Collective Action in East Asia: How Ruling Parties Shape Industrial Policy 9781501732034

Table of contents :
Contents
Acknowledgments
A Note on Asian Names and Romanization
Abbreviations
1. The Problem of Cooperation in East Asian Industrial Policy
2. How Parties and Politics Shape Policy Objectives and Organizational Capacities
3. Steel Minimills in japan: The Limitations of Cartels without Effective Compulsion
4. Alternatives to Cartels in Taiwan's Minimill Industry
5. Standard Setting and R&D Consortia in Japan's Video Industry
6. Hapless Standard Setting and Direct Provision of Engineering "Consortia" in Taiwan's Computer Industry
7. Extending the Political Logic in Time and Space: Japan, Taiwan, and Korea in the 1990s
8. Conclusion
Notes
Index

Citation preview

Collective Action in East Asia

A volume in the series

Cornell Studies in Political Economy EDITED BY PETER j. KATZENSTEIN

A full list of titles in the series appears at the end of the book.

Collective Action in East Asia How

RuLING PARTIES SHAPE INDUSTRIAL POLICY

GREGORY

w. NOBLE

CORNELL UNIVERSITY PRESS

Ithaca and London

Copyright© 1998 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, NewYork 148,')0. First published 1998 by Cornell University Press Printed in the United States of America Library of Congress Cataloging-in-Publication Data Noble, Gregory W. Collective action in East Asia : how ruling parties shape industrial policy I Gregory W. Noble. p. em.- (Cornell studies in political economy) Includes index. ISBN o-8014-3 177-8 (cloth : alk. paper) 1. Industrial policy-East A~ia. 2. East Asia-Economic policy. 3· Industrialization-East Asia. I. Title. II. Series. HC46o.5.N63 1998 338.g54-dc2 t g8-36834 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable-based, low-VOC inks and acid-free papers that arc recycled, totally chlorine-free, or partly composed of nonwood tlbers. Cloth printing

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g 8 7 6 5 4 3

2

I

Contents

Acknowledgments

1.

vii

A Note on Asian Names and Romanization

IX

Abbreviations

XI

The Problem of Cooperation in East Asian Industrial Policy

1

2. How Parties and Politics Shape Policy 26

Objectives and Organizational Capacities

3· Steel Minimills injapan: The Limitations of Cartels without Effective Compulsion

48

4· Alternatives to Cartels in Taiwan's Minimill Industry

72

5· Standard Setting and R&D Consortia inJapan's Video Industry

93

6. Hapless Standard Setting and Direct Provision of Engineering "Consortia" in Taiwan's Computer Industry

123

7· Extending the Political Logic in Time and

Space: Japan, Taiwan, and Korea in the 1990s

8. Conclusion Notes Index

148 172 99 241 1

Acknowledgments

It is sobering to realize how greatly academic research depends on financial, intellectual, institutional, and personal support. Generous grants from the Reischauer Institute of Harvard University and the InterUniversity Center made possible a year of advanced language training in Tokyo. Initial field research in Japan and Taiwan was conducted under a Fulbright-Hays dissertation grant. Institutional affiliations at Tokyo University's Faculty of Law and the Chung-Hua Institution for Economic Research in Taipei greatly facilitated both data collection and interviewing. At critical points the Sanwa Bank Foundation and the Institute of International Studies at the University of California at Berkeley provided funds for write-up and additional fieldwork. The initial guidance for this research came from Susan Pharr, Robert Putnam, and Ezra Vogel of Harvard University. Their suggestions and introductions proved both helpful and remarkably complementary. During fieldwork Inoguchi Takashi of Tokyo University and Yu Tzong-Shian, president of the Chung-Hua Institution, were unfailingly helpful and supportive. Encouragement and good cheer from nonacademics Shiobara Terumi, Matsuzawa Miki, and Cheng Yuchin greatly eased the pressure of fieldwork. At later stages suggestions from Peter Cowhey, Elizabeth Perry, David Collier, Jonah Levy, and Rick Doner stimulated useful revisions. A special debt of gratitude is due to Stephan Haggard, who provided penetrating criticism and advice at several points. My experience amply confirmed the sterling reputation of Peter Katzenstein, Roger Haydon, and the staff of Cornell University Press for combining rigorous academic standards with efficiency and gracious treatment of sometimes-tardy authors. Robin Ward compiled the index with customary dispatch and pro-

vii

AcKNOWLEDGMENTS

fessionalism. Last but not least, I am profoundly grateful to the many busy government officials, businesspeople, union representatives, politicians, journalists, and academics in Japan, Taiwan, and Korea who generously provided time, insights, and materials to a foreign researcher. Naturally, all those kind enough to provide advice and support are absolved of any responsibility for the results reported here. I accept sole responsibility for all sins of omission and commission. G.W.N. Canberra, Australia

VZZl

A Note on Asian Names and Romanization

The text follows the East Asian practice of placing family names first (Sun Yat-sen, Hashimoto Ryutaro) except for Westerners, AsianAmericans, and citations to Asian authors who adopt Western name order when publishing in English (Daniel Okimoto, Yun-han Chu). For simplicity, I have not included macrons for Japanese names or umlauts for Chinese names. For Chinese, I have followed the international standard pinyin method of romanization except where alternative spellings have passed into established convention in Western writing (Taipei, Lee Teng-hui).

zx

Abbreviations

Asahi GSSB lJRB LHB MSB Nikkei SYH

TJW

WDSD ZGSB ZHRB Z¥D Z\'RB

Asahi Shinbun Gongshang Shibao Jingji Ribao Lianhe Bao Minsheng Bao Nihon Keizai Shinbun Shichang yu Hangqing Taiwanjingji Yanjiu Yuekan Wei Diannao Shidai Zhongguo Shibao Zhonghua Ribao Zixun Yu Diannao Zhongyang Ribao

xi

Collective Action in East Asia

CHAPTER ONE

The Problem of Cooperation in East Asian Industrial Policy

The extraordinary economic growth, technological accomplishments, and bulging trade surpluses of Japan have been a source of admiration and envy the world over. Despite recent economic stagnation and political instability, the Japanese experience still exerts a powerful appeal. With the diffusion of growth to Korea, Taiwan, Southeast A'iia, and China, the 'japanese model of economic development" seems to be spreading across Asia. When China released a new industrial policy in 1994, Chinese officials reported that they had "devoted considerable research to the industrial policies of the Ministry of International Trade and Industry (MITI) ." 1 For more than a decade Malaysia's leaders proclaimed their determination to "look East" for inspiration. 2 Japanese officials pushed the World Bank to modifY laissez-faire approaches and promote Japanese industrial policy as a model for developing countries, particularly in Asia. 3 When financial crisis hit Asia in 1997, many governments resisted the neo-classical prescriptions of the IMF, preferring the more gradual and hands-on approach to economic affairs pioneered by Japan. The most controversial aspect of Japanese-style industrial policies was targeting or "picking winners"-attempts by government to promote promising industries by restricting imports and providing low-interest loans and tax breaks. 4 Another major theme was combining competition with cooperation. Government and business were seen as cooperating in the face of foreign competition, forming a kind of 'japan, Inc." 5 In the 196os the Japanese government also encouraged cooperation within business groups to fend off potential foreign purchasers. Especially striking was the emphasis on promoting cooperation among competitors. This cooperation took a variety of forms. In a range of mass production I

COLLECTIVE ACTION IN EAST ASIA

industries Japanese firms established cartels to facilitate cooperation in production, pricing, investment, and mothballing of excess capacity. The government often encouraged electronics and machinery firms to create research and development (R&D) consortia to develop, standardize, and diffuse new technologies. The government also encouraged standardization of new product formats and communication protocols. In some cases, industrial policy attempted to improve coordination among upstream suppliers and downstream assemblers. In the automobile industry, for example, MITI encouraged assembly firms to increase their use of common parts so as to increase economies of scale. In the semiconductor industry, cooperation between equipment firms and final producers led to a striking similarity in technological approaches among Japanese producers. Ministries often promoted cooperation at the local level as well: in the machine tool industry, MITI branches and government-sponsored chambers of commerce supported efforts by clusters of small firms to share production and testing equipment, and even to divide orders in times of surging demand. 6 The use of industrial policy to support efforts at cooperation in Japan has received considerable attention. 7 Analyses of industrial policy in other East Asian countries have been fewer in number and overwhelmingly focused on the successes and failures of targeting. Nonetheless, similar efforts can be seen in Korea and Taiwan. Export cartels were occasionally used to increase the prices received by local producers. 8 In both countries, government encouraged standardization of auto parts across models. Research and development consortia made a notable contribution to the Korean telecommunications industry in the 1g8os. At about the same time, Taiwan's Industrial Technology Research Institute began to organize a bewildering array of R&D consortia. 9 Scholars have devoted considerable effort to elucidating the collective action problems that dog efforts to induce cooperation among competitors. Collective action problems involve, as Todd Sandler put it, "an interdependency among the participants, so that the contributions or efforts of one individual influence the contributions or efforts of other individuals." 1° Firms often find themselves in situations in which individually rational decisions may not be collectively optimal. A classic example is an R&D consortium: each firm wants the fruits of the research but is reluctant to dispatch its best researchers or to reveal proprietary techniques. To be sure, the combination of independent decision making and interdependent effects does not necessarily lead to inefficiency. As Adam Smith pointed out more than two hundred years ago, the forces of competition normally determine prices in a way that leads to socially optimal outcomes. If the baker wastes fuel heating a drafty oven, other bakers will lure away customers by insulating ovens and undercutting the price of 2

