In Japan: the Logic of Collaboration Between Rival Firms

Evolution of "Partnership Rationality" in Japan: The Logic of Collaboration between Rival Firms

Sung-Joon Roh VisitingResearcher, Science and TechnologyAgency of Japan

Introduction

The Japanesecorporation is a chimera. Diverse opinions on the Japanesecorporation arise, depending entirely on the perspectivefrom which it is viewed.Discordant opinions about the natureof the Japanesecorporation are largely determinedby assessmentsof whether Japanesemarkets are orientedtoward competition or collaboration.Some assert that competitionin the Japanesemarketplace is very keen. At the sametime, othersbelieve that competitionin the Japanesemarketplace is inherentlylimited. The great puzzleis that views citingboth collaboration and competition can be factually substantiated. The purposeof this essayis to reevaluatethe validity of currently dominantviews of competitionand cooperationin Japanand suggestan alternativeperspective. Basedon historicalobservation, the central premise of this paper is that compatibilitybetween competition and cooperationhas been a core feature of the market order in Japan. In Japan the notion of "market"principles have always been characterizedby promisesof both successand failure. Establishingeconomic democracy in the form of a popular "corporate" economy has been one of the nation's standing commitments. Ironically, failure to achievethis goal has provento be a lucrative sourceof economicsuccess. This failure has been most notably reflectedin the nationallycherished notion of "orderlymarkets." An orderly market in the Japanesemind is one in which neither competitionnor cooperationsolely decidesthe relationshipsbetween market actors.In short, competitionand collaborationare at work simultaneouslyin the Japanese economy. This essaydraws attentionto the need for a new conceptcapable of interpretingthe relationshipsthat existbetween major market actors, including governmentagencies. I proposea new conceptand refer to it as "partnership rationality." The defining characteristicof parmership rationality is compatibilitybetween, and managementof, competitionand collaboration involving direct competitorswho seek the same, scarce resource. The

BUSINESS AND ECONOMIC HISTORY, VolumeTwenty-two, no. 1, Fall 1993. Copyrighto 1993 by the BusinessHistory Conference. ISSN 0849-6825.

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paradigmof managedcompetition is essential,consistent, and widespread in the historyof Japaneseindustrial development. It hasexisted since a modem capitalistsystem was formedin Japan. In orderto supportmy argument,I shall draw empiricalevidence from two major areasof corporatebehavior: industrialfinance, and research and developmentin the spaceindustry. Debateon the natureof Japanesepolitical economy in generaland the marketorder in particularhas focusedon two factors,government plans and marketprices. Surroundingthese two notions,two groupsof researchershave formed,each with elaboratemodels and explanations.

Free Competition Is Inherently Limited

There are several different facets of the view that free market competitionis inherentlylimited in Japan rather than merely temporarily weakened. Political scientistshave theorized about national purposes representedand implemented by "strong,motivated, and prescient" government and businessorganizations responsive to market forces [13, 27, 1]. The Japanesegovernment has been particularlyconcerned with preventingthe malfunctionsassociated with "excessivecompetition." Excessive competition, if unchecked,could cause serious damage to the economy[24, p. 38]. This concern has provided the rationale for governmentintervention in the economy. Stateintervention, even though "market conforming" rather than market displacing,becomes a fundamentalobstacle to unfetteredmarket competition[13, 28]. The main appeal of this approachis the notion of collectivecommitment such as national interest [16]. The dominanceof public causeover personal motivation is mostsuccinctly conceptualized by Chalmers Johnsonin terms of "plan rationality" [13]. The argument that competition is limited due to government interventionhas been explicitly and implicitly supported and supplemented by historical and cultural studies. Under unfavorable conditions such as the underdevelopmentof industryand shortage of skilledlabor, technology, and capital, developmenttheorists argue that developmentrequires a set of institutionsin all realms of economicactivity [6]. Other than government intervention,one of the most importantinstitutional arrangements in Japanis the concentrationof resourcesinto a limitednumber of giantfirms. The result is, of course, reduction of competition[26]. Another major source of orientationto cooperationis the culturalnorms which value collaboration over competition. Demonstratingthe will to cooperateis the most essentialand highly valued quality in virtually all interaction[4, 20, 32] Theoriesof governmentinterventionism, economic concentration for late industrialization and cultural uniquenessall sharethe notion of commitmentto a common cause. Collectivemotivation, in whateverform, precludesor at leastobstructs the potentialfor purely selfishor rationalcalculations. Neither statist,historical, nor cultural theoriesare capable of fully explaininglimited competition in Japan. While traditionalisttheories such as theseemphasize the sociologicalforces mitigating toward compromiseover contention,there is anotherside to this issue. Japanesepluralist theorists note that conflicttakes place among diverse social interests. From this perspective 140

