Stock Capitalism: Welfare Capitalism (Anglo-American Model vs. Japanese/German Model)

Author: (English) Ronald Dore, translated by Li Yan and others
Translator: Li Yan, Li Xiaohua
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Publish Date: 2002-08-01
Features: What makes the above distinction even more puzzling is that Japan's legal environment differs little from that of the Anglo-American countries: namely, the shareholder annual meeting being designated as the highest institution for appointing directors, the definition of shareholder property rights, and so on. Lifetime careers are supported by case law. If an employee claims to have been unfairly dismissed, the employer must prove that the company has made every effort to find other opportunities for redundant employees, such as exploring all reasonable market opportunities for diversification. Not only unpaid wages but also claims for the loss of job rights are prioritized in corporate bankruptcy proceedings. However, overall, the status of the company as the property of shareholders remains unshakable in Japanese law. Why are the conventions of real life so different from the legal model? The reasons are very complex. Here, I will only provide a brief explanation. Before World War II, Japanese companies operated more closely to the Anglo-American model. The stock market played a more significant role in the company's financing process. Many directors were mere outsiders with equity, their only concern being financial interests, with the goal of ensuring that most of the profits could be distributed as dividends and bonuses for the directors. The relationship between management and labor unions was one of both opposition and cooperation. But World War II changed everything. The stock market was forced to close, dividend payments were restricted, and the military's ordnance management committee took control of director appointments, beginning to assign senior lifetime employees in most major zaibatsu companies, whose qualifications were professional expertise rather than the amount of stock they held. This became a common model and was retained after the war. It embodied many values recognized in traditional Japanese culture (such as Confucian values, which had long been articulated in Confucian maxims). The second condition that played a significant role in the formation of the modern corporate model was the post-war labor movement and its confrontational nature, which transformed the "managerial team" companies within large zaibatsu into "employee team" companies. This process was long and complex, but here I will only provide a brief account. In the early post-war years, there emerged a radical labor movement led by socialists, spanning across companies, with the goal of transitioning from capitalism to socialism. The momentum of this movement was quickly suppressed by the management class and the occupying forces, and it was ultimately assimilated into "blue-collar equality," which granted blue-collar workers and white-collar managerial staff equal status, with similar monthly salaries, the same job contract guarantees, the same paid sick leave, and retirement funds determined by wage levels, as well as membership in the same company union. In other words, ordinary workers also received the conditions enjoyed by managers and recognized by the company. Therefore, one important aspect of the social environment that allows Japanese companies to operate in this way is that almost all companies follow the same model. Customs and practices are the customs and practices of the entire society. However, the old system still shows remarkable vitality, mainly due to: (1) the sense of responsibility of management personnel (reformers argue that this is misguided), and (2) the devastating impact of unilateral dismissal on morale (managers' experience is that even negotiating early retirement or transfers with employees is still somewhat difficult). Furthermore, there is an ambiguous view that the need to find jobs for redundant employees (when no suitable layoff plan can be found) focuses management's attention on the possibilities of diversification. The steel industry is a typical example. The five giants set themselves targets for diversification (e.g., 30% of production being non-steel products) and largely achieved them. Many of their projects later proved unfeasible and wasted resources. However, some succeeded: for example, Japanese steel plants created one of the world's most successful silicon water manufacturers. However, most corporate management reformers are believers in the current "focus on one's own business" and "develop core competencies" doctrines of business schools. These doctrines are bound to fail. However, a comprehensive evaluation of the benefits of these projects cannot measure the company's external-internal economy (external refers to the spun-off enterprises, and internal refers to the group as a whole), as well as the morale and efficiency brought to the company by the efforts to maintain lifetime contracts. One organization that showed a deeper understanding of the situation than others is the Nikkei Keiretsu, whose unique approach to corporate management has already been mentioned. This is the employer's alliance, which exists solely for employment and labor relations issues. Its reports and those of others are clearly different, and it is not surprising that they were heavily influenced by the OECD's Millstein report, as the chair of the working group responsible for the report was one of the six members of the Millstein Committee. Unlike all other reports, this one (guided by another member of the Millstein Committee, East Michael Albert) clearly recognized the differences between the Anglo-American corporate model and the Japanese and traditional European model. The former emphasizes the capital market and absolutely protects shareholder interests, while the latter respects the interests of various equity holders, such as managers and employees, while rarely considering shareholder interests. The report further argues that questioning whether the Anglo-American model represents global standards is "short-sighted" and that Japan must learn to emulate the Anglo-American model. Many in the UK and the US are concerned about inequality and the social problems it creates; in France and Germany, although there are also fierce debates about corporate management, some actually advocate strengthening the connection between companies and employees. However, the Nikkei Keiretsu still led the reflection on the issue of lifetime employment, urging a "hybrid" employment contract scheme as a "third way" (the famous