Adjustment to stagflation and neoliberal reforms in Japan, the United Kingdom, and the United States: the implications of the Japanese case for a comparative analysis of party competition.

The 1980s is widely regarded as the decade of neoliberalism for advanced industrial democracies. Conservative governments pursued neoliberal

ideology and carried out major overhauls of socioeconomic policies not only in the United Kingdom and the United States but also in Japan (cf. Kreiger, 1986; Thompson, 1990; on Japan, see Otake, 1994; Shinkawa, 1993). Responding to the problem of economic stagnation and industrial competitiveness, the common aim of neoliberal reforms was to reduce state commitments and encourage market initiatives. But in contrast to the U.K. and U.S. experience, Japan's approach was characterized by (a) industry-centered mediation of market interests and (b) the autonomy of the state bureaucracy in devising reform packages. Because both of these are largely lacking in the liberal market regimes of the United Kingdom and United States--and even in Europe's neocorporalist regimes--the Japanese case adds a new dimension in understanding how different political economies vary in their response to common policy imperatives.(1)

State and industry worked together in Japan to organize social interests, bridging social conflicts instead of merely representing them. Despite the policy dilemma posed by stagflation after the first oil crisis, party convergence was facilitated in Japan because unions accepted wage restraint in exchange for employment security, and the bureaucracy distributed the costs of expanded employment policy among the strong and depressed industries. The rise of moderate unions in this process facilitated the demise of radicalism in the unions and smoothed cooperation between government and opposition, leading to the convergence of parties. In contrast, lack of industry centered adjustment and bureaucratic coordination in the United Kingdom and the United States led to party polarization because conflicts over whether to expand programs for unemployment or to implement tight monetary policy and tax cuts to stimulate an investment-led recovery were directly transmitted to the political arena.

This contrast between party convergence in Japan and polarization in the United Kingdom and the United States was reinforced by neoliberal reforms of the 1980s. The Japanese government carried out pension, health care, and tax reforms based on bureaucratically coordinated plans to distribute among conflicting social groups the costs of welfare retrenchment and tax increases to reduce the deficit. Such coordination facilitated party convergence because it allowed parties to agree on minor concessions for their constituents while leaving the policy framework intact. In contrast, the Thatcher and Reagan governments aggressively pursued income tax cuts, which were funded by cutting income-support and employment programs. By pitting the rich against the poor, conservative mobilization and neoliberal reforms in the United Kingdom and the United States ignited countermobilization, which reinforced the cleavage between neoliberals and the Left and preserving opposition strength, namely, Labour in the United Kingdom and the Democrats in the United States.(2)

In Japan, accelerated convergence between the government and opposition led to the 1993-1994 breakdown of the postwar government-opposition divide and the weakening of the Liberal Democratic Party (LDP) in power after 1994 (to the present 1998). The collapse of the government-opposition divide is witnessed by (a) the creation of the seven-party coalition in 1993, which included former members of the LDP and the Socialists; (b) the creation in 1994 of a coalition government by parties that were adversaries in the postwar party system--the LDP and the Socialists; and (c) the disappearance by the 1996 election of all the opposition parties of the 1993 election (except for the Communists) due to extensive regrouping of politicians across LDP-opposition lines.

In what follows, I will address how responses to stagflation and neoliberal reforms led to the convergence of party positions in Japan. I will then suggest how coping with similar problems and employing the same ideology resulted in different policy packages and reinforced party polarization in the United Kingdom and the United States. I conclude by arguing that the notions of industry-centered adjustment and bureaucratic coordination improve on existing theories of Japanese politics, which have heretofore had difficulty explaining the transformation of the party system. The result, I hope, provides a richer comparative understanding of societal interests and the state as well as a political-economy perspective of party system change.

THE EVIDENCE

ECONOMIC ADJUSTMENT, NEOLIBERAL REFORMS, AND PARTY CONVERGENCE

The quadrupling of oil prices in 1974 triggered stagflation in advanced industrial democracies. The Japanese response differed from the U.K. and the U.S. responses in that, in Japan, (a) unions at oligopolistic corporations, led by those in export industries, moderated their wage demands in exchange for employment security; (b) such wage restraint at the firm level had nationwide effects through intra- and interindustry coordination; and (c) the oligopolistic industries and their unions lobbied for adjustment policy, namely, measures to assist firms and workers with economic transitions. As a result, adjustment policy focused on the depressed industries and small firms in depressed areas that were unable to retain or redeploy redundant workers on their own. When Sohyo (General Council of Japanese Trade Unions), then the dominant national union, challenged moderate union leaders' support of wage restraint and cooperation with government, moderate unionists reorganized the national labor movement to replace its radical critics. Moreover, as the government and moderate opposition parties cooperated in passing adjustment laws and annual budgets to alleviate the plight of depressed industries and areas, the emerging union leaders urged the Socialist Party to dispose of its Marxist ideology and strengthen ties with moderate opposition parties instead of the Communists. Thus, industry-centered adjustment in Japan encouraged centripetal tendencies in the party system.