competitionseems to be the normal state of affairs [18, 11, 17, 29]. The Japanesepluralist argument, however, does not explain free-market competition since it regardslimitations and barriersas extra-marketand thus incurable within the market. Japanesepluralists do recognizethat barriersare mostly imposedby the systemof governmentand politicalnegotiations. In short, competitionis not free but is subjectto formidableobstacles. This observation bringsus back to the dominanceof collectivepurpose over private motivation. In Japan,a contemporaryillustration of the articulationof commonpurpose is the prospectusesissued by governmentagencies. Known as "visions,"these documentsfrequently originate in the Ministry of InternationalTrade and Industry(MITI). A governmentvision is designedto provideboth direction and information,in the interestof plan rationality. We have identifiedfour schoolsof thoughton why competitionis inherentlylimited in Japan. However, eachexhibits a problemwhich limits its explanatorypower. The statisttheory is not correctlyspecified in terms of the level of analysis. Governmentvision as policy direction can affect the hierarchybetween industries, technologies, policy objectivesin allocating scarceresources. Significantly, this does not applyto firmsthat operatewithin the sameindustry. The weaknessof the historicaland culturaltheory lies in the existenceof the "null" modelsfound in other eastAsian nations. Japan's neighborssuch as Korea, Taiwan, and Singaporeare all industriallatecomers with similar cultural backgrounds.They do not exhibit the coexistenceof competitionand collaboration found in Japan.The mostserious problem with Japanesepluralist theory is that the condition currently inhibiting free competitionis intractable.In otherwords, there is no prospectof modification capableof movingJapan onto a pathtoward open competition. Stateactions perpetuatea versionof competitionin Japanwhich is closerto partialparalysis than full operation.

Free Competition Will Prevail

Thereare Japanese and Western researchers who present a pictureof the Japaneseeconomy fundamentally different from the one we have depicted. This schoolof researchersbelieve that Japanesemarkets are moving toward free competition.Accordingly, the constraintson free competitionare seenas justifiedby thepursuit of rapideconomic growth, and are therefore temporary and situational.Both Westernersand Japanesewho emphasizethe existence of competitionin Japan acknowledgethat it has been limited for various reasons.In this schemathe barriersto competitionare derived from the market, and will thereforebe eventuallyeliminated by the functioningof market mechanisms. One group of scholarsexplains collaboration between rival firms in terms of cost. Some attributethe possibilityof collaborativeactions, which often take the form of networks or alliances,to the effect of decreasing "transactioncosts." In a more Japanesecontext, the phenomenonis often explainedas risk sharingby the formationof informalinsurance agreements betweenfirms [22]. Relatedto this costexplanation are theoriesof market structure.One of the majorstructural characteristics of the Japanesepolitical 141

economyis a high concentrationof economicpower within the handsof a relatively small number of corporateactors, the keiretsu[5]. A third line of reasoning, somewhat related to the second, attributes the motivation for collaborationto "underdevelopment"of Japanesemarkets [7]. Firmsmay take collectiveaction when the marketmechanism is underdeveloped,or distorted. Regardlessof the differencein rendition,however, these theories all depend on a commonassumption: firms act accordingto 'marketrationality' of which the fundamentaldeterminant is price. Priceis no doubtthe dominantinfluence in determiningthe relationship betweenJapanese firms. Nevertheless,price-led, utility-maximizing, rational behavior does not prevail in the contemporaryJapanese economy. Profit maximizationis obviouslythe raisond'etre for all Japanesecorporations. But there are instancesof decision-makingwhen profit maximizationmust yield to other goals. The notion of reducingcost and risk is as old as civilization and is certainly not endemic to Japan. Neither transactioncost theory nor "underdevelopment"theory are helpful in the Japanesecontext. Attempts to utilize these theorieswith regard to Japan rely on the speciousclaim that market rationality is temporarilyinactive or weakenedwhile the Japanese economy becomesfully developed. The mismatch of theorieswith actual practiceis illustratedby the fact that underdevelopmenttheory is still utilized even thoughthe Japaneseeconomy is the secondlargest in the world.

