized retail store owners as vested interest groups. At first, many of these workers 11 12 considered themselves to have nothing to do with vested interests and supported the neoliberal 13 14 15 reform, but they subsequently realized that their jobs were also protected by the old 16 17 employment practices and regulations and that further market liberalisation could place their 18 For Peer Review Only 19 jobs in jeopardy (Ikeo 2003: 8-11). 20 21 22 Koizumi made the Council on Economic and Fiscal Policy his most important policy- 23 24 25 making arena. He chaired the council of 10 other members – five ministers, including the 26 27 Minister of State for Economic and Fiscal Policy (Heizo Takenaka), the central bank governor 28 29 and four private sector members, Ushio, Hiroshi Okuda (chairman of Toyota Motor and 30 31 32 Keidanren’s chairman 2002-6), and two neoclassical economists (Masaaki Homma and Hiroshi 33 34 Yoshikawa). Takenaka learned supply-side economics (a variant of neoliberal economics) at 35 36 Harvard University in the early 1980s, and in 1987, Homma invited him to become an associate 37 38 professor of economics at Osaka University; Yoshikawa belonged to the same department. 39 40 41 Takenaka was a linchpin of Koizumi’s neoliberal restructuring, and his perspective was close 42 43 to that of Ushio and Homma. 44 45 46 It is important to note that Ushio invited Takenaka onto the policy proposal taskforce in 47 48 2000, which consisted of business leaders and economists, and led to the Koizumi reform 49 50 51 (Asahi Shimbun 2008). The taskforce included Miyauchi, Homma and Naohiro Yashiro (a 52 53 neoliberal economist) and held meetings with key LDP politicians, such as Koizumi and 54 55 Yoshiro Mori (prime minister 2000-1). Core members of Doyukai advanced neoliberal policy 56 57 58 proposals, including fiscal consolidation, bad debt disposal, deregulation, tax reforms and 59 60 privatization, to LDP politicians by utilizing neoliberal economists who were ambitious to

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1 2 3 expand their sphere of influence beyond the academic community as policy promoters. 4 5 6 Although they were not publicly elected politicians, they could exert an unprecedented level of 7 8 power into the political arena as private sector actors through both the Council on Economic 9 10 and Fiscal Policy and the Council for Regulatory Reform during the Koizumi administration. 11 12 13 14 15 16 Stakeholder capitalism vs. shareholder capitalism 17 18 For Peer Review Only 19 The ideational differences between Keidanren and Doyukai from the mid-1990s until the mid- 20 21 22 2000s are remarkable and can be categorized as follows: 1) administrators vs. 23 24 entrepreneurs/capitalists, 2) collectivist perspectives vs. individualist perspectives, 3) 25 26 stakeholder capitalism vs. shareholder capitalism, 4) anti-free market vs. market liberalism, 5) 27 28 29 supporters of guardian morals vs. commercial morals, and 6) proponents vs. opponents of 30 31 systemic support. The first example of ideational contestation between Keidanren and Doyukai 32 33 can be observed in the so-called ‘Imai-Miyauchi controversy’ in February 1994. This 34 35 36 controversy, between Takashi Imai (president of Nippon Steel) and Miyauchi, took place in a 37 38 Doyukai study group. Although Imai was one of Doyukai’s vice chairmen, Nippon Steel was 39 40 a key member of Keidanren and Imai’s management philosophy was similar to that of most of 41 42 Keidanren’s core members (Kawakita 2011: 227-9). Asahi Shimbun (2009: 2-3) delineates the 43 44 45 dispute as follows: 46 47 48 49 50 51 Miyauchi asserted that, ‘the most important thing for the company is the extent to 52 53 which it can reward its shareholders. Corporate management does not have to 54 55 consider how employment and the state should be’. Imai replied, ‘if you really think 56 57 58 so, you are a traitor to our country. We have not run our firms for that purpose’. 59 60 Yoshikazu Hanawa, vice president of Nissan Motor, supported Imai and insisted

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1 2 3 that, ‘if lifetime employment is terminated, top management would have to take 4 5 6 responsibility and resign first’. Then, Ushio backed up Miyauchi and contended 7 8 that ‘lifetime employment and seniority wage systems will no longer be sustainable 9 10 given our inverted population pyramid and aging society’. 11 12 13 14 15 16 I argue that Imai’s perspective demonstrates Keidanren’s stakeholder capitalism stance, which 17 For Peer Review Only 18 considers the rights of all stakeholders, including employees, shareholders, creditors, clients 19 20 21 and suppliers, whilst Miyauchi’s reflects Doyukai’s shareholder capitalism stance, claiming 22 23 that job cuts are necessary to enhance shareholder value. Moreover, the backgrounds for anti- 24 25 free market elites and market liberal elites were strikingly different. Both Imai and Hanawa 26 27 28 were internally promoted administrators of manufacturing establishments at the centre of 29 30 traditional elite networks binding bureaucracy, big business and the LDP, whereas Ushio, 31 32 Miyauchi and Shiina were a corporate founder, a de facto founder and the head of a major 33 34 35 American company’s subsidiary, respectively. By contrast, just like Nippon Steel (currently 36 37 Nippon Steel & Sumitomo Metal), Nissan pursued stakeholder capitalism before its alliance 38 39 with Renault. Facing a financial crisis, Nissan shifted from stakeholder capitalism to 40 41 shareholder capitalism when Renault acquired a 36.8% stake and Ghosn took over its helm in 42 43 44 1999. This is a rare example of drastic corporate governance transformation in Japan 45 46 (Tiberghien 2007: 187-90; Garside 2012: 183). 47 48 49 Most executives of core Keidanren members, who are administrators, are fundamentally at 50 51 odds with shareholder capitalism, which denounces systemic support. This is because 52 53 54 unrestricted capitalist power jeopardizes not only the lifetime employment of regular workers, 55 56 their subordinate allies, but also their own autonomy from capitalists, both of which are 57 58 protected by systemic support. Administrators tend to prefer less demanding providers of both 59 60

