ronald dore

WILL GLOBAL CAPITALISM BE ANGLO-SAXON CAPITALISM?

ith the end of the military and ideological confrontation of the Cold War, people have come to notice that state vs. market is not the only important dimension along which national economic systems differ: it was not central planning that differentiated the capitalist systems of Germany and Japan from those of Britain and America. But from the beginning of the types of capitalism debates of the 1990s, there was one implicit question: as open national economies merge into a single world economic system, how far will the global diffusion of the AngloSaxon form of capitalism go? Will there still be room for rather different forms of capitalism to survive in countries like Japan and Germany?1 We tend now to forget that Anglo-Saxon capitalism has not always assumed its current thorough-going, neo-liberal form. A quarter of a century ago, most people in Britain accepted mixed economy as a reasonable characterization of the world they lived in, and as on the whole a sensible set of arrangements: it was not only a question of a mixture of public ownership (in coal and steel as well as in utilities) and private industry. Mixed economy also acknowledged that people worked for a mixture of motives, some more for personal prot, some more for public service. It seemed much in keeping with the spirit of the mid 1970s for the Social Science Research Council,2 as it then was, to set up a panel to produce a report on the Social Responsibility of Industry, and for the report to assume that those who managed corporations should also have mixed motives, mixed objectives, not just that of prot maximization. They should acknowledge that they had obligations not only to their shareholders, but also to those who would later become known new left review 6 nov dec 2000 101

as their stakeholders. There was a urry of interestanother approach to dethroning the bottom linein the idea of reworking the national accounts to produce a calculation of Net National Welfare whereby policing, pollution control and prisons would count as disvalues and carry a negative sign, not a positive one as in the calculation of GDP.3 One other personal memory symbolizes the assumptions of the time Richard Titmuss, arguing in the LSE Academic Board that university teachers should not be paid supplementary fees for acting as examiners. They were paid a decent salary to do a job, and had a duty to do all that the job required. He lost the argument. The consensus was that people do, indeed, work for a mixture of motives; that for academicsas for others in the public serviceduty, public spirit, a sense of responsibility to students and to the discipline, together with the enthusiasm generated by intellectual curiosity and the competition for renown, ought to be the overwhelmingly dominant motivators. But a little extra cash can also help to carry one through the more boring parts of the job. The shift in that pragmatic consensus over the last twenty years has been remarkable. From the notion of a little bit of extra cash as a useful, marginal incentive, to the belief that cash, and the fear of being deprived of it, are the only reliable means of stopping people (in the economists jargon) from shirkingbecoming lazy time-servers. Both the main British parties now share the belief that only competition for private prots can bring a reliable train service, cheap electricity, safe nuclear fuel or efcient prisons. Performance-related pay has been enforced
A revised version of a lecture given at the London School of Economics, May 2000, to mark the publication of the authors Stockmarket Capitalism, Welfare Capitalism: Japan and Germany versus the Anglo-Saxons, Oxford 2000. Many people in Britain and America who have neither Angles nor Saxons among their ancestors object to the term Anglo-Saxon; but it has become established in the literature of comparative capitalisms, thanks to the lead initially given by Michel Albert (Capitalisme contre capitalisme, Paris 1991). The similarity of Canadian, Australian and New Zealand patterns to the British and American ones provides some justication for the phrase. 2 As Britains Economic and Social Research Council was known, before its chairman headed off the threat of budget cuts by accepting, as a quid pro quo, Keith Josephs view that there was nothing social about economics and not much genuine science, either. 3 Amartya Sen, a member of the panel who showed some interest in the idea, went on to develop the Human Development Index for the UNDP.
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throughout the public service. The academic marketplace grows ever more like an auction for prize bulls. And in industry, there is ever heavier reliance on stock-options, rather than a xed salary, as the form of executive remuneration. The popularity of stock-options for directors and senior executives has a double signicance. Not only does it reect the dominant view about why people work rather than shirk, it also serves to align the private interest of the manager agent with that of his shareholder principal, and so reinforces the shift to shareholder-sovereignty in business philosophies that has been going on over the last twenty years. The talk about the social responsibility of corporationsso-called stakeholder theories, popular in business schools twenty years agohas all but disappeared from such institutions. And the economists have proffered their legitimating blessings. I recall George Akerlof devoting an LSE public lecture to explainingindeed, proving with algebrathat if what you wanted was to do good, you would get more good done the Rockefeller way, by single-minded maximization and donating your superior prots to charity, than by diluting your prot drive in order to be nice to your employees or suppliers. There is no need for such exhortations today, for that has become the dominating consensus: maximizing shareholder-value is exactly what management should be about. While every consulting rm has its own denition of shareholder-value, and its own pet formula for calculating it, almost everyone agrees that it is the dominant, touchstone objective. Treating your employees, your customers or your suppliers decently is ne, provided it can be shownand only if it can be shownto count on the bottom line, to increase earnings or raise the share-price.

