There has been a flurry of publishing recently analyzing Japanese corporations in the post-bubble economy and the extent to which change is or is not happening and why. While the literature continues to expresses diverse views on such time-honored themes as the role of the keiretsu and bureaucrats in guiding corporate behavior, the five books under review shed a great deal of light on the role of social capital and economic change in Japan. Although many popular commentators continue to lament Japan's seeming intransigence in the face of demographic, regional, and financial challenges, these titles present a more nuanced picture. They show that Japan's business model is absorbing some of the components of corporate governance preferred by U.S. shareholders, but slowly, very modestly, and to enhance, rather than overturn, the existing system. The reason, the authors find, is the overwhelming demands placed upon firms and managers to build and maintain social capital.

Michael A. Witt's Changing Japanese Capitalism: Societal Coordination and Institutional Adjustment (2006) provides a good point of departure. He points out that social capital may have private good character, meaning that the effects of social networking accrue at the level of the individual holders of social relations. He also notes that social capital is potentially bad for three reasons. First, it can facilitate not just socially desirable but also socially undesirable behavior, such as organized crime. Next, it can channel conformity pressures, thereby forestalling micro-level action that could otherwise prompt institutional adjustment. Third, and much to the point, social capital fosters cooperation between economic actors, producing intra-industry loops; common conduits through which Japanese firms exchange information, norms, and values, these loops can retard or prevent institutional adjustments of network actors who give or receive information.

Witt's focus on intra-industry loops is welcome because, while they are common to many sectors of the economy, they have thus far eluded systematic study. His book explores the composition and the functioning of these loops and demonstrates that the government plays a leading role in founding and fostering these networks in burgeoning industries through the creation of public research and development consortia. He further finds that networking intensity varies according to the demand of member firms for coordination, and that social networks and social capital may represent an obstacle to institutional adjustment. These networks, he suggests, discourage institutional innovation by stabilizing extant ones and contribute to slower institutional adjustment by facilitating coordination. Witt expands upon this thesis by claiming that Japan's institutional adjustment has been retarded by a combination of coordinated, time-intensive adjustment processes paired with relatively limited adjustment pressure at the microeconomic level. Finally, he stresses the lingering perception that micro-level action that deviates from social norms is regarded as illegitimate behavior. Interestingly, this has been underscored by recent news reports on Japanese whistle-blowers, who are typically ostracized in spite of their defense of public safety, sanitation, or finances (New York Times, June 7, 2008).

In Reprogramming Japan: The High Tech Crisis under Communitarian Capitalism (2005), Marie Anchordoguy accepts the premise that the Japanese economy aims to minimize failure and to keep all firms and workers afloat—a concept she describes as “communitarian capitalism” (p. 4). In the postwar era, the Japanese had had enough of failure, she argues, and therefore were disinclined to conduct business in such a way that would prioritize profit while simultaneously marginalizing individual firms or employees. The hallmarks of the system they designed, she explains, were lifetime employment, seniority-based wages, a centralized credit-based financial system, enterprise unions, a main bank system of corporate governance, and industrial policies that promoted key industrial sectors. Anchordoguy goes too far, I believe, in her blanket assertion that Japanese firms “rather than focusing on maximizing profit, manage markets in ways that promote continuity and minimize failure” (p. 10). My own research demonstrates clearly that in some postwar industries, failure was not only the norm—small- and medium-sized firms virtually went to war over markets and very actively drove one another into bankruptcy, often ruthlessly. Nevertheless, at the level of the large corporate enterprise, and especially since the mid-1970s, her point is sound: Japanese firms are often opposed to eliminating their rivals for the sake of the broader community and the web of relationships that it typically entails. Anchordoguy argues that although the regulations that have for so long limited risk taking are starting to come under greater scrutiny, economic action in Japan is still primarily social action (p. 233).

