«Darius Mehri Department of Sociology 510 Barrows Hall University of California Berkeley, CA 94720 1 Abstract The Asian economic crash of 1997 lead to ...»
Restructuring in the Toyota Keiretsu during the Asian Financial Crash:
An Ethnographic Perspective into Neo-liberal Reforms and the Varieties of
Department of Sociology
510 Barrows Hall
University of California
Berkeley, CA 94720
The Asian economic crash of 1997 lead to widespread restructuring of corporate
organizations in Japan. This paper uses ethnographic field work and historical
documents to examine how this played out inside one company, Toyota, when management implemented a restructuring plan to improve the profitability of its companies during the period of 1996 to 1999. The restructuring policies are discussed within the framework of the varieties of capitalism debate. A hallmark of the current discussion on Japanese organizations is that Japan is converging toward the American model of capitalism. I argue that although Japanese companies have adapted to worsening economic conditions by incorporating neo-liberal market reforms, restructuring during the Asian crash reveals that changes in the Toyota organization were based on hybrid policies that fused both liberal and coordinated market economics within the context of the unique institutions of Japanese welfare corporatism.
2 Introduction Since the rise of Japan as an economic power in the 1960s, social scientists have been fascinated by the inner workings of Japanese capitalism. At the core of these concerns was an interest in studying organizations and whether, as the first Asian industrial nation, Japan was in the process of converging on the Western model. It was believed that as technology diffused throughout the industrial nations it would be the driving force behind producing similar organizations and institutions (Kerr, Dunlop, Harbison, and Myers 1960;
Marx 1976). Dore (1973) engaged in the convergence debate through an ethnographic comparative analysis of Japanese and British factories to show marked differences in recruiting, training, managing, motivating and rewarding workers. Dore was the first to claim “welfare corporatism”, an institutionalized system of social support institutions, as the model adopted by Japanese companies compared to the “market individualism” as experienced in Britain. He saw significant advantages to the Japanese model of welfare corporatism particularly in the realm of reciprocal labor management relationships and at the time, it was a model in which Britain was converging toward.
Cole (1979) addressed convergence theory through a multi-method historical analysis of workers in Yokohama and Detroit. He explored borrowing of personnel management practices and the process of adapting foreign innovations to Japanese organizational needs. Cole saw convergence on some important institutions, such as education and common technologies, but divergence when the two countries “developed along their own paths based on
Another stream of theorizing approached the understanding of Japanese organizations through a cultural interpretation. Abegglen (1958) initiated the approach with a discussion of how culture influences the uniqueness of Japanese institutions. He claimed long-term employee commitment to a firm in Japan is based on mutual obligations between managers and employees where the seniority based reward system is linked to service to the firm. Rohlen (1974) engaged in a similar discussion albeit with a Weberian theoretical frame - his analysis emphasized the cultural meaning in the daily behavior of bank employees. The conclusions of these studies are based on the assumption of historical continuity and therefore it is understood that Japanese organizations have a unique trajectory and are not converging on the Western model. Cole (1971) claimed to split the cultural and convergence perspective by arguing that functional alternatives have allowed the Japanese to create structural arrangements to solve common problems in industrial societies.
The pressure of globalization has lead to a reframing of the convergence debate. A flourishing of technology and a wave of new organizational techniques, such as supplier-client relations, just-in-time manufacturing and team production, has provided the means in which organizations in different nations develop collaborative relationships. If technology is providing the means in which organizations can become “global”, the liberalization of the international economy has provided the force behind the movement. The ideology behind liberalization is neo-liberalism that is defined by Harvey (2005) as “a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional
trade” (p. 2). It is believed that international institutions are providing the structural dynamic to diffuse neo-liberal social, economic and cultural-ideological changes around the world to force nations to convergence on free markets and free trade (Chase-Dunn, Kawano, and Brewer 2000; Robinson 2004; Woods 2006).
The acceptance of neo-liberal ideology is dependent on nations that are predisposed to the Anglo-American model of shareholder value that are based on equity based finance, an emphasis on profitability over growth and fluid external labor markets (Fligstein 1990). A stark contrast is the stakeholder model found in Japan and Germany that features tightly connected industrial and financial networks, growth over profits and internal labor markets (Ahmadjian and Robbins 2005; Hall and Soskice 2001). With the ascension of neo-liberal ideology and the perceived notion that marketization and privatization are solutions to economic decline, to what extent has globalization influenced Japanese welfare corporatism - a system that has been placed under considerable economic strain in recent years?
The economic downturn in Japan began with the stock market crash of 1989 when stocks lost 60 percent of their value and commercial real estate prices fell 50 percent. The bursting of the real estate bubble in the early 1990s was due largely to a number of bad loans that discouraged investment and lead to chronic deflation. Another exogenous shock to the economy occurred as a result of the Asian financial crash of 1997 that lead to widespread restructuring of corporate organizations. In the 1990s the average rate of growth was approximately one percent per year for seven of the ten years between 1991 to
The economic crisis has resulted in a number of studies about how Japanese organizations restructured to respond to the economic downturn.
