Academic journal article Journal of Southeast Asian Economies

The Japanese Business and Economic System: History and Prospects for the 21st Century

Academic journal article Journal of Southeast Asian Economies

The Japanese Business and Economic System: History and Prospects for the 21st Century

Article excerpt

The Japanese Business and Economic System: History and Prospects for the 21 St Century. Edited by Masao Nakamura. New York: Palgrave, 2001. Pp. 402.

The book consists of thirteen independent chapters covering diverse topics and offers a rich set of empirical evidences and plausible explanations on many aspects of Japan's business and economic development. Several chapters are reviewed here under a common thread: microeconomic clues to Japan's economic performance with the late 1980s (making and bursting of a bubble economy) as the latest observed turning point.

Kiyokawa (Chapter 7) applies "technological gap framework" to Japan's industrialization, in which three stages of technology assimilation and transfer took place in an overlapping way: trial introduction, diffusion, and macro-level adjustment. Under this framework, the Japanese experience is a successful example of an evolutionary process towards technological selfreliance. The overall technological gap was steadily reduced as the process from technology importation to assimilation to the domestic production took place in various industries. Indeed, it is conceivable that a class of far-sighted entrepreneurs who were nurtured even before the Meiji era, internalizing advanced foreign technologies of the day, drove Japan's continuous climbing of the technological ladder and beat the constraints of comparative advantage. The challenge for today's Japanese firms lies in advancing innovations in industries where there may be little technology gap to exploit and competing in the fast-developing markets such as information and communication technology and biotechnology.

Nakajima, Nakamura, and Yoshida (Chapter 2) provide some macro evidence that Japan's postwar growth in the 1950s and 1960s was mostly attributable to technical progress and capital expansion, while the fall in growth after the oil shock in 1973 was mainly caused by a slowing of technical progress due to a shift away from R&D on energy-intensive technology. To further see the sources of growth since the bubble period, they analyse a data set covering fifty-four electrical machinery firms for the period of 1985-93. They decomposed the firms' productivity gains into those due to production operations (blue-collar productivity) and those due to non-production operations (white-collar productivity). The result shows that total factor productivity (TFP) growth was negative both for the pre-bubble (1985-89) and post-bubble period (1991-93) for the entire sample. The production sector's growth was achieved mainly by expanding their inputs and its TFP growth became negative in the post-bubble period. This supports a hypothesis that a financial bubble significantly distorted economic decisionmaking of the real sector, probably leading to the over-capacity of the production sector. An intriguing result of their analysis is that the nonproduction sector's TFP growth was generally positive, offsetting the negative TPF growth in the production sector. As the goods and services produced in Japan generally move towards knowledge-intensive ones, it remains to be seen how fast the white-collar segment of the Japanese workers as well as firms' managers will have adjusted to the post-bubble reality.

Morck and Nakamura (Chapter 12) argue that while the traditional Japanese corporate governance practices such as keiretsu cross-- shareholding served Japan well during the catchup stage, they may also have pulled Japan's economy into the current muddle and kept it there. Typically, Japanese banks are creditors and shareholders but act more as the former than the latter. They respond to potential and actual debt repayment problems rather than more general indicators of financial health of the firms. If creditors have control rights and shareholders are merely along for the ride, the former might distort the firms' investment decisions towards low-risk projects, especially if this keeps cash flows stable and thereby let the firm use more debt financing. …

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