The Problem of Cooperation in East Asian Industrial Policy

bread in the marketplace. Problems arise only if the market is imperfect or includes public goods. When the customer purchases a private good such as a loaf of bread she gains exclusive control of it. When she eats it, it is completely consumed. In the case of public goods, however, it is impossible to exclude others from enjoying the product, and enjoyment by one does not preclude enjoyment by others. Partially public goods display only one of these characteristics, or display them to some limited degree. (See Figure 1.) Markets do not always provide optimal amounts of public goods. Market failures include such problems as monopolies, incomplete information, and externalities. Externalities arise when the market does not compensate an agent for the effect on her welfare of the activities of another agent. Pollution of fishing grounds by a petrochemical factory is one example. The factory does not pay for the loss suffered by the fishing village downstream when it dumps wastes into the river. Market failures may lead to several types of collective dilemmas. The most famous is the prisoner's dilemma, in which a couple of suspects interviewed separately end up confessing even when the district attorney lacks adequate evidence, because each suspect fears the other will squeal first to procure a better deal. When the prisoner's dilemma stems from problems in the provision of public goods (paying taxes, providing for

Excludability

High

High

Low

Private goods (loaf of bread)

Migratory resources (ocean fish)

Club goods Rivalry of Club goods Medium (private tennis courts) (public tennis courts) consumption

Low

Figure 1.

Dissemination goods (scrambled TV broadcasts; patented scientific discoveries)

Public goods (national defense)

PUBLIC VS. PRIVATE GOODS

3

COLLECTIVE ACTION IN EAST ASIA

common defense in military alliances, limiting emissions of greenhouse gases) individuals are tempted to "defect" or free ride, since they can enjoy the benefits without paying for them. Worse yet, they may fear that others will defect first, leaving them suckers, paying their fair share even as provision of the collective good (or avoidance or cleanup of the collective bad) begins to unravel from mass defections. Crafting organizations and policies capable of providing information and incentives sufficient to convince individual actors to modifY their behavior is difficult. In the case of industry, possible candidates include government agencies, industry associations, or ad hoc associations of firms. In the case of Japan, firms have sometimes mounted doughty resistance to collective initiatives that threatened to impinge on their operations or competitive strategies. At the same time, the persistence of organized efforts at collective action suggests that sometimes obstacles are overcome. What capacities are required to overcome the reluctance or resistance of individual actors? An equally important question is seldom asked: When will government adopt promotion of collective action as a goal? Three considerations come into play: economic and political benefits, feasibility of implementation, and superiority to possible alternatives. Each requires an administrative and political judgment. Determining when a genuine market failure exists is not always easy. Collective dilemmas are not always social dilemmas: a group of business firms may seek to stabilize a volatile industry even when the costs to consumers and society exceed the benefits to producers. Similarly, the effect of standardization on economic efficiency is not always clear. Governments may also seek to reap political advantage from helping producers overcome collective dilemmas. However, if the government lacks adequate policy tools or faces a chaotic or resistant collection of firms, promoting collective action may not be worth the effort. The government's own unity and persistence may be crucial constraints as well. For example, during the Great Depression of the 1930s the Roosevelt administration attempted a number of initiatives to support collective action, but opposition from the judiciary and prevailing American ideology doomed the efforts. Finally, economic and political desirability and administrative feasibility must be measured relative to alternative policies. Collective action enjoys some major strengths. In most cases it is relatively inexpensive and welcomed by most if not all of the affected firms. On the other hand, the danger of monopoly or loss of agenda control to private businesses may be greater than with such alternatives as targeting, direct provision of collective goods by government, or hands-off policies. At least in Japan, industrial policy has included a large collective component.

4

The Problem of Cooperation in East Asian Industrial Policy COMPARING INDUSTRL\L POLICY IN EAST AsiA

A major obstacle to investigating goals and capacities has been the tendency to study the bureaucratic, structural, and cultural roots of Japanese industrial policy in isolation. 11 Not a single comparative work has been based on primary research in more than one of the East Asian languages. Moreover, while the strong state approach has been applied on occasion to Japan's former colonies and students of rapid growth, virtually no studies have attempted to compare across East Asia the issues of coordination and brokering that lie at the heart oftheJapanese modelY The dearth of comparative work is especially surprising given the striking commonalities in geography and history. Japan, Korea, and Taiwan all suffer from a paucity of natural resources and are densely populated by unusually homogeneous societies. All three inherited the Chinese cultllral tradition, including use of Chinese characters, traditional Chinese medicine, and transmission of Buddhism and Confucianism. The dynamic developmental regime that sprang from the Meiji Restoration in Japan also colonized and modernized Korea and Taiwan. lflocal interests were systematically, often cruelly, subordinated to those of the home islands, the improvements in education, infrastructure, and industry surpassed anything observed under European (and American) imperialism.13 Anti:Japanese rhetoric notwithstanding, even after independence many bureaucratic structures-the comprehensive household registration system, for example-remained unchanged. Large parts of the adult population were fluent in Japanese and intimately familiar with the Japanese approach to organization. It is not surprising that the first wave of Japanese overseas investment in the late 1950s and 1g6os washed primarily onto the familiar shores of Taiwan and Korea. 14 Equally important in forging common bonds was the similar relationship to the United States. The physical devastation and terrible inflation accompanying the destruction of the Japanese Empire by the United States leveled many of the inequalities of prewar societies. In all three countries, American occupation forces and postoccupation advisers implemented or prompted major reforms, particularly in land tenure, and contributed massive amounts of aid. Japan, Korea, and Taiwan occupied crucial positions in the anti-Communist alliance constructed and directed by the United States. The Americans systematically supported conservative governments against their challengers on the left. 15 American policies encouraged and even enforced an orientation toward the West and, despite some opposition from Europe, ensured the East Asian capitalist countries access to Western markets, financing, and technology. 1" Recent research reveals that American aid advisers actively contributed to East Asian indus-

5

CoLLECTIVE AcTION IN

EAsT

AsiA

trial policy. 17 The densely populated economic powerhouses of East Asia thus shared, for better and worse, successive waves of cultural, economic, and political influence from China, Japan, and the United States. Japan and Taiwan shared long-term rule by conservative parties, while Korean regimes were less stable and strongly influenced by the military.

LEVIATHAN, CORPORATISM, AND CULTURE

Three broad classes of explanation-bureaucratic, cultural, and corporatist-dominate the study of East Asian industrial policy. They generate contrasting predictions about the goals and capacities governments bring to putative collective action dilemmas. While the corporatist variant seems most useful, more precise and accurate predictions follow from two related considerations: the impact of ruling parties, and variations stemming from differences in the specific collective dilemmas facing firms. The most influential approach to East Asian industrial policy emphasizes the crucial role played by government in selecting industries for protection and promotion. Chalmers Johnson advanced the argument that elite bureaucrats in Japan (and later Taiwan and Korea), motivated by a nationalist mission to catch up with the West as well as a more parochial desire to expand the influence of their individual ministries, perfected a "capitalist developmental state" in which politicians reigned but bureaucrats ruled. Elite bureaucrats, according to Johnson, took responsibility for both drafting and implementing legislation. Through skillful use of government financing, tax breaks, selective protection, and creation of industrial visions, MITI stimulated the development of sunrise industries and eased the transition of resources out of sunset industries. 18 Japanese authors such as Nakamura, Shinohara, and Sakakibara and Noguchi rooted Japanese success in the institutional innovations pioneered during wartime mobilization and postwar catch-up, particularly the financial "dynasty" presided over by the Ministry of Finance and the Bank of Japan and coordinated with MITI. 19 These authors demonstrated that ubiquitous government intervention decisively molded market structures and patterns of competition. If bureaucratic capacity is the key to industrial policy, a simple prediction follows: the stronger the bureaucracy, the greater the ability to induce cooperation. A bureaucracy with abundant access to carrots (side payments) and sticks (direct regulation) should be able to change the decision calculus of private firms. Collateral powers in the form of a broad jurisdictional mandate and ability to exercise flexible "administrative guidance" should further erihance the value of specific policy tools. We should observe relatively little variance across industries and issues over6

