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Social Capital andEconomic Governance:Japan, the US and Germany

Jeffrey Broadbent

Department of Sociology

University of Minnesota, USA

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Overview of talk I. Economic Governance and Growth

Governance=State-Society Relationship II. Methods:

Policy Network SurveyLabor Policy “Domain”

III. FindingsComparing network patternsPower in policy-making

IV. Discussion: theoretical implication V. Conclusion: Social Capital, State and Growth

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Theories/Models of Economic Governance

Weak-state Market Capitalism“Washington Consensus” (US)Strong-State Administered Economy (China)Problems of transition-”shock” or slow?Social corporatism: state-capital-labor Tripartite policy-making (Germany)East Asian “economic miracles” (Japan)Puzzle of East Asian growthLed to theory of Developmental state.

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Big Questions—”Governance” Is there “one best way” of relationship between: State and business? State and wider society? One best balance of freedom and order? Competition and regulation? Or does what is “best” For a given country and time period Require building on “what is there” -- The existing institutions, society and culture?

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Example--East Asian Growth Challenged US global economic dominance Confounded neo-classical economic theory: East Asia: lots of workers, but little capital, land or resources. Why East Asian “economic miracle?” Challenged weak-state market-led theory. Not strong state-administered economy. A form of corporatism? Raised questions about “best” governance.

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East Asian Developmental State Basic Idea: State is autonomous – not corrupt. And embedded, in networks with business. State ministries “guide” businesses Toward national economic goals While retaining “enough” competition. Variants: Japan, South Korea, Malaysia,

Singapore More state-led than social corporatism But less that state-centralized economy

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Difficulties--Developmental State Model

Japan example: Until 1990 Japan succeeded. But 1992-present -- “lost decade.” Cannot restructure economy Supports ailing firms Bad-loan problem (near 100% of GDP) If government can “guide” businesses, why was Ministry of Finance not able to guide banks to stop making risky loans?

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Varieties of “Mechanism”to explain Development State governanceState-rule approach

o Johnson, MITI & the Economic Miracleo State control of currency exchange

Cultural approacho Okimoto, Between MITI & the Marketo “Habits of compliance to state”

Neo-institutional approacho Evans, Embedded Autonomyo “State uses existing networks”o A form of “social capital”

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Social Capital Networks Traditional capital – land, labor, money. Factors of growth and power Social capital– personal relations that Bring about trust or assurance in the other. Facilitates communication and cooperation Can also be exclusive, only for “members” Example: voluntary associations (Putnam) Affected by cultural and social patterns.

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This Research Project Investigate the presence and effect of social capital networks on information flow, political support And state role in the economy in three types of political-economies:

o Weak state market-economy (USA)o Social corporatism (Germany)o Developmental state (Japan)

Do they differ in social capital? If so, Why? Rules, social patterns, culture?

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II. Methods – data source Policy network survey:

Japan, United States, Germany Labor policy “domain” in mid to late 1980s Respondents: all organizations in domain.

government agencies; business & labor associations; political parties; civil society groups,

About 120 in each national case. Knoke, et al. Comparing Policy Networks

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Survey Questions Three networks among organizations:

Transfer of public political supportTransfer of vital information about

politicsExpectation of reciprocity--long-term

mutual-aid (a form of social capital) Reputation for influence Organizational data (membership, etc.)

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Question -- Expected Reciprocity (ER)

“Sometimes in politics, another organization will ask yours for political support, and even though your organization has no direct interest in the issue, you will give it. Then you will feel that you can expect a return of that support sometime in the future. Check off all organizations with which your organization has such a relationship.”

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Holistic qualities of networkso Density (% of all possible connections)o Reachability (% of all possible actors)o Path distance (average # of links)o Pattern

Qualities not reducible to members Members distinct positions in diverse networks Distinct networks in tension within polity.

Thinking like a Network

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III. Findings

Comparison of three networksSocial Capital NetworksMeasured by Expected Reciprocity (ER)Visual image of ER networks:US, Germany and JapanQuickly shows differences

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NETWORK VITAL INFORMATION

Country U.S. Japan Germany

Density 11.47 3.81 6.29

Connectivity 96.59 69.33 74.82

1 (direct) 11.88 3.81 6.29

2 (two links) 54.77 30.03 34.64

3 29.08 27.85 28.86

4 1.26 6.44 4.96

5 0.00 1.07 0.06

6 - 0.14 -

(no link) 3.41 30.67 25.18

Dyads (N) 13,572 14,762 15,750

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Network POLITICAL SUPPORT Country U.S. Japan Germany

Density 4.14 4.77 4.52

Connectivity 42.00 55.00 53.00

1 (direct) 9.8 8.6 8.5 2 (two links) 20.6 29.4 27.2 3 25.6 37.0 38.9 4 24.2 23.1 18.7 5 15.0 1.8 5.3 6 4.4 0.1 1.1 7 0.5 - 0.1

