Prescription for a better Japan <RIETI Featured Fellow> Ronald DORE

What with magnitude-six earthquakes, the top seven banks reporting another unfavorable financial year, and concerns about doctors on vacation possibly spreading SARS around Kansai, as Japan sits on the cusp of the rainy season there might not seem an awful lot to be cheerful about in the approaching month-long storm. A perfect example of 'paysage moralise' some might say, but let's not forget that King Lear found clarity in the storm and Prospero's utopian island was only reached through one. Or to draw an example from a more contemporary work, Shinya Tsukamoto's recently released and very timely film 'A Snake of June' offers a portrait of three Tokyo-dwellers who achieve self-discovery during the mid-year monsoon. Indeed, half of 2003 already spent, this is the perfect time for introspection, evaluation, and resolve for the future. RIETI Report was fortunate enough to interview Ronald Dore and have a prescription administered for the times ahead. (DC)

Ronald DORE
Professor Dore has been faculty fellow at RIETI since May 2003.
After he finished his postgraduate research at the School of Oriental & Africa Studies of University of London, he held academic positions worldwide, including associate professor of Asian studies, University of British Columbia, professor of sociology at University of London, adjunct professor of political science at the Massachusetts Institute of Technology, senior research fellow at the London School of Economics and Political Science. His expertise is Japanese society and economy and the interaction between social and economic trends. His publications include "Stock market capitalism, welfare capitalism: Japan and Germany versus the Anglo-Saxons" (Oxford, OUP, 2000),"How the Japanese Learn to Work (with M. Sako)" (Routledge, London & New York, 1989), "British Factory: Japanese Factory"(Allen & Unwin,1973), "City Life in Japan" (Routledge, 1958). He became a honorary foreign member of the Japan Academy in 1986.

Interviewer: Hirokazu Takizawa, RIETI fellow

RIETI Report: In what way do you believe Japan's economic system is changing at the moment?

Dore: Well, I don't look at things as an economist; I consider them from the view of a sociologist. I'm an old-school social democrat, not much impressed by modern-day neo-liberalist trends, and as the subject of my research I choose themes where these two ideologies collide. As I have grown older, so has my writing become more and more controversial, but in whatever respect it is held, I still aim for a scholarly objectivity in my judgments and analyses. Recently, I have been for the most part focused on corporate governance. For example, I am interested in the amendments made to Japan's laws of commerce and looking at whether or not they actually will make any difference. I have already written about, ' The globalization of corporate governance: mechansms of control from inside and outside ,' on the RIETI website and with this principle theory in mind, I plan to investigate the situation further.

RR: So even though the commercial laws have been changed, do you think the situation is likely to remain the same?

Dore: Well for one thing, it is uncertain just how far large companies which choose the "companies with committees" system will change. Maybe they won't change much at all. Take Hitachi, Ltd., which despite switching to a 'new' system of operation, was in fact employing as its outside directors people who had for a long time been connected to Hitachi in some capacity or another. As you can see, the laws themselves do not stipulate independence from outside the company, and are thus flexible. However, as regards corporate governance in Japan, the most important change of any real substance so far has been the transition from employer sovereignty to shareholder sovereignty. Over the past decade, managers have come to regard investor relations (IR) as important. Until now, Japanese companies could devote their attention to management without caring too much about stock prices, but avoiding the depreciation of their shares has now become a priority, just as in Britain and America.

RR: Has the rise in the importance of IR got anything to do with globalization of the world's economy?

Dore: I think it's the effect of the liberalization of capital.
American institutional investors also tend to invest a lot in Japan. In the US, households invest in mutual funds, and the institutional investors invest a lot throughout the world. Yet despite this, it is not a necessary part of globalization, but is rather the result of a political choice I believe. For example, if the world faced a recession like that in the 30s, even without trade barriers, I think that barriers on the liberalization of capital would materialize.

RR: You seem to hold this continuing globalization, or rather should I say financialization, with some critical regar.

Dore: Yes I do. Until recently, as is the case in generally most households, if money can be deposited at the bank, very little thought is given to other savings plans such as 401K, which is currently being introduced. However, the effect of equitization of the world's economy is being widely felt, and most households are in a sense being confronted with a situation where if they don't join in with the 'gamble,' a pension in later life cannot be guaranteed. From the point of view of quality of life, this poses enormous problems.

RR: Every family feels anxious about its future, lifelong employment is collapsing, and committing to just one company is becoming difficult. Japan is at present heading towards the Anglo-Saxon model, but society in the UK is preserved with stability isn't it.

Dore: Yes, Japan really is the 'unsteady archipelago.' Essentially, the UK is not actually as stable as Japan, although you could say that the health service and the education system are good. Britain's greatest turning point came in the 70s when the idea of industrial democracy picked up steam. Under the Labour Party, administration systems of codetermination were nearly set up, as on the European continent in Sweden and the Netherlands, but it didn't work out, and ultimately the economic system, which holds absolute ownership as its axle, was taken up instead. The reason was that labor unions, powerful anti-capitalist organizations, already had a history of 100 years behind them. If representatives of the labor unions participate in management, they cease to be able to work for the cause of their fellow laborers, and so finally they refused to have any part in the planning. This antagonistic relationship between labor and management continued until Thatcher's policies came and weakened the unions, and then the situation changed.

RR: From just after the end of the war until now, you have seen Japan pass through almost 60 years. You have even penned a book by the name of "City Life in Japan." Compared to the age of rapid growth, how in your view have Japanese society and Japanese people changed?

Dore: If anything, Japan has become more affluent. In spite of this, I do not believe that the ethical and world views of the young people then and the young people now have changed in any great way. More than this, it is the politics that has changed. Take for example the railways, the postal service and the postal savings ? 20 years ago it was only natural to see these as being managed by the state, but now both the Liberal Democratic Party and the Democratic Party of Japan advocate privatization. As for schools, there were many incentives 20 years ago for educational reforms that would introduce more equal opportunities, however, the affinity of well-off families for private schools has ironically become greater, and interest in equal opportunities for education has waned.

RR: You have raised the concepts of 'good society'; would you describe what these are?

Dore: One thing is the crucial balance of competition and cooperation. As opposed to gung-ho competitiveness, a society which can maintain a suitable level of competition while still being able to co-operate, and compromise over public goods and common profits. Furthermore, a society which is as speculative as possible, or should I say one that respects productive industry more than what Eiichi Shibusawa calls 'risky business.'

RR: If present-day Japan is heading up the path that leads away from 'good society,' what change of direction can you prescribe?

Dore: First and foremost, there need to be policies which take the country out of deflation. One key element to good society is to close the gap separating rich and poor. When there is deflation, those who work on a fixed income profit, while those who work on commission lose out, and the gap between the rich and the poor gapes wider. The practice of burying the red figures with government bonds has come to be viewed as a rule set in stone, but in order to tear out the clotting deflation and create hopes for inflation, this practice might have to be refuted. Then when deflation is opposed by the budget deficit and there is a return to the road to future growth, it would be alright to make expenditures that increase the tax burden. For example, drawing basic pensions 100% from state contributions would receive great approval. Japan's tax burden is about 35% of its GNP, comparing with 40% in Europe as a whole, and Sweden, which has the highest at over 50%, and still has a high rate of growth. Taking basic pension payments from state contributions will put the people at ease. I'm not talking about the current safety net that Japan has of providing a guarantee for people who have nothing, but if a safety net was deployed as an equal right for all, then I believe the country could be pulled out of deflation. If anxieties about the future can be dispelled, consumption will increase, and the economy, I feel, can be stimulated a little.