Global trends
Anglo-Saxon capitalism itself, then, is an evolving set of institutions, not a constant; and it has evolved into something rather different today from what it was twenty years ago.4 As for the source of these changes, it has become fashionable, in the last ve years, to attribute almost everything that happens to the processes of globalization. It is true that globalization had something to do with it. The growth of international
4 R. Dore, W. Lazonick and M. OSullivan, Varieties of Capitalism in the Twentieth Century, Oxford Review of Economic Policy, vol. 15, no. 4, 1999.

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trade and investment made it administratively almost impossible to maintain foreign-exchange controls, and this not only greatly narrowed the scope for nation-state economic policy-making, but also had other reverberating consequencesamong them, the growing dominance of American nancial institutions in world nancial markets. It was mostly Frenchmen who were advising Elf Aquitaine and Total in their takeover battle, and Germans advising Mannesmann, but they were doing so as employees of American investment banks, working to American methods and criteria. To organizational dominance is added American cultural hegemony, nowhere more apparent than in the economics profession, as the hot topicsprincipal-agent theory, for instanceof Chicago and Berkeley become the hot topics of Milan, Osaka or Madrid. At the political level, too, it is manifest in the way that institutional practices spread from the United States to Britain, Europe and Japan whether it be the liberalization of stockbroking fees or the introduction of working families tax credit.

Political zeal
But these aspects of globalization are far from the whole story. It was not because Englishmen were going abroad for their mortgages in droves that control over building society interest rates was abolished in Britain in the 1980swith the result that, as we have recently seen, raising interest rates across the board (and thereby increasing the nancing and exporting problems of manufacturers) came to be the only way of cooling off the housing market. That bit of deregulation happened because the Thatcher government had a strong belief in the sovereign virtues of competition. Demutualization of building societies and the unlocking of shareholder-value naturally followed. And so with many of the other changes that have contributed to making the stock-market ever more central to the British economy, and shareholder-value the central concern of management. They have precious little to do with the constraints of globalization and a lot to do with shifts in ideology, and with the expression of ideology in economic policies. The growth of private savings, with the cutback in basic pensions and the withering away of SERPS, had to do with the Thatcher governments belief that the welfare state was a vicious breeder of dependency. The movement of private savings from xedinterest vehicles to equity (encouraged by tax concessionsthe Personal Equity Plans, now revamped as Individual Savings Accounts) had to do with that governments faith in the stock-market as the most efcient 104 nlr 6

means of allocating capital and improving national competitiveness. Similarly, globalization had little effect on the shift of corporate pensions from dened-benet to what are euphemistically called dened-contribution (i.e., undened-benet) forms, and the increased investment of pension funds in equities. Behind all these ideological shifts, of course, there lay structural power-shifts, too. The decline of trade unions was one element of this, as it was of the whole process of reinforcing the sovereignty of shareholders at other stakeholders expense.

Internal evolution
There is an argument that, while not perhaps a consequence of globalization, these changes do have a kind of inevitability about them. They are not just the product of arbitraryand reversibleshifts of ideology, but the consequence of internal evolutionary change, brought about by the material, social and technological advances within all industrial societies. The characterizations of such internal evolution are multiple: greater institutional complexity, the expansion of individual choice that comes with greater afuence, increasing social mobility, the erosion of deferencea continuation, if you like, of the processes of rationalization Max Weber identied, described in Schillers phrase about the demagicking, disenchantment, demystication of the world. In the nineteenth century, men and women learned to do without the need to invoke, or acknowledge, an arbitrary divine authority. In the twentieth century, with bigger bank accounts, birth control, more sophisticated education, they learnedby marketizing and securitizing everything, and writing cast-iron contractsto do without the support of (or obligations to) such human collectivities as nations, or even to other individual human beings. In an image that links both globalization and the internal evolution of societies, Lawrence Summers has graphically characterized the structural change:
In a world without courts, one lends money to ones brother-in-law and relies on ones wifes parents to enforce the agreement. In a world without borders, arms-length formal contractsof which securitization is only the most canonical examplebecome ever more critical to innovation and growth. So, too, do the means of reliably enforcing them.5
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American Academy of Arts and Sciences, Bulletin, Spring 2000. Summers goes on to say that, since Americans dont trust each other anyway and are used to going to the law at the drop of a hat, they have a competitive edge in global nance.