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1 2 3 debt and equity capital, such as local financial institutions and members of the same corporate 4 5 6 group (whose management can be viewed as administrators), to capitalists. On the other hand, 7 8 capitalists and entrepreneurs, who are less constrained by social ties, such as core Doyukai 9 10 members, are frustrated with the vested interests within Japanese society and the inefficiency 11 12 (lower investment return) of stakeholder capitalism. 13 14 15 There was also an indirect disagreement over job cuts between Okuda and Miyauchi, which 16 17 18 they expressed in separateFor interviewsPeer for Review the October 1999 Only issue of Bungeishunju, a monthly 19 20 magazine. Okuda asserted that if management discharged regular employees, they should 21 22 commit hara-kiri (i.e., resign), while Miyauchi warned that protecting employment desperately 23 24 25 would result in a Titanic-like disaster, and stressed that companies should prioritize profit over 26 27 employment. 28 29 30 In the 1990s, Japanese firms with lifetime employment encountered a very heavy personnel 31 32 cost burden due to the rapid appreciation of the yen against other major currencies. Furthermore, 33 34 35 due to the enhanced international capital mobility, advanced industrial countries (including 36 37 Japan) made massive investment in non-Japan Asia, which accelerated the development of the 38 39 latter. Accordingly, Japanese firms encountered tougher competition with those of other lower- 40 41 wage Asian countries. In 1995, Nikkeiren proposed a reorganization of the corporate 42 43 44 employment system into three tracks: 1) a core group of long-term employees, 2) a group of 45 46 specialists dealing with specific tasks, and 3) a group of part-time and fixed-term contract 47 48 workers (Keizer 2010: 53). Takeo Naruse (2014), former executive director of Nikkeiren, 49 50 51 comments that the main purpose of this reorganization was to reduce personnel costs as it was 52 53 impossible for the industrial association to propose drastic pay cuts for regular workers, but 54 55 that he could not expect the proportion of non-regular workers to entire labour to reach the 56 57 58 current level (approximately 40%). 59 60

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1 2 3 The second example of the contrasting stances between the two industrial associations was 4 5 6 seen when the Temporary Staffing Services Act was revised in 1999. This revision lifted the 7 8 restriction on temporary staffing for any industry except for specified businesses, such as 9 10 manufacturing, medical, security and construction. Although both Keidanren and Doyukai had 11 12 asked the government to deregulate temporary staffing services, their positions and goals 13 14 15 differed. Keidanren’s deregulation stance was cautious and reactive, and its primary objective 16 17 for deregulation was to protect existing regular workers under lifetime employment by hiring 18 For Peer Review Only 19 cheap, easily dischargeable non-regular workers instead of hiring new regular workers. 20 21 22 Keidanren and Nikkeiren sought ‘to avoid challenging the lifetime employment system head- 23 24 on but to expand the range of jobs that employers could fill with workers hired under much 25 26 more flexible arrangements’ (Schoppa 2006: 118). Thus, administrators are obligated to 27 28 29 provide systemic support for regular workers but not for non-regular workers. In contrast to 30 31 Keidanren’s ‘employment dualisation’ strategy, Doyukai preferred the deregulation of not only 32 33 non-regular employment but also regular employment. 34 35 36 In 2002, the Council on Economic and Fiscal Policy gave top priority to labour flexibility, 37 38 while the Council for Regulatory Reform also considered Japan’s rigid employment security 39 40 41 in need of drastic deregulation (Yun 2015: 479-80). Both councils were led by core Doyukai 42 43 members (Ushio and Miyauchi) and neoclassical economists at that time. The labour market 44 45 deregulation was not driven mainly by Keidanren but by Doyukai. However, the twist was that 46 47 48 Keidanren exploited non-regular workers in order to protect existing regular workers (Yun 49 50 2015: 485). Particularly, low-profit companies, which relied on systemic support, tried to 51 52 survive by reducing personnel costs. 53 54 55 The third example of Keidanren’s and Doyukai’s contrasting stances was witnessed during 56 57 58 the Koizumi administration. Ushio believed that structural reforms would result in higher 59 60 economic growth (Asahi Shimbun 2009: 220-1) and the core members of Doyukai backed the

