Social Capital and Economic Governance: Japan, the US and Germany

1. Social Capital andEconomic Governance:Japan, the US and Germany Jeffrey Broadbent Department of Sociology University of Minnesota, USA

2. Overview of talk • I. Economic Governance and Growth • Governance=State-Society Relationship • II. Methods: • Policy Network Survey • Labor Policy “Domain” • III. Findings • Comparing network patterns • Power in policy-making • IV. Discussion: theoretical implication • V. Conclusion: Social Capital, State and Growth

3. Theories/Models of Economic Governance • Weak-state Market Capitalism • “Washington Consensus” (US) • Strong-State Administered Economy (China) • Problems of transition-”shock” or slow? • Social corporatism: state-capital-labor • Tripartite policy-making (Germany) • East Asian “economic miracles” (Japan) • Puzzle of East Asian growth • Led to theory of Developmental state.

4. Big Questions—”Governance” • Is there “one best way” of • relationship between: • State and business? • State and wider society? • One best balance of freedom and order? • Competition and regulation? • Or does what is “best” • For a given country and time period • Require building on “what is there” -- • The existing institutions, society and culture?

5. Example--East Asian Growth • Challenged US global economic dominance • Confounded neo-classical economic theory: • East Asia: lots of workers, • but little capital, land or resources. • Why East Asian “economic miracle?” • Challenged weak-state market-led theory. • Not strong state-administered economy. • A form of corporatism? • Raised questions about “best” governance.

6. East Asian Developmental State • Basic Idea: • State is autonomous – not corrupt. • And embedded, in networks with business. • State ministries “guide” businesses • Toward national economic goals • While retaining “enough” competition. • Variants: Japan, South Korea, Malaysia, Singapore • More state-led than social corporatism • But less that state-centralized economy

7. Difficulties--Developmental State Model • Japan example: • Until 1990 Japan succeeded. • But 1992-present -- “lost decade.” • Cannot restructure economy • Supports ailing firms • Bad-loan problem (near 100% of GDP) • If government can “guide” businesses, • why was Ministry of Finance not able to • guide banks to stop making risky loans?

8. Varieties of “Mechanism” • to explain Development State governance • State-rule approach • Johnson, MITI & the Economic Miracle • State control of currency exchange • Cultural approach • Okimoto, Between MITI & the Market • “Habits of compliance to state” • Neo-institutional approach • Evans, Embedded Autonomy • “State uses existing networks” • A form of “social capital”

9. Social Capital Networks • Traditional capital – land, labor, money. • Factors of growth and power • Social capital– personal relations that • Bring about trust or assurance in the other. • Facilitates communication and cooperation • Can also be exclusive, only for “members” • Example: voluntary associations (Putnam) • Affected by cultural and social patterns.

10. This Research Project • Investigate the presence and effect • of social capital networks • on information flow, political support • And state role in the economy • in three types of political-economies: • Weak state market-economy (USA) • Social corporatism (Germany) • Developmental state (Japan) • Do they differ in social capital? • If so, Why? Rules, social patterns, culture?

11. II. Methods – data source • Policy network survey: • Japan, United States, Germany • Labor policy “domain” in mid to late 1980s • Respondents: all organizations in domain. • government agencies; • business & labor associations; • political parties; • civil society groups, • About 120 in each national case. • Knoke, et al. Comparing Policy Networks

12. Survey Questions • Three networks among organizations: • Transfer of public political support • Transfer of vital information about politics • Expectation of reciprocity--long-term mutual-aid (a form of social capital) • Reputation for influence • Organizational data (membership, etc.)

13. Question -- Expected Reciprocity (ER) • “Sometimes in politics, another organization will ask yours for political support, and even though your organization has no direct interest in the issue, you will give it. Then you will feel that you can expect a return of that support sometime in the future. Check off all organizations with which your organization has such a relationship.”

14. Thinking like a Network • Holistic qualities of networks • Density (% of all possible connections) • Reachability (% of all possible actors) • Path distance (average # of links) • Pattern • Qualities not reducible to members • Members distinct positions in diverse networks • Distinct networks in tension within polity.

