Japan at a Deadlock Michio Morishima STICERD London School of Economics and Political Science Partly translated by Janet Hunter Contents List of Tables and Figures vi Acknowledgements viii Preface ix 1 Introduction 1 2 Ideology and Economic Activity: An International Comparison 14 3 Transformation from Feudalism to Capitalism in Japan 40 4 The Japanese Financial System: its Solidity and Vulnerability 69 5 Japanese Enterprise as Private Sector Bureaucracy 120 6 Polarization under Capitalism from Above 138 7 Agony towards Capitalism from Below 179 8 A Perspective on Japan in the New Century 212 Notes 246 Bibliography 250 Index 254 v Acknowledgements This volume contains some of my papers which have been published elsewhere as: ‘Ideology and Economic Activity’, in A. Martinelli and N.J. Smelser (eds), Economy and Sociology (Sage, 1990); ‘Banking and Industry in Japan’: foreword to H. Okumura, ‘Japanese Corporation Capitalism’ in Classics in the History and Development of Economics (Macmillan and St Martin’s Press, 1999); ‘Japanese Enterprise as Private Sector Bureaucracy’: foreword to H. Hazama, ‘The History of Labour Management in Japan’ in Classics in the History and Development of Economics (Macmillan and St Martin’s Press, 1997); and ‘Democracy and Economic Growth: the Japanese Experience’, in A.K. Bagchi (ed.), Democracy and Development (International Economic Association, Macmillan, 1995). Also included are two of my STICERD discussion paper articles: ‘A Historical Transformation from Feudalism to “Capitalism”’; and ‘Wage Differentials in Japan: 1958–85’. I am pleased to acknowledge that Janet Hunter at STICERD, LSE, has translated the part of the manuscript that was originally written in Japanese. The author and publishers acknowledge Sage Publications Ltd for permis- sion to include the above-mentioned paper, which appeared in Economy and Sociology in 1990. viii Preface Japan was unified as a modern nation state in 1868 and, by 1920, was among the world’s leaders in light industrial production. Following this, the country’s heavy industries also grew and prospered, but production totally collapsed with Japan’s defeat in 1945. I myself was still a student at that time, and was demobilized, having served as a young officer in the navy for one year and nine months. Perhaps because I was young and enthusiastic, however, I did not at that time think about Japan’s future with pessimism. Sure enough, 40 years later, in 1985, Japan had recovered to become the envy of the world, including the top industrial nations (the then so-called G7). Since that time, however, Japan has failed to open up its economy to the world and to contribute to the building up of the world market system. That there has been collusion between government and private enterprises, money has been invested in a slipshod and unsound fashion, and govern- ment and the top enterprises have been involved in one economic crime after another. Questions must be asked concerning whether Japan has stum- bled, whether the country will stagnate if it continues along present lines or if it is impossible for her to rise again, and we must expect collapse. Having lived for so long in England, I can be no more than a bystander as far as this is question concerned, but this time, unlike at the time of defeat – and this may be due to my time of life – my observations are extremely pessimistic. I am an economic theorist. My observations in this book relate to trends in Japan over the last 150 years and more. The economic analysis of these kinds of problems, and the prediction of the future, is undertaken by an army of economic analysts, but it is my view that if we are to try and understand these problems as a whole, we should not rely for our under- standing on just one instrument. To continue with our musical analogy, at the very least I think that we need proficiency in several instruments, and we need to portray the totality of trends by using them together, and to present to others the synthesized view or vision that results from the process. In this book I have sought to take this kind of orchestrated approach. An important part of this approach is focussing on the kind of ethos subscribed to by the people who go to make up Japan. In other to understand Japan from this angle we must begin with an overview of people’s ethos in the world more broadly, though this may well be regarded as a rather roundabout way of doing things. However, as a result of defeat in the Second World War the Japanese people were reborn as people who have now lost their traditional ethos. The consequent rivalry ix x Preface between two generations, each with a different ethos, can be said to be a major theme of this work. Apart from the study of ethos, there are a number of other disciplines within the social sciences, and it is my belief that it is essential for these disciplines to be orchestrated. One of the most conspicuously successful examples of this is to be found in J.A. Schumpeter’s Capitalism, Socialism and Democracy. No doubt from a scientific perspective this is a work con- taining a number of errors. It is, however, a book that is extraordinarily interesting to read, and a book that makes one think. It is true that the individual instruments used in the ‘orchestra’ have to be all scientific disci- plines. However, the synthesis of the various sciences is not necessarily itself scientific but only on art. This is because there are as yet no theories established, so that they can provide clear rules as to where and which issues to deal with, and which to ignore, and which instruments to use, and which to discard. This depends on the general abilities of the person responsible for arranging the symphony, and hence the immediate skills of that arranger. My previous book, Why Has Japan ‘Succeeded’? (1982), was also a symphony composed with such an intention. I am now humbly offering a book written as a kind of elegy for Japan, a ‘Pathetique’ sym- phony. Please note that it is consistent methodologically with the earlier work. Finally, this book can be said to be in one sense a collection of essays written during the years from 1986 through to 1998. This has resulted in some duplication of material in different chapters. However, since this duplication can be regarded as a convenient way of driving home to the reader my perspective on Japan, most of it has been allowed to remain. MICHIO MORISHIMA 1 Introduction This book is a sequel to the Marshall Lectures I delivered at Cambridge University in March 1981, under the title of Economy and Ideology. These lectures were published one year later, under the revised title of Why Has Japan ‘Succeeded’?(1982) (referred to as WHJS hereafter). At that time Japan was literally in the midst of success, and no doubt the readers of the book took the view that the revised title was a reflection of this fact. It was, in fact, associated with my statement in the Preface of the book that ‘Success in one respect is closely connected to failure in another, and success and failure are often achieved in conjunction with each other.’ Though this is put in a static or timeless relationship, it may represent a dynamic one with time lags, namely that failure at one point in time will lead to success at a subsequent point in time, or vice versa. Including the word succeeded in the title in inverted commas was aimed at highlighting the fact that even in the period up to 1981 success was already closely associated with failure. That is to say, the main theme of the book was to attempt to clarify that those respects in which Japan has been successful, are closely related with those in which she has met with failure, and to ask why this has been the case. However, the main thrust of the present book is not the fateful inter- action of cases of success and failure, but the dynamic relationship between the overall success, which was the subject of the earlier volume and the subsequent overall failure, which I aim to consider in this one. To be more exact, what I am concerned with here is why the success of Japan, which continued for a short time after the publication of my book mentioned above, came to a standstill in the 1990s, and why we should take the view that it is unlikely to recover in the twenty-first century, and will instead gradually slide down into the depths. This is not a purely economic analysis of the development of Japan, but what I have previously called a far broader economics, making compre- hensive use of history, the sociology of religion and education, as well as other disciplines, as analytical tools. To put it another way, it is like a sym- phonic work that uses a range of instruments. As in the previous book, I 1 2 Japan at a Deadlock have not taken a materialistic approach, but have concerned myself first and foremost with the ethos of the people of the country. Any discussion of the differences between West and East, and between past and present that disregards the problem of ethos is virtually powerless. As historical entities, countries are inhabited by different peoples, each with their own experiences and their own ways of thinking, and any materialistic analysis that ignores their ethos will be inadequate. Chapter 2 of this work therefore contains an overview of the ethos representative of different parts of the world, and by comparison discusses the Confucianism that I regard as the source of the Japanese ethos.