The consequences for Japan's information technology (IT) sector of prioritizing social capital, Anchordoguy argues, are profound and negative. She contends that the maintenance of the seniority system in Japan's computer, software, and semiconductor industries was a virtual albatross around the necks of many firms. In the computer industry, it ensured that key managers who had established their careers in the age of mainframe computing, many of whom were reluctant to adapt to the age of desktop computing, would be kept on indefinitely (p. 142). She explains that when global technological and economic conditions started to change in the 1980s, the fundamentals of Japan's economic system were too deeply entrenched to adapt. The consequences of clinging to age-based salaries, lifetime employment, and the idea that large firms should not be allowed to fail thus became risky by the late 1980s, and Japan's obsession with fair treatment of workers and firms ironically endangered both national autonomy and social stability.

To illustrate her case Anchordoguy cites the example of Nippon Telegraph and Telephone Company (NTT), a state-owned monopoly that was shaped between 1945 and the 1980s by the ideals of communitarian capitalism. While other authors have explored the technological fallout of the failures attendant to NTT's partial privatization during the late 1980s, Anchordoguy provides an excellent historical discussion of the underlying political struggle. She notes that the breakup did not increase competition. At best, she claims, these were reformatory “baby steps” in the face of lingering institutional rigidities. Again, the maintenance of social capital was a critical part of the equation, and an unwillingness to shatter the powerful social networks underlying NTT appears to be what prompted the government to pull its reformatory punches, which Anchordoguy claims has threatened the entire system. Many firms, she concedes, now acknowledge the need to consolidate, restructure, and even permit bankruptcies in order to revitalize the economy, but only insofar as this accords with the Japanese preference for balancing the interests of multiple stakeholders.

Japan's IT sector is also the focus of Accelerating Japan's Economic Growth: Resolving Japan's Growth Controversy (2008), whose authors claim that Japanese firms have grossly underinvested in IT at considerable cost to economic growth, perhaps on the order of 3 percent gross domestic product growth per annum. Given the authors' collective expertise, their findings deserve serious consideration. F. Gerard Adams and Lawrence R. Klein are professors emeritus with long-standing experience as macroeconometric model builders, and Yuzo Kumasaka and Akihiko Shinozaki are both experts in Japan's IT field who research the implications of the IT revolution for economic growth and development. Here they have combined forces to produce a unique account that attempts to model the impact of increased adoption of IT in Japan.

Together, Adams et al. argue that “Japanese integrated business structure is more suited for stable industries than for highly competitive entrepreneurial ones,” which has acted as a brake on the adoption of IT equipment and processes (p. 12). They agree with other scholars who have calculated a sharp decline of total factor productivity during the 1990s, for which “the implication is that Japan did not fully take advantage [of] gains in IT to increase productivity in many sectors” (p. 16). They cite several factors. First, the Japanese economy reflects a two-tier structure, with service industries and agriculture lagging far behind industry. Second, fiscal policy during the 1990s repeatedly introduced new packages that maintained a consistent strategy of public works spending on infrastructure and municipal facilities rather than on IT. Third, they cite an overreliance upon human networks. Integrated organizations, they argue, find it difficult to adopt new technology because their intimate human networks have heretofore performed so well that management often refuses to accept the importance of using new technology, and therefore makes less use of it. This is ironic in a high-tech, innovative society, but corporate Japan, they suggest, has hesitated to introduce such technology as extensively as overseas firms because they worry that it might erode their human network advantage.

For all of these reasons, Adams et al. conclude that several sectors of Japan's economy have failed to attain the technological skills or the operational scale of most twenty-first-century businesses. They agree that the challenge for Japan over the next ten years will be “to take advantage of the changes in the world economy and to use them to achieve a faster rate of growth than in the recent past” (p. 35). This is especially true, they argue, because Japan has considerably higher labor costs than other regional economies, and therefore Japan must compete in high-tech fields in which its industries excel. Still, they are hopeful that Japan's private sector businesses are “getting ready to ride the wave of the information technology revolution and to reap its benefits on their own terms” (p. 69).

