Japan's Managed Globalization :
Adapting to the Twenty-first Century

Review:

Globalization and multilateralization of the world political economy have pressed new pressures for all industrialized democracies to adapt, change, and reform their policies and economic structures. Nevertheless, no country seems more challenged by these pressures than Japan that has resisted global rules for its domestic markets for a long time.

Circumstances have changed drastically in Japan between the early 1990s, when the world acclaimed Japan as one of its economics superpowers, and the early twenty-first century, as the country entered its second decade of economic stagnation. Trade liberalization and financial market integration have increased pressure for governments throughout the advanced world to comply with international rules. Domestically, Japan's industries have experienced structural reform and deregulation in unforeseen ways.

This edited volume, with well-researched chapters, submits that Japan's new policy measures and their intended and unintended outcomes constitute a novel paradigm best described as "permeable insulation" - dual-track approach that allows for sectoral policy differentiation, and therefore calls for a case-by-case evaluation of policy intent and policy outcome. Permeable insulation is Japan's attempt to manage the process of globalization by differentiating its speed and reach by political issue-area and economic sector.

"Insulation" occurs in the sense that in many areas, government and corporate policies continue to have at their core an attempt to shield companies from full competition and the rigor of market forces. Insulation is seen in the continued efforts by the Japanese government to design policies that support domestic firms in international competition and shield domestic sectors from that same competition.

Significantly, this insulation is also "permeable" because a decline in state power vis-a-vis the private sector has combined with decline in the solidarity of private institutions (such as keiretsu or trade associations) to make strategies of insulation much less rigid and uniform. Permeability means that not all parts of government pull in the same direction, leading to trade-offs and loopholes for industries to get around rules they reject or industrial policies have become less inclusive or binding.

Thus, "insulation" in post-development Japan is a much more flexible policy objective, as it can be used either to stave off change or to make its pace more manageable, depending upon the sector. Now more than ever before, firms are making their own choices about how to embrace the global economy.

As a result of this "permeable insulation" approach, Japan's response to the global and domestic challenges of the 1990s is neither one of retreat and denial, nor one of full acceptance of global standards and practices. Instead, the basic thrust is one of pragmatic utilization of new rules and circumstances to continue industry policies of promotion or protection in a new, post-developmental, paradigm according to Dr. Ulrike Schaede, leading editor of this book.

It is the first scholarly analysis of how Japan' government and firms have sought to manage the process and effects of globalization through innovative policies that the authors call "permeable insulation." This is Japan’s way of managing globalization by simultaneously opening up to, and maintaining some of its core structural features of protection in the twenty-first century.

The chapters in this book show how Japan’s permeable insulation paradigm functions in practice across a variety of key policy issue areas for understanding Japan and the challenges that Japan must cope with in the increasingly multilateral trade and policy environment of the twenty-first century.

Examples and case studies of policy-issue areas affected by "permeable insulation" policies are as follows:

Part 1: Introduction
--The Emergence of Permeable Insulation (Ulrike Schaede and William W. Grimes)
--Japanese Policy Making in a World of Constraints (William W. Grimes and Ulrike Schaede)

Part 2: International Political Economy and Permeable Insulation
--Internationalization as Insulation: Dilemmas of the Yen (William W. Grimes)
--Sword and Shield: The WTO Dispute Settlement System and Japan (Saadia M. Pekkanen)
--Adjustment Through Globalization: The Role of State FDI Finance (Mireya Solis)
--Integrated Production in East Asia: Globalization without Insulation? (Patricia Nelson)

Part 3: Domestic Political Economy and Permeable Insulation
--METI and Industrial Policy in Japan: Change and Continuity (Mark Elder)
--Industry Rules: From Deregulation to Self-Regulation (Ulrike Schaede)
--Changing Japanese Corporate Governance (Christina L. Ahmadjian)

Part 4: Conclusion
--Permeable Insulation and Japan’s Managed Globalization (Ulrike Schaede and William W. Grimes)