603Thunderbird International Business Review, Vol. 42(5) 603–609 • September–October 2000

© 2000 John Wiley & Sons, Inc.

bookreviewsbookreviews&

Management Structuresand Economic Policy ofJapanese Firms andFinancial Institutions

Toshiaki Tachibanaki (ed.): (1998) Who RunsJapanese Business? Management and Motivation inthe Firm. Northampton, MA: Edward Elgar.

Mark J. Scher: (1997) Japanese Interfirm Networksand Their Main Banks. New York: St. Martin’s Press.

J. Robert Brown, Jr.: (1999) The Ministry ofFinances: Bureaucratic Practices and theTransformation of the Japanese Economy. Westport,CT: Quorum Books.

Craig Freedman (ed.) (1998): Japanese EconomicPolicy Reconsidered. Northampton, MA: EdwardElgar.

Analyses of Japanese economicpolicy and business-relatedbehavior have achieved aremarkable maturity and sophis-tication in recent decades, inpart because of the availability of“classics,” including Abegglen

(1958), Sasaki (1982), vanWolferen (1989), Rohlen(1974), Yoshino and Lifson(1986), and Johnson (1982),that show the “inside” dynamicsof Japanese-style corporate busi-ness and financial activities.

Review by Jon P. Alston

Jon P. Alston is a Professor of Sociology at Texas A & M University, College Station,TX 77843-4351.

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Jon P. Alston

There is now a consensus amongresearchers that Japanese busi-ness, policy, and economic prac-tices not only differ in variousdegrees from those in otheradvanced industrialized coun-tries, but also that common prac-tices are hidden and informal.This opaqueness in businessbehavior demands long-termcommitments on the part ofresearchers to develop the per-sonal contacts that can offerinsights behind the carefullydeveloped façade maintained byJapanese government and busi-ness leaders.

The terms honne (private truth)and tatemae (public presenta-tion) help explain these behav-iors and alert researchers to thedangers of believing publicannouncements of governmentand corporate spokespersons,economic data, and even socialsurveys. Such secrecy oftendemands intensive case studiesand interviews with those whohave decision-making power.

Insights into Japanese businessbehavior often are achievedthrough personal contacts andintensive (and repeated) inter-views than by more empiricalstudies. A methodology especial-ly effective when studyingJapanese business mechanics isthe case study (Fruin, 1983;Kamata, 1982; Mitsui and Co.,1977; Sakita, 1982; Sanders,1975). The growing literature ofJapanese business practices in the

United States or of U.S. expatri-ates working in Japan (Kang,1990; Lanier, 1990; Laurie,1992) also offer interesting com-parative perspectives.

Researchers need to adopt theirmethods to Japanese patterns ofbehavior, which often means act-ing through consensus buildingand informal access to Japan’spower brokers. We are fortunatethat two of the books (Brownand Scher) under review use thisoften obligatory methodology togain insights into the Japanesefinancial system.

The books under review dealwith many aspects of Japanesebusiness and economic behaviorthat, in the past, often have beenstereotypical and untested. Asone of the authors under reviewstates, many influential Japanesefinancial officials have encour-aged foreigners’ myth buildingof how business is conductedand policy is established in Japan.

The current generation of schol-ars of Japanese financial affairs,including the authors presentedhere, is testing specific hypothesesto demystify the Japanese econo-my. Perhaps this effort had towait until the vaunted Japanese“economic miracle” had stum-bled. We now can approachJapanese business studies with lessreverence and tacit acceptance ofoften self-serving pronounce-ments by Japanese governmentofficials and businessmen.

…many influen-tial Japanesefinancial officialshave encouragedforeigners’ mythbuilding of howbusiness is con-ducted and poli-cy is establishedin Japan.

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As Brown and the authors ofTachibanaki’s edited work show,perceived legality is less impor-tant than custom and the main-tenance of consensus andmutually beneficial personalrelations (these authors arequite clear that the systemwould have broken down muchearlier if all power brokers andtheir organizations had not ben-efited—change will occur assoon as a majority of leaderscease to profit personally fromthe status quo).

While Brown focuses on thebehavior of MoF officials, hisfindings apply similarly toScher’s banking officials and themanagers, executives, white col-lar workers, and engineers stud-ied in Tachibanaki’s editedwork. These works admirablyinvestigate the often hiddenways financial goals and careeradvancements are accomplishedin modern Japan.

Both Scher and Brown discuss thehistorical background of Japan’sbanking and financial systems andpractices. Brown emphasizes howJapan’s MoF has followed manypractices established before orduring the post-war period. Scherdoes the same, but he also stress-es that many financial policiescannot be understood withoutreference to traditional Japanesecultural values, especially the con-cepts of ie. Japanese employeesand government career officialsmaintain ie ishiki (family con-

Much of the material in the fourbooks being reviewed deals notonly with how Japanese Ministryof Finance (MoF) officials man-age their country’s economic,financial, and trade policies, butwhether these practices remainbeneficial today. For example,Brown finds that much ofJapan’s post-war economicgrowth is based on Japaneseconsumers who consume lessthan they could and whose low-interest savings subsidized andfueled Japan’s economic pros-perity. The status quo todaybenefits financial institutionsrather than consumers.

