Economic Decline and Legal Change: Considerations from Japan's Dying Shopping Streets

Abstract

This paper is about the economic decline of shōten-kai, a form of business organization created among small merchants on the shopping streets of Japan’s cities, and the relationship of that decline to legal change. The main focus is placed on a consideration of how the decline of a business organization may affect the legal framework that has developed around it. The purpose in doing so is to fill a lacunae in the literature on the relationship between economic and legal change which thus far has largely focused on the business corporation. The perhaps unique degree of success that the business corporation has achieved as a means of organizing economic activity means that this focus has left our understanding of how law responds to the decline of such forms unexplored. Shōten-kai provide us with a somewhat peculiar context in which to explore this issue. While small merchant organizations and shopping streets have a long history in Japan, modern shōten-kai have their roots in the early twentieth century when large numbers of new arrivals to the country’s growing cities entered the retail trade. Faced with the need to compete with another relatively new market entrant – department stores – these small shop owners began co-locating and organizing with each other as a means of surviving. By the 1930s two areas of law had come to be of particular relevance to them. First, the Commercial Cooperatives Act, enacted in 1932, came to be used by shōten-kai as a means of formally incorporating their associations as cooperatives and by 1938 more than one hundred had done so. Secondly, the Department Stores Act, established in 1937, placed strict regulations on the operation of department stores and gave small merchants a crucial voice in the system for granting permits for the opening or expansion of new ones, thus providing shōten-kai with a great deal of protection from their main rivals. This legal framework, which served both organizational and protective functions for shōten-kai would be temporarily interrupted by the Pacific War but was re-established in the post-war years. With regard to their organization, in 1949 the Small and Medium Enterprise Cooperatives Act was enacted, followed in 1962 with the Shōten-kai Promotion Association (SPA) Act which created a cooperative specifically designed for shōten-kai. Today more than three thousand shōten-kai are organized under these Acts. The Department Stores Act was likewise revised in 1956 and its system expanded in 1973 under new legislation which regulated all forms of large scale retailer. The development of the law thus described occurred in a context in which small merchants, mainly organized in shōten-kai, dominated Japan’s retail system. In the early 1980s, however, the fortunes of shōten-kai took a turn for the worse, with the number of small retailers entering a sharp decline that continues to this day. Once bustling shopping streets in many cities now look more like ghost towns as long rows of permanently shuttered shops have become a common sight. The decline can be attributed to a number of economic and social changes which, in combination with a rigidity in the governance structure of shōten-kai, have placed many in a self-undermining spiral which they cannot reverse. This paper identifies three trends in the above noted legal framework which have come about in conjunction with this economic decline of shōten-kai. The first relates to their organizational law. Shōten-kai face significant governance problems yet these have not spurred changes to the SPA Act, the main piece of legislation that provides their associations with a governance framework, to address them. This may be the result of the limits of the cooperative form upon which it is based to address the unique problems they face, and also the result of the weakened role of small merchants within the law making process. A second trend has been an overhaul of the regulation of large scale retailers beginning in the early 1990s which has formally removed reference to small retailers. The third trend has been the use of urban redevelopment law by city governments in ways that overcome some of the governance problems that shōten-kai themselves are unable to deal with.