Partnership Rationality: The Logic of Collaboration Between Rivals

This sectionwill elaborateon "parmershiprationality" as an alternative theoreticalframework for analyzingthe market order of Japan. Partnership rationalityconsists of two concepts:(1) the weakeaningof marketmechanisms and (2) the contingentnature of governmentvision. Thesetwo conceptsare alsotestimonies of the failure of marketrationality and plan rationality. Mainstreameconomic theory is basedon two kinds of separation:the separationbetween actors, and the separationbetween rationality and emotion [9, 3]. In this regard,the behaviorof the Japanesebusiness corporation is neither regular as describedby neoclassicaleconomists, nor irregular as assumedby statistsor socio-culturaltheorists. Japanese firms are "embedded" [8] in the economicand businessenvironment as illustratedby the following principles.

The Ideology of Co-Survival

A definingcharacteristic of Japanesemarket order is the long-standing relationshipsbetween major market actors. For Japanesecorporations, maintaininga stablepresence and prestigein the market is more important than securingpecuniary profit, for a quarteror a year. The implicationof this for governmentand the nationaleconomy is that the marketsare stableand predictable.An importantsource of this marketstability and predictabilityis the Japanesephilosophy of coexistence.Competition for Japaneseis not like a winner-take-allauction. Ratherit is a processin which all originalbidders partake of the goodsbeing offered. In Japaneseparlance they "eat rice 142

together,"even though in disparateproportions [30]. In the spaceindustry, the relationshipbetween competition and cooperationhas been very stablesince the dawn of the industryin the early 1950s. Particularly,relations between prime contractorsand subcontractorshave remained virtually unchanged despitemany ups and downsin the marketplace.Consigned by the National SpaceDevelopment Agency (NASDA) as the sole client,Mitsubishi Heavy IndustryInd. (MHI) hasmanaged the industryas "systemsintegrator." In the consecutiveprojects of N-I, N-II, H-I, andH-II rockets,the work was divided betweenthree major participants, MHI, Ishikawajima-HarimaHeavy Ind. (IHI), and NissanMotor, and remainedvirtually unchanged.According to a senior MHI manager,MHI could have taken over a portion of the work of IHI becauseof superiortechnological capability and lower pricing. Apparently, the assignationof work to IHI wasnot madeon a purelyeconomic basis. The caseof the satelliteindustry is more interesting.The application satelliteindustry is currentlydivided between three major firms: Mitsubishi Electric (MELCO) for communications satellites (CS); NEC for geometeorologicalsatellites (GMS); and Toshibafor broadcastingsatellites (BS). In reviewingthe literatureand throughinterviews, it was foundthat both MELCO and NEC were technologicallycapable of assemblingtwo or more of the products. However,the governmentwanted the contractsto be sharedin the industryin order to promotetechnological development and indigenization.The threefirms involved had no objectionto the planproposed by the government.An analogousapproach was used in decisionsabout the financingof the projects.A goodexample is the relationshipbetween Dai-chi Kangyo Bank (DKB), SanwaBank and Fuji Bank in providingloans to Hitachi, Ltd. In 1958, for example,DKB (Dai-ichi Bank at that time), Sanwa and Fuji accountedfor 19%, 20% and 13% respectivelyof the total annual bank loan receivedby Hitachi. Thesethree banks have not only remainedin the cooperativeloan syndicatefor Hitachiover a long periodbut havekept their sharesstable. With the mergerof Dai-ichi andKangyo Banks into Dai- ichi Kangyo Bank in 1970, the DKB's sharebecame larger than thoseof Sanwaand Fuji from 1971 (19%, 13%, 13% respectively).Even thoughthese threebanks do not conferwith eachother regarding loan shares, the illustration bearseloquent witness to the idea that the interestrate as moneyprice is not the key variable. Long-standingrelationships are found not only between competitorsbut alsobetween collaborators. For instance,Fuji PrecisionCo. (later absorbedby NissanMotor) enteredthe solid-propellantengine business in 1953 with the recommendation and assistance of Professor Hideo Itokawa of the Universityof Tokyo. The firm neededan explosivesmaker and chose NipponOil & FatsCo. (NipponYushi); this relationship still continues.NEC and KawasakiHeavy have been in a collaborativerelationship in the space industry;a similarpartnership exists between Toshiba and IHI.