As documented extensively by Shinkawa (1993) and Tsujinaka (1986), the major export-industry unions in Japan, which were led by the steel union, called for voluntary wage restraint at the 1975 annual wage round and, without industrial disputes, accepted wages even below the guidelines set by the employers' association. Large corporations met union wage restraint with employment guarantees. Numerous surveys confirm that large firms cut costs but retained employees by implementing policies in the following order: reducing overtime pay, cutting the number of new recruits, firing temporary or part-time workers, flexibly redeploying personnel to different positions or firms, and offering severance allowances and generous early retirement plans.(3) Firms used vertical and horizontal corporate ties (or keirestsu networks) in relocating workers, both between major firms in different industries and between the parent firm and its subsidiaries or subcontractors. By following this adjustment pattern, the major corporations of shipbuilding, which was the most severely depressed export industry, drastically reduced its workforce without layoffs.(4)

The effects of wage restraint at major corporations were felt nationwide due to institutionalized intra- and interindustry coordination that had been in operation since the mid-1960s. In this system, oligopolies in the export industries--automobiles, electronics, shipbuilding and heavy machinery--pegged their wage increases to those of the steel industry. The largest steel manufacturer, Nippon Steel, set wages for the four other major steel companies. Steel wages also conditioned those of private railways, and these two industries together served as the reference point for managers of most firms.(5) After 1975, export industries formalized wage pegging by setting up a group in which the top two firms and unions of each of the four major export industries (steel, automobiles, electronics, shipbuilding and heavy machinery) met to discuss wage increases. Wage moderation at major corporations and interindustrial wage coordination has remained in effect throughout the past two decades as the export sector has coped with recurring difficulties, including a rapid appreciation of the yen (1977-1978), a second oil crisis (1980-1982), another rapid appreciation of the yen (1985-1987), and the postbubble recession (after 1990).

Adjustments based on the exchange between wage moderation and employment security were less feasible in depressed industries and small firms in depressed regions. Here, state assistance was essential, and it was strongly demanded by the unions as well as business associations. The adjustment policy regime took place in two stages. First, with the 1974 Employment Insurance Act--which subsidized employers for retaining, retraining, and redeploying redundant workers--the government moved away from the Anglo-American type of unemployment insurance toward an active labormarket policy. Second, with the 1976 revision of this law and another set of new laws passed in 1977 to 1978, the government linked employment policy with industrial policy and concentrated its efforts on firms in depressed industries and areas. In terms of industrial policy, depressed firms were supplied with government-guaranteed loans, were allowed to set up government-enforced cartels to cut production or dispose of redundant facilities, and were compensated for their disposal of redundant facilities by a public trust fund that was jointly funded by each industry and the government. Small subsidiaries and subcontractors of major firms in depressed regions were given additional assistance to guide their businesses into new and expanding markets. Such industrial-policy assistance was provided on the condition that the firms draw up employment plans and apply for employment-policy subsidies to retrain, redeploy, or help in the reemployment of redundant workers. This industrial-employment policy regime set up by 1977 to 1978 has been reinforced and expanded every 5 years since its inauguration (1983, 1988, and 1993), adjusting as Japanese industry has faced new and recurrent problems (Sekiguchi, 1994; Shinozuka, 1989; Takanashi, 1989; Ujihara, 1989).

The issues of wage restraint and union involvement in setting up adjustment policies split the national union movement. Prior to 1975, rapid economic growth generated high wage increases. Although wages fell within the productivity gains to enable long-term employment at oligopolistic industries, wage increases were large enough to satisfy Shoyo's formal demand for maximum wages. Employment was simply not an issue for labor during the high growth period because of the labor shortage. The conflict between Sohyo and export industry unions developed after 1975, when employers and moderate unions regarded employment adjustment policies and voluntary wage restraint well below inflation rates as necessary to stabilize the economy. Continuing to criticize voluntary wage restraint, Shoyo called on the unions to strike for large wage increases, staged demonstrations demanding that the government enact laws to guarantee minimum wages and restrict dismissals, and condemned the rapprochement between the unions and the government. This posturing created a backlash among moderate industry-union leaders, who launched new liaison organizations to conduct wage coordination and strengthen policy lobbying, focusing on the above described adjustment assistance and income tax cuts. These liaison organizations had overlapping members and expanded rapidly to became the foundation of Rengo, the new moderate national union (Kinoshita, 1992; Kozuma, 1976; Murakami, Onomichi, Takagi, & Yamada, 1980).

Concomitant to moderation and reorganization of the national union movement was the rapprochement between the ruling and opposition parties. The 1976 election returned a near parity of seats between the ruling and opposition parties. Facing this situation, the three moderate opposition parties--the New Liberal Club (a splinter group of the LDP launched just before the election), the Democratic Socialists, and the Komeito--broke with the Socialists and began negotiating with the government, shattering opposition solidarity. Prior to 1976, the opposition (the Democratic Socialists, the Komeito, the Socialists, and the Communists) had maintained its unity in confronting the government with support from the unions. For the sake of unity, even the moderate Democratic Socialists in the early 1970s denounced monopoly capitalism, demanded state control of major industries, and called for the revision of United States/Japan security relations. Furthermore, the moderate unions censured attempts by the Democratic Socialist leader to negotiate budget amendments with the government as shattering opposition unity. Even as late as during the 1976 election campaign, Sohyo successfully persuaded the Komeito and the Communists to bury their …