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Competing Capitalisms Australia, Japan and Economic Competition in Asia-Pacific

Mark Beeson

INTERNATIONAL POLITICAL ECONOMY SERIES General Editor: Timothy M. Shaw, Professor of Political Science and International Development Studies, and Director of the Centre for Foreign Policy Studies, Dalhousie University, Halifax, Nova Scotia Recent titles include: Pradeep Agrawal, Subir V. Gokarn, Veena Mishra, Kirit S. Parikh and Kunal Sen ECONOMIC RESTRUCTURING IN EAST ASIA AND INDIA: Perspectives on Policy Reform Deborah Brautigam CHINESE AID AND AFRICAN DEVELOPMENT: Exporting Green Revolution Steve Chan, Cal Clark and Danny Lam (editors) BEYOND THE DEVELOPMENTAL STATE: East Asia's Political Economies Reconsidered Jennifer Clapp ADJUSTMENT AND AGRICULTURE IN AFRICA: Farmers, the State and the World Bank in Guinea Robert W. Cox (editor) THE NEW REALISM: Perspectives on Multilateralism and World Order Ann Denholm Crosby DILEMMAS IN DEFENCE DECISION-MAKING: Constructing Canada's Role in NORAD, 1958-96 Diane Ethier ECONOMIC ADJUSTMENT IN NEW DEMOCRACIES: Lessons from Southern Europe Stephen Gill (editor) GLOBALIZATION, DEMOCRATIZATION AND MULTILATERALISM Jeffrey Henderson (editor), assisted by Karoly Balaton and Gyorgy Lengyel INDUSTRIAL TRANSFORMATION IN EASTERN EUROPE IN THE LIGHT OF THE EAST ASIAN EXPERIENCE Jacques Hersh and Johannes Dragsbaek Schmidt (editors) THE AFTERMATH OF 'REAL EXISTING SOCIALISM' IN EASTERN EUROPE, Volume 1: Between Western Europe and East Asia David Hulme and Michael Edwards (editors) NGOs, STATES AND DONORS: Too Close for Comfort? Staffan Lindberg and Arni Sverrisson (editors) SOCIAL MOVEMENTS IN DEVELOPMENT: The Challenge of Globalization and Democratization

Anne Lorentzen and Marianne Rostgaard (editors) THE AFTERMATH OF 'REAL EXISTING SOCIALISM' IN EASTERN EUROPE, Volume 2: People and Technology in the Process of Transition Stephen D. McDowell GLOBALIZATION, LIBERALIZATION AND POLICY CHANGE: A Political Economy of India's Communications Sector Juan Antonio Morales and Gary McMahon (editors) ECONOMIC POLICY AND THE TRANSITION TO DEMOCRACY: The Latin American Experience Ted Schrecker (editor) SURVIVING GLOBALISM: The Social and Environmental Challenges Ann Seidman, Robert B. Seidman and Janice Payne (editors) LEGISLATIVE DRAFTING FOR MARKET REFORM: Some Lessons from China Caroline Thomas and Peter Wilkin (editors) GLOBALIZATION AND THE SOUTH Kenneth P. Thomas CAPITAL BEYOND BORDERS: States and Firms in the Auto Industry, 1960-94 Geoffrey R. D. Underhill (editor) THE NEW WORLD ORDER IN INTERNATIONAL FINANCE Henry Veltmeyer, James Petras and Steve Vieux NEOLIBERALISM AND CLASS CONFLICT IN LATIN AMERICA: A Comparative Perspective on the Political Economy of Structural Adjustment Robert Wolfe FARM WARS: The Political Economy of Agriculture and the International Trade Regime

International Political Economy Series Series Standing Order ISBN 0-333-71708-2 hardcover Series Standing Order ISBN 0-333-71110-6 paperback (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd Houndmills, Basingstoke, Hampshire RG21 6XS, England

Competing Capitalisms Australia, Japan and Economic Competition in Asia-Pacific Mark Beeson Lecturer School of Modern Asian Studies Griffith University Queensland

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f& ©MarkBeeson 1999 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP OLP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 1999 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world ISBN 0-333-74774-7 A catalogue record for this book is available from the British Library. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 08 07

9 8 7 6 5 4 3 2 1 06 05 04 03 02 01 00 99

Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

For Ann

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Contents List of Tables and Figures

ix

Acknowledgements

x

List of Abbreviations

xi

Introduction: Capitalism, Globalization and Regionalism Globalization, regionalism and the state

1

1 Power, Institutions and Political Rationalities The international context Institutions Political rationalities Concluding remarks

11 13 18 25 32

2 Competing Capitalisms: Australia Australia's historical legacy The politics of structural adjustment Concluding remarks

34 36 44 60

3 Competing Capitalisms: Japan The developmental state Collective capitalism Concluding remarks

62 64 80 92

4 The Regional Context Japan in East Asia APEC and regional politics Concluding remarks

94 95 111 122

5 Japanese Investment in Australia Japanese investment in Australia: an overview Manufacturing The car industry Banking and finance Real estate and tourism Concluding remarks

124 126 130 134 139 145 151

vn

Vlll

Contents

6 Japan and Australia: The Trade Relationship The sogo shosha in Australia The coal trade Australian-based shipbuilding Concluding remarks

153 155 163 169 171

7 Competing Capitalisms: Theoretical and Policy Implications The end of a national economic interest? Trade and industry policy The developmental model and the East Asian crisis Concluding remarks

173 175 178 186 190

8 Conclusion: Competing Capitalisms in the Asia-Pacific In the wake of the crisis A civilized capitalism? A sustainable capitalism?

193 194 196 199

Bibliography

203

Index

224

List of Tables and Figures Tables 5.1 Japanese direct investment into Australia by industry 5.2 Motives for Japanese FDI 6.1 Australia's commodity trade with Japan

129 131 158

Figures 4.1 4.2 5.1 5.2 6.1

Historical patterns of Japanese FDI Total Japanese gross long-term capital flows by type Japanese FDI in Australia, 1988 to 1995 Total Japanese gross long-term capital flows Australia's share in total Japanese imports, 1985 to 1996

IX

102 103 127 127 156

Acknowledgements Any work that takes a number of years to complete inevitably relies on the support of others to achieve its realization. In this regard I am indebted to a number of friends and colleagues who provided more help and encouragement than I can hope to do justice to here. However, I would like to offer particular thanks to a number of people who read all or parts of the manuscript in its various incarnations. In this regard I am especially indebted to Stephen Bell, Mark Berger, Ann Firth, Richard Higgott, Barry Hindess, Jane Hutchison, Kanishka Jayasuriya, John Phillimore, Garry Rodan, Rob Steven and Gary Wickham. A number of other people have provided valuable criticism and/or encouragement through other projects or more discursive channels, and here I would like to acknowledge the contributions of Dick Bryan, Bruce Campbell, Mark Cloney, Vedi Hadiz, Dick Robison, Ian Scott and Richard Stubbs. I would also like to acknowledge the invaluable assistance given by the Asia Research Centre and its staff, both administrative and academic. The opportunity to work as a Research Fellow at the Centre for more than two years provided a privileged and all too rare opportunity to pursue undiluted research and see the book to its completion. The financial support of the Centre made possible the sort of fieldwork without which such projects are difficult to complete successfully. The assistance of the East Asia Analytical Unit and Bill Brummitt in particular is gratefully acknowledged. I am not sure that they will approve of the use to which I have put their invaluable data, but it was greatly appreciated, nevertheless. I would also like to express my appreciation to Manuel Panagiotopoulos of the Australia-Japan Economic Institute for supplying me with empirical data, and to Stephen Nicholas for allowing me to reproduce the results of his research. Likewise, Mandy Miller's help in preparing the final manuscript was much appreciated. Finally, I owe a word of additional thanks to Garry Rodan and Ann Firth. Garry supervized the original PhD thesis that was the genesis of this project and showed great fortitude in the process. Ann's support was manifold and invaluable, and I am greatly indebted to them both. Perth

M A R K BEESON

x

List of Abbreviations ABS ACA ACTU AJRC ALP AMC AMWSU APEC ASEAN AUSPECC BIE BoJ CFMEU DFAT DITAC EAEC EFIC ETMs EU FDI FIRB GPE IAC IC IMF JETRO LDC LDP LNG MFN MFP MITI MoF MTIA NEDO

Australian Bureau of Statistics Australian Coal Association Australian Council of Trade Unions Australia-Japan Research Centre Australian Labor Party Australia Manufacturing Council Amalgamated Metal Workers' Union Asia Pacific Economic Cooperation Association of Southeast Asian Nations Australian Pacific Economic Cooperation Committee Bureau of Industry Economics Bank of Japan Construction, Forestry, Mining and Energy Union Department of Foreign Affairs and Trade Department of Industry, Technology and Commerce East Asian Economic Caucus Export Finance and Insurance Corporation elaborately transformed manufactures European Union foreign direct investment Foreign Investment Review Board global political economy Industry Assistance Commission Industry Commision International Monetary Fund Japan External Trade Representative Organization less developed country Liberal Democratic Party liquefied natural gas most favoured nation Multifunction Polis Ministry of International Trade and Industry Ministry of Finance Metal Trades Industry Association New Energy and Industrial Technology Development Organization XI

Xll

NIE ODA OECD PM&C R&D SES STMs TNC USA

List of Abbreviations newly industrializing economy official development assistance Organization for Economic Co-operation and Development Department of Prime Minister and Cabinet research and development Senior Executive Service simply transformed manufactures transnational corporation United States of America

Introduction Capitalism, it might be supposed, is everywhere and at all times much the same. By definition, of course, this observation must be at least partially accurate. The qualities that distinguish the capitalist system - market-oriented commodity production, private ownership of the means of production, the selling of labour power, and individualistic, acquisitive behaviour - are necessarily present in any set of economic arrangements and relationships dubbed capitalist. Yet what is noteworthy and surprising about the contemporary world economy is the continuing degree of variation that exists on the general theme of capitalist organization across nations. For all the talk of 'globalization', 'convergence', or the possible impact of the recent economic crisis in East Asia, the way economic activities are organized within individual countries continue to display important differences. This is interesting enough in itself, especially at a time when we are assured by a range of economists, political pundits and cultural commentators that the world is becoming smaller and more integrated. Yet in an era in which inter-state rivalry is increasingly predicated upon and determined by economic rather than military power, the potential advantages conferred by one form of economic organization over another becomes an issue of ever greater importance, and not just for policy-makers or business leaders. The welfare and life-chances of individual workers are constrained or enhanced by the sorts of economic structures of which they find themselves a part. Although the nation-state may not be the force it once was, it is not powerless and continues to play a crucial role in determining the sorts of economic activities that occur within national borders. Not only does the form of capitalism that prevails within an individual country remain important, therefore, but governments can still play a significant role in determining the precise shape of the dominant national variety. The highly distinctive possible forms of capitalist organization and the potential advantages they confer are illustrated by the two countries with which this book is principally concerned: Australia and Japan. These nations are exemplars of two of the most important economic models that have emerged in the 'mature' stage of capitalist 1

2

Introduction

development. A significant effect of the apparent triumph of global capitalism in the post Cold War period has been to focus increased attention on the capitalist system itself. Capitalism's strengths, weaknesses and - equally importantly - varieties appear to be more pronounced and significant. Australia and Japan, or, more accurately, the dominant economic and political actors within those countries, stand at opposite ends of an organizational spectrum that stretches from the 'developmental statism' of Japan - characterized by collaborative business-government relations - and the neoliberal Australian model, in which companies and individuals 'stand alone', taking their chances in a market-driven economic order in which government has theoretically and normatively only a minimal place. As we shall see, this characterization of Australia and Japan is somewhat stylized. Clearly, no country completely embodies all of these qualities, or adopts a wholly 'interventionist' or 'hands-off' approach to economic management. I shall argue that even attempting to understand the contemporary global economic order exclusively in terms of nation-states or ruling governments is misleading and theoretically problematic. However, there are sufficient continuities in social practice, and enough differences in economic organization, to make a broad-brush distinction between national forms of capitalism meaningful and revealing. Indeed, even at a time when national sovereignty and policy autonomy is coming under increasing pressure, and the capacity of governments to intervene appears to be diminishing, it will be a key contention of this book that important differences remain between countries, especially at the level of industrial organization. In other words, earlier patterns of development - even if they ultimately prove unsustainable - have left a distinctive imprint on national economic structures and relationships that continues to confer competitive advantages and which determines the basis upon which bilateral relationships are conducted. The continuing existence of competing forms of capitalist organization raises interesting and important questions, not the least of which is why such variations first arise and how they continue. In Chapters 2 and 3 I shall address these issues and examine the distinctive and very different developmental experiences of Australia and Japan. This book's primary focus, however, will be the contemporary era, particularly the last several decades when the internationalization of economic activity gathered pace. One of the chief tasks of these chapters will be to identify the sources of political support that encouraged particular sorts of economic organization

Introduction

3

and approaches to policy-making on the part of national governments. I shall show that the different forms of capitalism that prevail in Japan and Australia have become deeply embedded in a range of institutionalized relationships that have developed over time and which make any dramatic change of direction, particularly at the level of industrial organization, unlikely - the recent economic turmoil in East Asia notwithstanding. Given the potential importance of East Asia's economic crisis, Chapter 7 considers what its implications might be for both Australia and Japan, particularly in the light of popular ideas about the inevitability of a possible convergence of economic policies and structures in an increasingly internationalized economy. A second major question thrown up by this sort of comparative analysis revolves around the interaction of the two systems. In short, what happens when such disparate worlds collide? Do the different forms of capitalist organization that are found in Japan and Australia confer advantages on the economic actors that originate there? At one level this is a fairly simple question to answer. As we shall see throughout the book, and particularly in Chapters 5 and 6 which consider the bilateral economic relationship between Australia and Japan, the organization of capitalism in Japan does confer specific advantages on the firms based there and on the increasingly important Japan-based transnational corporations (TNCs) that have come to occupy such a strategically important place in the East Asian region. Indeed, part of this advantage is derived from the way production is organized throughout the region of which Japan and Australia are a part, as I explain in Chapter 4. An interesting and related question that flows from this sort of analysis is why a country like Australia persists with a mode of economic organization that appears to place it at such a competitive disadvantage. Before embarking on a detailed analysis of Australia and Japan, however, I develop a theoretical structure with which to understand the attraction and consolidation of these discrete models of capitalism. One of the reasons that countries adopt different models of economic organization is because it makes sense to do so. Particular ideas appear to 'fit' national circumstances better than others. This is not because such ideas are in some way the optimal responses to 'technical' questions of economic management, but because they are congruent with the prevailing balance of political forces and the dominant institutional expressions of such forces. In other

4

Introduction

words, national economic paradigms emerge from the interaction of political power, institutions and ideas. Yet this interaction is not expressed in universal or essential ways. On the contrary, the nationally specific patterns of political accommodation, institutional consolidation and ideational contingency shapes, encourages and characterizes the particular national model of capitalism. These issues are explored in Chapter 1. Chapters 2 and 3 employ this framework to provide an overview of Australia's and Japan's contrasting historical experiences. To help prepare the ground for the more detailed theoretical and empirical chapters, it will be helpful to say something about some important, not to say ubiquitous, theoretical concerns which bear directly on this case study. No account of contemporary capitalism, of whatever stripe, can avoid saying something about the state of the state, or the closely associated omnipresent spectre of 'globalization'. Consequently, the remainder of this introduction will provide a brief overview of some of the more important contemporary theoretical issues and indicate my own position on these topics.

GLOBALIZATION, REGIONALISM AND THE STATE The concept of globalization has rapidly assumed a central place in our collective understanding of the evolving political and economic world order. Whether in scholarly treatise or the popular press, globalization is routinely invoked as a defining quality of the contemporary era. In order to understand more clearly the constraints and possibilities that individual nation-states like Australia and Japan currently face, I shall briefly review some of the more important developments that underpin the globalization phenomenon and which shape what is an increasingly global political economy. Sociologists have been at the forefront of attempts to map and comprehend changes wrought by increasing international interaction. The apparent 'compression' and 'intensification of consciousness of the world as a whole' (Robertson 1992: 8) is taken to be a consequence of the emergence of new communication technologies that are planetary in scope. While the remarkable growth and impact of global media and computer-based international communication clearly have a potentially important cultural impact, it is the effect of such technologies on the organization of economic - and by extension political-activities that is of greatest interest here. One

Introduction

5

of the most significant developments in the period since the Second World War has been a dramatic reorganization or 'restructuring' of economic activity both within and between nations (Kolko 1988). This transformation is associated with and captured by the widespread shift from a managed international order, based principally on the ideas of John Maynard Keynes, to a 'neoliberal' order associated with a rolling-back of the state, liberalization and a reliance on market mechanisms to determine economic outcomes. Although this process represents a profound, deep-seated and widespread historical change, it is important to note that the degree of enthusiasm with which individual nations have embraced this change has varied, as has the extent of the transformation itself within individual countries. Attempting to explain why some nations respond differently to external imperatives and apparently ubiquitous change will be one of the central concerns of this book. At present it is sufficient to note that there are major differences in the way economic activity is organized within different countries which persist over time. These differences endure because particular forms of economic organization and the constellations of political forces that are associated with them become embedded in national institutions. As a consequence, seemingly universal forces are mediated differently within individual nation-states and engender different effects. The two most important changes that have underpinned the transformation of the international economy are the increasing mobility of capital or money, and the reorganization of the productive process, or the way commodities are made. While both of these crucial dimensions of international restructuring may seem like exclusively economic phenomena, it is important to recognize that they both have inescapably political dimensions. The deregulation of the world's financial markets is generally taken to be not just one of the most important factors in the transformation of the world economy, but emblematic of the globalization process itself. Descriptions of the increase in the mobility of money, facilitated by technological changes and manifest in the growth of international financial markets have become commonplace (O'Brien 1992), with the result, perhaps, that this metamorphosis itself appears less remarkable. Yet, as we shall see in the next chapter, these changes have been central to an historic change in the balance of power between the controllers of mobile economic assets and immobile nation-states and their respective labour forces. The point to emphasize at this stage is that the enhanced power of capital

6

Introduction

came about as a result of a complex, inter-related series of political decisions, or 'non-decisions', as Susan Strange (1986) argues. Certainly the billions of dollars that are moved instantaneously around the world on a daily basis in search of transient profit opportunities confer a great deal of 'structural' leverage over nation-states that cannot risk incurring the wrath of 'the markets' (Andrews 1994). But it is important to recognize that the emergence of the so-called Euro markets initiated a more widespread growth in the scale and influence of financial markets, and subsequent moves towards further deregulation of the international financial system more generally reflected the interests and decisions of individual nation-states (Helleiner 1994; Gilpin 1987). In other words, financial liberalization was a political choice, not a technological inevitability. The significance of these issues will become clearer when we examine the respective experiences of Australia and Japan in Chapters 2 and 3. At present it is important to say something about the impact of changes in the organization of economic activity that is more directly connected with the production of goods and services. One of the most striking and enduring changes in the international economy has been the rapid development and increasing power of TNCs. A few statistics indicate just how significant they are: TNCs control about one third of the world's private-sector assets; the accumulated stock of foreign direct investment (FDI) exceeded $2 trillion by 1992; the largest 100 TNCs accounted for $280 billion of FDI in 1990 (UNCTAD 1993). More important for our purposes here, however, is the realization that TNCs both reflect and encourage the reorganization of the productive process itself. Not only have technological changes allowed production to be broken down into distinct and potentially separable sub-systems, but it has become economically attractive and technically feasible to locate various aspects of this process around the globe and take advantage of local 'comparative advantages' (Dicken 1992). As we shall see in Chapter 4, TNCs based in Japan have been at the forefront of these changes. Importantly, however, the investment decisions of TNCs are shaped by a more complex logic than simply technically determined questions of economic efficiency. On the contrary, not only do the strategic calculations and operational logic of TNCs continue to show a surprisingly persistent degree of national distinctiveness (Pauly and Reich 1997), but they are also shaped by their interaction with host and home governments (Stopford and Strange 1991). Even at this preliminary stage, there-

Introduction

1

fore, we can see that an undifferentiated reading of the globalization process may conceal important differences between nations and the TNCs that are based within national borders. Yet it is the supposedly porous nature of national borders and the fragile sovereignty of the nation-state that has been hailed by some commentators as the definitive expression of the emergence of globalization. Japanese economic commentator Kenichi Ohmae (1990; 1996) is an influential exponent of the globalization thesis at its most Utopian. In this view, market forces are essentially benign influences that work to the benefit of consumers by opening up greater choices and facilitating the actions of ever more responsive companies. In the new world economic order the nation-state's role is small and getting smaller and, according to Ohmae, that is how it should be. It is a view that resonates with a neoliberal agenda of economic reform that has become extremely influential, especially amongst the 'Anglo-American' economies of North America, Britain, New Zealand and Australia. There are several reasons for regarding this uncritical strand of the globalization literature with a good deal of caution, however. First, as several recent studies have convincingly demonstrated, the entire basis from which the globalization thesis draws much of its theoretical inspiration is seriously overstated. Hirst and Thompson (1996: 31) argue that when measured by ratios of capital and trade flows to GDP 'the international economy was in many ways more open in the pre-1914 period than it has been at any time since, including that from the 1970s onwards'. Moreover, as Wade (1996) points out, production remains an overwhelmingly domestically oriented affair in the larger economies like the United States, with domestic investment similarly dominated by domestically generated capital. This is not to deny that there has been a dramatic increase in FDI that mirrors and drives the growth of TNCs, but even here it needs to be recognized that foreign investment flows have historically been overwhelmingly centred on the United States (US), the European Union and Japan (Julius 1990). The second aspect of the globalization thesis to emphasize, therefore, is its discursive aspect. In other words, the notion of 'globalization' is essentially a conceptual tool that suggests ways of thinking about discrete phenomena 'out there' in the world. But, as I shall argue more fully in Chapter 1, the development of various discourses, or the way language is used to define 'reality', is a fundamentally political exercise with profound implications for both the constitution of

8

Introduction

the self and the social (Bowles and Gintis 1987: 152-63). Importantly, the way economic 'reality' in particular is defined will exert a powerful influence on the sorts of policies that are generated and the way economic activity is organized within individual countries. The significance of this claim can be seen in the globalization debate for, as Cerny (1996: 620) observes, 'the spread of the [globalization] discourse itself alters the a priori ideas and perceptions which people have of the empirical phenomena which they encounter; in so doing, it engenders strategies and tactics which in turn restructure the game itself. I shall argue in later chapters that the notion of globalization in particular and the language of competitive restructuring more generally have been employed discursively by governments - particularly, but not exclusively in Australia - to achieve or legitimate specific ends. Margaret Thatcher, for example, famously embodied a tendentious discourse which suggests that 'there is no alternative' to a neoliberal world order. At present, however, I want to draw attention to another pernicious aspect of an undifferentiated globalization thesis. Simply put, a preoccupation with the global not only neglects the local, it also obscures the increasingly important role of the regional. Australia and Japan, although separated by thousands of kilometres and no small differences in historical developmental trajectories and cultural identities, are nevertheless both part of a region that is assuming a greater political and economic importance, as well as an increasingly definite shape. Chapter 4 will provide the empirical and historical detail to support the contention that regions are becoming a more significant part of the global political economy. Although a good deal of attention is given to detailing the way in which Japan's economic expansion in particular is shaping regional patterns of economic activity and constraining the political options of local national governments, I want to emphasize again quite how important are the discursive aspects of this process. There is nothing 'natural' about the region of which Japan and Australia find themselves a part. On the contrary, regions are first and foremost discursive constructions (Dirlik 1992), reflecting the actions and interests of political forces within an arbitrarily demarcated geographic space. The creation of important transnational regional institutions like the Asia Pacific Economic Cooperation (APEC) forum, in which both Australia and Japan are key players, is an expression of purposeful political activity in pursuit of desired ends. What will become clear in subsequent

Introduction

9

chapters is that the way these national policy goals are conceived reflects embedded institutionalized interests and constellations of political forces which find expression in a dominant 'political rationality'. The notion of a political rationality will be more fully explicated in the next chapter. At present it is sufficient to note two things. First, political rationalities are indicative of the complex way in which ideas, discourses and historically entrenched political and economic practices come together to form a broad template for social practice and government policy. Nations - or more precisely the significant social, political and economic entities within such politically demarcated spaces - behave differently because it makes sense to do so, given the specific historically determined and entrenched constraints and opportunities that these nationally based actors confront. Second, the continuing significance of national difference, with which this book is centrally concerned, reminds us that 'the state' still matters. In short, national governments remain critically important players, not just within the confines of national borders, but in helping to construct an external regime within which international political and economic activity can occur. Indeed, as Heilbroner (1985: 105) points out, capitalism - or more accurately, the specific forms of legal and social relationships that effectively constitute capitalism of any sort - is completely dependent on states: 'Remove the regime of capital and the state would remain, although it would change dramatically; remove the state and the regime of capital would not last a day'. In the chapters that follow a more detailed picture of 'the state', both as a theoretical concept and as a discrete entity in Australia and Japan, will be developed. The intention will be not only to draw attention to significant and enduring differences in internal organization, links to social and economic actors, and in overarching political rationalities, but to examine how such differences affect the bilateral relationship between the two countries. In short, I shall argue that the particular type of capitalist organization that has emerged in Japan has conferred specific and identifiable competitive advantages upon the economic entities that are based there, and which have expanded to exert a powerful influence over the wider region of which Australia is also a part. In Australia, by contrast, the influence of a dominant neoliberal political rationality has meant that not only do locally developed economic actors not enjoy the benefits derived from Japan's more cooperatively organized

10

Introduction

capitalism, but these differences and disadvantages are not generally even recognized by national policy-makers. Not only do national governments continue to matter, therefore, but so does the quality of the policies governments put in place. This is an especially important consideration in an Australian context, for Australian policy-makers have generally constructed policy on the assumption that international commerce is driven by universal forces that find similar expression throughout the world. There is little recognition that other countries may not subscribe to the sort of economic orthodoxy that has become increasingly dominant in Australia over the last several decades, or that alternative economic paradigms may systematically advantage the 'national champions' of other nations. The economic development of Japan, and the corporate organization of the companies that are based there, pose important theoretical and policy challenges that Australian policy-makers seem ill-equipped to meet. Despite the crisis that unfolded in East Asia during the last half of 1997, many aspects of the Japanese model seem likely to survive, both in Japan and in its acolytes throughout East Asia. Understanding the origins, the differences and the implications of alternative forms of capitalism, therefore, remains a crucial challenge for comparative political economy.

1 Power, Institutions and Political Rationalities While the amount of international economic and political interaction between nations may have increased, individual countries continue to display a surprising degree of difference in the way they organize national affairs. Not only do political systems across nations continue to demonstrate noteworthy differences in the way politics is conducted - even within notionally similar democratic systems - but persistent differences remain in the relationships between national political and economic structures within countries. Variations in corporate organization, work practices, industrial relations, industry policies and cultural influences not only set nations apart, but they may also confer specific competitive advantages on domestic economic entities, or on the transnational companies that emerge from individual countries. Indeed, whether a nation generates transnational companies at all, or the manner in which locally developed companies integrate with the wider international economy owes a good deal to specific national conditions which permit or constrain the sorts of economic activities that may be undertaken. In this chapter I shall develop a theoretical framework within which individual national experiences can be situated. The more strictly economic aspects of this process - industry structures, international economic linkages and the like - are detailed in subsequent chapters. At this stage I want to concentrate on a range of factors that are at once universal and highly specific in their impact and form. The first section of this chapter examines in more detail some of the external imperatives touched on in the introduction. Two aspects of the international environment are highlighted: the increased 'structural' power of international capital and the way in which certain ideas about the most appropriate and 'efficient' forms of economic organization have become highly influential. These phenomena are interconnected and provide a powerful momentum that encourages particular patterns of political and economic reform. Yet the content of such reforms and degree to which they are undertaken is not immutable. While no country has been unaffected 11

12

Competing Capitalisms

by the changes that have swept the global economic order over the last twenty years or so, the way this transformation has been mediated at the national level continues to display a good deal of variance. Much of this national variation may be explained by the influence of enduring national institutions which are themselves the product of each nation's unique historical trajectory of development. Such institutions represent a condensation of national political struggles and accommodations. In other words, institutions are manifestations of the way each nation has attempted to solve the problems of economic and political organization. The second part of this chapter looks at the ways institutions have been understood theoretically and suggests how they continue to underpin and entrench national difference. Critical though this is, however, national variation is not merely confined to institutional difference. Institutions are predominantly social constructions. True, once established, institutions themselves may shape their own evolution and constrain the activities of the wider societies in which they are embedded. But, as I shall argue in more detail in the final part of this chapter, the dialectical relationship between specific institutions and their encompassing societal framework is itself shaped by and constitutive of a predominant 'political rationality' which provides a template for policy and social organization. Individual nations, or more specifically the policy frameworks, ruling ideas, corporate practices and general social relations found within individual nation-states, bear the imprint of, and are themselves implicated in entrenching and shaping, distinctive approaches to economic organization and political practice. This complex of institutional forms and social practices is the source and reflection of the specific political rationalities that continue to distinguish one nation from another, even in an apparently global political economy. This chapter, then, is an attempt to construct a theoretical framework with which to explain national difference by identifying some of the factors that impinge on both policy-making elites and the more generalized influences that shape national institutions. As such it is an extension and adaptation of earlier theoretical models, of which the 'neo-Gramscian' model is an especially important influence. It offers a way of marrying the ideational and the material, or the realms of ideas and of institutions. Only in such a complex multi-dimensional context can we hope to understand the different patterns of national political, social and economic life.

Power, Institutions and Political Rationalities

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THE INTERNATIONAL CONTEXT In an influential essay some twenty years ago, Peter Gourevitch (1978: 911) suggested that 'the international system is not only a consequence of domestic structures but a cause of them'. Events in the intervening period have done little to undermine the validity of this claim. Indeed, it has become the seemingly incontrovertible conventional wisdom that the way politics and economics within individual nation-states are organized and conducted bears the imprint of a range of apparently irresistible external forces. The sovereignty of individual nations, it seems, is being steadily eroded by a combination of forces from 'above' and 'below'. Whether it is the necessity of sharing authority with increasingly powerful security and economic organizations like the North Atlantic Treaty Organization or the World Trade Organization, or the way in which national political activities are internationalized through a range of non-governmental organizations like international environmental movements, the sovereignty of the nation-state appears significantly diminished (Held and McGrew 1993). Put simply, the role, status and authority of the nation-state has been affected by changes in the dispersion of power. Susan Strange (1994: 24-5) has provided a sophisticated framework for understanding the transformation in power relations between nations. First, she separates 'relational' and 'structural' power. Relational power is associated more with the 'high politics' of international state systems and diplomacy, and is the power to get another nation to do what it would not do otherwise. Structural power is the power to shape and determine the structures of the global political economy within which other states, their political institutions, their economic enterprises and (not least) their scientists and other professional people have to o p e r a t e . . . [it] confers the power to decide how things shall be done, the power to shape frameworks within which states relate to each other, relate to people, or relate to corporate enterprises. Strange distinguishes four sources of structural power: security, production, finance and knowledge. In the post Cold War environment in particular, it has been the financial structure that has attracted most attention. The power to create credit (principally enjoyed by governments and banks) and the ability to determine currency values (the prerogative of governments and markets) are

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critical determinants of national economic well-being. Clearly, some countries have a good deal more power than others in determining the basis upon which the international financial system operates and the underpinning logic that informs it. When the US decided to deregulate its domestic banking sector, for example, this obliged other - less powerful - nations to follow suit, or risk 'their' banks being competitively disadvantaged. It was this sort of financial power, argues Cerny (1993), and the concomitant ability to shape the global financial system, that was at the heart of US hegemony in the postwar period. Indeed the US's hegemonic position in the global political economy in the postwar period presented opportunities that were simply unavailable to less powerful nations. The recognition by US officials that they could finance budget deficits by exploiting America's position as a safe haven for footloose international capital not only made neoliberal policies more attractive, but meant such policies ultimately became structurally embedded in powerful distributional coalitions and therefore more difficult to supplant (Helleiner 1995). The financial system in particular, and economic leverage more generally, are clearly important unambiguous sources of international power and major determinants of national autonomy, as we shall see in the contrasting experiences of Japan and Australia. Another, less tangible, but arguably equally influential source of international power and influence is based on what Strange (1994: 121) calls the 'knowledge structure', which 'determines what knowledge is discovered, how it is stored, and who communicates it by what means to whom and on what terms'. Strange's analysis focuses predominantly on the 'technical' aspects of the knowledge structure, or issues revolving around the ownership of specific technologies or practices that are bound up in wealth-generating production processes. Yet there is another dimension to the knowledge structure that is more subtle, but arguably equally important: the construction of ideational frameworks within which notions of economic and political 'reality' are constructed, and which inform the distinctive national practices that result. International relations theory has traditionally been dominated by a 'realist' school that has depicted the inter-state system as one characterized by a relentless, anarchic contest between sovereign states, each bent on furthering their interests in an essentially zerosum struggle for survival. But while the nation-state is far from dead, as the Australian and Japanese experiences will demonstrate, it is plainly not as powerful as it once was. A corollary of the


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internationalization of economic activity has been an inescapable increase in the degree of interaction between nation-states. Importantly, nation-states have had little choice other than to cooperate when confronted with problems that appear to demand collective solutions. A noteworthy example of this in the contemporary era has been the increased importance of environmental issues like global warming, which are clearly incapable of resolution by states acting alone. Even more striking was the cooperative coalition of nations assembled under US leadership in response to Iraq's invasion of Kuwait. It is not the intention here to debate the morality or motivations of this enterprise, merely to note that it was an important example of post Cold War international cooperation. The preparedness of nation-states to pursue - whether ineffectively or at the behest of a 'hegemonic' ally - cooperative solutions to collective problems presents fundamental epistemological challenges to the realist school (Walker 1993). More importantly for our purposes, it directs attention to the external international context as a site of ideational, as opposed to simply military or economic, contestation. In other words, the way relations between states are conducted, and the basis upon which any cooperation occurs is a negotiated process and is therefore - to some extent, at least - the result of the way national governments understand the process they are involved in and the possibilities or constraints this implies. As Alexander Wendt (1992: 397), a leading figure in the 'constructivist' approach to international relations, put it in a seminal essay: The distribution of power may always affect states' calculations, but how it does so depends on the intersubjective understandings and expectations, on the 'distribution of knowledge', that constitute their conceptions of self and other. In place of the essentialist claims of realist theory predicated upon material capacities and existent structures, constructivists emphasize instead the importance of process and the collective construction of external 'reality' through the agency of states and other significant international actors. Put simply, states do not inhabit some timeless and unchanging order that is reflective of an underpinning natural order with an inherent propensity towards violence. On the contrary, states are themselves implicated in the development of an international order that reflects their own ideas, expectations and actions. In other words, constructivism builds on an approach which considers 'reality' to be a socially constructed artifact, rather

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than a pre-existing given (Berger and Luckman 1971). Importantly, it extends this logic to the international sphere and suggests that 'anarchy is what states make of it' (Wendt 1992). The Gramscian Perspective Suggesting that the structure of the international order is not predetermined, but evolving and subject to contestation, is not to argue that all states are equally as capable of affecting the direction of any change, however. Attempting to link the inter-subjective, ideational aspects of inter-state relations with their more conventionally construed power capabilities is clearly a complex exercise. It is one that has been most successfully realized by a 'neo-Gramscian' school, which has built on Gramsci's original formulations to develop a sophisticated theoretical framework with which to understand the contemporary world order. One of the most important and useful aspects of the neo-Gramscian approach has been the way particular ideas have been linked to specific political interests, making explicit what is generally left implicit or insufficiently considered in the constructivist approach. The significance of this theoretical lacunae can be seen in the structure of the contemporary world economic order and the critical role played by the US in establishing it. The story of the US's rise to global pre-eminence in the wake of the Second World War has been often enough told to need no repetition here (Gilpin 1987). What is worthy of emphasis, however, is that the US as the principal hegemonic actor in the unfolding postwar order was able to exert an unparalleled influence in constructing a particular sort of international system (Ruggie 1992: 568), one that reflected its own normative preferences, interests and ideas. Certainly it was a system that was shaped by the exigencies of the US's ideological confrontation with the Soviet Union, but the US was determined to establish a neoliberal market-oriented international order, in which state security and growth were embedded in and dependent upon a stable alliance system and an open world economy (Cox 1987: 219). In a celebrated essay, Ruggie (1982) suggested that the international regime that emerged in the postwar period was one characterized by 'embedded liberalism', or a commitment to a multilateral order that simultaneously permitted a degree of domestic 'interventionism'. In short, it was a vision of a managed international order that was informed by the theoretical insights and policy ideas of Keynesian economics (Ikenberry 1992).


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The relationship between ideas and their influence on public policy will be a continuing concern of this book generally and of the final part of this chapter in particular. The contrasting historical experiences and policy traditions of Australia and Japan suggest ideas may indeed play an important role in determining the course and content of public policy. However, at the outset we must be careful not to strike too 'voluntaristic' a note: a focus on ideas can easily become too one dimensional, explaining the adaptation of particular policies by their inherent 'technical' attractiveness or ability to solve specific problems of economic management. In such a formulation, the temptation is to see policy evolution as a 'learning' process in which demonstrably successful ideas gain greater international acceptance (Ikenberry 1990). It is a temptation that should be resisted. Indeed, as the neo-Gramscians persuasively remind us, particular ideas are taken up because they suit the interests of powerful political actors. Stephen Gill has been at the forefront of attempts to use a Gramscian framework to understand the relationship between influential ideas or discourses and changes in the structure of the world economy. For Gill (1990), the influence of particular sets of ideas or 'ideologies' is intimately connected to the restructuring of international economic activity and the rise of a transnational class. In this view, economic policies reflect the interests of class forces associated with increasingly mobile forms of transnational capital. Gill argues that influential international institutions like the Trilateral Commission have played a critical role in developing and normalizing an increasingly influential market-oriented neoliberal agenda. What we are witnessing, Gill (1995) suggests, is the emergence of a 'market civilization', in which capitalism is not simply the unchallenged system of global economic organization, but in which the social relationships, the norms and practices that characterize capitalist organization have become the defining quality of everyday, individually experienced reality. At the level of more narrowly defined economic practices, it is clear that powerful transnational institutions have been instrumental in promoting and enforcing a market-based international order. Agencies like the World Bank and the International Monetary Fund have used their economic leverage over client states to impose a market-oriented structure of governance based upon neoliberal premises that discourage state 'intervention' and which encourages 'transparent' economic practices (Williams and Young 1994; Pauly

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1994; Leftwich 1994). Indeed, there is a powerful 'Washington Consensus' based on an assumed need for fiscal discipline, tax reforms, reduced public spending, financial and trade liberalization, removal of investment restrictions, privatization of public assets, and general deregulation, that is actively promoted by such organizations and orthodox economists as the technically optimal route to sustainable economic development (Williamson 1994). These are clearly important political forces shaping the contemporary international economic order which the neo-Gramscians and others are right to highlight. Plainly, the influence of neoliberal ideas is not simply the result of their superior problem-solving capacities, but a function of powerful political forces that are actively promoting them. And yet, as insightful and important as this theoretical model is, it obscures almost as much as it reveals. The theoretical parsimony which transnational class analysis provides is achieved at the cost of an inherent reductionism that makes identifying, much less accounting for, national difference highly problematic. The actions of individual governments are invariably subsumed under the undifferentiated rubric of 'the state'. Indeed, the state is reduced to little more than a cipher or, to use Cox's (1992) term, a 'transmission belt', the principal function of which is to channel irresistible global forces into geographically demarcated, politically defined, national spaces. But as subsequent chapters will clearly demonstrate, the governments of Australia and Japan have pursued highly divergent forms of public policy in response to the exigencies of apparently universal forces. Not only is there more than one policy paradigm available to national governments, it seems, but the nationstate - or more accurately, the social forces within its jurisdiction - still retains some autonomy and the capacity to mediate external forces in highly distinctive ways.

INSTITUTIONS Much of the enduring difference in public policy traditions and the organization of individual political economies can be accounted for by the influence of intervening, nationally based institutions. Rather than the sort of universal abstraction posited by a good deal of political and economic theory, the forces associated with globalization are mediated by highly distinctive national political accommodations and forms of economic organization. Such nationally specific


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accommodations have emerged over time and are reflective of the specific social circumstances that pertained within individual countries. In short, national developmental trajectories have condensed as institutions which, while often sharing universal characteristics, have important qualities that help distinguish one nation from another. It is important, therefore, to give a more detailed consideration to institutions and their role in underpinning different forms of capitalist organization. Before trying to determine quite how influential institutions are in determining the specific course of national development and adjustment, it is as well to be clear as to what we mean by the term. There are a range of theoretical approaches that have been lumped together under the banner of 'new institutionalism'. Hall and Taylor (1996), for example, distinguish three broad groups: historical, rational choice and sociological. I have reviewed the theoretical implications of these positions in detail elsewhere (Beeson forthcoming), and will therefore confine myself here to a consideration of that variant of institutional theory that stresses the importance of historical circumstance, as it most immediately bears upon our discussion. North (1990: 3), who has been at the forefront of generating renewed interest in institutions, suggests why a historically informed approach is important, and provides a useful definitional framework for distinguishing institutions' more salient characteristics: Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange, whether political, social or economic. Institutional change shapes the way societies evolve through time and hence is the key to understanding historical change. Two points are worth emphasizing about this definition. First, institutions are social constructions that reflect the specific dynamics and constellations of power that predominate in any given country. In other words, they are not predetermined. This is not to say, however, that they are infinitely malleable or unconstrained by contingent circumstance. On the contrary, the second important quality of the development and influence of institutions is the quality of 'path dependency'. Once established, institutions provide an underpinning structural framework within which social activity occurs. In its most rigid form this quality is captured by the celebrated

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example of the typewriter keyboard, with its QWERTY key configuration. Although this may not be the most efficient possible arrangement of a keyboard, it has become 'locked-in' by historical accretion that makes subsequent change unlikely (Arthur 1989). Less immediately discernible, but of greater long-term significance, is the general dialectical relationship between existent institutional structures and evolving social practice. Institutions may not directly determine important political and economic outcomes, but they provide an environment that shapes and constrains the range of possibilities that are considered feasible or appropriate. The influence of institutions is especially significant when attempting to answer one of the central questions with which this book is concerned: why do nations develop and adopt one sort of fundamenal policy framework - especially in the economic sphere - rather than another? One of the most illuminating attempts to theorize the link between policy formulation and institutional dynamics has been provided by Peter Hall. Central to Hall's (1986) analysis is the contention that the form of economic intervention undertaken by nation-states reveals an 'institutional logic'. In other words, policy bears the imprint of the institutional framework from which it emerged. For our purposes, some organizational features of any institutional milieu are of particular significance as they have a direct impact on the construction of economic policy. Hall (1986: 232) suggests that the organization of labour, capital and the state itself are key variables that will effectively shape policy initiatives and delimit the range of feasible options that may be pursued within an individual political economy. As we have seen, an important aspect of this constraining framework is the increasingly influential external international environment. But the precise manner in which these universal forces are mediated within individual nations depends on the way key domestic socio-economic structures are institutionalized. Marxists have provided some of the most insightful analyses of capitalist labour relations - the first of Hall's key organizational structures. Central to the Marxian conception is the suggestion that the labour force is not only the ultimate source of value and wealth creation underpinning capitalist dynamism and expansion, but that it also a key problem of governance for individual nation-states (Kay and Mott 1982). Nation-states operating within a capitalist system must find a way of incorporating the majority of the population into a structure of production which is inherently exploitative,


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and which is predicated upon an inequitable distribution of the surplus generated from collectively organized productive activity. Without a successful resolution of this basic problem in a relatively stable, institutionalized set of social relations, no form of capitalism is possible. Historically, individual nations have developed a number of ways of dealing with this fundamental difficulty, ranging from the encouragement of extreme individualism and selfreliance to some form of 'corporatist' framework, in which labour is incorporated into state apparatuses on a voluntarist or coerced basis. The case studies of Japan and Australia will illustrate some of these possibilities and demonstrate just how different state-labour relations can be. There is a more general and fundamental point to be made here, however. In the contemporary global economy labour has assumed an especially pivotal position in the evolving structures of global production. On the one hand, working people of all nations are part of a new international division of labour (Frobel et al. 1978), driven by the transnational logic of footloose international corporations noted above. On the other, labour is routinely described as the most important source of wealth creation in a 'post-industrial', or even 'post-capitalist', knowledge-driven economy (Drucker 1993). While some of this theorization tends to be overly generalized, unspecific, and even Utopian, it does highlight important changes that influence the way labour relations are conducted within individual nations. More importantly, it suggests that in an increasingly competitive international economic environment the ability to adopt successfully the most valuable forms of technology and attract wealthcreating industries will be largely dependent on not just the competence of domestic workforces, but also the way the labour relation itself is institutionalized (Hart 1992; Castells 1996). Of equal significance is Hall's second institutional variable: the organization of capital. While all capitalist economies may have superficially similar institutions like banks, stock markets, private companies and the like, the way they are internally organized and - perhaps more importantly - the inter-relationships between them that form a complex national economic infrastructure, varies from one country to another. In this regard, one of the most critical requirements for successful economic expansion and development is the provision of competitively priced capital to domestically based industry. John Zysman (1983) suggests that there are three possible ideal-typical models of national financial systems. First, there

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is a capital-market based system in which stocks and bonds are the principal source of industrial funds. In this system, banks generally only provided short-term lending to industry, and the central bank is generally non-interventionist and interested in ensuring financial market order at a distance. Importantly, government has little institutionalized leverage with which to determine market outcomes or influence economic development. It is a system exemplified by the neoliberal, Anglo-American economies of Britain, the United States and Australia. Zysman's second ideal type is a credit-based system in which market relationships are dominated by government-administered prices. In this system, stock and bond markets are less accessible to the private sector, making borrowers much more dependent on banks for the provision of credit. Significantly, governments set key market prices, allowing states to determine economic priorities and overcome possible failings of private financial institutions. Given this high degree of state intervention in markets, the line between the public and private sectors - which is so central to the theoretical assumptions and programmatic agenda of the neoliberal model becomes increasingly blurred. France and, as we shall see, some of the 'developmental' East Asian economies have followed this model. Zysman's third model is also a credit-based system, but one in which a limited number of institutions dominate the financial system and remain largely independent of the state, as in the German model of capitalism. Prices are market determined and the state pursues its objectives through market operations, rather than administrative technique. In this system, governments have no institutionalized apparatus with which to direct private corporations, but instead collaborate with banks to influence economic development. The State of the State A couple of important points emerge from this brief review of institutional difference. First, as far as the central nervous system of any capitalist economic order - the financial system - is concerned, there are a number of possible variations that differ in fundamental, institutionally embedded and, therefore, enduring ways (Albert 1993; Hampden-Turner and Trompenaars 1993; Hutton 1996). Second, the specific variations of institutional form in both the broad national political economy and more particularly within 'the state' itself will determine how effectively national governments are able to implement policy of whatever variety.


