Japan Remodeled: How Government
and Industry Are Reforming
Japanese Capitalism (Cornell Studies
in Political Economy) by Steven Kent
Vogel
Japan Is Changing, But In Distinctly Japanese Ways
As the Japanese economy languished in the 1990s Japanese
government officials, business executives, and opinion leaders concluded
that their economic model had gone terribly wrong. They questioned the
very institutions that had been credited with Japans past success: a
powerful bureaucracy guiding the economy, close government-industry
ties, lifetime employment, the main bank system, and dense interfirm
networks. Many of these leaders turned to the U.S. model for lessons,
urging the government to liberate the economy and companies to sever
long-term ties with workers, banks, suppliers, and other firms. Despite

popular perceptions to the contrary, Japanese government and industry
have in fact enacted substantial reforms. Yet Japan never emulated the
American model. As government officials and industry leaders scrutinized
their options, they selected reforms to modify or reinforce preexisting
institutions rather than to abandon them. In Japan Remodeled, Steven
Vogel explains the nature and extent of these reforms and why they were
enacted. Vogel demonstrates how government and industry have
devised innovative solutions. The cumulative result of many small
adjustments is, he argues, an emerging Japan that has a substantially
redesigned economic model characterized by more selectivity in business
partnerships, more differentiation across sectors and companies, and
more openness to foreign players.
Personal Review: Japan Remodeled: How Government and
Industry Are Reforming Japanese Capitalism (Cornell Studies in
Political Economy) by Steven Kent Vogel
Twenty years ago, Japanese management wall all the rage. Then came a
long, protracted slump and attention turned elsewhere. Japan fell into
oblivion. But while nobody took notice, an interesting thing happened. The
Japanese model implemented its own transformation. It was remodeled
into something new, but still distinctly Japanese. How this transformation
occurred and what kind of new model came into being form the story of
this book.
The Japanese traditional system differs from the liberal market model in
important ways. It emphasizes the benefits of long-term relationships in
labor, banking, and supplier relations. You have an active external labor
market on the one hand, a lifetime employment system and a dual
economy on the other. A market for corporate control dominated by
shareholders' rights versus a main bank system and stakeholders
governance. Free market entry and exit versus supplier networks. No
model is intrinsically better, although the liberal model may be better
adapted to a fast-changing economy at the technology frontier or to
sectors where radical innovations occur, whereas the Japanese model has
an institutional advantage in a catching-up phase or in sectors that rely on
incremental improvements in production processes, such as automobiles
and consumer electronics.
Contrary to what some expected, the Japanese model did not converge
toward the U.S. one. Nor did it become an hybrid, although elements of
flexibility were introduced at various levels. In fact, Vogel shows that liberal
market reforms have very few natural advocates in Japan: even groups
with the greatest apparent stake in liberalization, such as large
manufacturing exporters or consumer associations, are reluctant to
embrace reforms that might affect social stability or undermine relations
with workers, financial institutions, other business partners, and the
government. The Koizumi administration nevertheless succeeded in
introducing important reforms, but with a distinctive policy pattern.
Japanese authorities proceed with reforms slowly and cautiously; they

package delicate compromises, including substantial compensation for
those who might be disadvantaged by the reforms; they design reforms to
preserve the core institutions of the model as much as possible; and they
seek new ways to build on the strengths of existing institutions.
The remodeled Japan differs from the earlier version in at least three
important ways. It is more selective: In the face of hard times, companies
have become more discriminating in their Partnerships. They have
reevaluated their long-term relationships with workers, banks, and other
firms, and they have loosened some and tightened others. They have
shifted from a reflexive acceptance of these partnerships to a more rational
assessment of their costs and benefits. It is more differentiated:
Companies have become more variable in their practices. There never
was a uniform Japanese model that applied equally to all sectors and all
companies, but the model has fragmented further. And it is more open:
Japanese corporations have more foreign owners, managers, and
business partners than ever before, and these foreign actors bring with
them different practices and norms.
Apart from telling a compelling story, this book also distinguishes itself by
its extensive use of the comparative case method. It compares patterns of
institutional change across countries (Japan versus the United States and
Germany), across policy issues (labor market reform versus financial
reform, for example), across industrial sectors (automobiles versus retail),
across companies (Toyota versus Nissan, etc.) and across time (Seiyu
before and after allying with Wal-Mart). This variation across issue areas
allows the author to test several hypotheses about the impact of reforms,
with sometimes surprising results. The author's scholarship also spans
across disciplines, and the result is a fine example of how political science
can blend with business studies and institutional economics.
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