Squeezing mandarins

The Japanese Civil Service and Economic Development - Charting Japanese Industry
May 24, 1996

History can be cruel to academic books with long gestation periods. The Japanese Civil Service and Economic Development was conceived under the auspices of a World Bank programme in 1989 when Japanese economic might was sweeping all before it. The objective was to plumb the Japanese experience to see what lessons in political economy it offered developing countries. Shortly after, eastern European transitional economies were added to the list of potential beneficiaries. In 1991, however, Japan's economic "bubble" burst, and the country plunged into its most severe postwar recession. In 1993, around the time the 18 contributors had put the finishing touches to their contributions, 38 years of political stability under the Liberal Democratic Party Q an important factor in civil service effectiveness Q came to an abrupt end. Finally, while the book was in press, public confidence in the integrity and effectiveness of the civil service in general, and the Ministry of Finance in particular, plummeted as a result of scandals and fallout from the bubble-burst. It may not recover. A vociferous deregulation movement proclaims as its goal not just the maintenance of a small but highly competent government, but an overhaul of the "Japanese system" itself. Foot-dragging by Kasumigaseki mandarins, interpreted as putting self-preservation above the needs of the nation, fuels it. These key developments and associated debates are not addressed.

Yet this is a remarkable book. It brings together many of the leading Japanese and American political scientists working on Japan, who attempt to dispel many of the myths surrounding "Japan Inc." and state-orchestrated economic growth on the one hand, and unfettered markets and "market conforming" intervention on the other. The first chapters provide an overview from legal, historical and institutionalist perspectives. Subsequent chapters delve into the intricacies of interministerial coordination, local government and intergovernmental coordination, the Fiscal Investment and Loan Programme (Japan's "second budget"), small firm policy and labour policy. The final chapters offer comparisons with Korea and Europe.

Some salient themes emerge. Japan's civil service may have contributed to economic growth because of various constraints it operates under. These include a commitment to balanced budgets until the 1960s, strong (bureaucratic) budgetary control since then, limitations on personnel expansion, and limits to coercive power in spite of broad mandates. At the same time, vitality is generated through various competitive mechanisms which operate within the bureaucracy, including jurisdictional competition and intense competition between meritocratically selected, long-serving personnel for key posts and the best post-retirement jobs outside the bureaucracy. Coordinating mechanisms temper competition, and information plays a key role in these, but there have been some serious coordination failures as well. Bureaucracy-government/ legislature relations are complex, but are generally symbiotic, and allow for the simultaneous pursuit of long-term growth objectives and political responsiveness.

The impact of civil service activity on economic growth is hard to pin down, and here divergent, sometimes contrasting views are offered. Some contributors see the primary thrust as facilitating industrial growth and competitiveness, others see it as softening the impact of such growth through redistribution according to social or political objectives. Some see the former giving way to the latter. The temptation to spin a "just so" story is strong, but fortunately most contributors avoid it. They also avoid drawing simple lessons for developing countries. Unlike many developing countries, Japan has had an unusually stable political order, a comparatively small military in the postwar period, few large ethnic minorities, and a lack of glaring wealth disparities. Yet there are lessons to be learned from the Japanese experience, positive and negative, and this is probably the best collection of essays available to tease them out.

Charting Japanese Industry is an altogether different book, a best- seller in Japan, full of pithy anecdotes, diagrams and warnings to inertia-bound corporations. It starts with a comparison of the "Big Six" corporate groupings, follows with profiles of the major "vertical" keiretsu groups such as Toyota, Hitachi and NEC, and then looks at individual industries, ranging from construction to cereals to "21st-century industries" such as super-conductivity, space and the environment.

This is not a book to be read from cover to cover, and individual entries are too short for in-depth analysis, but it does make Japanese industry more accessible to the newcomer, and yet is still of interest to the seasoned researcher or businessman. It shows companies growing, merging, splitting, facing structural changes in markets, rocked by the bubble-burst and subsequent recession, struggling to reform management and to find new technologies and markets. The Industrial Bank of Japan, for instance, has attracted the best and brightest graduates since its incorporation in 1933. Seventy per cent of the 50 top executives are Tokyo University graduates, mostly from the law faculty. Many major companies belong to the IBJ group, some of them recuperated "patients" of this "corporate field hospital". Yet as "heavy-thick-long-big" manufacturing gave way to a more diversified economy, and as major corporations reduced their reliance on bank funding, IBJ was forced into an overhaul, beginning in 1987. Just as results started to show, it was caught up in a 200 billion loan scandal. Tomokazu Ohsono concludes: "It will take some time for public confidence to be rebuilt in IBJ."

The same may be said of the Japanese economy and its political institutions. Japan is in a period of transition; these two books help us to understand the constraints, possibilities and process of change.

Hugh Whittaker is a lecturer in Japanese studies, University of Cambridge.

The Japanese Civil Service and Economic Development: Catalysts of Change

Editor - Hyung-Ki Kim, Michio Muramatsu, T. J. Pempel and Kozo Yamamura
ISBN - 0 19 828938 3
Publisher - Clarendon Press, Oxford
Price - £48.00
Pages - 552

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