bluebird scheme), so it would not immediately provide a fully supportive system for lifetime employment. Employee needs are constantly changing; the best way to improve their interests may not be to give them lifetime jobs but to help them acquire skills that can be taken to external markets. However, this report was also written with a balanced perspective, reflected in a sentence in the title: "to make the company equally attractive to both the capital market and the labor market." Therefore, although the main part of this report, like all other organizations' reports, discusses the concept of "transparency," meaning the openness of company information to shareholders, there is also an appendix (supplementary points for further discussion) that points out that transparency is also a basic element for companies to attract outstanding employees. However, there is a clear asymmetry here. Employee transparency and investor transparency are not the same thing; it is not just about letting employees know where the money is going. The report mentions that employees are not simply interested in bread. A clear and compelling corporate ideal and purpose are the basic methods to create an attractive work environment and give people a sense that their work is meaningful. Personnel assessment transparency is also very important. What cannot be estimated are other irrational factors, such as the sense of responsibility for inter-company courtesy. The measurement of the power of this factor lies in the differences between major enterprise groups (the keiretsu). The CEOs of member companies still have monthly lunch meetings and various kinds of lower-level social gatherings, as well as information exchange and cooperation agreements. Of the four former zaibatsu groups, three—Mitsubishi, Mitsui, and Sumitomo—have current cross-shareholding ratios almost as high as in 1992, higher than in 1987 (with nearly half being internal cross-shareholdings and the other half external). The fourth, the Fuyo group, which includes the assembly operations of the old Yasuda zaibatsu-affiliated company Fuji Bank, has shown a sharp decline. Its ratio in March 1998 was similar to the other two groups—these were companies formed with the help of Kwaeigyo Bank and Sanwa Bank, not derived from pre-war zaibatsu. Fuji has always had a reputation for being less independent than the other three former zaibatsu, with closer ties to the main banks than among member companies—more like a star network than a fishing net. Its subsidiaries also have a higher proportion (Nissan instead of Toyota), and some powerful companies seem semi-connected—for example, Hitachi, which is also part of the Kwaeigyo Bank group. By the end of 1998, many newspapers noted the general problems of the Fuyo group (credit damage, deteriorating situation), particularly regarding Fuji Bank and Yasuda Trust Bank. However, (perhaps due to firefighting measures for troubled companies—and Fuji's own corporate capital restructuring itself) in the following year, it became the only group to show an increase in cross-shareholdings—up 3%. The differences between independent and less independent groups indicate that emotions, that is, how managers, as organizers, view their companies' sense of responsibility, are indeed at play. Even outside such enterprise groups, these long-term relationships are difficult to break. A senior financial executive at Hitachi, when discussing Hitachi's loans from ten banks (rather than about cross-shareholdings), said: "Without most of these loans, we could still operate, but if we wanted to reduce loans from any one of them, they would demand 'unless you make the same comprehensive reduction at all banks,' but that would be difficult because the loan terms are different." In a real crisis, Hitachi might let its board decide on these issues, but the standard for what constitutes a severe crisis is hard to determine. Due to the controversy surrounding privatization in the 1980s—when the Socialist Party, which still held some influence, opposed it—the principle of deregulation became like a beloved mother and a apple pie. When the Socialist Party Prime Minister Murayama took office in 1994, deregulation was his main promise. Even the Asahi newspaper joined the so-called "chorus" (a half-opposition term for the movement). The theory of standards was elaborated in detail in a report by the "Administrative Reform Committee's Deregulation Subcommittees," which was published in December 1996 with a combative title translated as "Innovatively Building a New Japan." This report covered many topics. For example, it recommended relaxing licensing controls for domestic aviation, simplifying the wheat price system and the milk market system, clarifying licensing regulations for natural gas subcontractors, and abolishing the on the ratio of land to buildings for urban factories (the original purpose of which was to protect urban green spaces), arguing that the costs of public assets should not be imposed on individual businesses. Many of the recommendations seemed like good responses to the changed reality; others, such as the last one, still remain highly controversial. Even from the perspective of the entire apprenticeship system trained in Germany, its dominance may have weakened, but it remains very important, not only in the technical skills it develops but also as a social employment and integration system, providing a sense of belonging in society for the mediocre German public. Part of the reason companies maintain cooperation with this system is the recognition of this fact: on one hand, out of a sense of civic duty, companies adopt more apprentices than they need; on the other hand, to uphold this civic duty, companies do not abandon general training to focus solely on the special skills required by their own company. Can this sense of civic duty continue to withstand the ruthless pressure from top-down cost-cutting? Training officials in large companies usually keep two accounts to show the balance between training costs and the potential revenue that low-wage apprentices might generate. One account is for the bosses, showing the benefits, so they do not worry too much about the money spent on this civic cooperation, and the other account is for the training officials of the industrial association, showing a deficit, telling them that our company has already spent a considerable amount of money and should not be forced to take on more apprentices. (It is undeniable that while employers in some manual trades like hairdressing and baking can benefit greatly from the training system, the situation in more complex industries is far from the same.)