(no link) 58 45 47 Dyads (N) 13,572 14,762 15,750

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NETWORK SOCIAL CAPITAL

Country U.S. Japan Germany

Density 0.96 2.40 0.37

Connectivity 4.70 37.60 1.18

1 (direct) 20.0 6.4 33.0

2 (two links) 46.5 32.8 22.7

3 27.1 38.7 11.4

4 6.5 18.6 0.91

5 - 3.4 0.80

6 - 0.2 0.91

7 - - 0.57

8 - - 0.11

(no link) 95.3 62.4 98.82

Dyads (N) 13,572 14,762 15,750

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Expected Reciprocity in the US

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US SC Network Properties Small social capital sector in whole polity Low density, low reachability (27/117) Only labor unions & public interest groups Overlap with political support networks Has intuitive plausibiity Echoes the core strategy of labor: solidarity Lack of social capital in whole polity Reflects individualism (rational opportunism) of typical U.S. actors

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Expected Reciprocity in G

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German ER Network Properties Scattered around polity Low density, low reachability (29/126) Ruling party linked to welfare associations “Upper” house of provincial gov’ts (laender) Constitution requires “cooperative relationship” Hypothesis: Reflects “rule of law” culture, Multiple party representation and coalitions, And strong social welfare institutions

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Expected reciprocity in Japan

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In Japan, the pattern of ER ties takes the shape of a “butterfly.”

The “Butterfly State” (labor policy domain)

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Japan SC Network Properties Butterfly pattern in labor policy domain: Two sectors (business and labor) Corporatist (pyramidal) organization Few direct cross sector connections Government agencies in between Network theory: “structural hole” Gov’t bridge-keeper or broker role Enhances government guidance power Political parties on periphery of network

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Depth of Networks Distances in network are Social distances, based on Number of connections And number of paths to reach. Image is 2 dimensional projection Of mulit-dimensional reality Can show in 3 dimensions To give better sense of complexity Of the social reality

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Mage projection

Of Japan social capital network

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Inter-Network Correlations

Networks U.S. Germany Japan

SC*VI 0.071** 0.092** 0.302**

SC*PS 0.249** 0.138** 0.262**

PS*VI 0.153** 0.183** 0.203**

SC3*VI3 0.003 0.020 0.139**

SC3*PS3 0.022 0.101** 0.142**

SC=Social Capital Network VI=Vital Information NetworkPS=Political Support Network ER3, etc.= a third party in common

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Network Overlap Tendency--Japan

A

B C

VITAL INFORMATION

POLITICAL SUPPORT

SOCIAL CAPITAL

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Networks and Political Power

Survey used measure of “reputation for influence” (RI) Asked all 120 expert respondents to Check off all organizations they thought “Especially influential in labor politics” Total score (0 – 120) is influence measure.

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Fifteen Most Influential Organizational Types in Japan, US and Germany

Organizational Type

Japan ( 122)

US ( 117)

Germany ( 126)

Government Agency

5 2 1 Quasi-Gov’tal-Government

3 0 3 Political Party 2 3 6 Business Association

2 3 2 Labor Association

3 5 3 Public Interest Gp.

0 2 0

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Connections and Rep for Influence (RI)

Variables German US Japan SC*RI .146 .270** .501** VIsent*RI .622** .544** .640** PSrec*RI .693** .096 .237** PSsent*RI .215* .565** .612** VIbrok*RI .485** .490** .460** PSbrok*RI .352** .213** .318** SCbrok*RI .228* .287 .564**

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Basis in Popular Culture? Some argue Japan has: Strong habits of obedience and trust Toward government and people But international surveys show this not true. Lower trust toward major institutions than found in Germany & US

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Confidence

Figure 8.1 Confidence in Major Institutions:

Japan, the US and Germany, 1991

Source: World Values Survey

COUNTRY

JapanUSAWest Germany

Per

cent

ans

wer

ing

"a lo

t" o

r "q

uite

"

70

60

50

40

30

20

Institution

Legal System

Press

Parliament

Civil Servants

Companies

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Discussion

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Inter-Elite Networks Lack of trust in popular values Indicates social capital networks Not derive from embedded popular values. Social capital networks inter-elite, They cultivate in-group mutual trust. And also channel important resources That cascade down membership hierarchies. Shows “duality” of social capital

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Butterfly Pattern and Power Guidance power of Japanese state Depends not purely on culture —habits of obedience-- But on “butterfly” pattern of social capital network Giving state role as broker between two sectors. This pattern also held for (then) MITI between main business conglomerates

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Not present in financial policy domain. Corporation sector grow, more independent No countervailing shareholder sector-- One wing and central body only. As a result, despite many Old-Boy networks t Ministry of Finance could not restrain banks In late 1980s, banks made many bad loans Brought on Japan’s “lost decade”

Butterfly not in all policy sectors

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The End羽落とす

蝶々はどこ

落ちる哉

Lost a wing,Where will the butterflyFlutter down?