The status quo has been soadvantageous to Japan’s banksand industrial and other financialinstitutions that managers accept“guidance” from governmentofficials in exchange for ongoingbenefits, including limiting com-petition and preferential treat-ment as a reward for conformity.As Japan entered into an eco-nomic depression in the nineties,those who previously benefitedfrom past arrangements, as wellas ordinary citizens, are begin-ning to demand that politiciansrearrange Japan’s financial sys-tems. The current economicdownturn has broken the cycle ofmutual support (based on a senseof invulnerability due to post-warsuccesses) of politicians, govern-ment ministerial officials, andindustrial and financial leadersthat supported the status quo foralmost 40 years.

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The current eco-nomic downturnhas broken thecycle of mutual

support…

sciousness) that binds all mem-bers to seek similar goals withoutconflict. This sense of together-ness and mutual obligation isreinforced by frequent rotation ofMoF and officials and their simi-lar educational backgrounds,amakudari (second careers ofgovernment officials into compa-nies they formerly oversaw), Old-Boys network, cross-shareholdingrelationships, collusive riggedbidding as a reward for conform-ing behavior, etc.

Both Scher and Brown show thatmaintaining consensus whenmaking and carrying out policyare paramount Japanese goals.Brown shows that there are aseries of mutual influencesamong MoF officials, other gov-ernment civil servants, politi-cians, and banking and securitiesto establish and maintain policy.Many activities are directed tra-ditionally rather than legally, andeach institutional sector influ-ences the others.

Banking officials, for example,follow MoF “suggestions” inorder to receive preferentialtreatment. The Ministry ofFinance would check recklesscompetition and independentaction on the part of the bankers.

Ministry of Finance officialsmaintain Japan’s very stablefinancial systems through a num-ber of procedures, not all ofwhich are discussed openly. TheMoF essentially protects the

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weakest members of the bankingand securities industries by ensur-ing that no concern fails and thatno one is allowed to destabilizethe status quo through innova-tive practices. In return, bankingofficials, for example, consult fre-quently with MoF officials, hireformer MoF officials, and “infor-mally” keep MoF officials awareof current events.

The Daiwa Bank scandal illus-trates many of Brown’s insights.A Daiwa Bank trader in NewYork lost $1.1 billion trading inU.S. government bonds. Whenthe loss was discovered, Daiwaofficials privately informed offi-cials of the Banking Bureau ofthe MoF. Since the informationwas delivered informally, MoFofficials did not feel obligated tomake the losses public, nor wereU.S. government officialsinformed for six weeks whileDaiwa Bank officials tried to hidethe loss. In the end, Daiwa Bankwas fined more than $300 mil-lion, two employees were indict-ed criminally, and the FederalReserve Board ordered Daiwa toleave the United States.Meanwhile, U.S. inspectors dis-covered systematic duplicity byDaiwa officials to hide otherlosses, including moving lossesto an offshore entity and pre-tending to close trading officesto fool inspectors.

Brown’s book details the socialvalues and practices of MoF offi-cials that have resulted in spec-

Jon P. Alston

Banking officials,for example, fol-low MoF “sug-gestions” inorder to receivepreferentialtreatment.

Tachibanaki, in an investigationof career paths of 2128 top exec-utives, found that respondentscredited hard work, luck, and anacceptance of emphasizing com-pany over private life as factors intheir career successes. Gradu-ation from a very limited numberof prestigious universitiesenhances the probability of occu-pational mobility to top posi-tions, as Brown also found in hisstudy of the career paths of MoFofficials. Yoshinobu Kobayashi,writing in Tachibanaki’s collec-tion, reports on the whisperedwatchword “343” as the reasonsfor occupational success: 30%luck, 40% being successfullymentored, and 30% effort(Tachibanaki, 1998, p. 91).

Other articles in the Tachi-banaki work deal with sourcesof work satisfaction, the influ-ence on university rank oncareer development, the effectof specific tenure, pay policies,and work experience on careerpaths and work performance.While there are some overlaps inmaterial, Tachibanaki’s collec-tion of articles is an excellentand comprehensive treatment ofmicrolevel issues of career suc-cess and promotion in Japan.Findings from different samples,as well as from Brown’s andScher’s books, reinforced oneanother, giving more reliabilityto their findings. In essence,these three works deal withissues often ignored or reportedanecdotally; these books offer

Management Structures and Economic Policy of Japanese Firms and Financial Institutions

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tacular post-war successes andrecent failures. Whether this“consensus” system can survive(or should) Japan’s current eco-nomic woes are discussed in thebooks reviewed.