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Although I have been referring rather generally to 'the state', it is important to remember that at one level this is simply a conceptual simplification that refers to a complex assemblage of individuals, political factions, institutions, functionaries and bureaucratic departments located within a politically demarcated geographic space. Certainly, it is important to acknowledge the more formal qualities possessed by 'the state', captured in Giddens' (1985: 20) definition, which suggests it is a 'political organization whose rule is territorially ordered and which is able to mobilize the means of violence to sustain that rule'; clearly, the first priority of any state is to secure its own continuity in the face of potential internal and external threats. But given that the principal concern here is with the economic aspects of national security - an emphasis echoed by the international preoccupation with 'low' politics on the part of national governments in the post Cold War era - it is important to look more closely at those internal aspects of the state that both shape and determine its capacity to implement policy. Before examining the specific qualities that enable states to act effectively, and which shape the strategies states employ in the contemporary era, it is worthwhile making a more general point. Despite the noteworthy differences between what may be broadly depicted as the Anglo-American, market-oriented policy tradition, and the East Asian 'developmental' model (Thurow 1992) - differences with which this book is centrally concerned, and which will be detailed in subsequent chapters - it should be stressed at the outset that there is no such thing as a non-interventionist state. All states are deeply involved in establishing the social, economic and - most importantly - legal framework that provides the underpinning structures within which geographically delimited human activity takes place. Therefore, even if national governments choose to initiate policy designed to minimize state influence in determining economic outcomes through policies of deregulation, privatization and the like, this is a profound and deeply transformative form of intervention (Cerny 1991). As Polanyi's (1957 [1944]) seminal genealogy of nineteenth-century laissez-faire Britain brilliantly demonstrated, the 'free market' was the - often violently imposed creation of the state. It is not a question, then, of whether a state will 'intervene', but upon what basis, with what guiding rationality, and with what pragmatic efficacy. One of the most important factors determining whether individual nation-states will be able to implement policy of any variety will be determined by the quality of what Michael Mann calls its

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'infrastructural power'. For Mann (1993: 59), infrastructural power is 'the institutional capacity of a central state, despotic or not, to penetrate its territories and logistically implement decisions. This is collective power, "power through" society, coordinating social life through state infrastructures'. Extending Mann's analysis, Weiss and Hobson (1995: 7) suggest that there are three key aspects to infrastructural power which effectively determine state strength: First is 'penetrative' power, or the capacity the state has to directly affect and influence the population. Second, 'extractive' power refers to the state's ability to extract resources from society. Third, there is a 'negotiated' aspect of infrastructural power, which refers to the reciprocal coordination between major actors within national political economies, and which permits the development of what Weiss and Hobson call 'governed interdependence', or the capacity to coordinate and direct the activities of a range of actors. A couple of caveats are in order. First, it needs to be remembered that we are still operating at a fairly high level of abstraction here. In other words, these are schematic outlines that capture broadly distinguishable patterns of activity that may not be unambiguously replicated in specific historical circumstances. Second, and following from the first point, employing concepts like 'the state' fulfils a useful heuristic function but, as we shall see in our detailed case studies, 'reality' can be a good deal more complex and theoretically challenging. However, while we are still operating at the level of ideal types, we can extend our analysis to the more pragmatic level of policy application. Here, much hinges on the way these theoretical idealizations are actually institutionalized in specific national circumstances. In this regard, as Evans (1995) argues, it is not simply a matter of states having sufficient 'autonomy' from other actors within national political economies, but of the way states are institutionally embedded within a wider socio-economic framework. Where the state is embedded in complex networks of highly developed and institutionalized ties between itself and the wider society of which it is a part - especially its economic entities then it is much more likely to be able to implement any agenda it might wish to pursue. So far I have suggested that the sorts of policies which governments develop and follow are influenced by a number of factors. In this regard, the external international environment is clearly exerting an increasing influence on individual nation-states and constraining their range of policy options. However, I have also


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argued that the way these external influences are mediated within individual countries varies as a result of their specific historical trajectories of development and the contingent institutionalized forms this process has generated. This institutional pattern will, in turn, influence both subsequent policy development and the capacity of individual governments to implement it. In the final part of this chapter, I want to suggest how this complex of factors comes to shape, and is in turn influenced by, a paramount political rationality.

POLITICAL RATIONALITIES For all the attention given to concepts like globalization, and the related suggestion that national policy frameworks and economic organizations are 'converging' upon some common end-point - a notion given renewed force by the East Asian crisis - there remain substantial grounds for scepticism about these claims (Boyer 1996; Beeson 1996a). Indeed, what is most noteworthy about East and South-East Asia is the continuing heterogeneity of the region's political and economic systems. I shall analyse the regional context in general and Japan's role in it in more detail in Chapter 4. For the present I want to consider why the policies nations adopt to accommodate apparently universal, external political and economic forces are so markedly different. Clearly, each nation's response will be constrained by the power it is able to wield in the international system. The US, for example, is plainly a more powerful nation than Australia, and therefore able to pursue policies and options that are simply unavailable to economically and politically less potent countries. The factors that constrain Australia and Japan will be considered in the next two chapters. But there is more to national policy-making than simply a 'realist' calculation of national power capacities. Were the realist conception accurate, we would expect national policy to be determined more directly by economic and military strength. Indeed, were relative national strength the only criterion determining policy it should be possible to predict the sorts of policies nations are likely to pursue from a range of comparable indicators. And yet even within nations that superficially appear to have a good deal in common in terms of political traditions and economic structures, the way external forces are mediated owes much to specific historical factors that shape national accommodations (Katzenstein 1985). Even where

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there are gross similarities in terms of political and economic institutions, noteworthy differences remain in the sorts of policies national governments pursue. To understand these persistent and distinctive approaches to policy construction it is helpful to think of individual nations in general and national governments in particular as subscribing to specific 'political rationalities'. Building on the work of Michel Foucault, Rose and Miller (1992) suggest that a political rationality has 'discernible regularities', allowing us to distinguish one from another, and to meaningfully identify important and distinctive qualities. First, they suggest, a political rationality has a moral form, which demarcates the appropriate realms and tasks for different authorities in areas like politics, religion or education. In this formulation, the fundamental social values and the purposes to which collective action are directed are not inevitable, but flow from a specific form of political reasoning. Second, political rationalities have an epistemological character, drawing on a specific conception of the objects to be governed. The economy, for example, is perceived and approached as an object of governance in a manner that reflects the underlying assumptions and intellectual traditions that distinguish individual nations. Third, political rationalities are articulated in a particular idiom; language provides 'a kind of intellectual machinery or apparatus for rendering reality thinkable in such a way that it is amenable to political deliberations' (Rose and Miller 1992: 179). In other words, 'the economy' is a discursive artifact that is shaped by our collective understanding of what economic forces are and how economic activity occurs. Consequently, not only do economic ideas change, but so does the 'reality' they both reflect and constitute (Deane 1978). The possibility of identifying discrete political rationalities has been employed to explain an apparent historical evolution in governmental practice. The emergence of nineteenth-century liberalism, for example, inaugurated a new mode of governance and constituted a distinctive political rationality. Early liberalism, reflecting the influence of Adam Smith in particular, developed a new form of governance predicated upon on what Burchell (1993: 271) calls 'the free conduct of governed individuals'. Governing, in other words, had to harmonize with what was conceived to be a 'natural' marketbased order composed of rational individuals. Such governmental strategies were intended to act upon individuals, rather than attempting to govern through the direct control of economic processes and the population as a whole. This represented an important change


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in ideas about economic governance in Western Europe, and marked the abandonment of 'cameralist' attempts to manage populations as a whole through increasingly complex forms of direct intervention and management (Tribe 1984). However, the idea that national populations remain central to a more broadly conceived idea of national security is one that continues to inform the governmental practices of countries like Japan in particular and East Asia in general (Beeson and Jayasuriya, 1998). As we shall see, Japan has based its approach to national economic management on a much more extensive and inclusive view of 'the national interest' and of what constitutes an appropriate role for government as a consequence. Although there are significant continuities between liberalism and neoliberalism, one of the most important distinguishing qualities of the latter is the employment by government of a range of techniques and devices intended to cultivate specific qualities amongst individual members of the population at large. Government intervention occurs subtly and at a distance, through attempts to encourage the population to adopt freely the sorts of 'entrepreneurial' values and attitudes that are deemed congruent with a fundamental market logic (Rose 1992). Importantly, these emergent neoliberal techniques of government utilize particular forms of expertise, which not only makes their application more effective, but which adds an aura of authority to policy which effectively marginalizes alternatives (Rose 1993; Fischer 1990). Indeed, in the area with which we are principally interested - economic policy - the utilization of particular sources of expertise has not only consolidated the position of neoclassical economics at the centre of policy formulation in countries like Australia, but it has effectively 'naturalized' the economy itself by 'treating] economic arrangements that have a specific history and content as timeless products of the need to economize scarce resources' (Block 1990: 26). The apparently widespread acceptance of the shift from a Keynesian-welfarist political rationality to one based on an individualist, market-oriented neoliberalism becomes easier to understand as a consequence. As we shall see in the next chapter, the embrace of market-oriented neoliberal policies in Australia not only represented a major change of policy direction, it also involved new ways of considering both the economy and the population as objects of governance. This shift was manifest in two important ways. First, government policy increasingly reflected the influence of neoclassical economics, which provided the theoretical inspiration for many of the new initiatives.

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The second manifestation of this historic shift was the emergence of a new and dominant discourse predicated upon specific economic ideas. Chapter 2 considers the emergence and impact of this discourse in Australia, while Chapter 7 examines the theoretical utility of neoclassical economics as a basis for policy. Before undertaking this sort of analysis, however, it is important to make clear how particular ideas can become especially influential when embedded in powerful national discourses. Discourse and Ideas 'Discourse' is a word that continues to be viewed with unease by international political economy scholars of a more positivist disposition. The suspicions of more empirically minded scholars notwithstanding, discourse analysis adds an important dimension to any attempt to understand the differences in policy paradigms that emerge across nations. Again, Foucault is an important source of theoretical inspiration in this regard. For Foucault, discourse is not just concerned with linguistics or questions of semantics, but with the way in which institutional and material circumstances determine the content and form of specific discourses. Crucially, it is the celebrated nexus between power and knowledge - embodied in discourse - that Foucault (1981: 52) wants to expose: in every society the production of discourse is at once controlled, selected, organised and redistributed by a certain number of procedures whose role is to ward off its powers and dangers, to gain mastery over its chance events, to evade its ponderous, formidable materiality... discourse is not simply that which translates struggles or systems of domination, but it is the thing for which and by which there is struggle, discourse is the power which is to be seized. In this important passage Foucault draws attention to the importance that the dominant discourses of an historical period have in determining what can be said or even thought, and the manner in which alternative discourses can be effectively marginalized. For example, the contemporary conventional wisdom in the AngloAmerican economies is that Keynesian policies are simply no longer viable and have therefore become almost literally unthinkable as a consequence. Yet, as we shall see, the Japanese case demonstrates that Keynesian policies are not only still possible in a global economy,


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but unsurprising given powerful and entrenched political support for such policies. Discourse, therefore, is an important manifestation of the crucial link between power and knowledge. Foucault draws attention to the mechanisms of power which are inseparable from and dialectically related to knowledge. Indeed, the exercise of power is central to the constitution of particular forms of knowledge which subsequently determine the conduct of economic activity. As Foucault (1980: 51) pithily observes, 'one can understand nothing about economic science if one does not know how power and economic power are exercised in everyday life'. Specific discourses, then, have the potential to define and delimit objects of concern and interest upon which governmental policy, practices and power may be brought to bear. Individual disciplines like economics play a crucial role in legitimating and articulating the manner in which the objects of policy are approached and subjected to particular forms of management. Exclusion from the dominant discourse effectively marginalizes and renders impotent alternative or competing positions. For our purposes, however, what is most pertinent in the Foucauldian approach is captured in the ideational framework Hall (1993: 279) calls a 'policy paradigm': policymakers customarily work within a framework of ideas and standards that specifies not only the goals of policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing. Like a Gestalt, this framework is embedded in the very terminology through which policymakers communicate about their work, and it is influential precisely because so much of it is taken for granted and unamenable to scrutiny as a whole. It is precisely the 'taken for granted' aspects of contemporary economic discourse, or what Bourdieu (1991) refers to as our socially determined 'common sense' understandings of 'reality', that are so powerful in determining that reality, and which require unpacking if we are to understand their influence. Central to any discourse is an explicit or implicit understanding of 'reality' or, less portentously, the way the world works. In other words, particular discourses reflect theoretical premises that are intended to explain and - equally importantly for our purposes act as guides for purposive action. In an era when specific forms of knowledge are increasingly associated with economic well-being,

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and where international rivalry is increasingly centred on a commercial rather than strategic calculus, the ideas that underpin policy assume an ever greater significance. Indeed, there has been a greater interest in the role, influence and transmission of ideas in international relations literature as a result (Jacobsen 1995). In attempting to explain differences between nations that are superficially similar in terms of economic development and political systems, ideas are, therefore, a potentially promising variable. The actual content of particular ideas and their influence on public policy in Australia and Japan is considered in more detail in subsequent chapters. At this point I want to emphasize that ideas of whatever stripe - especially those that affect economic outcomes and policy - are not simply disembodied, neutral or technically optimal solutions to specific problems. On the contrary, as Robert Cox (1986: 207 [emphasis in original]) points out, 'theory is always for someone and for some purpose'. It is not necessary to take on the corpus of Marxist scholarship on the perennially vexed question of the status of 'ideology' to recognize that the way any set of social relations are construed, legitimated or configured is more likely to reflect the interests of the powerful than the powerless (Eagleton 1991; Bourdieu 1991). As we shall see in the case of Australia, neoliberal ideas achieved a position of dominance during the 1980s largely because they were compatible with the interests of powerful domestic and international actors. In Japan, by contrast, neoliberal ideas have been actively resisted because they have not had the same degree of support from influential domestic forces. The necessarily political content of ideas merits emphasis because it is neglected in much influential international relations theory, particularly in the US. Robert Keohane (1984: 6), for example, is a leading exponent of a view that sees policy-making and institutional development as an essentially 'rational' endeavour, in which nations cooperatively pursue increasingly universal and optimal outcomes because 'they hold views about the proper operation of their economies that are relatively similar'. Yet, as we shall see, Australian and Japanese policy-makers continue to hold fundamentally different views about how to optimize economic outcomes and - equally importantly - about appropriate roles for government. More recently, Keohane has argued that ideas act as 'road maps' for policy-makers, giving policy direction and exerting a continuing influence as they become institutionally embedded (Goldstein and Keohane 1993). While there is much that is useful in this formula-


31

tion, we need to remember that institutions can entrench a variety of incentive structures, including ones that make the 'rational' pursuit of narrowly defined economic 'efficiency' highly problematic. There are, however, times when certain ideas appear especially relevant or acceptable. The neoclassical economic ideas that have informed the pre-eminent neoliberal political rationality in Australia since the 1980s have been around for decades. Why is it that they came to prominence only recently? Part of the answer must be that policy-makers were actually more receptive to - or, more accurately, in need of - new ideas. The apparent exhaustion of the Keynesian model in the face of oil crises, stagflation and rising unemployment made policy-makers in the badly affected AngloAmerican economies especially receptive to new ideas. Indeed, as Peter Haas (1992) argues, at times of economic crisis policy-makers may be more willing to accept the advice of 'epistemic communities', or groups of like-minded experts who share common normative and causal beliefs, and support a common policy enterprise. In Australia, as we shall see in subsequent chapters, there is persuasive evidence to suggest that recent public policy has been influenced by a surprisingly coherent group of like-minded individuals. However, as the Japanese counterfactual demonstrates, there is no inherent quality in the causal beliefs of any epistemic community that means their views will inevitably be accepted at particular historical moment. On the contrary, for ideas to gain acceptance they need political support. This observation brings us somewhat circuitously back to our starting point. Although ideas may have a distinct problem-solving dimension, they are framed by economic structures and political forces which make them more or less attractive to influential actors within individual nations. In other words, ideas become dominant not simply because they are 'correct', but because they are supported by powerful interests that are capable of either enforcing them or, more subtly, insinuating them into dominant national discourses that effectively delimit the range of 'serious' possible options available to policy-makers. While the neo-Gramscians are right to emphasize this political aspect of dominant national discourses, they are wrong to imply that this is inevitably leading to the construction of identical neoliberal policies. Contingent national institutions provide a critical filtering mechanism that mediates international forces. Consequently, national policy and the ideas that inform it continue to demonstrate a good deal of diversity.

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CONCLUDING REMARKS In this chapter I have tried to develop a theoretical framework with which to explain the highly distinctive Australian and Japanese approaches to public policy and economic organization. The approach taken here has been unapologetically eclectic. No single paradigm can hope to consider, let alone account for, the complexity of national varieties of political and economic organization and their international interaction. And yet if this analysis is to amount to something more than simply a sophisticated description of organizational patterns it clearly needs some sort of coherent framework within which to situate subsequent discussion. For this reason I have adopted the notion of a political rationality to try and explain the distinctive approaches to economic management that have characterized public policy in Australia and Japan. By way of conclusion to this chapter, let me recapitulate this concept as I intend to employ it. The notion of a political rationality as it is currently employed has both strengths and weaknesses. On the positive side of the ledger, a political rationality is useful as a way of conceptualizing what Mitchell Dean (1994) describes as 'the relatively systematic, explicit, discursive, problematisation and codification of the art or practice of government... a way of rendering the objects of government in a language that makes them governable'. In short, it provides a way of describing distinctive approaches to the practicalities of governing and the way governments understand their own role. The major shortcoming in the way the notion of a political rationality is currently employed is that it is generally inadequately grounded. Important as the discursive and ideational aspects of the practice of government are, they are part of and shaped by a wider national and international environment. Although the distinction between the domestic and the external may be becoming increasingly problematic, especially at the economic level (Bryan 1995), it is important to recognize that the institutions that constitute these spheres exert an enduring influence on the national political and economic practice. In other words, the process of domestic governance is shaped by a political rationality that is itself the product of a complex array of international and national institutional influences. Given what I take to be the limitations of the existing formulation of political rationalities, I shall offer my own definition which will inform the analysis of the subsequent chapters. A political ra-


33

tionality as I shall employ it, therefore, is a broadly conceived approach to the problem of governance that acts as a fundamental guide to conduct, which both shapes and is shaped by the institutional milieu, the political constellations and the dominant discourses of which it is a part, and which has a distinctive normative component. Two further points may be made to clarify this definition. By 'governance' I understand something akin to Rosenau's (1992: 4) conception, which stresses its 'more encompassing' aspect that includes both government and non-governmental institutions, and which emphasizes the acceptance by the majority of a specific system of rule. In other words, governance refers to a way of ordering political and economic activity that is not solely confined to the formal aspects of national government, but which is shaped by a wider range of structurally embedded institutions, social forces and international influences. The policy innovations and specific interventions of individual governments, therefore, are informed by a political rationality that is constrained and determined by a complex assemblage of factors. Finally, and importantly, the most conspicuous and distinctive manifestations of specific political rationalities will be found at the level of practical governmental interventions into society in general and the economy in particular (Garland 1997: 184). Political rationalities and the institutional settings that shape them are, therefore, most readily distinguishable at the level of practice - a subject to which we shall now turn.

2 Competing Capitalisms: Australia Australia since the 1980s has become an important laboratory in which to study the impact of neoliberal reform. Not only does the enthusiastic embrace by Australian policy-makers of market-driven restructuring provide an important test case of the efficacy of neoliberalism, but it also illustrates just what is involved in the shift from one political rationality to another. The period since the 1980s has witnessed an historic shift from a Keynesian-inspired form of social welfarism to a neoliberal economic order in which market mechanisms have become the principal determinants of economic outcomes. More fundamentally, individualism has increasingly replaced collectivism as the underpinning rationale of government. It is a process that has necessitated a transformation of some of the key institutional structures and patterns of organization in Australian society. In addition - at least as far as many policymakers and influential commentators are concerned - it has involved a similar attitudinal shift on the part of the population at large. The principal focus of attention in this chapter will be the period from 1983 to the present, when first the Australian Labor Party (ALP) and more recently the Liberal-National Party Coalition Government attempted to make Australia' a more 'competitive' place. While there are, as we shall see, grounds for questioning the continuing usefulness of concepts like 'the national economy' and an uncritical notion of competitiveness, what is of most interest in this chapter is that Australian policy-makers systematically tried to develop a new political rationality with which to underpin the reconstruction of Australian society. This process did not happen in a political or social vacuum. Although the discourse of economic reform was invariably conducted in a highly 'technical' register, as this chapter demonstrates, the attempt to restructure economic activity within Australia was inevitably a highly political process that favoured some interests over others. Students of politics may consider this a remarkably anodyne observation, but it is testimony to the seemingly irresistible influence and power of the neoliberal reformist discourse in Australia 34

Competing Capitalisms: Australia

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during the 1980s that what were in essence highly political and contestable - even on 'technical' grounds - economic and social innovations became the incontrovertible ruling orthodoxy of the day. Indeed, the conventional wisdom in Australia resonated strikingly with Margaret Thatcher's celebrated observation that, when it came to economic reform, 'there is no alternative' other than the market-oriented orthodoxy. As the Japanese case demonstrates, however, there were alternatives in the 1980s, and there may still be in the 1990s and beyond. These issues will be taken up in subsequent chapters. At present I want to give an indication of the way the neoliberal reform process was taken up in Australia by the Australian Labor Party (ALP) in particular. At the outset, however, it is important to emphasize that the emergence of a new political rationality in Australia was not simply driven by external economic pressures or an international fashion for market-determined solutions to what were perceived to be national economic problems. On the contrary, the Australian solution to the challenge of international restructuring was largely a function of uniquely Australian social, political and institutional dynamics. In other words, although external imperatives were clearly important, they were filtered through a complex matrix of contingent national factors that ultimately shaped and delimited Australia's policy response. To understand why Australian policy-makers have taken up neoliberal policies with such enthusiasm, then, we need to look at not just the political dynamics that surrounded this process during the 1980s, but also the institutional milieu and long-standing patterns of political accommodation that have developed in Australia since European settlement. Australians have developed specific and highly contingent answers to the challenges that capitalist development inevitably poses. While the neoliberal ascendancy in the 1980s demonstrates that there is nothing immutable about the way individual nations manage social relationships within a broadly capitalist framework, existing and historically entrenched patterns of political accommodation will inevitably influence and constrain subsequent developments. Put simply, each country's institutional inheritance inevitably places limits on what subsequent generations of policymakers can actually do. The attempt to create and apply a neoliberal political rationality was, therefore, conditioned by Australia's highly distinctive historical legacy. As this is primarily an account of developments since

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the 1980s, I do not want to treat Australia's economic and political history exhaustively here. However, some of the more important influences on Australia's developmental trajectory need to be briefly mentioned.

AUSTRALIA'S HISTORICAL LEGACY Plainly, one of the most important distinguishing characteristics of the Australian experience in the period since European settlement has been its role as a colony of Britain, and a comparatively recent one at that. The experience of British colonization is not unique, but Australia's 'peripheral' role assumed a particular form that distinguished it from other outposts of empire. It is a relationship that continues to exert an important influence, albeit a declining one. As far as economic policy-making is concerned, one of the most crucial legacies of Australia's colonial status was that it established an enduring pattern of dependency on foreign capital (Butlin 1976). As a consequence, Australia has never had the sort of economic independence that Japan currently enjoys. Australia's early colonial position and its continuing dependence on foreign capital have placed constraints on the type and amount of economic development that has subsequently occurred. Predictably enough, development in the colonial period followed the imperial formulae of reflecting the interests of the 'core' rather than the colony (McMichael 1984; Wallerstein 1983). While the exploitation of Australia's abundant raw materials may have made eminently good sense from a British perspective, it induced a structural dependence and resource bias that persist to the present day. While advocates of comparative advantage theory consider this specialization in resource industries as both appropriate and even 'natural' - an issue to be taken up later - the point to make here is that the consequences of this development pattern were as much political as they were economic. First the pastoral industry and then the mining sector became key parts of the economy, and increasingly important centres of political power as a result. This merits particular emphasis because Australia's subsequent economic developmental trajectory has been shaped by the political power of various interest groups, and not simply by the operation of universal apolitical economic forces. Australia's early and persistent reliance on commodity exports has had another important consequence that needs highlighting:


37

Australia was and is extremely vulnerable to rapid changes in its terms of trade, or the ratio of export prices to import prices. The value of commodities is largely a function of the cyclical fluctuations in international economic activity that are endemic to capitalism (Goldstein 1988). Put simply, Australian exporters are dependent on the health of the external economy and have little control over the value of their produce. This is problem enough, but it has been compounded by an historical and deep-seated transformation of the global economy. As Peter Drucker (1986a) pointed out more than a decade ago, the primary product economy has become 'uncoupled' from the industrial economy. In other words, there is no longer a direct link between either the prices of, or the demand for, commodities and manufactures. Consequently, the price of commodities has been steadily declining since the late 1970s. Changes in global production processes and products mean that not only are commodities worth less, they account for a smaller percentage of world trade. Countries that are reliant on commodity exports to underpin domestic living standards are therefore faced with the problem of paying for greater amounts of imported manufactures with commodity exports that are worth less and less. These unpredictable price fluctuations are not only beyond the control of domestic policy-makers, they make the task of economic management infinitely more complex and unpredictable. Even at this early stage it is worth contrasting the Australian and Japanese situations. As we shall see in the next chapter, a central intention of Japan's political rationality has been the continuing pursuit of an encompassing conception of national security in which economic independence is paramount. In other words a major goal of Japanese public policy has been to avoid the structural dependency that afflicts much economic activity in Australia. The difficulties presented to Australian policy-makers by major structural changes in the external economic order have been compounded by contingent domestic factors that effectively close off certain policy options. The establishment of a federal system in Australia may have been instrumental in overcoming internal trade barriers and establishing a single domestic market, but it also bequeathed an awkward two-tier system of government that continues to present a major obstacle to the development and application of national policies (Stewart 1994). Indeed, the particular difficulties of overcoming parochial interests and achieving national policy consensus helps explain the appeal of a market-driven neoliberal

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policy framework: rather than attempting to impose a national vision or coherent plan, neoliberal policies are predicated on the removal of 'impediments' to the operation of market forces. In this scenario, governance and the achievement of economic objectives occurs through the development of mechanisms that are theoretically independent of 'the state', be it federal or local. Of course, as I suggested in the previous chapter, even a neoliberal market order depends on the active 'intervention' of the state to secure the preconditions of its existence, but this should not blind us to the model's theoretical appeal, especially to policy-makers in small economies exposed to an increasingly global economic order which they have little power to influence. While the state-federal system may represent an initial structural impediment to the development of coherent national policies, it is of less importance than the more general political accommodation achieved by the central actors in the unfolding drama of Australian development. Of greatest significance for us here is the particular 'historic compromise' that emerged in Australia during the twentieth century, and which endured relatively coherently until the shift to a neoliberal political rationality. In its earliest incarnation, what Francis Castles has famously called a policy of 'domestic defence' had four major components: protection of the manufacturing sector through tariffs and trade restrictions; wage determination through centralized arbitration and conciliation; immigration control; and income maintenance for those outside the labour market. The elements of the domestic defence model were 'interlocking components of a system of shock-absorbers designed to defend and stabilize the existing structure of economic opportunities and rewards against rapid or excessive disturbance from exogenous forces' (F. Castles 1988: 93). In short, this was a political rationality based on a conception of social welfarism, in which the state had a large and important role in determining economic and social outcomes. As such, it provided a resilient solution to the problem of economic organization and management for an industrializing ex-colony. Domestic defence persisted because it provided benefits for most participants - albeit to widely varying degrees - and because it was sustained by the structure of the wider international economic order for much of the period after the Second World War. Indeed, the postwar reconstruction period provides an instructive comparison with contemporary neoliberal policy. It is important to stress that the operational rationale that determined the activities


39

of government and its bureaucratic apparatus was predicated upon an explicit concern with social as well as economic issues: full employment and the 'improvement of the physical and social environment' were the guiding lights of postwar policy (Coombs 1981: 27). The transnational influence of Keynesian ideas and the desire actively to create a more equitable and prosperous social order helped establish the preconditions for the 'long boom' that entrenched Australia's distinctive accommodation between business, government and organized labour. While the Japanese case, as we shall see, suggests that the sorts of highly orchestrated and institutionalized arrangements associated with Keynesian economic management need not have been abandoned quite as precipitately as they were in Australia, there were, nevertheless, profound pressures on the Keynesian model. The economic growth that the Keynesian model so successfully encouraged throughout most of the industrialized economies had been essentially a domestically based phenomenon, and one that was fundamentally undermined by the international integration of economic activities in general and the rise of the international money markets in particular (Glyn et ah 1990). Rising unemployment, stagflation, and the apparent inability of Keynesian demand management tools to address such problems, combined to undermine the institutional framework and social accommodations that were central to the social welfarist political rationality. As I suggested in the Introduction, such changes in the international economic system were extensive and deep seated, and ultimately left no area of the globe untouched. For Australia, however, the restructuring of international economic activity was intimately connected to changes in its international relations more generally. The direction of Australia's trade shifted in the postwar period from its earlier imperial focus to the expanding economies of East Asia, of which Japan was and is the most important. Revealingly, as Fitzpatrick (1997) suggests, the nature of this historic reorientation was initially obscured by the overweening influence of the Cold War and its allconsuming strategic imperatives. Yet by the late 1970s and early 1980s, it was becoming apparent that not only had Australia undergone a major reorientation of its economic activity towards Asia, but that it compared less favourably in terms of economic performance (Ravenhill 1994). In short, by the time the Hawke Labor Government assumed office in 1983, Australian policy-makers were becoming convinced that not only was a new world economic order

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emerging, but that if Australia' was to succeed in it then it was imperative that the country be put on a more competitive footing and its economy transformed. Australian Economic Structures No matter what variety of economic management and intervention policy-makers might prefer, their ability to transform economic activity within national borders is constrained by existent organizational structures and institutional patterns. Effective policy-making has been made even more problematic as the object of governance itself has become increasingly problematized: as a greater transnational production logic makes trade figures increasingly meaningless, and stateless financial flows undercut national economic sovereignty, the very notion of a discrete 'national' economy is increasingly under challenge by both liberal (Reich 1991) and Marxist (Bryan 1995) commentators. Yet while the theoretical utility of national economies may have decreased, what does remain important is the sort of economic infrastructure that exists within the political and economic space over which individual governments claim authority. Put simply, the life-chances and employment opportunities of ordinary citizens are determined by the type of economic activity that occurs within the borders of the countries they happen to inhabit. In Australia's case, the structure of industry located within national borders, be it Australian' or 'foreign'-owned, systematically constrains the options of citizens and policy-makers alike. Even if it were possible to establish unambiguously the ownership of a particular industry, however, it is not obvious that Australian' capitalists are likely to be any more altruistic or preoccupied with 'the national interest' than are those from elsewhere. Despite these important caveats about the universal imperatives of capitalist competition, concern about levels of foreign ownership and a consequent advocacy of economic nationalism has been a persistent theme of Australian public life (Bryan 1991). Moreover, for all its theoretical difficulties, and its potential to spill over into the sort of narrow, racially exclusive nationalism that has recently emerged in Australia, nationality continues to matter, as we shall see clearly in the case of Japan. Given the potential sensitivity of these issues, let me emphasize again what I am not saying here. I am not suggesting that Australian' capitalists are in some way better or to be preferred to those


41

from overseas, be they Japanese or any other nationality. On the contrary, we must be careful to disentangle what is endemic to capitalism and what is associated in some minds with nation, race or culture. What I am suggesting is that the organizational logic of even the most footloose of corporations continues to bear the imprint of its origins and will therefore determine the role played by individual national economic spaces within universal transnational logic. The potential significance of the nationality question is revealed clearly in car production, one of the most important and internationalized of industries. I shall look at the Japanese automotive industry in Australia in more detail in Chapter 5, but a few introductory observations are in order here. The most general point to make at this stage is that the development of the car industry demonstrates that 'foreign' transnationals have been able to exert a good deal of pressure on the Australian government to secure favourable terms for investment (Renwick 1988), profoundly influencing the development of the local industry. As Stopford and Strange (1991) have persuasively argued, the investment strategies of transnational companies are the product of a complex calculus of incentives that are shaped by bargaining with states and the activities of rivals. The lack of a coherent long-term strategy towards industrial development on the part of successive Australian governments in the postwar period - other than encouraging investment behind tariff walls - led to an industry designed to service the burgeoning domestic market rather than external ones. Car production became small scale and inefficient, with an excess of models and manufacturers. The vehicle industry's fragmented character - exacerbated by inter-state rivalries and competing subsidies - is indicative of a broader structural malaise within Australia. The automotive industry is emblematic of a pattern of 'benign neglect' on the part of Australian governments towards manufacturing more generally (S. Bell 1993: 15). As we shall see, the approach taken by successive generations of Australian policy-makers stands in stark contrast to the coordinated industry policies of the Japanese developmental state. The long-term impact of a moribund manufacturing sector in Australia was disguised by the postwar expansion of the world economy and the concomitant 'mineral boom' of the 1960s. The speculative boom in the resource sector graphically demonstrated how economic activity in Australia was increasingly bound up with and determined by the wider world economy. The massive inflow

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of money into the mining industry in Australia was triggered by an international restructuring of capital seeking to overcome declining rates of profit in Europe and North America (Bryan 1988). While this movement was initially led by productive capital investment, it was quickly dominated by footloose, speculative capital in search of short-term profitability. Australian-based capital was, however, slow to restructure and consequently failed to secure optimum positions in the domestic mining industry. Moreover, when Australian' capital did belatedly join the global process of internationalization, they did so from the mining, rather than the manufacturing, sector, consequently only producing simply transformed mineral products and exacerbating Australia's elaborately transformed manufactures (ETM) deficit. All of which left the manufacturing sector starved of investment, in an apparent confirmation of the 'Gregory effect', which suggests that mineral discovery and exploitation could significantly distort economic development in Australia (Gregory 1976). The growing importance of the mineral sector meant that subsequent declines in Australia's terms of trade exerted further fiscal pressure and circumscribed the options available to policy-makers. In short, the fate of 'the Australian economy' appeared increasingly beyond the control of national policymakers and driven by external imperatives. The mineral boom was encouraged by rising demand from Australia's northern neighbours, reinforcing the historic shift in the orientation of economic activity within Australia. Rapid economic expansion in East Asia also helped fuel one of the most important developments of the postwar era: the intensification and growth of trade, especially in manufactured goods. In contrast to the general global trend, however, Australia' experienced an actual decline in its share of world exports from 2.92 per cent in 1950 to 1.14 per cent in 1986. Additionally, and again unlike its Asian neighbours, manufactures' share of Australian exports from 1970 to 1989 remained fairly static (Pinkstone 1992: 389-90). The rural sector declined in significance in line with global trends, but this was offset by increases in mining and services exports. So rather than taking part in the phenomenal growth of global intra-industry trade, Australia became increasingly marginalized in the emerging international economic order - other than as an attractive potential market or as the supplier of primary produce. Although a shift occurred in the direction of Australia's trade, especially away from Britain and towards East Asia, it is noteworthy that the new markets were not


43

based on the export of ETMs (New Zealand and the US remained the largest markets for these), but were primarily markets for resource products and simply transformed manufactures (STMs). The failure of Australian-based enterprises to take part in the expansion of global trade is, in large part, attributable to the structure of domestic industry. Indigenous manufacturing companies are generally low-volume exporters, not because of a lack of competitiveness, but because they are located in less-traded sectors of the economy. In short, there are few large-scale Australian-based companies in industries that generate exports (Yetton et al. 1992). Australia is unusual in that the predominant indigenous company form is the 'multi-domestic'. Rather than being involved in the production of highly tradable and valuable goods such as consumer electronics, Australian-domiciled manufacturers are concentrated in areas of lower value and/or durability, such as building products or food. Consequently, overseas expansion generally takes the form of establishing a foreign subsidiary to service local markets, rather than exporting from Australia (Craig and Yetton 1994). A key structural weakness in Australian-based economic entities, then, is a lack of strong 'strategic' exporting firms competing internationally in complex factor goods production, something attributed to: a lack of demand for innovative products within Australia; a lack of 'clusters' of mutually supportive manufacturers; restrictions imposed by foreign parent companies; small neighbouring markets; and a tendency for the few firms that do succeed in exporting ETMs to migrate to major markets (Pappas Carter Evans and Koop/Telesis 1990). The question of the ownership is especially significant in an Australian context as it has some of the highest levels of foreign ownership in the world (Safarian 1993). In the contemporary world economy, the TNCs that determine the spatial distribution of productive activities are driven by an increasingly global logic. There is, therefore, the distinct possibility that Australian operations will simply be distribution networks or not fully integrated into the more complex, high value-added aspects of production, especially where corporate production decisions are made overseas. Yet the situation in Australia demonstrates just how complex this question is: even those companies that might be considered to be unproblematically 'Australian' are increasingly driven by and respond to international rather than domestic considerations. Elders IXL, for example, used its base in the food industry to provide a cash flow to launch internationalization strategies and relocate into northern hemisphere

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markets. Increasingly, profits were generated by financial transactions and services rather than the sale of actual goods onto world markets (Fagan and Rich 1990). The internationalization process, therefore, has effectively undermined the old economic certainties that formed the bedrock of national political discourse. While this has not stopped politicians from routinely invoking the notion of 'the national interest' when it suits them - the current Liberal-National Party Government are especially prominent in this regard (CoA 1997b) - it has become an increasingly contested and tenuous concept. These policy-making difficulties are universal, but they have been compounded by the specific constraints imposed by the organization of economic activity in Australia and its articulation with the wider world economy. Moreover, not only have the traditional tools of economic activity been rendered increasingly impotent, but 'Australia' has appeared to be slipping down the hierarchy of nations. In such an environment of increasing insecurity and dissatisfaction with existent methods of economic management, the preconditions were in place for the development of a new political rationality.

THE POLITICS OF STRUCTURAL ADJUSTMENT As the old Keynesian order appeared to unravel throughout the 1970s the preconditions were being established for a new approach to governance. It is the period when a new neoliberal political rationality was consolidated - the beginning of which was marked by the election of the Bob Hawke's first Government - that I want to concentrate on here. Only an ALP Government, perhaps, could have pursued market-oriented reform and the concomitant changes to Australia's socio-political infrastructure as easily or as comprehensively as Labor did. With Labor in power there was no 'natural' constituency to oppose such changes. What is certain is that the reforms inaugurated by the ALP leadership have transformed Australian society and the institutions that underpin its distinctive social democratic traditions. When Labor won office in 1983 it was confronted by long-term problems specific to Australia: the broad legacy of colonialism, which had 'distorted' development and skewed trade and investment patterns away from the broad geographic region of which it was a part; a resultant economic structure that was highly dependent on


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natural resources and primary products - the value of which was continually undermined by deteriorations in Australia's terms of trade; and an uncompetitive, insular manufacturing sector that was becoming marginalized within an increasingly global and interconnected 'external' economy. The Fraser Government (1976-83) had bequeathed a more immediate legacy of rising unemployment, inflation hovering around 10 per cent, and - possibly most significant in the long run - a radical shift in Australia's external accounts: the 'resources boom' of 1979-81 encouraged huge capital inflows and a concomitant currency appreciation, which further undermined the competitiveness of the Australian-based manufacturing sector (Davis 1989). The consequence was the entrenchment of Australia's dependency on foreign capital, large current account deficits and the beginnings of a massive intractable foreign debt. Although a generalized fiscal crisis of the state and a perception of governmental overload created an international climate antithetical to large government during the 1970s and 1980s (Offe 1984), Labour's response to the challenge of economic reform and management cannot be understood without reference to its own history and the rise of a new generation of party leaders. Perhaps the most abiding influence on the newly elected Government was its concern to distance itself from the problematic legacy of the Whitlam era. Maddox (1989: 65) argues that the 1975 constitutional crisis transformed the ALP and marked a radical departure from party traditions, so that: Whatever social reforms it now promotes take shape in quite a different context. They are no longer part of a vision of an integral, mutually supportive and culturally enriched society. Reforms must now be 'targeted' to electorally responsive groups laid out on the map of political pragmatism; reforms must be entirely subordinated to the imperatives of economic management. The dismissal and the subsequent depiction by many in the media of the Whitlam Government as economically irresponsible, not to say naive, meant that Labor leader Bob Hawke and his new Treasurer, Paul Keating, were at pains to depict themselves as 'responsible' economic managers. In this regard, Hawke's principal, neoclassically trained, economic adviser, and subsequent author of an influential eponymously titled report, Ross Garnaut, was a key figure in providing a new theoretical rationale for economic policy. Paul Kelly's (1992: 58) suggestion that Garnaut's influence on Hawke was 'never

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remotely matched by any subsequent economic adviser', is a telling one that sheds light on the direction of subsequent Labor policy. Consolidating the emerging ideological predilection for marketoriented policies was the enhanced structural power of international financial markets themselves. One of Labor's earliest policy initiatives was to 'float' the dollar, a decision that meant Labor policy was effectively 'held hostage' by the international currency markets (Stuchbury 1990: 60), severely constraining the subsequent autonomy of government. One of the key differences between Australian policymakers and their counterparts in Japan has been that the latter have always had a keen appreciation of the importance of capital flows in determining the course and content of economic activity, and have therefore tried to maintain control of the financial sector. I shall consider the relative merits of 'interventionist' and deregulatory approaches to economic management in detail in Chapter 7: for now, let us simply recognize the implications of the move to the market in Australia. As one of the architects of Labor's economic reforms now concedes, deliberately increasing exposure to international market forces has not only made the 'national economy' more volatile and susceptible to external systemic shocks, it has also entrenched and promoted further market-oriented reforms (F. Argy 1996). Once embarked on the liberalization process, therefore, the Labor leadership found the 'interventionist' option increasingly foreclosed, even had it wished to pursue it. In other words, the shift towards a neoliberal political rationality rapidly developed an apparently unstoppable momentum. However, it is important to emphasize that Labor's approach to the financial sector was not just a question of making an economically optimal choice from a range of possible policy outcomes. Australia's capital-market-based financial system meant that the institutional infrastructure that might allow government to direct the allocation of capital in support of interventionist industry policies was simply unavailable, even had it wished to pursue such policies. The institutionalized structure of the financial sector in Australia created an in-built 'path dependency' towards more distant market-mediated relationships between the financial and industrial sectors. However, it is important to recognize that, notwithstanding the increasing internationalization of economic activity, the move to further deregulation of the finance sector in Australia was driven primarily by domestic politics (Pauly 1987). Only after Australian policy-makers decided to internationalize did external pressures become a factor


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in entrenching the liberalization process. In other words, the deregulation process, while made more likely by the actions of powerful actors in the world economy, need not have occurred at the speed or to the extent that it did. Comparison with the Japanese experience is revealing here: although the yen was also floated, Japanese policy-makers, as we shall see in the next chapter, managed - and wanted - to maintain much greater control of capital flows in particular and the financial sector more generally (V. Argy 1987). In short, aspects of the institutional and political underpinnings for a neoliberal political rationality were already in place in Australia, but the consolidation of a market-centred mode of governance was made more likely by consciously pursued public policy. The evolving structure of Australian-based economic activity generated a concomitant political influence that reinforced the turn to neoliberalism. One of the key political dynamics encouraging a shift towards greater liberalization and away from protection was the historical decline in the political influence of manufacturing capital. Not only were the manufacturers a smaller part of domestic economic activity, their own lack of unity and political effectiveness meant they were increasingly incapable of winning crucial national policy debates. Changes in the economy fed directly into the domestic balance of political forces and were reflected in the content of national economic policy as the mining sector, for example, became more influential. Alliances between state and non-state actors were contingent and unpredictable, making the articulation of any coherent and consistent policy position less likely. Importantly, the move towards a less interventionist form of economic governance was reinforced by the Australian government's lack of an institutional capacity with which to 'reach down' and intervene in domestic industry at the micro-level, even if it had wanted to (S. Bell 1995). Put simply, the sort of infrastructural power necessary to implement effective industry policy did not exist in Australia. As a consequence, industry policy was generally half-hearted, fitfully pursued, and sectoral rather than wholesale. Other actors were more successful in promoting their interests and the emerging market orthodoxy. Although neither an exclusively Australian phenomenon, nor a homogeneous or coherent political force, the New Right is a convenient label for a variety of groups that wanted to overturn the old postwar social accommodation between capital and labour, and replace the old social welfarist political rationality with a complex and often contradictory amalgam

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of morals and markets (King 1987). What is of relevance here, however, is that the elements of the New Right's agenda were enthusiastically supported by small business, Australia's rising 'entrepreneurial' class, and the mining sector in particular, reflecting the shifting balance of economic and political forces within Australia. The point to make is that the predominantly economic ideas that characterized the emergent neoliberal political rationality were actively championed and given political support by powerful political forces, such as resource-centred companies like Shell, which stood to gain directly from further deregulation (Kaptein 1993). Reinforcing this process was the systematic promotion of neoliberalism through influential 'think tanks', continuing an historical proclivity on the part of Australia's dominant elites to import ideas from outside, especially Britain and the US (Marsh 1991). Finally, the role of the media in entrenching the hegemonic position of neoliberal ideas must not be underestimated. As Gittins (1995) observes, not only do many influential economic commentators lack 'objectivity', but their similar educational experiences, reliance on Treasury contacts, and 'symbiotic' relationship with financial markets, mean that they have consistently championed a pro-deregulatory line. Co-opting Labor's Traditional Support One of the central structures that distinguishes any form of capitalism is the 'wage relation'. The way the capital-labour relationship is institutionalized and regulated is one of the key characteristics of all varieties of national social relations, and a major determinant of economic development and organization (Boyer 1990). One of the most striking and potentially far-reaching developments inaugurated under Labor has been the union movement's acceptance of the ALP's new policy direction in particular and the centrality of market mechanisms in this process more generally. The historical and contemporary experiences of Australia and Japan are vivid reminders that there are a variety of ways of organizing this crucial social relationship. It needs to be remembered that the most significant potential obstacle that the ALP leadership had to overcome in order to entrench the emergent market-oriented policy paradigm was the trade union movement. Historically, organized labour had been an integral part of the policy of domestic defence; if it was to be abandoned and replaced with something else, then the cooperation of


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the trade union movement would be a necessary part of any new accommodation. Several factors made the development of such an accommodation more likely. The downfall of the Whitlam Government, in which the union movement had contributed to the Government's economic management problems through substantial wage demands, predisposed the union movement towards a more cooperative relationship with the Hawke Government, even before it was elected. The Amalgamated Metal Workers' Union (AMWSU), in a series of influential pamphlets, paved the way for the sorts of collaborative approaches to national economic management that would ultimately find expression in the Accord (Beilharz 1994). The steady loss of jobs in the manufacturing sector from the 1970s onward was a critical constraint on potential sources of opposition within the union movement. While the decline of manufacturing employment was a global phenomenon, it has been particularly acute in Australia, with an estimated 400,000 jobs being lost in the manufacturing sector since the early 1980s {Age, 3 Sept. 1996: 2). Many of the new jobs which replaced them were in the service sector and/or part-time - something which further eroded union influence. Further undermining the position of organized labour in Australia was an evolving international division of labour that placed national labour forces in direct competition with each other, and which encouraged the export of routine production jobs to low-wage economies (Beeson and Hadiz, 1998). As the new Labor Prime Minister in 1983, Bob Hawke was perhaps uniquely qualified to engineer a new political accommodation between labour, government and business, in keeping with the emergent neoliberal political rationality. Hawke's previous role as leader of the Australian Council of Trade Unions (ACTU) - organized labour's peak representative body - gave Hawke the connections in both the labour movement's political and industrial wings that enabled him to forge a new accommodation between government and labour, a relationship institutionalized in the Accord process. The Accord's development has been well documented elsewhere (Stilwell 1986), so I shall not extensively detail its emergence here. However, it is necessary to make a few brief observations about the Accord as it provides an important comparative model with the Japanese system of labour management. From the outset, the potential success of the Accord was constrained by a number of factors. First, there was little history in

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Australia of the sort of cooperative relationships the Accord envisaged between government, business and labour. The political and economic conditions that had underpinned European corporatism (Katzenstein 1985) - which had been an influential exemplar for the Accord's architects - simply did not exist in the same way in Australia. Moreover, the macroeconomic management tools that permitted policies of domestic compensation in Europe were becoming increasingly ineffective by the time the Accord was instituted in Australia (Beeson 1997a). But it was the government's inability and unwillingness to pursue policies designed to systematically promote domestically based industries that was the Accord's most telling shortcoming. Because business was not a genuine partner in the Australian version of corporatism, government policy-makers were unable to construct a comprehensive framework with which to underpin the development of domestic economic activity. Quite simply, business fiercely protected its autonomy and was in any case too internally fragmented to act as an effective corporatist partner (McEachern 1991). Simultaneously, however, the Labor leadership's increasing enthusiasm for market forces meant that its attitude to interventionist industry policy was ambivalent and half-hearted at best. Even though some quite successful sectoral policies were developed (Sheehan et al 1994; Beeson 1997b), when considered in the overall context of Labor's deregulatory policies the net effect was to make manufacturing in general an unattractive target for investment (S. Bell 1993: 162). Whether government intervention - or conversely, neglect - directly influences the development of industry in general or manufacturing in particular is something I shall take up in Chapter 7. What is certain is that 'Australia's' manufacturing sector has declined from 20 to 14 per cent of national output since the early 1980s with a concomitant loss of jobs in the union movement's blue-collar heartland (Age, 3 Sept. 1996: 2). Moreover, the move to enterprise bargaining rather than centrally determined arbitration outcomes, which gathered momentum in the last years of the ALP Government and which has been consolidated by the Coalition, has seen union delegate presence in workplaces fall from 24 per cent to 18 per cent between 1990 and 1995 (AFR, 29 Aug. 1997: 8). What is most noteworthy in such circumstances is the relative quiescence of the trade union movement itself. One of the most deep-seated effects engendered by the neoliberal political rationality has been its impact on national economic and political discourse. The themes


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of 'competitiveness', 'efficiency' and 'flexibility' have not only rapidly become part of the business sector's market-derived lexicon of national restructuring, but also been increasingly adopted by the trade union movement itself (Campbell 1993). This merits emphasis because the language with which we collectively make sense of the world profoundly influences the way we act upon it: discourse is a vital, though generally neglected, aspect of any mode of governance or set of social relations. In short, it is integral to the constitution and operationalization of any political rationality. A more specific example of the importance of language is provided by Keating's conversion to neoliberalism, or 'economic rationalism', as it was more commonly known in Australia. Keating's period as Treasurer was marked by a highly technocratic approach to policy-making: good policy was about moving the right 'economic levers' in the pursuit of technically optimum outcomes. The Treasury, under the conservative stewardship of John Stone, was a place in which the inexperienced Keating felt surprisingly at ease: For Keating the Stone treasury was magic. Here were experts, true experts, people who knew the economy like the NSW right knew politics and spoke with the same conviction. These advisers were technicians and believers, and Keating learned the jargon and he moved into their world. (Kelly 1992: 69) The discourse of economics was the lingua franca of this new world, which conferred authority on its users and effectively demarcated the contours of the possible. For Keating, the management of the economy was essentially a problem of technique, and as such susceptible to specific forms of expert management. 'Practical' industry policies, according to Keating (1993: 58), were 'not based on ideology', but simply politically neutral technical solutions to the problem of generating economic growth. Of course, in the event that the economically orthodox technocratic policy paradigm delivered what was expected of it there would be a clear political pay-off - an important consideration for a consummate professional politician like Keating. The same relentless pragmatism had led to the simultaneous reconstruction of the ALP itself. Jaensch (1989) argues that the ALP has been transformed from an 'expressive' party that reflects the interests of a particular sector of society to a 'responsive' party with no clear sectoral support or allegiance. The ALP has become

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less 'ideological' and concerned to develop a 'catch-all' appeal, argues Jaensch, with little acknowledgement or articulation of the importance of traditional 'class' concerns in the party's history or contemporary platform; maintaining political power is the raison d'etre of the party and its leadership. The right-wing faction in the New South Wales Labor Party, from which Keating emerged, added a powerful political impetus to its leadership's pragmatism. 'The Wran Model' became the exemplar of political pragmatism in pursuit of electoral success, with policymaking concentrated in a small leadership group of technocrats (Maddox 1989). The triumph of this more instrumentalist and technocratic approach to government made the Federal adoption of neoliberal policies less problematic than it might otherwise have been. Indeed, the experience of the Wran Government seemed to indicate that the abandonment of 'traditional' Labor practices in favour of an increasingly professional approach was a prerequisite of both electoral success and efficient management. Crucially, the more economically orthodox and pragmatic policy paradigm pursued by Hawke and Keating was given support and impetus by the tightly organized right-wing faction within the party (Jaensch 1989). During the 1980s in Australia, then, the ALP fundamentally recast the basis of political life in Australia. Party politics became less about ideological or partisan beliefs, and more a test of managerial or technocratic competence (Fischer 1990). Indeed, it is revealing of quite how meaningless traditional labels of 'right' and 'left' have become in liberal democracies like Australia's that the Liberal-National Party Coalition Government of John Howard (1997) seems more likely to adopt 'interventionist' industry policies than its Labor predecessor. However, it is important to recognize the extent of, and the logic that underpinned, the changes Labour inaugurated. Labor's approach to the management of 'the state' itself was informed by the perceived need to respond to the imperatives of the emerging discourse of globalization. In such a context, the state itself was and is conceived of as a potentially crucial component of national competitive advantage (Cerny 1990). The state, therefore, had to be restructured to enable it to play its part in engendering 'efficiencies', thus ensuring the successful integration of the 'Australian economy' with its global counterpart.