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1 2 3 administration. However, Keidanren and Nikkeiren held that the structural reforms 4 5 6 implemented during the recession after the bursting of the dot-com bubble in 2001, were too 7 8 painful for companies. Indeed, in August 2001, Nikkeiren requested an ‘urgent employment 9 10 support program’ amounting to ¥1 trillion from the Koizumi administration, which was the 11 12 first task of the Council on Economic and Fiscal Policy (Kikuchi 2005: 267-8). Keidanren also 13 14 15 wanted the Koizumi administration to prioritize anti-deflationary measures to reinvigorate the 16 17 economy, such as reforms in corporate tax and land-related tax, rebalancing between gift and 18 For Peer Review Only 19 inheritance taxes and manoeuvres to boost stock prices over a rapid clean-up of bad debts 20 21 22 (Schoppa 2006: 147). Both Keidanren and Nikkeiren asked the government for systemic 23 24 support rather than neoliberal restructuring. Furthermore, as Vogel (2006: 56) claims, 25 26 Keidanren’s support for deregulation was ‘more reluctant than proactive, more formalistic than 27 28 29 substantive, and more selective than comprehensive’. 30 31 32 Yotaro Kobayashi, Doyukai’s chairman (1999-2003), emphasized at the association’s 2001 33 34 annual meeting that Japan’s political leaders must deliver the following message to the nation 35 36 despite its unpopularity with the people: although the final disposal of non-performing loans 37 38 and corporate restructuring would make the recession temporarily unavoidable, the nation 39 40 41 would be able to recover to steady positive economic growth after these structural reforms 42 43 (Doyukai 2001). In addition, Doyukai was proactive in introducing mark-to-market accounting 44 45 (under which an asset or liability is valued based on the current market price) and impairment 46 47 48 accounting (under which the difference in fixed assets between the fair value and the book 49 50 value is written down) to improve the transparency of financial statements: Keidanren resisted 51 52 the change. In April 2003, Kakutaro Kitashiro, chairman of Doyukai (2003-7) and Japan IBM, 53 54 55 commented that although some politicians had tried to postpone or suspend the introduction of 56 57 mark-to-market and impairment accounting because of the share price slump at the end of 58 59 March, such manipulation would not change the actual corporate performance (Doyukai 2003). 60

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1 2 3 In contrast, Mitsuo Horiuchi (the LDP’s chairman, General Council) and Tetsuya Katada (vice- 4 5 6 chairman of Keidanren) had discussed the postponement of the introduction of impairment 7 8 accounting, which would realize latent losses held by many firms (Asahi Shimbun 2003). 9 10 11 From the late 1990s to the early 2000s, Japanese society’s loss of confidence in the 12 13 economic and business spheres was intertwined with its awe of the United States, which created 14 15 the sense that Japan should follow American standards (Ito 2007: 155-6). This atmosphere 16 17 18 peaked during theFor Koizumi Peer administration, Review the first half Only of which witnessed several major 19 20 bankruptcies, which indicated weakening systemic support. The financial deregulation, the 21 22 heightened recognition of credit risk and the weakened credit extension by the banking sector 23 24 25 accelerated the rapid expansion of new debt business, including bad debt trading, securitization 26 27 (asset-backed securities) and credit derivatives in Japan, which were developed in the United 28 29 States during the 1980s and 1990s, and sharply expanded the Japan operations of both the 30 31 32 American credit rating agencies and investment banks, taking advantage of their expertise 33 34 (Shima 2006). 35 36 37 Keidanren’s influence has relatively weakened since the 1990s, but its loss of status should 38 39 not be exaggerated. During the Koizumi administration, Keidanren was defensive in contrast 40 41 to the rising Doyukai, but worked to maintain Japanese-style stakeholder capitalism and waited 42 43 44 for an opportunity to strike back. In June 2006, just before the end of the Koizumi 45 46 administration, Keidanren published a proposal entitled ‘A Suitable Corporate Governance 47 48 System for Japan’, which stresses three points (Keidanren 2006a). Firstly, companies should 49 50 51 conduct management with an emphasis on corporate social responsibility, taking into 52 53 consideration value creation for diversified stakeholders, such as shareholders, employees, 54 55 clients and local communities, which will consequently enhance shareholder value. Secondly, 56 57 58 corporate management is based on an individual society’s idiosyncratic culture, tradition, 59 60 norms and business customs, and suitable corporate governance varies by company according

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1 2 3 to the individual corporate philosophy, vision, culture, history, strategy and industry. Lastly, 4 5 6 importing overseas corporate governance methods uniformly to Japan should be avoided 7 8 because it would cause companies and other relevant parties an excessive burden in terms of 9 10 business confusion and higher costs. This proposal also reflects Keidanren’s determination to 11 12 maintain Japanese-style stakeholder capitalism, primarily based on an alliance between 13 14 15 administrators and regular workers through the exchange of systemic support for obedience, 16 17 leading to an anti-neoliberal position. 18 For Peer Review Only 19 20 21 22 23 Déjà vu? Backlash towards liberal global norms 24 25 26 In Japanese politics and economics, there has been a so-called ‘continuity-discontinuity debate 27 28 29 over pre-war/wartime and post-war Japan’ (Muramatsu 1981: 7-11; Noguchi 2010: 13-9). The 30 31 discontinuity camp, mainly neoclassical economists, claims that Japan transformed from a 32 33 controlled economy during wartime (1936-45) to a liberal economy in the post-war period. In 34 35 36 contrast, the continuity camp, including Noguchi (2010), emphasizes the continuity of anti-free 37 38 market characteristics of the Japanese economic and corporate systems between the wartime 39 40 and post-war periods. I share the continuity camp’s perspective. Japan’s liberal economic 41 42 system from 1868 until the early 1930s was heavily influenced by the liberal world order of 43 44 45 Pax Britannica. However, anti-liberal norms (exemplified by Confucianism) had been used by 46 47 ruling elites to dominate subordinates in Japanese society since the feudal period. A dramatic 48 49 increase in class conflicts (e.g., labour and agrarian disputes) in Japan from WWI (1914-8) 50 51 52 until the mid-1930s reflected the tension between liberal global norms and anti-liberal Japanese 53 54 social norms, promoting government intervention into the economy and ultimately leading to 55 56 a controlled economy (Teranishi 2003: 143-7). 57 58 59 60