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The Economist recently made much the same argument about the Westernization of the business empires of the Chinese diaspora, originally built on ethnic networks, now increasingly using signatures on contracts rather than handshakes and trust. But it added one important element to the explanationthe diffusion of ideology. The sons of the founding entrepreneurs were now taking over after a thorough training some might call it brainwashingat American business schools.6 In the light of these two sets of argumentsglobalization, and inevitable systemic evolutionwhat is likely to happen in Japan and Germany? Are we likely to see a rerun of the changes that have taken place in Britain and America over the last twenty years? Still, in spite of a decade or more of accelerating globalization, both societies are less marketized than Britain was even in the corporatist 1970s. They remain economies in which the stock-market plays a much less central role, and the state a larger one; in which the nancial sector is less dominant, and manufacturing industry correspondingly more important; in which engineers tend to have the edge over accountants, and the doctrine of the supremacy of shareholdervalue is still a much weaker element in determining company goals.

The case of Japan

To start with Japan, since it is the society I know best. What does it mean to say that it is a much less marketized society than Britain ever was in the 1970s (or, indeed, ever has been, in the last century)? Firstly, labourmarkets. For executive talent, there simply is no labour-market in Japan: no headhunters, luring managerial supermen with attractive packages of options, pensions and bonuses, apart from thoseand in the nancial sector, this has become a by no means insignicant exceptionworking for the growing number of foreign rms. The boards of the major Japanese corporations consist of the top managers, mostly appointed after a lifetime of working for the rm. The president, appointed from among them, earns the top grade of the incremental salary-structure on which he started, forty years earlier, when he was recruited as a raw graduatea grade only a few percentage points above his previous wage.7 After four years, the president will have the major say in appointEconomist, 29 April 2000, p. 77. As was the case in the British Civil Service, before it started recruiting permanent secretaries from the market.
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ing his successor and then move on, to become the chairman. After another four years, he will give over the chairmanship and become a senior advisor. There is more movement from rm to rm lower down the scale, especially in the service sector, and somewhat more inuence of market forcesthe supply and demand for skillson levels of pay; but even in small rms there is a strong propensity towards long tenures, with wage adjustments depending primarily on the rms ability to afford them. In larger rms, with enterprise unions, even manual workers have an employment system similar to that of their managers: an unwritten, but effective, guarantee of employment to retirement, to be broken only by generous early-retirement packages. They also have a similar internal promotion system, combining seniority with performance criteria. Economistsuncomfortable if they cannot see markets everywhere like to say that Japanese rms have internal labour-markets. But an internal labour-market usually implies that, although the competition for vacancies is conned to existing employees, there is still competition, followed, when an appointment is made, by a process of recontracting bargaining the appropriate wage for the job. This is not what happens in Japan. People are posted by the personnel department from one job to another, in much the same way as happens in the British army or diplomatic corps. If their salary changes, it does so in accordance with the rules of the pay-system. The so-called internal labour-market is internal all right; but not really a market. The employees of a Matsushita or a Sharp thus have a sense of a relationship with their rm comparable to a soldiers sense of regimental loyalty. The board memberstypically, there will be many: some 15 per cent of male employees aged between fty and fty-four are on their rms boardsare more likely to see themselves as the elders of an enterprise community than as the agents of shareholder principals. They are at the top of the hierarchy of employees, but they are still employees; servants, whose only master is the companya transcendental entity, with a history, a personality, a reputation and, if they do their job, a future. This conception is a long way from that of the rm as a network of contracts. One indicator of difference: in the annual wage-negotiations (still called the spring offensive, a legacy of the days when they really were an expression of class warfare), a manager who talks down the unions demand from 4 to 2 per cent knows that, as a result, his own dore: Anglo-Saxon Capitalism 107

