Neither MITI nor America: the political economy of capital liberalization in Japan

• Published in: International organization 1990, Vol.44 (1), p.25-54
• Main Authors: Encarnation, Dennis J., Mason, Mark
• Format: Article
• Language: English
• Subjects: Automobile manufacturers; Business structures; Capital; Capital investments; DIPLOMACY AND DIPLOMATS; Financial investments; Foreign direct investments; Foreign investment; Foreign investments; INTERNATIONAL TRADE; Investors; Japan; Joint ventures; Liberalization; MULTINATIONAL CORPORATIONS; Political Economy; Subsidiary companies
• ISSN: 0020-8183; 1531-5088
• DOI: 10.1017/S002081830000463X

Compared with Japan, no other industrialized country has so adamantly denied foreign investors direct access to its domestic markets. Japan continued to deny such market access until domestic constituencies finally championed foreign demands and successfully pressured a reluctant state for concessions. The initiative for these concessions came neither from Japan's principal government negotiators in the Ministry of International Trade and Industry (MITI) nor from public policymakers in America. Rather, it came from American and other multinational corporations (MNCs) seeking to exploit imperfect markets for the technology and related assets which they alone controlled and which a few Japanese oligopolists demanded. These local oligopolists served as manipulative intermediaries between MNCs and the nationstate and in that position determined both the timing and the substance of their country's long march toward capital liberalization. Between the legislation of capital controls in 1950 and the de jure elimination of those controls in 1980, what began as an extension of limited concessions to individual MNCs, eventually aided by small regulatory loopholes, gradually encompassed all foreigners supplying broad product groups. During the intervening thirty years, the MNCs examined in this article— including Coca-Cola, IBM, Texas Instruments, and the “big three” U.S. automakers —finally gained limited access to the Japanese market. For them, the formal liberalizations of the late 1960s and early 1970s proved significant, but not always decisive, as Japanese oligopolists moved both to replace public regulations with private restrictions and to mesh their ongoing political influence domestically with their emerging economic power internationally. Thus, de facto liberalization proceeded slowly and unevenly, at least through 1980, and foreign direct investment in Japan continued to languish. What capital liberalization did occur had little to do with the pressures exerted on MITI and the Japanese state by the U.S. government and the international organizations that America then controlled. Rather, American diplomacy proved successful in forcing concessions from Japan only when it was backed up both by the economic power of American MNCs and by the active support of Japanese business.