Vested Rights

Closely relatedto the traditionof long-standingstable relationships are the conventionsassociated with vestedrights. Once a firm is in the game, it is almostautomatically given a vestedright to continueto participate. It is 143

virtually impossibleto cite any Japanesecompany which enteredthe space businessand went bankruptor was oustedfrom the industry. The importance of the vestedright seemsto be most succinctlyillustrated by the dominance of MELCO, NEC andToshiba in the satelliteindustry. Thesethree firms may have sometechnical superiority in the satellitemaking over other powerful electronicsfirms such as Hitachi, Fujitsu, Oki and Matsushita. But most importantly,MELCO, NEC andToshiba were the firmswhich had initially and exclusivelyparticipated in the DefenseAgency (JDA) work in 1953. In July 1953, JDA initiatedresearch on the pilotlessairplane and placed an order, which was later expandedto missileresearch. Logically, seniorityseems to be an importantvariable in the awardingof contracts.Hitachi, Fujitsu and Oki are relativenewcomers, as they enteredthe marketin 1966 and 1967.

Non-Price and Non-Profit Decisions

The notionof "co-survival"of privateenterprises reflects, among other things,the weakeningof priceand profit maximizationas determinantsof firm behavior. Prices are not the only variable influencing decisions. In the Japanesebusiness world, profit maximizationis not a categoricalgoal. Many Japanesefirms investin projectswith advanceknowledge that they will remain in the red for an undeterminedperiod [31]. Therefore, standardbusiness considerations such as return on investment or dividend maximization are either missing or of secondaryimportance [10]. The episodeof conflict between MELCO and TRW in pricing the broadcastingsatellite is an instructiveexample. In the giant broadcastingsatellite business, competition was betweenMELCO and Toshiba,which had technologicalties with TRW and GE respectively.MELCO's primary goal in the competitionwas to get the project itself whatever the profit may be. As such MELCO was determinedto makea low pricequote, even though this was not acceptableto its partnerTRW. TRW queriedMELCO as to why it was submittingat all if it was expectinga loss. As MELCO and TRW were caughtin conflict over pricing, the project eventuallywent to Toshibaas a kind of the third party solution. This is how the whole applicationssatellite business was divided betweenthree major firms includingNEC. It is ratherrefreshing to hear the managersof Dai-ichi Kangyo,Sanwa and Fuji Banksin chargeof the loansfor Hitachi, Ltd. say that the interestrates as the price of moneyare not primary factorsin determiningthe frame and shareof loansfor Hitachi. As a young Japanesemanager put it, the price in Japan"may functionas pressure."

Personal Roles

Relatedto the conceptsof stablerelationships, vested rights, and non- economicdecisions is the importanceof personalrelations. Long-standing, stable and vestedrelationships inevitably require one to identify who the transactionpartner is. In otherwords, a face or a nameis in many casesmore importantthan price and policy vision as the determinantof behavior. This doesnot necessarily mean that the markettransaction takes place amid a turbid 144