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Institutional and Bureaucratic Reform One of the key differences between Australia and Japan has been the role played by 'the state'. More specifically, the relationship between the elected government and the enduring bureaucratic apparatus has profoundly influenced not simply the way policy is developed and applied, but also the content of policy itself. While the bureaucracy in Japan is, as we shall see, rightly renowned for its ability to determine policy, its Australian counterpart is not without influence. Two points merit emphasis at the outset: first, the bureaucracy in Australia is not monolithic, but characterized by departments with distinctive policy traditions and varying degrees of influence on government. Second, the existing patterns of organization are reflective of a distinct institutional memory that favours some policy directions over others. Far from being the neutral and impartial instruments of government policy depicted in abstract economic theory, bureaucracies have institutional memories and rationales that distinguish one nation, and even one department, from another. For example, Jones (1991a) argues that a 'British tradition' has bequeathed a pervasive set of 'liberalist values' which have been particularly influential on Treasury, despite Australia not possessing an indigenous financial sector of a comparable scale to Britain's which could benefit from the sorts of policies such ideational influences might be expected to generate. Yet the dominance of economic rationalism or neoliberalism within the bureaucracy in Australia has been neither complete nor inevitable. The contested and contingent nature of bureaucratic attitudes to major policy initiatives is illustrated in the debates surrounding tariff policy. The Industry Assistance Commission (IAC) became an important critic of protectionism and an influential advocate of market mechanisms, undermining the rationale for tariffs and the McEwenite 'protection all round' that formed the backbone of Australia's social accommodation in the 1960s. The IAC played a critical role in changing the contemporary political and economic discourse or the ruling ideational orthodoxy. In the new view the IAC helped develop, markets were seen as the best determinants of investment, with intervention only producing inefficiencies, distorted incentives and sub-optimal outcomes. In short, governments were generally seen as antithetical to the entrepreneurial spirit central to capitalist dynamism (Glezer 1982). The IAC's position within the bureaucracy was not unchallenged by other departments jealous

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of its influence on policy-makers, but the authority of its judgements and recommendations was reinforced by the systematic recruitment from the burgeoning ranks of professional economic expertise. Importantly, the complexity of economic policy-making meant that it was increasingly only discussed and formulated by 'those with the ability to understand and converse about economic principles in a professional way' (Warhurst 1982: 229). The Department of Treasury has been another influential force in promoting neoliberal reform. Its rise to prominence has mirrored and driven the increased reliance on market mechanisms in government policy. During the 1950s and 1960s the interventionist Department of Trade had been a significant influence on government, but its power waned under Gorton, leaving the Department of Prime Minister and Cabinet (PM&C) as Treasury's only serious rival. The generational shift from the Keynesian-inspired policies of the postwar period to the neoclassically derived policies that began to emerge in the 1970s meant that there was a concomitant shift in the theoretical position of government: government intervention in the economy was undesirable a priori. While the move from Keynesian policies was part of an international trend, and the difficulties of the Whitlam era further undermined confidence in the wisdom of the state, what distinguishes the Australian Treasury is the fervent and combative way in which it approached its role: convinced of the rectitude of its own position, Treasury has played a crucial proselytizing role in shaping not only government policy but also the wider discourse within Australian society (Whitwell 1990). One of the key changes Michael Pusey (1991) identifies in the transformation of Australia's public service is what he calls the shift from a 'nation-building state' to one concerned with narrower questions of managerial efficiency and economic rationality. Given that, in the main, senior public servants have always been drawn from privileged backgrounds, explaining the rise of economic rationalism as at least partly a function of an elite socialization process, as Pusey does, is not especially illuminating. Pusey is more convincing when he details the role of neoliberal ideas within both the bureaucracy and government. The management of the economy was increasingly seen by both the PM&C and Treasury, and within key factions of the Labor Party, as a technical problem that might be most effectively addressed by applying the techniques and the logic of the private, rather than the public sector (Pusey 1991: 153-5). Yet the neoclassically derived economic ideas that are central to


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neoliberalism had been in circulation for decades (Whitwell 1986). What made them powerful during the 1980s was their adoption by a pragmatically minded Labor Government in search of the management tools that would enable it to transform a moribund economy. At a time of mounting economic uncertainty, the Labor leadership was increasingly influenced by a powerful epistemic community of professional economists, commentators and bureaucrats which claimed to have the technical expertise with which to address 'Australia's' problems. A key element of this reformist agenda was a desire to make the public service in general more 'efficient'. In this regard, Australia has been part of a wider trend amongst the Anglo-American economies that has seen the emergence of 'new public management', which has sought to introduce greater competition through the dissagregation of public service functions, the introduction of private sector incentives, and the increasing utilization of the private sector itself to perform tasks previously performed by government (Dunleavy 1994). An important effect of what Yeatman (1990: 13) calls the 'cultural revolution' in the bureaucracy, that the shift to managerialism entailed, was an increased focus on leadership and technique at the expense of content. 'Scientific management' techniques were applied by 'technical experts', consolidating the departmental reforms and reorganizations undertaken by Labor that were intended to concentrate bureaucratic power and allow its application to specific objects or problems. Once a solution to a particular problem has been 'discovered' by acknowledged experts, Considine (1994: 196) suggests, 'it becomes increasingly difficult for other actors either to challenge such a proposal, or to generate alternatives'. Networks of experts reinforce specific ideational agendas to form technocratic 'power blocs', which in turn become important mechanisms for the propagation of what are perceived to be appropriate forms of knowledge and technique (Considine 1994: 215). In the Australian case, this helped entrench the market-conforming discourse emanating from Labour's right wing. As Yeatman (1990: 32) points out, this technocratic approach to economic questions reinforced a general government emphasis on problem-solving and formal rationality that fostered technically minded public servants who were 'likely to accept the appearance of "the" economic order as a natural order, that is, one that must take the form it does because they [sic] reflect the nature of things'. When this is reinforced by an ideational orthodoxy

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actively promoted by an epistemic community within the bureaucracy, government and academia, then the dominance of economic rationalism becomes easier to comprehend. Although the increased authority and influence of the central agencies (and the consequent dominance of the discourse of economic rationalism) was perhaps the most significant consequence of Labor's reforms, other aspects of bureaucratic reorganization are especially germane to questions of international economic relations. The creation of 'mega departments' in pursuit of efficiency gains had a lasting impact on the conduct of economic policy. A conspicuous casualty of the reforms was the Department of Trade, which in 1987 was merged with Foreign Affairs to form the Department of Foreign Affairs and Trade (DFAT). As Jones (1991b) observes, Trade's demise was due largely to the primacy given to market mechanisms in economic policy; its decline also enhanced the authority of Treasury by removing an alternative source and form of policy advice. Consequently, the multilateral approach to trade favoured by the non-interventionist central agencies and Foreign Affairs replaced Trade's preference for bilateralism. More fundamentally, Higgott and Nossal (1993: 157) suggest, this 'external manifestation of the economic rationalist impulse' represented a process of 'learning'; self-consciously copying a European exemplar in an attempt to concentrate governmental resources on increasingly critical economic issues. The diminution of a bilateral capacity and understanding within the bureaucracy generally was exacerbated by the allocation of trade policy within DFAT to the Economic and Trade Development Division, the approach of which was largely indistinguishable from Treasury's. When combined with a general lack of interest in trade matters within DFAT, and a lack of coordination of trade policies within the various divisions, policy became 'fragmented and lacking in focus' (Stokes 1994: 77). The Labor administration, then, left an indelible impression on the public service. The bureaucracy became a more responsive instrument of political will and a crucial part of the Government's attempt to implement its reformist agenda. What Coleman and Skogstad (1995) call 'Australia's corporatist reconstruction of policy networks' helped to build both a consensus for neoliberal reform and the institutional framework with which to transmit and implement the new policy paradigm. Plainly, however, this ideational influence was not a one-way street. Elements of the bureaucracy clearly exerted an important influence on their political masters.


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Treasury, for example, undoubtedly had a significant impact on Keating, and thus the general tenor and direction of Labor's reformist impulse. It might be more appropriate to describe the relationship between government and the bureaucracy in particular as one characterized by a good deal of mutual reinforcement: values were discursively reconstituted through ideational feedback loops which gained much of their legitimacy and authority from their perceived technocratic and expert basis. Governmental discourse was less about ideology (although this might still be harnessed to the promotion of efficiency and the creation of more enterprising subjects) than about the application of supposedly neutral technical solutions to specific objects, sites and problems. The long-term legacy of Labor's reforms has been to make the current Coalition Government's policy of reducing the public sector and introducing further market-oriented reforms a good deal simpler and less controversial (AFR, 26 Nov. 1996: 33; AFR, 12 Mar. 1996: 25). Neoliberalism as a Political Rationality It is important to recognize the extent of the Labor leadership's ambition in the 1980s: what was being attempted was the systematic reconstruction and reorientation of the Australian political economy, and a concomitant transformation of social and cultural values in order to produce a more competitive 'national economy' and a more efficient workforce. Market forces would restructure the economy by encouraging the growth of more efficient industries and the elimination of internationally uncompetitive ones. Indeed, competition itself, as expressed in the influential Hilmer Report (1993), was enshrined as the central motivating force of government attempts to restructure economic activity in Australia. The contrast with the state-facilitated approach to restructuring in Japan is stark and revealing. However, it is the complimentary restructuring of Australian society that is of particular interest at this juncture, as it is an illuminating practical manifestation of the neoliberal political rationality. It is important to emphasize again that the operationalization of the new political rationality was both permitted and constrained by the particular institutional and ideological framework that obtained in Australia, a framework that Labor had helped define through its own initiatives. Three further points should be stressed. First, a highly interventionist role was effectively precluded by the

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neoliberal model's neoclassically derived adjurations about small government. In short, as government was seen as an economic impediment rather than a facilitator, the interventionist option was effectively foreclosed, at least in the area of direct economic intervention. Second, as successive governments have systematically restructured and reduced the public service, they have of necessity become more reliant on the private sector or quasi-government agencies to perform functions previously undertaken by the state. Even if the government had wanted to intervene directly in determining major economic outcomes, therefore, its institutional capacity to do so was being systematically reduced. Finally, it needs to be recognized that the move towards smaller government, and the 'outsourcing' of hitherto governmental functions, was facilitated and made possible by a rich infrastructure of non-state agencies, organizations, and private sector firms that could substitute for government itself. In other words, one of the key reasons that this shift to a form of indirect government-at-a-distance occurred in countries like Australia and in Europe is simply that it was possible: a precondition for a less direct form of governance was the existence of facilitating institutional agencies outside the state that made government-at-a-distance a theoretical possibility. In East Asia, by contrast, not only is the state more omnipresent in social life and economic activity, but the transfer of governmental functions and authority to non-state actors presents a direct threat to existing patterns of power and wealth distribution in a region where the distinctions between state and civil society, or the private and public sectors, are often meaningless (Beeson and Jayasuriya, 1998). In Australia, by contrast, a reduction of the state's role in line with the logic of neoliberalism was seen as the key to transforming the domestic economic situation and eventually securing electoral success through technocratic competence. At one level, this amounted to little more than government 'getting out of the way', in the manner prescribed by economic orthodoxy. The liberalization policies of successive Labor administrations were the most tangible aspect of this market-driven reform process. Yet the reforms of successive Hawke-Keating Governments were not so much a reduction of government as a reformulation of the process of governing itself, and a redefinition of the objects towards which governmental interventions were targeted. In keeping with the fundamental logic of market-determined restructuring, the population itself was to become


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a key element in improving 'Australia's' competitiveness. While there is much that is theoretically misguided about this strategy, as we shall see in Chapter 7, it did generate a new programme and form of governmental intervention that it is important briefly to detail. Exposing Australia's domestic economic institutions to increased competitive pressures was only part of the governmental strategy that flowed from a neoliberal political rationality. The other critical dimension - and one in keeping with the overall logic of marketdriven reform - was to make the population itself more responsive to market pressures. In short, individuals were to be encouraged to adopt more self-reliant, entrepreneurial and competitive values. To facilitate this end Labor embarked upon a major overhaul of the education system, stressing the need of linking education to the needs of the labour market and industry (Keating 1994; Marginson 1997). While this may seem unremarkable in an era characterized by increasing international competition, what distinguishes the initiatives of successive Australian governments is their thoroughgoing nature. An indication of quite how far reaching were the scope of the educational reforms that Labor contemplated may be gained by its enthusiastic endorsement of the 'Karpin Report', which advocated making the inculcation of 'entrepreneurial values' a central goal of government education policy (Beeson 1995a). In other words, the education system was to be utilized to instil values in school and university students in accordance with what policymakers considered to be the country's economic needs. To govern in a neoliberal manner, therefore, means governing indirectly at a distance by encouraging the sorts of values and attitudes that are deemed appropriate by government. It is important to note that the approach to governance implicit in the neoliberal political rationality is predicated upon methodological individualism and the idealized precepts of neoclassical economics. Put simply, individuals are the irreducible, ontological core of neoliberal theory and practice. Consequently, any governmental strategy that seeks to extend and build on this logic must act first and foremost upon individuals. As Burchell (1991: 119) observes, governing individuals means 'get[ting] them to act and to align their particular wills with ends imposed on them through constraining and facilitating models of possible action'. The implications of this shift in the approach to governing can be profound and extensive. Mitchell Dean (1995) has shown how even the unemployed in Australia have been governed in such a way as to encourage the development of qualities

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of self-reliance and self-formation, such as to render themselves more 'job-ready'. Not only are Australian governments attempting to mould the norms and values of the population in keeping with a more general strategy of economic reform, but they are increasingly relying on external private-sector agencies to achieve their aims. In short, individuals are being encouraged to develop a more 'reflexive', self-monitoring and expertly guided approach to themselves and their positions in society (Rose 1993; Giddens 1990; Beeson and/Firth 1998).

CONCLUDING REMARKS Successive governments in Australia have attempted to respond to changes in the world economy and perceived national economic decline by radically recasting existent approaches to economic and social management. The period since the 1980s has seen the emergence of a new political rationality centred on the granting of a greater centrality to market mechanisms in the determination of key economic and social outcomes. While Australian policy-makers were certainly not alone in attempting to adjust to the imperatives of increasing international competition, what distinguishes the Australian response is the degree to which competition itself and a predominantly market-driven process of reform have been central to the national policy response. What I have tried to demonstrate in this chapter is that establishing a neoliberal policy paradigm of the sort that was enthusiastically taken up by Labor, and which persists in an amended form under the Coalition, necessitated the overturn of the existent social welfarist policies of domestic defence. Indeed, it was necessary to overcome significant political obstacles that potentially blocked the establishment of the new market-centred order. The trade unions in particular were a key constituency that Labor had to accommodate in the new order. It is testimony to neoliberalism's discursive power that the trade union movement itself was apparently won over to its logic and adopted its language, definitions and assumptions as its own. A complex web of inter-related factors underpinned the rise of neoliberalism. A discursive influence, or what we might call the ideational hegemony of neoliberalism, is an important part of any explanation of the rise of economic rationalism in Australia during


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the 1980s. However, it is equally important to recognize the influence of a supporting political and institutional environment within which such ideas could take root and effectively marginalize alternative voices. In Australia, a nexus of political and institutional interactions effectively entrenched the ruling market orthodoxy. Political pressure from the likes of the New Right and the powerful interests associated with mobile and/or internationally oriented economic assets was instrumental in promoting an agenda of deregulation, liberalization and privatization. Once established, however, initiatives like financial sector deregulation established new patterns of institionalized interests which helped consolidate the new order. In turn, the new policy paradigm and the changed institutional framework that the ALP helped establish effectively foreclosed certain policy options. Quite simply, the former ALP Governments and the subsequent Howard Government have found it increasingly difficult to 'intervene' in determining the course of domestic economic activity even had they wanted to do so. Governments of all persuasions have sought other avenues within which to pursue their reformist ambitions. Increasingly, attention has turned to reforming the population itself. Labor, or more particularly, individual economic agents, were to be encouraged to assume their share of the burden of national reconstruction by adopting suitably entrepreneurial and business-like values. As we shall see, it is a strategy that displays little understanding of the impact of the activities of rival governments or the organization of international commerce. The significance of both can be more easily appreciated by considering the developmental history and business logic of the other major focus of this study: Japan.

3 Competing Capitalisms: Japan Describing as 'miraculous' Japan's rise from the devastation of the Second World War to its contemporary status as an economic superpower is at best a cliche. At worst, it is indicative of an approach to analysis that systematically neglects the specific historical circumstances that underpinned Japan's remarkable transformation. The Japanese case forcefully demonstrates that capitalism is not simply a universal essence or abstraction which manifests itself in the same way at all times. On the contrary, Japan's experience clearly shows that important variations on the general theme of marketoriented production are possible; relationships between government, private enterprise and labour are critically important and variable determinants of the trajectory of national development. This chapter will demonstrate how Japan's metamorphosis has been underpinned by a political rationality in which the self-conscious pursuit of social goals, or more simply planning rather than market mechanisms, has been a central component. In other words, whereas Australian governments have waited for market forces to transform the domestic economy, Japanese government officials in tandem with private business have actively attempted to create an economic structure in accordance with preconceived ideas about optimal economic structures and arrangements. It should be acknowledged at the outset that the continuing sluggishness of the Japanese economy in particular and the economic crisis in East Asia more generally have raised important questions about the continuing efficacy of close state-business relations as a strategy for economic development. Plainly, it is a model that is not without potential problems. However, it is important to recognize that the Japanese 'interventionist' paradigm not only stands as an important theoretical alternative to the increasingly dominant Anglo-American neoliberal model, but that it has already left an indelible imprint on the organization of economic activity throughout the East Asian region. To understand how regional economic activity, especially that of TNCs, is organized, we still need to understand how such economic entities originated and the sorts of qualities 62

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and structural characteristics that distinguish them from their AngloAmerican rivals. As in Australia, the dominant political rationality in Japan is a complex amalgam of social, political and economic factors that informs the conduct of government and shapes public policy. Identifying the key forces that underpin Japan's political rationality and the way they have become institutionalized is important for two reasons. First, it reminds us that capitalism can take very different forms - of which policy-makers from other countries need to be aware. Second, the way different forms of capitalism become embedded in domestic, and latterly international, structures means that their evolution will display a certain degree of path dependency. Put simply, for all the talk about globalization, convergence, and the irresistible power of market forces, the Japanese variety of capitalism is not only different to its neoliberal Anglo-American counterpart in important ways, but it is likely to remain so. To see why this is the case, it is necessary to distinguish between the social and governmental aspects of Japan's distinctive form of capitalism, and the actual organization of the corporate activity that is its principal manifestation. As we shall see, even though changes are occurring in Japan's political practices and social values, it is important to distinguish these from changes at the level of the firm - which is the major point of contact with Japanese capitalism for outsiders - where the impact of externally driven change has been much less pronounced. Understanding why the Japanese variety of capitalism is resistant to change necessitates a consideration of its evolution and location in Japan's distinctive social system. This chapter, therefore, will consider Japan's postwar development, and the political and economic relations that were critical to its success. In the second half of the chapter a more detailed consideration of the structure of Japanese capitalism, which analyses the organization and operation of Japanese companies, will be undertaken. I shall suggest that Japan's corporate organization not only confers particular competitive advantages that make its disappearance unlikely, but is embedded in enduring patterns of social relations that make the wholesale adoption of 'Western' practices a threat to the existent political and social order.

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THE DEVELOPMENTAL STATE Although the principal focus of this book is on the last several decades when the internationalization of economic activity has become an increasingly important aspect of the contemporary world order, Japan's current position, like Australia's, cannot be understood without some reference to its own distinctive history. In this regard, one of the most important differences between Australia's and Japan's historical legacies is that the latter's is a good deal more substantial. Moreover, whereas Australia was, as it were, 'born colonial', Japan is one of the few Asian countries to have escaped European colonization. Indeed, for most of its history Japan has been characterized by insularity and the exclusion of the outside world. Even though the process of modernization in Japan may have been shaped by its position in an increasingly global economic order, it is important to recognize that many of the distinctive social and political structures that are associated with Japan are the result of long-running domestic political struggles and accommodations. As Barrington Moore (1987 [1966]: 234) argues, by the time Commodore Perry's ships appeared off the coast in 1854 and 'opened' Japan to the outside world, the existent feudal Tokugawa system had already experienced 'substantial decay'. Foreign contact may have given additional impetus to the subsequent Meiji Restoration, but the old order had already been effectively undermined by the inexorable rise of domestic commerce. The point that merits emphasis for our purposes is that from the time of the Restoration in 1868, successive Japanese governments have been involved in a systematic process of nation-building in which the development of a centralized political structure and a modern industrial economy have been major goals. Indeed, the enthusiastic embrace of Western technology and technique by modernizing elites in the post-Restoration period was motivated not so much by the desire to become like 'the West' as by a desire to re-establish Japanese independence from it (Tabb 1995: 66). In other words, two crucial aspects of the distinctive political rationality which underpins what Chalmers Johnson famously dubbed the 'developmental state' were established early and have become embedded in Japan's domestic institutions: the legitimacy of the interventionist state itself, and the desire to collectively mobilize national resources in pursuit of specific ends. Significantly, as Johnson (1982: 19) argues, the developmental

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state - unlike its Anglo-American counterparts - did not rely upon market mechanisms to allocate resources, but was 'plan rational': In the plan-rational state, the government will give greatest precedence to industrial policy, that is, to a concern with the structure of domestic industry and with promoting the structure that enhances the nation's international competitiveness. The very existence of an industrial policy implies a strategic, or goal-oriented approach to the economy. There are a number of possible explanations for the emergence of the developmental state in Japan. At one level, Japan clearly falls into that category of 'late' industrialization that Gershenkron (1966) identified, in which the state can play a crucial role in forcing the pace of industrialization by importing technology and guiding the course of development. Japan was able to 'catch up' by successfully adopting and adapting existent technologies, and by taking advantage of the opportunities provided by the evolving international economic order. In Japan's case, however, the necessity of developing an industrial capacity was given extra urgency by a widely held and enduring perception of national vulnerability. Indeed, Porter (1990: 395) argues that Japan's lack of resources and its dependency on the outside world has played a 'considerable' role in encouraging the development of its manufacturing sector. What is clear is that the perception of national vulnerability made consensus about the importance of national economic development easier to achieve, and helps to explain the persistence of Japan's mercantilist approach to trade relations (Nester 1991). The distinctive Japanese approach to public policy was epitomized by the so-called 'Yoshida doctrine', developed by Prime Minister Shigeru Yoshida in the immediate postwar period. In essence, the Yoshida doctrine privileged domestic reconstruction and economic growth, and made foreign policy an extension of national development. In this view, Japan's apparent passivity in international affairs and its willingness to subordinate itself to the US allowed it to concentrate national resources and effort on rebuilding the economy, while simultaneously uniting potentially divisive interests within Japan itself (Pyle 1988). The Yoshida doctrine highlights fundamental differences in the Australian and Japanese approaches: unlike their Australian counterparts, Japanese policymakers have employed mercantilist policies predicated on the essentially cameralist notion that economic strength is central to

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national development and security. The traumas of the Second World War reinforced the desire to achieve economic security and autonomy and, as we shall see, gave an underpinning logic to the pattern of Japanese economic expansion when it eventually occurred in Asia and the wider world (Mendl 1995). Thus, Japan's political rationality engenders a fundamentally different policy framework to those of its Anglo-American rivals, which share a rhetorical commitment to minimizing government involvement in economic activity. In contrast to the market-based economic policies of the Anglo-American nations, counties like Japan and Germany adopt a more 'communitarian' approach to the organization of national economic activity (Thurow 1992: 32-9). Indeed, the Prussian state was an important influence on post-Meiji Japan's administrative law, constitutional theory, military organization, and economic systems and thought - especially the mercantilist ideas of Friedrich List (Williams 1994). For List, national well-being was dependent upon what a country could make, not what it could buy, an idea which helps to account for the enthusiasm shown by government and business in Japan for controlling key technologies and privileging market share over profitability (Fallows 1993). In other words, the Japan's political rationality draws much of its inspiration from the logic of cameralism, in which 'the national economy' is seen as a critically important strategic extension of overall state security (Tribe 1984). Other writers have suggested that the Japanese have specific 'cultural' traits, especially the desire to achieve cooperative consensus, which help generate the particularly productive forms of social accommodation that have underpinned Japan's remarkable economic expansion (Murakami 1987). While there may be something in this, we need to be careful not to romanticize Japan's supposedly harmonious social relations, for, as Johnson (1995: 44) points out, 'traditional social values can provide the raw materials for ideologists, whose intent is to keep the society docile and hardworking'. Similarly, it is important to recognize that one of the most often cited manifestations of supposed Japanese harmony - its industrial relations system - emerged from a bitter and often violent attempt to control a politicized and recalcitrant labour force (A. Gordon 1993). However, there were important existent forms of institutionalized cooperation that underpinned pre- and postwar economic development. Tessa Morris-Suzuki (1994) demonstrates that, from its beginnings in the Meiji era, the project of national development

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was overlaid on existent patterns of regional development, and that the spread of technology was facilitated throughout an institutional infrastructure of trade associations and local organizations, or what she calls 'a social network of innovation'. The complex patterns of inter-relationships that are associated with contemporary Japanese industrial development, technical innovation and adaptation, and which are institutionalized in the cooperative relationships between the state and the private sector, have their roots in this underlying social infrastructure. It was upon this dense network of interlocking relationships between small and large business, and the private and public sectors, that postwar reconstruction was predicated. Yet we should also remember that Japan had already achieved a level of industrialization that 'was in scale and complexity unique outside Europe and North America before 1945' (Beasley 1990: 102). So while the pace of recovery in the postwar period was indeed remarkable, it becomes more comprehensible and less 'miraculous' when situated in historical context. While developing a national consensus around rapid growth policies was made easier in the aftermath of the Second World War by the imperatives of reconstruction, survival, and the desire to expunge the humiliation of defeat from the national consciousness, there were also other more tangible structures, which were central to the reconstruction of Japan's political economy, and which continue to shape political and economic practices. The zaibatsu, or large privately owned industrial empires, had been the backbone of Japan's prewar industrialization and, despite US attempts during the occupation to 'democratize the economy' - principally by land reform and the dissolution of the industrial groups - the reforms did not greatly affect the financial institutions associated with the zaibatsu. In short, the institutional basis for their subsequent revival remained in place (Seiyama 1989). Ironically, attempts to reduce the influence of the powerful families associated with the zaibatsu groups actually increased bureaucratic control over the economy, thereby inadvertently ensuring the continuation of another pillar of Japan's unique political economy (Johnson 1982). What US policy failed to recognize was that state involvement in the economy had been part of the Japanese political economy since the inception of the industrialization process itself. As Fulcher (1988) notes, military defeat and subsequent US occupation policies effectively removed both an anti-capitalist military and the zaibatsu as the last barriers to effective bureaucratically controlled industry policies. The state

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developed institutions and mechanisms to enhance its capacity to implement policy which, while contested, led many Japanese to 'share a remarkably common view on the legitimacy of national government as guide and mentor' (Magaziner and Hout 1980: 1-2). In other words, a distinctive 'developmentalist' political rationality coalesced around and informed a process of state-led reconstruction and economic expansion. In short, Japan's developmental trajectory, like Australia's, has been profoundly influenced by the structure of its industries and the role played by its national bureaucracy. In Japan, however, both these institutions have played a more influential and coordinated role in determining the course of economic development in particular. As such, they merit closer examination. Politics and the Bureaucracy To some readers it may seem odd to begin an examination of contemporary Japanese capitalism by considering the role of the bureaucracy. Yet this prioritization is merited because the bureaucracy has played a much more central - if controversial - role in Japan's economic development than has its counterpart in Australia's. Indeed, elements of Japan's bureaucracy have generally been responsible for both developing and implementing the policies that have guided that country's postwar economic evolution. But before we can begin to understand the specifics of the policies implemented by Japan's bureaucracy, it is important to explain why it has assumed such a prominent position in the first place. In short, we need to consider two closely connected questions: Why is the bureaucracy so powerful? Why has conventional politics in Japan been so comparatively ineffectual and irrelevant? One possible reason has already been touched on Japan's latedeveloper or 'follower' status gave an additional primacy to the developmental project itself (Calder 1988a). Significantly, the relentless national pursuit of economic growth and efficiency meant that economic management became increasingly associated with questions of optimal technique and technocratic expertise. Clearly, there is an interesting parallel here with the Australian experience of the 1980s. However, a comparison of the Japanese and Australian experiences suggests that bureaucracies, even at their most Weberian and technocratic, are not simply politically neutral mechanisms for the transmission of governmental purposes. On the contrary,

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as we saw in the case of Australia, bureaucracies may have their own agendas and institutional memories which may ultimately influence their nominal political masters. In the Japanese case, the existence of developmentalist political rationality and a tradition of public service activism and intervention combined to guide Japan's economic expansion. In Japan the structure of the political system itself has actually served to reinforce the dominance of the bureaucrats. For most of Japan's postwar history it has been governed by one party, the Liberal Democratic Party (LDP). The LDP's electoral defeat in 1993, which marked the end of 38 years of uninterrupted conservative rule, consequently generated much speculation about Japan's future. I shall consider the implications of the changes that are occurring in Japan and the implications of the recent economic crisis in East Asia in more detail in Chapters 7 and 8. At present, two points are worth emphasizing: First, the subsequent reinstatement of the LDP as the dominant partner in a coalition government suggests that the extent and significance of the changes may have been overstated. Second, the underlying structures of Japanese politics and the concomitant patterns of policy-making remain in place and continue to exert a powerful influence on the organization and development of Japanese capitalism. A key difference between Japan and Australia has been that Japanese politicians have been much less powerful and influential than their Australian equivalents. A major explanation for this comparative political impotence has been monetary. Japan's complex voting system and multimember electoral districts, which return a number of representatives for each constituency, mean that while individual politicians may be elected with as little as 12 per cent of the vote, they may have to compete against colleagues from the same party to do it. A consequence of an entrenched ruling party and consequent intra-party electoral competition has been to make elections personality contests determined by a candidate's capacity to mobilize support (Krauss 1989). Successful candidates need to secure their political support base through the use of a variety of incentives from favours to outright bribery. As a result, getting elected to the Diet is an extremely expensive proposition. For example, LDP candidates in the 1990 elections spent an average of ¥650 million. Once elected, it is estimated to cost the average member of the Diet around ¥200 million just to cover associated expenses (Reading 1992: 235-43). Given that this is far in excess of parliamentary pay, representatives

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are dependent on other sources of income, especially from factional leaders within their own party. In short, Japanese politics revolves around the collection and distribution of money, a situation that shows little sign of changing (Holstein 1991). As a consequence, raising money and organizing factional allegiances within the ruling LDP has been the principal preoccupation of Japanese politicians. It is the centrality of money in Japanese politics that underpins the so-called 'iron triangle' between business, politics and the bureaucracy. It has led to a highly distinctive style of government and division of labour among Japan's ruling elite. Despite competition within politics, business and the bureaucracy, van Wolferen (1989: 54-5) suggests that: the relationships that count do not normally involve major problems, notwithstanding the great rivalries. The bureaucrats tinker with the economy, making adjustments to facilitate its growth. The politicians and almost everyone else keep out of their way. Parliamentary representatives, largely chosen for their porkbarreling skills, attend mainly to the business of getting re-elected. Since this depends largely on their ability to spread the national wealth politicians are perpetually indebted to the bureaucratic guardians of the budget. The industrialists continue to expand their foreign market shares, and enter new markets with the help of the bureaucrats. They are kept in line by their peers; and they pay the politicians. Nobody is boss, but everybody, in some way or other, has leverage over somebody else, which helps ensure an orderly state of affairs . . . Power in Japan is thus diffused over a number of semi-self-contained, semi-mutually dependent bodies which are neither responsible to an electorate nor, ultimately, subservient to one another. While the collapse of the so-called 'bubble economy' has, as we shall see, placed what van Wolferen calls the 'system' under unprecedented pressure, his acerbic description captures the essence of the postwar order. The point to emphasize here is that 'circles of compensation' gradually became entrenched in Japan's political and economic structures, giving an additional imperative to the pursuit of national growth through mercantilist policies (Calder 1988a: 160). Politicians were prepared to leave the management of the economy to a technocratic elite, especially in the high growth era when both politics and business benefited from rapid economic expansion. In other words, the developmentalist political rationality was shaped


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by institutionalized political pressures that make the subsequent content of public policy more comprehensible. Industry Policy and the Bureaucracy Although the role of the bureaucracy and its relationship with business and government has changed and is currently the subject of much debate, it has played a key role in Japan's economic renaissance. As such, it merits closer scrutiny because this highly 'interventionist' approach to economic development in Japan stands in marked contrast to the Australian experience and its reliance on market mechanisms. Two aspects of the Japanese model are especially significant here: the structure of the bureaucracy itself and its linkages with wider Japanese society, especially those actors and institutions that directly influence the course of economic development. Two sections of Japan's bureaucracy are especially important and merit particular attention: the Ministry of International Trade and Industry (MITI) and the Ministry of Finance (MoF). These two ministries have been at the centre of Japanese attempts to develop a coordinated approach to economic development through the use of industry policies on the one hand and the provision of adequate capital to industry on the other. Before considering how MITI and the MoF were able to play a role in guiding Japan's economic development a couple of general theoretical points should be re-emphasized as they help to distinguish the Japanese and Australian approaches to policy-making and economic management. A developmentalist political rationality with its implicit interventionism and state guidance was made possible in Japan by what Evans (1995) calls 'embedded autonomy'. This is indicative of the degree of insulation the Japanese bureaucracy enjoyed from its ostensible political masters - public officials were able to pursue policies in the 'national interest' that transcended the individual or sectional interests of business or politicians. At the same time, however, policy implementation was facilitated by the existence of a 'concrete set of social ties that binds the state to society and provides institutionalized channels for the continual negotiation and renegotiation of goals and policies' (Evans 1995: 12). This meant that MITI, for example, was able to formulate and implement highly targeted industry policies through institutionalized networks with domestic industry, which allowed for monitoring, industry input and the application of state plans (Krauss 1992).

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Japanese industry has highly organized peak representative bodies through which the leaders of Japan's corporate sector (zaikai) can make their views known to both politicians and the bureaucrats who actually generate economic policy (Rothacher 1993). Further facilitating communication and policy implementation between bureaucratic policy-makers and private industry is the practice of amakudari, or 'descent from heaven', in which leading former bureaucrats are given prominent positions in private sector companies upon retirement. Amakudari is part of an elaborate institutional framework of embedded social relations which allows the close coordination of business-government activities, as well as further facilitating communication within powerful industrial groups. While these institutionalized relationships have given Japanese planners a capacity for coordinating policy unavailable to their counterparts in other countries, especially amongst the Anglo-Americans, we must be careful not to paint a picture of unalloyed omniscient or omnipotent technocratic competence. Not only is there the potential for poor decision-making and corruption, but businesses' relationship with the bureaucracy is not simply one of supine dependence. Samuels (1987) notion of 'reciprocal consent' captures an important aspect of the bargained agreements that exist between state officials and industry in Japan. These caveats notwithstanding, the key difference between countries like Australia and Japan is the sort of 'infrastructural power' power we considered in Chapter 1. Infrastructural power, it will be remembered, refers to the ability of the state to penetrate its territories and logistically implement decisions. In other words, it is the capacity to collectively mobilize available resources in pursuit of some supereminent project. Importantly, however, as Weiss and Hobson (1995: 170) argue, effective infrastructural power is not just a question of technique or technocratic competence, rather 'it is fundamentally a political-institutional achievement'. In Australia, by contrast, not only was there a powerful political class bent on imposing its own vision of market-oriented, individually based economic reform, but there was little history of institutionalized cooperation between business and government, and even less of businessbureaucratic cooperation. In other words, even had Australian policy-makers wished to embrace a developmentalist political rationality, it would have been much more difficult to pursue such policies as the same institutionalized channels of communication that facilitated the effective implementation of industry policies in


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Japan simply did not exist in Australia (Beeson 1997b). While MITI's ability to implement policies was facilitated by its close ties with industry, its influence was reinforced by specific initiatives like the 'temporary' foreign exchange and trade laws which allowed it to control and direct the flow of capital to industry, particularly during the all-important high-growth phase of postwar recovery (Johnson 1982). Moreover, MITI had the power to allocate foreign exchange to would-be importers of essential capital equipment, giving it crucial leverage in its desire to promote particular forms of industrialization. A key policy instrument in this context was the fiscal investment and loan programme (FILP), through which Japan's massive savings in the nation's post offices were recycled as low-cost loans to targeted industries. The industry policies of the period combined a policy of protecting the domestic market while promoting the 'oligopolization' of major industries, ensuring favoured companies a captive and potentially lucrative market (Yamamura 1986). Firms were encouraged to expand in proportion with existing market share. This encouraged growth prior to internationalization, and ensured that domestic competition was not 'destructive'. The point to stress here is that, as Okimoto notes, the boundaries of 'market failure' were and are much wider in Japan. In contrast to the reactive ad hoc approach to economic policymaking that has characterized successive Australian governments, Japan's approach has been 'anticipatory, preventative, and aimed at positively structuring the market in ways that improve the likelihood that industry-specific goals will be achieved' (Okimoto 1989: 11, emphasis added). In contrast to Australia, where the logic of a neoliberal political rationality gives 'the market' itself primacy in determining economic outcomes, markets in Japan have been forces to be controlled and directed. There is little theoretical or ideological opposition to managed competition, the encouragement of oligopolies, or the systematic control of 'natural' market prices. On the contrary, the Japanese approach allowed the creation of a comparative advantage in industries that were considered by planners and policy-makers to be strategically important because of their ability to promote economic growth and their position in the emerging hierarchy of global production. Central to Japan's industrial renaissance, therefore, has been an appreciation on the part of Japanese planners that some industries generate greater profits than others, and that some technologies are critically important determinants of the trajectories

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of economic development and national income (Dosi et al. 1989). As a consequence, there has been a self-consciously pursued pattern of historical development in which companies based in Japan have become leaders in a range of industries from steel, shipbuilding, automobiles and domestic appliances to computers and semiconductors (Matthews and Ravenhill 1994). Moreover, living standards rose on the back of economic expansion, and the phasing-out of uncompetitive industries and the transition to more valuable forms of production has been managed by government agencies with comparatively little economic or social dislocation. Financial Regulation and the Ministry of Finance Predictably, MITI's conspicuous role in the implementation of Japan's distinctive and high-profile industry policies has attracted a good deal of attention. Less remarked upon has been the role played by the Ministry of Finance (MoF), which is surprising given that it has arguably played an even more important role in operationalizing Japan's developmentalist political rationality. Indeed, some observers contend that the MoF is the single most important force within the Japanese political economy. Fingleton (1995a), for example, argues that the MoF is so powerful that it amounts to a de facto government, as it controls taxation, spending and defence. Other government agencies - including MITI - are dependent on the MoF for funding, reinforcing the latter's influence. Additionally, the MoF has virtual carte blanche from Japan's parliament, the Diet, to regulate and control the financial sector as it sees fit, something that its role in drawing up the annual state budget reinforces. Of most immediate interest for comparative purposes is that, unlike Australia's capital-market-based system in which stocks and bonds are the principal source of industrial funds, the MoF has overseen Japan's credit-based bank-mediated system of industrial capital provision, in which market relationships have been dominated by government-administered prices. Japan's banking system is divided into 'city' and 'regional' banks, of which the former have been the most important as far as lending to industry is concerned. As I shall explain in more detail below, the city banks are generally part of a wider corporate grouping and act as the 'main bank' to a group of related companies. The point to emphasize at this stage is that the entire banking system has been, until relatively recently at least, closely regulated by the


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MoF. Like MITI, the MoF has customarily preferred to rely on 'guidance' rather than legal sanctions when attempting to implement policy. The Bank of Japan (BoJ) - the central bank - is a major instrument of policy implementation, conducting monetary policy, intervening in foreign exchange markets, and acting as a lender of last resort for the commercial banks. During the capital-scarce years up to the 1970s the 'window guidance' policy, or credit controls on city bank loan increases, was effective in ensuring city bank compliance with MoF and industry policies. During the high growth period in particular, Japanese corporations 'over-borrowed' from the banks to finance rapid expansion, with the result that the banks themselves became dependent on the BoJ to ensure a continuing supply of cheap capital, reinforcing the latter's influence (Suzuki 1987: 317). This highly regulated financial structure has come under a good deal of internal and external pressure of late, and has attracted much criticism from advocates of financial liberalization. However, before considering the impact of these structural and ideological pressures, it is worth re-emphasizing just how different was - and arguably, is - the Japanese financial system compared to its Australian counterpart. For, as Lapavitsas (1997: 25) observes, the Japanese financial system has proved a surprisingly durable statecontrolled institutional mechanism with which to transfer funds to industry via banking intermediation. Although the efficacy, or more accurately perhaps, the possibility, of state intervention in the financial sector appears to have become less feasible for individual national governments, it should be stressed that the period in which the economic growth was highest in Japan was also the period in which the financial system was the most 'repressed', or in which interest rates were kept 'artificially' low. In other words, an important effect of the institutional organization of the Japanese financial sector was that the cost of capital for Japanese firms has been significantly lower for firms based in Japan than it has been for firms based in the Anglo-American countries (Frankel 1991). Given such an apparently successful system, especially in comparison with Australia's, it begs the question why there should have been any desire to change it. Several factors have been important in undermining the highly regulated Japanese financial system. One of the most profound changes has been structural and ubiquitous: the same changes in the increasingly global financial order that influenced Australian policy-makers also affected Japan. The

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emergence of new internationally accessible financial markets meant that Japanese industry was no longer reliant on the domestic banking sector for capital: direct financing through equity-related instruments became an attractive option. So significant did the opportunities for the 'financial engineering' (zaiteku) that deregulation created become for Japanese corporations that by 1987 50 per cent of profits were derived from financial rather than productive operations in (Burstein 1990: 44). Reinforcing this structural change in the global economy was a concomitant shift in domestic politics. Domestic banks were able to harness external pressures to push for changes to the national financial system on the grounds of competitive necessity (Pauly 1988). As Japan-based companies began to expand and invest overseas, their traditional bankers wanted to be able to follow suit and compete on level terms with their foreign competitors. The external structural changes that encouraged financial reform in Japan had a domestic counterpart. A key change in the 'domestic' economy was the emergence of government deficits that appeared in the wake of the 'oil shocks'. Government debt was financed by bond issues that became too large for the local market to absorb, thus setting the stage for the latter's internationalization (McKenzie 1992: 27). More immediately, Japanese banks became increasingly reluctant to buy government bonds that were issued at interest rates below market levels (Lincoln 1988: 169). As a result, an increasing momentum developed within Japan for reform of the financial system. Indeed, it is important to recognize that as 'Tokyo's financial community' have acquired significant external assets which they are keen to protect, they have simultaneously attempted to encourage a more 'internationalist' attitude on the part of government officials (Helleiner 1992: 47). Domestic pressure from indigenous oligopolists keen to protect access to overseas markets added further pressure for reform but, as Encarnation and Mason (1990) observe, by the time such views were expressed, Japanese companies were so powerful as to have little fear of domestic competition. Japanese responses to the external imperatives of increased competition and global economic restructuring, therefore, have been largely driven by a domestic political and economic calculus. Kent Calder's (1988b) celebrated depiction of the 'reactive' Japanese state suggests that Japan's external policy has been characterized by 'hesitancy' and a 'deferential' attitude to the US in particular. Calder attributes this deference to a perception of economic vulnerability


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within Japan which is compounded by a fragmented state structure. While Calder's analysis is an important corrective to depictions of a seamless 'Japan Inc', in which a monolithic bureaucracy unproblematically imposes its collective will on powerless domestic actors, it is important not to overstate the constraints Japan faces. True, there have been extensive conflicts between ministries keen to protect their own turf, and clearly Japanese business is a potent force within Japan's political economy. But although the US has been able to influence the pace at which Japan's financial sector has been liberalized (Moran 1991), the effectiveness of foreign pressure (gaiatsu) has been dependent on domestic interests. Where the US had no allies within Japan, foreign pressure has had much less impact (Schoppa 1997). The MoF, then, has found itself coming under not only predictable international pressure to deregulate Japan's financial sector, but also mounting domestic criticism (TBT, Jan. 1995: 12). Whereas in Australia there was an a good deal of consensus amongst an influential epistemic and policy-making community about the necessity for domestic reform and the best means of achieving it, in Japan change has been less enthusiastically embraced, especially by the policy-making bureaucracies. Not only does the deregulation of economic activity in Japan undermine the power and authority of the central agencies like MITI and the MoF, but it poses a threat to Japan's distinctive patterns of social relationships more generally. A brief consideration of the reform process is merited, therefore, because it sheds light on Japan's evolving political rationality and because concomitant changes in Japan's political and economic structures are likely to affect bilateral relations with countries like Australia. Reluctant Reformers? Many of the problems confronting Japanese policy-makers, and the source of much of the criticism that has been directed at the Japanese Government, stem from the legacy of the 'bubble economy'. The most general point to be made about this period of rampant speculation, particularly in the property and share markets, is that it was not unique to Japan. On the contrary, in the late 1980s the Anglo-American economies, including Australia, were also caught up in property booms, and a bout of stock-market speculation that resulted in a wave of take-over and merger activity. As we have seen, in Australia this activity was also responsible for an increased

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level of foreign ownership and the demise of some otherwise productive companies. In Japan, by contrast, the distinctive patterns of corporate organization, discussed in detail below, meant that there was a negligible increase in foreign ownership. There were other significant differences, too. Not only did the collapse of the speculative bubble in Japan occur later than in the US and Australia, but when it did arrive its impact - at least when measured against earlier economic growth levels - has been more long lasting. I shall consider the debate about East Asian growth and the viability of Japanese capitalism as an alternative to the Anglo-American model in Chapter 7. At this stage, I simply want to say something about the Japanese approach to managing economic downturn. That there are currently serious economic problems in Japan is not in doubt. Japan's banking sector is faced with the prospect of systemic collapse (TBT, Nov. 1995: 4-9), or the possibility of having to provide an estimated ¥30 trillion ($A500 billion) to forestall it (AFR, 1 July 1995: 10). Moreover, in the event of the often volatile Nikkei stock average falling below 12,000 points, there are concerns that even Japan's large city banks may have trouble meeting their internationally agreed capital adequacy ratios, as they will no longer be able to count unrealized capital gains derived from long term share-holdings as part of their reserve assets (BW, 10 July 1995: 16; AFR, 20 Jan. 1997: 21). The possibility of banks dramatically improving their short-term positions has been lessened by a general collapse in property prices, and the potential for a period of widespread deflation (FEER, 26 Nov. 1992: 55; BW, 8 May 1995: 14-6). A couple of points are clear: Japan is not immune from the sorts of apparently inescapable cyclical problems that have been endemic to capitalist organization for the last several centuries (Arrighi 1994). What is distinctive about the Japanese experience, however, is the way Japanese policy-makers have attempted to resolve such problems. Rather than allowing market forces to impose a 'solution' to asset inflation through a collapse in prices and a contraction in economic activity, Japanese planners - following the logic of the developmentalist political rationality - attempted to manage the adjustment process. Steven Vogel (1994: 238) suggests that MoF officials have tried to steer a course that allows them to retain control of the financial system: individual institutions were given increased freedom to pursue new activities while the MoF attempted to minimize disruption to the overall system. At one level this has been a success: Japan has not experienced the sort of dramatic


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economic shake-out that ended in recession and higher unemployment in Australia. At a more fundamental level, however, the Japanese financial system in general and the MoF in particular have been the subject of increasing criticism in the wake of a series of scandals in which the MoF has used taxpayers' money to prop up banks that became insolvent as a result of injudicious and/or corrupt lending decisions. Not only did the MoF appear incapable of restoring high economic growth in Japan, but formerly highly esteemed MoF and BoJ officials appeared to be directly implicated in corrupt practices (TBT, May 1995: 34-7; Nikkei Weekly (AW), 9 March: 1). These developments have profound implications for the Japanese political economy. The legitimacy of the highly interventionist approach to economic management has clearly been compromised by scandal, corruption and rising public cynicism. The construction industry is a notorious example of how badly the Japanese system can go wrong. Gavan McCormack (1996: 33) argues that 'the construction state' exists as 'an incubus on the state and society', systematically using taxpayers' money to fund public works of often dubious merit, as a way of distributing wealth amongst key bureaucratic, business and political elites. Clearly, the development and institutionalization of long-standing close relations between powerful economic and political actors in any country is not necessarily a recipe for enlightened public policy in the 'national interest'. Advocates of deregulation and the desirability of increased 'transparency' in economic activity have some powerful arguments to make in a contemporary Japanese context. Significantly, the Howard (1998) Government in Australia has used the current crisis in East Asia as an opportunity to repudiate and highlight the 'shortcomings of highly interventionist strategies'. However, we must be careful to disentangle normative preferences from what appears to be quotidian 'reality'. The important point to recognize is that, for all the calls for reform within and outside Japan, both the MoF and MITI have emerged relatively unscathed from recent - apparently genuine - attempts to reform them; MITI has actually expanded, gaining control of the important telecoms sector from the soon-to-be-dismantled Ministry of Posts and Telecommunications (FEER, 4 Sept. 1997: 63; AWSJ, 5 Aug. 1996: 1). Indeed, more Machiavellian interpretations of recent Japanese history suggest that the MoF and the BoJ have actually engineered the Japanese recession in order to demonstrate how necessary they remain to Japan's future economic development (Australian, 11 June

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1997: 25; Fingleton 1995b: 288). The recent economic crisis in East Asia and Japan's inability to solve its own economic problems, let alone those of the region, cast doubt on this hypothesis. What is clear, however, is that the bureaucracy remains a powerful deeply entrenched force within the Japanese political economy. Yet even if the bureaucracy in Japan had been decisively reformed, and the Japanese polity had gained more effective control of the country's economic and political agenda, this does not mean that a distinctive form of Japanese capitalism would be at an end. On the contrary, the most deep-seated socially embedded and structurally entrenched aspect of Japanese economic activity is the firm itself.

