Reprogramming Japan: The High Tech Crisis under Communitarian Capitalism

By Marie Anchordoguy

How have state policies influenced the development of Japan's telecommunications, computer hardware, computer software, and semiconductor industries and their stagnation since the 1990s? Marie Anchordoguy's book examines how the performance of these industries and the economy as a whole are affected by the socially embedded nature of Japan's capitalist system, which she calls "communitarian capitalism."

Reprogramming Japan shows how the institutions and policies that emerged during and after World War II to maintain communitarian norms, such as the lifetime employment system, seniority-based wages, enterprise unions, a centralized credit-based financial system, industrial groups, the main bank corporate governance system, and industrial policies, helped promote high tech industries. When conditions shifted in the 1980s and 1990s, these institutions and policies did not suit the new environment, in which technological change was rapid and unpredictable and foreign products could no longer be legally reverse-engineered. Despite economic stagnation, leaders were slow to change because of deep social commitments. Once the crisis became acute, the bureaucracy and corporate leaders started to contest and modify key institutions and practices. Rather than change at different times according to their specific economic interests, Japanese firms and the state have made similar slow, incremental changes.

• Language: English
• Publisher: Cornell University Press
• Release date: Sep 11, 2015
• ISBN: 9781501700859

Book preview

1 The Dynamics of Communitarian Capitalism

After half a century of explosive growth and increasing global competitiveness, Japan’s economic power is in decline. While Japanese firms remain important players in autos, electronics, and machine tools, they are no longer the world’s dominant manufacturers. Talk in the late 1980s of a Pacific Century dominated by Japan has been replaced with a sense that Japan’s economic health is increasingly dependent on the growth of emerging powerhouses such as China. Its banks, once the world’s strongest, are now so weak that some fear large bank failures could trigger a financial crisis. In 1998, its per capita GDP fell behind that of the United States; in 2001, it slipped to fifth place and in 2002 to thirteenth place.¹ In a 2004 survey on global competitiveness, Japan ranked twenty-third, down from number one in 1993, though up from thirtieth place in 2002.²

The economy’s deterioration has been reflected in the stock market. At its peak, firms listed on the Tokyo Stock Exchange accounted for 31 percent of the capitalization of firms listed around the world; by 2002 that number had fallen to 9 percent of the global total.³ In 2002, Okuda Hiroshi, chairman of Keidanren and Toyota Motors, warned that the nation’s problems could lead firms to move their headquarters and factories overseas, and a government official acknowledged that Japan needs foreign investment, technology, and expertise to revitalize its economy.⁴ Official government debt soared to 140 percent of GDP by 2004, far higher than any other industrial nation. Including hidden debt, the level is estimated by some at twice the nation’s GDP. Wage increases have stagnated and wage cuts are common. Economic decline has had serious social implications. Suicide rates rose 30–40 percent between 1997 and 2003, giving Japan the world’s second highest suicide rate, more than double that of the United States.

Despite massive economic problems, the nation has been slow to respond. Its banking crisis has dragged on for a decade and a half. Government debt continues to mount through subsidies to inefficient sectors, such as agriculture and construction, at the expense of more efficient firms. Even relatively efficient firms continue to follow policies widely recognized as debilitating. How can we explain this dramatic reversal of fortunes and the nation’s slow response to these challenges? Why has a nation of highly educated, disciplined, achievement-oriented citizens with a strong sense of nationalism continued to allow its economy to drift? Why do strong firms allow themselves to be held back by the weak? Why do firms in so many industries fail to break away from a losing pattern of similar pricing, product, and R&D strategies? Why does the government continue to prop up the stock market and bankrupt firms that analysts call zombies?