pay will probably only go up by 2 per cent, too. Again, this is much closer to civil service pay negotiations than to wage-bargaining in British private industry. One important reason why managers have such little sense of themselves as agents of shareholder principalsdespite the fact that their law gives shareholders powers over the rm comparable to English oneslies in the Japanese cross-shareholding system. More than half the equity of Japanese rms is held by stable shareholdersthe banks who oat the rms loans, the insurance companies who broker their insurance, and other companies with whom the rm trades or has joint venturesoften (as with the banks) on a reciprocal basis: Hitachi owns several million Nissan shares, and vice versa. In other words, the bulk of shares are still locked up in what one might call relational, as opposed to, in Summerss phrase, arms-length and contractual shareholding patterns, with the stable shareholders also providing a safe guarantee against hostile takeovers. Share prices are set through the trading of a relatively small proportion of the shares, by securities companies, individual speculators and, increasingly in recent years, by foreign pension and mutual funds, who now hold some 14 per cent of equity. Once again, and in a very important sense: less market. The Japanese stock-market is not a place where you can buy and sell control over companies. Agreed mergers do take place; but a deep-seated cultural antipathy towards the idea of buying and selling what are still seen as communities is here reinforced by the knowledge that stable shareholders will rally to the defence, if anyone attempts a takeover.

Muted competition
This, thenthe nature of the rm, and the self-perceptions and objectives of managersis a crucial feature making Japan signicantly less marketist than Britain, for instance. Let me quickly mention three other salient features that distinguish the Japanese economy. Firstly, the longterm patterns of inter-rm cooperationbetween main banks and client rms, for instance, or automobile companies and their suppliers which can survive considerable changes in market conditions. Secondly, the balance between cooperation and competition, which characterizes market competitors everywhere, is tilted here much more strongly towards cooperation, largely through the powerful industry associations. 108 nlr 6

And thirdly, the strong role of government, both in developmentthe winner-picking, selective subsidies, promotion of research clubs, and so onand, just as importantly, as a sort of umpire, resolving distributional conicts of interest, largely through negotiations with the industry associations, in something of the same spirit as the army of industry regulators in Britain, but with much of the regulation in Japan being through informal administrative guidancerelational regulation, one might call it. Note how widely applicable that word relational is in describing the Japanese economy. Relational banking as opposed to arms-length, contractual banking, is a familiar term, as is relational trading with suppliers. Employment patterns might equally be described as relational. That wide applicability of the term gives a clue to the sense in which Japanese economic institutions hang together as a systemthrough what one might call motivational consistency. Similar behavioural dispositions are called for in a variety of situations: the acceptance, rst of all, of certain basic obligations, imposed on one as a member of Japanese society; and then the willingness to take on further obligations, by entering into long-term commitments that seriously limit ones optionsones ability to shift, for example, to another employer, another supplier, another bank. There is a pervasive tendency, to borrow the useful terms of Arthur Okun, to turn auction markets into customer ones.8 There is a second mechanism that makes these institutions hang together as a systeminstitutional interlock, institutional complementarity. Lifetime employment would not last for very long if there were no cross-shareholding system suppressing takeovers, so that managers had to worry about being undervalued in the stock-market and so give absolute priority to making prots, downsizing rapidly when it was necessary to do so.

Stagnation
It was this system, of course, which, up until the 1990s, received so much praise, so much discussion in Americas business schools, as the secret of Japans success. Its capacity for long-term investment and cooperative synergies were said to be responsible for growth rates (4 to 5 per cent in the 1980s) double those of the short-termist, ruthlessly com8

Arthur Okun, Prices and Quantities, A macroeconomic analysis, Washington 1981.

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petitive Anglo-Saxon economies. Every American weakness, wrote an American banker, was seen
to mirror a Japanese strength: the twelve-year-old schoolboy in necktie and short pants doing college-level maths, the modestly paid company executive pouring funds into research and development, clean, crime- and pothole-free city streets, gleaming bullet-trains and world-class factories, high savings rates, and the sober brilliance of MOF bureaucrats.9

That same banker, addressing a Japanese business lunch more recently:

Only when we see less well-performing Japanese companies taken over by real owners can we expect to see a thorough purging of excess capacity. Only when the Tokyo Stock Market becomes a genuine stock market, with shares that represent real ownership of corporate assets changing hands, can we nd out what Japanese companies are actually worth. And only when owners capture the residual returns of business can we expect them to shoulder the full risks of bankruptcy.10