COLLECTIVE CAPITALISM While both Australia and Japan are both 'capitalist societies', there is a remarkable degree of difference in many of their respective economic, social and - as we have seen - political structures. Not only do the bureaucracies and polities of each country play rather different roles, but some of the key elements of society and forms of economic activity are organized along fundamentally different lines. Indeed, within the 'Asia-Pacific region' it is possible to distinguish several quite distinctive forms of Anglo-American, Chinese and Japanese capitalism (Whitley 1991; Beeson 1997c). To more readily appreciate the distinctiveness and operational logic of the Japanese variant, with which we are principally concerned here, it will be helpful to say something about the evolution of capitalism more generally. William Lazonick (1993) has developed a valuable typology which distinguishes between three broad historically sequential forms of capitalist enterprise organization - proprietary, managerial and collective. Proprietary capitalism is associated with the industrial revolution in Britain and characterized by the integration of asset ownership and managerial control. The crucial evolutionary distinction between proprietary capitalism and the subsequent phase of organizational development - managerial capitalism - was the separation of ownership from control, allowing a greater degree of managerial specialization and organizational complexity, which in turn permitted the organization and coordination of much largerscale production, including the physical, human and financial resources that underpinned such expansion. The emergence of


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publicly owned joint stock companies conferred a greater degree of control on a new class of corporate managers and created a vastly expanded pool of capital with which to further enterprise growth. An increasingly specialized division of labour and multidivisional structure within individual companies allowed expansion of the scale and scope of corporate activities, as well as their spatial dispersion (Chandler 1990). However, by end of the 1960s the limitations of what might be broadly characterized as a Fordist mode of accumulation were becoming apparent (Amin 1994). Yet it was precisely this context that formed the backdrop for Japan's dramatic rise as an economic power in the postwar period. In short, Japanese capitalism was not only outperforming its Western counterparts, but it appeared to be organized on distinctly different organizational foundations. Lazonick's analysis isolates key similarities and differences between Japanese and Anglo-American forms of capitalism that help account for the former's stellar performance. Revealingly, Lazonick points out that even at the height of economic liberalism's discursive influence during the early phases of industrialization in Britain and the US, the state played a crucial role in underpinning national economic development through discriminatory trade practices. In this regard Japan's rise has followed a similar path, although with notably less emphasis on ideological proselytization. More fundamentally, in Japan's case the role of the state in attempting to coordinate the extent and direction of Japanese industrial development has been a good deal more extensive. This has had the further effect of encouraging the planned coordination of vertically related companies and more integrated forms of financial control. In what Lazonick calls Japan's form of 'collective capitalism' organizational integration extends throughout the corporate hierarchy to include the general labour force, creating a situation where: The combination of far-reaching organizational integration with private-sector manufacturing and the activist role of the state in creating an economic and social environment conducive to the emergence of innovative business enterprises represents a qualitatively new mode of business organization in the evolution of capitalism. (Lazonick 1993: 37-8, emphasis added) Before considering the distinctive, organizational structures within which many Japanese firms are located, it is worth briefly reviewing some of the distinctive qualities, or 'flexible rigidities', to borrow

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Dore's (1986) evocative term, that appeared to have conferred a competitive advantage on Japanese industry and to which competitor nations have attempted to respond. Structural Flexibility Production processes in Japan display a number of distinctive characteristics. Japan has what has been described as a 'dual economy', in which the relatively small number of large manufacturing enterprises use sub-contract suppliers to provide them with productive inputs - to such an extent that an average of only 25 per cent of the value added is generated internally by the company that sells the final product, compared with 50 per cent in the US or UK (Eccleston 1989: 31). The large companies that have been at the heart of Japan's industrial renaissance derive numerous benefits from this arrangement: the risks inherent in specialization are diversified; a core pool of lifetime employees can be retained while fluctuations in labour demand are absorbed by sub-contractors; output levels can be adjusted easily and flexibly; parts inventories can be kept low, reducing costs and allowing just-in-time delivery and rigid quality control procedures to be practised (Abegglen and Stalk 1985). Sub-contractors have the ability to act as 'shock absorbers', cushioning the main firms from the impact of external fluctuations in demand. Suppliers can be systematically squeezed by the assemblers, especially in downturns - something that has enabled Japanese industry to make remarkable adjustments to the appreciation of the yen, and the loss of competitiveness that implies. Additionally, suppliers are expected to provide productivity improvements and demonstrate total loyalty in what has been described as an almost feudal relationship with the large corporations (Sakai 1990). It is important, therefore, not to lose sight of the structural power that is embedded in Japan's domestic production system. Similarly, despite systems of economic organization in Japan seeming to be more 'efficient' in some regards and providing Japanese companies with important competitive advantages, we should treat with a good deal of caution analyses that depict harmonious workplace relations as flowing from a supposed cultural predisposition for consensus. The Japanese labour relations system that is viewed with such wonder by many observers in countries like Australia has developed from a long-term pattern of labour repression that was given additional momentum by the strategic imperatives of the


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Cold War and its associated anticommunist crusade (Garon 1987). Furthermore, the celebrated phenomenon of 'lifetime employment' actually applies only to a minority of workers (Aoki 1988: 60). Even where employees do enjoy greater job security, the benefits are not undiluted. Critics contend that Japanese labour processes, such as just-in-time manufacturing, 'quality circles' and the like, simply amount to more efficient methods of exploiting the labour force, in which individual workers are crucial components of enhanced productivity (Dohse et al. 1985). Yet even if the claims about the Japanese system's egalitarian qualities may be overstated, Japanese corporate organization clearly has been central to the success of Japanese companies. In an era in which knowledge and information play an increasingly important role in determining profitability, Japanese corporate organization represents one ideal-typical variant of what Lash and Urry (1994: 65-80) call 'reflexive accumulation'. In this context, the 'collective self-monitoring' of the workforce allows the rapid transmission of information within the firm and becomes a crucial source of competitive advantage, permitting flatter production structures, more effective quality control, and the emergence of the so-called 'knowledge-creating company' (Nonaka 1991). The generally cooperative attitude of Japanese workers has been crucial in facilitating the rapid adoption of new technologies and organizational strategies which have emerged in tandem with international economic restructuring and fundamental changes to production techniques (Itoh 1992). The point to emphasize about Japan's work practices is that they are an institutionalized manifestation of a distinctive accommodation between capital, labour and the state (Elger and Smith 1994), which is reflective of specific Japanese circumstances and an underpinning developmentalist political rationality. A couple of comparative points can be made about the Japanese experience before we consider the organization of the Japanese firm itself. First, what has been called Japan's 'corporatism without labour' (Pempel and Tsunekawa 1979) stands in noteworthy contrast to Australia's corporatism without business. Even if we admit that both these depictions have elements of caricature about them, they have sufficient resonance to underpin a more uncontroversial claim: the Japanese and Australian cases demonstrate that there is more than one way to arrange the political-economy of capitalism. The second general point to be made is that the Japanese pattern of industrial relations is not necessarily any 'fairer'

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than its Australian equivalent, especially for the majority of workers who do not enjoy the benefit of lifetime employment. What the Japanese system does seem to produce, however, are specific advantages in terms of consensually negotiated domestic economic outcomes and highly productive patterns of workplace organization. These factors generate formidable competitive advantages, particularly when added to the structural advantages of Japanese corporate activity. Japanese Industrial Groups The first point to make in any analysis of Japanese corporate organization is that it is seriously at odds with the prevailing, neoclassical economic orthodoxy that predominates within the AngloAmerican countries. The neoclassical model rests on ideal-typical abstractions and assumptions, the most significant of which is the idea that competition between firms will prevent any single enterprise from achieving an oligopolistic position and thus influencing or 'distorting' market prices (Hunt 1979). Moreover, in the orthodox view that informs economic policy-making in the Anglo-American economies, market power, oligopolization and an absence of competition are seen as necessarily bad, both theoretically and normatively. In Japan, by contrast, 'excessive competition' is seen as dangerous and potentially destructive, and therefore something to be avoided where possible by the careful interventions of government officials. Consequently, as we have seen, the state has been at the centre of attempts to encourage the development of major corporations in which their oligopolistic positions are seen as a source of national competitive advantage, not a distortion to be overcome. The interests of state planners and Japanese business, therefore, have coalesced in and have been served by a developmentalist political rationality, which in turn encouraged the consolidation and institutionalization of a distinctive pattern of Japanese corporate activity. Indeed, Japanese corporate activity had assumed its distinctive form even before the Second World War. As we have seen, US attempts to breakup the zaibatsu groups of privately owned industrial empires in the postwar period were instrumental in entrenching the influence and power of the bureaucracy and establishing the preconditions for the type of government-business cooperation that characterized Japan's high-growth period (Johnson 1982). The at-


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tempted dissolution of the zaibatsu amounted to what Aoki (1987: 269) calls a 'managerial revolution from above', which introduced a new cadre of 'technocratic' managers who inaugurated many of the organizational innovations associated with the organization of Japanese capitalism. In the postwar period, therefore, the bureaucracy gained increased power and ability to direct economic activity, and the older zaibatsu groupings like Mitsubishi, Mitsui and Sumitomo, far from disappearing, actually became pillars of Japan's postwar political economy. The continued importance of the huge Japanese industrial groups is easily demonstrated: although there were over 1.5 million corporate enterprises registered in 1982, only 2,455 were classified as 'big businesses' (over ¥ 1 billion capitalization), while 'very big business' (over ¥10 billion capitalization) represented a mere 322 firms (Sumiya 1989). In addition to the aforementioned Mitsubishi, Mitsui and Sumitomo, the Fuyo, Dai-Ichi Kangyo and Sanwa Groups make up the 'big six' industrial groups that dominate Japan's economy to an even greater extent than before the war (Maruyama 1992). Deciding quite what to call the postwar industrial groups is itself slightly contentious. Odagiri (1994: 161) argues that it is important to distinguish between hierarchically organized groups (keiretsu), and horizontally organized, nominally independent firms (kigyoshudan). This is an important distinction, but I shall follow Gerlach (1992a: 82) in utilizing the term keiretsu as a general conceptual term, in which: The keiretsu is best s e e n . . . not as a particular pattern among specific sets of firms but as an overall process in which arms'length markets are replaced by intercorporate cooperation of varying degrees of intensity: by long-term relationships among legally independent enterprises; the linkage of business ties across multiple market sectors (most commonly, although not exclusively, with equity ownership); and the setting of these relationships in a symbolic framework and in the context of broader networks each partner has with other firms. [Emphasis in original] In what follows, therefore, I shall use keiretsu as a generic term and specify the nature of particular group structures where necessary.

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Keiretsu Networks The main point to emphasize about relationships between firms in Japan is that they simply do not follow the idealized pattern of arms-length relationships between distinct and inherently competitive enterprises that dominant 'Western' orthodox economic theory suggests. Rather, keiretsu networks are intercorporate alliances that represent 'coherent clusters of preferential exchange among traders often linked together over the course of decades' (Gerlach 1992b: 4). These mutually beneficial alliances are reinforced by the structure of keiretsu networks. Individual industrial groupings may have varying degrees of horizontally or vertically integrated operations, and greater or lesser degrees of hierarchical control. However, it is not possible to make a neat, unambiguous distinction between keiretsu on the basis of internal structure alone. Horizontal keiretsu such as the Mitsui, for example, may contain within their paramount structures a vertically organized manufacturing group like Toyota, which in turn has affiliate companies involved in other activities like finance (Steven 1996: ch. 2 passim). A key distinguishing feature of the mammoth industrial groups like Mitsubishi, for example, is that they coordinate the activities of hundreds, if not thousands, of firms over a wide range of industries in areas as diverse as banking, heavy industries, brewing, chemicals, engineering, paper, food, petroleum, electronics, mining, textiles, shipping and cars. Unlike their 'stand alone' competitors from the Anglo-American economies, therefore, Japanese corporations enjoy the benefit of supportive relationships with fellow keiretsu members and the assistance of state planners in encouraging their emergence as 'national champions'. Typically, a keiretsu grouping consists of a 'main bank', a trading company (sogo shosha) and various manufacturing companies. The existence of a main bank within each of the corporate groups means that capital can be effectively allocated to group members (Hoshi 1994). This means that affiliate companies do not face the sorts of difficulties in raising capital that confront their Anglo-American counterparts. Loyalty, identity and corporate cohesion are reinforced by participation in presidents' councils, in which the leaders of the various divisions meet to discuss group policy. Group companies have cross-holdings of infrequently traded shares in fellow keiretsu members which reinforce company loyalty and dependency, while simultaneously insulating individual companies from hostile takeovers. These sort of alliance patterns based on cross-equity holdings


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are, as Gerlach (1992b: 18) notes, characteristic of Japan's industrial organization in general, and not confined to more formal intermarket groupings. As a consequence, Japanese companies are able to privilege market share over short-term profitability, and company management consequently enjoys great autonomy (Sheard 1994). This combination of factors and the underpinning operational logic that informs it has rapidly enabled Japanese companies to capture large shares of the US market in electronics and automotive production, to a point where US companies are simply not represented in industry sectors like television (E. Vogel 1979). The institutionalized structure of Japanese capitalism, therefore, predisposes companies to interact in particular ways and to cooperate over time for reasons that are not apparent in orthodox analyses which simply focus on short-term profitability and immediate commercial gain. This is not to suggest that group members do not trade with outside companies or that they are not ultimately driven by the profit motive. Rather, it is to suggest that, all other things being equal, members of Japanese industrial groups will favour other members where possible, particularly if this does not interfere with commercial considerations. In other words, Japanese commercial relationships are not driven simply by market pressures - fostering long-term mutually beneficial relationships may be more important than achieving short-term financial gain. Sogo Shosha The maintenance of the long-term preferential business relationships that shape economic activity is facilitated by another distinctive feature of corporate Japan, the general trading companies or sogo shosha. The sogo shosha merit especial consideration not only because they illustrate the theoretical shortcomings of influential, nonJapanese conceptions of the firm, but because they are often the principal instrument through which Japan's economic relations are mediated and the initial point of contact with which trading partners must deal. As we shall see in Chapter 6, the sogo shosha have played an especially important role in the evolution of economic activity in Australia generally, and in the conduct of bilateral relations in particular. The trading companies originally emerged largely as a result of Japan's resource dependence. The process of national industrialization inaugurated in the early Meiji period meant that Japan was

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necessarily forced into greater trade with the rest of the world. The trading companies rapidly expanded and took over the organization of Japan's export and imports, allowing them to play an important role in facilitating - even leading - national industrialization and economic development (Yoshino and Lifson 1986: 23). Their role and operations have subsequently expanded, but they continue to perform three primary functions: transaction intermediation; financial intermediation (quasi-banking); and information gathering (Kojima and Ozawa 1984: 16). Even though some Japanese manufacturers have established independent distribution networks, the sogo shosha continue to play a crucial role in securing the resource supplies upon which Japan's expanded manufacturing capacity depended. Less apparent, but equally significant, is the trading companies' role as financial intermediaries in which they perform important credit-provision and risk-sharing functions. In effect the trading companies act as 'quasi-banks and quasi-insurance agencies', providing important potential competitive advantages for clients (Sheard 1992). Finally, and perhaps most importantly, the sogo shosha provide an unparalleled information-gathering and dissemination service for themselves and their clients. As we shall see, this capacity is a major source of competitive advantage for Japanese clients and group members, and has profound implications for trading partners like Australia. Equally significant is the role played by the sogo shosha as an instrument of government policy. The sogo shosha have played a central role in the pursuit of national resource security and in furthering Japan's industry policies. For example, where large domestic producers imported new technologies to compete with overseas producers, the trading houses invariably ceased importing the foreign good and switched to the Japanese version (Shao and Herbig 1993). At a more fundamental level, the implementation of Japan's neo-mercantilist resource security policies, which have been one of the most important expressions of cooperation between business and government in Japan (Nester 1991: ch. 5 passim), have been facilitated by the mediating role of the trading companies. As Japanese firms have gained access to alternative lines of credit, and in some cases even established their own global distribution networks, the trading companies' role as an intermediary has become less crucial than it once was. Yet, the sogo shosha remain important and are showing a striking capacity to reinvent themselves and move into new activities (Economist, 11 Feb. 1995: 61). Even more sig-


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nificantly for countries like Australia, the trading companies are also becoming major sources of venture capital as they actively pursue new sources of profit (TBT, Feb. 1995: 22-3). As we shall see, however, not only is little of this new investment being directed towards Australia, but the sogo shosha continue to play an important role in determining the profile of trade into and out of Japan. Given the political importance of Japan's trade position, it is something that merits closer examination. Japan's 'Peculiar' Import Profile One of the perennial problems of international economic relations revolves around Japan's trade performance, especially with the United States. Since the 1970s, Japan has enjoyed a growing trade surplus with the US, averaging some US$50 billion a year during the 1980s (Schoppa 1997: 52), an imbalance that showed no sign of decreasing in the 1990s (AFR, 19 Nov. 1996: 12). By the logic of the sort of comparative advantage theory that underpins Australia's approach to international commerce, and which is predicated upon the idea that countries should specialize in what they are 'naturally' best at, there may be nothing untoward about such figures - Japan simply happens to be a highly competitive producer of goods US consumers wish to buy. There is clearly something in this. Japanese companies are highly competitive, and given that they have driven many American producers out of business, American consumers now have no choice other than to purchase imported products in some sectors, Japanese or not. But there is a good deal more at work here than simply the operation of market forces and the aggregated preferences of individual consumers. Given that the US is only one of many countries with which Japan enjoys a significant trade surplus, the question arises as to whether Japanese companies are more competitive than all their international rivals, or whether the Japanese economy has structural qualities that preclude 'fair' competition. What is not in doubt is that Japan's trade profile, like its industrial structure and politics, is different to those of its Anglo-American competitors. Edward Lincoln's (1990) exhaustive study demonstrates that Japan's trade pattern is 'peculiar' and not like those of other industrialized nations, especially in its low levels of manufactured imports. One of the most conspicuously different characteristics of Japan's trade pattern is that it has not followed the common trend evident in other comparable

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nations and increased intra-industry trade; in fact, argues Lincoln (1990: 48), it is actually lower now than in 1970. Even where intraindustry trade does occur it is at the low-value end of production. A corollary of this trade pattern is that in sectors where Japanese exports are high, imports are correspondingly low. Of particular significance for Australia is the fact that Australia-Japan intra-industry trade is especially low, even allowing for Japan's atypical trading pattern (Fukasaku 1992: 30). Even those commentators who argue that Japan's market is more open than it was concede that imports remain 'unusually small' and that 'intangible barriers' do play a role in restricting imports (Lawrence 1991). Lincoln is less equivocal in his conclusions, suggesting that, while official trade barriers have been reduced, 'informal' barriers remain. Amongst the informal barriers Lincoln (1990: 15) cites are: variable product standards; difficulty obtaining certification for foreign subsidiaries; customs delays; inadequate intellectual property protection; biased government procurement practices; industry collusion to inhibit imports; informal government advice; product regulations that prohibit foreign goods. Significantly, this sort of analysis has now been echoed by influential policy-makers in the US (AWSJ, 9 June 1995: 1), like former Chairwoman of President Clinton's Council of Economic Advisers, Laura Tyson. Tyson argues that the Japanese state preserves a 'moving band of protectionism' which restricts meaningful foreign competition to those areas of the economy in which Japanese companies are so dominant as to be unthreatened (Tyson and Zysman 1989: 111). Indeed, Tyson (1992) has developed a structural account of the US's trade deficit with Japan that has provided a sophisticated policy blueprint for a subsequently more activist trade policy under the Clinton administration that champions 'managed' trade and the achievement of measurable targets. Significantly, however, the US perception of Japan as an 'outlier' that does not practise free trade is not shared in Australia, especially amongst the influential epistemic community that has helped shape economic policy. Rather than being seen as a 'free rider', Japan is seen as a much maligned repository of free-trading virtue. Peter Drysdale and Ross Garnaut (1989), for example, suggest that Japan has the 'cleanest import system for manufactured goods amongst OECD countries; official tariff barriers have almost no effect on trade'. The point to note here is that for 'revisionist' critics it is precisely the non official barriers to trade that are the problem.


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Crucial in this regard is the structure of corporate Japan. Lawrence (1993), for example, found that where a keiretsu member enjoys high sales within an industry, that industry will tend to have lower levels of imports. At one level this may appear unsurprising: if a domestic company dominates a local market there will inevitably be reduced demand for imports. However, Lawrence argues that the existence of keiretsu affiliations reduces by half the likely level of import consumption in any industry, and that vertical keiretsu are associated with sectors where Japanese imports are 'unusually low'. Compounding the market access problem is Japan's distribution network - its tightly connected and long-established relations between manufacturers and retailers make market entry much more difficult for outsiders (Patrick and Rohlen 1987). So, while external political and economic pressures are having an impact on both Japan's domestic distribution system and the keiretsu system itself, Japan's overall trade profile remains highly atypical. The structure of Japanese corporations and the manner in which they are embedded in a complex web of enduring social relationships and commercial practices means that Japanese companies enjoy institutionalized competitive advantages over their rivals from other countries. When combined with a political rationality that stresses the importance of government-business cooperation and planned economic development there is clearly a potential to entrench such advantages by 'unfairly' favouring privileged domestic companies. Of course, critics of Japan's collective capitalism are quick to highlight the fallibility of MITI's planners, citing well-known errors of judgement such as MITI's attempts in the 1960s to 'cartelize' the domestic car producers on the grounds that a country of Japan's size could not support more than one or two manufacturers (Ito 1993: 201). However, given the dominance of Japanese companies in so many key sectors of the global economy, the efficacy of domestic industry policy cannot be so cavalierly dismissed. Indeed, in an era when national economic welfare appears to be intimately linked to the control and presence of key technologies within national economic spaces, those countries without national policies to develop a presence in key areas of science and technology may well experience a relative, if not an absolute, decline in living standards (Dosi et al 1990). To judge from the increasing number of patents granted to Japanese firms there is evidence that industry policies in that country are having the desired impact (Mowery 1993). Moreover, even if the assumptions about the importance of generating and controlling

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an indigenous technological capacity are wrong, this has not stopped Japanese government and industry from acting as if they were correct - something that has important implications for trading partners. While there is by now a large volume of persuasive evidence that suggests that technological innovation can generate important systemic 'spillover' effects which benefit contingent economic activities (Grossman and Helpman 1994), it is not necessary to prove its efficacy to recognize its importance. What is significant here is that industry policy has been and continues to be central not only to Japanese economic organization, but also to those nations that have self-consciously emulated the apparently successful Japanese model (Matthews and Ravenhill 1994). Where nations are systematically attempting to advantage domestically based companies or 'national champions' it is not possible to assume that the resultant trade patterns will be the 'positive sum game' orthodox economic analysis might suggest. On the contrary, what Drucker (1986b: 98) calls 'adversarial trade', or the systematic attempt to eliminate rival companies, combined with an unwillingness to participate in reciprocal trade, is the logical extension of policies which seek to increase national dominance in specific markets or production sectors. The manner in which Japanese companies systematically usurped the position of their American counterparts in products like televisions, semi-conductors and cars, even in the latter's home market (Prestowitz 1988), is not only testimony to the effectiveness of Japanese corporate organization but has created the preconditions for trade regimes that bear little resemblance to the idealizations of orthodox economic theory that inform the position of policy-makers in countries like Australia.

CONCLUDING REMARKS Japan's historical developmental experience stands in marked contrast to Australia's. The key point to recognize is that market forces were not the primary driving force of Japanese development; free trade was neither practised nor especially admired. Rather, Japan pursued a neo-mercantilist strategy that tightly bound government, business and even labour into mutually rewarding distributional coalitions, subsumed under the convenient rubric of the national interest and informed by a fundamental developmentalist political rationality. Whether this amounted to the co-opting of labour, the


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regrettable dominance of oligopolistic capital in collusion with selfserving bureaucrats, or in a general corrosion of democracy, is less important, for our purposes, than is the recognition that it produced economic and social relationships that are distinctive and which bear little resemblance to the nostrums of orthodox western economic thought. Indeed, it is noteworthy that orthodox western economic thought has had a limited impact on policy and its pragmatic application in Japan. In short, far from being a natural endowment, 'comparative advantage' in Japan has been systematically created through the intentional, planned activities of state officials and private business. What effect the increasingly powerful political and economic forces within the global economy will have on the 'Japanese model' of economic development and organization is, of course, difficult to say. What can be said, with some degree of confidence, is the following: first, bureaucrats are unlikely to enthusiastically relinquish their powerful position at the centre of Japan's political economy; second, highly institutionalized and socially embedded relationships that have endured for decades and which have become entrenched as distributional coalitions will not be easily removed; third, where keiretsu members can continue to enjoy the benefits of close affiliation and interaction with others in their group without compromising commercial considerations, then it is safe to predict that they will continue to do so. It should also be remembered that the calculus of commercial advantage in Japan is more complex and strategic than the short-term strictly profit-oriented rationale of their AngloAmerican counterparts, precisely because the structure of Japanese corporate capital outlined above has allowed a longer-term perspective to be adopted. This latter long-term strategic focus has characterized both corporate capital and the bureaucracy in Japan. Moreover, the domestic economic downturn in Japan notwithstanding, the Japanese model of state-led development continues to exert a powerful influence on other economies in the region (Australian, 5 Sept. 1997: 27). It is a position that is reinforced by the actions of Japanese public officials and corporations throughout the region of which both Japan and Australia are a part. As such, it is a process that merits much closer examination.

4 The Regional Context The relationship between Australia and Japan occurs within the context of a wider regional setting. At one level this is simply a truism: most relationships, it seems, can be located within some sort of 'regional' framework. Whether it be 'European', 'North American' or more expansively defined regions like the 'Asia-Pacific' (with or without the hyphen), there are few relationships within the increasingly global political economy that cannot also be defined within a regional context. Indeed, the renewal of interest in regions seems intimately connected with the more generalized internationalization of economic activity. At the outset, however, it is important to recognize that although there has been a steady increase in the amount of trade and investment occurring within the international economy, it is important to recognize that it has been concentrated in particular areas. The so-called 'Triad' of regions, centred on North America, Europe and East Asia, account for the overwhelming majority of global trade and investment flows (Julius 1990; Busch and Milner 1994). 'Globalization', in other words, is a highly differentiated phenomenon, producing quite distinct effects in different parts of the world. As I suggested in the introduction, the definition of regions is necessarily a somewhat arbitrary and contestable exercise. Be that as it may, Australia and Japan are clearly regional neighbours in the Asia-Pacific, and arguably in 'East Asia' as well. These definitional questions may seem like academic niceties or the consequence of an overdeveloped semantic sensitivity, and at one level they are. However, obtaining 'insider' status within the political area with which Australia is geographically connected is potentially of great long-term significance. Indeed, former ALP Foreign Minister Gareth Evans considered the question of regional definition so important that he quite literally attempted to redraw the map to create an 'East Asian hemisphere', in which Australia was unambiguously a central player (FEER, 17 Aug. 1995: 26). In one respect, this marked the quintessential expression of Australia's 'engagement with Asia' - achieving by cartographic fiat what eluded the more conventional efforts of commerce and diplomacy. Furthermore, it provides a vivid reminder that it is the region, and not simply an undifferentiated, 94

The Regional Context

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universal global economy, which is of particular significance for a country like Australia. Regional dynamics have also been critical to Japan or, more specifically, to the Japanese-based companies that have come to exert such a profound influence in neighbouring economies. Like Australia, Japan has had a problematic relationship with the rest of East Asia, particularly as a result of the wartime Co-Prosperity sphere and a brief, though often brutal, period of colonial rule. Japan's role in the region draws attention to two aspects of the broadly defined regionalization phenomenon that merit particular attention if we are to make sense of bilateral relations within a wider regional context: the political and economic aspects of regional integration. While political and economic factors, as we have seen in the Japanese and Australian cases, are intimately connected and not easily disentangled, in this chapter I shall consider the more overtly economic aspects that have driven regional integration first, before looking at the sorts of regional political institutions that have emerged to manage inter-state relations within the AsiaPacific and East Asia. The first part of this chapter, therefore, examines the activities of transnational corporations in the region, a theoretical primacy derived from the recognition that regional integration in the East Asian part of the Asia-Pacific has been driven by the private sector, rather than the activities of governments (Ravenhill 1995). However, as the second part of the chapter reveals, there are increasingly important and influential attempts to create a political architecture to match the regional economic infrastructure. Consequently, the latter part of this chapter looks at the policy agendas of the Japanese and Australian governments generally, and with reference to the Asia Pacific Economic Cooperation (APEC) forum in particular - a body in which both countries have played leading roles.

JAPAN IN EAST ASIA Before we can say anything about Australia's and Japan's positions in 'the region', we need to be clear about precisely which region we have in mind. Should we place this bilateral relationship in an East Asian or an Asia-Pacific context? Can Australia legitimately be considered a part of East Asia either geographically or politically,

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and would Australian policy-makers want to be if they could? This last question in particular is not easily answered. We shall take it up in more detail below and in Chapter 6. At present, I shall concentrate on the predominately economic definition of regional activity. At this level it becomes apparent that East Asia - or more specifically, Japan, China, Taiwan, South Korea, and the members of the Association of Southeast Asian Nations (ASEAN) - is becoming increasingly integrated. One of the principal engines of this regional integration are Japanese-based TNCs. Intra-regional trade, or trade between members of the East Asian region, has increased steadily over the last twenty years or so (Grant et al. 1993: 51). The much admired and discussed East Asian growth phenomenon is generating a good deal of internal momentum, consolidating internal linkages and giving the region a coherence and depth that the Asia-Pacific lacks. For my purposes, I shall treat the 'Asia-Pacific' as a synonym for APEC. In other words, in addition to those East Asian nations mentioned above (but excluding Burma), APEC includes Australia, New Zealand, the United States, Canada, Mexico, Chile, Papua New Guinea, and the recent additions of Peru, Vietnam and Russia. Not only is the membership of an Asia-Pacific region so defined even more heterogeneous than the admittedly diverse East Asian region, but the economic ties that bind the Asia-Pacific together are overwhelmingly centred on a few crucial players. The US, particularly its relationship with Japan, is the most important trans-Pacific relationship by far (Bergsten and Noland 1993). Indeed, as we shall see, were it not for the importance of the US market in the economic development of East Asia and its historical strategic role within the region, it is debatable whether a trans-regional institution like APEC would have emerged at all. The significance of these definitional issues will become more apparent when we consider the evolving political architecture of the region, especially for a country like Australia which has staked a good deal on promoting a specific vision and definition of the geographic space of which it is a part. Of more immediate concern here are the specific roles that Australian and Japanese-based economic entities have played in the region. In reality, this will amount to a sustained discussion of the role of Japanese-based economic actors. For, despite all the attention dedicated in recent times by Australian policy-makers to the subject of 'Australia's engagement with Asia', in reality there has been relatively little direct involvement


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in the region by Australian-based companies. Outward investment by nominally Australian firms continues to be overwhelmingly directed towards the United Kingdom (38 per cent), the United States (25 per cent) and New Zealand (16 per cent) (AFR, 22 Sept. 1997: 4). Investment in Asia, by contrast, was very low, with ASEAN receiving 6 per cent, and China and Hong Kong combined only receiving an additional 1 per cent. Significantly, an authoritative report on global investment trends suggests that it is the 'structure of Australia's industrial base', in particular the dominance of foreign affiliates and the small scale of 'Australian' firms, which makes investment in Asia an unattractive proposition (UNCTAD 1997: 51). While Australia's trade engagement with East Asia is more substantial, it is dominated by the bilateral relationship with Japan (DFAT, 1995). As we shall see in the next chapter, this presents particular problems and has, in fact, contributed to Australia's somewhat marginal and dependent position in the region, however it is defined. Japan, by contrast, or more accurately the invariably government-coordinated corporate activities that have emerged from there, has played a much more active role in engaging with the region and shaping the economic structures that play an increasingly important role in East Asia. Indeed, so influential has Japan become within the East Asia region that it is simply not possible to understand its relationship with Australia in isolation from this overriding regional logic. From a Japanese perspective, Australia is simply one of a number of trading partners in a complex mosaic of trans-regional commercial relations. True, Australia has specific qualities - its resource wealth, for example - that distinguish it from other neighbouring economies, but its overall position is defined to a significant degree by a regional, rather than simply a bilateral, dynamic. It is for this reason, therefore, that this chapter is dedicated to exploring this regional context. Given Japan's overwhelming importance within the East Asian part of the Asia-Pacific, the first part of the chapter is necessarily an examination of Japan and its regional activities. Japan's Historical Role in East Asia History, it cannot be emphasized too strongly, is once again a critically important explanatory variable in any attempt to comprehend the distinctive pattern of Japanese involvement in the region of which Australia is a relatively peripheral part. Again, Japan's experience

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is in many ways the mirror image of Australia's. While 'Asia' has presented problems for both countries, particularly in the realm of foreign policy, Japanese involvement in the region has been comparatively long-standing and deep-seated. Whereas Australian history has been characterized by the pattern of colonial dependency and a reliance on 'great and powerful friends' that sprang from an unfortunate amalgam of security fears and racism (R. Bell 1997), Japan has itself been an imperial power and remains the most important centre of economic power within East Asia. Contemporary relationships, in other words, are powerfully shaped by enduring patterns of historical interaction which have condensed in specific institutionalized structures and relationships. Even though the primary interest at this point is centred on Japan's economic engagement with the region, it is important to acknowledge the significance of the political backdrop, and the impossibility of separating it from more narrowly conceived economic concerns. Japan's relations with the rest of East Asia must be framed within the overall context of the international rivalries that have characterized inter-state relations throughout the course of the twentieth century (Yahuda 1996). For instance, the evolving pattern of Japanese colonialism in East Asia before the Second World War clearly owed a good deal to the actions of other imperial powers. Importantly, however, as Beasley (1987) reminds us, Japan's conquest of East Asia was not driven solely by a mercantilist logic and the desire to protect its economic autonomy; there was also an element of, albeit perverse, idealism in Japan's 'civilizing' mission in Asia. As we shall see, the logic that underpinned the abortive attempts to develop a Co-Prosperity sphere in East Asia finds continued expression in the region, leading some observers to suggest that Japanese policy-makers are systematically attempting to recreate it (Johnson 1993: 55). While this may attribute too much power to Tokyo, and too little to regional states, there are, nevertheless, plausible grounds for claiming that the region is being shaped by Japanese influences. In this regard, what is of greatest significance for the region in the long term is that Japan's influence is derived from a developmentalist, rather than a neoliberal, political rationality. Ironically, the other great contemporary rival for regional influence - the United States - has provided the framework within which Japan's postwar economic renaissance could occur. As Yahuda (1996: 230) observes, the US 'guaranteed the security of Japan and maintained an international free trade order that allowed Japan to pursue


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its own narrow commercial interests'. The bilateral relationship between the US and Japan has been a central factor in the unfolding story of postwar regional development. Indeed, Stubbs (1994: 366) argues that what he calls the 'distinctive dynamism of the AsiaPacific region' can only be understood by considering the manner in which Japan's economic interests have combined with the US's Cold War strategy to 'fashion an increasingly coherent region'. While it may be possible to question the degree of 'coherence' Stubbs claims, he is undoubtedly correct in stressing the importance of powerful economic and political actors in establishing the parameters within which other less potent regional nations must operate. Petri (1993) suggests that three crucial 'accidents' of history have furthered the process of regional integration (a process in which Australia has been conspicuously uninvolved). In addition to Japanese imperialism, the establishment of Asian treaty ports in the nineteenth century, and recent East Asian growth, have been central parts of the regional development process. Petri argues that, despite the disruption caused by the Second World War to Japan's imperial trade patterns, they remained strong, influencing subsequent economic relations and postwar development. Japan's crucial role in both Taiwan's and (South) Korea's prewar development is also important, with what Cumings (1984) describes as the Japanese hegemonic system, providing the basis for their later expansion, as well as the foundation of a more general regional dynamism. There were, then, important pre-existing paths along which Japanese capital might flow when it eventually re-emerged as East Asia's dominant economic force. What is also worthy of note is Japan's role as an influential role model, increasing the number of Asian nations adhering to a form of collective capitalism, rather than the idealized form upon which policy from countries like Australia is based. In what follows, therefore, I shall detail Japan's increasing economic involvement in the East Asian region since the Second World War. Initially, this will occur at the broadest level of aggregation: capital flows and sectoral investment patterns. Subsequently, I shall look in more detail at different forms of investment within industries. As we saw in the last chapter, Japan's import profile is unlike that of comparable developed economies. Predictably, perhaps, so are its investment patterns. A continuing source of friction with Japan's trading partners, and a major cause of its structural trade imbalance, are atypically low levels of inward foreign investment to Japan - the precise opposite of all other comparable countries

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(Lawrence 1992). Japan's outward investment is also unusual, and it is consequently tempting to generalize about 'Japanese capital'. But there are important differences in regional organization and integration that are dependent upon firm- and industry-specific variables. The overall intention here, therefore, is firstly to establish the broad pattern of Japanese economic expansion of which Australia is an important element and, secondly, to give some detail to specific opportunities and constraints which are inherent in that expansion. Japanese Economic Expansion The first, perhaps unsurprising, observation to be made about Japan's economic integration with the region is that it has reflected Japanese priorities. Given that Japan has developed a much more comprehensive view of 'the national interest' than countries like Australia, this is not as anodyne an observation as it might at first appear. On the contrary, the developmentalist political rationality that underpinned national economic expansion was extended to the international sphere as Japanese companies began to expand outwards. Certainly, the capacity of all states to affect economic activity in both the domestic and the external spheres may have been rendered more problematic by the globalization phenomenon, but it should be re-emphasized that this has not rendered states impotent. In Japan's case, as Linda Weiss (1997) persuasively argues, institutions like MITI have developed new policy tools as older ones became redundant or inappropriate. Importantly, Weiss argues, those 'strong' states with more developed institutional capacities are better able to adapt successfully to changes in the world economy. In other words, even the globalization process itself can be more successfully accommodated and responded to where individual states have strategies with which to respond to the changing economic environment and the institutional capacity to implement them. This is especially significant for, as Lincoln (1993: 145) notes, the extent of 'administrative guidance' given by agencies like MITI during Japan's outward expansion 'has not been much different from what it was domestically'. Japan's early overseas investment strategy can be seen not only as a reflection of its economic needs and capacities, but also as a manifestation of its collective insecurities. The idea that Japan is economically vulnerable, resource-poor and overpopulated has become a firmly established part of national identity, leading some


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commentators to suggest that the industry policies and mercantilist strategies that marked Japan's early high-growth phase were an inevitable 'national necessity' (Ozawa 1979: xix). Be that as it may, it rapidly became apparent that the success of Japan's industry policies meant that some of the labour-intensive, traditional light industries, like textiles, became uncompetitive as wage levels rose within Japan. Industry competitiveness might be maintained, however, by utilizing the vast pool of cheap labour available in South-East Asia in particular. Importantly, such policies fitted with a general desire on the part of the Japanese Government in general and MITI in particular to upgrade Japan's industrial structure continuously (Okimoto 1989); government industry policy was integral to this adjustment process and was a significant determinant of the shape of outward expansion. As Dicken (1991: 30) puts it: 'overseas direct investment came to be seen as an integral part of Japanese industrial policy; it is not something which "just happens'". The twin desires of securing resource supplies and a concern to solve foreign exchange problems greatly influenced industry policy in the early postwar years. Japanese foreign policy during the 1950s attempted to rebuild relations with its neighbours, many of whom had suffered at Japanese hands during the war. Access to raw materials was the primary motivation of this policy. The feeling of vulnerability engendered in Japan by its perceived lack of resources led to the development of a 'comprehensive security' policy which sought to diversify sources of labour, energy, raw materials and markets (Bobrow and Kudrle 1987). It is particularly important to stress that the Japanese Government was intimately involved in overseeing this process, both at the diplomatic level, but also more tangibly in the provision of supportive aid packages which integrated the private and public aspects of Japan's economic expansion (Ozawa 1980). This policy amounted to a systematic attempt to reduce Japanese dependence on any one source, while simultaneously attempting to make external sources dependent on Japanese goods, services, capital and technology, leading Nester (1992: 22) to conclude that: Tokyo's comprehensive security policy has been enormously successful. It has entangled the world in a web of products, investments and finance spun from Tokyo to the point where retaliation for Japanese unfair trade would inevitably cost much more than it was worth.