milieu in Japan. Rather it indicatesthe impact of human factorsin business decisions. It is worth noting that the market entry decisionsof Japanesespace firms (now all global leaders)were made in non-business-likeways. For instance,a major factor for IHI's entry into the space industry was the invitationof a governmentofficial. In 1964,the Head of CoordinationBureau of the Scienceand TechnologyAgency visited IHI and advisedthe firm to do somework in the industry. In responseto this invitation,IHI optedto enter the spaceindustry. In anotherinstance, when ProfessorsItokawa and Takagi of the University of Tokyo, two pioneersof the Japanesespace industry, advisedNEC to enterthe businessof rocketelectronic equipments 1955, the top managerresponded positively. He indicatedthat NEC wouldenter the new market"from a nationalperspective and therefore without regard for profit or loss." Now NEC performsapproximately eighty percent of the work in the area of Japanesescience application satellites. Also importantwere the determination,foresight, personal sense of responsibility,and human bonds of key individualswho happenedto be in the positionto make major decisions.Business decisions regarding market entry or R & D initiationwere madecasually in manycases. For example,the entry of Fuji Precision(former Nakajima Aircraft Co. and later absorbedby Nissan Motor) into the solid rocketpropellant industry in 1953 was recommendedby ProfessorItokawa. ProfessorItokawa was a key engineerof NakajimaAircraft himselfbefore World War II. In early 1959,Professor Itokawa approached the Nagoyafactory of MHI with a requestfor constructionof the motorand thrust chamberfor the KappaRocket under development at thattime. Accordingto a MHI historybook, this was the beginningof MHI's space-relatedbusiness. The MHI corporationsubsequently became "general representative" of the industry.

Work Sharing and Allocation

Two additionalaspects of partnershiprationality are the allocationof businessopportunities in a non-competitivemanner, and the fact that these opportunitiesare either sharedor alternatelyawarded to rival firms. The sharingof work betweenrivals is as old as Japaneseindustrial history. In the inter-warperiod the Japaneseaircraft industry was developedin a very favorableenvironment. The industryreceived a numerousand stable supply of productionrequests, and was under governmentand military protection. Technological development was pursued competitively by "appointed"contractors. In the caseof the aircraft industrythese contractors were MitsubishiAircraft andNakajima Aircraft. But Mitsubishiand Nakajima not only sharedwork with eachother and othercompetitors, they alsotraded assignedprojects. Competitivebidding for prototypeaircraft was not opento multiple firms. Accessto the biddingyvas usually given to two major firms in the technologyarea in question[25, p. 27]. In contractsfor naval fighters and attackers,Mitsubishi "was ordered to become a bidder along with Nakajima." At the same time, however, there was not a single firm ousted from the aircraftindustry. Instead,"the weak ones,replying to the military's 145

request,took the responsibilityfor otherminor projects of the industry."In the postwarperiod, a majorproject implemented on the work-sharingmethod was the developmentof YS-11 civilian aircraft,the first Japan-madeaircraft to be exported.Development of YS- 11 aircraftwas undertaken by a syndicatecalled the JapanAircraft ManufacturingCo. (JAMC) which consistedof multiple rival finns and non-private institutions. Researchwas organized in a coordinateddivision of labor betweenall eighteenfinns. The work-sharingapproach continued to be utilized in the space industry. In announcingMELCO as prime contractorfor the ISS project, Minister of Postsand Telecommunications Hashimoto called in the presidents of the six competingproducers and askedfor their "cooperationas subcontractors." In 1967 and 1968, NEC and MELCO were competing for NASDA's telemeterreceiver, and the competitionresulted in a stalemate.The eventualsolution was hammeredout betweenNEC and MELCO managers, without consultation from NASDA. The solution was to divide the work into the antenna unit and the receiver unit and for each finn to take one unit. NASDA then agreedto divide the allocatedbudget into halves for NEC and MELCO [23, 113]. In the biddingfor the trackingand controlequipment for the applicationssatellite in 1974, four finns participated(NEC, MELCO, Toshibaand Fujitsu).NEC was chosenas primecontractor with the remaining threebecoming subcontractors. The NEC engineeringmanagers in chargelater recalled that the most difficult task was how to designand divide the entire work. In the initial technicalmeetings, "subcontractors acted like by-standers watchingNEC's dance"and thus "the process became a three-sideddeadlock." After roundsof consultationand NEC's recognitionof the technologicalmerits of subcontractors,the four finns came to carry on with designing and inspectingthe factoriesof otherparticipating finns [23, 230-11].

