6 - Institutional Complementarities and Japanese Welfare Capitalism

Summary

Japan poses a theoretical puzzle for the varieties of capitalism debate. For Soskice (1990a, 1990b, 1994, 1998), Japan represents a prototype of a coordinated market economy (CME). In his view, long-term mutual commitments among key economic actors characterize CMEs, whereas a more explicit reliance on the market principle characterizes liberal market economies (LMEs). According to Hall and Soskice (2001), CMEs include Austria, Belgium, Denmark, Finland, Germany, Japan, Luxembourg, the Netherlands, Norway, Sweden, and Switzerland. LMEs, in turn, include Anglo-American countries: Australia, Canada, New Zealand, the United Kingdom, and the United States. Some scholars consider large welfare states to be a definitional requirement of a CME, whereas others consider small stock markets and concentrated corporate ownership patterns to be additional requirements of a CME. Japan, however, provides a problematic case, because its “orthodox” welfare state is not as generous as welfare states in other CMEs (see Figure 0.1 in Introduction). Japan also looks different from other CMEs in its large stock market and diffused corporate ownership structure (Table 6.1).

To summarize briefly, certain types of welfare states and stock markets are considered as institutional requirements to support CMEs, because employers and workers in CMEs engage in human capital investment strategies based upon long-term employment relationships (see Dore 2000; Hall and Gingrich 2004). When compared to LMEs, employers in CMEs – knowing their workers will be around for a long while – are more involved in the skill acquisition process of their workers.