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50 m Other

45

• China 40

s SE Asia

35

a NIEs

I

c 30 q S 25 CO 3

20

1

European Community

2

US

15 10 5 1988

1989

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Source: East Asia Analytical Unit. Figure 4.1 Historical patterns of Japanese FDI Yet it was not until the 1960s that Japanese investment overseas began to reach noteworthy proportions, laying the foundations for the sort of structural power Nester describes. In the first twenty years after the Second World War, accumulated foreign investment was less than US$7 billion (Higashi and Lauter 1990: 324). Prior to this, expansion overseas had been inhibited by a lack of domestic capital and by the relative cheapness of indigenous labour. As far as the 'Oceania' region is concerned, of which Australia is the most significant part, Japanese FDI is disproportionately focused on real estate investment, while manufacturing is relatively modest compared to Europe, North America and Asia (ASEAN Centre 1995). Figures 4.1 and 4.2 give an indication of recent patterns of Japanese investment. Several points are worth noting. While North America remains dominant, Asia, particularly China, has become an increasingly important destination for direct investment. However, not only is direct investment a comparatively small proportion of overall investment, but all capital outflows have declined from the high points of the bubble era. What is especially important to note here is that recent Japanese investment in Asia has been far


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200 ^Other

180

o Loans 160 K Securities 140

® Direct investment

120 c o

110° CO

3 80 60 40 20 0

1988

1989

1990

1991

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-20

Source: East Asia Analytical Unit. Figure 4.2 Total Japanese gross long-term capital flows by type more profitable than has similar investment by Japanese companies in either Europe or (especially) the US (Abegglen 1994: 65), something which helps explain the dominance of Japanese capital inflows to the region (Urata 1993: 282). Three broad phases of postwar Japanese regional trade and investment may be distinguished, although there are variations in emphasis and timing (see Steven 1990; Morris-Suzuki 1991). In the immediate postwar period Japan had an intermediate role in a threeway trade relationship between the US and the region, importing advanced industrial goods from the former and exporting simple manufactures to the latter. From approximately the mid-1960s to the mid 1970s a combination of rising Japanese labour costs and regional protectionism saw the electronics and (especially) the textile industry move offshore in order to reduce production costs and protect markets. As Rob Steven (1990: 71) points out, the lower labour costs found in the rest of Asia were the main attraction for Japanese investors and an important means of combating declining profitability. The first 'oil shock' at the end of 1973 inaugurated a second period of restructuring in Japanese industry. This phase included

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the development of the comprehensive approach to resource security noted above. The scale of investment in this second phase was notably larger than the earlier one, reflecting the size of individual resourcelinked projects. This enabled industries in Japan to secure not just resource supplies, but also to take advantage of lower local rates of pay to perform primary processing. In addition, this period and its associated, heightened environmental sensitivities provided the stimulus for the relocation of polluting industries that were becoming less acceptable in Japan itself (Steven 1990). From the late 1970s Japanese industry was continually restructured - principally in response to the relentless appreciation of the yen - in an effort to lower costs and raise productivity. This generally resulted in the export of low value-added forms of production while retaining high value-added production in Japan: [As regional economies] moved first from agriculture to labour intensive light industry, and later to more capital- and technology-intensive forms of manufacturing, so the Japanese economy itself has shifted its own industrial and technological frontiers forward, thus maintaining its economic dominance of the region (Morris-Suzuki 1991: 149). Fears that Japanese FDI in manufacturing would produce a 'boomerang effect' - promoting competitors that would ultimately export to Japan, undermining its trade dominance - have proved unfounded, argues Morris-Suzuki (1991: 151); other less-adaptive industrialized economies have borne the brunt of the new competition. What is especially distinctive about the third phase of Japanese outward investment is the particular role played by Japan's Asian neighbours. Investment in Asia has offered a way of circumventing protectionist pressure in key European and American markets while simultaneously reducing the cost of components for final production. Overall, Rob Steven (1990: 244-5) concludes, the sort of integrated strategy that has emerged as a result of continuing industrial restructuring in Japan, in combination with the transnational and spatially dispersed production strategies of Japanese TNCs, amounts to a form of 'trade imperialism', in which Japanese capital ensures the lowest possible prices for raw material inputs and comparatively cheap supplies of labour-intensive manufactures. Indeed, there is evidence that as Japanese multinationals are moving into the region they are 'creating de facto exclusive production networks, replicating keiretsu and other domestic structures


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abroad' (Dobson 1993: 37). This enables Japanese multinationals to internalize transaction costs, opening up possibilities for transfer pricing, as well as reinforcing control through a greater reliance on Japanese management. Significantly, Japanese multinational trade within the region remains predominantly inter- industry, rather than following the general trend toward intra-industry trade (Dobson 1993). Although manufactured imports from Asia have grown significantly (AWSJ, 31 May 1996: 1), the manufactured exports to Japan that do occur are often unfinished, intermediate goods, which are generally insufficient to offset the increased imports of capital goods from Japan that underpin the industrialization process in the rest of the region (Petri 1992). While there is some evidence that this pattern of structural dependency may be changing (NW, 22 May 1995: 5), the increase of manufactured imports in Japan that has occurred may be partly explained by the exports of Japanese affiliates - at least 21 per cent of Japanese imports in 1986, for example, were of this type (Park and Park 1991: 107). A significant long-term development in the region has been the entrenchment of a triangular trade relationship between Japan, the US and the region as a whole. This triangular relationship has not only allowed Japan to increase competitiveness and overcome protective barriers, it has also enhanced Japan's significant trade surplus with the East Asian region, as the latter becomes increasingly dependent on Japanese capital goods to underpin indigenous industrialization (Cohen and Guerrieri 1994: 189). The combination of foreign protection and the dramatic appreciation of the yen, during the 1980s in particular, not only caused Japanese industry to restructure and move elements of production offshore, but also altered the pattern of trade between the regions. While exports from the so-called newly industrializing economies (NIEs) gained an increasing share of the US market, Japanese capital goods exports to the NIEs also grew. Overall, therefore, Japanese multinationals are significant actors in this three-way trade, with affiliated production aimed at third countries, circumventing protection barriers and taking advantage of lower labour costs (Park and Park 1991). While all of the above may loom large in the context of regional economies, it should be stressed that it is of less significance to Japan; even in 1996, when Japan had long been an exporting superpower, exports accounted for only slightly more than 10 per cent of GDP (EAAU 1997: 208). Moreover, Japan's overall GDP of US$3,139 billion in 1994 continues to dwarf other regional economies

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(DFAT 1995: 82-3), like China (US$575 billion), and especially Australia (US$325 billion). In other words, Japan is far and away the most important economy on the western side of the Pacific and continues to exert a critical influence on the course of regional development. The Structure of Japanese Capital in the Region Having provided a broad-brush sketch of Japanese historical involvement in the region, it remains to give greater specificity to this picture. A consideration of the experiences of specific industries and countries can help provide a more nuanced sense of both the general economic integration of Japanese-based companies and the specific attractions that caused them to locate where and when they did. A more detailed examination of this sort helps indicate where a county like Australia 'fits' into the region as far as Japanese corporate planners are concerned. Historically, one of the distinguishing characteristics of Japanese transnational ownership patterns has been that Japanese-based corporations preferred to take minority ownership positions in subsidiary plants. However, this picture has changed, and Japanese transnationals are, in this respect at least, becoming more like their American and European rivals. In 1990, as much as 85 per cent of foreign sales came from majority-owned foreign subsidiaries, and 90 per cent of Japanese affiliates in Europe and the US were majority-owned (Encamation 1994: 208-9). What continues to distinguish Japanese operations, however, is a preference where possible for establishing overseas distribution, rather than production networks, with intra-industry shipments accounting for some 40 per cent of Japanese exports worldwide. For Japanese companies, FDI has 'created the principal channel for two-way trade flows with other industrialized economies, granting Japanese multinationals unrivalled control over their country's trade' (Encamation 1994: 224). In Asia, the path of Japanese multinational expansion, especially after the watershed liberalization of capital controls in 1972, was smoothed by the established connections of the sogo shosha. The sogo shosha not only made the move into Asia easier for Japan's TNCs, they also allowed small and medium-sized Japanese companies to make a similar move, something which their Anglo-American rivals have been less able to do (Boyd 1990: 206). Two factors in particular encouraged a rapid escalation of Japanese investment in


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the region: the second 'oil shock' in 1979, and the Plaza Accord, an agreement negotiated by the 'G5' group of nations in which Japan - principally to appease the US - agreed to a significant appreciation of the yen (Funabashi 1988). While there may be a degree of convergence between Japanese multinationals' behaviour and that of their Anglo-American rivals, important differences remain; differences that are especially noticeable in Asia. What Doherty (1994: 14) calls Japanese production networks' 'traditional' patterns have not disappeared, but remain organized hierarchically to ensure that Tokyo retains the lion's share of decision-making authority, technological capability, and sourcing. This hierarchical organization has resulted in tight control over foreign affiliates as well as the creation of fairly 'closed' production networks that have tended not to develop business ties with non-affiliated local and foreign suppliers. Crucially, argues Doherty (1994: 20), it is the 'interplay between individual corporate strategies, and home- and host-country government regulations and polices' that determines the specific pattern of regional integration and interaction. Japanese TNCs were amongst the first to recognize the potential savings that the global reorganization of production processes offered, something that was particularly apparent in the electronic industry where production could be disaggregated into three stages (conception and development; component production; testing and assembly) (Grimwade 1989: 236). It has been predominantly what Bernard and Ravenhill (1995) describe as the 'low-end', export-oriented aspects of production, that has been shifted to Asia, however, while the more lucrative, knowledge-intensive parts of the production process have tended to remain in Japan. Yet, as Doherty suggests above, the precise manner of this incorporation will be dependent on the specific arrangement negotiated between corporations and governments. Although Japanese electronics firms predominantly used intra-firm production networks throughout Asia, since the beginning of the 1990s there have been signs of decentralization of control, partly as a result of the yen's appreciation and the increasing attraction of local souring but also - and most significantly from a potential public policy perspective - as a result of pressure from home governments to open up networks to local suppliers (Ernst 1994).

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The Automotive Industry The car industry is, like electronics, one of the defining industrial processes of contemporary capitalism; it is also illustrative of the emerging pattern of Japan's regional integration. It symbolizes the transition from Japan's initial position as a 'reluctant multinational' (Doner 1991: 83) to one in which Japanese companies preside over tightly integrated production networks that span the region. A hierarchy of production sites and processes has evolved which embraces the industrializing countries of South-East Asia as the automotive industry acquires an increasingly global logic. Korea is exceptional in having a nationally controlled industry, but generally the ASEAN nations are at the bottom of a pyramid that has its apex in Japan, in which their role is the supply of less-valuable labour-intensive inputs. Again, it is important to recognize that even this investment by Japanese TNCs and incorporation into productive networks was initially grudging and partly the result of contingent economic and political imperatives. Crucially, the some of the industrializing economies have been able to exploit rivalry between famously competitive Japanese TNCs to encourage investment and local production. However, Malaysia's attempts to attract Japanese investment with which to initiate a domestic car industry is illustrative of the difficulty other nations may experience when dealing with Japanese multinationals, particularly the latter's ability to ensure that the export of manufacturing occurs on terms favourable to itself. Mitsubishi was able to manage its involvement in Malaysia in such a way as to ensure preferential access to a potentially lucrative market, while producing - despite supplying many components from Japan - a noticeably inferior car for domestic consumption (Bartu 1992). With Toyota's dominance of Indonesia, Mazda a significant player in the Philippines, and Nissan pre-eminent in Thailand, the Malaysian venture offered Mitsubishi an opportunity to extend domestic rivalry and position itself within ASEAN and any possible ASEAN free trade area. Even in countries like Malaysia, which has gained a manufacturing base it might not have otherwise had, it has been at the cost of Mitsubishi dominating the management of the local subsidiary and accounting for 80 per cent of the local car market. Moreover, there has been a notable reluctance on the part of Japanese TNCs like Mitsubishi and Matsushita to transfer technology and thereby risk encouraging potential rivals (NW, 20 June 1994: 24).


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What recent Japanese investment has produced, then, is a complex system of connected and mutually dependent production processes and supplier networks that span the region. In the case of the automotive industry, for example, Toyota uses Thailand to supply diesel engines and electronics, the Philippines for transmissions, Malaysia for steering gears, and Indonesia for petrol engines (FEER, 8 June 1995: 44-5). Toyota not only gains from emergent local economies of scope and scale but is increasingly encouraged to cement this position by host government polices. Thailand, Malaysia, the Philippines and Indonesia have signed a brand-to-brand 'complementation pact' which halves the tariffs on imports from member countries (Machado 1995). Clearly, this fusion of economic and political imperatives locks the region into a potentially mutually rewarding symbiosis. Japan's Integrated External Strategies Overall, Japanese investment is integrating neighbouring economies into a regional production web centred on Japan. Several aspects of this process are particularly important and distinctive, and thus merit re-emphasis. First, the expansion of Japanese corporations into the region has occurred in conjunction with the same sort of bureaucratic guidance and developmentalist political rationality that underpinned Japan's domestic transformation. Unlike that of their 'stand alone' Western competitors, Japan's economic expansion into East Asia has been characterized by the close cooperation of Japanese bureaucrats and business leaders (Hatch and Yamamura 1996: 129). Importantly, Japan has used its status as the world's largest foreign aid donor to cement further the position of Japanese corporations in the region: Notwithstanding the huge impact of ODA [official development assistance], it would be incorrect to conclude that Japan has merely 'purchased' influence in Asia. It has done much more. In large part, Japanese business and political elites have 'schmoozed' their way to power. They have, in other words, mastered the fine art of networking in Asia, a region in which most countries do not have a modern legal framework for commerce. They have used social bonds to overcome what is, for Western business people, a source of confusion uncertainty and thus risk (Hatch and Yamamura 1996: 131).

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Where companies from countries like Australia see impenetrable obstacles which appear too great for an individual firm to overcome, Japanese companies are encouraged to embrace opportunities with government guidance and assistance. MITI, for example, provided an important regional industrialization plan within which the expansion and restructuring of Japanese capital might occur (Unger 1993). Not only was there an intention to compensate adversely affected domestic producers in Japan, but aid disbursements were seen as integral to the development of a coherent package which included trade and investment. This plan has been of assistance to Japanese companies in facilitating their outward expansion but, even more importantly, suggests Unger (1993: 163), it has taught developing East Asian economies a good deal about the efficacy of industry policies in particular and the merits of government-business cooperation in general. In the long term it has meant that the Japanese developmental state, rather than Anglo-American neoliberalism, has become the economic exemplar within the region. This ideational influence has been reinforced by the combination of ODA flows and direct investment, augmenting Japan's 'relational power', with the result that Japan has been able to influence other nations simply by withholding or supplying investment capital (Helleiner 1990: 39). The second noteworthy and distinguishing characteristic of Japan's Asian expansion has been that Japanese companies have actually developed specific strategies to accommodate contingent national circumstances. 'Glocalization' is indicative of the highly responsive, flexible policies that characterize the activities of Japanese companies throughout the world. What is of great significance here is that Japanese corporate strategies are actually predicated on taking advantage of precisely the sorts of 'market distortions' that Australia's international economic diplomacy has consistently worked towards eliminating. In other words, Japanese companies have developed highly localized strategies and connections which are actually able to take advantage of and predicated upon the absence of liberalized trading regimes (Ruigrok and van Tulder 1995). Finally, it should be noted that the integration of Japanese-based economic entities into the region has not led to any significant transfer of technology or simple replication of the Japanese industrialization experience. On the contrary, not only has Japan attempted to retain rather than pass-on its technological superiority, but Japanese corporations have been instrumental in maintaining an elaborate, hierarchical division of labour with its apex in Japan (Bernard and Ravenhill 1995; Steven 1996).


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These tightly integrated industries, Abegglen (1994: 239) argues, will make it increasingly difficult even for powerful competitors from the EU and US to compete, let alone Australian-based companies. As we shall see in the next chapter, serious doubts must be raised about existent and future Japanese investment in Australia if it is not closely integrated into such networks. However, what is of most immediate concern at this point is whether Australia's marketoriented policy approach will prove adequate, given the very different approach taken by Japanese policy-makers, corporations, and the other recipients of Japanese investment. For this reason, a more detailed examination of Australia's principal vehicle for regional economic engagement - APEC - is merited, as it highlights both the different approach of Japan, and the distance between the dominant theoretical framework that informs Australia's position and the reality of economic practices throughout the region.

APEC AND REGIONAL POLITICS Capitalism of any variety needs a political and social framework within which it can operate. As we have seen, the nation-state remains a key influence in determining the specific shape or organizational form taken by capitalism within a delimited political space. And yet as regional economic integration has gathered pace, the lack of any universal transnational institutional framework within which to manage concomitant political relationships has become more noticeable and problematic. Developing a common regulatory regime clearly has the potential to facilitate increasing international commercial interaction. Yet it is not obvious that any putative economic regime should necessarily be predicated upon the sort of neoliberal principles associated with the so-called 'Washington consensus' of market-oriented reform liberalization, privatization and general greater economic openness. Indeed, in a region where 'consensus' and 'non-intervention' in the internal affairs of neighbours have been the hallmarks of inter-state cooperation, and where greater economic 'transparency' is likely to threaten vested political interests, it is likely that such an agenda will be actively resisted (Beeson forthcoming). In this context the attempt by foreign-policy-makers in Australia to impose a version of the dominant domestic economic orthodoxy upon the rest of the region, a process in which APEC has become a crucial instrument, is all the more significant. At the very least, failing to convince other regional powers of the efficacy of Australian-

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style economic reform will inevitably leave Australian policy-makers with no other strategy to fall back on. Given that Japan has also been an active champion of APEC, a closer examination of this increasingly important regional institution is merited as it reveals much about the policy-making processes and rationales of both governments. Individuals, Ideas and Influence Both Australia and Japan have had compelling reasons, albeit substantially different ones, to support the development of a trans-regional institution like APEC. Although APEC has achieved a remarkable degree of prominence in the ten years since it was inaugurated, it has been revealingly overshadowed by the IMF in the management of the recent economic crisis in the region. While there are also grounds for questioning just how well it will be able to implement its ambitious agenda of economic reform, APEC nevertheless provides us with a valuable framework within which to examine the international economic policies and policy-making processes of Australia and Japan. Indeed, the high-profile political processes associated with APEC's development and consolidation provide a revealing contrast to the more subterranean colonization of the region by Japanese corporations. As we have seen, however, it is the less-remarked activities of the keiretsu and other important regional economic actors like the overseas Chinese business networks that may leave a more enduring impression of the region's political economy (EAAU 1995; Beeson 1997c). Although the development of APEC can be seen as a response to increased regional economic interaction, it is also a striking example of how influential ideas can be. In the Australian case in particular, the evolution of APEC suggests that, given the right circumstances, particular sets of ideas have indeed acted as 'road maps' for policy-makers, providing a guide and rationale for particular policies (Goldstein and Keohane 1993). While the sorts of neoliberal ideas that became so central to Australia's domestic and international policies have been around in one form or another for a considerable period, in the 1980s these notions began to gain crucial political support as policy-makers looked for new solutions with which to address economic problems. In Japan, by contrast, although there were domestic economists who championed neoliberal ideas, and who played an important role in developing the concept


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of, and momentum for, a Pacific free trade area, their ideas had less domestic impact as they lacked political support. In Chapter 1 I briefly introduced the concept of an 'epistemic community', and suggested that it was useful in trying to explain why particular ideas have been taken up at a specific times and places. At this point I want to say more about this and apply it to the Australian situation in particular. As we have already seen, different countries appear to subscribe not simply to different commercial practices, but to notably different understandings of how the world works. This is interesting enough in itself, but what I want to explore here is the way particular ideas become part of a dominant political rationality. This approach can help us to understand not only how some ideas come to be influential in the first place, but why they persist, even when they appear not to be useful guides to 'good' policy-making or theorization. The theoretical application of the epistemic community concept has been pioneered in international relations theory by Peter Haas, who suggests it can help explain the process of international policy coordination. In essence, an epistemic community is 'a network of professionals with recognized expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within that domain or issue area' (P. Haas 1992: 3). In addition, members have: shared normative and principled beliefs; shared causal beliefs which delimit problems and inform solutions; a shared notion of validity with which to confirm area expertise; and a common policy agenda to which that expertise is directed. Haas suggests that epistemic communities are becoming transnational, something which helps explain the way in which particular ideas come to dominate the policy-making processes of international institutions. In conditions of economic uncertainty or increasing complexity epistemic communities may be especially influential as policy-makers defer to and have greater reliance on technocratic expertise (Kapstein 1992). It will be apparent how well this concept fits with positions outlined in previous chapters: Australia had a perceived economic crisis; contingent circumstances fostered a climate conducive to neoliberal ideas both internationally and within Australia's policymaking elites; a specific expert discourse predicated upon neoliberal ideas enhanced the authority of this model and effectively marginalized alternatives. This is not to suggest that any of the figures discussed below single-handedly transformed the ideational framework within which

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Australia's economic and foreign policies were constructed. Rather, they were conspicuous representatives and advocates of an increasingly influential policy paradigm. At an historical juncture where there existed a desire to arrest Australia's perceived economic decline, an attractive and readily comprehended discursive package that promised to solve 'Australia's' problems via market-enhanced competitiveness became very appealing. Woods (1995: 173) makes the point that the attractiveness of economic ideas depends partly on their ability to be translated into 'simple, intuitively appealing metaphors, analogies or propositions' - something the neoliberal model's constant recourse to the key themes of competitiveness and flexibility has clearly had. The 'claim to truth' being advanced by an epistemic community - whether or not the policy prescriptions that flow from it are likely to lead to satisfactory outcomes is more likely to gain acceptance if it is 'more persuasive to the dominant political decision makers than some other claim' (E.B. Haas 1990: 42). Once accepted and institutionalized within governmental policy-making structures, such ideas may persist and exert an ideational dominance long after the circumstances that made them initially attractive have altered. In short, 'existing institutions may make new policies literally unthinkable' (Keohane and Milner 1996: 21). Richard Higgott (1992) has employed the notion of an epistemic community to explain the dominance of market-oriented policies in an Australian context. Higgott argues that a significant ideational change has occurred in Australia, in which an influential nexus has emerged between academic and policy-making elites in support of free trade and deregulation, something given addition momentum by the concentration of scholars and policy-makers in Canberra. It is possible to identify key academic supporters of the free trade agenda and prominent members of a like-minded epistemic community that have played especially prominent roles in promoting and consolidating the neoliberal policy paradigm in Australia. Particularly noteworthy in this regard are Andrew Elek, Stuart Harris, Peter Drysdale and Ross Garnaut who, it will be remembered was at one time Bob Hawke's principal economic adviser. Stuart Harris is a similarly orthodox, pro-market economist recruited by Hawke for his particular expertise. Harris's position as secretary to the Department of Foreign Affairs allowed him to put into practice his ideas about the need to combine economic and foreign policy issues into a more coherent whole - something symbolized by the merger of Foreign Affairs and Trade (see Cooper et al. 1993). Similarly,


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Elek - a noted champion of free market orthodoxy for the AsiaPacific (see, for example, Elek 1995) - is credited with articulating and developing Hawke's original APEC initiative while head of the economic and trade division of Foreign Affairs (WA, 12-13 Nov. 21). As Director of the influential Australia-Japan Research Centre (AJRC), Peter Drysdale has played a prominent role in shaping Australian trade policy in general and its bilateral relationship with Japan in particular. The AJRC houses the secretariats of the Pacific Trade and Development Conference (PAFTAD) series, the Australian Pacific Economic Cooperation Committee (AUSPECC), and the Pacific Economic Cooperation Council's (PECC) Minerals and Energy Forum (AJRC 1993). As Marsh (1991: 18) notes, these centres based at the Australian National University played a similar role to Washington think-tanks, fostering the development of an 'elite cadre of public policy specialists' who were instrumental in promoting neoliberal ideas. The AJRC is, therefore, an important source of expert advice, and thus instrumental in reinforcing the institutional and ideational hegemony that dominates Australia's trade policies, and which is finding increased expression amongst elite policy-makers in the region (Harris 1994). In addition to having a central role in defining the contours of the Japan-Australia relationship for over twenty years, Drysdale has also had an important impact on shaping the wider policy questions revolving around Australia's position in the Asia-Pacific. Although, as we shall see, the first moves in the 1960s towards greater regional economic cooperation were instigated by the Japanese in response to the creation of the European Community (Higgott et al. 1991), Drysdale's (Drysdale and Patrick 1981) co-authored report to the US Congress in 1979 was instrumental in promoting the development of an organization in the Pacific area along the lines of the OECD. The rise of Japan and the NICs were seen as critical determinants of regional integration and definition. Significantly, the authors - writing before the emergence of the US trade deficit problem - considered the US trade balance with the region to be unimportant; in any event, Drysdale and Patrick were convinced that the proposed body - the Organization for Pacific Trade and Development (OPTAD) - would be able to manage disputes, 'raise regional consciousness', and work towards realizing 'common interests'. These were themes that would culminate in the establishment of the Asia-Pacific Economic Cooperation (APEC) forum, the centrepiece of Australian trade diplomacy.

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Japan and APEC In Japan, by contrast, orthodox economists played a much less prominent role in defining domestic policy. Kiyoshi Kojima has, however, been an internationally influential figure, especially as one of the most important advocates of greater economic integration and the creation of a free trade area within the East Asian region. From a Japanese perspective in the early 1960s, regional integration seemed an increasingly attractive proposition as a means of both replicating the European Union's (EU) experience and as a means of overcoming Japanese concerns about its possible isolation from emerging centres of global economic activity in Europe and North America (Korhonen 1994). There is a notable normative, even Utopian aspect to these early attempts to rethink Japan's position, by Kojima and his contemporaries. Significantly, however, Akamatsu's 'flying geese' model of regional development, in which Japan leads its neighbours in an orderly progression through distinct stages of industrialization, has not only proved to be somewhat simplistic, but has failed to take account of the practices of the Japanese state and business which have systematically attempted to retain Japan's leading position (Bernard and Ravenhill 1995). Moreover, Japan's position as a potential regional leader, especially in a more overt political sense, continues to be circumscribed by the legacy of the war. Many of the nations with which Japan sought to promote integration were the victims of comparatively recent Japanese colonization and the associated attempts to establish a co-prosperity sphere during the Second World War. Although Bob Hawke claims (author interview), and is generally credited with, APEC's instigation, Funabashi (1995) has convincingly argued that MITI, rather than Hawke or Australia's DFAT, was actually the driving force behind APEC; Australia provided a more acceptable surrogate for the implementation of their plans. What is unambiguously clear, however, is the influence of Japanese economists like Kojima on some of their Australian contemporaries. At the Kojima-inspired PAFTAD conference in 1968, Peter Drysdale enthusiastically took up Kojima's proposals for the creation of a free trade area. Importantly, this conference was instrumental in solidifying the idea of an 'Asia-Pacific region' - a region in which Drysdale imagined Australia and Japan playing a 'mentor' role in guiding regional development. These were notions that would find expression in the key APEC concept of 'open regionalism', and provide


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the rationale and programmatic direction for APEC's non-discriminatory trade model (Drysdale and Garnaut 1989; Drysdale 1991). Direct involvement in Asia has, however, been problematic. Japan's attitude towards Asia historically has been 'profoundly ambivalent' (Drifte 1996: 151). Yet since the 1980s, and as a consequence of its much greater involvement in the region at the economic and - increasingly - at the political and even cultural levels, a new interest in and attraction towards Asia has emerged in Japan. This has posed acutely difficult problems for Japanese foreign-policy-makers. Of Japan's multiple APEC goals, the protection of a liberal international trading order and the desire to constrain American unilateralism are clearly paramount (Funabashi 1995). But the prominence of Asia in the economic activities of Japanese firms and the desire expressed by some Asian leaders that Japan should play a more prominent regional leadership role has complicated Japan's options. The proposed East Asian Economic Caucus (EAEC) is not simply an alternative economic institution with which APEC advocates must contend, it has also enjoyed the support of key Japanese business organizations (NW, 19 Dec. 1995: 2). Two points are worth emphasizing about such putative organizations. First, for all its problems, EAEC appears to be 'of the region and a 'natural' reflection of an East Asian developmental political rationality in a way that APEC does not (Beeson and Jayasuriya 1998). The notion of a distinctive Pacific-centred region remains a fairly arbitrary and discursively created entity, which serves an inherently political purpose by obfuscating potentially troubling domestic and international rivalries. Second, the expectations of APEC's Anglo-American supporters are fuelled by the precepts of an influential strand of predominantly North American scholarship that assumes a teleological view of institutional development towards ever more 'rational' forms (Beeson forthcoming). However, where patterns of political power and economic distribution are deeply embedded in existent social relationships and practices, there is little reason to suppose that they will be easily swept aside on that a process of institutional or ideational 'convergence' will necessarily occur (Boyer 1996; Beeson 1996a; Weiss 1997). This matters because it places a large question mark over Australian attempts to transform the region in general and APEC's underpinning rationale in particular.

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APEC's Rationale Australia's role as one of APEC's principal advocates places it in a particularly difficult position: it is incumbent upon Australia to be in the vanguard of the reform process, as an exemplar of the supposedly beneficial effects of unilateral liberalization, with no guarantee that other nations will follow suit. Indeed, given that APEC has actively resisted any suggestion of adopting legally binding commitments of the sort advocated by the US, there is possibly even greater pressure on countries like Australia to provide a regional role model (Beeson 1996b). As we shall see, this position is problematic enough if other nations are simply tardy in complying. More fundamentally, however, the rationale for APEC's deregulatory initiatives fails to take account of the structure and organization of corporate activity from regional economies like Japan. This raises important questions for nations like Australia about the relevance of trade liberalization policies as a means of encouraging productive economic integration with the region. One of the central reasons for scepticism about APEC's practical application stems from its theoretical premises and concomitant interpretation of regional development. The dominant neoliberal economic paradigm in Australia has systematically ignored or understated the specificity of regional development trajectories, attributing to market forces and the logic of comparative advantage what has clearly had much to do with various forms of government intervention. While this is an important theoretical oversight on the one hand, at another level it gives rise to policy prescriptions that are especially problematic. APEC is predicated on the idea that free trade is necessarily beneficial and has been the source of trade expansion and regional economic growth, culminating in what Drysdale and Garnaut (1993: 187) call a 'prisoner's delight', in which nations enjoy the advantages of unilateral trade liberalization. There are reasons to question this analysis on both empirical and prescriptive grounds. First, there is a great deal of evidence to suggest that trade barriers remain significant obstacles to general trade, especially in those economic sectors in which Australia enjoys a 'comparative advantage' (Grant et al. 1993: 20-1; CEDA 1995). Important as these overt tariffs are, they do not capture the range of 'invisible' barriers to trade which, as we saw in the previous chapter, are so critical in explaining the low levels of import penetration in nations like Japan. Furthermore, they fail to acknowledge the critical contribu-


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tion made by various forms of industry policy that have been such important sources of national competitive advantage and catalysts for export expansion. Second, the policies that flow from analyses of the Drysdale/Garnaut type seem fundamentally implausible: the suggestion that APEC members should unconditionally extend most favoured nation (MFN) status to all nations, whether APEC members or not, begs the question of precisely what benefits membership conveys. If APEC does not impose barriers to outsiders, then nonmembers have an incentive to 'free-ride', taking advantage of APEC's open economies while resolutely protecting their own. APEC's diverse membership with its variety of economic and political systems presents a number of a number of contradictions and implementation difficulties, which are explicitly recognized in APEC's proposed 'two-speed' liberalization agenda (APEC 1994: 4). Although there is no intention here to explore the full range of the possible impediments to APEC's ambitious reform agenda (see Beeson 1996b), it is necessary to say something briefly about the single most important bilateral relationship in APEC, and one which has particularly important ramifications for Australia: the US and Japan. The US and Japan Ultimately, APEC will stand or fall on its ability to manage the US-Japan relationship. Not only is the US-Japan trade and investment axis the most important bilateral economic relationship in the world (Bergsten and Noland 1993), but it encapsulates many of the political tensions and difficulties that threaten to undermine the liberalization process. There is a noteworthy difference between the approach of the US and Australia to their respective bilateral relationships with Japan. In Australia the orthodox view promoted by Drysdale and Garnaut (1989: 15), which rejects the idea that Japan's trade pattern is either notably different or that it has significant barriers to trade, holds sway. Indeed, Drysdale (1989: 22) claims that 'mercantilist thinking is in total retreat, if not entirely routed' in what he describes as Japan's 'top policy councils', and further suggests that Japan's interests are inherently served by and tied up with regional trade liberalization. In the US, by contrast, trade policy is increasingly coming under the influence of 'revisionist' critics like James Fallows, Chalmers Johnson and Laura Tyson (AWSJ, 10 June 1995: 1). Central to the revisionists' position is the claim that the Japanese economy operates in a manner that

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is distinctively different from that of the US, with the consequence that it is necessary to construct policies that take this into account. In contradistinction to the Australian approach advocated by the likes of Drysdale and Garnaut, US policy is premised on the assumption that 'traditional' approaches to trade like Australia's are increasingly irrelevant. As Tyson (1993: 2-3) observes: we can no longer afford to ignore the efforts of Japan and Europe to promote their own high-technology producers. N o r . . . can we realistically expect our trading partners to adopt international rules that reflect our own ideological preferences. Confronted with these realities, we must devise macroeconomic, trade, and industry policies that promote our own high-technology industries while continuing to lobby for a more liberal trading system. Whether such a pragmatic approach to trade issues is likely to deliver the results its advocates claim is less important, in the context of this discussion, than is the realization that the attempt to implement such policies will have discernible effects on the conduct of international economic relations. The willingness of the US to pursue bilateral trade diplomacy in preference to the sort of multilateral approach that APEC is predicated upon, and in which Australia continues to show such faith, has been demonstrated on numerous occasions (Australian, 18 May 1995: 8; Schoppa 1997). Significantly, there is plausible evidence to suggest that the sort of 'managed trade' arrangements that are such an anathema to advocates of liberalization have delivered important gains for the US (NW, 20 Jan. 1997: 2). Tonelson (1994), for example, argues that the US car, steel and machine tools industries were given sufficient 'breathing space' to allow them to recover from the onslaught of Japanese competition. The Semiconductor Agreement in particular is cited by advocates of bilateral agreements as evidence of the potential benefits to be derived from specific numerical trade targets. Indeed, it is noteworthy that Japanese negotiators have shown a distinct reluctance to agree to specific numerical targets following the success of the semi-conductor agreement in turning around the US position (AFR, 23 May 1995: 14). In short, bilateralism - whether successful or not - continues to be a significant force within APEC. Furthermore, there is no reason to expect this situation to change dramatically, especially where powerful domestic lobbies are able to influence the content and direction of policy (Schoppa 1997: 53). Nor should it be supposed


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that compliance with the APEC rationale is a problem exclusive to a more 'pluralist' US political economy. Not only do powerful business organizations like the Keidanren think that alternatives to APEC like EAEC might merit support, but Japanese policy-makers face the perennial problem of reconciling the interests of what is still a powerful domestic agricultural lobby with its commitment towards free trade under APEC (McCormack 1996). From an Australian perspective the apparent continuity of this hard-headed, self-interested and often domestically driven approach on the part of key allies and trading partners is troubling, especially given that APEC is envisaged as 'a key element in Australia's regional strategies over the next fifteen years' (CoA 1997b). In other words, the Howard government seems likely to continue placing great faith in an institution which has delivered little, and which is championing an agenda of reform that it looks increasingly incapable of enforcing. Moreover, it is especially noteworthy that APEC has played virtually no part in managing the economic crisis in East Asia, and has consequently failed the first major test of its relevancy and competence. Two points emerge from this discussion of attempts at regional institution building in which Australians have played a surprisingly prominent role and invested a great many hopes. First, the sort of unenforceable inter-state agreements that rely on moral suasion and demonstration effects of dubious efficacy of the sort that are central to APEC's modus operandi seem unlikely to change regional political and economic practices significantly. Revealingly, the USdominated IMF has been at the forefront of attempts to manage the crisis and proved a much more effective tool for imposing the sort of market-centred reform that APEC champions but cannot achieve (Beeson forthcoming). In other words, although ideas are important, they need political support - particularly at the national level - for them to gain purchase and influence the conduct of policy. Second, even though members have paid lip-service to APEC's normative goals, a significant gap remains when it comes to actually putting them into practice. It is not simply that nations may be reluctant to upset powerful domestic lobbies or break up entrenched distributional coalitions, it is because many of these initiatives simply fail to address the reality of contemporary commerce. Individual national governments often have a declining capacity to direct 'their' companies or domestic economic entities, even if they genuinely wanted to. In the case of Japan, not only does the government still

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seem keen to support Japanese-based companies wherever it can, but initiatives aimed at influencing national policy-settings will do little to affect the underlying, existent economic structures that currently determine regional economic activity. In short, not only do other nations in the region seem unlikely to embrace Australia's free trade initiatives with great enthusiasm, but it might not make a great deal of difference to 'Australia's' position if they did. Without major changes in the structure of the region's paramount political economy and the companies that constitute it, Australianbased economic entities are likely to remain comparatively marginalized and uncompetitive.

CONCLUDING REMARKS What I have tried to demonstrate in this chapter, then, is that international economic relations occur in a specific regional social and political context. Without reference to some wider frame of reference - in this case Japan's immediate region - it is impossible to comprehend the behaviour and motivations of the Japanese TNCs that are the principal conduits through which Japanese capital flows. Japanese TNCs have been encouraged to expand into the region by a variety of domestic 'push' and regional 'pull' factors, the region's high rates of profitability being the most important of the latter. The possibility of securing access to burgeoning markets and establishing the same sort of networks that characterize corporate organization in Japan were also major considerations. Where this process was facilitated by supportive Japanese and host government initiatives, relocation became - especially in the aftermath of the yen appreciation - even more attractive. Japan dominates the region by sheer economic weight. Not only are Japanese companies by far the region's dominant investors, but their powerful economic position is reinforced by the nature of that investment. Integrated production networks are binding the region together more tightly, making it more difficult for 'outsider' companies to break in. This dominance is reinforced by aid and foreign loan packages that grant Japan increasing relational power over its smaller neighbours. The implication of these developments for Australia is that domestic economic activity risks being increasingly excluded from productive regional trade and investment patterns that centred on Japan. There is a growing possibility that Australia


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will be effectively marginalized from the regional channels of manufacturing activity, reinforcing Australia's subordinate position in the region as a supplier of resources and primary products. The effect of this on Japanese bilateral trade and investment will be considered in the next chapter. APEC, the centrepiece of Australia's recent regional economic diplomacy seems highly ambitious at best, and potentially damaging at worst in the light of the sort of developments outlined above. Not only is APEC's further institutionalization problematic, given some of the political complexities touched on above, but it seems incapable of addressing the fundamental sources of trade tensions even if it were. Simply reducing or removing trade barriers - always supposing it is possible to identify them in the first place - will do nothing to address the sources of Japan's competitive advantage that are intrinsic to and dependent upon the organization of its corporate activities. Moreover, where these patterns of corporate organization are being reproduced and emulated throughout the region the problem is likely to become even more intractable and unresponsive to trade negotiations alone. Predicating foreign economic policy on the supposed benefits that exposure to market forces brings and pious invocations of 'level playing fields' is, as we shall see, unlikely to deliver the sort of investment Australia desires or leave it positioned to compete effectively with less doctrinaire competitors. These issues will be taken up more thoroughly in Chapter 7. The major point to emerge from this consideration of Japan's role in the region - or, more accurately, the activities of Japanesebased corporations - is that their operations seem unlikely to be greatly affected or influenced by the sorts of strategies Australia is pursuing. True, Japan is also a generally enthusiastic supporter of APEC, but it does so for very different reasons from those of Australia. Indeed, Japan's APEC strategy, which is directed towards maintaining a liberal international order, makes sense precisely because its own mercantilist traditions, industry policies, cooperative business-government relations and overall developmentalist political rationality mean that Japanese-based companies have little to fear from greater international competition. On the contrary, Japanese companies are increasingly able to use their regional location as the basis for truly global strategies. In such a scenario, other nations occupy specific places and have particular roles within this all-embracing operational logic. The next chapter details just what Australia's has been.

5 Japanese Investment in Australia One of the key contentions of this book is that Australia and Japan are characterized by highly distinctive political rationalities which provide an underpinning logic to the activities of governments and economic actors within the two countries. This chapter and the following one will demonstrate what the impact of such differing political rationalities is when they are operationalized both as pragmatic public policy and as part of a general calculus of corporate activity within each country. These chapters have two principal objectives. First, to develop an empirically detailed picture of the bilateral relationship between Australia and Japan. Second, to assess the relative efficacy of Australia's neoliberal policy framework in the light of Japan's developmentalist approach and its highly distinctive patterns of corporate organization. Before reviewing these sectors in detail, however, it is worth reminding ourselves of both the rationale and the expectation of the neoliberal, market conforming, deregulatory model that has predominated in Australia. The government's own specialist advisory body - the East Asia Analytical Unit (1992: 63) - provides an apposite summary. It suggests that: Reforms already set in train by the Australian Government should increasingly influence the direction of Japanese direct investment over the next five years [1992-97]. The benefits of lower inflation, reductions in tariffs, increased labour market flexibility and lower waterfront costs will help attract investment. Further reform designed to improve the efficiency of Australia's economy will similarly be the most important means by which the Australian Government can address the underlying impediments to stronger Japanese investment in Australia's manufacturing sector. Indications are that Japanese confidence in the prospects for certain segments of the manufacturing sector have improved. [Emphasis added] This quotation usefully summarizes the rationale that has underpinned not only the thinking of expert advisers to government within 124

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the bureaucracy and academia in Australia, but also that of successive governments, at least in the area of international economic policy: the 'correct' macro- and microeconomic policy settings will inevitably make Australia a more attractive investment location, this logic suggests. The simple removal of impediments to the operation of market forces will ensure an inflow of productive investment into 'Australia's' manufacturing sector. This will be most effectively achieved by implementing a range of microeconomic reforms intended to enhance the 'efficiency' and 'competitiveness' of the domestic economy. The theoretical rationale of this approach will be more thoroughly explored in Chapter 7. At this point, we might simply note that, given that this policy paradigm has been in place for more than a decade, it might be expected to have already displayed unequivocal gains. A preliminary objection to the ruling Australian orthodoxy that may be briefly noted, as the earlier examination of corporate Japan demonstrated, is that the investment and production strategies of individual firms are dependent on a good deal more than simply the attractions of market-conforming neoliberal national macro policy settings. Indeed, as we saw in the last chapter, in a regional context Japanese capital may be encouraged to invest precisely where market forces are either constrained, or where contingent 'distortions' make such locations more attractive. In what follows it will become apparent that international economic activity is a good deal more complex than Australian policy-makers in particular have assumed. Indeed, I shall suggest that a failure to appreciate the logic of transnational corporate organization and the dynamics of regional production structures has left Australian-based economic entities in a dependent relationship with those of Japan, something which promises to reinforce Australia's general marginal position in the region. In order to detail the bilateral relationship between Australia and Japan, consideration will be given to a number of specific sectoral patterns of involvement. Manufacturing, banking and finance, resources and agriculture, as well as real estate will be the major foci of empirical attention. For the sake of convenience, the chapters will be divided by a broadly conceived emphasis on investment and trade. While this separation is somewhat artificial, as they are often deeply connected, it does having the merit providing a unifying theme for each chapter.

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JAPANESE INVESTMENT IN AUSTRALIA: AN OVERVIEW At the outset it is important to emphasize quite how lopsided the Australia-Japan economic relationship is. Simply put, an examination of this bilateral relationship is essentially a study of the activities of Japanese TNCs and portfolio investors in Australia. In 1995, Japanese investment in Australia was $A50.9 billion, or some 12.7 per cent of total Japanese FDI. By contrast, Australian investment in Japan was only $A2.8 million (DFAT 1997: 35-7). Likewise, the trade relationship, although large and multi-dimensional, is, as we shall see, dominated by Japanese companies and - Australia's trade surplus notwithstanding - largely shaped by Japanese rather than Australian priorities. Japanese FDI patterns reflect a combination of influences. Paramount here have been the demands of Japan's domestic economy and the constraints associated with potential external investment locations. The notable diversity of investment locations of Japanese capital has been motivated by a desire to secure resource security through widespread and potentially competing suppliers. What is also noteworthy is the importance of investment in the manufacturing sector. In this regard, the Oceania region of which Australia is the principal part displays some distinctive characteristics. As Figure 5.1 indicates, Australia is an important investment location for Japanese capital, although Australia's share of Japan's overall FDI flows displays a good deal of volatility - something exacerbated by a disparity in the size of the two economies. What is not apparent from this chart, however, is the relative importance of portfolio as opposed to direct investment. Figure 5.2 clearly demonstrates that indirect or portfolio capital has been by far the most significant Japanese capital inflow into Australia. The first point to make, therefore, is that Australia's principal significance is as a investment location for more liquid financial capital, rather than in productive investments of whatever kind. Not only has Japanese investment been overwhelmingly of an indirect sort, but it is noticeably different from the investment patterns of its British and US counterparts in Australia. Despite the rapid build-up of Japanese investment, the cumulative totals of British and the US FDI remain significantly larger. Revealingly, in 1989 as much as 45 per cent of US and 52 per cent of UK cumulative investment in Australia was direct rather than portfolio investment, whereas only 30 per cent of Japanese was (Access Economics 1991).


127

3000 T

a , US$ Million _ Australia's share of "total Japanese FDI

(ft 3

I

1988 1989 1990 1991 1992 1993 1994 1995 1996 First half

Source: East Asia Analytical Unit. Figure 5.1 Japanese FDI in Australia, 1988 to 1995

200 180

©Other DLoans

160

•Securities

140 c

o

«Direct investment

120

i 100 §

80 60 40 20 0

1988

1990

1991

I 1992

1993

-20

Source: East Asia Analytical Unit. Figure 5.2 Total Japanese gross long-term capital flows

1994

1995

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FDI represents only 15-20 per cent of Japan's total outward investment, a situation that is unlikely to change, given that since 1987 Japanese insurance and pension funds have been allowed to place up to 30 per cent of their total assets in overseas securities (Agnew 1992: 94). Bonds are the preferred investment vehicle for Japan's institutional investors, something which reflects the inherent conservatism of Japanese fund managers and their comparative lack of experience in assessing foreign risk. The possible implications of the recent banking crisis in East Asia will be taken up in the conclusion. At present, it is worth reinforcing the specific qualities that distinguish Japanese investment in Australia from other locations. The mining and real estate sectors in Australia are especially attractive to Japanese investors compared to the rest of the world. Similarly, Japanese investment in the manufacturing sector - possibly the most valuable form of FDI given its job-creating and import-reducing potential - is conspicuously lower than the global average (CEDA and Keizai Doyukai 1990: 56). This is especially noteworthy given that manufacturing investment in the region has been the most rapidly expanding form of Japanese FDI overall. Japanese manufacturing investment in Asia grew by nearly 1,000 per cent between 1992 and 1993 (JETRO 1995: 31). Significantly, investment plans before the regional crisis continued to prioritize South-East Asia {NW, 26 Aug. 1996: 9). In the event of a major downturn in overall Japanese investment, there is no reason to suppose that Australia is likely to attract a greater proportion of the diminished total. The other point to note is that despite Australia's apparent relative unimportance as a location for financial service investment, it has still had a notable impact in Australia: the sheer disparity of economic weight between Australia and Japan means that what are comparatively trivial flows by Japanese standards may have substantial effects in the smaller Australian economy. Table 5.1 illustrates the investment 'bulge' in both the banking and finance, as well as the 'other services' sectors, reflecting the impact of Australia's liberalization of the financial sector during the latter part of the 1980s. Japanese banks moved to take advantage of the deregulation process, although, as we shall see, this had more to do with domestic imperatives and a desire to service existing Japanese clients than it did with any supposed benefits to be derived from strictly Australian factors. Overall, however, Japanese investment in Australia has been


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Table 5.1 Japanese direct investment into Australia by industry US$ millions Foodstuffs Textiles Lumber/Pulp Chemicals Metals Machinery Electrical equip Transport equip Other Agric/Forestry Fisheries Mining Construction Commerce Banking/Insurance Services Transportation Real estate Other Overseas offices Total

FY86 0 0 0 1 1 4 5 103 9 3 2 193 8 77 92 251 0 127 5 0 881

FY87

FY88

44 8 2 3 0 0 6 2 0 31 1 12 2 9 209 123 6 7 57 29 1 3 156 56 13 1 109 92 208 363 103 242 5 3 411 1270 0 16 34 1 1222 2 413

FY89

FY90

FY91

59 115 39 1 0 0 0 0 0 4 5 0 33 27 48 15 10 10 10 37 2 27 160 239 11 5 4 64 25 20 4 2 2 487 703 269 3 1 116 296 326 204 545 200 72 991 585 264 19 1 3 1623 1333 1255 108 1 0 14 73 2 4 256 3 669 2 549

FY92

FY93

FY94

FY95

34 619 581 4 0 0 0 0 0 0 7 0 42 18 131 4 36 9 4 22 3 2 27 18 4 0 1 9 16 6 1 1 0 207 292 117 15 12 0 54 187 173 63 120 38 164 106 196 2 8 0 1271 540 143 0 0 0 0 13 0 2151 1903 1265 2

25 0 75 6 281 6 0 383 24 26 2 364 26 321 129 218 6 744 0 4 635

Source'. Australia-Japan Economic Institute.

predominantly portfolio rather than direct and, as such, subject to sudden and potentially destabilizing disinvestment should conditions in Australia or Japan make this necessary. The sudden retreat in 1992 of Japan's institutional investors in the wake of national recession and the collapse of the bubble economy are evidence of this possibility (Agnew 1995: 73). The presence of Japanese financial institutions facilitates the flow of Japanese capital through Australia's domestic economic space, something that exacerbates the inherent volatility of the internationally exposed financial sector. Where FDI does occur, it is driven by considerations that skew Japan's 'normal' pattern of investment towards mining and real estate (CEDA and Keizai Doyukai 1990: 56). The following sections will consider in more detail why this pattern has emerged. Why is it, in fact, that Japanese investment has failed to develop in the way successive Australian governments had hoped and in the manner that advocates of market forces in general had predicted?

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MANUFACTURING Domestic restrictions on Japanese capital outflows meant that manufacturing investment in Australia was negligible until the end of the 1960s. When it did occur, the principal motivation was the same that characterized the vast increases of investment in both the US and the EC: circumventing protectionism. Furthermore, the primary reason for Japanese manufacturers moving parts of their operations to Australia was the same as had motivated their British and American predecessors: the desire to protect and expand market share (Edgington 1990). The pioneering Japanese companies that established themselves in Australia tended to be light engineering firms, sewing machine manufacturers and the like, which required extensive customer contact for after-sales servicing and parts. During the 1970s, large-scale manufacturing entered Australia, either through takeovers of struggling 'local' operations (Mitsubishi's acquisition of Chrysler, for example) or through joint ventures, particularly in the resources sector. However, Japanese investments tended to be less diversified than their EC and US counterparts, reflecting particular Japanese priorities, particularly the paramount desire for resource security and the need to ensure market access. The latter has been a ubiquitous motivation of Japanese FDI, and Australia has been no exception, as Edgington (1990: 128) notes: Apart from the cases where sogo shosha or Japanese industrial end users have been willing to invest in processing Australian raw materials, it is generally only when government barriers to exports (e.g. tariffs, 'voluntary' export restraints, and industry plans) have been enforced that the Japanese corporations have established local manufacturing plants in a few selected industries. As Table 5.2 confirms, the primary investment motivation for Japanese manufacturers in Australia has been to supply the Australian market. True, there is of late an increasing interest in servicing other countries from Australia, but it is important to recognize that this sort of development would have been unlikely were it not for the fact that the Japanese were already established in Australia and forced to make the most of their exisitng investments. Significantly, even where manufacturing investment does occur, this may still be intended to promote further exports from Japan. Other studies confirm these broad conclusions. A Japan External

Japanese Table 5.2

Investment

in Australia

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Motives for Japanese FDI (average scores)

Motive Supply Australian market Supply Japanese market Promote exports from parent to Australia Supply other Japanese companies in Australia Supply other countries Supply Japanese tourist market Supply non-Japanese tourist market Service other Japanese companies in Australia Establish a market presence Complete a global network Service parent's Japanese client companies in Australia Service Japanese customers of business group in Australia Service Australian customers involved in trade with Japan Service Australian customers without Japanese connections Gain experience in securities markets Trade in securities markets Investment in property Facilitate inter-office treasury operations Involvement in yen dollar trades

Financial Manufacturing Services

Tourism

3.9 2 2.3 1.3 2.7 3.7 2.9 3.1 3.3 3.8 3.6

2.4 3.5 2.7

3.4 3 2.8 2.8 2.8 2.1 2.3 2.5

Note: The scores are calculated by assigning 1 to no importance, 2 to low importance, 3 to medium importance and 4 to high importance. Source: S. Nicholas, D. Merrett, W. Purcell and G. Whitwell, with S. Kimberley, Japanese Foreign Direct Investment in Australia in the 1990s: Manufacturing, Financial Sendees and Tourism. International Business Working Paper no. 1, Faculty of Economics and Commerce (Melbourne: University of Melbourne, 1995).

