POLS 459 Politics of East Asia

1. POLS 459 Politics of East Asia Japan in the 20th Century: The Power of Institutions? October 16, 2007 Timothy C. Lim, Ph.D. California State University, Los Angeles Contact: tclim@calstatela.edu

2. Japaninthe20thCentury:ThePowerofInstitutions? • The Importance of Institutions • “Institutions are a fundamental--if often ignored--element of technological change and economic transformation.” Let’s unwrap this statement by beginning with a basic question … What is an institution?

3. Japaninthe20thCentury:ThePowerofInstitutions? • What is an Institution? • The word “institution” is used in a variety of ways. One of the most common is this: • “An established or organized society or corporation” • The foregoing definition is a very narrow definition and for our purposes, it is not adequate In popular usage, the word institution is typically associated with a concrete entity, such as a banking institution

4. Japaninthe20thCentury:ThePowerofInstitutions? • What is an Institution? • In the social sciences, a broader definition of institutions is typically used. Here is one, somewhat complicated, definition: • Institutions are structures and mechanisms of social order and cooperation governing the behavior of two or more individuals. Institutions are identified with a social purpose and permanence … and with the making and enforcing of rules governing cooperative human behavior. The term, institution, is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organizations of government and public service (from Wikipedia). Click on the wikipedia globe for further discussion

5. Japaninthe20thCentury:ThePowerofInstitutions? • The Importance of Institutions • More Basic Questions • Why do institutions matter? • How do institutions emerge? • What do institutions do? They matter because all significant forms of human activity--including economic activity--do not and cannot emerge or operate in a vacuum. Institutional arrangements have a fundamental impact on how people and firms interact with one another. In this regard, it is critical to understand that the “market” is itself an institution. Institutions do not emerge tabula rasa (that is, from a clean slate); instead, they reflect the legacy of old social and institutional forms--they have historical origins. Even more, institutions are sustained and are reproduced through a political process, which means that also reflect both historical and contemporary relations of power. Institutions organize societies in myriad ways. They provide a framework for our thoughts, actions and general behavior. They make all types of social interaction relatively predictable and stable, which is necessary for societies to survive and, sometimes, to thrive. Institutions, however, are not forever fixed or unchangeable. These are all pretty “big”questions that we cannot fullyanswer now. Still, it is worthwhileto consider very basic answers

6. Japaninthe20thCentury:ThePowerofInstitutions? • Institutions and Economic Production • Key Points • The organization of the production system is necessarily embedded within a changing social and organizational context • Social institutions help to organize demand and establish the conditions for self-sustaining economic growth and reproduction • Social and economic systems are given their coherence by institutional arrangements • Institutional arrangements, while seemingly solid, are also fluid during times of change: indeed, “once certain critical points are crossed, existing institutional arrangements begin to unravel…” and may become dysfunctional 1 2 3 4

7. Japaninthe20thCentury:ThePowerofInstitutions? • Institutions and Economic Production • “The solution to such … dysfunction is twofold. The reorganization of the production system and the broader institutional system which surrounds it are needed to create the conditions for a new round of economic expansion …” • “At bottom, this institutional system must help to realign work organization and technology to create a production system and a broader and related system of economic, political, and social institutions that create the institutional space required to generate and harness new sources of values and productivity improvement …”

8. Japaninthe20thCentury:ThePowerofInstitutions? • The Case of Postwar Japanese Capitalism • According the institutional perspective, the key to explaining Japanese postwar economic success is to be found in the way institutions that have been organized--particularly in the production system • IMPORTANTLY… • this new system was not simply imposed by powerfulfirms or even the state; instead, it was the outcome of a process of organizational evolution punctuated by industrial struggle and management response

9. Japaninthe20thCentury:ThePowerofInstitutions? • The Case of Postwar Japanese Capitalism • So how is the Japanese production system organized? What are the key institutional arrangements? • According to Florida and Kenny, there are two major lines of accommodation that revolve around … • __________________________________ • __________________________________ Guaranteed long term employment Enterprise unions

10. Japaninthe20thCentury:ThePowerofInstitutions? • “Lifetime” Employment Not a product of intrinsic “harmony,” but of industrial struggle and compromise: Until the (institutional) practice of lifetime employment was created, Japanese workers were often intensely “disloyal” to companies, which created all sorts of difficulties, thus … Companies needed to find a way to attract and keep employees Image: A group of new workers for Toyota at the company’s welcome ceremony

11. Japaninthe20thCentury:ThePowerofInstitutions? • Lifetime Employment: Advantages • Lifetime employment provided unanticipated flexibility for Japanese companies … • Less resistance to technological change (e.g., automation) • Little need for elaborate job classifications • Encouraged job rotation and skill sharing • Encourage heavy investment in human capital • Emphasized worker knowledge

12. Japaninthe20thCentury:ThePowerofInstitutions? • Lifetime Employment: Advantages • Directly or indirectly, lifetime employment led to a range of institutional innovation in Japanese manufacturing, as explained by Florida and Kenny … • “Teams of workers with overlapping work roles replaced the functional specialization of the mass production labor process. This allowed workers to cover for each other and experiment with new task allocations and machine setups … Japanese manufacturing came to characterized by high degrees of knowledge mobilization and learning-by-doing. • This not only increased productivity but reduced certain aspects of worker alienation. The end result was a powerful synthesis of intellectual and physical labor”

13. Japaninthe20thCentury:ThePowerofInstitutions? • Toyota Production System • The Japanese system is exemplified by by the Toyota production system, which is illustrated in the following video. As you watch, consider the points made by Florida and Kenny. Consider, too, why Toyota is able to replicate its system in the United States, but why American companies cannot orhave not dones thesame … Video intentionally removed

14. Japaninthe20thCentury:ThePowerofInstitutions? • Enterprise Unions: A (Very) Few Words • Enterprise unions are a second key institutional feature in Japan: they are what the term suggests, namely, unions that are based within a particular firm (or multi-plant enterprise) as opposed to the American “trade union” model (click here to read an online article on enterprise unions in Japan) • As with lifetime employment, the authors imply that enterprise unions give Japanese companies more flexibility to deal with new economic challenges--at least for several decades following the end of the second World War

15. Japaninthe20thCentury:ThePowerofInstitutions? • Institutional Dysfunction? • Florida and Kenney’s article was written in 1994: since then, the Japanese economy has undergone significant challenges … • Key institutional advantages have become, in some respects, significant disadvantages, particularly lifetime employment; indeed, the practice of lifetime employment is beginning to disappear • The key question is this: Will Japan, from an institutional perspective, but able to readjust?

16. Japaninthe20thCentury:ThePowerofInstitutions? • Losing the War with Japan Made in 1991, this PBS documentary examined the Japanese economic “juggernaut” of the 1980s, a time when many analysts believed that Japan would soon overtake the United States as the #1 economy in the world Clearly, the Japanese juggernaut faltered, but this does not necessarily mean that the analysis provided in the documentary was entirely wrong. With this in mind, consider the following questions …

17. Japaninthe20thCentury:ThePowerofInstitutions? • Losing the War with Japan What theoretical perspective is most clearly reflected in the film? In retrospect, on what points were the filmmakers--and other commentators--obviously mistaken? On what points, if any, were the filmmakers largely correct? In terms of (theoretical) analysis and explanation, what is missing from the film? Why do you think the prediction about the Japanese domination turned out wrong?