Permeable Policymaking: Foreign Firms in the Japanese Political Economy By Kristi Elaine Govella A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Political Science in the Graduate Division of the University of California, Berkeley Committee in charge: Professor T.J. Pempel, Chair Professor Steven Vogel Professor Vinod Aggarwal Professor Thomas Gold Summer 2016 Permeable Policymaking: Foreign Firms in the Japanese Political Economy © Copyright 2016 Kristi Elaine Govella All rights reserved Abstract Permeable Policymaking: Foreign Firms in the Japanese Political Economy by Kristi Elaine Govella Doctor of Philosophy in Political Science University of California, Berkeley Professor T.J. Pempel, Chair This dissertation examines the consequences of globalization and trade liberalization for government-business relations in advanced industrial economies. How do the early stages of trade liberalization affect the opportunities for multinational firms to influence the policies of a target country? What factors explain the varying patterns of corporate political activity that we see across different sectors in an economy? In order to answer these questions, I conduct a cross- sectoral analysis of Japan, a country that has historically been notoriously closed to foreign business and investment. Drawing on archival material, market data, newspaper articles, direct observation, and interviews, I examine the influence of foreign firms on the Japanese policymaking process from the immediate post-World War II period to the present. In particular, I focus on case studies of four sectors in which distinctly different patterns of corporate political activity manifest: agriculture, pharmaceuticals, insurance, and information and communications technology. I find that while foreign firms were initially dependent on their home governments to influence Japanese policy, opportunities for these firms to employee political strategies both independently and in coalition with Japanese partners have increased with the opening of the Japanese economy and society. Furthermore, the manner in which the Japanese market opened has had important consequences for politics; the pattern of internationalization in each sector has shaped foreign firms’ political strategies by defining the scope of potential coalitions and tactics available. In sectors such as agriculture where internationalization in Japan has been minimal, foreign actors’ political strategies remain focused on lobbying their respective home governments, which continue to be the primary conduit for private sector demands. However, in other more internationalized sectors, understanding the precise mix of political strategies used by foreign firms requires investigating the cleavages that internationalization creates in both the home and target countries. In some cases, these cleavages favor the formation of cross-national coalitions, alliances between Japanese and foreign actors who consciously coordinate strategies and pool resources in pursuit of mutual aims. When Japanese actors are divided, foreign firms may be able to form cross-national coalitions and increase their political influence. However, divisions among foreign firms may also complicate the policymaking process, resulting in competing cross-national coalitions or in situations in which foreign firms who have achieved market success in Japan try to shut out all new market entrants, both foreign and Japanese alike. 1 To my father i Table of Contents 1 Multinational Firms and the Domestic-International Nexus in Political Economy .................. 1 1.1 Models of Inter-State, Transnational, and Cross-National Politics ................................... 4 1.2 The Multinational Firm and Government-Business Relations .......................................... 8 1.3 Conceptualizing Firm Strategy ........................................................................................ 10 1.4 Corporate Political Strategy in a Globalizing World ....................................................... 12 1.5 Case Selection and Theoretical Framework .................................................................... 18 1.6 Overview of Chapters ...................................................................................................... 20 2 Gaining Access: The Evolving Role of Foreign Firms in Japan ............................................ 23 2.1 From Expelling the Barbarians to Embracing Western Technology (1600-1930s) ........ 23 2.2 The Post-World War II Pre-Liberalization Period (1945-1960s) .................................... 25 2.3 Increasing International Pressure, Liberalization, and Reregulation (1960s-1980s) ....... 28 2.4 Japan’s Second Golden Age of FDI (1990s-present) ...................................................... 33 2.5 Understanding the Current Situation of Foreign Firms in Japan ..................................... 39 3 Agriculture: Private Sector Political Strategy Embedded in a Two-Level Game .................. 41 3.1 Understanding the Domestic Political Games ................................................................. 42 3.1.1 Agricultural Politics in Japan .................................................................................... 43 3.1.2 Agricultural Politics in the United States .................................................................. 46 3.2 The Domestic-International Nexus of Rice Liberalization .............................................. 49 3.3 Conclusion ....................................................................................................................... 57 4 Pharmaceuticals: Insiders Within the Japanese System .......................................................... 60 4.1 The Political Economy of the Global Pharmaceutical Industry ....................................... 61 4.2 Explaining the Pattern of Internationalization ................................................................. 65 4.3 The Political Landscape ................................................................................................... 68 4.4 Pharmaceutical Approval Times and the “Drug Lag” ..................................................... 71 4.5 Drug Price Revisions ....................................................................................................... 76 4.6 Conclusion ....................................................................................................................... 80 5 Insurance: First Movers and the Advantages of Selective Deregulation ................................ 83 5.1 The Political Economy of the Global Insurance Industry ................................................ 84 5.2 Explaining the Pattern of Internationalization ................................................................. 85 5.3 The Political Landscape ................................................................................................... 91 5.4 The US-Japan Agreements on the Third Sector .............................................................. 93 5.5 Postal Privatization and the Trans-Pacific Partnership .................................................... 96 5.6 Conclusion ..................................................................................................................... 102 ii 6 Information and Communications Technology: Dueling Cross-National Coalitions ........... 104 6.1 The Political Economy of the Global ICT Industry ....................................................... 105 6.2 Explaining the Pattern of Internationalization ............................................................... 109 6.3 The Political Landscape ................................................................................................. 116 6.4 Copyright Term Extension in the Trans-Pacific Partnership ......................................... 119 6.5 Privacy Regulation in Japan ........................................................................................... 124 6.6 Conclusion ..................................................................................................................... 128 7 Government-Business Relations in a Globalizing World ..................................................... 130 7.1 Coalitional Configurations and Political Change .......................................................... 132 7.2 Applications to Other Sectors in Japan .......................................................................... 133 7.2.1 Retail ....................................................................................................................... 133 7.2.2 Soft Drinks .............................................................................................................. 134 7.2.3 Luxury Goods ......................................................................................................... 135 7.2.4 Automobiles ............................................................................................................ 136 7.2.5 Civil Aviation.......................................................................................................... 137 7.3 Implications for Japanese Politics .................................................................................. 138 7.4 Implications for Other Countries ................................................................................... 140 7.5 The Domestic-International Nexus in Trade Politics ..................................................... 141 8 Works