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1 2 3 The restricted international capital mobility under the Bretton Woods system fitted well 4 5 6 with Japanese society’s anti-liberal, anti-free market norms. The restrictive world financial 7 8 order (i.e. the constraint of capitalist power) contributed to the continuity of the 1940 system 9 10 and the dominance of anti-free market elites in Japan, despite Japanese growth. However, since 11 12 American neoliberal hegemony increased international capital mobility after the collapse of the 13 14 15 Bretton Woods System and the end of the Cold War, the tension between liberal global norms 16 17 and anti-liberal Japanese social norms have intensified. Although the power of anti-free market 18 For Peer Review Only 19 elites was challenged by market liberals from the mid-1990s to the mid-2000s, an anti- 20 21 22 neoliberal backlash started in 2006, which demonstrates the persistence of anti-liberal, anti- 23 24 free market Japanese social norms. 25 26 27 The Koizumi administration, lacking a strong foundation within the LDP, had to rely on 28 29 their popularity among voters, so they provided systemic support, such as the bailout of Resona 30 31 32 Bank, the establishment of a government-sponsored corporate restructuring fund, and 33 34 quantitative monetary easing in order to mitigate the social pain associated with structural 35 36 reforms. This was the limitation of the neoliberal-oriented administration in Japan, which 37 38 encountered very strong pressure from anti-free market social norms. At first, the public 39 40 41 supported Koizumi because they believed that bureaucrats and industry groups wasted public 42 43 money, causing a deteriorating budget deficit when the recession continued, and companies 44 45 proceeded with restructuring (Kamikawa 2010: 311). Subsequently, the Koizumi 46 47 48 administration encountered problems advancing reforms when criticism intensified over the 49 50 structural reforms impact on widening income inequality (Kamikawa 2010: 311). However, 51 52 importantly, both anti-free market elites and subordinates, such as regular workers and SME 53 54 55 owners, feared rising capitalist power, and ultimately prevented it. Excessive cash stemming 56 57 from quantitative monetary easing and financial deregulation contributed to speculative money 58 59 games by aggressive investment funds and ambitious entrepreneurs in the Japanese financial 60

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1 2 3 market during 2004-6. According to Yoshio Shima, anti-free market elites and workers with 4 5 9 6 steadily declining wages were disgusted with funds and entrepreneurs making large profits. 7 8 Conservative corporate establishments despised entrepreneurs, particularly those in the 9 10 information technology and non-banking sectors, as upstarts. Keidanren refused membership 11 12 to major consumer credit companies until November 2002, when their business became much 13 14 15 larger than a decade previously due to the financial deregulation (Mainichi Shimbun 2002). 16 17 18 The strong anti-neoliberalFor Peer sentiment Reviewwas eloquently illustrated Only in heavy media criticism of 19 20 the Livedoor and Murakami Fund incidents in 2006. Japanese prosecutors arrested Takafumi 21 22 Horie, a young, audacious advocate of shareholder capitalism and the CEO of Livedoor (a 23 24 25 rapidly booming information technology and financial group) in January 2006 on suspicion of 26 27 securities law violations. Five months later, the Tokyo Stock Exchange delisted Livedoor due 28 29 to false statements in its annual securities reports, while public prosecutors arrested Yoshiaki 30 31 32 Murakami, a former reformist bureaucrat and the founder of the so-called Murakami Fund, a 33 34 shareholder activist fund, for insider trading of Livedoor shares. Horie and Murakami were 35 36 both unashamedly neoliberal elites and shared a close relationship. Livedoor rapidly expanded 37 38 its market capitalization (which reached ¥930 billion in January 2004) through stock splits and 39 40 41 serial acquisitions. The Murakami Fund purchased stakes of listed Japanese companies, and its 42 43 total investment amount exceeded ¥440 billion as of the end of March 2006. 44 45 46 47 Japanese prosecutors accused Horie of window-dressing Livedoor’s consolidated sales by 48 49 including ¥5.3 billion of profits from the sale of its own shares held by the investment 50 51 partnerships in which Livedoor invested. Compared with the continued listing of 52 53 establishments, such as Olympus and Toshiba, which conducted much larger accounting 54 55 56 frauds, the delisting of Livedoor might seem harsh. The relentless media criticism of both Horie 57 58 and Murakami as immoral money worshipers and greedy neoliberals reinforced Japanese 59 60

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1 2 3 society’s hatred and fear of shareholder capitalism. Motonari Otsuru, the new head of the 4 5 6 special investigative squad of the Tokyo District Public Prosecutors’ Office, who would later 7 8 be in charge of the Livedoor case, made the following statement at his inaugural press 9 10 conference in April 2005, which reflected the public’s disgust with Horie: ‘by all means, we 11 12 would like to prosecute wrongdoing resented by hard working people, unemployed people due 13 14 15 to job cuts, and business people who comply with laws although they recognise that they could 16 17 make large profits if they breach laws’ (Suda 2006: 37). The judge on the Murakami Fund case 18 For Peer Review Only 19 at the Tokyo District Court made the following comment, which astonished even Yasuhito 20 21 22 Omori (2007: 182), head of the Financial Markets Division of the Financial Services Agency 23 24 (FSA): ‘Murakami’s extreme pursuit of profit above all else by buying low and selling high is 25 26 appalling’. The two court cases suggest that legal elites in Japan shared anti-free market norms 27 28 29 with other conservative elites. Severely punishing both Horie and Murakami could be regarded 30 31 as a clear warning to other capitalists and entrepreneurs. 32 33 34 These incidents enfeebled the power of market liberals, especially Doyukai because of 35 36 37 Horie’s relationships with some members of the Koizumi administration, whereas Murakami 38 39 had close ties with core members of Doyukai, such as Miyauchi and Ushio. In particular, Orix 40 41 was a major sponsor of the Murakami Fund. The Koizumi administration encountered growing 42 43 44 criticism over the structural reforms that had widened income inequality by generating large 45 46 numbers of low-waged non-regular workers. Miyauchi stepped down from the chairmanship 47 48 of the Council for Regulatory Reform, in step with Koizumi's resignation from the premiership 49 50 in September 2006. According to the 2005 survey (with 1,320 respondents) on Japanese 51 52 53 corporate governance by the University of Tokyo, 69.1% of respondents thought employee 54 55 benefits should be prioritized over those of shareholders, while only 18.8% thought the other 56 57 way around (Takahashi 2007). 58 59 60