The Problem of Cooperation in East Asian Industrial Policy

seen by the same government, but considerable variance across countries. The main focus of the strong state theorists is industrial targeting, but they note that the government's developmental strategy often tackles issues of collective action as well. Johnson cites the Sumitomo Metals incident of 1965 as an important example of MITI's power. Sumitomo, an up-and-coming Osaka firm, wanted to expand at a time of weak demand. MITI and the leading steel firms, worried about excess capacity, pressured Sumitomo to desist. After prolonged confrontation a compromise emerged, which Johnson interprets as a victory for MITJ.2° Similarly, Marie Anchordoguy describes how a leasing company subsidized by MITI and jointly owned by the major Japanese computer producers spread risk, stabilized prices and terms, and dramatically expanded the market by allowing users to lease rather than rent. 21 From this perspective the bureaucracy should be even more effective in eliciting cooperation in the "hard authoritarian" regimes that characterized Korea and Taiwan than in Japan's allegedly "soft authoritarian" system. 22 If intervention has indeed been ubiquitous, the insistence on bureaucratic dominance is more dubious. The policy tools available to MITI and other bureaucracies declined precipitously. In the early postwar years MITI controlled foreign exchange and the entry of foreign capital, restricted imports, and, in cooperation with the Ministry of Finance, exercised considerable influence over the lending practices of public and private banks. By the late 1970s and early 198os all these powers had been eliminated or greatly reduced. Japanese analysts with a penchant for the dramatic spoke of the "sinking foundations" (jiban chinka) of MITI's authority. 23 Even in the heyday of industrial policy, from the late 1940s to the early 196os, assertions of bureaucratic dominance were open to challenge. Friedman, for example, paints the efforts of central government bureaucrats to impose rationalization and mergers on machine tool makers as a complete (and fortunate) failure. 24

CULTURE AND ETHNICITY

A second approach looks not so much at the formal organizational attributes of government as the common cultural values and identities that bind government and business. Robert Smith argues that Japanese society is pervaded by groupism based on territoriality and a strong sense of community: "when faced with a task, or upon adopting a goal, the cultural preference (and the common practice) in Japan is to form a group." 25 Smith notes that Japanese elites value continuity and actively try to recreate hallowed patterns of behavior and a sense of common descent even in relatively new urban or suburban communities. Ronald Dore argues that 7

COLLECTIVE ACTION IN EAST ASIA

the combination of Confucianism and late development made the Japanese more likely than Westerners to operate on the basis of "goodwill" and to exercise "restraint in the use of market power out of consideration for the interests of bargaining partners/adversaries, or for the interests of a whole to which both belong." As Dare puts it, 'Japanese corporations are very good at forming cartels." 26 Acceptance of hierarchy may facilitate cooperation. Confucianism elevates obligations of loyalty to family, employer, and ruler above individuality and the rule oflaw. For Nakane, vertical relationships are at the core ofJapanese societyP It is suggestive that Japanese firms have had the greatest success in automobiles and electrical machinery, where organizing pyramids of supplier firms and mobilizing workers to improve quality have been crucial to success, and less success in software, where individual creativity is decisive. Both the ability to induce diligence and cooperation in work groups and the tendency of Japanese firms to look for guidance from MITI and other ministries may have a cultural basis. Cultural explanations of government or business policy have come in for considerable criticism. Strong conclusions are often based on limited or misleading comparisons. Japan may be less litigious and crime-ridden than the United States, but it does not differ greatly from many European countries. 28 Cultural explanations are often simply incorrect. John Haley shows that Japanese file lawsuits less often than Americans not out of a fear of appearing litigious but because the Japanese legal system provides fewer opportunities and stingier payoffs. 29 In other cases, abiding cultural tendencies are adduced to explain unstable phenomena. Household savings rates were high in postwar Japan but low before the war, when traditional values should have been stronger. According to Johnson, industrial policy in its current guise appeared only after World War II and is not explicable in terms of cultural values. 30 An analysis stressing the common Confucian heritage of East Asia implies that cooperation should be relatively easier to attain in Japan, Taiwan, and Korea than in the West. 31 Lucian Pye argues that differing strands of Confucianism within East Asia account for variations in the development strategies of Japan, Korea, and Taiwan. 32 Many people in both Japan and Taiwan assert that Japanese are inherently better at working together than Chinese. 33 These cultural differences may be compounded by differences in ethnic composition. While Japan, Korea, and Taiwan are among the most ethnically homogeneous countries in the world, Taiwan is divided by "subethnic" cleavages. The ancestors of the "native Taiwanese" immigrated to Taiwan from the southeast China coast between the seventeenth and nineteenth centuries, while "mainlanders," speaking mostly central and northern Chinese dialects, took control of the government in the 1940s after the retrocession of Taiwan to China and the

8

The Problem of CoofJeration in East Asian Industrial Policy

Kuomintang's (KMT) loss of the mainland.'14 Many Japanese see ethnic homogeneity as a distinct advantage. When asked in a 1989 poll to explain American economic problems, the single most common reply by Japanese respondents was "too many different minorities" (42 percent) .35 A cultural perspective, then, would predict high levels of cooperation in all three countries, but with Taiwan slightly lower than the other two.

THE NEW JAPAL"ii, INC., SCHOOL Observing the continuing ubiquity of government partiCipation in Japanese industry even after significant economic liberalization, a "New Japan, Inc.," school emerged which began with analysis of private interests and then examined how government policy was shaped by those interests.36 Specific policy tools, analysts insisted, were less important than networks of communication and negotiation. Within these networks the bureaucracy remained important for providing information and structuring discussion, even if it was not necessarily the major source of policy innovation or an authoritative decision maker. Government can be useful as a final arbiter, but firms linked by dense networks can cooperate with minimal direction from government. When governments ignore or work against producer networks, they are as likely to upset local cooperation as to enhance itY Analyses focusing on network density generally assume that capacities imply objectives: because cooperation is possible, it is likely. Margaret McKean argues that at the macro level postwar Japan was characterized by encompassing organizations with long-time horizons that resulted in a surprisingly efficient pattern of corporatist policymaking. 38 In a study of Japanese policies toward high-technology industries, Daniel Okimoto proposed that Japan was a "network state" which managed to merge market and organization so effectively that its industrial economy could be considered an alternative model to Adam Smith's market economy. 39 In his review of a century of policymaking in the energy sector, Richard Samuels argues that business and the state were linked in a pattern of "reciprocal consent." In exchange for relinquishing ownership and direct control (and providing numerous subsidies and credit guarantees), the Japanese bureaucracy gained a broad jurisdictional mandate to intervene in energy issues. 40 Legal scholars such as Michael Young and Frank Upham also concluded that informal negotiation sponsored by the bureaucracy was at the heart of Japanese economic and social policyY In the New Japan, Inc., analysis, two key attributes of private sector networks in Japan are high levels of industrial concentration and the density and stability of corporate networks. Cooperation depends on the ability of government and business to sit down and work out agreements. With a

9

COLLECTIVE ACTION IN EAST ASIA

reduction in the number of significant producers (as measured by the Herfindahl index or some other measure of concentration), monitoring, signaling, and sanctioning become easier. 42 Dense, overlapping, and recurring ties reduce transaction costs, lead to increases in trust and cognitive consensus about effective strategies for dealing with collective problems, and facilitate long-term outlooks, binding commitments, and crosscutting deals. 4 ~ Dense networks characterize both keiretsu enterprise groups and industrial districts composed of small firms. 44 The New Japan, Inc., school focuses overwhelmingly on cases in which government and business are able to attain a mutually acceptable compromise, but says little about what governments that have traded control for jurisdiction can do when maverick firms adamantly resist policies proposed by the government or the rest of the industry. This line of analysis suggests that cooperation among competitors should be common in Japan, where levels of both industrial concentration and network density are generally high. Some analysts, such as Okimoto, argue that chances for cooperation are greater at the beginning and end of product cycles, and have gradually declined over time. Samuels and Upham, on the other hand, emphasize the ubiquity and continuity of business networks. Korea has giant business conglomerates and even higher levels of concentration, but lacks small firm networks and institutions linking all the firms in an industry. 45 On both measures, Taiwan presents less fertile soil for corporatist patterns of cooperation. Industries typically contain a larger number of producers, and business groups are smaller and less diversified than in Japan or Korea, while industry associations andrelated organizations are less well developed than inJapan. 46