In an exemplary example of comparative analysis, Sanford M. Jacoby's The Embedded Corporation: Corporate Governance and Employment Relations in Japan and the United States (2005) takes the reader on a tour of the human resources (HR) departments at both Japanese and U.S. corporations and illustrates how their roles and purposes are indicative of broader attitudes toward corporate governance. Efforts are under way at many Japanese firms to make their headquarters smaller, more focused, and more efficient, which, it is hoped, will curry favor with foreign shareholders. But HR is not being singled out at any of the firms visited by the author, even though the distribution of power among shareholders, managers, employees, and unions is weakening the standing of central HR in the corporate hierarchy. Jacoby discovers that although many predicted that Japanese firms would gravitate toward the U.S. model of corporate governance, no such dramatic shift is taking place. It seems that Japanese HR managers simply prefer not to finger particular individuals as problem employees.

Steven K. Vogel's Japan Remodeled: How Government and Industry Are Reforming Japanese Capitalism (2006) also makes extensive use of comparative case studies—and to good effect. Vogel demonstrates that not only have Japan's major business systems changed, they have been buffeted all the while by a host of steadily changing and overlapping pressures, among which is a broad “sociological perspective” (p. 15). Vogel compares inter- and intra-industrial company cases and draws international comparisons between Japan, Germany, and the United States, as well as between policy issues, leading the reader to think carefully about the range of market, institutional, and social pressures that combine to form the Japanese business environment. He outlines three overlapping spheres in which any firm operates, the influences of each of which have their own effects over management's efforts to reform any company's business model. These three spheres, or “Circles of Rationality,” as he calls them, are, first, a simple market calculus (cost–benefit analysis), which broadens to include institutional factors (varieties of capitalism, the VOC approach), and broadens still further to consider the web of social networks that require managers to weigh the reputational costs and benefits of change to the firm.

Vogel's important point concerning economic reform, which is broadly consistent with the findings of the other titles under review, is that Japan may simply not want many of the reforms proposed by U.S. free market capitalists who demand greater corporate governance in an effort to boost share prices at the expense of social or reputational capital. Vogel argues in his fourth chapter, “Varieties of Reform,” that since the early 1990s, extensive changes have been made to Japanese laws concerning corporations, accounting practices, financial regulation, pensions, taxation, industrial policy, and special interest groups. Although he observes that Japan's political institutions can impede reform, Vogel demonstrates convincingly that broad systemic change has occurred in Japan, especially in the domestic political and economic sphere. The real question, he suggests, is whether Japan's leaders succumbed hastily to “reform fever” before studying carefully whether their initiatives would do any good (p. 213). Vogel admits that his study points to a seemingly contradictory image. On one hand, Japanese government officials and corporate executives have seized upon reform as a sort of fashion, making systemic changes, often borrowed from the U.S. economic model, without careful study as to their efficacy. On the other hand, the same leaders have evaluated very selectively the features of the Japanese model and made careful adjustments, both to preserve it and to maximize its benefits and reduce its costs. The new, remodeled Japan differs from the earlier version, Vogel claims, because its new economic model is more selective, differentiated, and open. What remains to be seen, however, is whether the remodeled Japan can deliver sustained economic progress.

To close this review essay, I find that the books under review paint a picture of a business community that prioritizes the defense of social capital through myriad, shifting concessions and compromises and therefore shares a good deal of the responsibility for Japan's economic performance since the early 1990s. Many of the important decisions made by Japanese companies do not have a strictly economic rationale. Their priorities extend beyond the financial balance sheet to address the needs of a range of stakeholders. At the same time, although many of Japan's firms and managers do indeed aim merely to muddle through, Japan appears to be changing its business model in a manner suited to the priorities it places upon preserving social capital. Whether this cautious approach can generate much more than incremental economic progress remains unclear.