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1 2 3 From the summer of 2007, the global financial crisis further accelerated the anti-neoliberal 4 5 6 trend and strong demand for systemic support in Japan. The sharp contraction of the Japanese 7 8 securitization market on which many major non-banks depended, and the rising social criticism 9 10 of non-banks’ harsh collection measures (threats and violence to borrowers and their 11 12 guarantors) resulting in the revised Money Lending Law, forced numerous non-banks to either 13 14 15 go bankrupt or be placed under bank umbrellas. These trends in the second half of the 2000s 16 17 can be viewed as a de facto reversal of the financial liberalisation that contributed to the 18 For Peer Review Only 19 booming of the non-banks during the late 1990s and the first half of the 2000s. Furthermore, 20 21 22 the global financial crisis gave Japanese anti-free market elites a great opportunity to denounce 23 24 American-style shareholder capitalism. Takafumi Sato (2010: 70), former head of the FSA, 25 26 points out that scepticism regarding the policy goal of strengthening the competitiveness of the 27 28 29 Japanese capital market grew in 2009 due to the financial fiascos in the United States and 30 31 Britain. Japanese society can no longer fully rely on the old regime, but their social norms mean 32 33 that they cannot accept American-style market liberalism as an alternative. Importantly, 34 35 systemic support has hindered the Japanese economy from shifting low growth to high growth 36 37 38 industries. 39 40 41 The extent of neoliberal restructuring in Japan and its negative social and economic impacts, 42 43 44 such as growing economic inequality, deteriorated rural economies and weakened international 45 46 competitiveness of Japanese manufacturers, were often exaggerated by left-wing media and 47 48 commentators. As well as the market liberalisation camp, the anti-free market camp also 49 50 contributed to the social and economic problems, and the latter frequently made neoliberalism 51 52 53 the scapegoat for these problems. Anti-free market elites, including Keidanren, manoeuvred 54 55 shrewdly in that they avoided direct confrontation with the Koizumi administration when it 56 57 was popular, and they made the market liberalisation camp look solely responsible for the 58 59 60 social and economic problems. The slow collapse of Japan’s convoy capitalism was due mainly

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1 2 3 to the accumulated irresponsibility of anti-free market administrators, while these 4 5 6 administrators, advocates of systemic support, have had to gradually reduce the number of 7 8 regular workers and rapidly expand the number of non-regular workers. 9 10 11 The Japanese economy has paid a heavy cost for not conforming to liberal global norms. 12 13 14 Japanese manufacturers have coped with deteriorating international cost competitiveness due 15 16 to the rapid appreciation of the yen by relocating production to other Asian countries and 17 For Peer Review Only 18 reducing the domestic workforce and wage. The mature industries in Japan have had to reduce 19 20 21 their average wage due to the intense competition with those in emerging economies. On the 22 23 other hand, Japan has failed to nurture many domestic entrepreneurs and to attract global talent 24 25 and capital, resulting in the slow industrial upgrading, which offers only a limited number of 26 27 high earning jobs. These factors have decreased the average household income in Japan, and 28 29 30 the protection of existing regular workers has contributed to the rapid increase in the number 31 32 of the working poor. Furthermore, the weak domestic demand and the diminished future 33 34 economic prospects have increasingly made the Japanese corporate sector prioritise overseas 35 36 37 investment over domestic investment. The proportion of Japan’s outstanding outward FDI to 38 39 GDP has sharply risen, from 5.3% in 1996 to 30.7% (which is much higher than that of China 40 41 at 12.3%) in 2017. The ‘hollowing-out’ is a major problem for the Japanese economy (Schoppa 42 43 44 2006), although not associated with industrial upgrading due to the small amount of inward 45 46 FDI unlike the US case (Hatch 2010: 199). Many large manufacturers belonging to Keidanren 47 48 have faced great difficulty in retaining their domestic operations and employment (Hatch 2010: 49 50 200). 51 52 53 54 The Democratic Party of Japan (DPJ) government (2009-12) tried to improve the working 55 56 conditions of non-regular workers, but in vain. During the reign of the DPJ, Keidanren 57 58 59 advocated the flexible use of non-regular workers as a source of cost reduction (Yun 2015: 60