Delegated Management of Competition

When rival finns competefor scareresources and opportunitiesand cooperateat the sametime, there must be mechanismsfor conflictresolution. Competitionis "managed"so that everyonecan "eat rice together." The Japaneseapproach to mediationwas developed over a longperiod of industrial development.The aerospaceindustry in particularwas the one in which governmentagencies functioned as an owner in the delegationof the managementof competitionand cooperation to privatefinns. The traditionof minkan itaku (delegationor consignmentto privateenterprise) dates back to the prewar era. Of particular importanceto this formula of delegated managementwas the adventof the so-called"Seven Experimental Prototypes." This was basedon the consigningof prototyperesearch and building to a few privatecompetitors. It was so namedbecause it beganin the seventhyear of the Showa reign, which was 1932. Competitiveprototype research and productionwas drivenby a specialnavy arsenalcalled "Kugisho" or Naval Air TechnologyArsenal. The Kugishowas createdin orderto "coordinateclosely and coherentlyresearch, designing, experimental production and test flights" [25, p. 20]. Another similarity to the current system of businessand governmentpartnership concerning R & D is found in the "study groups" 146

(Kenkyukairun by governmentagencies (the Navy andthe Army at thattime). During the prewarperiod, the Navy initiatedjoint researchactivity, and is consideredto havebeen very effectivein advancingcivilian technologies [25, p. 43]. Typically,the joint navy-civiliankenkyukai for eachtechnology area washeld oncea year at the venueappointed for the specifictechnology. Turning to the postwar period, the rocket industry, in which the National SpaceDevelopment Agency (NASDA) is the sole client, has been managedby MitsubishiHeavy Industry(MHI) as "systemsintegrator." In the consecutiveprojects of N-I, N-II, H-I, and H-II rockets,the contentand portionof work sharingbetween the major participants,MHI has servedas systemsintegrator cum generalrepresentative. In the applicationssatellite industry,the managingfirm is MELCO. The managingfirm awardsthe contractsfor the whole project and divides the sharewith other associate primers. MELCO indicateswhat partsand materials are to be used. Basedon the managingfirm's specifications,the associateprimers use their owndesigns and plans. Under pressurefrom the United Statesin the Super301 Clause negotiations,the three Japanesefirms have recently adopteda 4:3:3 work sharingformula.

ContingentGovernment Policies: The Failure of Vision

The view that market order and behavior are determinedby public purposereflected in governmentpolicy or vision is based on a set of assumptionsabout the natureof the state:It is "prescient,coherent and strong." In the caseof the Japanesespace industry, these assumptions prove misleading.

The Prescient State

A key premise of statisttheory is that the state comprehendsthe developmentof historybetter than other social actors. Initial researchon the spaceindustry may conjureup imagesof the Japanesegovernment as equipped with firm commitmentand faultlessstrategies. Upon closer observation, however,we find numerousinstances of lack of foresight,inefficiency, and an ansenceof contingency-planning.Many Japanesefirms and government agencieshave achievedgrand purposes with poorplans and strategies.In this sense,the Japanesepolitical economy has been "ideology rational" rather than "marketrational" or "planrational." The structureof Japaneseindustry was determinedby neithergovernment plans nor marketprices. The opportunities presentedto Mitsubishifirms, particularlyMHI, that enabledthem to become dominantin the spacebusiness arose from the fact that they were assignedto developthe surface-to-air missile (SAM). Thisinitial decision and request was madeby the DefenseAgency in 1958. Technically,SAM neededa liquid- propellantsystem, the technologyrequired for large-scalerockets. A similar patternis found in the caseof MELCO becomingthe "representative"of the applicationssatellites. MELCO becamethe leader in the field of missile guidancetechnology with the help of Switzerland'sOerlikon in 1958. It is 147

clear that MELCO's rise as representativewas a byproductof the aggressive explorationof guidancetechnology [2]. The underlyinguncertainty of Japanesepolicy is reflectedin an incident which occurredin the spaceprogram. In 1970, the Japanesegovernment decidedto abortthe Q-seriesrockets and to attemptto developliquid-propelled N-seriesrockets instead. This 'paradigmatic'policy change to developliquid- engine, in lieu of the solid engine,was basedon aspirationrather than capability. In retrospect,the decision was a reckless one, at least technologically.The liquid-enginerocket requiressophisticated electronic guidancetechnology, and at that time Japanpossessed none of the needed technology(Asahi Shimbun, July 7, 1970). The decisionto developthe liquid- enginerocket reveals that Japanassumed that it wouldreceive technological assistancefrom the United States. This also indicatesthat concurrentlywith the ambitionand commitmentto industrialand technologicaldevelopment, therewas a lack of coherentstrategy.