THE CENTRALI1Y OF PARTISAN POLITICS

Rarely explored in existing studies is the possibility that partisan politics may shape and reconstruct policy, bureaucratic and industrial structures, and, over time, even cultural expectations and habits. Most studies of economic policymaking in Japan take politics as irrelevant or identifY it with pork barrel interventions. Okimoto's study of the promotion of high technology in Japan contends that industrial policy has been successful precisely because it has been exempt from political interference. 47 Kent Calder reaches a similar conclusion from the opposite direction. Partisan politics has been a crucial force for policy innovation and the expansion of particularistic policies in Japan during periods of crisis, he argues, but it has had little impact on industrial policy, and in normal times the bureaucracy is largely in control anyway. 48 Samuels emphasizes the stability of the Liberal Democratic Party (LDP) as a background condition for 10

The Problem of Cooperation in East Asian Industrial Policy

policymaking but pays relatively little attention to the ideology and strategies of LDP rule. Muramatsu and Krauss's review of postwar Japanese economic policy convincingly demonstrates that even in late developers striving to catch up with the West, the relative importance of economic goals may shift as ruling parties adjust their structures, ideologies, and policies to accommodate changing patterns of electoral support. However, they say little about industrial policy. 49 Similarly, while Johnson's landmark study ofjapanese industrial policy avers that Ikeda Hayato, finance minister in the 1950s and prime minister in the early 1g6os, "must be recorded as the single most important individual architect of the Japanese economic miracle," the significance of that observation is lost amid sweeping assertions about bureaucratic dominance. 50 A similar gap characterizes studies of industrial policy in Taiwan and Korea. Johnson has written a brief but influential study of industrial policy in Japan, Korea, and Taiwan, focusing mainly on the bureaucracy. Unfortunately, he has not conducted detailed research on Korea and Taiwan to match his historical investigation of MITI, and the attempt to impose a stylized Japanese model is not completely convincing. For one thing, in neither Korea nor Taiwan is it possible to identifY an individual pilot agency comparable to MITI." 1 Few others have tried to match Johnson's boldness. Tunjen Cheng's analysis of the differences in economic policy between Taiwan and Korea has a detailed and convincing explication of politics, but says relatively little about industrial policy. 52 Alice Amsden's vigorous study of Korean growth focuses on learning capacities of large companies but says little about the bureaucracy and less about politics.'•'1 Robert Wade's study of Taiwan probably goes furthest in placing industrial policy in economic and political context, but even for Wade politics is very much in the background of an activist state.'' 4 Comparative evidence from Europe and elsewhere suggests that partisan politics often exerts a major influence on economic policymaking. In a study of twenty-four countries, Hans-Dieter Klingemann and colleagues found that the promises parties made in the midst of electoral competition were surprisingly good predictors of future policy choices. 55 The link between partisanship and economic policy is especially well documented at the macro level. In Western democracies, the policies ofleft-leaning parties tend to increase public spending and to reduce unemployment at the cost of higher inflation." 6 Most influential at the industrial level has been Peter Katzenstein. Katzenstein demonstrates that a historically grounded politics of "democratic corporatism" (concentrated interest group structures, informal bargaining, and an ideology of social partnership) enabled the small states of Western Europe to facilitate industrial transformation without recourse to government promotion or high levels of protectionism.57 Parties sometimes take an active role in drafting or revising policies; II

COLLECTIVE ACTION IN EAST ASIA

more often, they indicate a broad direction and mold policy through choices of key players and provision of fiscal and legal resources. Party politics-the ideology, interests, and choices of political leadersplay a defining role in the industrial policies ofjapan and other Asian nations. Political direction specifies the goals and beneficiaries of policy, and molds the agencies and tools through which it is directed. To be sure, ministries usually implement the details of policy, and bureaucratic officials enjoy a wide delegation of authority and considerable room for initiative. Their role is important, and not solely administrative. 58 Nevertheless, bureaucrats must obtain the assent, if not the active support, of political leaders. Budgets and laws must pass the legislature, and top-level bureaucratic appointments are su~ject to political approval. Informal and quasi-legal administrative guidance is a flexible tool, but absent specific statutory authority it is often insufficient. 59 Specific guidelines by political leaders on industrial policy are unusual but not as rare as commonly asserted, and when they occur they exert a decisive impact. Governments vary in both goals and capacities. Objectives are crucially shaped by two interlocking factors: the economic ideology of the ruling party and the degree to which it depends on big business for votes, contributions, and legitimacy. An industrial policy encouraging cooperation among competitors is unlikely if ideological parties ascend to power. Margaret Thatcher and Ronald Reagan, for example, actively opposed industrial policy initiatives during their long administrations. The American government has acted on the assumption that most forms of collective action are collusive and that even legitimate collective activities easily become covers for price fixing. At the other end of the spectrum, highly statist parties are likely to rely on state-owned enterprises or monopolistic "national champion" firms to attain their ends, rather than encouraging an oligopolistic but cooperative industrial structure. An active industrial policy is also unlikely if more moderate but labor-supported parties assume power. In Sweden, a social democratic party concentrated on protecting workers through extensive training programs and generous social security compensation. For their part, industrial firms did not trust governments led by labor parties to intervene on terms favorable to them; they preferred to keep the government at arm's length. 5° The best candidates are moderately conservative parties enmeshed in mutually dependent relations with a balance of support from large and small businesses. Competitive pressures from foreign firms are likely to intensify the demand for support, particularly if none of the domestic firms is completely competitive on its own or fully internationalized in its production and research activities. That support may take the form of protection and targeting as well as promotion of cooperation, but strong links to small business (and often agriculture) constrain tendencies to I2

The Problem of Cooperation in East Asian Industrial Policy

lavish attention and resources on state-owned enterprises or national champions, and render a focus on collective action more attractive. The most likely candidates for government support of cooperation among competing firms are thus moderately conservative, stable regimes dependent for votes and funding on big businesses that are not fully competitive and internationalized. If objectives are largely a function of the ideology of the ruling party and its relations with domestic business interests, capacity is shaped by the party system and the ruling party's relation with the policymaking apparatus. A stable party system is conducive to cooperation. Radical swings in partisan control are likely to undermine incentives to cooperation in industry, since arrangements struck under one administration may be undermined in the next. Shaky coalition governments often become hostage to narrow interests and resort to particularistic payoffs rather than encourage cooperation. Frequent oversight by antitrust authorities and independent judicial bodies also undermines cooperation in industry. Conversely, the government needs access to at least some policy tools to encourage the compliant and discourage the obstreperous. Finally, a competent and neutral bureaucracy is important. Business firms may reject government support as excessive and intrusive if they cannot count on government agencies to be effective and responsive to their needs and to adopt a generally neutral stance in the disputes among individual firms that are at the heart of collective dilemmas: The state's ability to support markets and capitalist accumulation depended on the bureaucracy being a corporately coherent entity in which individuals see furtherance of corporate goals as the best means of maximizing their individual self~interest. Corporate coherence requires that individual incumbents be to some degree insulated from the demands of the surrounding society. Insulation, in turn, is enhanced by conferring a distinctive and rewarding status on bureaucrats. The concentration of expertise in the bureaucracy through meritocratic recruitment and the provision of opportunities for long-term career rewards [is] also central to the bureaucracy's effectiveness. 5 1

Provision or maintenance of a bureaucracy with corporate coherence is in itself a kind of public good, a good that many parties are unable to provide because of powerful competitive incentives to pack the bureaucracy with patronage appointments or undermine the neutrality of its operations. 62 When coherent bureaucracies do emerge, they are not simply a consequence of the pressure to rationalize capitalist economies (as Weber emphasized), but the products of specific partisan conflicts. Each bureaucracy bears the birthmarks of its country's political history. 63 Moreover, coherence, competence, and neutrality are not simply isolated attributes inhering in individual agencies. Rather, they characterize bureaucracies

IJ

CoLLECTIVE AcTION IN EAST AsrA

as they interact with political parties, interest groups, and everyday citizens. If completely divorced from society, bureaucracies cannot absorb information from society, nor elicit compliance with bureaucratic plans. More common is the reverse problem. If political parties are weak and unable to exercise discipline over their own members, the temptation for backbench politicians to colonize the bureaucracy or present it with particularistic demands is overwhelming. Evans describes the ideal balance as "embedded autonomy." 64 Electoral rules, social support groups, and party organization are probably at least as important in determining this division as the initial organizational structure of the bureaucracies. 65 Bureaucracy is a crucial component of industrial policy, as the champions of Leviathan insist, but it is not autonomous, uniform, or unchanging, even among the late developers of East Asia. The agents of industrial policy must be placed in conjunction with domestic business and, especially, ruling parties.