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1 2 3 488). According to the MHLW, the respective average wages for non-regular workers aged 30- 4 5 6 34, 40-44 and 50-54 were 24%, 37% and 48% lower than those of regular peers. The significant 7 8 wage disparities are not based on work performance comparison, but rather, are decided by the 9 10 hierarchical status of non-regular workers, who are subordinate to regular ones. Japanese 11 12 enterprise unions do not organize non-regular employees working in the same workplace 13 14 15 because of the special status enjoyed by regular employees (Suzuki 2010: 394). According to 16 17 the MHLW (2017), non-regular workers are ineligible for membership at over 60% of all the 18 For Peer Review Only 19 Japanese labour unions, and only 12% of the unions discussed ‘equal pay for equal work’ 20 21 22 (correction to wage disparities between regular and non-regular workers). These points indicate 23 24 that the Japanese labour market is still dominated by guardian morals emphasizing loyalty, 25 26 obedience and exclusiveness. 27 28 29 30 31 32 Persistent systemic support and in-group favouritism 33 34 35 36 Both systemic support and in-group favouritism, which sustain a management-labour alliance, 37 38 are key components of guardian morals and indispensable to the corporate system at the centre 39 40 of Japanese society. This is one major reason why systemic support has persisted, even when 41 42 the power of the economic bureaucracy and the banking industry weakened from the mid-1990s 43 44 45 to the early 2000s. The robustness of the Japanese-style corporate system can be explained 46 47 partly by superiors and subordinates (for instance, management and regular workers, banks and 48 49 corporate borrowers, and large firms and subcontractors) mutually abandoning their alternative 50 51 52 options to long-term commitment. Should capitalists become dominant in Japanese corporate 53 54 society, they would cut off long-term social ties and networks, such as the management-labour 55 56 alliance and keiretsu, resulting in the loss of management’s autonomous power within their 57 58 59 firms and stable employment. 60

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1 2 3 The prolonged economic stagnation, the financial deregulation, the financial crisis and the 4 5 6 introduction of American-style financial and business practices (including corporate 7 8 restructuring, mark-to-market accounting, financial disintermediation, and outside director and 9 10 executive officer systems) have changed some elements of Japanese corporate governance, but 11 12 these changes should not be exaggerated (Omura and Masuko 2003). An increasing number of 13 14 15 large firms have faced difficulties in sustaining lifetime employment and seniority-based wages, 16 17 and the number of non-regular workers has dramatically increased. Since the 1990s, banks and 18 For Peer Review Only 19 companies have been forced to unwind a large portion of cross-shareholdings due to the 20 21 22 financial crisis, corporate restructuring and the introduction of both mark-to-market accounting 23 24 and the restriction on shareholdings by banks, resulting in higher foreign ownership ratios of 25 26 Japanese shares. However, despite the unwinding of mutual shareholdings, long-term keiretsu 27 28 29 transactions and subcontracting are still ubiquitous in Japan. The outstanding Japanese 30 31 corporate bonds increased during the 1990s but has moderately decreased since the early 2000s 32 33 because of many Japanese corporate borrowers’ preference for loans from banks in long-term 34 35 relationships over bonds held by ‘faceless’ investors, according to Tsuyoshi Oyama.10 This 36 37 38 exemplifies the persistence of systemic support in Japan. 39 40 41 Also, importantly, the core of Japanese corporate governance, in-group favouritism, has 42 43 remained almost intact due to the persistence of systemic support. Noguchi (2010: 222-7) 44 45 claims that almost all management at large Japanese firms, except for those that have gone 46 47 48 bankrupt or faced a financial crisis, including Nissan Motor and Japan Airlines, are internally 49 50 promoted, and that the Japanese-style company places top priority on the survival of its 51 52 employee community-like organization and considers profit maximization a sin. Given the 53 54 55 growing influence of overseas shareholders, listed Japanese firms have had to introduce 56 57 American-style corporate governance practices in order to enhance or maintain their share 58 59 prices and tap the capital market when necessary. However, most corporate executives of these 60

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1 2 3 firms do not want overseas shareholders to interfere in management issues and wish to preserve 4 5 6 their autonomy (Matsumoto 2010: 10-2; Nishiyama 1992: 246-7). Consequently, many of these 7 8 firms have demonstrated mock or cosmetic convergence to American-style corporate 9 10 governance, for instance, through their nominal introduction of outside board members and the 11 12 executive officer system (Omura and Masuko 2003). 13 14 15 Higher bankruptcy risk and shareholders’ demand for higher returns would change 16 17 18 Japanese-style corporateFor governance Peer based Review on the management-labour Only alliance. Although these 19 20 factors would enhance the bargaining power of capitalists vis-à-vis management, persistent 21 22 systemic support has prevented capitalist domination. In this respect, Japanese banks, which 23 24 25 have provided systemic support for financially strained companies, do not belong to the 26 27 capitalist camp. Choosing either stakeholder or shareholder capitalism is not simply a matter 28 29 of right or wrong but rather a philosophical and normative question. Most importantly, their 30 31 32 ultimate fault line is either to continue or to restrict strong systemic support. Industrial and 33 34 corporate metabolism in Japan is much slower than in the United States due to less frequent 35 36 major bankruptcies, resulting in the underperformance of the Japanese equity market (Fujita 37 38 2015). 39 40 41 The low proportion of Japan’s outstanding inward FDI to GDP is due mainly to a relatively 42 43 44 small number of foreign firms’ acquisitions of Japanese firms. Daiichi-Kangin Research 45 46 Institute (1996) pointed out four main reasons.14 Firstly, Japanese corporate executives are 47 48 reluctant to sell companies like goods because they have strong attachment to their companies 49 50 51 and a sense of responsibility to their employees. Secondly, Japanese society has a negative 52 53 view of the selling of companies, leading potentially to the loss of corporate and/or 54 55 management credibility. Thirdly, corporate executives are concerned that selling a company 56 57 58 will deprive them of their management positions, and their suppliers, client companies and core 59 60 banks may oppose the sale. Lastly, Japanese companies are concerned about acquisition,