Such talk has gone down well in Japan since the late 1990s. As the Prime Minister Yoshihiko Mori said in his acceptance speech in the Diet recently: The system and the ways of thinking which, for fty years, have supported Japans astonishing development, have now become inappropriate for the world we live in, and must be reformed.11 As to how they should be reformed, the slogans that have dominated the debatederegulation, greater disclosure and transparency, better returns on equity, global standards, rethinking lifetime employmenthave not been very explicit; nor was the Prime Ministers speech. Yet the spur to the broad consensus on reform is clear: while the United Statesabout whose deciencies the Japanese used to be so patronizingis booming ahead, Japan is stagnating. Why is it stagnating? My potted history of the 1990s goes like this. The bursting of the late 1980s asset bubble, and the collapse of real-estate and stock-market prices, left Japanese banks with a debt overhang of massive proportions and this, together with the strong negative-wealth effect on consumers, brought an initial severe recession. The banks
R. Taggart Murphy, The Weight of the Yen, New York 1996. R. Taggart Murphy, Tinkering or reform? The deregulation of Japans nancial system, Hotel Okura, The Tokyo Report, June 1997. 11 Nihon Keizai Shimbun, 20 April 2000.
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strategy was to trade through and conceal their technical insolvency until the economy began to pick up, and they could write off their bad debts against prots. (A standard banking strategy, practised by the American banks in the 1980s and by the Crdit Lyonnais more recently; though, as M. Trichet and the Japanese Ministry of Finance have subsequently found, collusion in the cosmetic accounting necessary can get you into trouble.) By the middle of the 1990s, thanks to some heavy Keynesian reation packages, it seemed that the strategy was working. The economy did indeed begin to pick up, with a growth rate of 5.5 per cent in 1996. The next year, in a premature burst of scal prudence, the Ministry of Finance tried to wind down what was already thought to be an alarming public debt by raising social security charges and the sales tax. The consequent dampening of consumer spending coincided with the Asian crisis, bringing a fresh blow to exports and to the banks. A couple of major nancial institutions were allowed to fail, and the sense of gloom and insecurity brought another major fall in investment and consumer spending. The banking crisis has more or less been solved (with public money), but the problems of condence and demand-deciency remain. Exports continue to do well, in spite of an overvalued exchange rate. The second-biggest carmakerso badly managed nancially that it had to sell a controlling stake to Renaultcontinues to run what is reputedly Europes most efcient auto-plant, in Sunderland. Industrial research ourishesthe number of patents registered annually in the United States by Japanese rms grew by over 50 per cent during the 1990s. It is domestic demand that is the problem. At rst it was a matter of anxious consumers, saving too much and spending too little; more recently, spending has been further hit by a rise in unemployment and cuts in bonuseshence, reduced purchasing power. Pessimists and optimists are still arguing over whether it has or hasnt bottomed out, and still nding indices to bolster either case. The downward spiral could steepen if the marketeer advocates of blood-on-the-oor restructuring have their way. Even if they do not (and there were quite erce reactions when Standard and Poor downgraded Toyotas bond rating for not being serious about axing jobs), there is enough such talk to keep anxieties high, consumer demand constrained and investment plans cautious, in spite of some recovery in prots.

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Meanwhile, the American boom goes from strength to strength. Buoyant Americans consume between 4 and 5 per cent more than they produce, while anxious Japanese consume between 2 and 3 per cent less than they produce, and send their savings across the Pacic to help support the consumer debt that sustains the American boom. Hegemons and their citizens do well in this strange world.

Reform movement
That gloom and loss of self-condence are the central factors in the general consensus on the need for fundamental change seems beyond doubt. Japanese opinion has reverted, after the self-congratulatory mood of the late 1980s, to what has been a consistent stance since 1870namely, acknowledgement of the need to catch up with what are still often called, in a ve-character clich, the advanced countries of Europe and America; although today it is almost exclusively America that reformers have in mind. Much is known and written in Japan about the horrors of American society, about its inequalities, and the excesses of American boardroom salaries; nevertheless, as far as competitiveness is concerned, America is the model. The exemplars of self-reliant entrepreneurship are to be found in Silicon Valley, of bold and effective risk-taking in American venture capitalists, of effective and honest corporate governance in American corporations, of transparency in nancial transactions on the American stock-exchange, of consumer protection in American courts. Once, Japanese businessmen used to be sent to get their MBAs at American business schools for know thine enemy purposes, and came back to their rms as loyal participants in a consciously different system. Nowadays, more of them either go under their own steam or else desert their sponsoring rm to return as consultants, teaching how to maximize shareholder-value. It is economists with PhDs from Chicago and MIT, nowadays, who make the running on government committees. The reformers have concentrated on two main goals. One is deregulation: more competition, consumer sovereignty, a reduction of the power of the industry associations (in cahoots with the bureaucrats), the end of what was called the convoy system of mutual support in banking, the opening up of sectors like insurance to foreign rms. The second is the transformation of Japanese corporations into proper capitalist rms, both through raising prot-levels, and heightening managers concern 112 nlr 6