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Socio-culture and Butterfly High density and inclusiveness of Of social capital ties in Japan Stable pattern of vertical ties to third parties Family (ie) (Nakane Chie, Vertical Society) Peak associations negotiate policy Village model of decision-making (mura) Butterfly pattern negotiates class tensions With personal relationships

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US: Individualism and market US weak-state market-led model fits with information flow network- rapid immediate one-step flow. and weak social capital network— lack of “sticky” relational commitments Permits constantly shifting alliances Among business and political interests

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Germany: Law and Institutions Very “solid” labor and welfare institutions Built like Mercedes cars-- to last. But organize labor market too rigidly To respond best to rapid technology change. Importance of law and order in German culture Transition from state to social corporatism Now slowly to more market-led organization

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Institutional “Echoing” Basic values and relational patterns Affect possibilities of formal institutions What types will function most effectively For public goods outcomes In a given society and nation.

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Not automatic

Socio-cultural levels not entirely self-organizing (auto-poetic) But also not entirely imposed by authorities. Network patterns (and values, schema) Provide embedded rules and resources

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“Steering” and Design Intentional actors can use Embedded socio-cultural qualities To build institutions Example-Japanese officials “built” labor and business corporatist organization Using indigenous embedded models To “tame” 1950s surge of union growth And steer society toward maximal productivity.

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Tensions between Networks

Networks as meso-level patterns Different networks can have different Patterns and included actors These can be in tension, cross-purposes Whole system not “integrated” like body How to have “creative tension”?

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Conclusions

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Interaction between culture, social relational patterns and “objective” political-economic structures varies by nation/society

Political-Economic

Social Network Patterns

Culture

Society 2Society 1

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To build most effective institutions For public goods production, And for private goods production, Institutional creators need to Pay attention to indigenous Embedded social patterns To work with them positively To create empowering institutions

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finis

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V. Conclusions A. Given the critique and revision of the idea of NC in this paper, and the

findings from research, what remains of the idea of “national character?” Cultural and NC boundaries (however measured) not necessarily contiguous

with national boundaries: can overflow, and can pluralize (and can do both). However, continuing importance of culture/character is obvious. Just its

degree of overlap with “nation” and with “society” is variable. (Example of Magyar ethnic group).

Same type of variation also true for social relational patterns, styles and connective networks.

PE styles are also subject to the same variations. Cross-national variation in degree of overlap, overflow and pluralization of the

three spheres (c, s and pe) seems worth taking notice of as a possible principle affecting macro-variation in national behavior of various sorts.

Origins of this cross-national variation lies in historical paths – buildup and transition process of nationally institutionalized cultural and social relational patterns and character, interacting with p.e. opportunities.

Need to pay attention to these factors in giving advice on pathways of institutional change. The failure of the “shock therapy” in Russia (advice given by some prominent American economists) as a terrible example.

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Changing economic theoryRelational equilibrium (Nash)

Socio-cultural elementsRules in formal institutions (North)Social relational networksCulture (continual reincarnation)Rethinking the state--governance

Theories of Economic Development (2)

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NC Level US (Anglo-Amer) Japan (“core”)

State to business

hands off, regulation, or being captured

East Asian Model:

State guidance

Community associational village council of family heads (mura)

Family nuclear patrilineal stem & branch (ie)

Group team or vertical conflict

vertical loyalty /\ (Nakane)

Dyad voluntary relation ascribed relation

Self independent interdependent

Values freedom to pursue own ideals, interests

“harmony” & belonging to a group (Lebra)

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Comparing Policy Networks Social relational network: Expected Reciprocity (ER), as defined, indicates a long-

term social relationship (This can be either social capital or embedded) Social commodity exchange networks: Vital information -- “non-depleting” distributable commodity

(giving it out not reduce your stock) Political support -- “depleting” distributable commodity

(giving it out depletes your stock). VI or RS not require a long-term social relationship Other important networks not directly measured: “payoff”

networks, idea networks, moral or normative leader or modeling networks . . .

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Key question of network analysis

relevant to the present inquiry—do the nodes (as “actors” exercising “agency” determine the shape and quality of influential networks (the Western presumption), or do the network patterns have some autonomy and determine the role and presentation of self (perhaps even core identities and values) of the node (“network member”) (as implied by Japan NC model)?

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NC Level Japan NC Japan Policy Networks

State to business

East Asian Model:

State guidance

Commu-

nity

village council of family heads (mura)

Family patrilineal stem & branch (ie)

Group vertical loyalty /\ (Nakane)

Dyad ascribed relation

Self interdependent

Values “harmony” & belonging

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What is the basis of persuasion? If posit two rational “actors,”

Expectation of good results?punishment?reciprocity?

If posit “culture” or “social relationship” as defining motives,Trust of ministry?Legitimacy of ministry?Social capital? Embeddedness?

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III. C. Trust in Japan

Given the density and inclusiveness of expected reciprocity ties,

We would expect higher levels of generalized trust toward other people and toward institutions

And higher levels of community organizational participation

in Japan than in US

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Trust toward own countrymen

Source: World Values Survey 1991

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Participation

Figure 8.4 Community Group Participation

Japan, the US and Germany, 1991

Source: World Values Survey

COUNTRY

JapanUSAWest Germany

Per

cent

Bel

ongi

ng

60

50

40

30

20

10

0

Organizational Type

Social Welfare

Religious Organiz'n

Youth Work

Sports/Recreation

Education/Cultural