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1 2 3 particularly by foreign companies, due to fears of drastic personnel cuts and having to 4 5 6 communicate in foreign languages. These reasons suggest that guardian morals, such as strong 7 8 in-group favouritism and exchange of systemic support for obedience and loyalty, in Japanese 9 10 society are major obstacles to foreign firms’ takeover of Japanese firms. 11 12 13 From 2001 until 2008, the US government sought market liberalisation in Japan, including 14 15 the lifting of the ban on a ‘triangular merger’ (in which the acquirer establishes a wholly-owned 16 17 18 subsidiary, which Forin turn mergesPeer with Reviewthe selling entity), Only through the US-Japan Regulatory 19 20 Reform and Competition Policy Initiative. In January 2003, the pro-American Koizumi 21 22 administration announced the plan to double the outstanding inward FDI into Japan in five 23 24 25 years. Keidanren indicated support for this plan in October 2005 probably because access to 26 27 the US market was critically important for Japanese exporters. However, the largest industrial 28 29 association insisted that the government should restrict foreign firms’ M&As of Japanese firms 30 31 32 likely resulting in the impairment of the latter’s corporate value or shareholder rights, and the 33 34 damage to national interests, such as technology outflow (Keidanren 2006b). Despite 35 36 Keidanren’s opposition, the Japanese government lifted the ban on triangular mergers in 2007, 37 38 but outstanding inward FDI into Japan has increased only modestly since then. This suggests 39 40 41 anti-free market Japanese social norms to exclude outsiders rather than government regulation 42 43 have resisted market liberalisation. 44 45 46 Despite the pressure from neoliberalism, the systemic support for regular employees in 47 48 Japan remains. On 29 June 2018, Japan’s Diet passed labour reform bills to establish mandatory 49 50 51 caps on overtime hours to penalize violators but remove work hour limits and overtime 52 53 payments for highly-paid professional workers. However, equal pay for equal work was not 54 55 sufficiently discussed in the Diet. The Abe administration is aiming to raise the average 56 57 58 minimum hourly wage in Japan from the current ¥848 to ¥1000 gradually (The Nikkei 2018). 59 60 Keidanren indicates a cautious stance towards the minimum wage hike by commenting that

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1 2 3 SMEs’ ability to pay higher wages needs to be considered (NHK 2017). Given that large 4 5 6 Japanese firms utilise SMEs as subcontractors, higher wages at the latter will affect the 7 8 former’s cost. In contrast, Doyukai advocates equal pay for equal work and substantial wage 9 10 hikes, which will cause the exit of less productive companies from the market (Doyukai 2017). 11 12 13 14 15 16 Conclusion 17 18 For Peer Review Only 19 Okimoto (1989: 31-2) focuses on the trade-off between efficiency and security. CMEs, 20 21 22 including Japan, tend to prioritize security over market efficiency, which strongly affects their 23 24 corporate governance. By contrast, corporate governance in LMEs is inclined to prioritize 25 26 market efficiency over security. Security is associated with the orientation for guardian morals, 27 28 29 while market efficiency is linked with that for commercial morals. Administrators are acutely 30 31 aware that their authority requires the consent (loyalty and obedience) of their subordinates, 32 33 and that once they leave their organizations they will lose their power. In this respect, Japanese 34 35 36 companies are similar to territories and castles during the pre-modern period: company 37 38 preservation is a top priority for administrators (guardians). 39 40 Keidanren and Doyukai are key ideational platforms of their respective, anti-free market 41 42 and market liberalisation camps, which represent different types of corporate governance in 43 44 45 Japan. Keidanren has disseminated anti-liberal, anti-free market norms centred on systemic 46 47 support to Japanese society and shared such norms with other anti-free market elites. A 48 49 management-labour alliance against capitalists and interlocking business relations are the 50 51 52 cornerstones of Japanese-style stakeholder capitalism. From the early 1990s until the mid- 53 54 2000s, Doyukai promoted American-style shareholder capitalism in Japanese society based on 55 56 liberal global norms. However, the anti-neoliberal backlash driven by both the anti-free market 57 58 59 camp and subordinates, which started in 2006, has weakened the influence of the market 60

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1 2 3 liberalisation camp. The large differentials in wages and treatment between regular and non- 4 5 6 regular workers is evidence of Japanese society’s resistance to market liberalisation. 7 8 9 I argue that the ideational conflict between the market liberalisation and anti-free market 10 11 camps has been a moral dispute between liberal global norms and Japanese social norms. 12 13 Making short-term profit in financial markets and severing long-term social ties (i.e. 14 15 prioritizing individual goals over those of collectives) still tend to be regarded as morally wrong 16 17 18 in Japan. Global normsFor are influentialPeer but Review not necessarily compatible Only with social norms in many 19 20 countries. Persistent Japanese social norms, which prioritize security over efficiency, have 21 22 resisted liberal global norms to maintain the dominance of administrators who provide support 23 24 25 for subordinates in exchange for obedience despite a heavy economic toll. The resistance to 26 27 liberal global norms can also be found in other Asian countries where industrial associations, 28 29 such as the Federation of Korean Industries, All-China Federation of Industry and Commerce, 30 31 32 the Chinese National Association of Industry and Commerce, Taiwan, and the Federation of 33 34 Malaysian Manufacturers, play an important role. For instance, the Federation of Korean 35 36 Industries, similar to Keidanren, was strongly opposed to the Korean government’s reduction 37 38 of policy loans with very low interest rates and government guarantees mainly to export 39 40 41 industries in the 1980s (Thurbon 2016: 78). When varieties of capitalism are discussed, it is 42 43 worthwhile to pay more attention to the political influence and ideational aspects of industrial 44 45 associations. 46 47 48 49 50 51 Notes 52 53 54 55 1. MOF officials provided preferential treatment and confidential information for financial 56 57 institutions in exchange for the benefit of wining and dining. This resulted in the arrest of 58 59 60

