Zeitschrift für Japanisches Recht

Change and Continuity in Japanese Regulation Ulrike Schaede I. INTRODUCTION

With the change in government in 1993, and ensuing modifications in Japan's political stance vis-a-vis its trading partners, many observers in the U.S. have come to conclude that Japan is now on its way to converge with the U.S. The Japanese economy, the argument goes, will soon be driven by free market forces only, and the economic system will become much like that of the U.S.
This is seems to be a rather quick assumption by Anglo-American journalists and economists. Two questions need to be raised in this context. First, if Japan was indeed changing and "converging", why should it converge with the U.S., of all systems, rather than with, say, the German, Swedish, or Chinese systems? Second, and more importantly, how can we judge whether or not Japan is changing if we cannot even agree what constitutes the present underlying features of the Japanese economy? This paper will develop an argument that there is no indication whatsoever of "convergence", as there are no basic changes in the ways the Japanese public thinks about the responsibility of the government to ensure economic growth and well-being. What we currently observe in Japan is not a fundamental change in the philosophy why things are done, but pragmatic adaptation to the ways in which the world is turning on Japan. To present just one example, the "opening" of the Japanese rice market in 1994 did not come about because the Japanese government acknowledged the necessity of free trade or accepted the principles of GATT, but because a bad summer destroyed the Japanese rice harvest and there was no alternative but to import rice.
Pragmatic adaptation to changes in the world is an underlying theme in Japanese history. Primary examples of such adaptation include: the Taika-reform of 645 and the introduction of a bureaucracy and tax system after the Chinese had brought confucianist thinking to Japan; the founding of the first new government that looked "Western" but was in fact a copy of that established in 645, after Commodore Perry arrived in Yokohama in 1853; or the creation of a new state system that looked American but largely represented a continuation of prewar practices after the defeat in 1945 (cf., e.g., Hall 1968, Sansom 1963). The "changes" in economic regulation in the 1980s, when Japan progressed from a "developmental" economy to a "developed" economy, constitute a further example in this time series of pragmatic adaptation.
During the developmental period (roughly 1950-1975), a certain set of policy tools and goals constituted the core of industrial policy, which aimed at fostering domestic economic growth across all designated growth industries (Johnson 1982). Beginning in the 1980s, the goals and tools, as well as the underlying strategic intent of economic policy, shifted towards an increase in international competitiveness and the prevention of a "hollowing out" of Japan. The underlying regulatory thinking, however, did not change. Therefore, what we observe is continuity under change, and certainly no "convergence" with the U.S. or any other system of capitalism.
This paper analyzes the features, tools, and enforcement mechanisms as well as the strategic intent and the core features of regulation in postwar Japan, in order to detect and interpret the ongoing changes and continuities. "Regulation" is understood in the broadest meaning of the word, i.e., simply as a single word description for the ways in which government and business interact in Japan. In contrast to the typical U.S. usage of the word, "regulation" here does not bear an a priori negative implication of government intrusion into market mechanisms. Rather, it is understood more in the continental European usage of the term, and refers without strong normative implications to the set of policies that a government employs for industry guidance.

II. PHASES OF REGULATION IN POSTWAR JAPAN

The postwar economic development of Japan can be divided into three major periods, of which the first and the third are of special interest for this paper. The first period, beginning in the mid-50s, and ending with the first oilshock in the early 1970s, is characterized by extensive regulation which aimed at economic recovery, development and growth.