Ministry of Finance officials areblamed for crises discovered dur-ing their usually short tenure.This encourages officials to tryto hide potential and real prob-lems and avoid dealing withthem in the hope that theseproblems will erupt after theyhave moved to other positions.Naturally, this situation encour-ages MoF officials to act conser-vatively and hide policyweaknesses as long as possible. Inaddition, MoF officials arerewarded with large salaries afterearly retirement by being placedin prestigious and largely cere-monial jobs in the banks andsecurity companies they formerlyoversaw. This reinforces the ten-dency of seeking consensus andmaintaining the status quo.

The authors found similar careerconcerns in Tachibanaki’s editedcollection. Each article is anempirical analysis investigatingcareer patterns, work orienta-tions, work styles, and attitudes ofJapanese executives, middle man-agers, white collar workers, andengineers. Based on well-selectedsamples, the authors deal with theinfluence of such factors asincome differentials, job mobility,work attitudes, and education onrespondents’ careers.

Ministry ofFinance officials

are blamed forcrises discov-

ered during theirusually short

tenure.

Jon P. Alston

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insights for all those interestedin Japanese work behavior.

The fourth work reviewed hereis Freedman’s collection of arti-cles on issues of Japanese trade,investment, and monetary poli-cies. Many of the articles testvarious models through statisti-cal analyses; unfortunately,many of the models show veryweak explained variance andshould be taken conservatively.However, a number of otherarticles support findings foundin the other three works. Theapproach in this work, however,is primarily statistical and modeltesting.

Gary R. Saxonhouse analyzes the1994 Economic Report of thePresident as presented by theU.S. Council of EconomicAdvisers as chaired by LauraTyson and used by PresidentClinton as a basis for decisionsconcerning U.S.–Japan econom-ic relations. Saxonhouse foundthat the Report did not use ade-quate data for its conclusions.His data (and the sensitivelydescribed reports of others)reveals that U.S. trade barrierskeep out about as many importsof Japanese manufactures asJapanese barriers (both formaland informal) keep out U.S.manufactures from entering theJapanese market.

Another chapter of Freedman’scollection by Akio Kuroda reliesless on rigorous-but-inconclusive

modeling and investigatesJapanese financial policy asdirected by the Ministry ofFinance and its special bureaus,such as the Banking Bureau andSecurities Bureau. This articlesupports the findings of the Scherand Brown books, and they eachcomplement the others.

A unique approach toJapanese–American relations isDaniel I. Okimoto’s review ofthe Japan–U.S. securityalliance. Okimoto offers a sensi-tive historical summary of theJapan–American SecurityAlliance (JASA) and uses threetheories to explain why thestronger partner (the U.S.) hasbeen willing to receive few ben-efits from the JASA while theweaker partner (Japan) benefitsmore. Okimoto shows how theJASA includes a number ofmutual dependencies and safetyvalves to reduce the likelihoodof U.S. unilateralism and Jap-anese independence.

REFERENCES

Abegglen, J. (1958). The Japanese Factory.Glencoe, IL: Free Press.Fruin, W. M. (1983). Kikkoman. Cambridge,MA: Harvard University Press.Johnson, C. (1982). Miti and the Japanesemiracle. Stanford, CA: Stanford UniversityPress.Kamata, S. (1982). Japan in the passing lane:An insider’s account of life in a Japanese autofactory. New York: Pantheon.Kang, T.W. (1990). Gaishi: The foreign com-pany in Japan. New York: Basic.Lanier, A.R. (1990). The rising sun on MainStreet: Working with the Japanese. Morrisville,PA: International Information Associates.

Laurie, D. (1992). Yankee samurai: Americanmanagers speak out about what it’s like towork for Japanese companies in the U.S. NewYork: HarperBusiness.

Mitsui and Co. (1977). The 100 year historyof Mitsui and Co., Ltd. Tokyo: Mitsui andCo., Ltd.

Rohlen, T.P. (1974). For harmony andstrength: Japanese white collar organizationsin anthropological perspectives. Berkeley,CA: University of California Press.

Sakita, T. (1982). Honda motors: The men,the management, the machines. Tokyo,Japan: Kodansha International, Ltd.

Management Structures and Economic Policy of Japanese Firms and Financial Institutions

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Sander, S. (1975). Honda: The man and hismachines. Boston, MA: Little, Brown andCompany.

Sasaki, N. (1982). Management and industri-al structure in Japan. New York: Pergamon.

van Wolferen, K. (1989). The enigma ofJapanese power: People and politics in astateless nation. New York: Knopf.

Yoshino, M.Y., & Lifson, T.B. (1986). Theinvisible link: Japan’s sogo shosha and theorganization of trade. Cambridge, MA: TheMIT Press.