with shareholder-value, by changes in corporate governance; andas a means to that end of greater efciencythrough instituting far more exible labour-market practices: an end to lifetime employment, and a revolution in pay-systems, to reward performance rather than seniority. Recall the initial distinction of the forces for change: global markets and cultural globalization on the one hand (in this case, the force of the American model) and internal, evolutionary development on the other. There are two trends of long-term internal change in Japanese society which lend the reformers support. The rst is a development towards greater heterogeneity and individualism. A symptomatic quote from a lawyer, criticizing a book from the 1980s which had praised the Japanese system as being not plain capitalism but human-capital-ism:
Is human-capital-ism really so good for humans? In the truly modern labour contract, a worker sells his work; he doesnt sell his soul, his commitment. The employee-sovereign rm requires Japanese to spend their whole lives, from birth to retirement, in enforced competition, rst to enter the rm, then for advancement within it. For that they have to sacrice freedom and individuality, human feeling and creativity. They have no time for cultural pursuits, for playing a useful role in the family or community. They are offered spiritual poverty in return for material riches.12

The second major internal change has been the growing wealth of the middle and upper-middle strata. The managers and the chattering classes of the media and the universities in the 1960s were hard up, saving desperately to get out of employer-owned housing and into a home of their own before they were fty. Today, a much larger proportion have sizeable nancial assets: the more power to the shareholder slogan has greater appeal. There is also a reasonable argument from necessity, on two counts. Firstly, the globalization of nancial markets means that Japanese rms will be starved of capital if they do not offer rates of return comparable with those in countries that use capital most efcientlyalthough this argument is weakened, as far as long-term capital is concerned, by the
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Nakajima Shuzo, Kabushiki no mochiai to kaishaho (Cross-shareholding and company law), Tokyo 1990. The book is a printing, with afterthought comments, of a 1977 Masters thesis. The foil for his arguments is Itami Hiroyuki, Jimpon-shugi kigyo (The human-capital-ist enterprise), Tokyo 1987.

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remarkable volatility of yen exchange-rates. Secondly, higher prots and dividend levels may be the only way to cope with demographic change. Two mechanisms are involved. First, in an ageing society such as Japans, the pressure to make savings protable will increase. Secondly, one of the things that has, hitherto, made them tolerably protable was population growth, driving a steady increase in land prices which, in turn, helped to produce a steady increase in share prices (steady and gradual, that is, until the late 1980s bubble). The capital gains in the stock-market, as much asset ination as real-asset accumulation, provided respectable rates of return in spite of dividend yields rarely exceeding 1 per centthe abysmal level that America is only just reaching, at the peak of its stock-exchange bubble. Absent these capital gains, with the ending of the population growth that ultimately sustained them, and prots and dividend levels must rise or nobody will save, and the life insurance companies will all go down the drain.

Actual change?
Yet, for all the talk, actual system change has been marginal. After volumes of reports on corporate governance, not much has happened. Some rms have sliced their boards in two and brought in one or two outside directors to their strategy board, but without any clear representative role for shareholders. Six years ago, only a handful of company presidents or chairmen made the rounds of fund managers in London and New York; now they go in droves but still, the number of Japanese rms with as much as 40 per cent of their capital in foreign hands, much less Mannesmanns 60 per cent, is tiny. Almost every rm has gone over to what it calls a merit pay and promotion system, less geared to seniority, but even in Nissan, under vigorous Renault management, the age of the latest board appointments has dropped only to 46 and 47, from the traditional 51 and 52-year-olds. And the pay spread which, for managers in their forties, used to lie between about 30 per cent above and 20 per cent below the mediani.e., the median for lifetime employees of the same age, on the same career-trackhas, in most rms, widened only by a few percentage points. There is much talk of the cross-shareholding system unwinding, but it does not yet show up appreciably in the statistics, and looks much more like the emergency adjustment of balance-sheets by rms in trouble than a bold rejection of the system. The law has been changed to allow directors and senior managers to be paid with stock-options but, in the two hundred or so 114 nlr 6