THE POLITICS OF COLLECTIVE ACTION IN jAPAN AND TAIWAN

Ruling parties were central to the definition and pursuit of collective action in the industrial policy of Japan and Taiwan. In Japan, the ruling party strongly favored promotion of collective action. The government's capacity to attain that cooperation, however, was more in question. Certainly, the LDP was a stable and moderately conservative party. From its formation by merger in 1955 until it lost a majority in the Upper House in 19R9, the LDP continually exercised a majority in both houses of the Diet; with the exception of a brief period in 1993-94, it continued to dominate the more powerful Lower House. 66 Military failure and occupation discredited the extreme statist ideology of the prewar period, but no one questioned the LDP's opposition to socialism and its intimate ties with the business community. Still, the LDP was not simply a creature of large business. Mter the early 196os budgetary allocations, tax policy, and loans from government banks all decisively favored agriculture and small business. This bias stemmed largely from japan's unusual electoral system, which created intraparty competition through its single, nontransferable vote and multimember districts. 67 For the typical LDP representative, solidifying a base of support among a set group of small businesses in the local district was crucial in competing with other LDP members who were targeting the same range of conservative social groups. Most LDP candidates feared each other more than the socialist candidates, who fished in a different pond. Large businesses, in contrast, could not afford to bind themselves tightly to individual incumbent representatives, since corporate interests extended over the whole country.

The Problem of Cooperation in East Asian Industrial Poliry

For the LDP as a whole, a great advantage of collective action was that it complemented pork barrel spending rather than competing with it. Supporting collective action was an inexpensive way to channel support to large producers and to provide a relatively inconspicuous and ostensibly unofficial advantage to domestic firms against foreign competition. 6 H As for capacity, the ruling party supported a cohesive and coherent meritocratic bureaucracy with clear lines of jurisdiction. While the economic bureaucracies in Japan featured functional units covering such areas as energy or pollution control, the most basic units were organized by industry (genk_'l)oku). MITI's genkyoku included basic metals, consumer goods, machinery, and other industrial sectors. Industry bureaus exercised jurisdiction over all issues affecting the industry under their purview, making it easier to build patterns of cooperation and compromise. Periodically, new industries or technologies developed that did not fit neatly into existing ministries, leading to intense sectional conflict. Over time, though, a new division of labor tended to emerge. Independent regulatory agencies were almost never formed. Courts rarely intervened in policymaking, and the antitrust aurhorities established by the Allied occupation were relatively weak. However, many of the bureaucracy's policy tools declined in effectiveness as Japanese indnstrv matured in the 1g6os and 1970s. The LDP evolved an effective pattern of interest aggregation and delegation. The top leadership of the party established broad direction for overall policies and approved all new budget items. Specific policy issues and budgetary allocations were hammered out in the party's Policy Affairs Research Council (PARC), in close consort with interest groups and tl1e relevant ministries. Given the party's support base and the electoral system within which it competed, much policy was necessarily particularistic; that particularism was checked and channeled, however, by the PARC and the top leadership, which maintained close contact with the upper echelons of the Ministry of Finance and other agencies. In Taiwan the situation was reversed. The government had greater capacities but fewer incentives to support collective action. A statist party, facing only local elections, retained undisputed control for decades. 69 The government possessed many public enterprises and exercised direct control over the entire financial system. It protected the domestic market and allocated sizeable subsidies. On the other hand, corporate and policy networks were thin, and the relationship between government and business distant. The ruling party owned numerous enterprises, many of them monopolies. It was not dependent on business for votes or funding. Instead, party leaders feared that business influence would infiltrate the party and undermine political discipline and bureaucratic loyalty. The bureaucracy, though insulated and largely staffed by written examination,

15

CoLLECTIVE AcTioN IN

EAsT AsiA

was subject to arbitrary patrimonial control by the president and party leadership, undermining jurisdictional clarity and creating an unstable and arbitrary pattern of policymaking. Korea fell between japan and Taiwan. The ruling party in Korea was more statist but less stable than the LDP. It created a highly concentrated industrial structure and a relationship of mutual dependence with big business, but devoted much less effort to supporting small businesses and forging links across the big conglomerates. The Korean bureaucracy was elite and relatively insulated from social pressures but subject to direct influence by the Blue House and one or two superministries. The intersection of goals and capacities leads to four possible outcomes (see Figure 2). The combination of a positive orientation toward collective action plus strong state capacities leads to a prediction of successful collective action by the private sector (cell 1, northwest quadrant). Positive orientation toward the goal of sponsoring collective action unsupported by adequate capacities implies that the government will at-

Objectives

High

Support

Oppose

Support Government supports collective action with powerful policy instruments

1. Repression Government blocks collective action

Fecklessness Government favors collective action but lacks the dexterity or policy instruments to elicit or compel industry cooperation

Abstention Government lacks the will and the instruments to promote or block collective action

Capacities

Low

Figure 2. r6

2. Direct provision Government rejects private collective action and instead supplies the needed good or service itself

APPROACHES TO COLLECTIVE ACTION POUCY

The Problem of Cooperation in East Asian Industrial Policy

tempt collective action policies, but without success (cell 2, southeast quadrant). If the government has strong capacities but opposes collective action, it is unlikely to emerge (cell 3, northeast quadrant). Finally, if the government opposes collective action but lacks strong policy tools, private sector initiatives may lead to some collective endeavor, even without a collective action policy (cell 4, southeast quadrant). Based on the review of the literature presented here, Taiwan falls into cell 3 and Korea into cell 1, while Japan falls between cell 1 and cell 2-inclined to support collective action, but not always assured of success. The partisan approach suggests that corporate networks and patterns of delegation are not simply artifacts of technology, market size, and economic, demographic, and technical factors, but change in response to political changes. After the late 1g8os all three Northeast Asian countries experienced significant political shifts. The transformation was greatest in Taiwan, where democratic institutions emerged in the early 1ggos. The ruling party turned to business for political support and adopted policies more congenial to private business interests. Within the executive branch, old patterns of personalistic delegation gave way to more regularized patterns of decision making. As a result, policy toward collective action moved from cell 3 toward cell 1. Korea also democratized and gingerly moved to shift some of its support from large to small businesses, but since it had always lacked a ruling party comparable to the KMT in Taiwan, the transformation was less dramatic. In Japan, scandals and policy conflicts caused the LDP to lose control of the Upper House in 1g8g. Plagued by more scandals and a serious recession in the early 1ggos, the party lost nearly 20 percent of its members to a factional split, then surrendered control of the Cabinet after the summer 1993 elections. A year later it reentered the Cabinet as head of a makeshift three-party coalition. Amidst the mood of disillusionment with the corruption, mismanagement, and excessive regulation of the old establishment, the government became far more reluctant to authorize and enforce cartels, and adopted a more modest approach to standards. Japan moved from cell 1 in a generally southeasterly destination, the exact destination depending on the issue.

VARIETIES OF COLLECTIVE DILEMMAS

The number of firms in an industry and their interactions, values, and relation to the bureaucracy and political system all help to explain variation across countries and, to a lesser extent, across industries. Within any one country, the nature of the collective dilemma may also exert a powerful influence on the likelihood that cooperation will succeed. Collective