Some experts attribute recent failures to poor monetary and fiscal policies. William Grimes and Adam Posen, for example, argue that a weak Bank of Japan (BOJ), tied too closely to the Ministry of Finance (MOF), made major mistakes in monetary policy, such as keeping interest rates too low for too long in the late 1980s. This resulted in a stock and land price bubble, overinvestment in manufacturing capacity, and a huge increase in high-risk loans by banks.⁵ Others see slow and uneven financial deregulation and inadequate corporate governance regulations as key causes. This view suggests that the absence of transparent, accountable monitoring mechanisms led banks to loan and firms to borrow and invest huge sums based on inflated asset prices without properly assessing risks.⁶ The economic woes of the 1990s and early 2000s are also attributed to institutional gridlock and outmoded institutions. Ed Lincoln, for example, points out that many of Japan’s institutions are outdated but that the pain of its economic downturn has not been severe enough to induce sweeping changes.⁷ Richard Katz argues that overinvestment in unproductive industries since at least the early 1970s created problems that were hidden because of the expansion of other healthy industries and the bubble in asset prices.⁸ T. J. Pempel and other political scientists show that domestic political factors, such as long-term one-party dominance and factional politics, have led to vested interests that obstruct economic and political reform today.⁹

To be sure, basic macroeconomic errors such as loose monetary policy and tight fiscal policies, too little monitoring of firms, institutional obsolescence, and vested interests in the status quo are critical parts of the explanation for Japan’s economic doldrums since the 1990s. This book suggests an overarching explanation for why these shortcomings appeared to emerge simultaneously to undermine Japan’s economic power. The source of the problem lies in the form of capitalism that emerged in Japan in the postwar period. I call this system communitarian capitalism. The system helped accelerate economic development under the conditions that existed up until the 1980s but is also responsible for the economic paralysis that followed.

Lincoln, Katz, Pempel, and Grimes are right about the key problems causing Japan’s economic malaise. However, all nations experience these difficulties in adapting policies and institutions to a new environment. During good times, all economies tend to overinvest, leading to excess capacity and bad loans, and this overshooting is always exacerbated to some extent by shortcomings in monetary policy and corporate oversight. Every country has its share of obsolete institutions. Every political system struggles with vested interests that resist change. However, such problems are much more severe in Japan. Even after more than fifteen years of low-to-no growth and the threat of financial collapse, change remains slow and incremental, though it has accelerated since the late 1990s.

Many of these approaches lack an understanding of the norms that broadly shape key decisions. Japan’s capitalist system is embedded in deep-seated communal norms regarding justice, social order, national identity, and national self-sufficiency. These broad social forces aim to maximize a strong sense of community. I suggest that these norms, enshrined in communitarian capitalism, help explain the severity of the economic malaise, as well as the nation’s inability to respond.

Communitarian capitalism explains how overshooting, which leads to excess capacity and bad loans, is a much greater problem in Japan, because firms tend to have similar strategies and product lines; and once they invest, they make commitments that are unacceptable to abandon. In a communitarian capitalist system, it is difficult to eliminate obsolete institutions, because social and developmental norms make it unacceptable to allow the winds of creative destruction to sweep them away. Also, vested interests can cause severe paralysis, because a broad communal consensus is needed before policies and institutions can shift directions. And in such a system, everyone is a trusted member of the same community, the same family; thus monitoring firms is not a normal part of doing business. Communitarian capitalism explains how in nations such as Japan, where behavior is governed by intricate social conventions based on trust rather than law, the tendency to hide problems is especially strong because making a mistake or doing something untrustworthy results in harsh social sanctions. Yet covering up and not dealing with problems only exacerbates them. In sum, only by understanding the social reality that the Japanese state, firms, and citizens have created and maintained in the postwar period can we explain what otherwise appears to be irrational behavior.