rms that have adopted the scheme, such payments have been symbolic rather than constituting a substantial part of directors emoluments. Deregulation has broken up a number of cosy arrangements that gave producers a comfortable life at the consumers expense but, except in a few industries like domestic airlines and gasoline distribution, its impact has been limited. Lifetime employment has been, as they say, re-thought, but it is still bankruptcies and voluntary early retirement that are adding to the unemployment rolls, not redundancy dismissals. Labour legislation has enlarged the scope of agency despatch and other, non-standard forms of employment, but the numbers involved are still small. There is much talkstandard OECD talkabout rolling back the welfare state, but the pay-as-you-go pension scheme, which provides pensions by redistributing labour income (rather than relying, as most British pensions do, on the capital share of GNP) is still alive and well, and has recently been revamped in a way that should see it through the worst period of ageing effects. At the same time, a new and compulsory old peoples long-term-care insurance scheme has been launched, which should have benecial employment side effects. In April 2000, when Sasebo Shipbuilding applied for protection from creditors in order to restructure, the list of diversication start-ups it was planning (in order to absorb its former workers) included a long-term-care provider agency. The banks are nally going to get a tax-privileged equity-saving scheme, modelled on the American 401(K) plans; but 87 per cent of the great pool of ten-year-deposit post-ofce savings that came due in April 2000 went back into post-ofce accounts. It does seem, too, that the reformers control over the ideological airspace may be weakening, with the ending of the Japanese banking crisis, and with doubts increasing as to the sustainability of the American boom. One straw in the wind was the contribution by Miyauchi Yoshihiko, president of the nancial-lease rm, Orix, to a recent Asahi Shimbun symposium. Well known as a leading shareholder-value manand two years ago, chairman of a business committee on corporate governance whose report was greeted with great enthusiasm (some think, originally inspired by) the California Public Employees Retirement Scheme, or CalPERS, Americas leading pension fundMiyauchi spoke of coming
to have doubts about shareholder capitalism. Im forever sending out the message that the kind of shareholders we want are those interested in medium and long-term growth. But if its medium and long-term growth

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you are interested in, then what you are talking about is what is often spoken of as the Japanese vicenamely, concern for stakeholders.13

It is just, he concluded, that Japanese have hitherto not acknowledged the centrality of shareholders among the stakeholders.

Germany: statutory restraint

Capitalism in Germany deviates from the marketist model in much the same way as it does in Japan: more regulation in restraint of competition; a dense associational life, producing important public goods such as the training system; and, above all, rms run more for the benet of their employees than for their shareholders. The debates about competition and deregulation, about shareholder-value, about the welfare state, are very similar, too. There are, however, important differences. First, the cultural gap between Germany and America is far smaller than that between America and Japan. As one consequence of this, German executives are much more likely to be uent, English-speaking participants in an international labour-marketRon Sommer, of Deutsche Telecom, used to run an American company, for instance. Far more German executives are thoroughly at home in an Anglo-Saxon business environment. At the start of the VodafoneMannesmann takeover battle, both Blair and Schrder might have talked as if it were a contest between two different cultural systems; but Klaus Esser of Mannesmann played the defence strictly on a We can provide the best deal for shareholders basis, without appeal to cultural traditions or national autonomy. It is unlikely that the president of Sony, say, for all his frequent speeches about shareholder-value, and the rms determinedly cultivated image as a global rather than a Japanese company, would ever have done the same. Integration into Europe, of course, also provides an important extra dimension to debates on institutional reform in Germany particularly those regarding nancial regulation, competition policy and corporate governancewith Brussels pushing predominantly in a marketist, Anglo-Saxon direction. There is a third, crucial difference. The Japanese community rm rests on communitarian traditions. Its structure is governed not by
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Asahi Shimbun, 12 April 2000.