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Trade Representative Organization (JETRO) report into Japanese companies' experiences in Australia found that a desire to increase market share was a critical motivation, and that this might most easily be achieved by producing behind tariff barriers (AFR, 4 July 1989: 38). More recently, an EXIM Bank survey of the overseas investment intentions of Japanese companies revealed that more than 60 per cent of companies nominated the desire to capture local markets as their primary motivation (Shigeki 1992). The survey further suggested that although Japanese FDI remained significant, its general level was expected to decline as much of the investment necessary to circumvent protectionist pressures was already in place. Revealingly, on a recent visit to Australia, Japan's Trade Minister specifically advised Japanese companies not to invest in manufacturing activities, preferring instead to reaffirm Australia's importance as a supplier of raw materials (Australian, 5 July 1997: 2). Less than 30 per cent of Japanese companies in Australia intended to increase their investment levels; most cited local economic stagnation and the limited possibilities for market expansion as reasons. Australia's relative unattractiveness as a potential investment location has been compounded by an historical Japanese caution and preference for joint ventures on the one hand, with an established proclivity on the part of Australia's business class for alliances with 'traditional' British and American rather than Asian partners on the other. Despite this, there is evidence to suggest that Japanese companies can be encouraged to take part in alliances that include sophisticated research and development (R&D) activities, given appropriate policy settings. Oki Electric, for example, took advantage of a government-sponsored, industry-specific development plan to transform its Australian partner, the IPL Group, from simply a distributor to become initially an innovator and ultimately an exporter. (AFR, 30 Nov. 1993: 2). In other words, carefully constructed industry policies can still produce desired outcomes, a point that is taken up in more detail in Chapter 7. Manufacturing: the State of Play in Australia Japanese manufacturing investment has been distinguished historically in Australia by its comparatively small scale and specificity. Given that investment has overwhelmingly been intended to secure local markets it is unsurprising that production in Australia


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by Japanese companies has perpetuated the established inward-looking pattern that has characterized Australian-based production more generally. There are, however, other qualities - apart from its relatively modest size - that tend to set Japanese investment apart. Most significant in this regard from a host country perspective is that Japanese TNCs have been less willing to transfer technology or conduct local R&D operations than their British and Australian rivals (Hutchinson and Nicholas 1994). Furthermore, the subsidiaries of Japanese TNCs in Australia remain 'tightly controlled' by their parents, leaving the operations of local managers 'highly circumscribed' (Kreinin 1988: 534). The most tangible effect of this pervasive control was to entrench preferential purchasing patterns. More than 80 per cent of subsidiaries' capital equipment purchases were sourced from Japan, something that was ensured by a lack of competitive tendering for such supplies. What Kreinin (1988: 539) calls 'traditional loyalties', rather than market forces, explains the overwhelming reliance on Japanese sources for capital goods. Furthermore, and caveats about the declining utility of nationality as a conceptual variable notwithstanding, Emmott's (1993: 133) research suggests that a reluctance to cede control to subsidiaries and a tendency to conduct 'relatively little research overseas' are more general characteristics of Japanese multinational operations. Contemporary Japanese investment in Australian manufacturing continues the pattern of sudden surges in particular sectors that have characterized the expansion of Japanese capital globally from its earliest phases. This phenomenon helps explain the anomalous growth of manufacturing investment in 1993-94. Several critical caveats need to be noted with regard to this apparent upsurge in manufacturing investment. First, it is highly concentrated: Australia captured 70 per cent of Japan's global food investment in 1993 (AFR, 5 July 1994: 2). In both 1993 and 1994 investment in the food industry represented an average of approximately 90 per cent of Japan's total manufacturing investment in Australia (AJEI 1995). Second, the food-processing industry has the sort of 'tight linkages' that mean processing must be performed close to the point of production (Cohen and Zysman 1987: 17-19). Put simply, in the food industry Japanese companies have little choice other than to invest in the country in which the raw materials are produced. Third, the percentage increase in manufacturing investment's share of overall capital flows in these two years is part of a greatly reduced total. Fourth, the food industry is unlikely to provide many of the sorts

134

Competing

Capitalisms

of high-wage jobs in sophisticated value-adding processes that governments might hope to attract through increased foreign manufacturing investment. As Table 5.1 indicates, investment in foodstuffs has already fallen precipitately, while real estate has once again become the most significant sector for investment, indicating the volatile and 'lumpy' nature of Japanese investment. The impact of Japanese investment on Australian-based agri-business and the food trade with Japan will be considered in greater detail in the next chapter. Overall, then, there is little reason to suppose that in the long term future Japanese manufacturing investment - with the possible exception of the car industry - will be anything other than comparatively small scale, sectorally specific and opportunistic. Although many Japanese manufacturers are being forced to restructure and transfer parts of their operations to the region, Australia is unlikely to benefit from this or become part of the regional production networks detailed in the previous chapter. Only where sunk costs or the nature of the productive process - as in the food industry compel such investment is it likely to be forthcoming. In any case, as we have seen, Japanese manufacturers prefer to keep the more lucrative, skill-intensive parts of the production process in Japan wherever possible. There are substantial grounds, therefore, for questioning the efficacy of the Australian government's policy settings in relation to attracting productive manufacturing investment. To illustrate how complex these issues are, it will be helpful to examine the most important single sectoral Japanese investment in Australia: the car industry.

THE CAR INDUSTRY The car industry is an example of a global production system par excellence, what Drucker (1946: 149) called the 'industry of industries'. Simply put, car production occupies a central place in industrialized economies because of its links to other manufacturers and because of its capacity to generate large numbers of skilled and well-paid jobs. 'Clusters' of industries, of the type described in Michael Porter's (1990: 149) influential book, seem an inescapable pre-requisite for generating the varied labour skills and supplier networks that permit existent firms to flourish and new entrants to emerge in the manufacturing sector The other initial point that needs to be made is that, given the strategic importance of car


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production to the overall structure of 'national economies', the location of car production sites has been strongly influenced by government trade policies. Australia is no exception. Indeed, it has been suggested in an authoritative review of Australian-based manufacturing that: Australia would not have a car industry without protection . . . If an announcement were made today that automotive tariffs were to be eliminated, or even reduced drastically, by 2000, the car companies would probably stop investing and progressively close their facilities as new investment became due. (Pappas Carter Evans and Koop/Telesis Study 1990: 189) Toyota is both a significant and instructive example of the Japanese TNCs' experience in Australia. Australia represented Toyota's first excursion into an overseas market. Initially operating through an Australian distributor in the early 1960s, local production was gradually increased to avoid tariffs and comply with local content requirements. In what has become a familiar pattern throughout the world, Toyota also encouraged one of its affiliate companies Nippondenso - to establish a local parts manufacturing subsidiary in 1972. In 1974, in response to government proposals to phaseout low local-content assembly plants, both Toyota and Nissan were forced to decide whether to extend their operations or withdraw completely. Toyota decided to establish its first offshore engine plant in Australia because it wanted to maintain its position in a small but lucrative market - a possibility that government policy effectively demanded (Edgington 1990: 143). Interventionism in Australia Historically, the car industry in Australia has suffered from insufficient domestic demand and a lack of regional integration. It is against this backdrop of foreign controlled over-capacity and a resolutely inward focus that the Labor administration's car industry plan emerged. A consideration of this plan is instructive for several reasons. Firstly, it reminds us that Labor had to accommodate important domestic influences - not the least of which were the manufacturers themselves and the unions - within the overarching neoliberal policy framework. However, this is not to say that the manner of this intervention was not broadly consistent with the overarching rationale that informed Labor's attempts to restructure

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the Australian economy. Indeed, even Labor's more overtly interventionist policies were predicated on the assumption that - ultimately - reduced protection and an increased exposure to market forces would achieve the sorts of industry rationalization it desired. Moreover, given the electoral importance of the car industry, it was also essential that the reduction in the numbers of manufacturers was achieved 'voluntarily' (Capling and Galligan 1992: 208). While the interventionist Button Plan is generally regarded as having been successful, what is important to note for our purposes is the interaction between TNCs and Australian government in determining the direction and form of industry activity. Through a range of measures, particularly an export facilitation scheme and a gradual reduction of tariff levels, the Labor Government was able to encourage the development of a more export-oriented sector (Sheehan et al. 1994: 92). What an examination of the Australian automotive industry reveals is that throughout its history the character and extent of production in Australia has been influenced, not by the simple operation of international market forces, but by the policy initiatives - even when misguided or neglectful - of successive Australian governments. Even where new investment by Toyota and Mitsubishi has recently occurred or been proposed, it is important to recognize that this is not simply a response to new investment opportunities in market-oriented Australia, but a decision that reflects the necessity of factoring-in sunk costs that are themselves the legacy of previous government policy frameworks. In the long term, however, the manner in which the Australian subsidiary is integrated into global production networks may leave them reliant on a single model - like the new Toyota plant's dependence on the Camry - and increasingly expensive parts from its Japanese parent. Although Toyota and Mitsubishi have consolidated their positions for the immediate future, the Button Plan 'successfully' encouraged Nissan to cease Australian production in 1992. Ironically one of the main reasons cited as motivating Nissan's withdrawal from Australia - the lack of cost competitiveness of Australianproduced cars compared with those of Japan - appears less significant given the yen's steady appreciation against the Australian dollar. Fully imported Japanese models cost more than locally produced models, highlighting the importance and volatility of exchange rate movements, and simultaneously undermining the rather simplistic neoclassical notion that tariff protection necessarily imposes an additional cost on local consumers. Moreover, the loss of control


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over the value of the Australian dollar that deregulation encouraged has made the position of the industry in Australia more uncertain. For example, where manufacturers remain dependent on high volumes of Japan-sourced components, currency fluctuations may threaten local profitability (Australian, 30 May 1995: 63). In the long term, the viability of local production sites will be dependent on their ability to develop export markets and link into the wider global strategies of their parents. What is clear, however, is that if the Japanese manufacturers were establishing these sort of production networks now it is most unlikely that Australia would be part of their plans; especially if it were possible to service the Australian market from Japan or lowcost regional sites without fear of being penalized by the sort of protective trade barriers orthodox economists consider inherently harmful. Indeed, given massive over-capacity in the car industry globally (Economist, 21 Mar. 1998: 93-4), and the parlous position of a number of the Japanese manufacturers, then the position of comparatively small-scale operations that are not tightly integrated into international production structures becomes even more tenuous. The experience of the car industry is emblematic of the more generalized position of manufacturing in Australia. In short, as a recent survey of the chief executives of some of the major companies located in Australia concluded, 'the majority of manufacturers are under pressure to select options that will reduce manufacturing in Australia' (MTIA/EIU 1997: 32). Moreover, this could occur even where an Australian plant is more efficient than a rival in another country which enjoys government assistance (ibid.: 53). In other words, without the policies that are specifically designed to lure and retain potentially footloose TNCs, manufacturing will inevitably continue its decline in Australia. The Politics of Car Production The significance of the MTIA/EIU's conclusions is reinforced when consideration is given to the politics of car production - something often conspicuous by its absence in orthodox accounts, and something that makes policy-making an inherently more complex process. There are two pertinent aspects to consider here: the activities of other nations and domestic political pressures. The first point to recognize here is that the two areas are often interlinked. During the 1993 Federal election, for example, tariff levels were an important

138


political issue during the campaign. What is most noteworthy here is the willingness of Japanese manufacturers to make overtly partisan statements in pursuit of their own interests (Australian, 24 Sept. 1992: 1). More recently, Japanese Prime Minister Hashimoto warned during an official visit to Australia of the potentially negative impact of further tariff reductions on Japanese car production (AFR, 29 April 29, 1997: 1), something which clearly influenced the Coalition's subsequent decision to freeze tariff levels. Moreover, and confirming the globalization thesis, Toyota has argued that the impact of Australia's APEC-inspired deregulatory initiatives is seen as especially harmful to Australian-based producers vis-a-vis their heavily protected regional rivals in places like Indonesia and Malaysia (Australian, 17 Feb. 1995: 40). Indeed, Australian-based Japanese manufacturers have been at the forefront of attempts to highlight what they consider to be the long-term threat to the local industry implicit in APEC's deregulatory agenda, with Mitsubishi, for example, claiming that APEC could 'render the local industry an uncompetitive investment within five years' (Australian, 18 April 1995: 39). While there may be much that is self-serving in these complaints, they reflect and are given additional weight by Australian-based manufacturing's marginal position in regional production strategies. The regional context within which car production occurs is important, therefore, not simply because of the transregional logic employed by the Japanese TNCs, but because Australia is in direct competition with other potential host nations as a potential production site. Moreover, as we saw in Chapter 4, other regional governments are offering direct incentives to attract such investment. The incumbent Howard Government has demonstrated a surprising willingness to maintain tariff protection for Australianbased producers and reject the predictable advice from hitherto influential bureaucratic departments like the Industry Commission (AFR, 13 June 1997: 1). However, such initiatives seem to have a good deal more to do with the short-term imperatives of domestic electoral politics than they do with any overwhelming sense of the strategic importance of the industry or its place in a regional production hierarchy. Indeed, the car industry reminds us that it is impossible to abstract particular industries from their domestic, regional - or even global - political and economic settings. This is especially true of the car industry, given its critical strategic role in undergirding national economic infrastructure. Where such an industry is wholly


139

foreign owned, managing its development and direction in the 'national interest' is an inherently more problematic proposition. Yet the Button Plan demonstrates that governments retain a capacity to influence even the largest multinationals. Certainly, the international logic of multinational production strategies means that national governments may find it difficult to influence the overall position of individual subsidiaries. However, where government policy is informed by a predominantly neoliberal political rationality and consequently abdicates the possibility of such influence as a matter of policy, instead placing greater reliance on market mechanisms to achieve desired outcomes, it is not clear whether this will encourage further growth in the local industry. Indeed, where other nations are actively working to advantage domestically based producers through a range of interventionist strategies, Australia's attractiveness as a long-term production location must be in doubt.

BANKING AND FINANCE If there is any section of the economy that ought to demonstrate unambiguously the efficacy of successive Australian governments' economic reforms it is the banking and finance sector. Financial markets in general and the free flow of capital across permeable national borders in particular are not simply one of the routinely invoked defining qualities of globalization, they are also - in the minds of orthodox economists at least - a powerful source of increased competition and efficiency. Once again, however, there is a notable divergence between economic theory and mundane commercial practice. Simply put, Japanese investment in this sector, although substantial, has once again reflected Japanese interests and has not necessarily benefited the 'Australian economy'. There is no intention here to repeat the history of Australia's deregulatory experience outlined in Chapter 2. However, a couple of initial points can be briefly made. Australia's rather dramatic financial liberalization experience, in which Japanese investors played an important supporting role, had a profound effect on the norms and values of much of the financial sector. In short, the rapid growth in credit during the 1980s (in excess of 20 per cent per year) was instrumental in creating an environment in which 'the road to riches was [considered to be] via asset appreciation rather than work or investment in income producing assets' (Davidson 1992: 223).

140


Increasing inflation was the unsurprising result of this process, which in turn led to higher interest rates and greater capital inflows. While this latter development might not have been unwelcome in itself, much of this inflow was highly liquid portfolio investment attracted by the possibility of short-term gains - something which helped fuel asset inflation (Abbott 1991). Even the Reserve Bank has retrospectively conceded that the growth of credit without concomitant 'real' economic growth had the potential to threaten the stability of the entire financial system (McFarlane 1989). The effect of increased competition, of which the Japanese banks were a part, had a far greater impact on the traditionally conservative banking sector than had been expected. Competition for a share of corporate sector business led banks to suspend their customary caution, developing increasingly risky loan portfolios and favouring 'entrepreneurial' customers over ordinary business. Not only was small business disadvantaged by the business culture of the 1980s, but the supposed benefits for customers failed to materialize, with the banks using the retail sector to cross-subsidize their corporate business (Hawtrey et al. 1991). Overall, as a former prominent champion of liberalization has observed, the globalization of finance has had especially pernicious effects in Australia, lowering the commitment of successive governments to high employment and distributional equity, and introducing much greater volatility in the exchange rate and domestic asset values (F. Argy 1996). The deregulation strategy, therefore, not only introduced a new degree of instability and unpredictability into Australia's economic space, but also largely failed to achieve its stated goals of encouraging productive capital inflows and creating a more 'efficient' financial sector. To see why this was the case it is helpful to look more closely at the behaviour of the Japanese financial sector in Australia. Japanese Banks and Security Houses in Australia The arrival of Japanese banks in Australia was the result of a range of 'push' and 'pull' factors. The close relationships that existed between the banks, the Ministry of Finance (MoF) and the Bank of Japan provided an important framework within which the international expansion of the Japanese financial sector occurred. Not until 1967 was a process of 'wary liberalization' begun; even then it was not until the mid-1970s that Japanese banks began their overseas expansion in earnest (Pauly 1988: 158-61). This process


141

was encouraged by the MoF's desire to reduce Japan's growing trade surpluses in the pre-'oil shock' years: allowing Japanese banks to establish limited numbers of overseas offices provided a conduit through which to export capital. MOF enthusiasm about foreign expansion in the 1970s and early 1980s waxed and waned according to economic circumstances. Although 'administrative guidance' remained important in determining the extent and nature of overseas development, the banks themselves were keen to maintain the outward push. Significantly, the desire to maintain close links with Japanese overseas-based trading and manufacturing organizations was as important as competing with international competitors for profitable lending opportunities. As Table 5.2 confirms, servicing existing Japanese clients was a crucially important motivation for the Japanese banks' outward migration. In other words, it was domestic Japanese concerns, rather than the sudden competitiveness of the Australian economy, that encouraged investment. Japanese banks' overseas expansion followed a typical development path: first, conducting trade and foreign exchange transactions with Japanese customers; then, extending loans, initially to Japanese and subsequently foreign customers; next, moving into non-banking financial services; finally, establishing a retail banking presence. The preponderance of outlets in Europe and North America reflected the attraction of proximity to international financial markets and relative ease of entry. The lack of retail outlets in Australia is testimony both to the difficulty of entry before deregulation and the more limited role - primarily facilitating trading and lending - that Australian subsidiaries subsequently played in the global hierarchy of Japanese banking (Edgington 1990: 173). The three Japanese banks that were granted retail licences - the Bank of Tokyo, Mitsubishi Bank and IBJ Bank - have shown little interest in establishing a comprehensive network or capturing a share of the retail market. Like the other banks without retail licences - of which Dai-Ichi Kangyo, Fuji, Sanwa, Tokai, and Sumitomo are the most important - merchant banking and larger-scale commercial operations have been their principal interest. The banks were followed into Australia by the 'Big Four' security houses - Nomura, Nikko, Daiwa and Yamaichi (now reduced to three following the collapse of Yamaichi (Australian, 24 Nov. 1997: 17)) - in the early 1980s. Again, the initial motivation for establishing representative offices was their desire to secure the business of other Japanese organizations in Australia. However,

142


they were to become increasingly important in facilitating Federal and state government deficit funding during the 1980s (AFR, 1 Aug. 1995: 25). Additionally, the security houses have been instrumental in shifting the emphasis of Japanese investment from direct investment in corporate equity, or long-term loans for resource or industrial projects, to long-term fixed interest bonds. The influence of these types of capital flow, although less obvious than FDI, should not be underestimated, for, as Higgins (1992: 136) points out, 'the sheer size of Japan's capital flows means that marginal changes in them may still be large enough to have a major influence in the financial markets of small, open economies'. In the period since financial deregulation, nearly 20 per cent of the foreign borrowings that occur within Australia are yen-denominated (AFR, 2 Dec. 1994), a potentially problematic position given what had until recently been the seemingly inexorable rise of the yen and the general volatility of foreign exchange markets. What is less generally recognized, however, is the preparedness of large Japanese institutional investors to sell Australian bonds abruptly if they fail to meet performance expectations, or to use their financial leverage deliberately to engineer currency fluctuations in order to generate short-term speculative gain (AFR, 1 Sept. 1993: 1). Despite the significance of Japanese overseas investment, it represents a mere 13 per cent of total capital held by institutions in Japan. More than 80 per cent of total Japanese savings remain in Japan. Of the portion that is exported, 60 per cent goes to the US, with only about 4 per cent going to Australia (Agnew 1992: 102). Prior to 1975 capital outflow was restricted by government regulation, but since 1987 Japanese life insurance companies and pension funds have been able to invest 30 per cent of their funds overseas, up from the previous ceiling of 10 per cent. It remains to be seen what impact the recent economic crisis in East Asia will have on Japanese investors. What is clear is that Japan's sheer size means that it will be a major influence on events. So far, Japanese institutional investors have shown a preference for bonds rather than stock because they are a convenient substitute for the long-term loans that had previously been their major investment vehicle. Japanese companies have increasingly tended to raise capital either through reinvested profits, share issues or borrowing in international markets, rather than exclusively utilizing domestic sources of capital. The resultant decline in demand from traditional clients has forced the Japanese financial institutions


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to look elsewhere for income. Bonds are popular because they do not require specialist knowledge of local markets. However, as the Japanese institutional investors become more familiar with foreign markets, greater investment in local equities is occurring, partly as a result of the greater returns available, but also as a way of offsetting the negative effects of currency fluctuations. This last point has significant implications. Agnew (1992: 102) argues that fluctuations in the Australian dollar's value 'dominate Japanese responses' to potential investment. The depreciation of the Australian dollar during 1985-6 saw significant disinvestment by the Japanese. The resulting investor caution has seen a preference develop for more liquid semi-government bonds issued by individual state treasuries. Given that Japanese institutions have until recently at least (Economist, 14 Oct. 1995: 101) - had better credit ratings than Australian state governments, it is possible for them to raise cheap funds in, say, the US and on-lend to Australian borrowers at an attractive profit. Of course, the general trend towards investing in short-term, liquid assets increases the potential for volatility and instability, simultaneously increasing Australianbased actors dependence on and susceptibility to Japanese-based capital and its imperatives. Future levels of capital outflows from Japan, of which the Japanese financial institutions based in Australia are such crucial intermediaries, are unclear. Some observers suggest that Japanese portfolio investment flows may already have peaked. Kawai (1991), for example, argues that Japan's large institutional investors may have satisfied their requirements as far as establishing a ratio of foreign securities in their portfolios is concerned. However, in the wake of the continuing banking crisis in Japan and the consequent minimal interest rates in that country, there is a strong likelihood that these outflows will continue. From the perspective of Japanese fund managers, Australia represents a small but useful location in which to 'hedge' their global position: the value of the Australian currency is still widely perceived to be commodity-driven, an ideal quality to offset potential over-exposure to inflation-sensitive assets in Japan (AFR, 28 March 1995). The Impact of Japanese Investment in the Financial Sector If the intention of deregulation and a greater reliance on market forces was to increase the competitiveness and attractiveness of

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Australia as a potential investment location, then there are substantial grounds for questioning the liberalization strategy's efficacy. The primary motivation of the Japanese financial institutions' involvement in Australia has been to service existing Japanese clients and interests, be they corporations involved in some productive activity or as a mechanism through which savings might be channelled by the huge Japanese institutional investors. The primary effect of much of this activity has been to increase the dependency of Australian-based borrowers on Japanese capital, something that has reinforced the latter's structural power, giving it palpable economic leverage over the Australian economy and an implicit political influence should the Japanese government either want to, or be capable of, utilizing it. In the long term, increased exposure to the much larger Japanese economy and its associated capital flows has further eroded the ability of the Australian government to construct autonomous economic policy in a predictable economic framework. As an overall consequence of the financial traumas of the 1980s that deregulation caused, banks had, until recently at least, become more cautious in their lending, to the extent that it has often proved difficult for small to medium-sized manufacturers to obtain capital at all (Hawtrey et al. 1991). Moreover, the idea that increased competition would reduce the power of the banks within Australia an idea that had been promoted as an attempt to win over the Labor Party to foreign bank entry (Kelly 1992: 77) - proved ill founded. As Reinecke (1988: 69) argues: Far from having been brought to heel by the entry of foreign banks, the major Australian banks are now freer of government influence than they ever have been. In such circumstances, any expectations by the government that the banks can be steered towards investment that serves to regenerate sectors of the economy such as manufacturing appears to be illusory. As the government generally chose, as a matter of consciously pursued policy, not to intervene in the process of deciding investment priorities, capital was often employed in a speculative short-term manner. Indeed, one of the most unambiguous effects of Labor's financial deregulation experiment has been a massive deterioration in Australia's external accounts, most obviously manifest in greatly increased levels of foreign debt during the 1980s (Heywood and Tamaschke 1991). The enthusiastic endorsement of the Coalition-sponsored


145

'Wallis Report' into the financial sector in Australia suggests that the Howard Government is likely to consolidate Labor's marketoriented deregulatory initiatives (Harper 1997). As far as the Japanese banks were concerned, the possibility of obtaining a full banking licence in Australia meant they had access to the foreign exchange and general banking associated with Japanese-Australian trade; a trade that had previously been dominated by Australian banks. It is not necessary to subscribe to some of the more xenophobic schools of thought, which tend to see all non'Australian' and 'Asian' investment in particular as somehow alarming, to question how the oft-invoked 'national interest' has been served by Labor's deregulatory policies. If this has been the case in the financial sector, such questions have been even more central to debates over foreign investment in real estate.

REAL ESTATE AND TOURISM Real estate and tourism-related developments have been the most controversial Japanese investments in Australia. On the one hand, buildings have a visibility and immediacy that other, less tangible, forms of investment lack. On the other, doubts have been raised about the impact of such large-scale investment in one sector of a comparatively smaller economy. Critics claim such investment may accentuate the 'uneven' development of the 'Australian economy', causing a growth of low-paid service jobs and exacerbating the decline of manufacturing within Australia (Abe and Wheelwright 1989). What is indisputable, however, as Table 5.1 illustrates, is the rapid build up and subsequent decline of real estate investment - something that mirrors the rise and fall of the bubble economy in Japan. Clearly, deregulation of the Australian economy allowed the speculative character of real estate investment in Japan to be rapidly and easily transmitted to other economies where similar opportunities presented themselves. Within the space of a decade, real estate has grown from virtually nothing to 50 per cent of all Japanese investment in some years (see Table 5.1). As part of a concerted move to reduce the speculation associated with the bubble economy, Japanese officials have instructed banks to reduce lending for real estate. However, by that time Farrell (1992) estimates that banks had accumulated $475 billion in real-estate-based loans, or 28.5 per cent of their total

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loan portfolios. As a result of the Japanese banks' domestic difficulties, the consequent Australian investment picture is changing rapidly. For example, Japanese investment in the construction industry has slumped from US$115 million in 1991 to US$14 and US$12 million in 1992 and 1993 respectively (AJEI 1995). Similarly, real estate, as Table 5.1 indicates, dropped from US$1,255 million in 1991 to US$143 million in 1994 before rebounding in 1995. The Influence of Individual Companies Much of the volatility of investment levels can be explained by the importance of individual Japanese companies in Australia. The construction company Kumagai Gumi, for example, has been a crucial conduit for Japanese capital, its rise and subsequent impact upon Australia being determined overwhelmingly by Japanese imperatives. Rimmer (1990) argues that Kumagai Gumi was motivated by a desire to improve its position relative to Japan's other 'Big Five' construction companies which dominate the tightly controlled domestic market; overseas expansion offered the possibility of achieving this goal. Kumagai Gumi's 'flatter' organizational structure gave greater autonomy to local operators who were able to generate business by offering a total package that included 'financial engineering' (zaiteku). By offering to provide the required capital - usually through loosely affiliated Japanese banks - to underwrite its own projects, Kumagai Gumi was able to circumvent the usual tendering process. The desire of individual state's to 'get super-projects started at almost any cost' meant that overseas operators were able to play off one potential location against another in order to gain the most favourable terms for themselves (Rimmer 1988). A large part of the capital channelled into Australia via Japanese construction and real estate companies was the speculative product of the bubble economy. Japanese investors appear to have been influenced by the extraordinary rises in domestic real estate values and assumed Australia offered equally attractive possibilities. Farrell (1992: 62) argues that the apparently inexorable rise of the Japanese stock market and land prices changed the psychology of investors. Consequently, even the inflated prices of Australian real estate during the 1980s appeared comparatively cheap. Access to readily available capital from Japanese banks keen to replace traditional customers meant that little regard was paid to the intrinsic worth of some of these investments; capital gain was the


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predominant motivation. The folly of this policy has been demonstrated in serious losses incurred by Japanese investors in the Australian market - up to half of a possible $7 billion invested since the property boom of the 1980s (WA, 17-18 July 1993: 1). The sheer scale of Japanese capital flows during the 1980s in particular meant that individual Japanese companies could exert a significant influence on the economic well-being of host countries. This is problematic enough in the case of an essentially productive operation like Kumagai Gumi. However, where such companies are primarily interested in speculative activities and the acquisition of existing assets, there is an even greater potential for destabilization. The EIE International Corporation, and its flamboyant chief executive, Harunori Takahashi, were instrumental in fuelling a speculative surge of property investment, not only in Australia, but throughout the Pacific Rim (Rimmer 1993). EIE's credit was eventually withdrawn by its Japanese backers after it accumulated an estimated $9.8 billion in debts (WA, 17-18 July 1993: 22). Prior to this it had managed to acquire major assets in Australia, including the Bond University and the Sanctuary Cove resort. Clearly, individual corporations with access to seemingly unlimited credit in Japan can influence not only the value of assets within Australia, but also the type of infrastructure that is developed. Moreover, the subsequent attempted bail-out of EIE by the MoF and BoJ has undermined public confidence in the bureaucracy in Japan and revealed not only the fragility of Japan's financial sector, but also widespread corruption associated with the bubble era (TBT, Jan. 1995: 6-19). Whatever the intrinsic merits of real estate investment, Australia will clearly be seen as a riskier proposition by foreign investors generally as a result of such episodes and the increased asset volatility they engender. Queensland is particularly vulnerable to this sort of sudden foreign capital withdrawal. Official figures from Queensland's Foreign Ownership and Land Register suggest that Japanese land holdings in the Gold Coast area amount to $1.85 billion. Other estimates put this this figure as high as $4 billion, the discrepancy arising because many deals are simply not reported to either the Queensland authorities or the Foreign Investment Review Board (FIRB). Many projects in Queensland have remained undeveloped as capital from Japan has dried up. Japan's share of foreign investment in Queensland has dropped from 78 per cent in 1991 to only 7 per cent in 1997 (Australian, 23 Mar.: 4). Potentially the FIRB has the power to make foreigners disinvest who

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fail to develop sites within two years of purchase. In reality, however, as Chenoweth (1991) suggests, they have little influence as Australia is of only peripheral interest to large portfolio investors. There are a number of other important considerations that are neglected by broad-brush policy settings which fail to consider the nationally specific or non-commercial motivations potential investors may have. Japanese corporations are particularly heavily taxed, something that makes any form of foreign investment more attractive (Iwamato 1991). Land ownership has a traditional association in Japan with tax minimization. Investment in Australian real estate has provided an attractive avenue for Japanese companies to avoid paying tax in Japan (Farrell 1992). More sinisterly, it has been suggested that Japan's notorious criminal gangs - the Yakuza - are involved in land development and 'tourism', particularly in Queensland. Indeed, a suppressed Queensland Criminal Justice Commission report has questioned the value of Japanese investment if some of it is nothing more than a front for international money laundering (WA, 7-8 Aug. 1993: 1). Tourism The tourism industry has rapidly grown to become a major source of employment and export revenue in Australia. However, data on tourism investment should be treated with caution. The Australian Bureau of Statistics (ABS) and the FIRB only provide information on investment in tourism occasionally, and even then there are no clear classificatory criteria. Nevertheless, the Japanese were estimated to have become by far the largest investor in the tourism industry by 1988-89, reaching a total of more than $9 billion, compared with less than $2 billion in 1985-86 (Dwyer et al. 1991). Investment in tourism is distinguished by a degree of vertical integration amongst Japanese operations, especially in Queensland, which is difficult to measure as it often occurs at a subtle level through 'understandings' (Dwyer et al. 1991: 11). What is clearer, however, is the influence that major Japanese operators have in Queensland: Daikyo, for example, was able to force the Goss Government to change its policy regarding future foreign ownership by freezing its existing development plans (SMH, 18 June 1992: 25). Significantly, Japanese capital is responsible for developing and running 50 of the premier hotels in Australia, worth some A$2.5 billion. Of late, however, there is clear evidence that Japanese com-


149

panies are attempting to disinvest. After having spent an estimated total of A$17 billion in the late 1980s on Australian tourist-related property, Japanese investors have been attempting to cut their losses in the wake of the Japanese stock market crash and Australia's own property market collapse (AFR, 5 June 1995: 1). While the physical assets will clearly remain in Australia and provide the backbone of the largest export earner in Australia, the tourism industry remains under-financed and short of essential infrastructure (Australian, 19 Oct. 1994: 3). Given an historical reluctance on the part of Australian banks to lend to local developers for investment in tourism development, Australia remains dependent on foreign investment which otherwise seems unlikely to occur (BRW, 14 Feb. 1992: 18-21). Significantly, the Japanese have been replaced by Singaporean and Hong Kong interests as the most significant foreign investors in tourism-related real estate, the latter accounting for 28 per cent of sales compared to Japan's 4 per cent in 1991-2 (Australian, 22 Dec. 1993: 26). Unlike the Japanese, however, other Asian investors have shown more interest in acquiring existing assets, rather than developing new projects. The significance of tourism for Australia must not be underestimated, having recently replaced coal as Australia's major foreign exchange earner (SMH, 18 June 1992: SI). Of the more than 3.36 million tourists visiting Australia in 1994, more than 700,000, or about 21 per cent, were from Japan, contributing to an industry that is now worth more than A$10 billion (AJEI 1995). However, from a Japanese perspective, Australia was the seventh most popular tourist destination, capturing only a 5.1 per cent share of the market. Tourism's impact in Australia is not simply economic, however. Because of tourism's potential effect on domestic living standards and job opportunities, there are divergent opinions about this sort of investment. Although many of the jobs associated with the tourism industry are poorly paid and low skilled, it does provide many jobs that would otherwise not exist. The most notable point, as far as this discussion is concerned, is the lack of effective control by the Australian government of both the tourism industry in particular and real estate in general. Berry's (1994: 192) exhaustive survey of Japanese property development in Australia concluded that: the current policy framework at all levels of government in Australia is weakly developed and unable to provide an exhaustive and coherent basis for the evaluation, monitoring and social control

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of major property development in areas like tourism, including those financed and/or managed by foreign interests. Hence, neither the policy context nor the conventional evaluative t o o l s . . . are currently adequate to inform or impose an appropriate national urban policy directing foreign controlled major property developments in Australia. In the vacuum created, outcomes are mediated by piecemeal market processes and political interventions. The other point to be made in this context is that this lack of government oversight and reliance on market forces has implications for other sectors of the economy, not just the real estate sector. For example, a major 'Australian' bank - Westpac - not only had an $11 billion exposure to the domestic property market but compounded its difficulties by lending a further $5.1 billion in Japan, for what is assumed to be further real estate speculation (WA, 7-8 Aug. 1993: 19). Similarly the AMP Society has been negatively affected by its 15 per cent share-holding in Westpac, a problem exacerbated by its own $2.5 billion write-down of property values (Australian, 10 Feb. 1993: 31). Although the AMP may be puny by Japanese standards it remains central to the well-being of more general economic activity in Australia. The volatility of the real estate sector in Australia during the late 1980s, which government promotion of market mechanisms helped fuel, illustrates the danger that smaller economies face when they promote enhanced international economic interaction as a matter of policy. A reliance on market forces meant that the Australian economy was inevitably contaminated by the excesses that plagued the Japanese economy following its own deregulation, and which show no signs of being resolved. While a good deal of investment may have occurred in Australia's burgeoning tourism industry, it was often sporadic and volatile - something that will do little to encourage future investment certainty. Moreover, the uncontrolled, speculative boom-bust mentality that has tended to characterize the industry has done little to promote job security or career development in the industry, nor done anything to underpin real estate values in the wider housing market. Plainly, such inherent instability and uncertainty can hardly be claimed as helping to create a more attractive or competitive business environment.


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CONCLUDING REMARKS This chapter has concentrated on the Australian dimension of the Australia-Japan relationship for two principal reasons. First, there is very little 'Australian' investment activity to examine in Japan, partly because of the historic bias in Australian-based outward investment towards Europe and North America, and partly because Japan's public policy and corporate structures have systematically minimized foreign investment more generally. Second, Australian policy-makers have actively championed a neoliberal market-oriented policy framework as inherently superior to the interventionist developmentalist model of countries like Japan. The relative merits of these two models will be taken up at a general theoretical level in Chapter 7. What this chapter has suggested, in the specific case of the Japan-Australia relationship, is that the faith successive Australian governments have placed in the free-market deregulated model appears unwarranted. Allowing investment patterns in Australia to be determined by 'market forces' rather than by a coherent set of public policies has meant that the structure and content of economic activity in Australia has, in fact, often been determined by the preferences and operational logic of economic actors based outside Australia. It is not my intention here to suggest that Japanese companies are especially reprehensible in this regard, or that the activities of 'Australian' companies would necessarily have had more benign outcomes from the perspective of any notional national interest. What I am suggesting is that the sorts of investment decisions and organizational strategies that make perfect sense from the perspective of Tokyo - or New York or London, for that matter - may alter the structure of economic activity in Australia in ways that are not congruent with long-term wealth creation (and retention), job growth or sustaining a viable domestic industrial base. This is an especially important consideration when the investment emanates from a country like Japan where, not only has public policy been relentlessly geared to a sense of furthering Japan's national interest, but the institutional infrastructure and cooperative relations with business exist to ensure that such goals are potentially realizable. Japanese investment in the 1980s, therefore, overwhelmingly reflected Japanese interests. While this may be an unsurprising observation it is worth emphasizing as it is central to contemporary debates about the appropriate role of the state in furthering economic

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Competing

Capitalisms

development. Even where Japanese investment was in ostensibly productive activities, Australian operations were incorporated into comprehensive production strategies with their apex in Tokyo. Japanese investment in the financial sector not only clearly demonstrated the importance of Japanese motivations and the limited benefits to 'Australia's national interest', but it had the additional effect of exacerbating general volatility and facilitating speculative capital inflows into comparatively unproductive sectors of the economy like real estate. Where governments choose not to actively intervene and attempt to shape the pattern of domestic economic activity through the provision or direction of investment capital, then investment decisions will inevitably reflect the interests of other powerful actors. Japan has ensured that public and private interests are aligned by restricting the access of foreign capital. Given Japan's phenomenal savings rates, this was a clearly a more feasible policy for that country than it might have been for Australia. However, the lack of any coherent policy framework and an unwillingness to intervene in market processes that has characterized the approach of successive Australian governments to economic policy in general and investment flows in particular, has meant that any possibility of controlling the trajectory of economic development has been effectively relinquished as a self-consciously pursued object of public policy. As we shall now see, the record with regard to trade has been similar and generated similar outcomes.

6 Australia and Japan: The Trade Relationship As Australia is one of the few countries in the world that enjoys a trade surplus with Japan, it might reasonably be asked if there is much for Australian policy-makers and business people to be concerned about. Yet when the make-up of this trade is more closely examined, and the historic transformations that have occurred in the value of different commodities on world markets is taken into account, then the picture becomes more complex and the longterm implications for 'Australia' become more uncertain and troubling. I shall argue in this chapter that the trade relationship between Australia and Japan is effectively locking Australian-based economic entities and activity into a subordinate and peripheral role in the world economy. In short, the bilateral trade pattern is entrenching 'Australia's' position as primarily a supplier of low value-added raw materials in an era when the prices of such products continue their historic decline and at a time when structural unemployment continues to rise. Australia's exports to Japan are overwhelmingly resource products or simply transformed manufactures, products that are becoming steadily less valuable as the terms of trade turn against Australia. Yet even the position of privileged and trusted supplier to the Japanese market is being steadily undermined as changes in the Japanese economy and consequent import demands mean that Australia's share of Japanese imports is steadily diminishing (see Figure 6.1). In other words, without a major change in the structural composition of the bilateral trade relationship, Australia's highly atypical trade surplus with Japan will eventually turn around, compounding Australia's recurring balance-of-trade difficulties. This is problem enough, but, as I shall explain in more detail in the next chapter, the structure of Australia's export trade profoundly influences the structure of domestic industry, consequent job opportunities, and the place of Australian-based economic entities in the regional divisions of labour and production. The trade relationship with Japan compounds Australia's structural dependency and makes the transformation of its domestic economy inherently problematic. 153

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This chapter will detail the manner in which the bilateral relationship between Japan and Australia has developed, and the way in which it is currently conducted in key areas like the coal industry and the agricultural sector - two of the most important exports from Australia. Consideration will also be given to an important new manufactured export - fast ferries - to demonstrate that even where more sophisticated products emerge in Australia which are at the leading edge of their fields in terms of price and competitiveness, winning Japanese export markets is by no means assured. To understand how the trade relationship is controlled by Japanese interests and to see why some products find to difficult to break into the Japanese market, I shall detail the Australian operations of a key aspect of Japan's trade structure, the sogo shosha. Before commencing this detailed examination, however, I shall briefly recapitulate some of the key theoretical and empirical points that help explain the way the bilateral relationship works, and why orthodox economic explanations are of little use in trying to understand it. Firstly, it should be re-emphasized at the outset that the separation between the investment and trade dimensions of the Australia-Japan relationship is a somewhat artificial one. One of the keys to understanding Japanese corporate behaviour is recognizing that Japanese investment often occurs with the precise intention of influencing the conduct of the trade relationship. Indeed, the very existence of an important trade connection has served as a major incentive to investment, and subsequently led to a further intensification of trading patterns. In short, trade and investment are generally deeply interconnected. Moreover, in the Japanese case, the activities of private companies have often been promoted and assisted by the activities of a developmental state. Not only are trade and investment intimately connected, therefore, but in Japan's case they cannot be easily separated from activist public policy. The consequence of this integrated highly strategic approach to international commerce, as this chapter will demonstrate, is that the bilateral trading relationship between Australia and Japan is dominated and controlled by Japanese economic interests. As we saw in Chapter 3, Japanese policy-makers have systematically developed a panoply of sophisticated industry policies and an institutional infrastructure with which to implement state developmental projects. Japanese policy-makers and corporate entities have practised a form of mercantilism that has privileged Japanese interests

Australia and Japan: The Trade Relationship

155

and sought to ensure that any bilateral relationship works in Japan's favour. True, pursuing 'the national interest' is hardly something that is unique to Japan. What distinguishes Japan is the systematic, highly coordinated manner in which such uncontroversial staples of international public policy are pursued. It should also be remembered that Japan - or more accurately, the Japanese government in concert with domestically based business - has had powerful incentives underpinning its drive to consolidate a developmentalist political rationality. The perception of Japan's resource vulnerability and its dependence on external sources for the supply of raw materials has been central to the emerging pattern of foreign investment and the development of a comprehensive security policy, a policy predicated on the desire to ensure Japan's political and economic independence (Nester 1991). What distinguishes Japan is the institutional infrastructure with which to achieve its foreign policy goals. This is nowhere more apparent than in the unique role played by Japan's trading companies, the sogo shosha.

THE SOGO SHOSHA IN AUSTRALIA From its inception, the bilateral trading relationship between Australia and Japan has been dominated and managed by the sogo shosha. In the immediate postwar period the trading companies acted as procuring and marketing agents for Japanese industry, linking both domestic and foreign suppliers through a complex network of agents (Edgington 1990). Subsequently, the trading houses have expanded their corporate infrastructure and entrenched their dominant position at the centre of 'Australian' trade. The four largest trading companies now account for 1 in every 6 dollars of Australia's total national export earnings. (AFR, 22 Aug. 1994: 15). As for the bilateral relationship in particular, the sogo shosha now account for fully two-thirds of Australia's exports to Japan, and one-fifth of imports from Japan (CEDA 1997: 33). The strategic investments of the sogo shosha confer particular advantages and forms of structural power in the conduct of trade relations with individual companies and sectors. This is most apparent with regard to Australia's single most important export - coal which I shall detail below. However, it is worth briefly noting the scale and extent of the investments of some of Japan's leading corporations, of which the trading houses in Australia are an integral part.

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Competing Capitalisms 6 5.8

5.6 5.4 5.2 per cent

4.8 4.6 4.4 4.2 4 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Source: East Asia Analytical Unit. Figure 6.1 Australia's share in total Japanese imports, 1985 to 1996 The individual corporate links of Japan-based companies have determined both the degree of involvement in particular commodities and the specialization or diversification they have subsequently developed in different areas. Beginning in 1964, direct involvement in Australia through equity purchase and joint ventures has been driven by the desire to assure resource security; the trading companies associated with Japanese steel and chemical companies, like Mitsubishi, Mitsui and Sumitomo, were particularly prominent in this regard. Mitsubishi's trading company is a good example of the highly diversified activities of the sogo shosha, being a major exporter from Australia of coal, iron ore, beef, aluminum, wool and liquefied natural gas (LNG). Major imports, by contrast, include machinery, textiles and chemicals, reflecting and entrenching 'Australia's' position as resource supplier and a declining manufacturing centre. The wider Mitsubishi group, of which the trading company Mitsubishi Corporation is a member, has extensive Australian investments in beef production, silicon sand, feedlots, tyres, automotive manufacturing, the North West Shelf LNG project, coal, wool processing, manufacturing and importing electrical goods, as well as an extensive range of financial services through the Mitsubishi Bank and Mitsubishi Development. Mitsui - the second largest Japanese exporter from Australia - shows a similar pattern. In addition to coal, iron ore, LNG, aluminum and beef, they are significant exporters of gold, woodchips, grain and salt. Mitsui also has extensive


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investments in coal production, iron ore and property development, as well as banking and financial services (Australia-Japan Economic Institute 1992). Trade-related Japanese investment in Australia, in which the sogo shosha are important players, is considered below in more detail. The point to note here is that exports from Australia to Japan predominantly reflect Japanese interests and are consequently dominated by primary products. Even though the sogo shosha have of late shown a capacity to reinvent themselves and develop a more diversified international trade profile and range of interests in the wake of global restructuring, it is especially noteworthy that this pattern has not been replicated in Australia. On the contrary, the investment mix of the sogo shosha in Australia has remained unchanged since 1988, with metals and mineral sector investments accounting for 80 per cent of the total (CEDA 1997: 44). Moreover, rather than integrating Australian activities into global or regional trade and production strategies, sogo shosha operations in Australia have remained overwhelmingly bilaterally focused, with a consequent dominance in commodity trade. Finally, it should be noted that the transnational organizational structure of the sogo shosha means that they are able to minimize tax obligations through transfer pricing techniques (AFR, 25 Oct. 1995: 1), something that negates the potential benefits of foreign investment and undermines host government autonomy and revenues. In sum, the trading companies' crucial intermediary role and organizational structure gives them strategic leverage over Australianbased companies reliant on their services and over the Australian Government itself. Kenichi Ohmae argues that the inability of Australian-based exporters to penetrate the Japanese market stems, in part, from a dependence on Japanese trading companies to organize the export of Australian produce, a handicap he claims can only be overcome by Australia establishing its own trading company (AFR, 5 Sept. 1994: 5). As the examination of the sogo shosha's activities in Chapter 3 indicated, there is little incentive for the trading companies to import manufactured goods of a sort that might compete with the products of fellow keiretsu members. In other words, simply relying on market forces and enhanced competitiveness to gain market access and share will not achieve the desired outcomes, particularly when crucial aspects of the bilateral trade remain controlled by Japan-based companies whose domestic obligations cause them to favour Japanese rather than Australian interests.