IJ

CoLLECTIVE AcTION IK

EAST AsrA

dilemmas are not all alike: some may be harder to solve than others, or their solution may require different resources or strategies. Though the prisoner's dilemma has many important applications in industrial policy, it is not, contrary to some accounts, the unique embodiment of the collective action dilemma. 70 Another important class of problems involves coordination or matching of policies. A simple example arises in choosing a meeting spot for a lunch date. In some cases, the parties are relatively indifferent as to the meeting location. In other cases, each may prefer to meet at a spot more convenient for herself. Asymmetries favor agents who are situated closer to the halfway point, possessed of more resources, or less anxious to meet. When the meeting point is not inherently obvious, or when a larger number of parties is involved, convention can play an important role in signaling to each party where the others are likely to congregate-for New Yorkers, perhaps Grand Central Station at noon. 71 Once established, the literal or figurative "meeting spot" is relatively immune from desertion. No agent has an incentive to go elsewhere, since everyone else will go to the established meeting place. No central authority is required to police the meeting place, though one may be helpful in establishing the meeting spot in the first place. The self-reinforcing character of coordination games thus presents a sharp contrast to the tendency toward defection in the prisoner's dilemma. 72 Coordination problems are common in political economy. One prominent example is international macroeconomic coordination. States may want to coordinate their business cycles, even though for domestic reasons each state may prefer a slightly different blend of policies. Germans have traditionally sacrificed stimulation of the economy for control of inflation, for example. 73 Coordination problems arise especially frequently in computing, telecommunications, and other industries where it is necessary or desirable to establish common formats or protocols, such as QWEKIY keyboards, ASCII code, or VHS videocassettes. Firms or nations tend to prefer that their own approaches be chosen as "standard," but the need to coordinate with others may push them to seek compromise. As manipulation of symbols and information constitutes an ever-higher proportion of economic activity, standardization problems are increasingly common and important. Prisoner's dilemma and coordination are by no means the only strategic situations involving mixed motives. Somewhat different constellations of payoffs can result in dozens of different games, including such wellknown examples as chicken or assurance. 74 Nevertheless, prisoner's dilemma and coordination provide important and sharply contrasting models of collective dilemmas ranging from protecting the ozone layer to establishing standards for facsimile transmissions. These two problems are especially common in industrial policy. One prominent category of

r8

The Problem of Cooperation in East Asian Industrial Policy

cases involves the regulation of current and future production capacity in industries subject to economies of scale. Since producers of commodities such as steel or semiconductor memories (DRAM chips) compete on the basis of price, overproduction can lead to severe price cuts. Each firm would prefer that others cut production, leaving it free to sell all of its production at high prices. Each firm worries that other producers will "defect" by openly or secretly restoring production. A similar problem affects investment to expand future capacity. If all firms aggressively build new plants, the price may fall so low that none can recoup the investment. These problems can be conceptualized as prisoner's dilemma for the firms in the industry in which excessive aggregate production or investment is a "public bad." 75 Normally, the market mechanism solves overproduction problems automatically. Firms with high marginal production costs abandon unprofitable product lines. Thev diversify into other niches or industries, invest abroad, or simply go belly up. As aggregate production falls, prices recover and the remaining firms earn normal profits. In practice, things do not always work that way. If differences in the marginal costs and financial structures are slight, each firm may fear it will fail first. The firms will have a strong incentive to form production or investment cartels and to seek support from the government. A second major class of collective action problems occurs when firms form consortia to conduct "precompetitive research." Sometimes R&D work is conducted in a joint laboratory, but usually it is decentralized, partitioned among the participating firms, with periodic reports and meetings. Famous examples from Japan include the semiconductor industry's Very Large Scale Integration project of the 1970s, generally considered a great success, and the Fifth-Generation Computer Project of the 1g8os, widely seen as a major disappointment. With active encouragement and support from the government, projects were formed in high-temperature superconductivity, engineering plastics, biotechnology, and many other areas."; Many observers saw consortia as dated relics ofJapan's catch-up era, 77 but the government created new mechanisms to support collaborative work, including the Japan Key Technology Center. Almost no material has appeared in the English literature on R&D consortia in Korea and Taiwan, but they became increasingly popular. Cooperation in R&D offered several potential advantages, including reduction of overlapping investment and encouragement of risky but potentially rewarding approaches. Consortia made it easier to forge effective links with suppliers of equipment or complementary products without having to resort to the increased bureaucracy and managerial uncertainty characteristic of mergers. 78 Consortia also provided an opportunity to diffuse technology by exposing researchers to new approaches. Overcoming the biases inherent in the approaches of any one firm was

CoLLECTIVE AcTION IN EAST AsrA

particularly important in Japan, where the permanent employment system reduced the mobility of engineers. 79 Despite these potential benefits, organizing and administering research consortia was a tricky business. The industry faced a prisoner's dilemma. Each firm hoped to learn from the approaches of its competi. tors, but each was reluctant to reveal its own secrets. Each tended to see the contributions of other firms as "generic" and its own know-how as "proprietary." All stood to benefit from breakthroughs to which they had access as members, but each was reluctant to take valuable senior researchers away from pressing projects. Typical compromises, such as partitioned cooperative research in which there was no central lab and little actual physical movement of researchers, threatened to solve the problem at the expense of the interchange and coordination that were the original aims of the endeavor. A third major class of collective action problems in industrial policy is standard setting. Standardization of industrial materials and products was long a strength ofJapan. As far back as the 1920s and 1930s an aggressive campaign to develop, diffuse, and enforce standards was a decisive factor in the rise ofJapan's machine tool industry. 80 Establishing common formats and protocols is increasingly important in the age of information. Standardization is a classic example of the coordination game. For the industry to develop, standards are necessary, but individual producers have to settle on a common approach in an environment characterized by complex trade-offs on costs and benefits, uncertainty about technical progress, and the likelihood that the choice of one approach or another will confer competitive advantages on some producers, particularly the original developers of candidates for the standard.R 1 For fax machines or CD players, solving the coordination game may be key to resolving a larger chicken-and-egg network externality: the more people who buy fax machines, the more valuable they become, since their owners can communicate with more people. Similarly, the more CD players sold, the more likely recording companies are to release new music in the CD format. 82 The exact balance between a firm's desire for emergence of a standard and its desire to see a particular approach chosen may vary depending on the specifics of the technology, the importance of royalties, and the size and type of the market. It may be as difficult to coordinate the decisionmaking processes of various government agencies involved as it is to get private firms to agree. Though the literature tends to assume that eventually one standard must prevail if technologies are to develop, in some cases there is ambiguity as to whether consolidation to two or even three approaches might not be sufficient to allow the technology to take off, further complicating the standard-setting process. Consortia, standardization, and cartels differ along several dimensions 20

The Problem of Cooperation in East Asian Industrial Poliry

(see Figure 3 on page 22). One is the nature of the underlying game. In coordination, firms may be reluctant to agree on a standard but will have little incentive to defect once the standard has been established. In prisoner's dilemma, players have an incentive to free ride on the cartel or consortium. The first requires finding a mutually acceptable organizational solution; the second is conceptually simple but difficult to sustain over time. Another dimension is the competitive stakes: How central to prosperity and growth is solving the collective action dilemma? A third issue is the breadth of participation required for the organizational solution to work. Some problems require unanimity, whereas others can withstand a certain amount of abstention or free riding. These varying problems call on different types of governmental capacities. Put another way, they provide a lens through which to evaluate the differing capacities of bureaucracies and political systems. These capacities fall roughly into two categories. Many issues require skill: tact and tenacity in mediation and dexterity in fashioning organizational solutions to problems of information, monitoring, signaling, and credibility. Other cases demand strength and resources: an ability to regulate or coerce free riders or to allocate strategic side payments to reward the cooperative. The most obvious prediction that follows from these considerations is that the degree of success at eliciting cooperation is likely to vary across problems. A second pair of predictions is that Japan is likely to be more successful in those areas calling for skill, while Taiwan is likely to do better with problems demanding strength-if indeed it takes collective action as a good in the first place. Collective action dilemmas test a range of goals and capacities of industrial policy systems that in turn are crucially influenced by the stniCture and support base of ruling parties.

SELECTION AND PRESENTATION OF CASES

In investigating these issues, the ideal would be to check for variation across all of the potentially relevant variables. In practice, it is difficult to get enough variance without an impossibly large number of cases. 83 Matching cases across countries is difficult as well, since there are always extraneous differences. My approach is to look at a moderate number of cases to allow for in-depth investigation. These cases provide as much variance in the relevant independent variables as possible (i.e., varying in number of firms, types of products, density of networks, historical relationship to government, and so forth). They are matched as closely as possible in problem and industry. To extend the number of cases without covering an unmanageable large number of industries, I "piggyback"look at different problems within the same industry. Within the cases, the 2I

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Obsta. The Ministry of Finance increased property valuations and cracked down on property speculation. The Central Bank reined in the money supply, leading to sharply higher interest rates. The government was all too effective at puncturing the speculative boom. Investment, exports, and economic growth slowed sharply. Land prices in Taipei declined 20 percent in 1981. 40 Though the government moved to revive sagging sectors such as petrochemicals, the construction industry did not recover for more than five years. Demand for construction bars stagnated while minimill capacity continued to increase, causing utilization rates to tumble. As the situation of the minimill industry grew increasingly bleak in the early 198os, newer and more vigorous leadership came to the helm of the industry association. From the period of import substitution in the 1950s through the founding of TISIA in 1962 and into the 1970s, a few leading firms dominated an ineffective industry association. Many of them also served as local and provincial politicians. Executives of Taiwan Liantie, in particular, led the industry association for its first twenty years, even though the firm had already passed its peak by the time Taiwan began turning toward export-led growth in the early 196os (it collapsed in the recession of the mid-198os). While the industry association held annual meetings and made some requests of the government-notably limits to entry by new competitors-the government routinely ignored the associa-

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Alternatives to Cartels in Taiwan's Minimill Industry

tion. It was more a mechanism for control from above than an expression of the industry's interests. 41 Most firms essentially ignored it. 42 In its first twenty years the association had almost no capacity to collect, process, and disseminate information. Not until 1979, when the founding chairman retired at age 87, did the association establish a data center. Even then, the new executive director was a retired military man who knew nothing about the steel industry. The statistics compiled by the association were unreliable. Outside observers were highly critical of the industry association, comparing it unfavorably to their idealized visions of cooperation and progress in Japan and Korea: In Taiwan industry associations rarely have administrative leadership functions. This is not a problem of the iron and steel industry association alone, but of all the industry associations. Currently, the iron and steel industry associations in japan and Korea have the ability to regulate the production and sales of their members. If we look back at the iron and steel industry association in our country, to the present day it has not even been able to publish a single journal. How could we expect it to have the strength to regulate production and sales?"