To explore the sources of Japan’s economic success in the postwar period, as well as its recent problems, I draw on a variety of approaches in sociology, law, and political science that emphasize the role of norms in shaping behavior, such as the institutionalist approach in economic sociology drawn from the work of Max Weber and extended by scholars such as Nicole Woolsey Biggart, Gary G. Hamilton, and Mark Granovetter.¹⁰ In contrast to much of the economics and political science literature that views institutions and policies as emerging and evolving over time to advance actors’ economic and political interests, these scholars see economic action as social action. They show how economic behavior is influenced not only by narrow self-interests but also by actors’ histories, desires, sense of justice, habits, religious beliefs, nationalism, and other powerful forces that transcend those narrow interests. In this book, I examine a series of cases inductively and show that the emergence and maintenance of Japan’s postwar capitalist institutions and policies and the system’s paralysis in the past decade cannot be fully explained without understanding the history and social context of these arrangements.¹¹

Just as scholars were identifying some of the key mechanisms that propelled the economy toward rapid growth and industrial competitiveness in the 1960s, 1970s, and 1980s, the system stopped performing. Did we fail to identify the critical ingredients of success, or has the environment changed? If Japan’s development was driven largely by a strong and effective developmental state, why has that state been ineffective in promoting economic growth since the 1990s?¹² If the state has been merely a tool of business or politicians, and market forces have been the primary impetus driving development, why did market forces promote development from the 1950s through the 1980s yet go awry starting in the 1990s?¹³ If, as some studies suggest, business-state networks, keiretsu, the main bank corporate governance system, and trade associations have been essential to development, why did they function well in the past but not in the 1990s and early 2000s?¹⁴

The environment did dramatically change in the 1980s, and the state, firms, and citizens failed to adapt to this new environment because of social and developmental commitments enshrined in the institutions and policies of communitarian capitalism. In the postwar period, patterns of behavior favoring egalitarianism (byōdō shugi), cooperation, consensus decision-making, and national autonomy became routinized, taken for granted, understandings about the way things are done.¹⁵ Institutions and policies embedded in these norms were insulated, delaying the impact of and adaptation to the forces of globalization. These rules dictated, for example, that workers were not to be laid off, that loyal suppliers were not to be abandoned, and that firms were to rely on domestic products as much as possible, even if they were not competitive. Allied firms were to be bailed out, even if they were in a hopeless situation, just as one would bail out a sibling. Unwilling to alter practices in ways that would disrupt this social order, the state, firms, and citizens, by default, chose the alternative: economic decline.

1. Communitarian Capitalism

Communitarian capitalism is an economic system characterized by an activist state and a number of private-sector organizations that manage markets to promote development and national autonomy in the context of the broader goals of social stability, predictability, and order. Drawing on the notion of organizational logic—a supra-organizational norm that structures social relations—this study posits that the community is the basic organizational logic that guides state, corporate, and individual behavior in Japan.¹⁶ This logic dictates elaborate social conventions about how the state, firms, and individuals should behave in given situations. The rigidity of these customs binds community members into a strong collective identity. Those who do not abide by these customs are rejected as outsiders and excluded from the benefits granted to members of the community. This study uses the concept of communitarian capitalism as an overarching explanation of behavior in postwar Japan. It should be clearly distinguished from George Lodge’s use of it as a general term to describe the tendency of governments of nations such as Japan, Germany, and Sweden to give more priority to the community than countries such as the U.S. and the U.K.¹⁷

Historical Roots of Communitarian Capitalism

Every society determines for itself what mix of states, markets, rules, and corporate control it finds acceptable. The particular mix is a function of history and the kind of trade-off citizens are willing to accept. Japan’s late developer status, its feudal past, the threat of colonization by Western powers, and a strong national consciousness and identity all contributed to the emergence of a strong activist state in the Meiji period, which promoted national autonomy and economic development.¹⁸ After World War II, Japan’s rulers felt the need to return to their statist tradition in order to rebuild their economy. Just as they had in the Meiji period, the nation’s bureaucrats determined that a critical ingredient needed in order to produce prosperity and independence was raising the level of its technology.¹⁹