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Competing Capitalisms Table 6.1 Australia's commodity trade with Japan ($A millions) 1983-4 Exports Imports

1993- 4 Exports Imports

Food and Live Animals Beverages and Tobacco Crude Materials Except Fuels Mineral Fuels, Lubricants and Related Materials Animal and Vegetable Oils, Fats and Waxes Chemical and Related Products Manufactured Goods Machinery and Transport Equipment Miscellaneous Manufactured Articles Others

1156 1.7 1997 2074

36 0.6 34 3

3002 43 3245 4874

38 25 59 12

6.5 27 127

0.6 217 866

13 123 1215

445 1196

36

3672

521

9133

17 1083

415 90

103 2726

829 136

Total trade

6527

5337

15865

11873

Source: Australian Bureau of Statistics Catalogue nos 5422.0 and 5410.0. Securing Resources Commodity trade between Australia and Japan, as Table 6.1 reveals, is virtually a mirror-image. The dominance of commodities in Australian exports to Japan is completely reversed in Japanese exports to Australia: sophisticated manufactures dominate Japanese goods flowing into Australia. As we shall see, however, coal is still Australia's largest physical export item to Japan. It is important to re-emphasize that, although Australia still enjoys a trade surplus, Japanese imports from Australia remain dominated by primary products. While there has been some growth in the volume of manufactured exports, they remain a relatively small part of overall trade. Given the importance of the bilateral trade relationship to both countries, its conduct becomes a critical test of the efficacy of the public policy of both countries. Australia is fortunate, it might be argued, in that Japan must import raw materials from somewhere; the question is whether this trade is as beneficial to Australia as it might be. Again, it is important to recognize that the content and conduct of the bilateral trade relationship has a structural component which


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shapes outcomes. In this regard the sogo shosha have been central players. Initially, the sogo shosha were involved in the wool and wheat trade, establishing a strong and continuing presence in Sydney. During the 1960s, as minerals and metals assumed a greater importance as a result of both the expansion of the Australian mining sector and the gathering pace of Japanese industrialization, the trading companies took on a more global, less Japan-centric role, acting as intermediaries for exports from Australia to third countries. Early trade in raw materials between Japan and Australia was dominated by wool. The sogo shosha which facilitated this trade were also able to act in a similar capacity when iron ore grew in importance during the 1960s, and subsequently dominated the marketing process in that commodity. State governments provided infrastructure and competed in offering inducements to attract capital and encourage the development of new mines with which to service the burgeoning Japanese markets. The most noticeable characteristic of Japanese involvement in the raw materials sector has been a 'surprising' lack of vertical integration (Edgington 1991: 72). In other words, there has been no desire on the part of Japanese investors to integrate Australian operations into a more integrated production process that might see increasing manufacturing value-adding occurring in Australia. Australia has principally been seen as a supplier of raw material for Japan, the continuity of which have been ensured by the sogo shosha, which took small amounts of equity in various projects. Together with loans and long-term contracts these investments secured access to Australian resources without investing in downstream production facilities. Japanese industrial development determined the manner in which resources were exploited and developed in Australia. For example, Thompson (1987) identifies three distinct phases of resource activity in Australia that correspond directly to the changing demands of the Japanese steel industry. Following the rapid construction and development of the late 1960s and early 1970s that the increasing demands of Japanese industry encouraged, there was a period of growth and consolidation before the recession and rationalization that characterized the 1980s. Again it should be emphasized that development within Australia, and the nature of the activities that were undertaken were determined by Japanese rather than Australian priorities. After the first oil shocks resource-dependent Japanese industry

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sought to diversify the sources and types of energy and raw material supplies. LNG imports have become an increasingly important part of this strategy, and seem certain to grow given Japanese concerns about resource security and increasingly important environmental considerations. Australia is well placed to service this demand following the largest single resource development in Australian history - the North West Shelf Project. After an initial investment of $2.2 billion dollars during the early 1980s to meet domestic needs, LNG development was begun in 1985 to satisfy the requirements of Japanese electricity and gas utilities. At this stage the original venture partners - Woodside Petroleum, British Petroleum (BP), Chevron, Broken Hill Proprietory (BHP) and Shell - were joined by Japan Australia LNG, which took a one-sixth interest (ERC 1991). The LNG development phase cost an estimated $9.8 billion. The investment by Japan Australia LNG - jointly owned by Mitsubishi Corporation and Mitsui & Co. - represents a strategic stake and method of ensuring not only profitability but also security of supply. As with so many other areas of Australia's trading relations with Japan, more than the simple operation of market forces determine economic outcomes in the LNG export market. Two considerations are important here: Firstly, there are only a handful of exporters and importers in the global industry. Secondly, in 1989 Japan alone accounted for 68 per cent of global LNG imports (Clements and Greig, 1991), giving it crucial leverage over other players, especially exporters. The potential strategic significance of Japan's market dominance, especially when combined with the major equity stake of Japan Australia LNG, was revealed when Japanese buyers suggested they would be 'most upset' if proposed LNG sales to Korea went ahead (AFR, 11 Oct. 1993: 1). Such sales would undermine Japanese dominance and place pressure on prices the Japanese had previously claimed were too high. Australia's dependency and vulnerability in this regard was acknowledged by Western Australian (WA) Minister for Resources and Development, Colin Barnett, when he complained that North West Shelf operators were unable to pursue markets outside Japan because of the project's management structure (AFR, 11 Aug. 1994: 9). Given the potential long-term importance of LNG exports for Australia, it is clearly highly disadvantageous if the development of the industry and potential export markets are determined by the strategic interventions of externally based companies. Expecting market forces to achieve an optimum outcome in such a situation


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seems overly optimistic, if not naive. However, this is not the only primary product in which Japanese investment and buying strategies have played a crucially determinant role. The Agricultural Sector As far as the Australian agricultural sector is concerned, Japan is significant primarily as an export destination, and is of less importance as a source of capital. As Table 6.1 indicates, primary products, particularly wool and beef, remain important sources of export revenue. The impact of the Japanese market and the health of its economy on primary producers in Australia has long been recognized (Sterland et al. 1991). What is of equal significance here is the relationship between Japanese trade and investment and the impact of the latter on overall trade patterns between the two countries. For example, despite Japan's textile industry shifting offshore as part of the industrial restructuring process outlined in Chapters 3 and 4, only a 'negligible' amount of the concomitant FDI found its way to Australia (Wittwer and Connoly 1992: 60). Australian wool exports to Japan remain predominantly 'greasy' or unprocessed, further processing often occurring in third countries like Taiwan or Malaysia before their eventual arrival in Japan (Findlay and Itoh 1994). As a result, Australia's share of the Japanese market for wool continues to decline. In a familiar pattern, the entire trade is dominated and controlled by the sogo shosha, which manage to maintain their crucially important structural dominance through minimal amounts of strategic investment in Australia. Despite its position at the lower end of value-adding and technological sophistication, the agricultural sector in Australia remains important, employing over 150,000 people, and contributing more than a fifth to overall manufacturing turnover, or some $A35 billion in 1992-93 (DIST 1995: 9). However, because the food sector in particular is predominantly owned by overseas-based interests, the development of the entire sector has been shaped by a transnational logic that may disadvantage Australian-based interests and distort subsequent production patterns (Beeson and Cloney 1997). Indeed, many of the initiatives associated with the deregulatory agenda and neoliberal political rationality of successive Labor governments led directly to the food industry being targeted by corporate raiders and foreign interests during the 1980s. At one level it may be argued that 'foreign' owners may be no worse than 'Australian'

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ones, and there is clearly something in this - some of the most destructive and incompetent corporate speculators were, indeed, local (Fagan 1996). Yet foreign ownership is a significant and potentially problematic issue where the country involved pursues policies which are clearly predicated upon a well-defined conception of 'the national interest', and which attempts to ensure that the benefits of economic activity in Australia are principally derived by investors abroad. The meat and livestock industry illustrates many of these issues. The proposed liberalization of Japan's beef market has generated much optimism in Australia about expanding an already significant market. Indeed, the apparent opening of Japanese markets is routinely invoked as a demonstration of the efficacy of Australia's overall approach to trade issues. Again, however, it is important to recognize that the future pattern of trade in this industry will not be determined solely by the course of market liberalization. In the wake of Japan's proposed market opening, Japanese companies have moved to secure control over supply and distribution by taking up strategic equity positions in beef production and processing industries in Australia (Morison 1993; MRC 1997). Rural land, feed-lots, abattoirs and meat-processing works have all become increasingly attractive targets for Japanese companies keen to ensure control over all aspects of the industry. Certainly, maintaining product quality has been an important consideration in this regard, but so has a desire to exploit the market power conferred by increased ownership levels and the wish to integrate all aspects of production within one allembracing structure of control. In short, Japanese companies control 'Australia's' meat industry from the farmyard gate to the supermarket shelf in Japan. Consequently, profits from this increasingly lucrative business are being transferred up the value chain, something that contributes significantly to the massive loss of tax revenues to multinationals in Australia (SMH, 28 Oct. 1996: 2). Japanese companies realize super-profits in Japan where returns are inflated through a combination of notoriously high Japanese consumer prices and systematically depressed returns to Australian livestock producers (Fowler 1996). The extent of future trade in the beef industry will, therefore, not be determined by market mechanisms or considerations of price competitiveness alone. Although Japan takes 45 per cent of Australia's total beef exports, and demand in that country continues to grow at approximately 4 to 5 per cent per year, Australian export


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volumes are static (Australian, 5 July 1995: 5). Continuing meat contamination scares in Australia have meant that beef produced outside of vertically integrated Japanese operations has found it more difficult to gain acceptance in Japan (WA, 26-27 Nov. 1994: 10). In addition to these sorts of structural barriers, Japan's distinctive political economy means that there are powerful vested interests determined to resist any rapid opening up of its heavily protected agricultural markets. The rice lobby, is of course, the most notorious example of this, and its electoral power and influence over the LDP has seen the latter resort to extraordinary measures in order to balance domestic interests and foreign commitments. Even where foreign rice has managed to gain entry to Japan's market, it has been immediately 're-exported' as aid to developing countries (AFR, 21 Nov. 1996: 1). In short, Japan's distinctive domestic political and corporate arrangements effectively nullify the untrammelled operation of market forces, making the prospect of unimpeded competition highly unlikely. It is a structural dominance that is reproduced even more markedly in the case of Australia's largest single physical export: coal.

THE COAL TRADE Coal is not exactly the sort of sophisticated, high value-added, technology-intensive product that policy-makers might expect to make the centre of an industrial development strategy. Nevertheless, policymakers must deal with the industrial and trade structure they currently confront. In this context, the coal trade remains an important contributor to overall economic well-being in Australia and therefore a potentially crucial object of policy attention. Coal remains Australia's single largest commodity export, accounting for some $A7.6 billion in export earnings in 1993 (Taylor 1994: 1) - only the tourism industry is larger. Given the scale of the coal trade between Australia and Japan, even relatively minor changes in price levels have the potential to exert powerful effects, especially on the smaller Australian economy. Despite the critical importance of this industry to 'Australia's' overall economic position, Australian policy-makers' reliance on a largely neoliberal economic framework has caused coal exporters to be consistently outmanoeuvred by Japanese buyers. As a result they have received lower prices than might otherwise have been obtained. Much of this disadvantageous economic outcome

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is attributable to the nature and structure of Japanese corporate activities. Corporate Japan and the Coal Trade It will be recalled from the discussion of Japan's distinctive forms of corporate organization in Chapter 3 that the keiretsu networks bear little resemblance to the stylized idealizations of arm's-length trading relationships that characterize orthodox Western economic theory. On the contrary, at the heart of Japanese corporate arrangements are preferential trading relations and alliances that have been built up over years, and which are not predicated on shortterm economic advantage. Indeed, it is crucial to remember that short-term profitability occupies a much less central place in corporate Japan than it does in comparable Western firms. The significance of this becomes readily apparent in the coal trade between Australia and Japan. Without an understanding of the distinctive organizational logic that underpins the keiretsu relationships it is impossible to account for the activities of the sogo shosha's critical intermediary in the coal trade. Australian-based coal companies are dependent upon the sogo shosha to fulfil a role that the lack of an indigenous trading house leaves Australian-based business unable to fulfil. Nor, it should be noted, is this problem confined to the coal industry. In the woodchip industry Japanese companies use the same sort of tactics as they do in the coal sector - buyer cartels, strategic investments, and supplier diversification - to manipulate prices (Streeting and Imber 1991). However, the crucial role played by the sogo shosha in the coal trade is part of a more comprehensive approach that stems from Japanese policy-makers' concern with resource security. The activities of the sogo shosha in Australia, therefore, have not been driven by commercial considerations alone. Consequently, the sogo shosha have at times been prepared to sacrifice short-term (or any) profit on some of their investments in order to cement long-term trading relationships, ensure continuing control of high-volume trade for a major client, or even to further government policy (Beeson 1995c). To understand why the trading houses might be prepared to sacrifice profitability in Australia, it is necessary to examine the way the coal trade between Japan and Australia is organized. The sogo shosha's principal profits in the coal industry are derived from commissions on coal sales, often from both buyers and sellers (Parker


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1992: 15). From the sogo shosha's perspective, ensuring control of the high-volume trade is of greater importance than securing a profit from a small stake in an Australian mine. The trading houses' strategic investments in Australian mines are, however, important for two reasons: they provide valuable information about possible conditions amongst Australian producers which may be used in price negotiations, and they permit a systematically induced over-supply that may depress coal prices, something from which the trading houses' most important clients will benefit (Mclntosh Baring 1993). In the coal industry, where the trading companies' major profits are derived from their role as high-volume suppliers to Japanese steel mills and electricity utilities, securing these lucrative relationships - which in the case of the mills may be reinforced through keiretsu ties - is plainly of critical importance. Small investments in new mines may be a relatively cheap and effective manner in which to ensure this outcome. Significantly, by 1992 Japanese companies owned more than 20 per cent of Australia's coal export capacity (ABM, July 1992: 44-5). While this is obviously not enough to guarantee control of the industry or even individual companies, it is important to recognize that the ability of Japanese companies to dominate the Australian coal trade is not dependent on ownership levels alone. What Australian policy-makers and orthodox economic commentators generally fail to recognize is that there is a commonality of interest between the coal traders and commercial consumers in Japan - encouraged and assisted by the Japanese Government - which gives Japanese investors in Australia a greater collective influence than their individual stakes would suggest (Colley 1995: 54). Moreover, this Japanese unity is in marked contrast to and actively encourages fragmentation and competition on the Australian side. From a Japanese perspective, undermining the Australian position is a critical part of national policy, as the Australia-Japan trade is the world's largest and sets the benchmark for international prices. Achieving a satisfactory price outcome with Australia is central to controlling global prices. Not only do the sogo shosha take a long-term view of their trading relations, but the conception of the 'national interest' is not simply political rhetoric. Price is not the sole criterion by which decisions to purchase are made. Japanese resource buyers have been keen to ensure supplier diversity, which not only increases supply security, but as Koerner (1993) suggests, allows buyers to minimize

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coal prices by playing off one supplier nation against another, to a point where Australian import volumes to Japan have declined as a matter of policy, despite being from the lowest-cost supplier. Contrary to what orthodox economics might predict, price has not been the sole or even the most important influence on buyer preferences. On the contrary, Japanese buying practices have been informed by a long-term perspective in which the sogo shosha have played an important foreign policy role, mediating Japan's national resource security policies (Shao and Herbig 1993: 42). A government-sponsored research body in Japan has developed a specific long-term strategy for the Japanese Government and buyers designed to encourage over-supply and price suppression (Australian, 4 Feb. 1994: 19). In such a context, no amount of productivity increases or more cooperative workplace relations could be expected to improve Australia's market share or mine profitability. Price Determination The coal price negotiating process is another important example of economic outcomes being determined by a more complex array of factors than simply the operation of the forces of supply and demand. The reality of the negotiation process bears little resemblance to the idealized abstraction of discrete groups of informed buyers and sellers responding to unimpeded market forces. Although there are a multitude of sellers, and theoretically no small number of potential customers, the sogo shosha's information-gathering and organizational ability allows them to provide a crucial intermediary function which effectively limits the number of buyers (Parker 1992). Actual negotiations are led by a principal mill or power utility which sets the standard for the other Japanese buyers. In contrast, Australian sellers usually negotiate individual contracts, allowing the Japanese buyers to pressure the weakest, least profitable mines into settling first, and thus setting a low bench-mark for subsequent negotiations (Byrnes 1994). The net effect of the Japanese strategy is that they 'act in a monopsonistic fashion', according to Mclntosh Baring's (1993: 41) study of the coal industry, which concluded that 'an improvement in real prices in the international coal market is unlikely while the current structure within the Australian coal industry is in place'. Importantly, 90 per cent of the Australia-Japan coal trade is based on long-term contracts, a practice that has two noteworthy conse-


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quences. First, as the 'spot' market for coal has been of such minimal importance, it is clear that market forces have had little opportunity to influence outcomes in a manner consistent with government policy or the nostrums of orthodox economics. Second, long-term contracts enhance the structural dominance of the Japanese buyers: over-production is systematically encouraged by awarding new mines long-term contracts, placing greater competitive pressure on existing suppliers. Furthermore, the establishment of new mines - and hence over-supply - is promoted by a system of concessional financing overseen by a MITI subsidiary, the New Energy and Industrial Technology Development Organisation (NEDO), which provides funding for commercially non-viable investments. This comprehensive strategy, in which Japanese buyers, traders and the state collude to minimize prices in the national interest, led Colley (1995: 93) to conclude that: the use of investment practices on a coordinated nese buyers and traders has managed to achieve, with the use of specialised trading practices, a similar in effect to that of a vertically integrated

basis by Japain conjunction regime that is industry.

However, not all of Australia's disadvantage can be attributed to Japanese neo-mercantilism. True, the representatives of Japanese buyers have superior negotiating tactics and skills, and the sogo shosha are often able to provide inside knowledge about the profitability of mines via their strategic investments in Australia. But the difficulties experienced by 'Australian' companies in conducting price negotiations are exacerbated by a general lack of unity and a willingness to undercut other Australian competitors. Given the continuing policy of non-involvement on the part of successive Australian governments this situation seems likely to continue. The recent Taylor (1994) report into the coal industry in Australia endorsed the former Labor Government's preference for market mechanisms in determining coal prices - even though, as we have seen, market forces have little to do with such outcomes. Indeed, it is somewhat ironic that the Construction, Forestry, Mining & Energy Union's (CFMEU, 1994) submission to the Taylor inquiry argued that Australia should develop a 'countervailing ability' precisely because market forces are constrained. By contrast, the Australian Coal Association (ACA 1994: 11), representing the employers, was keen to stress the importance of not jeopardizing Australia's 'dependability premium' through aggressive government

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intervention. Rather than the collective approach to negotiations advocated by the CFMEU, the ACA was principally concerned to ensure the autonomy of its members and 'management's ability to manage'. Significantly, the conclusion of the influential Taylor Report is much closer to the ACA's position. Taylor (1994: 12) considers the CFMEU suggestion regarding the establishment of a countervailing marketing force to be 'a high risk strategy and not appropriate'. Investment decisions and production levels should be determined by 'market prices', with industry viability being underwritten by a series of measures designed to enhance productivity. These latter initiatives are a familiar part of wider governmental reform strategies, namely: industrial relations reform and enterprise bargaining, 'best practice' implementation, and infrastructure reform through increased competition in rail, ports and shipping. While such measures may have much to recommend them, they clearly fail to address the cause of structural disadvantage within Australia. Until a strategy is adopted by Australian producers that is less reliant on market forces and pays greater attention to the specificity of this important relationship, a significant improvement in the position of indigenous producers seems unlikely. The coal industry in Australia is currently reeling from the double blows of the market-centred strategies detailed above and the impact of the East Asian crisis. Coal prices continue to fall, and export income has begun to decline, despite higher export tonnages (Australian, 4 Feb. 1998: 25). Somewhat ironically, there is evidence that Japanese buyers are moving away from a reliance on longterm contracts, but they are doing so at precisely the same time that 'Australian' mines have become unprecendentedly unprofitable and when global spot market prices have plunged up to 30 per cent (Australian, 18 Mar. 1998: 36). In other words, when the structure of price-setting finally approximates to something like the market-centred ideal that Australia producers and policy-makers have placed such faith in, market forces are allowing Japanese buyers to take advantage of historically low prices. Should these prices eventually turn around and begin to favour the producers, it would be no surprise to see Japanese buyers switch back to contract-based negotiations. Simply put, the Japanese are past masters of pursuing corporate and national interests in a way that makes their Australian counterparts appear politically and economically naive.


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AUSTRALIAN-BASED SHIPBUILDING The negative impact of Japan's trade structure - at least from an Australian perspective - is not confined to the resource and agricultural sectors. Even where more valuable and sophisticated forms of economic activity have developed in Australia, this has not guaranteed their success in penetrating lucrative export markets. This is especially true of the Japanese market, where a range of 'invisible' trade barriers and the structure of the keiretsu networks have effectively locked out many of the more valuable exports of Australia-based companies. Indeed, it is precisely because such products are widely recognized as being especially valuable that Japan's corporate and governmental structures have been keen to exclude them and ensure that they are produced in Japan. In other words, the combination of Japanese business organization and a political rationality that privileges domestic industrial development makes it extremely difficult for outsiders to compete in terms of price and technological superiority. These issues are clearly illustrated in the case of a new and surprisingly successful Australian-based export-oriented manufacturing industry: aluminum-based, fast ferries. Industry policy, although poorly administered, ad hoc and half-hearted, has been nevertheless critical to this new industry's success. I have examined the emergence of this new industry elsewhere (Beeson 1997b), so I shall not repeat that analysis in detail here. Suffice to say, that despite the unexpected success of both the industry itself and the policy framework that supported it, the manufacturers have been unable to gain access to what has the potential to be its most important single market. Indeed, the experience of the contemporary shipbuilding industry suggests that Australian Government policies are an inadequate response to the policy frameworks and industrial structures that have flowed from Japan's developmental political rationality. There is surprisingly widespread agreement amongst industry participants and observers that the ferries that are manufactured in Australia are some of the best in terms of quality and price competitiveness in the world. This is clearly demonstrated by the range of sales made by companies like Austal, which has not only captured markets in countries like China and Hong Kong where little domestic competition exists, but also in more sophisticated markets like Germany, the UK and Singapore, where competition is intense. Plainly, this is one area in which manufacturers based

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in Australia are world leaders in terms of price, design and quality. Yet the experience of the Australian builders in trying to break into the Japanese market demonstrates that price and quality alone - the fundamentals of the market-oriented paradigm - are not central explanatory variables when attempting to comprehend the pattern of economic interaction between Australia and Japan. The failure of Australian-based manufacturers to achieve greater market penetration in Japan can not be attributed to lack of potential demand, however. There are well over 2,000 ferries operated by 650 companies in Japan (Australian, 9 Feb. 1993: 43). Austrade estimates that there are 1,200 ferries operating in the Sea of Japan alone. Furthermore in any given year, up to 10 per cent of the Japanese fleet may need replacing - of this figure, a minimum of a further 10 per cent will be precisely the sort of boats with which Australian exporters could effectively compete (AFR, 17 Oct. 1995: S5). It might be expected, therefore, that, ceteris paribus, Australian exporters might have captured a significant share of the Japanese market. However, an Australian Government-sponsored mission to Japan to assess market conditions in that country discovered that only three ferries had been sold in Japan during the preceding five years, compared to thirty in China. The subsequent report concluded unambiguously that 'Japanese regulatory systems' were the principal obstacle to market access (ASM 1995: 8). In other words, there are a range of 'invisible' barriers to trade that effectively exclude what are otherwise highly competitive products. In order to comply with extensive Japanese regulations and meet stringent delivery deadlines, Austal Ships was forced to buy Japanese components - like life-rafts, for example - or risk losing a recent sale, which was itself only achieved after extensive negotiations between the heads of the companies involved (Beeson 1996c). Further revealing the structural disadvantage of Australian-based producers was Austal's dependency on a Japanese trading company - Marubeni - to conduct much of the negotiation process in Japan on its behalf. The lack of an Australian trading house once again left exporters dependent on the sogo shosha. Although local manufacturers were generally approving of Austrade's efforts to increase exports from Australia, they expressed reservations about its actual day-to-day effectiveness. Generally, Austrade was considered to be better than nothing, but doubts were raised about the quality of its staff in Japan. More tellingly, Austrade tended to institute competition between potential Australian exporters by attempting


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to maintain an even-handed, market-conforming approach to Australian clients - a dramatic contrast to the more integrated operations of the sogo shosha on behalf of their clients in particular, and the pursuit of Japanese foreign economic interests more generally. Local builders in Australia claim that Japanese buyers are simply not interested in buying foreign boats as a matter of principle where sales have been achieved, there may be a degree of 'tokenism' or a desire to examine pioneering Australian construction techniques and replicate them in Japan (Beeson 1996c). While there may be a degree of aggrieved self-interest in this analysis, it remains the case that even with some government assistance, the Japanese market remains remarkably difficult to penetrate. Japanese buyers - in what is a familiar pattern of preferential buying - are seemingly prepared to sacrifice price in the interest of cementing group ties in Japan. Ferry operators may be influenced by either keiretsu obligations or government prodding to support an uncompetitive domestic yard rather than buying a foreign product that Austrade estimates may be up to 30 per cent cheaper in Australia's case. In other words, simply being 'competitive', 'efficient' or getting the 'economic fundamentals right' is simply no guarantee of market access. The structure of corporate organization in Japan means that price - as in the previous example of the coal industry - is simply not the principal explanation for sales patterns. Japan's highly developed sense of keiretsu loyalty and 'national interest' mean that Japanese buyers are often prepared to sacrifice price advantage for the sake of long-term relationships.

CONCLUDING REMARKS In the long term, then, the trade relationship between Australia and Japan is declining in importance. In many ways, particularly from an Australian perspective, this may be no bad thing. Market diversification is clearly one way of overcoming Australia's chronic dependence on Japan. The possible wisdom of this strategy is clearly evident in the success of Japan's strategy of supplier diversification in the coal trade, for example. Unfortunately from the perspective of Australian exporters and policy-makers, Australia's share of Japan's imports continues to fall at a time when Japan's imports are unambiguously expanding (EAAU 1997: 125). It is testimony to the failure of successive Australian governments to grasp the structural

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disadvantages inherent in the bilateral economic relationship with Japan that the current Liberal-National Party Coalition Government continues to view it as 'by far Australia's most substantial and successful' (DFAT 1997: 59). Yet in this chapter and the last it has become apparent that there are potentially major disadvantages in subscribing to a neoliberal political rationality, especially when bilateral trading partners operate according to a quite different economic and political logic. Not only does a reliance on the non-interventionist market-driven paradigm leave both policy-makers and indigenous economic entities poorly equipped to deal with alternative models, but it is unable to account for such differences theoretically. The political authority, discursive dominance and institutional embeddedness of the neoliberal model in Australia has meant that a more complex theoretical interpretation of the Australia-Japan relationship, which might have accounted for both the failure of Japanese capital to invest in more productive activities in Australia, and the difficulty of penetrating Japanese markets, has generally been marginalized. True, things have begun to change in Japan, particularly at the level of political rhetoric, as Japanese policy-makers and industry leaders move to embrace some of the discursive aspects of neoliberalism. However, it is also important to recognize that in many ways Japan can more easily embrace the logic of liberalization than Australia can. Japanese industry policies in combination with the organization of Japanese corporations within Japan and across the region, have meant that Japanese corporations are well placed to withstand the rigors of international competition. In many of the industries that have become critical sources of wealth generation and job creation, Japanese companies dominate global production. By contrast, the approach of Australian policy-makers has shown little awareness of either the operation of specific bilateral relations or understanding of the strategic importance of particular industries, technologies and production processes in underpinning national living standards. In short, Australian policy-makers seem remarkably unaware of the profound changes in economic processes and theory which have been central concerns of their Japanese counterparts. The Australia-Japan relationship demonstrates just how costly such a shortcoming can be. There are, then, powerful and important lessons to be gained from both the Australian and Japanese experiences and a comparison of the theoretical literature. Such an examination will be the principal concern of the next chapter.

7 Competing Capitalisms: Theoretical and Policy Implications One of the most striking and intriguing differences that emerges from a comparative analysis of Japan and Australia is not simply the different policy approaches that have been taken by the political and business elites of each country, but also the impact such policies appear to have had on the structure of domestic economic activity. Japan has, or more accurately Japanese-based companies have, become synonymous with the production of goods which define the international benchmarks for quality, technological sophistication and - perhaps most importantly - intrinsic wealth-generating potential. Japan's ever-expanding, politically embarrassing, trade surpluses are testimony to the efficacy of such strategies. Economic activity in Australia, by contrast, remains centred on low-value-added commodities that are vulnerable to dramatic externally determined shifts in its terms of trade. More importantly from the perspective of long-term development and social cohesion, this sort of comparatively unsophisticated economic activity does not generate the sorts of highly paid jobs that underpin national living standards. In short, as Stephen Bell (1997: 2) puts it, Australia has 'the wrong type of economy for the late twentieth century'. A critical question that emerges from the contrasting historical experiences of Australia and Japan is whether the different approaches to public policy which have developed account for such disparities and confer potentially significant competitive advantages on economic entities within each country. As we saw in Chapters 5 and 6, the distinctive economic structures and practices that characterize the two countries had a clear impact on the bilateral relationship. Indeed, in the case of the Australia-Japan relationship, the way the bilateral relationship is structured and conducted appears to present consistent advantages to the Japanese side. This chapter will consider some of the more important theoretical issues that emerge for the Japan-Australia case study, and draw out their implications, particularly for Australian policy-makers, as Australia' 173

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seems to have been particularly disadvantaged by the relationship as it currently operates. There are a range of new theoretical insights that have emerged from economics, political science, and the interface between the 'hard' and 'soft' sciences, which are central to debates about the operation of an increasingly global economy. Moreover, the expansion and integration of international economic activity has been associated with and permitted by certain key technologies. In short, there is a growing body of literature that suggests that public policy which is intended to further the 'national economic interest' must be conversant with important changes in the structure of the global political economy, and with developments in the technological basis of industrial processes. Not only are some economic processes and technologies likely to generate greater wealth, but it seems possible for governments to influence the speed and manner in which 'national economies' engage with such factors and the wider global economy. The comparative experiences of Australia and Japan dramatically indicate just how important activist public policy can be in shaping the developmental trajectories of individual companies, nations and even regions. These theoretical considerations and their potential policy implications will occupy the bulk of this chapter. The first section will examine the overall approaches of Japan and Australia to public policy, considering their theoretical rationales and their efficacy as public policy. This discussion provides the basis for a wider examination of the more important theoretical insights that have emerged in trade theory, industry policy and associated discourses on the importance of technology. It will be suggested that, for all its problems, Japan's approach to policy-making has proved much more effective in creating a domestic economy that is capable of generating internationally competitive firms, a presence in the most important wealth-generating technologies, and an industrial structure that confers a good deal of potential power and autonomy. The final section of the chapter will review the foregoing analysis in the light of the sudden economic and political dislocation in East Asia, and consider whether this invalidates the economic strategies that have distinguished the region. First, however, I want to draw out the lessons and theoretical implications of the comparative analysis of Australia and Japan.

Competing Capitalisms: Theoretical and Policy Implications 175 THE END OF A NATIONAL ECONOMIC INTEREST? One of the conventions of academic writing is to place in inverted commas concepts about which the author has reservations of one sort or another. This can become slightly irritating for the reader, especially when the word in question is as ubiquitous and apparently unproblematic as either Australia' or 'Japan'. And yet the autonomy, sovereignty and even continuing existence of the nationstate itself - the entity that gives the signifier Australia' actual content - has become increasingly problematized both theoretically by scholars, and pragmatically by changes in the global political economy. There is a good deal of hyperbole associated with much of the analysis associated with these sorts of developments. Commentators like Kenichi Ohmae (1995), for example, have suggested that nationstates are becoming increasingly irrelevant and anachronistic obstructions to the operation of a global economy. Even more judicious and careful observers have concluded that the diminution of the power of states vis-a-vis markets is 'probably the biggest change in the international political economy to take place in the last half of the twentieth century' (Strange, 1996: 43). As earlier chapters have shown, changes in the structure of the world economic and political order - particularly the remarkable growth in the scale and power of financial markets - clearly have placed new constraints on the policy autonomy of individual states. This is not, however, to say that states are p o w e r t e or incapable of influencing the direction and content of economic activity within the territorial boundaries within which they continue to claim sovereignty. Indeed, in an era characterized by relentless international competition, the state itself may be a critical source of competitive advantage. This possibility is captured in Philip Cerny's (1990: 241) notion of the 'competition state', which systematically attempts to promote the competitive advantage of national industrial and financial activities. I shall consider precisely how states might promote such advantages below. At present I want to look more closely at the state itself, the impact of changed economic structures upon it, and its capacity to influence domestic activity. These are topics of great contemporary relevance, especially given potentially competing policy frameworks. We have seen that quite distinctive policy frameworks and economic structures have existed in the past: the critical contemporary question is: can they continue to do so in the future? In Cerny's (1997: 251) most recent work there is the clear

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suggestion that different policy paradigms or forms of state intervention are only possible 'where they constitute relatively efficient alternative modes of adaptation to economic and political globalization'. In other words, given the necessary ubiquity of preconditions in a global economy, the general historical trend is inevitably towards some sort of 'convergence' upon some optimally efficient end-point. If this sort of analysis is correct, then the parameters within which possible government policies are constructed are significantly narrowed. Even if an interventionist role for government is conceded, some policies are clearly closer to international 'best practice' than others; less 'efficient' models will be forced to follow suit or be left at a competitive disadvantage. Even if it is possible to claim that some policy frameworks and economic structures appear more able to generate specific outcomes than others - and this in itself is a far from uncontested claim - it is not clear that such frameworks will be unproblematically taken up. As we have seen in earlier chapters, the distinctive political rationalities that inform national policy frameworks are themselves the product of institutionalized, socially embedded political and economic relationships which impart a degree of path dependency to subsequent developments. Put simply, existing interests and patterns of economic activity mediate global influences and constrain the range of possible outcomes within nations. Political and economic aspects of social relationships are, therefore, configured and institutionalized differently within different national borders. Even across more loosely defined regions, it is possible to distinguish broadly conceived approaches to economic governance that are a reflection of fundamental political structures and relationships (Beeson and Jayasuriya forthcoming). More pertinently as far as the question of contemporary state capacities is concerned, Hollingsworth and Streeck (1994: 271) suggest that different regimes of economic governance may be distinguished not simply at the national level, but also at the level of the 'functional-economic sector'. In this view, different sectors of the economy are characterized by quite distinctive properties, particularly as far as technology, products and product markets are concerned. In other words, not only may individual governments have broadly different approaches to questions of economic governance and management, but such strategies may actually be shaped by different products and their specific qualities on the one hand, and the way production processes are organized across entire regions, on the other (Gereffi 1995).

Competing Capitalisms: Theoretical and Policy Implications 111 This is where questions of state capacities in a global economy become especially important. There is a double effect here which simultaneously undercuts the utility of a notion of a 'national economy' and raises important questions about states' capacities to operate meaningfully as a consequence. Not only are productive processes organized across national borders, often by alliances of companies from different countries, but ownership and control may also be increasingly internationalized, making a simple calculation of 'the national interest' on behalf of national champions inherently problematic (Reich 1991). This is less of a problem for Japan, which has systematically discouraged foreign investment and the possible dilution of 'Japanese' ownership, than it is for a country like Australia, which has some of the highest levels of foreign ownership in the world. At a theoretical level, the increasing penetration of ostensibly national economic spaces by transnational capital flows has, therefore, problematized the entire notion of national economies as meaningful and discrete units of analysis (Bryan 1995). Indeed, given the complexity of the contemporary global economy it becomes much easier to see why a policy of simply allowing economic outcomes to be determined by market forces alone has become an increasingly attractive option: policy-makers may assert that attempting to intervene in economic processes in order to achieve specific outcomes is pragmatically complex and may attract the unfavourable attention of the financial markets. There is, however, a critical, and generally unrecognized corollary of the 'non-interventionist', market-driven approach to economic policy. As we have seen in the Australia-Japan case study, and as I shall argue in more detail below, there do appear to be distinctive, identifiable competitive advantages and developmental strategies available to policy-makers and corporate entities. Crucially, these advantages are most likely to be realized under two, perhaps predictable, conditions. First, actors need to be aware of the theoretical possibility of capturing such benefits. Second, they need to put in place strategies that ensure they do. The problem for countries like Australia, where policy-makers appear to have lacked both awareness and an appropriate policy capacity, is that they must necessarily attempt to export their own preferred policy model the neoliberal, Washington consensus - or risk being placed at a major competitive disadvantage by those nations that do utilize successful industry polices. As Stallings and Streeck (1995: 94) point out, much of the pressure the US placed on Japan to adopt specific

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economic reforms can be read as an attempt to make Japan 'converge' on the less productive and competitive American form of capitalism. Likewise, Australia's activist trade policy, in particular the APEC initiative, is one way of trying to encourage other nations to adopt Australia's - arguably less competitive - approach to economic management. The key point here is that internationally oriented companies from developmentalist countries like Japan can compete effectively in an open, liberalized trading system, but the likes of Australia and the US find it very difficult to compete with countries that systematically employ the panoply of trade and industry policies that are utilized in East Asia and Japan. Clearly, the recent economic crisis in East Asia offers an opportunity for the US in particular to pressure countries in the region to pursue liberalization policies. However, even if such initiatives prove capable of transforming the institutional structures and political relationships that have characterized East Asian development - an unlikely prospect without profound social change - this does not invalidate the developmentalist model itself or the strategies that were central to it. On the contrary, many of the distinctive patterns of corporate organization and logic are likely to prove even more important sources of competitive advantage in a period of major global recession. It is important, therefore, to examine more closely the theoretical basis of these competing approaches to see why countries like Australia are likely to remain at a competitive and long-term structural disadvantage unless there is some significant change in overall policy direction.

TRADE AND INDUSTRY POLICY Australian policy-makers have been at the forefront of, predominantly Anglo-American, efforts to promote further deregulation of trade and investment flows in particular, and a winding back of state 'intervention' in economic activity more generally. It is appropriate, therefore, to focus more closely on the Australian experience as aspects of the theoretical rationale for such policies have been more fully articulated and integrated into public policy. A number of reports to government and bureaucratic bodies have effectively delineated the theoretical rationale and pragmatic policy platform for Australian policy-makers. Ross Garnaut's (1989) eponymous report was especially influential in this regard. The Garnaut

Competing Capitalisms: Theoretical and Policy Implications 179 Report symbolized and helped promote the shift to a more open, less protected Australian economic space. The theoretical rationale underpinning this policy platform, which was enthusiastically taken up by successive Labor administrations, was comparative advantage theory. Originally developed by David Ricardo, comparative advantage theory was premised on the idea that countries should do what they are 'naturally' best at. For example, countries with significant resources or land should specialize in agriculture and mining. Conversely, countries with large populations, especially those with comparatively poorly paid workforces, should concentrate on labour-intensive industries. As the basis for a policy framework, this model begs a number of questions. First, why do some countries appear to have a comparative advantage in highly sophisticated products? Clearly, there is nothing 'natural' about this. Moreover, what happens in circumstances where the production of some goods not only appears to be more lucrative, but where the very production processes and technologies employed to make certain products appear to confer 'spillover' benefits throughout the wider economy? Again, if a fundamental historical change has occurred in the relative value of various products and commodities, partly as a result of changing technique and technology, then what implications does this have for public policy? In short, if some industries confer important advantages in terms of wealth and job creation, could - or should - governments attempt to encourage their development within national borders? In many of the countries of East Asia with which Australia' competes, and of which Japan is an influential and successful exemplar, policy-makers have, until recently at least, had little doubt about the potential efficacy of government intervention in pursuit of specific economic outcomes. There is by now a vast literature which details the attempts of various states in East Asia to systematically employ a range of trade and industry policies to promote economic development. Beginning with Japan, moving on to the so-called newly industrializing economies (NIEs) of Singapore, Hong Kong, South Korea and Taiwan, and continuing with a second generation of ASEAN nations in the likes of Indonesia, Thailand and Malaysia, there is abundant evidence to suggest that the states not only 'intervened' to promote certain forms of economic activity, but they did so with a remarkable amount of success (Amsden 1989; Appelbaum and Henderson 1992; Rodan 1989; Wade, 1990).

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Significantly, however, it is a literature and a developmental experience that has been systematically critiqued and rejected in Australia by influential government departments like the Industry Commission (1990). The suspicion that much of this criticism stems from a doctrinaire adherence to a specific economic discourse centered on neoclassical economics is given greater weight by the realization that even the World Bank (1997: 46), which had formerly been a bastion of economic orthodoxy, has conceded that 'the East Asian Miracle shows how government and the private sector can cooperate to achieve rapid growth and shared development'. Recent events have, of course, left the economies of East Asia looking a good deal less miraculous. However, it is important to try and separate policy from its application. In other words, are there still theoretical grounds for supposing that governments can play an important role in determining the course of economic development within national borders that are distinguishable from and not necessarily bound-up with the sorts of cronyism, corruption and 'rent-seeking' that have been the focus of so much attention in the wake of East Asia's sudden decline? Strategic Trade Theory One of the most noteworthy differences between Japan and Australia is their trade profiles. As we have seen, Australia' continues to make its way in the world principally through high-volume commodity exports. The flip-side of this trade profile is that Australia runs a chronic and persistent deficit in precisely those sorts of goods that are generally recognized as being the most valuable, wealthcreating, and skill-dependent in the contemporary global economy: sophisticated manufactures. Although there has been some increase in exports of manufactured goods from Australia, particularly since the early 1980s, this has been far outweighed by an even greater increase in manufactured imports. The trade deficit in ETMs alone had reached $A37 billion by 1994 (S. Bell 1997: 243). To pay for these imports orthodox economic thought would suggest that Australia' must export those products in which it has a comparative advantage. But as we saw in Chapter 2, one of Australia's key longterm problems has been an historic downturn in commodity prices, something which has been reflected in its steadily deteriorating terms of trade. Thus, in the absence of any change in the structure of the domestic economy and its concomitant trade profile, ever greater

Competing Capitalisms: Theoretical and Policy Implications 181 quantities of resources must be exported in an attempt to maintain some sort of trade balance. A comparison with the Japanese experience is instructive. Not only, as we saw in Chapter 3, does the structure of the Japanese economy mean that its trade structure is a mirror image of Australia's, in that it exports sophisticated manufactures and imports commodities and semi-processed goods, but it enjoys a massive overall trade surplus as a result (MoF 1997). It will be recalled that Japan's approach to international trade has been informed by an underpinning developmentalist political rationality that found particular expression in mercantilist policies and the pursuit of resource security. Put simply, Japanese policy-makers had a vision of the sort of trade structure they wanted to achieve and systematically developed policies and relationships with domestically based industries that allowed them to effectively pursue it. In a word, the attitude of Japanese economic planners towards trade and industry policy has been 'strategic'. In this regard, it is important to recognize that there are two elements that characterize a strategic approach to trade (Matthews and Ravenhill 1994). First, there are the sorts of government strategies and corporate relationships that, as we have seen in the case of Japan, systematically work to disadvantage competitor companies and nations. Second, there is a sense in which specific products or processes are especially valuable and therefore merit being the target of specific policies to ensure their development. The possibility that trade outcomes may be determined by something other than market forces alone clearly has important implications for a country like Australia, where the dogged pursuit of trade liberalization has enjoyed bipartisan support. A couple of points are worth emphasizing in this regard. First, while some Australian exporters might indeed benefit from the reduction of international barriers to trade, even orthodox economists like Paul Krugman (1995: 31) concede that 'the measurable costs of protectionist policies - reductions in real income that can be attributed to tariffs and import quotas - are not all that large'. In other words, simply dismantling protective barriers is not, of itself, likely to generate significant economic benefits. Indeed, as the earlier discussion of the Australian experience demonstrated, even the advantages that increased exposure to international competitive pressures are supposed to generate have not been readily apparent. On the one hand there is no guarantee that indigenous industry will prove able to compete effectively; on the other, it is not clear that the structure

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of domestic industry that emerges from this process will be optimal from the perspective of 'the national interest'. Recognition of these possibilities goes some way to explaining the attraction of strategic trade theory. As far as the comparative experiences of Australia and Japan are concerned, the importance of strategic trade theory is that it is predicated upon assumptions that are fundamentally at odds with the Australian approach. Predictably enough, though, strategic trade theory tends to validate the Japanese approach. The key theoretical point is that strategic trade theory rejects many of the central tenets of economic orthodoxy that provide the theoretical underpinnings of government policy in Australia. The idea of perfect competition is jettisoned in favour of a more 'realistic' approach to trade, which not only recognizes that governments do indeed favour national champions through subsidies, protection and the like, but that there may be direct benefits to be obtained from doing so (Brander 1986). Indeed, one of the most fundamental assumptions made in strategic trade theory is that market imperfections are an inescapable part of mundane commercial reality, and that this is something of which alert governments and corporations may take advantage. Among the important imperfections this analysis highlights are the large economies of scale available in particular industries and processes; the steep learning curves inherent in certain technologies and techniques; and the sheer cost of development that confronts companies in capital-intensive industries (Milner and Yoffie 1989). Strategic trade theory, therefore, emerged in response to two important, interconnected changes. At one level it became increasingly apparent that governments could intervene in order to shape economic outcomes. At another more profound level, however, strategic trade theory points to and suggests ways to take advantage of more deep-seated and historic changes in the development of industrial organization. Evolutions of technology and technique have effectively changed both our understanding of economic processes and the sources of economic growth. In short, economic growth is now conceived to be 'an endogenous outcome of an economic system, not the result of forces that impinge from outside' (Romer 1994: 3). More than ever, therefore, the policies with which governments attempt to shape the national spaces over which they claim authority are central determinants of domestic productivity and economic organization.

