Japan’s Gradual Transformation
Edited by Luke Nottage, Leon Wolff and Kent Anderson
Chapter 4: Perverse Rescue in the Lost Decade: Main Banks in the Post-Bubble Era
* Dan W. Puchniak Academic theories are attractive – especially to academics. When the theory is simple, contrarian, and championed by eminent Tokyo University and Harvard professors, it is almost irresistible. However, when it fails to make sense of reality, it quickly loses its appeal. So, despite the temptation to embrace Yoshiro Miwa and Mark Ramseyer’s (M&R) new theory of Japanese corporate governance, which finds decades of research to have constructed ‘a myth’, I resist. The story told by M&R is enchanting in its simplicity and universality. In their world: Whether in the United States or in Japan, firms raise funds in competitive capital markets, and buy and sell in competitive labor, service, and product markets. Whether here or there, in order to survive, they will need good governance schemes. . . . The scheme they pick will vary from firm to firm. The fact that they will pick the optimal scheme or die will not (M&R, 2002, p. 421, emphasis added). It all sounds logical, because it is – unless unique and perverse institutional incentives, and not free-market forces, drive corporate governance.1 In which case, the incentives for ‘bad governance’ and ‘suboptimal schemes’ may be greater than those for ‘good governance’ and ‘optimal schemes’. Perverse it is, but mythical it is not. * This is an updated and condensed version of an article that was first published in the Pacific Rim Law & Policy Journal: Puchniak (2007a). For a further critique of M&R’s free-market theory, see Puchniak (2007b), with acknowledgements for research funding...
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