New to postwar capitalism was not simply a higher degree of state control, but, more importantly, a new social contract. In return for working hard and conforming to a rigid set of societal rules, citizens were assured secure employment, annual age-based wage increases, and a voice in decisions regarding their group. Call it quasi-capitalism. While there are all the trappings of private property and profit-making institutions, communitarian capitalism gives high priority to sustaining large firms as more or less permanent fixtures of the economic landscape. Decisions are made that favor social stability over efficiency. The contribution a firm makes to the nation’s technological capability and jobs for its citizens is more important than the profits it produces for shareholders. There is tension between the coexisting social and developmental capitalist goals of the system. Higher priority has been given to sociopolitical objectives in some periods and developmental goals in others, and in some periods, such as that since the 1990s, there has been severe tension between them.

In contrast, the U.S. political-economic system emphasizes individual rights, liberty, and the rule of law. Deep-seated beliefs in individual autonomy and economic rationality emerged on account of America’s historical experience. The diverse origins of Americans—their lack of a common past or common culture—required a heavy emphasis on the rule of law to establish a level playing field for all actors. Over time, these norms became institutionalized in a set of laws and regulations that determined reasonable, legitimate behavior. America touts these laws and norms—focused on competition and efficiency, encoded in neoclassical economic and rational choice theory—as universal. The rational economy—the natural economy, it is suggested—would be much like America’s. Yet in economies that develop under different conditions, the notion of what is rational can vary greatly.²⁰

Japan’s capitalist system coalesced in the early postwar period out of the confluence of controls created in preparation for total war together with measures and institutions developed to help cope with defeat. Horrified by the war experience, humbled by a foreign occupation and a constitution written by foreigners, and ostracized and criticized for their wartime brutality, leaders and citizens felt vulnerable. Isolated and disliked, they turned inward.²¹ The chaos of war had disrupted once strong social ties and led to pervasive distrust of leaders. To rebuild their social fabric, restore a sense of trust among leaders and followers, and kick-start the economy, they needed security and stability. To cope with social unrest caused by hunger, labor strikes, and black markets, leaders and citizens sought to develop a system whereby the majority of the citizens would be supported as long as they worked hard and in cooperation with others. Personal and corporate failures were to be minimized to maintain social stability; the nation had had enough failure during the war.²²

Over time, the desire to minimize vulnerability and create a sense of community by sharing risks became a core norm, a deeply rooted logic around which state, corporate, and social behavior became organized. To draw on nationalist sentiments as a means of cementing community ties, it was necessary to hide Japan’s wartime past; to achieve this, leaders promoted a view of Japanese as victims of, rather than aggressors in, World War II. To strengthen the sense of the nation as a community, they focused on their differences with foreigners. The new mantra was the need to work hard to reduce vulnerability as a small island nation with no natural resources. Conformity within the community, among individuals and among firms, became an important virtue. Patterns of behavior that focused on promoting economic development, national autonomy, and social stability, not competition and profit, became viewed as the normal way of doing business.²³ These invisible yet powerful norms, promoted in schools, state agencies, and firms, became deeply embedded in the psyche of citizens. To maintain them, institutions and policies emerged, such as lifetime employment, seniority-based wages, keiretsu (industrial groups), the main bank corporate governance system, enterprise unions, and industrial policies. This emphasis on sharing the wealth broadly has led some people to describe Japan as socialist.²⁴ Japan is the most successful socialist society in the world, argues one senior telecommunications executive.²⁵ Komiya Ryutarō, a renowned economist, says it is inappropriate to call Japan’s system capitalism because large Japanese firms are worker-managed and employees, not shareholders, share in the distribution of profits.²⁶ The company, in that sense, is not truly owned by shareholders. Another top economist explains that Japanese firms pursue not profit as economists usually define it but the value added that can provide the basis for long-term job stability, and for a style of management that provides for long-term provision of meaningful and satisfying work for the employees…. Therefore it is not the pursuit of profits in the classical sense of resources available for distribution to shareholders.²⁷ A top executive at Matsushita Electric Industrial, criticizing American-style capitalism in 2004, emphasized that a corporation is a group of people; it is not private property, it is a public good.²⁸