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1 2 3 five MOF officials and the resignation of the finance minister and MOF administrative 4 5 6 vice-minister and weakened the power of the MOF. 7 8 2. The term ‘administrators’ was used originally by van Wolferen. 9 10 3. Interview with Toshio Yamagishi, emeritus professor of social psychology at Hokkaido 11 12 University, on November 20, 2015. 13 14 15 4. Examples of major corporate bailouts from 2000 onwards include Daiei (a retail chain), 16 17 Sojitz (a general trading house), Mitsubishi Motors, Isuzu Motors, Orient Corporation (a 18 For Peer Review Only 19 non-bank), Sanyo Electric (an electronics manufacturer), Olympus (an optical equipment 20 21 22 manufacturer), Tokyo Electric Power, Sharp (an electronics manufacturer), and Toshiba 23 24 (an electronics manufacturer). 25 26 5. Under the main bank system, the bank having the closest relationship and usually the largest 27 28 29 credit exposure with the corporate borrower is made responsible for monitoring the 30 31 company as a main bank. 32 33 6. While Doyukai comprises approximately 1,400 top executives of some 950 corporations, 34 35 Keidanren consists of about 1,350-member companies. 36 37 38 7. Kobayashi, Miyauchi, Shiina and Mogi obtained an MBA from the Wharton School of the 39 40 University of Pennsylvania in 1958, an MBA from the University of Washington in 1960, 41 42 a BS in mechanical engineering from Bucknell University in 1953 and an MBA from 43 44 45 Columbia University in 1961. 46 47 8. For instance, from April 2001 to March 2003, the council included Tatsuo Hatta (professor 48 49 of spatial information science at the University of Tokyo, who proposed the liberalisation 50 51 52 of the electric power industry), Naohiro Yashiro (a neoliberal economist), Atsushi Seike 53 54 (professor of economics at Keio University), Minoru Mori (CEO of Mori Building, a 55 56 Doyukai member), Eiko Kono (Chairman and CEO of Recruit Corporation, a Doyukai 57 58 member), Reiko Okutani (a Doyukai member, CEO of The R Co., Ltd. whose second 59 60

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1 2 3 largest shareholder was Orix), Akinori Yonezawa (professor of computer science at the 4 5 6 University of Tokyo, Okutani’s husband) and Rie Murayama (managing director of 7 8 Goldman Sachs Japan). 9 10 9. Interview with Yoshio Shima, professor of management at Tamagawa University, on 11 12 November 20, 2015. 13 14 15 10. Interview with Tsuyoshi Oyama, Partner, Centre for Risk Management Strategy, Deloitte 16 17 Touche Tohmatsu, on October 1, 2014. 18 For Peer Review Only 19 20 21 22 23 Acknowledgements 24 25 26 I am grateful to the two anonymous reviewers whose comments helped improve this paper. 27 28 29 Earlier versions of the paper were presented at the 59th annual convention of the International 30 31 Studies Association, San Francisco, 4-7 April 2018, and the 30th Society for Advancement of 32 33 Socio-Economics, Kyoto, 22-25 June 2018. 34 35 36 37 38 39 Declaration statement 40 41 42 43 No potential conflict of interest was reported by the author. 44 45 46 47 48 49 Notes on contributor 50 51 52 Fumihito Gotoh is teaching and research fellow in the Department of Politics and International 53 54 Relations at the University of Warwick. He focuses on East Asian politics and political 55 56 economy, comparative capitalisms, and the politics of finance. His article ‘Social Norms Strike 57 58 59 Back: Why American Financial Practices Failed in Japan’ co-authored with Timothy J. Sinclair 60

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1 2 3 was published in the Review of International Political Economy in 2017. Previously, he was a 4 5 6 senior credit analyst in Tokyo for the Industrial Bank of Japan, Merrill Lynch and UBS. 7 8 9 10 References 11 12 13 14 Asahi Shimbun. (2003) 17 February issue. 15 16 17 Asahi Shimbun. (2008) 30 May issue. 18 For Peer Review Only 19 Asahi Shimbun. (2009) Ushinawareta 20 Nen [The Lost Two Decades], Tokyo: Iwanami 20 21 22 Shoten. 23 24 25 Bieler, A. (2001) ‘Questioning Cognitivism and Constructivism in IR Theory: Reflections on 26 27 the Material Structure of Ideas’, Politics, 21 (2): 93-100. 28 29 30 Bungeishunju. (1999) October issue. 31 32 33 Cook, K., et al. (2005) ‘Trust Building at Risk Taking: A Cross-Societal Experiment’, Social 34 35 Psychology Quarterly 68 (2): 121-42. 36 37 38 Cox, R. W. (1981) ‘Social Forces, States and World Orders: Beyond International Relations 39 40 41 Theory’, Millennium: Journal of International Studies 10 (2): 126-55. 42 43 44 Daiichi-Kangin Research Institute. (1996) ‘Tainai Chokusetsu-Toshi Sokushin no tameno 45 46 Wagakuni M&A Kankyo-Seibi ni Kansuru Chosa’ [Research for Improving an 47 48 Environment Conducive to M&A that will Promote Inward Foreign Direct Investment], 49 50 Paper Published by the Cabinet Office, the Government of Japan. 51 52 53 Doyukai. (2001) Press release dated 26 April. 54 55 56 Doyukai. (2003) Press release dated 18 April. 57 58 59 Doyukai. (2017) Press release dated 22 February. 60

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