In August 1982, as industry troubles mounted, a new leadership team took over. The job of executive director was given to a vigorous businessman who had himself managed a minimill for many years. The new chairman was Hou Zhengting, chairman of one of the large Gaoxiong minimills, Donghe. Asisting him was his younger cousin, Hou Zhenxiong, president of Donghe and son of the founder. The two were a powerful combination. The Japanese-trained Hou Zhengting was a natural leader: affable, generous, and popular, a director of the two national employers associations, and chairman of the ship dismantling industry association. I lou Zhenxiong added academic prestige and American connections, though he too spoke Japanese and followed the Japanese steel industry carefully. While Donghe's factory was located in Gaoxiong, Hou Zhenxiong settled in the capital city of Taipei (one floor above the industry association office), where he established good relations with government officials and influential businessmen. The new leadership quickly launched a series of activities. The first step was to improve the collection and dissemination of information about the steel industry. The association edited a massive history of the industry. It conducted surveys and began serious compilation and analysis of domestic and international steel statistics. TISIA launched a thirty-five-page monthly newsletter and began hosting international steel conferences. The Hous also organized collective action. Their first initiative involved a purchasing cooperative to unify Taiwan's ship dismantlers. Since 1968

Br

CoLLECTIVE AcTION IN EAsT AsiA

Taiwan had captured over 50 percent of the world dismantling market, but fierce competition among local firms prevented Taiwan from exercising monopsonistic powers in the purchase of old ship hulks. Hou Zhenxiong and the owner of another large dismantling firm persuaded thirtyseven dismantlers to refrain from independently procuring ship hulks. For a small administrative fee, the China Dismantled Vessel Trading Corporation (chairman: Hou Zhenxiong) purchased all hulks abroad and then put them up for bid by local dismantlers. The difference between the local bids and the procurement price was then distributed among the owners of dismantling berths. With unified purchasing, the dismantlers forced down the price of old ships and increased the price ship plates fetched on the domestic market. While the focus of the unified purchasing system was the dismantling industry, it also helped the minimills. Unified purchasing weakened the minimills' strongest rivals, the rerollers, by increasing ship plate prices, while the minimills were free to import steel scrap. 44 Many of the minimills in Gaoxiong, including Donghe and its neighbors Haiguang and Longqing, had grown out of ship building and still engaged in ship dismantling operations, so they profited both directly and indirectly from the unified purchasing scheme. At first unified purchasing was a great success. From its inception in September 1982 to spring 1983 old ship prices declined from over U.S. $100 per ton to $8o per ton. 45 However, the success of collective action soon created jealousy and resentment both at home and abroad. Foreign ship owners were incensed by the "extortion," and some vowed not to sell to Taiwan. Attracted by the decline in old ship prices, competitors in Korea, China, and elsewhere increased their ship dismantling capacity and bid the price of ships back up. At home, tax authorities accused the industry of massive tax evasion on the profits of unified purchasing. The strongest pressures came from within. Dismantlers that lacked their own berths triggered the first dispute. Dock space was limited and access dependent on party connections in Gaoxiong City. When the profits from unified purchasing were distributed only among dock owners, lessors rose in protest. They forced the cartel to include them in the distribution of profits. Another aggrieved party was the rerollers, who depended on dismantled ship plates for input. They protested to the IDB and the Economic Ministry's Board of Foreign Trade. The board instituted minimum export price regulations on ship plates and delayed processing of export applications. The ship dismantlers agreed to distribute one-third of the profits to a "steel export fund" that benefited all firms with strong exports. The combination of external pressures and internal demands undermined the unified purchasing system. Sharing the loot, first with the berth lessors and then with the rerollers and unaffiliated minimills, de-

82

Alternatives to Cartels in Taiwan s Minimill Industry

creased the incentive to cooperate with the system. The dozens of dismantlers were constantly tempted to break with the cartel and buy ship hulks independently. Little more than one year after its beginning, the system collapsed. Competition among dismantlers reasserted itself with a vengeance and ship imports surged. Prices exceeded U.S. $125 per ton, more than 50 percent above their lowest point. 46 The ship dismantlers, led by the Hous, made one last effort to control the import of old ships. In fall 19R4 the industry association petitioned the Ministry of Economic Mfairs to adopt a system of "planned ship procurement." The industry's plan called for restricting imports of old ships to 2.3 million tons per year to alleviate the "severe domestic oversupply of ship plates that has resulted from the blind competitive struggle among dismantlers to purchase old ships." The ministry firmly vetoed the planY When the cartel failed, the ship disrnantlcrs association, like the minimill mainstream in Japan, turned to the government to enforce "cooperation." Unlike the case in Japan, the government refused to coerce therecalcitrant industry into cooperating for its own benefit, even when the major victims were foreign. Indeed, the government's actions consistently undermined collective action rather than promoting it. The Hous also tried to persuade the government to drop restrictions on expansion by existing minimills, while alleviating the capacity problem by banning new entrants. The industry association called again for an explicit industrial policy for steel, detailing an appropriate division of labor by capacity and product type between China Steel and the minimills. Virtually every year since 196.5 the association had called on the government to map out a plan for steel, but to no avail.'R In 1981, with China Steel firmly established, the Council for Economic Planning and Development (CEDP) finally agreed to prepare a ten-year study of the steel industry. 49 The CEPD plan sanctioned controlled expansion by the minimills, a policy opposed by the state-owned firm China Steel and its founder Zhao Yaodong, who was appointed minister of economic affairs at the end of the year. Mter a draft of the study was completed at the beginning of 19R3 the government reversed itself, declining to publish it on the old grounds that detailed plans were neither useful nor necessary. 5° Failing with the economic planning council, the industry association convinced the IDB to undertake a study. The new survey, conducted by a British consulting firm, concurred with the unpublished CEPD draft that the minimills should be allowed to expand. The association's solution to possible overcapacity was to ban new entry and require that any new furnaces by existing firms exceed fifty tons and be outfitted with continuous casters. 51 Naturally, these policies would have provided an edge to existing firms, particularly the larger ones. In November 1983, IDB finally revoked the expansion ban. The bureau refused to bar new entry, though it

8]

COLLECTIVE ACTION IN EAST ASIA

accepted the fifty-ton minimum and announced that it would carefully limit the number of expansions allowed each year. As in Japan, policy tended to lag behind the cyclical minim ill industry. By 1983 the industry had already reached the capacity it was predicted to require through 1989: '2.77 million tons. 52 While the industry association pushed to eliminate the expansion ban and its implicit policy of depending on China Steel, the first signs of serious distress in the industry were already evident. 5 3 A number of small firms went bankrupt, and Diyi Zhigang, a Taizhong firm with a thirty-ton furnace, followed in spring 1983. 31 Just as the expansion ban was lifted in late 1983, a descendent of the oldline minimill Darong went under. 5 5 Despite the discomfiture of the IDB, the top authorities were firmly opposed to cartels and hostile to the industry. Premier Yu Guohua was a lifelong retainer of the Chiang family and for fifteen years the highly conservative governor of the Central Bank. Under Yu's guidance, the government-owned and -controlled banks stood by and let many of the traditional industry leaders, such as Tangrong, Taiwan Liantie, and Darong, go bankrupt. They preferred to loan to the state-owned enterprises, which were safe, and to high-tech industries such as electronics. In the words of an officer at the government's main development bank, "The minimill firms are weak, risky, and overly oriented to the short-term. They have no potential." The banks were unaware that minimills were increasing their market share throughout the world. 5 6 In February 1984 the industry association invited Wu Huiran, new assistant director of the IDB, to discuss the woes of the steel industry with minimill owners at Donghe's Gaoxiong office. nsrA chairman Hou Zhengting gave a report focusing on the need for government help to increase spending on public works, give incentives for diversification into new types of steel, and cut scrap tariffs and harbor fees to stimulate exports, all of which would reduce the pressures of overproduction on domestic steel prices. Wu Huiran, holder of a Ph.D. in agricultural economics from Tokyo University and a well-known admirer of Japanese industrial policy, supported reduced tax burdens and greater financial support. More important, he urged the industry to develop its own "steel industry plan" for presentation to the government and chided the industry for its inability to cooperate in "adjusting production and sales" and undertaking joint exports. He argued that cutting production was not a bad thing and that continuously competing to increase output could only bring harm to the industry. He promised to commission the Materials Research Laboratory of the semigovernmental Industrial Technology Research Institute to conduct a study on the development of minimills in Taiwan.'' With this unexpectedly strong support from IDB, the industry associa-