Thus, a particular set of historical circumstances led to the emergence of communitarian capitalism in the early postwar period. This experience led the Japanese to put even greater reliance on their existing proclivity toward consensus decision-making and emphasis on the group over the individual. Low returns on equity became acceptable. Cross-shareholding was encouraged to protect firms from foreign takeovers and gradually became the normal way of sealing business relations. A relatively small salary gap between management and labor helped promote a sense of fairness. This is not to say that communitarian capitalism is driven by benevolence or goodwill.²⁹ Nor is this an argument that a strong society somehow has veto power over the bureaucratic and corporate elite. In fact, communitarian capitalism is not always good for all in the community. In the 1960s and 1970s, consumers were sacrificed on the altar of industrial growth; since the 1990s, savers, wage earners, and young university graduates have borne much of the burden of the system as a result of low interest rates, shrinking pensions, stagnant wages, and fewer jobs. Rather, the argument is that any improvement in living standards should go to the broadest base possible. That is, communitarian policies, rather than a universal compact, have been the result of a set of political compromises made by top leaders in the bureaucracy, big business, and the Liberal Democratic Party (LDP). These policies were fashioned to have widespread appeal but clearly benefited some groups more than others.

For several decades these risk-sharing, stability-promoting institutions and policies nurtured industrial and technological advances; they maintained secure employment and a sense of everyone being part of the middle class. However, in the 1980s, when global technological and economic conditions started to change, the social and developmental objectives of communitarian capitalism came into conflict. In this new environment, these arrangements were no longer effective in fostering advanced, competitive firms. Yet, altering or dismantling them would undermine norms regarding employment security, fairness, and the need to keep foreigners at bay. In market-based systems, firms were forced to restructure or go bankrupt. However, communitarian capitalism protected Japanese firms from the gales of creative destruction. Gradually, state and corporate leaders started giving priority to social objectives, even though this sapped industrial strength. By the dawn of the 21st century, clinging to lifetime employment, age-based compensation, and the notion that large firms should not be allowed to fail was hurting the economy and threatened to undermine the cohesiveness of the community. That is, obsession with secure employment and fair treatment of workers and firms became risky, endangering social stability and national autonomy.

On account of the recession in the late 1990s, state, corporate, and individual actors started to contest these norms, attempting to reshape them in order to promote better economic returns. Some actors pushed for changes to strengthen corporate balance sheets and encourage new start-ups and more invention. Others dug in their heels, insisting that job stability should be maintained, that firms burdened with bad debt should be bailed out, and that technological dependence on foreigners should be minimized. The various clashes over how to adjust deep-seated norms led to modifications of practices and experimentation with new organizational forms. However, change has been incremental and late in coming. Communitarian norms are being reshaped, not dismantled.

Key Characteristics of Communitarian Capitalism

Three fundamental characteristics distinguish communitarian capitalism from market-based, liberal capitalist systems. These elements are interrelated parts of a quasi-socialist system with an overall logic that promotes development but also gives high priority to social objectives, especially a strong sense of community. They are artificially separated for analytical purposes. The first element is the role of the state and how it intervenes in the economy to promote domestic industries and social stability. The state manages markets; it does not play the objective umpire role necessary to create and maintain free markets. The second element is the role of the private sector. Firms, rather than focusing on maximizing profit, manage markets in ways that promote continuity and minimize failure. They compete, but within relatively clear limits. Rather than fully competing, they negotiate; they share risks by having similar pricing, product, and R&D strategies and avoid putting each other out of business. The result is a strong feeling of coexistence (kyōson) and coprosperity (kyōei)—of belonging to a tight community. Competition rarely results in the bankruptcy of a major firm. One consequence of this process is a civility that can undermine efficiency. The process of creative destruction by which competition clears out firms that fail to adjust to change by adopting new technologies and organizational structures, for example, has been blunted.