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statute but by convention, supported only peripherally by case law. In Germany, by contrast, the employee-favouring stakeholder system rests not on convention but on law. Through the twin systems of codeterminationthrough works councils in the rm, and the legal support for bargained wage-contracts between industrial unions and employers associationsthe system balances the legal rights of employees against those of shareholders. It does so in a way that acknowledges a startingpoint of class antagonism, and makes an awareness of the zero-sum elements of the employment relation much more salient. In Japan, those who advocate more attention to shareholders only rarely admit that this might mean less attention to employees; in Germany, the battle between reformers and defenders of the employee-favouring rm is clearly joined and fought in class termsbusiness interests versus the workers and their unions. The survival of the Japanese system depends in part upon the inertia of cultural reproduction and the continuing dominance of a communitarian managerial ethic of benevolent responsibility. In Germany, it depends on the continuing strength of trade unions. Which is likely to erode faster?

Relative survival power

Three factors, at least, suggest that it is the Japanese system that has the greater chance of resisting incorporation into American-led global capitalism along Anglo-Saxon lines, and of carrying into the age of high technology an economic structure with a dense web of obligation-loaded relational transactions, with much of its business done in customer, not auction, markets. First and foremost, there is the sense of cultural, and racial, distinctness. That this is Japanese, and that American, can become a far more potent argument for preserving the this than such calls in Germany would be. German social cohesion may have drawn on informal, socially rooted obligations, which its legalrational bureaucratic traditions enabled it to constitutionalize in law. But if that legal structure does not continue to be rooted in some kind of spirit of community, the web of obligation can much more easily be deconstitutionalized. A second factor, intricately interlinked, that makes Japan a more likely resister to global Anglo-Saxon capitalism is that its corporatism, to use the term loosely, has been more holistic. That is to say, it has depended more on all the compromising parties sharing some sense that they have to think for the nation, and less on a simple horse-traded class comprodore: Anglo-Saxon Capitalism 117

mise between opposing interests in a zero-sum game. This is apparent in the annual wage-round debates in Japan, in which both sides attach a great deal of weight to their interpretation of the needs of the national macroeconomy. In Germany, by contrast, the attempt at true concertationof the kind that worked, and still works, in the Netherlands and Austriafailed. Ination control depended on how the unions and employers accepted the disciplineor the threatof unilateral action by the Bundesbank. Schrders present problems with his Alliance for Jobs spring, in large measure, from the unions insistence on retaining their self-dened mission of maximizing the interests of their members, rather than attempting to move beyond and think for the nation. One does not have to go back to medieval feudal traditions to explain the difference between the two countries in this propensity for holistic corporatist thinking, even if such deeper roots are not to be ruled out. It is enough to hark back to the 1920s. Japan, too, had its militant unions, who had to face not only employers but also the police, and the violence of hired thugs: people were killed. But the violence was on nothing like the scale seen in Germanyor even in America, for that matter. Nor was the shaping of the post-war institutions profoundly inuenced, as the German unions were, by returning exiles with vivid memories of that brutality. The tiny handful of Japanese exiles coming back from China and Russia were vastly outnumbered, in the post-war unions, by people who had earlier made their compromises in the Patriotic Labour Front, into which the pre-war organizations had been incorporated. That history still counts. It means there is greater scope in Japan for propagating the notion that there is a national, rather than just a class interest, in preserving established structures and organizations, and protecting them against the pressures of global markets, global rms and US-dominated global institutions. One nal reason why Japan might put up a stiffer resistance to AngloSaxon capitalism than Germany is because of its neighbours. There are many similarities between Japan and Korea, in terms of employment institutions, business practices and views of the states role in the economy, and in the debates currently under way over how far Americanization should be allowed to go. Chinas state-owned enterprises, for all their diminishing contribution to GNP, are still normsetters, and their employee-favouring orientation is not in doubtany more than Chinas nationalistic propensity to resist American corrup118 nlr 6

tion of its Confucian socialist soul. Both of these countries are still some way from Japans industrial maturity, still growing at a fast rate. In another few decades, the weight of East Asia in the whole world economy could seriously eclipse that of the United States and of Europe, with profound consequences for capitalist development. At present, the Japanese are in no mood to think of preserving their institutions because of some valued quality of Asian-nessstill synonymous, for the vast majority, with backwardness, in contrast to American modernity. That may not always be so, particularly if the new Cold War which seems to be shaping up between China and America really takes hold, as it might well do if the Pentagon perceives China to have serious rival potential in missile and anti-missile defence technology. The interconnexions between the soft power of cultural hegemony, and the hard power of military might, have fascinated political scientists for centuries. The multiple modes in which both kinds of power may now be inuencing the shape of economic institutions in the non-hegemons are no less complex and fascinating.

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