15. III. Findings • Comparison of three networks • Social Capital Networks • Measured by Expected Reciprocity (ER) • Visual image of ER networks: • US, Germany and Japan • Quickly shows differences

19. Expected Reciprocity in the US

20. US SC Network Properties • Small social capital sector in whole polity • Low density, low reachability (27/117) • Only labor unions & public interest groups • Overlap with political support networks • Has intuitive plausibiity • Echoes the core strategy of labor: solidarity • Lack of social capital in whole polity • Reflects individualism (rational opportunism) • of typical U.S. actors

21. Expected Reciprocity in G

22. German ER Network Properties • Scattered around polity • Low density, low reachability (29/126) • Ruling party linked to welfare associations • “Upper” house of provincial gov’ts (laender) • Constitution requires “cooperative relationship” • Hypothesis: Reflects “rule of law” culture, • Multiple party representation and coalitions, • And strong social welfare institutions

23. Expected reciprocity in Japan

24. The “Butterfly State” (labor policy domain) In Japan, the pattern of ER ties takes the shape of a “butterfly.”

25. Japan SC Network Properties • Butterfly pattern in labor policy domain: • Two sectors (business and labor) • Corporatist (pyramidal) organization • Few direct cross sector connections • Government agencies in between • Network theory: “structural hole” • Gov’t bridge-keeper or broker role • Enhances government guidance power • Political parties on periphery of network

26. Depth of Networks • Distances in network are • Social distances, based on • Number of connections • And number of paths to reach. • Image is 2 dimensional projection • Of mulit-dimensional reality • Can show in 3 dimensions • To give better sense of complexity • Of the social reality

27. Mage projection • Of Japan social capital network

28. Inter-Network Correlations SC=Social Capital Network VI=Vital Information Network PS=Political Support Network ER3, etc.= a third party in common

29. Network Overlap Tendency--Japan SOCIAL CAPITAL A VITAL INFORMATION POLITICAL SUPPORT B C

30. Networks and Political Power • Survey used measure of • “reputation for influence” (RI) • Asked all 120 expert respondents to • Check off all organizations they thought • “Especially influential in labor politics” • Total score (0 – 120) is influence measure.

31. Fifteen Most Influential Organizational Types in Japan, US and Germany

32. Connections and Rep for Influence (RI)

33. Basis in Popular Culture? • Some argue Japan has: • Strong habits of obedience and trust • Toward government and people • But international surveys show this not true. • Lower trust toward major institutions • than found in Germany & US

34. Confidence

35. Discussion

36. Inter-Elite Networks • Lack of trust in popular values • Indicates social capital networks • Not derive from embedded popular values. • Social capital networks inter-elite, • They cultivate in-group mutual trust. • And also channel important resources • That cascade down membership hierarchies. • Shows “duality” of social capital

37. Butterfly Pattern and Power • Guidance power of Japanese state • Depends not purely on culture • —habits of obedience-- • But on “butterfly” pattern • of social capital network • Giving state role as broker • between two sectors. • This pattern also held for (then) MITI • between main business conglomerates

38. Butterfly not in all policy sectors • Not present in financial policy domain. • Corporation sector grow, more independent • No countervailing shareholder sector-- • One wing and central body only. • As a result, despite many Old-Boy networks t • Ministry of Finance could not restrain banks • In late 1980s, banks made many bad loans • Brought on Japan’s “lost decade”

39. 羽落とす 蝶々はどこ 落ちる哉 The End Lost a wing, Where will the butterfly Flutter down?

40. Socio-culture and Butterfly • High density and inclusiveness of • Of social capital ties in Japan • Stable pattern of vertical ties to third parties • Family (ie) (Nakane Chie, Vertical Society) • Peak associations negotiate policy • Village model of decision-making (mura) • Butterfly pattern negotiates class tensions • With personal relationships

41. US: Individualism and market • US weak-state market-led model • fits with information flow network- • rapid immediate one-step flow. • and weak social capital network— • lack of “sticky” relational commitments • Permits constantly shifting alliances • Among business and political interests

42. Germany: Law and Institutions • Very “solid” labor and welfare institutions • Built like Mercedes cars-- to last. • But organize labor market too rigidly • To respond best to rapid technology change. • Importance of law and order in German culture • Transition from state to social corporatism • Now slowly to more market-led organization

43. Institutional “Echoing” • Basic values and relational patterns • Affect possibilities of formal institutions • What types will function most effectively • For public goods outcomes • In a given society and nation.

44. Not automatic • Socio-cultural levels not • entirely self-organizing (auto-poetic) • But also not entirely • imposed by authorities. • Network patterns (and values, schema) • Provide embedded rules and resources

45. “Steering” and Design • Intentional actors can use • Embedded socio-cultural qualities • To build institutions • Example-Japanese officials “built” • labor and business corporatist organization • Using indigenous embedded models • To “tame” 1950s surge of union growth • And steer society toward maximal productivity.

46. Tensions between Networks • Networks as meso-level patterns • Different networks can have different • Patterns and included actors • These can be in tension, cross-purposes • Whole system not “integrated” like body • How to have “creative tension”?

47. Conclusions

48. Political-Economic Social Network Patterns • Interaction between culture, social relational patterns and “objective” political-economic structures varies by nation/society Culture Society 1 Society 2

49. To build most effective institutions • For public goods production, • And for private goods production, • Institutional creators need to • Pay attention to indigenous • Embedded social patterns • To work with them positively • To create empowering institutions

50. finis