The third element is the role of individual social behavior. The state and the private sector created an environment in which unfettered competition was discouraged and failure was minimized. Within this environment, individuals also behaved in ways that broadly distributed risks and rewards and minimized personal failure.

The Role of the State: Managing Markets to Promote Industrial Development and Sociopolitical Stability

Communitarian capitalism is characterized first by an activist state; however, the state has not been willing to enforce the antimonopoly law or other neutral competition policies that would encourage and maintain relatively free and fair markets. A free market system requires an umpire, whose job it is to make sure markets are not controlled by a few firms. The Japanese state does not play this role because it does not wish to upset the social equilibrium among incumbent firms. Playing the umpire role to ensure open competition means creating a situation in which there will inevitably be clear-cut winners and losers. In fact, free markets often lead to winner-take-most or winner-take-all outcomes. This cannot be allowed in a communitarian system. It would undermine the state’s legitimacy as protector of social stability, continuity, and order. In a community where secure employment, survival, and relatively egalitarian outcomes are prized, risk must be shared, hence socialized. Thus, while the state allows market forces to determine success or failure at the margin, it is not willing to allow those forces much leeway because of the social instability and stigma that result from corporate and individual failure.³⁰

Americans think competition is best, as if it is a religion. Japanese people feel very differently. In Europe and the U.S., the antimonopoly law has its basis in the principles of freedom and individual rights. However, we have the group principle. We are a family, so we have a completely different way of thinking. We see free competition as unfair, explained a former head of Japan’s Fair Trade Commission (FTC), which implements the antimonopoly law.³¹ This view of competition as unfair leads to strong efforts to minimize failure (and the loss in status and face this involves) and is one reason why the state and firms manage markets. Another reason is to protect firms to create comparative advantages.

This element of communitarian capitalism—managing markets for both economic and social purposes—was a key tool used to nurture development during the catch-up stage when the state could control the domestic environment, the technological trajectory was clear, products could be reverse-engineered, and there were no other late developers to compete with. At this stage, giving priority to nurturing domestic technology and production expertise over the process of free competition spurred development. That is, managing markets during the catch-up stage provided firms with a safe haven free from short-term shareholder pressures and takeovers; this protection allowed the state and firms to invest heavily, plan development, and focus on incremental product advances through ever-improving manufacturing techniques. State management of markets helped firms gain access to necessary foreign technology easily and at low cost. Discouraging consumption stimulated savings, allowing rapid capital formation and low interest loans to large firms. Exemption of firms from the antimonopoly law allowed them to cooperate on prices, R&D, and products in ways that promoted technological progress and reduced wasteful competition.

However, when conditions changed, state management of markets not only became very difficult; in some cases, it impaired competitiveness. As Japan’s economy grew into the world’s second largest, its firms started producing, investing, and raising funds abroad. The state could no longer control interest rates or influence where resources were allocated. Nor could it protect and target specific industries without eliciting foreign outcries about unfair practices. The nation’s focus on boosting manufacturing expertise hindered the development of research, managerial skills, and organizational structures conducive to technological breakthroughs; treating people equally gradually demoralized star performers; the centralized, bank credit-based financial system stunted venture capital and the emergence of new independent firms. In short, protection and encouragement of behavior that promoted egalitarianism, social stability, and order, over time made state and corporate institutions inflexible and unable to adapt to a new technological paradigm that required new ideas and quick labor and capital mobility.