Lincoln and Gerlach (2004) explain restructuring in terms of the network of complex ties of firms in the Japanese stakeholder model. They discuss dramatic changes in the Japanese system with the most significant being the “Big Bang” corporate governance reforms of 1997 to shake up Japan’s failing financial sector and to respond to the new realities of globalization. Deregulation promised new investment opportunities to help resolve the issue of bad loans, to create greater competition and innovation and to overhaul Japan’s faltering, hidebound system of “crony” capitalism. The reforms lead to a number of mega bank mergers and foreign direct investment in large companies throughout Japan resulting in a weakening of the stakeholder model (Lincoln and Gerlach 2004).
The most significant corporate governance reform was lifting the ban on holding companies imposed by the U.S. postwar occupation leading to increased restructuring. This new policy meant that Japanese companies could purchase dominant shares in other companies under the legal umbrella of financial and management consolidation that is widely used in the United States. But Lincoln and Gerlach conclude that on average “the process of restructuring proceeded down pathways well-carved by Japan’s distinctive historical and institutional legacies.” In a large study of Japanese firm behavior in the 1990s, Ahmadjian and Robinson (2001) show that social and institutional pressure shaped the pace and process of downsizing. Large manufacturing companies were resistant to downsizing at first but embraced it as it became more socially acceptable. In a
1990s tended to embrace shareholder value practices, such as downsizing and the divestiture of assets, if foreign ownership increased and if a firm’s position within the stakeholder position was weakened. If a firm however was more deeply embedded within the stakeholder system, they tended not to embrace shareholder value practices.
Vogel (2006) also reviews restructuring in Japan but sees radical change toward an American styled neo-liberal economy circumscribed by laws, practices and norms that would not only require dismantling of current institutions but the creation of new ones at all levels of the economy. His is an institutional analysis that merges rational, transaction cost approach of new institutional economics, and norms and social ties into the cost-benefit framework. Although Japanese companies sought to cut costs in the 1990s to survive within the new economic realities, they were “constrained from laying off workers, abandoning their main banks, and cutting off stable suppliers by the logic of the Japanese model itself” (p. 19). Vogel discusses “remodeling” - changes of firms within current institutions - as a more accurate interpretation of restructuring in Japan during the 1990s.
Another stream of literature focuses on the changes at the organizational level in Japan since the economic crisis. Robinson and Shimuzu (2006) analyzed the interviews and appointment calendars of 79 CEOs since 1989 and concluded that they are spending significantly more time on investor instead of bank relations and more time on external factors such as shareholder value and less time on employees, indicating a convergence towards an American style market economy. Chuma (2002) compares the economic crisis of the early 1970s to that
job separation and vacancy rates of recent graduates but finds dramatic personnel reductions in the 1990s “Heisei” recession compared to the oil shock of the 1970s showing that Japanese firms have incorporated downsizing practices seen in America and other liberal market economies.
Although these studies make significant contributions in understanding restructuring in Japan in the 1990s, they don’t offer an account of how or in what order changes occurred within firms when the Japanese model was challenged.
This study will attempt to add insight into the debate about restructuring in Japan through an ethnographic analysis of a single Toyota company that restructured during the Asian crash. The advantage of ethnography is that it provides a bottom-up, micro-social analysis that can be used to analyze the day to day dynamics of change. In this study I will attempt to answer such questions as: Did the old Japanese model maintain its resiliency or did the dramatic changes that occurred at the macro-level sweep away the old system? Did Toyota adopt a select number of American styled practices to adjust to change to form a hybrid system or did restructuring reflect embedded institutional practices unique to Japan to form a new model? Through vignettes of my experience as a participant observer and historical documents provided by the company, I will show that although restructuring policies were shaped by the realities of neo-liberal reforms, the outcome reflected a convergence toward a hybrid model of liberal
Theoretical Framework The Varieties of Capitalism An effective way to frame the restructuring discussion is through the varieties of capitalism which is an actor-centered theory that considers corporate organizations to be the critical actors in the capitalist economy (Hall and Soskice 2001). Organizations exist in a competitive space and advance their interests through strategic interaction with other firms (Scharpf 1997). Organizations adjust their behavior in the face of exogenous shocks or international competition. Their activities collectively influence the overall levels of economic performance within a national economy.
The varieties of capitalism employ a relational view of the firm. Firms must use informal or incomplete contracts to reduce problems of adverse selection and shirking. They therefore exist in a relational world in which problems must be solved through coordination with other actors. Hall and Soskice (2001) discuss five spheres of coordination – industrial relations, vocational training and education, corporate governance, inter-firm relations, and relations with employees – that are important in understanding the varieties of capitalism.
Industrial relations is important in understanding how companies coordinate bargaining over wages and working conditions with labor unions and vocational training and education is important in understanding how companies obtain and maintain a skilled workforce. Corporate governance is important in understanding how firms coordinate access to finance and how they maintain security for investor’s assurance for receiving returns on investments. Inter-firm relations are important in understanding the relationships firms have with other firms in
Lastly, it is important that firms coordinate problems with employees to ensure they maintain competencies and cooperate with management to advance the goals of the organization. Institutions, organizations and culture enter the into the analysis of coordination since actors generally follow both formal and informal rules for normative, cognitive or material reasons.
Scholars in the varieties of capitalism tradition fit the industrial economies into two ideal types – the liberal and coordinated market economies. In liberal market economies, firms coordinate their activities through competitive market arrangements characterized by arm’s length exchange of goods and services.