Reviewed by: Circles of Compensation: Economic Growth and the Globalization of Japan by Kent E. Calder Frances McCall Rosenbluth Circles of Compensation: Economic Growth and the Globalization of Japan. By Kent E. Calder. Stanford University Press, 2017. 320 pages. Hardcover, $90.00; softcover, $29.95. A new book by Kent Calder is always cause for cheer, and this one is no exception. Circles of Compensation puts Calder's scholarly gifts on full display: it advances a broad argument, relates the argument to relevant social science theories, anchors it historically, illustrates it with careful attention to detail across a wide range of issue domains, and, finally, proposes possible policy solutions. Japan, says Calder, has had a tendency to promulgate policies that favor insiders—or, in other words, create circles of compensation. These policies internalize benefits and externalize costs, shifting them onto others, most notably consumers and taxpayers. The banking system favors banks over savers; land policy favors the construction industry and developers over residents; food policy favors farmers over consumers; energy policy favors the energy industry over general citizens; transportation policy favors the transportation industry over users; and the media market favors media producers over the general public and foreign journalists. Why does Japan operate this way? Why are these arrangements both widespread and stable, and how is it that they have survived Japan's integration into the world economy? Calder recounts familiar explanations for Japan's persistent "iron triangle" of politicians, bureaucrats, and business insiders: late-developer "catch-up" industrialization, a strong bureaucratic apparatus capable of enforcing insider deals, a relatively homogeneous population, and politicians eager to raise campaign contributions from the benefiting industries for expensive election campaigns. Calder's emphasis is on the strength of intermediate associations of insiders that form the circles of compensation capable of defending their advantages in the face of successive would-be newcomers. Protective regulations, however they might discourage innovation or affect the Japanese economy as a whole, allow insiders to insure themselves against failure; these insiders are then able to foist the requisite "insurance premiums," so to speak, onto outsiders, most notably the general population. Calder offers by contrast the auto industry, which was never as well cartelized as many other Japanese industries, as an example of successful innovation and globalization. Circles of Compensation is far richer than this review can fully capture: the book overflows with fascinating details, interpretations, and implications. In the chapters on finance and on land and housing (chapters 4 and 5, respectively), Calder explains how during Japan's period of postwar economic expansion an attachment to real estate as the principal form of collateral favored the construction industry and real estate developers. But Japan's economy is no longer a closed system, and new laws in the 1980s allowing capital outflows (and, by extension, offering alternatives to domestic savings) pulled the rug out from under land prices in Japan. The government's [End Page 146] response, to prop up the stability of banking and real estate with easy money rather than to change collateral rules, set the stage for the asset bubble that reached vertiginous heights before bursting in 1991. Thus ended the glory days of postwar Japan. The bursting of the asset bubble also ended the illusion that Japan had invented a superior form of capitalism with an optimal allocation of risk and reward. The system that had been built on circles of compensation was not, as some had hoped, a kinder, gentler capitalism favoring all stakeholders. The primacy of insiders over the general public proved, in this case, dangerous even to the insiders themselves, at least in the short run. Decades later, thanks to the Abe administration's antideflationary monetary policy, cranes once again spike over Tokyo's skyline, and "Mori" skyscrapers count in the dozens in glitzy uptown neighborhoods. The reader is left wondering if the system has recalibrated, or if cheap money once again hides underlying rigidities. However, the US's own financial cataclysm in 2008, worse for the world than Japan's because of greater global financial integration, showed the limits of even US-style regulation, which purports to place more of the costs of financial stability on financial institutions themselves. US banks...
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Sep 1, 2024
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