The Private Sector: Managing Markets to Minimize Failure

A second critical aspect of communitarian capitalism that distinguishes it from a U.S.-style market-based system is that the private sector, like the state, also manages markets to spread risks and avoid failure and thereby support the broader community. Okumura Hiroshi, a prominent economist, calls this the logic of continuity (keizoku no rojikku).³² It results in a weak mechanism for getting rid of institutions that have outlived their usefulness. In market-based capitalist systems where returns are correlated with risk, the market for corporate control and competitive labor and capital markets, including venture capital markets, help sweep away incompetent management, old ideas, and obsolete institutions and nurture new ones. Japanese call the U.S. system one of many births, many deaths (tasan, tashi) and Japan’s system one of few births and few deaths (shōsan, shōshi) (see Figure 1.1). Japan’s system prefers no big winners and no big losers, explained a former Ministry of International Trade and Industry (MITI) official.³³

To promote cohesion among members of the community, firms socialize risks through secure employment, seniority-based wages, cartels, cross-shareholding, and main bank relationships. The emergence of winning firms is hindered by the knowledge that company workers cannot be laid off. A firm’s primary motivation is to grow sales enough to keep employees busy. We do not want any bankruptcies. All companies should survive, explained a former Japan Development Bank (JDB) official.³⁴ To minimize failure, firms compete cooperatively and in an orderly manner: they compete on quality and cost but tend to have similar strategies and cooperate in ways that allow all to survive. This behavior is called yokonarabi kyōsō (literally, competition while lined up side by side), although it is sometimes referred to as horizontal, parallel (heikō), or homogeneous (dōshitsuteki) competition.³⁵ This negotiated, risk-sharing behavior is reflected in the prevalence of yokonarabi kenkyū (research done by firms working side by side) and other forms of limited competition such as the convoy system in finance, the dangō bid-rigging system in the construction industry, and cooperative R&D projects in various industries.

Yokonarabi behavior nurtures a strong sense of community, which contributes to social and economic stability, predictability, and order. It protects weak firms at the expense of the strong. Rather than take on high risks alone, firms prefer to be orderly and cooperative and be blamed collectively if mistakes are made. "Managers and their firms follow yokonarabi strategies because if they fail, they fail together so they won’t be blamed. In Japan you do not have to be number one; you have to avoid being the worst," explained a senior fellow at the Fujitsu Research Institute.³⁶ As a consequence, the top firms in a given industry have similar corporate structures, strategies, and competencies. They tend to offer relatively equivalent products at about the same prices; when one puts out a new product, they all tend to jump into the market; when one goes overseas, all tend to follow.³⁷ "If one firm goes to the right, other firms do not think about going to the left. Individuality is weak in Japan, so we compete horizontally [yokonarabi kyōsō]. Everyone wants to do the same thing, explained a former head of the FTC.³⁸ We Japanese do not like competition too much. It is not well respected in Japanese society. Japanese don’t like clear winners and losers," explained a former JDB official.³⁹

Figure 1.1. Corporate creations and closures in the U.S. and Japan (1982–2002)

Yokonarabi behavior by firms tends to lead to price competition, which is often called excessive competition (katō kyōsō). Calling it excessive shows the strong norms of coexistence and survival (seizon)—that no firms should be left behind. Noguchi Yukio, a prominent economist, says this reflects a view that competition is evil, that its logic is one of promoting the strong and ignoring the weak and should, from the point of view of fairness, be minimized.⁴⁰

Similar strategies leading to katō kyōsō reduce profits and tend to result in overinvestment, excess capacity, and dumping abroad, especially in export-oriented industries sensitive to economies of scale. Dumping is viable because managed markets make domestic consumers pay high prices, which subsidize below-cost exports. Because of the community’s taboo against behavior that might bankrupt a domestic competitor, firms seek market share gains at the expense of foreign firms. We will compete with each other but in the end will not defeat—bankrupt—each other. We will compromise. If a firm has problems, someone will help it, explained a former JDB official.⁴¹ A prominent telecommunications scholar concurs. One of the big brother firms will always help the small brothers before they get to the point of bankruptcy.⁴² Firms and shareholders accept the lower returns inherent in such risk-sharing arrangements as a trade-off for secure employment and virtually guaranteed corporate survival. However, with foreigners, you can compete and defeat them because they are not part of our family, explained the same former JDB