Institutions, Industrial Upgrading, and Economic Performance in Japan

Institutions, Industrial Upgrading, and Economic Performance in Japan

The ‘Flying Geese’ Paradigm of Catch-up Growth

New Horizons in International Business series

Terutomo Ozawa

Terutomo Ozawa examines Japan’s once celebrated post-war economic success from a new perspective. He applies a ‘flying geese’ model of industrial upgrading in a country that is still catching-up, to explore the rise, fall and rebound of Japanese industry with its evolving institutions and policies.

Chapter 8: Network Capitalism: Industrial Organization in Evolution

Terutomo Ozawa

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, economics and finance, asian economics, international business, international economics


STAGE-SPECIFIC INDUSTRIAL COORDINATION This chapter explores how Japanese industry has organized production at different stages of growth and assesses the on-going evolution of the modalities of economic coordination and industrial organization in the Japanese economy. Japan once formulated and maintained a highly effective brand of capitalism and corporate management in the post-World War II period – up until the asset bubble bust (1987–90). Gerlach (1992) identified it as ‘alliance capitalism’ (along with the subtitle of ‘the social organization of Japanese business’). That particular brand was created out of the tattered economic regime at the end of the war to reconstruct and build up domestic industries, especially the heavy and chemical industries that Japan had already established in the prewar days but that had become dilapidated during the war. Dunning (1997a, 1997b) adopted the term alliance capitalism when he explored in more general terms the implications of this mode of capitalistic pursuit of business goals by modern corporations across national borders. The themes of this chapter are (i) that Gerlach-type alliance capitalism – or for that matter, any other types in Japan – has proved to be merely a transitory regime that was suitable and instrumental only for a particular stage of Japan’s structural upgrading, (ii) that networking is the underlying principle of social organization in Japan, (iii) that G.B. Richardson’s trichotomy model of how economic activity is coordinated (by market, hierarchy, and network) needs to be modified to explain the evolution of Japanese-style industrial organization, (iv) that Japan is presently groping for...

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