The Coherent State

Competition between the governmentagencies involved in the developmentof technologywas anotherfactor contributingto the lack of coherentstate policy. Rivalry between governmentagencies regarding consignmentsfor R & D existedas early as the prewarperiod. In the prewar period,there was a gapbetween the Army andthe Navy in termsof military- businessrelations and import substitution in aircraftproduction. Following the war, therewas ongoingtension between the two major agenciesinvolved with spacetechnology. These agencies were the Universityof Tokyo research team, backedby the Ministry of Education,and the NASDA researchers, backedby the Scienceand TechnologyAgency. Thereis a long historyof friction, scandals,and maneuveringbetween these two camps,all of which testifyto the failureof the Japanesestate to achievetwo key goals:(1) making the Japanesespace program entirely indigenous;and (2) creatinga unified "NASA of Japan."

The Strong State

Japanesegovernment agencies have been always dependenton the money,knowledge, and expertise of privateactors with theirown goals. In the US spaceindustry, for example,the directionof dependencegoes from the privatesector to government.The US governmentacts as "anchortenant" for spacefirms. In the caseof Japan,however, the directionof dependencegoes from governmentto the privatesector. While developmentrisks are takenby the governmentin the US, they are sustainedby privatefirms in Japan. In the area of R & D, the most commonevidence for government expediencyand dependence is foundin the permanentshortage of government appropriationsfor R & D in the spaceindustry. The financialshortages in the governmentbudget became a pretext for limiting the numberof bidders wishingto becomeassociate primers. Therefore,both government and private firms in the spaceindustry have a priori expectationsof nominalgovernment 148

financialsupport and the lossin R & D for the finns. Thesebuilt-in factors inevitablyresult in compensatorymeasures in othersareas.

The Quasi-Corporate Economy: The Environment for Partnership Rationality

Why do Japaneseindustries and finns prosperwhile governmentplans and corporatestrategies are eitherincomplete or inadequate?There are two possibleresponses, both of whichhighlight issues pivotal to Japan'spolitical economy. One is the senseof crisiswhich pervades both public andprivate actors.The otheris the uniqueposition of the Japanesecorporation: it hasno owners to account to. A leading Japaneseeconomic historian finds the roots of modem Japaneseeconomic institutions in the era of war-time control[21]. This conveysthe legacy of the intensecrisis mentality of war-time as a major driving force behind industrializationand technologicaldevelopment. The senseof crisishas continued to exertsignificant impact on the way in which the governmentdefines its role and its relationshipwith privatebusiness. Anotherfactor which assists in explainingtechnological development in the spaceindustry is that the startingpoint of the industrywas not civilian but military. While the Japanesespace industry claims to be civilian in purposeand content,its origin was military. The guidedmissile industry sparkedresearch on flyingbodies, the rocket engine and telemeter electronics, the three major componenttechnologies of the space launch vehicle and satellite. Ideological rationality, flexibility of governmentstrategy, and mobility of businessfinns drivenby a crisismentality are all pan of a broader social context. In my opinion, the most crucial aspectof this context is economic structure in which finns have no real owners. It seems ironic that Japanhas succeeded in fosteringthe mostrobust capitalist economy while a critical elementof capitalismunderdeveloped. By the twentiethcentury, advancedindustrialized societies had formed'corporate economies,' that is, a pool of anonymousindividual investors who seekmaximum returns on their investments.The conceptionof corporateeconomy based on organizedstock marketshas been very weak in Japan. ContemporaryJapanese capitalism is dominatedby the "juridical-person"corporations (hojin kigyo) in which individualshareholders are virtually "fossilized."Those who havereal control over the corporationsare salariedmanagers. The easewith which Japanese finns have been able to make decisionswithout worrying about fiduciary obligationsto shareholdersstems from this structure.The Japaneseeconomy has been driven by "managersovereignty," not consumernor producer sovereignty. In this sense,contrary to the popularview of Japan,what is indeed mobile in the Japanesepolitical economyis industrialcorporations ratherthan the government. 149

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