Will America experience a “lost decade” of economic stagnation like Japan in the 1990s? Will Obama’s strategy of “grow now, ask questions later” to jump-start consumption lead to a sustained uptick or a bigger bubble later? Corporate Governance in the 21st Century: Japan’s Gradual Transformation by Nottage, Wolff and Anderson doesn’t give direct answers, but it provides clues.
Christopher Pokarier argues that Japan is open to being closed. One wonders if Americans will follow the Japanese example and keep savings in cash, rather than mutual funds and stocks. In the 3rd quarter of 2007, capital investments were 11% of Japanese household assets vs. 31% in the US. Cash/savings accounted for 50% in Japan, 13% in the US. Class divisions are hardening and intergenerational transmission of status is increasing.
In the 1980s Japan’s corporate governance system seemed a creditable alternative to the Anglo-American model. Its emphasis on employee welfare, keiretsu interlocks, and bank monitoring provided evidence that independent outside boards weren’t necessarily better… until Japan slumped into a long recession. Massive reforms, many based on shareowner primacy, appear to have moved Japan in the direction of the US. However, the authors represented in this reader see the changes as a more gradual transformation that endures as a unique variety of capitalism. “Everything is changing gradually and in ambiguous directions.”
One example provided is “flexicurity,” a balance between flexibility of working practices (terminate at will) and security of tenure. Wolff concludes lifelong employment was never a Confucian-inspired preference but a tool to ensure the continuity of core employees to meet business needs. Wolff finds the influence of employee stakeholders has been exaggerated and what lifelong employment existed wasn’t progressive but was rooted in inequality and inequality is increasing.
Puchniak’s case study of Japanese banks lending trillions of yen to “zombie” firms at below market rates finds that, contrary to shrinking as the US savings and loan industry did after their period of “creative destruction,” bank influence increased. Banks replaced management and restructured underperforming companies. Primary reliance on banks for financing went from 28% of largest listed companies to 47%.
Matsui’s chapter on closely-held companies or SMEs should find a wide audience in countries where family companies continue to play a large role. He highlights important reforms to company law and judicial decisions aimed at protecting minority shareowners, while maintaining flexibility.