Japan's economic success has been attributed largely to the nature of its national institutions, such as relational banking, lifetime employment, and relational contracting in intermediate product markets. These institutions were tightly linked to govern the Japanese economy, but more diverse patterns of organizing have become evident since the 1990s. For instance, in financial markets, venture capital funds and IPOs (initial public offerings) have appeared alongside relational banking to finance start-ups. In labour markets, non-standard forms of employment have come to be a significant alternative to the lifetime employment norm. It is clear that the Japanese business system is becoming more diverse within. But when, why and how has such organizational diversity come about in Japan? And is such diversity a sign of a gradual breakdown of the system, or has it become the very characteristic of the Japanese system? If it is the former, what is the process by which we should expect the emergence of a new system? If the latter, how much diversity can be sustained within a system? This paper addresses these questions with respect to specific empirical cases at the national and corporate levels. The paper begins by developing a framework linking institutional change and organizational diversity in Section 1. This section advances a model of institutional change in a specific direction, namely from CME (coordinated market economy) to LME (liberal market economy), and identifies organizational diversity as a feature of such change as well as of the new emergent system. It is argued that organizational diversity may increase with institutional change due to three logically separable factors. First, diversity increases in a move from CME to LME because LME, with less sunk cost in building coordination and collaboration, accommodates greater diversity within the system. Second, diversity increases also because the process of institutional change may afford different timing for individual actors to defect from the old institutions, dictating the extent to which 'layering' may persist. Third, organizational diversity is introduced due to different settlements that result from local contests between management and labour. Section 2 examines the timing and the extent of diversity in financial and labour markets at the economy-wide level. It identifies the late 1990s as the time when organizational diversity began to take off in the Japanese economy. In financial markets, venture capital in Japan experienced 'conversion' - shifting its goals and functions from being part of the Japanese institution of relational banking towards being more part of an equity-based finance system. New stock exchanges were created, but are layered and not directly threatening existing institutions of relational banking and stock exchanges for established public corporations. Nevertheless, the layering of the new stock exchanges and legal changes triggered a slow process of conversion in venture capital. In labour markets, Shunto is portrayed as a case of 'conversion', with its function changing from coordinated pay bargaining to a mechanism forlegitimizing pay restraint and dispersion. At the same time, contingent work was identified as a case of 'layering' onto the norm of lifetime employment. Although the Japanese economy had always had a dual labour market, legal changes and practices that fuelled the use of agency labour and on-site contracting in manufacturing threatens the norm of lifetime employment more fundamentally than in earlier periods. Nevertheless, unlike in financial markets, in which layering triggered conversion, layering and conversion in labour markets have been much more drawn out and interactive throughout the 1990s. Section 3 turns to varied responses to institutional pressures at the company level in two contrasting settings. The aim here is to compare and contrast the ways in which Softbank and NTT used the holding company structure to bring about organizational diversity. These cases highlight another reason for organizational diversity by focusing our attention on how company-level action impacts on national institutional change. The introduction of the pure holding company form faced experimentation, and is being adopted in different ways by various companies to satisfy their own ends. In particular, Softbank not only created a new institution in the form of Nasdaq Japan, but also adopted the pure holding company structure to overcome the absence of a realistic 'exit option' for venture capitalists. NTT also adopted the holding company structure but for a different reason, namely as a political compromise, and greater diversity in its internal labour markets, subverting the norm of lifetime employment, has been slowly introduced despite union resistance. In summary, this paper addresses the conference sub-theme of how different kinds of national institutions complement or conflict with each other, giving insight into various actors' strategies and their capacity to influence institutional change.
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Open Access
Sep 1, 2009
John Leslie 