Competing Capitalisms: Theoretical and Policy Implications 183 Industry Policy The importance of government policy has been reinforced by changes in the structure of international production and in the nature of productive processes themselves. Not only are national governments locked in competition with each other to attract potentially mobile investment capital, but the changing nature of economic activity itself has conferred an increasing importance on the policies governments choose. Underpinning this historic shift has been a fundamental transformation in the productive base of what is an increasingly international economy. Whether this is conceived to be a shift to a knowledge-based economy (Drucker 1993), a paradigmatic shift to 'post-Fordist' modes of flexible (Jessop 1994) or craft-based production (Piore and Sabel 1984), it seems clear that a profound change has occurred in the organizational basis of large sections of the world economy. The fact that many nations continue to occupy a peripheral role in which either the worst aspects of Fordist production continue to apply, or in which entire nations remain little more than suppliers of less valuable resources, does not diminish the significance of this change. Indeed, given the disproportionate returns that flow to high- as opposed to low-tech forms of production, securing a favourable niche in the contemporary, complex and multi-faceted international division of labour is - or ought to be a central concern of all national governments. In this regard, the comparative historical experiences of Japan and Australia are a study in contrasts. As we saw in Chapter 3, Japan has pioneered a sophisticated brand of industrial policies that have effectively united the private and public sectors in Japan. True, enduring and mutually rewarding relationships between private companies and Japanese politicians have the potential to become self-serving and corrupt, as the construction industry in particular demonstrates. Yet, this does not necessarily invalidate the potential utility of governmental intervention in the economy in pursuit of particular economic outcomes. On the contrary, as an OECD (Organization for Economic Cooperation and Development) (1996: 134) report on the links between technology and industrial performance concluded, Japan's ability to develop and utilize various technologies which its distinctive and cooperative social relations facilitate has been central to its overall competitiveness. In any case, it is worth bearing in mind that all governments are inescapably involved in defining the conditions under which economic activity

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occurs. Even the most deregulated laissez-faire economic system is ultimately dependent upon a nation-state to enforce the laws, inculcate the norms and supervise the operation of the economic activity that occurs within its borders. In other words, even a move towards a more 'deregulated' economic system that is predicated upon a normative preference for a theoretically minimal government role is essentially a shift to a different form of regulation, rather than a move to abandon it altogether. As Dunning (1992: 34) reminds us, the question of whether or not, in a global economy, governments should play a role in affecting organization of the resources and capabilities within their jurisdictions is no longer an appropriate one to ask. The relevant questions now are how much and what kind of government involvement there should be. Ironically, Australian policy-makers' enthusiastic embrace of free trade has made the domestic role of government more, rather than less, important. For as the Australian Business Foundation's (ABF 1997: 5.1) landmark report into Australia's industrial structure noted, trade liberalization brings national industrial structures and 'national innovation systems' into direct competition with each other. The notion of a national innovation system is reflective of the importance of technological innovation in successful contemporary economies, and helps explain the continuing relevance of industry policy and governmental 'intervention'. Two points are especially important here and merit re-emphasis. First, while something of a truism, it needs to stressed that some forms of economic activity are more valuable than others and therefore have greater wealthgenerating capabilities. Second, economic activities of whatever variety display varying degrees of path dependency. In other words, once a country is locked into the production of predominantly low-value unsophisticated products, it becomes more difficult suddenly to develop a presence in the sorts of technologically sophisticated products that command higher prices in global market places. Indeed, as the ABF (1997: 5.4) report argues: The structure of trade and of the domestic economy interact with each other and can reinforce existing patterns of specialization. A trade pattern specialising in low-tech, homogenous products can retard or even preclude the development of more knowledge-intensive, innovative and higher productivity industries. [Emphasis added]

Competing Capitalisms: Theoretical and Policy Implications 185 If industry policy is understood as 'the custom design of policy instruments to fit the differing priorities, needs, and circumstances of individual industries' (Okimoto 1989: 9), with a view to raising the productivity of factor inputs, then it becomes possible to see how governments might play a crucial role in encouraging the development of particular economic activities or industrial processes. There are several areas in which governments can play a potentially important role. Initially, there is the more generalized task of developing what Castells and Hall (1994: 9) call 'mileux of innovation', or the social, institutional, organizational, economic and territorial structures that create productive synergies and encourage the development of new high-value-added products. A key aspect of this process is developing a broadly based social and industrial infrastructure that permits the diffusion of technological knowledge, and which allows technical expertise to spread and be assimilated throughout an economy (OECD 1996: 18). In this regard, Japan has a clear advantage over countries like Australia, in that it has systematically institutionalized a capacity to develop and diffuse technology in enduring social relations that stretch from the education system to business, and which are coordinated by governmental agencies (McMillan 1996). Significantly, Japan's approach has been based on an explicit rejection of an industrial developmental process based on the notion of comparative advantage in favour of a long-term strategy in which government took responsibility for creating an environment in which targeted industries could emerge (Freeman 1987: 34-9). The distinctiveness and potential importance of Japan's approach in contrast to Australia's was highlighted in the abortive Multi-Function Polis (MFP) initiative, in which the Japanese Government suggested constructing a futuristic high-tech city in Australia, of the sort that had been pioneered in Japan. Clearly, this was a potentially important way of encouraging the sort of technology transfer and manufacturing investment that generations of Australian policy-makers had been hoping for. Revealingly, the project failed to materialize, despite a comprehensive report which emphasized the critical importance of Australian government support in realizing the venture (Yencken 1989). Without the sort of government support that underpinned the Japanese approach to technological development, Japanese investors were unwilling to make large-scale investments in Australia. In short, the different political rationalities that informed government and business practices and relations in Japan and Australia

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ensured a mutual lack of comprehension on the part of key Australian and Japanese officials, and ultimately led to the MFP's demise (Beeson 1996c). In sum, it seems that while Japanese industrial policies may not always have been successful, they have, nevertheless, provided a prevailing economic environment which is specifically designed to reflect the needs and encourage the growth of domestically based industry. Certainly, important corporate innovations like 'lean production', life-time employment and close links between keiretsu members are also important explanations of Japanese industrial competitiveness, but without an underpinning developmentalist political rationality it is unlikely that Japanese industry would have developed as quickly or in the ways that it has. MITI's systematic promotion of technologically sophisticated manufacturing and the skilful phasing-out of less valuable industries clearly facilitated the transition to the contemporary ascendancy of Japanese industrial corporations. The question is, are such policies either relevant or possible in the contemporary global political economy?

THE DEVELOPMENTAL MODEL AND THE EAST ASIAN CRISIS The unfolding of the East Asian crisis in the second half of 1997 has changed not just the economic and political landscape of the region, but placed a large question mark over the legitimacy of any Asian way' of managing political and economic relationships. At one level this may be no bad thing. There was clearly much that was self-serving about the discourse of Asian values' (Rodan and Hewison 1996), and much that was simply corrupt about the close relationships between government and business that characterized the political economies of countries like Indonesia and Malaysia (Robison 1997; Gomez 1994). As we have seen, Japan was far from immune from the dangers of corruption when key relationships between business and government become institutionalized and enduring. The important question here, however, is whether the closeness of the such relationships and the possible lack of 'transparency' invalidates the possibility of effective industry policy. This is clearly a significant issue for both Japan and Australia. For Japan, the abandonment of state-guided industrial development will not simply mean the adoption of a supposedly technically superior

Competing Capitalisms: Theoretical and Policy Implications 187 market-based policy paradigm, it will mean a profound upheaval and reordering of the deeply embedded social relationships that have coalesced around the national project of development. As we have seen throughout this book, economic policy both reflects and shapes the social environment within which it is embedded and operationalized. For Japanese policy-makers and business leaders to adopt something like a neoliberal political rationality will require not simply a new policy framework, but the placing of social relationships throughout the Japanese political economy on a new basis. More to the point, the unravelling of the close ties between business and the bureaucracy in particular will mean that one of the most important aspects of Japan's successful implementation of industry policies and a key element of that country's infrastructural power will be effectively diminished if not dismantled. I have considered the possible implications of the East Asian crisis elsewhere (Age, 1 Aug. 1997: 15; 5 Nov. 1997: 15; 25 Nov. 1997: 17; Australian, 5 Sept. 1997: 27; 23 Oct. 1997: 11; 26 Dec. 1997: 13), and shall not repeat that analysis in any detail here. A few relevant points may be briefly made, however. First, much of the unfolding crisis, especially the rapidity with which other countries succumbed to its remarkable contagion effect, tells us as much about the way the new global economy works as it does about the individual economies that were at the centre of the financial maelstrom. Indeed, judged by the so-called 'fundamentals' of high investment, fiscal probity and so forth, which until recently had drawn such plaudits from the likes of the World Bank (1993), there seemed to be little that was irredeemably amiss with many of the economies involved. In the longue duree of capitalist development as a global system, the enduring significance of the crisis may be as the harbinger of a more generalized shift in the relative power of financial as opposed to industrial capital (Arrighi, 1994). Certainly this is not a distinction that is either clear-cut or without its difficulties, but if the recent economic destabilization highlighted one characteristic over all others, it was the enhanced power of financial capital, and the potentially destabilizing influence such instantaneous capital flows can have on underlying 'real' economies (Beeson 1998). What is of most immediate significance here is that Japan is now at the epicentre of what is increasingly a global crisis. Most attention however, been directed towards the difficulties faced by Japan's massively indebted banking sector and there are several related

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points that are worth noting in that regard. First, the non-performing debts that currently threaten the integrity of the entire Japanese financial system are the legacy of the bubble economy, which was itself a direct result of the earlier liberalization of Japan's domestic financial system. In other words, not only was domestic deregulation a major contributor to Japan's current problems, but it is not clear that it will remedy them. Indeed, further liberalization of global finance looks likely to further entrench the systemic volatility that has been at the heart of the current problems. Second, the implications for other countries are potentially ominous. For smaller players like Australia, it means that national currencies are hostage to the actions (or inaction) of significant economic actors like Japan (AFR, 28 Nov. 1997: 1), making autonomous policy-making even more problematic. But even a country as powerful as the US is not immune from the fall-out. The importance of what Robert Gilpin (1987: 336-9) called the 'Nichibei economy' as a fundamental structural component of the world economy is becoming all too apparent. For years the US - the world's largest debtor nation has been reliant on Japanese institutions to finance its budget deficits through bond purchases. Major difficulties in Japan's financial sector could see massive capital repatriation which would have a profound affect on US interest rates, the domestic economy and ultimately the stability of the contemporary global economic system. Clearly, much of this is speculative and inherently unpredictable. However, the key issue here is whether, ceteris paribus, there are still advantages to be gleaned from actively pursuing trade and industry policies with the intention of trying to shape the content and direction of domestic economic activity. From an Australian perspective, the answer would clearly seem to be in the affirmative. The recent East Asian crisis has unambiguously demonstrated just how vulnerable Australia's overall economic structure in general and its continuing reliance on resource exports in particular have made it. One of the first effects of the downturn in Asia was on the value of resources (AFR, 22 Dec. 1997: 1). Indeed, Australia was especially exposed, given that its trade is increasingly directed towards Asia. The impact of the downturn, if it endures, will be felt in other sections of the economy, beginning with tourism and education, but ultimately affecting manufacturing as well. This makes the case for developing a diverse economy, or more accurately, encouraging a range of economic activities within national borders, more compelling, rather than less.

Competing Capitalisms: Theoretical and Policy Implications 189 As far as Australia is concerned, however, the omens for industry policy are not good. Under successive Labor administrations industry policy was, as we have seen, ad hoc, poorly implemented and badly thought through. In short, governments were ambivalent - principally because overt 'interventionism' was considered to be at odds with the dominant neoliberal political rationality. The industry policy of the current Coalition Government appears equally contradictory and uncertain. While the Howard Government has gone out of its way to adopt the rhetoric of activist policy - even avowing a willingness to 'intervene strategically' (Howard 1997) its definitive response to a series of government-sponsored reports into the feasibility of a more coherent industry policy framework specifically cited the East Asian crisis as confirmation that 'highly interventionist strategies . . . can accentuate economic problems' (CoA 1997a: 39). In other words, the continuing influence of the overall neoliberal policy framework makes the possibility of a substantive change in policy direction somewhat remote (Beeson and Firth 1998). Indeed, any significant change is further constrained, not simply by the Liberal-National Party Coalition's own ideological preference for small states, but by the international promotion of neoliberal reform through transnational bodies like the International Monetary Fund (IMF) which has been given renewed momentum by the current crisis. Japan's problems are, paradoxically enough, both more and less serious than those of other countries affected by the crisis. They are less serious because industry policy in Japan has already done its work. The giant Japanese corporations that dominate so many areas of the world economy are not simply as likely to survive any global recession as are the TNCs of any other company, but they may emerge even more powerful and competitive. The productive advantages that characterize Japanese corporations both internally and across the keiretsu structures are likely to continue to be a source of major competitive advantage. It is crucial, in this regard, to separate the aspects of the crisis that revolve around Japan's financial sector from those of its corporate sector. Clearly there are important links between the two, but the structures that underpin Japanese corporate competitiveness will remain in place and continue to advantage them over foreign rivals. In other words, whatever sort of economic order emerges from the shake-out in East Asia, externally oriented Japanese companies will continue to be competitive. Japan's problems are more serious, however, because it

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must attempt to deal with challenges that threaten to undermine the entire postwar social order and the highly distinctive social and economic practices that have underpinned its success. Life-time employment, corporate alliances, and public-private sector cooperation may be radically transformed if a neoliberal political rationality supplants the existing developmental rationale in Japan. Australia, on the other hand, is threatened less with profound transformation than with steady decline. In the absence of significant policy initiatives to transform the underlying structure of the domestic economic activity, 'the Australian economy' seems destined to remain a marginal and increasingly insignificant appendage to the region. While there are a range of significant policy initiatives and strategies that Australian governments might employ in an attempt to transform the content and direction of economic activity in Australia, substantive change appears a remote prospect while a neoliberal political rationality remains embedded in national social relations, institutionalized in government and business, and at the centre of national policy discourse. On the contrary, in such circumstances the key planks of Australian policy-makers' attempts to render 'Australia' more competitive will be confined to efforts that make the domestic population more entrepreneurial, competitive and flexible on the one hand, and which attempt to create an international 'level playing field' on the other.

CONCLUDING REMARKS The development and application of targeted trade and industry policies has been central to Japan's postwar transformation, a process in which Japanese-based companies have systematically created comparative advantages in technologically sophisticated and strategically significant industries. Australian governments, by contrast, have hoped that market forces will do what Japanese policy-makers sought to achieve though planning: the creation of a modern diversified economy with a presence in key technologies, wealthgenerating economic processes, and job-creating industries. As we have seen, there is little comparison in the domestic achievements of the two countries. Ironically, one of Japan's most acute postwar problems has been managing the political fall-out its huge trade surpluses have generated. The contrasting domestic outcomes might be considered indictment

Competing Capitalisms: Theoretical and Policy Implications 191 enough of the Australian approach, yet the impact of the respective policy styles is not confined to the domestic sphere. As the Australia-Japan relationship has clearly demonstrated, the policies of national governments are a key determinant of international performance: not only are such policies likely to influence the structure of domestic activity and the competitiveness of nationally based firms, but they also influence the way in which bilateral relationships are conducted. Where one nation has a clearly defined sense of its own 'national interest' and a set of industry and trade policies that are designed to further it, then it is all too likely that other countries which lack such a vision, or which rely on the operation of 'natural' economic processes to determine economic outcomes, will be seriously disadvantaged. In Australia, despite the current Howard Government's continual invocation of 'the national interest', there seems to have been little substantial change from the approach of previous Labor administrations. Indeed, the Howard Government considers the bilateral relationship with Japan to be 'by far Australia's most substantial and successful' (CoA 1997b: 59). True, this relationship continues - at present - to run a surplus in 'Australia's' favour, but it remains one of a number of bilateral relationships that operate to the overall advantage of Japanese interests. Japan's integrated trade and industry policies mean that it obtains basic raw material imports at the cheapest possible prices to feed its sophisticated domestic industries. Australian producers, by contrast, are locked into industries that are historically declining in value and which are, in any case, achieving less than optimal outcomes precisely because of the success of Japanese trade strategies. It remains to be seen what impact the unfolding East Asian crisis will have on Japan's long-term approach to trade and industry policy. It does seem possible that the close relationships that exist between the bureaucracy and business, and the former's ability to advantage the latter through favourable access to capital and the like, will be curtailed. However, there are a range of other measures and strategies that Japanese corporations - with or without the help of the Japanese Government - are able to deploy which look likely to see them remain highly competitive into the future. Where these strategies are not factored into the policy frameworks of competing national governments, but remain apparently unrecognized, it is probable that such advantages will remain unchallenged. In short, the different forms of capitalist organization and distinctive

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political rationalities that characterize Australian and Japanese economic space not only look likely to endure for some time yet, but they will continue to produce very different outcomes as a result. Yet the Japanese experience, replete as it is with corruption and predicated on an unsustainable form of self-serving mercantilism, while possibly more 'efficient' in terms of its competitiveness, is clearly not without serious problems. A comparative analysis of this sort, therefore, begs some fundamental questions about capitalist organization per se, questions which are taken up in the conclusion.

8 Conclusion: Competing Capitalisms in the AsiaPacific Capitalism, it seems, not only assumes highly distinctive forms according to the social, political and institutional milieu in which it is embedded, but its precise contours may be influenced by the actions of policy-makers. Indeed, given that 'capitalism' is a convenient shorthand for a complex array of social relationships, it is necessarily shaped by the individual or collective actions of human beings. Policy-makers are simply distinguished by their possession of power resources that are unavailable to the general population. Even in a global economy, therefore, the actions of national governments continue to exert a powerful influence on the trajectory of national economic development and the content of national economic activity. To repeat an observation that has been implicitly and explicitly present throughout this book: capitalism, of whatever sort, is manifest in and ultimately made possible by specific sets of social circumstances. Only states can provide the structures of authority necessary to underpin distinctive national social orders, of which a legal system, the protection and legitimization of private ownership, and the functioning of 'free' labour markets are key ingredients. The contrasting historical experiences of Australia and Japan are testimony to the potentially profound influence that national governments can have. These different policy paradigms draw their inspiration from and are informed by distinctive political rationalities that have emerged from and helped determine the institutional milieu, the political constellations, and the dominant discourses of which they are a part. In Australia, the emergence of a predominantly neoliberal political rationality has led policy-makers to place an increasing emphasis and reliance on market mechanisms to bring about desired economic and social reforms. In Japan, by contrast, a developmentalist political rationality has led to a much greater degree of governmental interventionism in determining economic outcomes in particular. Rather than waiting for 'the market' to 193

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determine economic outcomes, Japanese policy-makers have attempted to plan the course of Japanese development and develop economic structures and relationships in accordance with a clearly defined sense of both a 'national interest' and of the sorts of economic structures and processes that are most likely to promote it. Throughout this book we have seen how the different approaches adopted by Japanese and Australian policy-makers have led to significantly different outcomes. Japanese companies find themselves in possession of the commanding heights of the global economy, while 'Australia' finds itself occupying an increasingly marginal niche specializing in the production of raw materials for the industrializing economies of East Asia. True, there have been a few encouraging developments in a limited number of manufacturing ventures, but these achievements have been overwhelmed by Australia's spiralling manufactures deficits, which are a function of the structure of domestic economic activity and the way Australian economic space is linked to the wider global economy. Australian policy-makers have not only relied on market mechanisms to restructure Australia's economic space, they have attempted to encourage other nations to follow suit. Japanese policy-makers, by contrast, have long recognized not only that some economic processes intrinsically more valuable in terms of wealth and job creation, but that such activities may be actively encouraged by specific governmental policies.

IN THE WAKE OF THE CRISIS The recent economic crisis in East Asia might seem to suggest that Australia's faith in the superiority of the market model and the inevitability of its universal adoption may finally be borne out. Certainly, the crisis has highlighted differences between AngloAmerican and East Asian models of capitalism, and raised questions about the durability of the latter. Indeed, it has rapidly become the conventional wisdom that East Asian forms of capitalism have become inefficient anachronisms that will be swept aside by a rising tide of market-oriented reform. Given the influence the United States is able to exert within powerful bodies like the International Monetary Fund and the World Bank, and given the indebtedness of countries like South Korea, there are clearly good reasons for supposing that any distinctively Asian model of capitalism is likely to come under increasing financial and ideological pressure. In short,

Conclusion: Competing Capitalisms in the Asia-Pacific

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the crisis presents a possibly unique historical opportunity for the Anglo-American nations to force East Asia to 'converge' on the Anglo-American model. Gratifying as such a prospect may be to policy-makers in Washington and Canberra, it is a vision that is not only unlikely to be easily realized, but it raises more fundamental questions about the viability of the Anglo-American model itself. One of the central propositions that this book has attempted to substantiate is that in a context where the effectiveness of national public policy - especially its economic aspects - is measured against the sorts of 'fundamentals' that preoccupy economic commentators and financial market speculators, then Japanese public policy has clearly been a good deal more successful than Australia's. If rising living standards, trade surpluses, and the development of supercompetitive, wealth- and job-generating industries are the criteria by which to judge successful economic management, then Australia clearly comes a poor second to Japan. Certainly, commentators are right to point to more intangible measures like the 'quality of life' in Australia when comparing the two countries (Castles 1992), but this would seem a somewhat fortuitous historical legacy, which is, in any case, being placed in jeopardy by precisely the sorts of economic competition of which Japan is the key exemplar. While there may be a good deal which is either romanticized or simply unattractive about the social accommodation that has emerged in Japan, it is worth considering what the alternative might be in the - still unlikely - event that Japan's entire social, institutional, economic and political frameworks are overturned and market forces become that nation's principal allocative mechanism. First, such a transformation would clearly be a threat to the long-term competitiveness of industries based in Japan. As we have seen, the distinctive work practices, labour relations, corporate structures and government-business relationships that have underpinned Japan's rise and conferred a discernible competitive advantage would be eroded should such institutionalized arrangements disappear. Moreover, for all its problems - and radical critiques about the possibly exploitative nature of Japanese industrial relations notwithstanding - the Japanese system does present an important theoretical alternative to the increasingly dominant Anglo-American model. Whether it is the 'patience' of Japan's long-term capital, the more collective sharing of economic pain in the event of economic downturn, or simply the less polarized distribution of wealth in Japan compared to the US, the Japanese model has qualities that make it potentially more

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durable and attractive than the Anglo-American alternative. Indeed, so successful has the Japanese model been in the postwar period that it has not only provided a role model for countries like South Korea and its chaebols, but it has attracted the attention of influential commentators in the West. The phenomenal success of Will Hutton's (1996) The State We're In, its influence on the British Labour Party, and the subsequent defeat of the Conservatives, suggest that large numbers of people are disillusioned with, and seeking an alternative to, the prevailing market-oriented orthodoxy. The idea of 'stakeholder capitalism' drew much of its inspiration from the alternative models of capitalist organization found in countries like Japan and Germany. A good deal of the attraction of these alternative models clearly flows from the belief that they are in some way more equitable and less brutal than the somewhat Darwinian Anglo-American model, with its emphasis on individualism and self-reliance. However, there are also reasons for questioning whether the more communitarian forms of capitalism might not generate competitive advantages that make them more 'efficient', even in the narrower, economic sense of the word.

A CIVILIZED CAPITALISM? Robert Putnam's influential examination of Italy's regions suggested that their striking disparities in economic performance could be explained by the quality of their 'social capital'. Social capital, Putnam (1993: 167) suggests, refers to the 'features of social organization, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions'. In other words, cultivating a cooperative social infrastructure appears to be one way of ensuring that the long-term investment necessary to encourage key economic processes occurs within a particular geographic space. Certainly this would seem to go some way to explaining Japan's success as a centre of technological innovation and development. But it clearly does not explain the similar - if not greater - success of the United States in this area. Two observations can be made about this: First, many of the most dynamic aspects of the 'US economy' seem to be concentrated in specific areas, like Silicon Valley, and are consequently less thoroughly diffused through the economy and polity than is the case for Japan. The second point that can be made - which has more direct relevance for Australia


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- is that the Anglo-American countries which have embraced the market so enthusiastically are paying an increasing price in social dislocation as a consequence. Both the US and Australia are characterized by significant - and increasing - disparities in wealth and income levels (Thurow 1996; Stilwell 1993). Entrenched unemployment, combined with an increase in part-time and casual work, have engendered an increasing sense of insecurity amongst many of those with jobs, and a sense of alienation and hopelessness amongst those without. Not only is this inimical to the development of social capital, but there is an even more direct cost to countries which allow market processes to play a major part in social outcomes. Simply put, countries like the US and Australia to a lesser extent are at a significant competitive disadvantage as they are compelled to devote significant resources to simply policing or incarcerating members of the population who for one reason or another find themselves on the wrong side of the law. Gordon (1995: 76) estimates that some 34 million Americans are engaged in some form of what he calls 'guard' or 'threat' labour, that is, protecting one section of the population from the other. In Japan, by contrast, crime and imprisonment levels are still extraordinarily low. At a time when the Anglo-American model of capitalism has been given renewed credibility and authority, and the neoliberal model is being actively promoted, not to say imposed on the East Asian region by a number of transnational regulatory authorities with the overt support of the US in particular (Beeson 1998), then the question of the relative merits of the two models is clearly of continuing significance. As the revelations about corruption at the highest levels of Japan's bureaucracy reveals, there is clearly much that can go wrong with enduring relationships that are unaccountable and from which the participants can benefit at the public's expense. And yet this does not necessarily invalidate the importance of planned economic development or the potentially useful role that an appropriately motivated public service might perform. Plainly, there are a range of functions, particularly those revolving around the provision of public welfare, which states remain especially well qualified to perform. Indeed, in an era when the advance of neoliberalism appears to be creating ever greater social tensions, polarities and general dislocation, there is potentially an even more important role for suitably equipped and motivated government agencies to play in attempting to insulate societies from the impact of untrammelled market forces.

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One of the most important issues for the coming century will be deciding upon the sort of regulatory framework within which international economic activity occurs. It seems inevitable - barring a complete breakdown of the international economic system - that this will necessitate a cooperatively managed system. While this does not inevitably mean that nation states will be the sole, or even the main players in shaping this system - private authorities are likely to become an even more influential part of whatever regime emerges (Germain 1997) - it does mean that the 'external' international political economy will be an ever more important influence on domestic activity. Consequently, establishing whether the international management system is permissive or coercive will be a critical political exercise over the next few years. In short, will the international system be sufficiently flexible that it can accommodate different forms of capitalist organization, or will political power be used to try and force a process of convergence onto the model preferred by the most influential international players? At this stage, if a convergence process is occurring, it seems most likely to be towards the Anglo-American model championed by the US. However, the underlying strength of the Japanese economy, or, more accurately, its externally oriented companies, means that Japan cannot be ruled out as a major future actor in determining the nature of the international economic system. Indeed, the relative recovery of the 'US economy' notwithstanding, there is still a major disjuncture between the US's political influence and its economic strength, something that may well generate tensions if the reform process becomes increasingly painful. There is, in fact, the potential for conflict about the most appropriate forms of capitalism to spill over into inter-regional tensions if the more interventionist states of East Asia attempt to resist the pressure emanating from the likes of the IMF and champion their own, more accommodating, international institutional architecture. Yet even if pressure from the likes of the US and the IMF is successful in winding back the most visible elements of the developmental state model - particularly the cooperative or collusive relationships between the state and business that have attracted so much retrospective attention - it is important to recognize that the underlying industrial power of countries like Japan may not be greatly affected. In many ways the Japanese developmental state has done its job. Even if the Japanese state cannot find new ways to further the interests of Japanese-based corporate entities - and this in it-


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self is by no means a foregone conclusion - externally oriented Japanese companies are already well placed to compete successfully in global markets. Moreover, the logic of Japanese corporate activity continues to confer particular structural advantages, especially in the area of international economic activity, which seem likely to endure. This is not to suggest that all countries ought to adopt interventionist or mercantilist policies. The arguments put forward by orthodox economists about rent-seeking and the possible waste of public assets have merit: it is not obvious why national governments should subsidize the private profitability of possibly inefficient domestic capitalists. On the other hand, if other nations are employing particular strategies - for whatever reason - then it is important that these are factored into the policy initiatives of other governments. In the Asia-Pacific region of which Australia and Japan are a part, interventionist government strategies have been a key ingredient underpinning the rise of successive generations of late industrializing nations. The trick for policy-makers of all nations would seem to be in deciding which policies can be employed to promote the more valuable forms of productive activity, while at the same time minimizing the potential for corruption in, or featherbedding of, uncompetitive industries. The important point here is that policies have to be both reflective of international commercial realities and targeted sufficiently accurately so as to ensure that they maximize potential benefits. Clearly, this latter suggestion is hardly revolutionary or easily achieved. However, policy that is predicated on a theoretically sophisticated base and which takes seriously, domestic, bilateral and international contingencies is more likely to be successful. Going beyond the all-encompassing rubrics of 'Japan' and 'Australia' is a necessary part of this process.

A SUSTAINABLE CAPITALISM? Even if some forms of capitalism appear to have inherent competitive advantages, we need to remember that policies to encourage wealth-generation are only a part of the problem of economic and political management. Distribution remains a crucial issue, and it is here that the Japanese model has, or at least had, potential importance. Historically, the great merit of the Japanese system would

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seem to have been its ability to overcome at least some of what Marxists like to call capitalism's 'internal contradictions'. The most glaring of these in the contemporary era is the increasing disparity of wealth and life-chances that appears to be the inescapable concomitant of the Anglo-American neoliberal version of contemporary capitalism. The impact of international economic pressures on domestic labour forces, as manifest in the erosion of lifetime employment in Japan and the destruction of trade unionism in Australia, suggests that such problems are likely to increase. If the Japanese model is indeed succumbing to a combination of deep-seated structural transformation and ideological pressure, then the prospects for capitalism-in-general are uncertain. In an era when capitalism is without any rival as a planetary system of economic organization, then it is unsurprising that it should be the subject of much greater scrutiny, both as a set of structured economic relationships and as the basis for a sustainable social system. If the competition between rival capitalist systems is to be decided on their capacity to achieve a narrowly conceived range of objectives that are centred on the self-serving and potentially destructive needs of a comparatively small group of individuals then the legitimacy, if not the longevity, of capitalism of any variety must be in question. It is not simply that such a fundamentally inequitable framework would seem to offer little capacity to manage problems that are planetary in scope, of which the environment is the most glaring example, but that such a system may well be seen as increasingly illegitimate by a growing, marginalized, section of the population. Perhaps, such 'contradictions' are, as Marxists have long argued, endemic to any form of capitalism. But if competition now is simply internal to capitalism, between different forms of capitalism, then it may ultimately prove corrosive of the legitimacy of capitalism itself with unforeseeable consequences for the future of the international economic system. If capitalism is to survive as a legitimate part of contemporary social organization, it would seem that some of its more brutal aspects must be ameliorated. The success of the postwar welfare state plainly had much to do with both the perceived legitimacy of an economic system which underpinned rising living standards, and its ability to maintain high levels of employment through adequate demand. If the Japanese model, for all its problems, represents the last gasp of this more egalitarian and managed economic order, then prospects for mass living standards and employment levels


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look fairly bleak. Rather than celebrating the demise of a formidable competitor, policy-makers in the Anglo-American countries might be better advised to consider carefully the implications of granting increased authority and power to unelected economic actors and unregulated market forces. It is not simply the ability to manage the international economic system that is in danger of being terminally eroded here, it is also the legitimacy of that system in the eyes of the citizens that ultimately constitute it which is at stake. Economic systems operate in the way they do because people, consciously or unconsciously, powerfully or powerlessly, act in ways which allow them to do so. Much of this has an automaticity or path dependency which imbues such processes with a degree of 'naturalness' that belies their highly political nature. At times of crisis - such as we are currently experiencing - the certainties imparted by enduring social institutions may be questioned, overturned and reorganized. All that seems solid may, as Marx famously observed, melt into air. At such times the way we think about such systems, in short, the ideas we bring to bear on them and with which we understand them, are of critical importance. While there may be no credible alternative to capitalism at this particular moment, comparative analysis reminds us that there is nothing inevitable or irrevocable about the sort of economic system we collectively create. If we allow market forces to play an increasingly greater role in determining the outcome of economic activities, it will be because we have collectively chosen to do so. The state may not be the force it once was, but this is more the result of political processes than it is of irresistible technological change. As this comparative examination of Australia and Japan demonstrates, there are alternatives, even within the confines of a dominant international capitalist system. It remains to be seen whether we choose to pursue them.

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Index Accord, the 49 constraints on 50 ACTU (Australian Council of Trade Unions) 49 collaborative role in restructuring process 50 impact of neoliberalism on 51 administrative guidance 141 agri-business 134 in Australia 161-3 Akamatsu, Kaname 116 ALP (Australian Labor Party) 34, 35, 144 attitude to reform 57-9 attitude to the state 52 car plan 135-7 enthusiasm for market forces 50, 55, 57-8, 136, 167, 184 impact on Australian society 52, 58-60, 61 internal reorganization of 51-2 leadership role 44-5 limitations on possible intervention 61, 144 relationship with organised labour 48-52 see also Hawke government AMP 150 AMSWU (Amalgamated Metal Workers' Union) 49 amakudari 72 Anglo-American economies 7, 62, 65, 77, 78, 178, 194, 198 compared with Japan 66, 81, 93, 107, 110, 111, 130, 195-7, 200 APEC (Asia Pacific Economic Co-operation) 8, 95 Australian approach to 111-15, 178 Australian leadership in 121 and regional politics 111-22 passim

contrast with EAEC 117 difficulty of implementing reforms 121-2, 123 Japanese approach to 116-17 membership of 96, 119 rationale for 118-19 US approach to 118, 178 ASEAN (Association of Southeast Asian Nations) 96, 108 Asian crisis 1, 25, 180, 186-90, 194-6 and APEC 121 and Australia 187-8 impact on coal trade 168 and Japan 142, 186-7, 189-90 Asian values 186 AUSPECC (Pacific Economic Cooperation Committee) 115 Austal 169, 170 Austrade 170 Australia and neoliberalism 9, 27, 34, 177 domestic industrial structure 40-4, 194 engagement with Asia 94, 96-7, 98 impact of commodity trade 37, 44-5, 180-1 influence of Federal structure 37 investment in Asia 97 and Keynesian economics 39, 44, 54 legacy of British colonialism 36, 44 influence of neoliberal discourse 34-5, 51, 60, 113-14 influences on economic development 35, 36-44 and neoliberal political rationality 34, 35, 48, 57-60, 124, 139, 151, 161, 163, 172, 185, 189, 190, 193

224

Index necessity of institutional transformation 34 policy failings regarding Japan 92, 121-3, 125, 134, 139, 149-52, 163, 167, 169, 171-2, 185 politics of economic restructuring 44-57 shift from social welfarism 38-40 social polarisation 197 trade with Asia 97 Australia and Japan attitudes to Asia 94-6 compared 2-4, 9-10, 36-37, 41, 53, 57, 62, 65, 68-74 passim, 77-8, 92, 97-8, 110, 111, 122-3, 173-4, 180-6 passim, 189-92, 193-5 imbalance in relationship 126, 171 Japanese investment in Australia 126-52 passim Japanese political involvement in Australia 138 rationale for Australia's approach to relationship 124-5 trade relations 90, 153-72 passim Australia-Japan Research Centre (AJRC) 115 Australian Business Foundation 184 Australian Coal Association (ACA) 167-8 Australian National University (ANU) 115 Bank of Japan (BoJ) 75, 79, 140, 147 Bank of Tokyo 141 Barnett, Colin 160 Bell, Stephen 173 BHP 160 bilateralism 120 Bourdieu, Pierre 29 British colonialism 36 British investment in Australia 126

225

bubble economy 70, 77, 78 impact on Australia 129, 145-6 Burchell, Graham 26, 59 bureaucracy Australian and Japanese models compared 53 autonomy of in Japan 71 impact of ALP reforms 58 Japanese 68-80, 84, 93, 187 Keynesian model 38-9 relationship with ALP 57 reorganisation of in Australia 53-7 see also Japan; MoF; MITI Button Plan 136 buyer cartels 164 capitalism and Cold War 2 and institutionalisation 21 dependence on state 9, 193 development of 80-2, 187 future of 200-1 in Japan Chapter 3 passim national variations of 11-12, 80, 191-2, 198 car industry 41 in Australia 134-9 Japanese in Asia 108-9 Castells, Manuel 185 Castles, Francis 38 Cerny, Philip 14, 175 CFMEU (Construction, Forestry, Mining and Energy Union) 167-8 Chrysler 130 Clinton administration 90 clusters 43, 134 coal trade 163-168 Cold War 2, 39, 83, 99 collective capitalism 80-92 in Asia 99 Colley, Peter 167 commodities 157 and declining prices 37, 180 comparative advantage 36, 118-19, 179 Japanese attitude to 73, 185

226

Index

competition as element of policy reform 59, 60, 181-2 excessive 84 in Japan 73 between national economic structures 184 complementation pact 109 Considine, Mark 55 constructivism 1 construction sector 79 convergence 25, 63, 176, 178, 195, 198 Co-Prosperity sphere 95, 98, 116 corporatism 21, 56 failure in Australia 50 in Japan 83 corruption 186, 197, 199 Cox, Robert W. 18 Cumings, Bruce 99 Dai-Ichi Kangyo 85, 141 Daikyo 148 Daiwa 141 Dean, Mitchell 32, 59 Department of Foreign Affairs and Trade 56, 114 Department of Prime Minister and Cabinet 54 Department of Treasury 54, 56 developmental state 2, origins of 64-5 significance of planning 65, 186 versus Anglo-American model 23, 178 discourse 28-31 impact on labour movement in Australia 51, 60 link to power and knowledge 29 and policy 29-30, 48, 57, 172 Doherty, Eileen 107 domestic defence 38 Drucker, Peter 37, 92, 134 Drysdale, Peter 90, 114-15, 116, 118-19 dual economy 82 Dunning, John 184

EAEC (East Asian Economic Caucus) 117, 121 East Asia Analytical Unit 124 East Asian region 62, 94, 97, 179 Australia's relationship with 94-7 passim defined 96 Japan's involvement in 95-111 passim, 111 and promotion of neoliberalism 197-8 economic policy discursive influence on 30, 35, 51, 113 influences on 25-6, 46, 48, 119, 137, 141, 152, 176 and neoclassical economics 27, 54, 84, 180 and neoliberal political rationality 27, 48, 172, 185-6 economic rationalism 51 educational reform 59 efficiency 31, 51, 52, 55, 176, 196 EIE International 147 Elders IXL 43 Elek, Andrew 114-15 embedded autonomy 71 embedded liberalism 16 epistemic communities influence on Australian policy 55-56, 90 role in APEC 113-15 European Community/Union 115, 116 Evans, Gareth 94 Evans, Peter 24, 71 expertise, role of 27, 51, 54, 55, 60, 113, 124 Fallows, James 119 FDI (foreign direct investment) 6-7 composition of Japanese in Australia 126-9, 140 lack of Australian in Japan 126, 151 Japanese in Asia 100-11 passim Japanese in Australia 26-52 passim

Index influence of Australian policy on Japanese 135 motives for Japanese in Asia 100-1, 103 policy responses of governments in Asia 107-8, 122 motives for Japanese in Australia 130-2, 137 financial capital 187 financial liberalization 6, in Australia 46, 139-40, 144 influence of US 14, in Japan 75-7 financial sector attempts at reform in Japan 79 comparative organization of 21-2 East Asian form 22 impact of Japanese investment on Australia's 143-5 influence on Australian policy 46, 48, 61, 137, 188 as an instrument of policy in Japan 75 in Japan 74-80, 187-8 links to industry in Japan 75 Fingleton, Eamonn 74 fiscal investment and loan programme (FILP) 73 Fitzpatrick, John 39 flexibility 51 Japanese forms 82 flying geese model of economic development 116 food-processing sector 133-4 Fordism 81, 183 Foreign Investment Review Board 147, 148 foreign ownership 40-1, 177 in Australia 138-139, 145 in Japan 78 significance in Australian agri-business 161-2 Foucault, Michel 26, and discourse 28-9 Fraser government 45 Fuji 141 Fuyo 85

227

gaiatsu 11 Garnaut, Ross 45, 90, 118-19, 178 Garnaut Report 178-9 influence on Hawke 45-6, 114 Gerlach, Michael 87 Gershenkron, Alexander 65 Giddens, Anthony 23 Gilpin, Robert 188 globalization 4-8 discursive aspects 7-8, 52 Japanese responses to 100, 107 limits of 7, 63 relationship to state 5, 176 and regionalization 8, 94 'glocalization' 110 governance 32, 176 importance of non-state institutions 58 link to political rationality 33 'Western' and 'Asian' forms compared 58 Gramsci, Antonio 16 Gramscian perspective 16-18 Gill, Stephen 17 Gregory effect 42 Haas, Peter 113 Hall, Peter 20, 29, 185 Harris, Stuart 114 Hawke, Bob 44, 45, 114 relationship with labour movement 49 role in APEC 116 Hawke government 39, 44, 49, 58 impact on public service 56 new approach to governing 58-60 Higgott, Richard 56, 114 Hilmer Report 57 hegemony ideational 60 Japanese 99 US 14, 16 Hobson, John 24, 72 Hollingsworth, J. Rogers 176 Howard, John 52 Howard government 121, 138, 145, 189, 191 Hutton, Will 196

228

Index

IAC (Industries Assistance Commission) 53 ideas 28-31, 201 and APEC 112-15, 121 distinctiveness of Japanese economic 66, 93 and political content 30 ideational contestation 15 ideational frameworks 14, 113 influence of 55, 60 ideology 17, 30, 194, 200 Indonesia 108, 109, 186 IMF (International Monetary Fund) 17, 112, 121, 189, 194, 198 indirect investment (portfolio), Japanese in Australia 126-9, 142-3 industrial capital 187 Industry Commission 138, 180 infrastructural power 24, Australia and Japan compared 72 limitations of in Australia 46 industry policy 178, 183-6 in Australia 47, 135-7, 169 Australia and Japan compared 183-6 continuing efficacy assessed 186-90 in East Asia 179 impact on Australia-Japan trade 154-5 in Japan 65, 71-4, 91-2, 104, prerequisites for effective 177, 199 institutional logic 20 institutional memory 53 institutions 18-22 in Australia 35, 61 dangers of long-term institutionalization 79 defined 19 as filtering mechanisms 31 link to national development 19, 91, 185 and Marxist theory 20 relationship to political rationality 12, 178

and social practice 20, 61, 83, 185 and the state 22 international co-operation 15, 198 international division of labour 2 international economic restructuring 5-7, 42, 183 impact on Japan 76, 93 and uncoupling of primary products 37 international financial structure 13-14 international system 13 future management of 198-9 intra-industry trade 90 iron triangle 70 Jaensch, Dean 51 Japan attitude to market mechanisms 73, 78, 84, 110, 170, 193-4 banks 74-5, 78, 187-8 bureaucracy 68-80 passim, 84, 93, 187, 197 as a colonial power 99 competitive advantages of 9, 81, 84, 91, 173, 181, 185, 190, 198-9 corporate organization 82-9, 91 cultural patterns 66 developmental political rationality 193 desire for economic independence 37, 65, 181 and East Asia 95-111 economic problems 78-80, 189-90 financial sector policy 74-80 FDI 100-11 passim foreign policy 65, 76 historical influences 64-68 importance of planning 62, 73, 78, 81 industrial development 74, 82 integrated foreign expansion strategies 109-11, 151, 154, 165

Index institutional development 67, 83, 84, 91, 185 lack of political support for neoliberal ideas 30, 73, 112-13 'peculiar' import profile 89-92, 99 political rationality 27, 66, 68, 123, 181, 185-6 political system 69 privileging of Japanese interests 151-2, 157, 159, 163, 165, 169, 177, 191, 194 as regional role model 99, 110, 196 rice market 163 and social equity 199-200 strategic relationship with USA 98-9 wartime legacy in Asia 118 J E T R O (Japan External Trade Representative Organization) 132 Johnson, Chalmers 64, 66, 119 Jones, Evan 53 Karpin Report 59 Keating, Paul 45, 51, 57 Keidanren 121 keiretsu in Australia 157, 164 defined 85 in East Asia 104-7, 112, 122 future prospects 189 as invisible trade barrier 169-71 institutionalization of 93 networks 86-7, 165 Keohane, Robert 30 Keynes, John Maynard 5, Keynesian economics 16, 39, 54 demise of in Anglo-American economies 28 influence on policy 16-17 kigyo-shudan 85 knowledge economy 21, 83, 183 knowledge structure 14 Kojima, Kiyoshi 116 Korea (South) 108, 160, 194

Krugman, Paul Kumagai Gumi

229 181 146, 147

labour 21 impact of neoliberalism in Australia 51 in Japan 82-4, 199-201 relationship with ALP 48-52 Lawrence, Robert 91 Lazonick, William 80 LDP (Liberal Democratic Party) 69 Liberal-National Party coalition 34, 50, 52, 57, 60, 79 view of Australia-Japan relationship 172 Lincoln, Edward 89, 90, 100 LNG (liquefied natural gas) industry 156, 160 List, Friedrich 66 Maddox, Graham 45 main bank 86 Malaysia 108, 109, 186 Mann, Michael 24 manufacturing sector 41, 137, 180 declining political influence of 47 Japanese investment in Australia's 130-4 loss of jobs in 49, 50, 145 Marubeni 170 Matsushita 108 Mazda 108 Mclntosh Baring 166 McCormack, Gavan 79 mercantilism 65, 88, 92, 123, 154, 181, 192, 199 Miller, Peter 26 mining industry 36, 41-2 impact on currency and capital flows 45 Ministry of Finance (MoF) 71, 74-80, 140-1, 147 MITI (Ministry of International Trade and Industry) 71, 73, 74, 79, 91, 100, 167, 186 role in East Asia 110

230

Index

Mitsubishi 85, 86, 108, 130, 136, 156, 160 Mitsui 85, 156, 160 money politics 69-70 Moore, Barrington 64 multi-domestics 43 Multifunction Polis (MFP) 185 nation-state 7 possible decline of 175 influence of international system 13 see also state national economic policy 9, 25 see also economic policy national economy, theoretical limitations of 34, 42, 139, 175, 177 national innovation system 184 NATO (North Atlantic Treaty Organization) 13 neoliberalism 5 attractions of 177 in Australia 9, 27, Chapter 2 passim, 58 as a form of governance 59 and ideology 17 influence of ideas 18, 112, 189 as a political rationality 57-60 neoclassical model, 180 shortcomings of 84 neo-Gramscian school 16 limitations of 18, 31 New Energy and Industrial Development Organization 167 new institutionalism 19 new public management 55 New Right 47, 48, 61 Nikko 141 Nippondenso 135 Nissan 108, 135, 136 Nomura 141 North, D.C. 19 North West Shelf project 156 Nossal, Kim 56 ODA (official development assistance) 109-10, 122

OECD (Organization for Economic Cooperation and Development) 90, 115, 183 Ohmae, Kenichi 7, 157, 175 oil shocks 103, 107, 141, 159 Oki Electric 132 open regionalism 116 OPTAD (Organization for Pacific Trade and Development) 115 Pacific free trade area 113 PAFTAD (Pacific Trade and Development Conference) 115 pastoral industry 36 path dependency 19-20, 46, 63, 184, 201 PECC (Pacific Economic Cooperation Council) 115 Petri, Peter 99 Philippines 108, 109 Plaza Accord 107 Polanyi, Karl 23 policy paradigm 29, 193 political rationalities 9, 25-8 defined and explained 32-3 developmental 68, 123, 193 (see also Japan) East Asian 27 elements of 26 Japanese 27, 62-3 neoliberal 57-60 (see also Australia) social embedding 176 Porter, Michael 134 post-Cold War 13, 15, 23 post-Fordism 183 post-industrial era 21 profit shifting 162 protectionism in Australia 53 in Europe and the USA 104 Pusey, Michael 54 Putnam, Robert 196 rationality 30, 55 raw materials Australia's role as supplier for Japan 132, 133, 158-9 colonial legacy 36

Index negative impact of dependence on 44-5 real estate sector 145-8 passim impact of bubble economy 146, 149 impact on Queensland 147-8 realism 14-15, 25 reflexivity 60 and accumulation 83 regionalism 8 discursive aspect 94, 117 relational power 13, 110, 122 Reserve Bank 140 resource security importance of government policy 165-6 role in Japanese foreign expansion 100-1, 104, 155 role of sogo shosha 88, 158-68 passim revisionism 119-120 Ricardo, David 179 Rimmer, Peter 146 Rose, Nikolas 26 Rosenau, James N. 33 Ruggie, John G. 16 Sanwa 85, 141 security houses 140-3 Semiconductor Agreement 120 Shell 48, 160 shipbuilding industry 169-71 social capital 196-7 sogo shosha 86, 87-9 role in Asia 106 role in Australia 155-68 passim, 170-1 Soviet Union 16 stakeholder capitalism 196 Stallings, Barbara 177 Steven, Rob 103 Strange, Susan 6, 13, 14, strategic trade theory 180-2 state, the 9, 22-5, 53 and autonomy 24, 175 and constructivism 15-16 conceptual limitations of 24 defined 23

231

inevitability of 'interventionism' 23, 183-4 importance as insulating mechanism 197-8 Streek, Wolfgang 176, 177 structural dependence 36 structural power 13, 155 Sumitomo 85, 141, 156 tariffs 137 technocratic policy approach 55, 58 technology and social capital 196 importance of 91, 174, 183 failure to transfer 110, 133, 185 links to trade and industry policy 182, 184-5 spillover effects 92 terms of trade 37, 173 Thailand 108, 109 TNCs (transnational corporations) 3, 6-7 Japanese in East Asia 96, 104, 107, 122 and national development 11, 123 national distinctiveness 6, 41, 133 regional production strategies 104-11 passim, 134, 137, 138, 151-2, 162, 172 Tokai 141 tourism industry 148-50 employment effects 149 trade adversarial 92 barriers in Japan 90, 169 (see also Japan: 'peculiar' import profile) change in direction of Australia's 39 intra-regional 96 Japan's 'peculiar' trade pattern 89-92, 99, 105 links to investment 154 long-term decline of Australian 42, 180-1

232 trade - continued overview of Australia-Japan relationship 153-4 structure of Japanese trade in Asia 104-6 US attitude to 120 Toyota 86, 108, 135, 136 transfer pricing 105, 157 Triad 94 Trilateral Commission 17 Tyson, Laura 90, 119, 120 Unger, Danny 110 United States 14-16, 15, 25 economic success 196 and hegemony 14, 16, investment in Australia 126 and Japan 65, 76-7, 87, 89-90, 92, 96, 98, 119-22, 177, 188, 198 as a regional power 98-9, 194 triangular trade with Asia 105

Index van Wolferen, Harel Vogel, Steven 78

70

Wallis Report 145 Washington consensus 18, 111, 177 Weiss, Linda 24, 72, 100 Wendt, Alexander 15 Westpac 150 Whitlam era, influence of 45, 54 Woods, Lawrence 114 World Bank 17, 180, 187, 194 Wran, Neville 52 WTO (World Trade Organization) 13 Yahuda, Michael 98 yakuza 148 Yamaichi 141 Yeatman, Anna 55 Yoshida doctrine 65 zaibatsu 67, 84-5 zaiteku 76 Zysman, John 21

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