Alternatives to Cartels in Taiwan s A1inimill Industry

tion held a scmisccret meeting to discuss ways to combat overproduction. The industry decided to elect chairmen in each district to convene periodic meetings to coordinate production. They set an initial goal of cutting output by 40 percent. A reporter obtained a copy of the plan and published it in the influential economics daily.Jingji Ribao, causing an uproar. The Price Supervision Committee, the government's main inflation watchdog, directed that "In the future, when undertaking various research projects and plans designed to benefit member firms, the iron and steel industry association should consider both the normal development of the steel industry and the maintenance of economic stability." Once the overriding goal of controlling inflation was invoked, the association was forced to put aside its plan to establish regional cartels."R

THE EcoNOMIC MINISTRY's ABoRTIVE PLAN

TO INSTITUTE RECESSION CARTELS.

For a time, new leadership in the Ministry of Economic Mfairs led to a decidedly different approach to the steel problem. At first it appeared that Zhao Yaodong would lead the way into new territory. A" minister of economic affairs from December rg8r through May 1984, Zhao brought a new and more aggressive approach to economic affairs. He appointed activists such as Wu Huiran to handle the IDB and ordered them to de~ velop special promotional policies for four "strategic industries." Wu talked of improving ties with the private sector, and in some areas, such as petrochemicals (where the government monopolized upstream supplies), a cartelistic approach was adopted. All in all, it sounded like a very '~Japanese" approach to industrial policy and a significant departure from the past suspicion of cartels and public-private cooperation in sectoral planning. 59 In practice, several factors kept Zhao from developing a Japanese-style industrial policy, especially in steel. Zhao's ability to mobilize the financial system to support his policies of promotion and transformation was strictly limited. The MIT-trained Zhao was also more concerned about technological upgrading than private profitability. 60 Last but not least, Zhao was not about to authorize policies aimed at revitalizing the dirty little mills he believed it had been China Steel's mission to supersede. Zhao told legislators that the ministry could never help an industry if its firms were badly run, and that short periods of pain by a few people were inevitable in the process of economic transformation and upgrading. 61 In May 1984 "Iron Head" Zhao moved over to head the Council for Economic Cooperation and Development, and Xu Lide, then minister of finance, moved to the Economics Ministry. The young and ambitious Xu

COLLECTIVE ACTION IN EAST ASIA

became only the third person to head both Finance and Economic Mfairs Ministries. The technocracy formed one of three major pillars of Taiwan's authoritarian system, along with organs concerned with coercion, such as the military, the spy network, and the police, and those responsible for legitimation, particularly the electoral sector of the party. The party integrated the three pillars. 62 Ministers in the areas of finance, economics, and science were technocratic politicians. They were technocratic in their responsibility for ensuring economic growth and technological upgrading, but their career patterns were political rather than bureaucratic. Unlike the case in japan, they often did not enter ministries immediately after graduation from college (many earned graduate degrees), they frequently shifted agencies, and their chances for advancement were determined not by their bureaucratic superiors and a cadre of "old boy" graduates of the ministry, but by top party leaders. As a result, they had a strong incentive to ensure that party goals were not upstaged or corrupted by ministerial goals. Like Zhao, Xu was a mainlander, but he had no links to the state-owned enterprises. Xu was determined to strengthen the private sector. He left the Japanese-trained Wu Huiran in charge of the IDB and turned his attention to a broader mission: developing a local copy ofMITI's Industrial Structure Council. Xu invited Inaba Hidezo, a key architect of the postwar Japanese economy, to Taiwan to lecture on industrial policy. 63 In December 1984, after submitting to the Cabinet a proposal to create within the Economics Ministry an Industrial Policy Deliberative Committee, he invited twenty-odd representatives of the steel industry to come and discuss their problems. This was the first time a minister of economic affairs had ever held a meeting with the industry association and, unlike the domineering Zhao, Xu listened when other people talked. 5 4 Xu's proposed committee soon ran into opposition. Some leading industrialists who already had direct channels to the government questioned the idea, while small and medium-sized enterprises worried that the committee would be biased in favor of big companies. Within the government, CEPD opposed the Deliberative Committee as unnecessary government interference in industry-and an intrusion onto its turf. 65 Mter making a few minor concessions in form, the undaunted Xu announced that he would submit another proposal to stimulate the slumping investment rate. He stressed that it was necessary to develop policies to accelerate adjustment of the industrial structure in such troubled traditional industries as steel, textiles, and shoes. The brain trust for the new policies would be the Industrial Development Advisory Council, renamed to placate the CEPD. The prospects for a shift toward Japanese-style industrial policy seemed good. Minister Xu established good relations with industry

86

Alternatives to Cartels in Taiwan's Minimill Industry

leaders. He agreed to lift the 10 percent commodity tax on bars and shapes on implementation of the upcoming 5 percent value-added tax. TISIA chairman Hou Zhengting was appointed to the advisory council. 66 A few weeks later Taipower announced that it would grant steel minimills using high and ultrahigh power a 40 percent discount on peak electricity rates. This concession was granted only to the steel industry. 67 The discount was especially helpful to the largest firms, since they operated two to three shifts and could not avoid the stiff peak rate charges. 68 Three days later Xu Lide was forced to resign from office as the result of a giant scandal. He accepted "moral responsibility" for failure during his tenure as minister of finance to curb the financial excesses of the Cathay Group. The Cathay scandal represented everything the KMT had always guarded against. The Cai family, owners of the second largest conglomerate in Taiwan, broke every financial regulation in the books. They solicited deposits from their own employees and lent to their own group firms, engaged in massive speculation in stocks and real estate, and absconded with depositors' funds. Worse yet, they established intimate and reputedly corrupt relations with a whole range of party, military, and government officials. Cai Chenzhou (Tsai Chen-chou), chairman of Taipei Tenth Credit Cooperative and Cathay Plastics, garnered a KMT nomination to the legislature, where he was dubbed "the golden bull" and began building an independent power base. When rumors of impending collapse caused a run on financial institutions in the Cathay Group and threatened Taiwan's financial stability, President Chiang Ching-kuo intervened firmly. In the ensuing uproar, the secretary general of the KMT and the minister of finance joined Xu Lide in stepping down from office. Whether Xu Lide actually accepted bribes or political favors from the Cais or simply lacked the courage to follow the recommendation of his aides at the Ministry of Finance to take control of their increasingly unstable financial empire, the fact remained that the autonomy and institutional integrity of the KMT regime was challenged by corrupt social groups and Xu did not stand up to them. 69 In the wake of the scandal, the aloof approach to the business community of Premier Yu Guohua reasserted itself with a vengeance, and Japanese-style collective action was banished. Long-time czar of the financial system Yu placed stability and political control above all else. First, Yu appointed as minister of economic affairs Li Dahai, chairman of stateowned China Petroleum. Li was not in good health and accepted the job only reluctantly. Premier Yu's second move was to convene an Economic Reform Committee staffed by top-level government officials, noted businessmen, and economists. Hou Zhenxiong was appointed as steel industry representative to the industrial policy committee, and the committee

COLLECTIVE ACTION IN EAST ASIA

solicited and later published petitions from a wide variety of industries and business associations. 70 On the surface, this was a very 'japanese" thing to do, bringing together as it did representatives of the government and the private sector to work out common approaches to economic policy. The reality was quite different. Premier Yu set the tone by invoking the slogan "liberalization, internationalization, and systematization," which had recently been promoted by President Chiang in reaction to pressures from the United States for market access. 71 The main debate was not over the desirability of establishing a "Taiwan, Inc." but between advocates of American-style liberalism and deregulation, particularly economists, and defenders of state-owned enterprises and existing government controls, especially bureaucrats. Premier Yu cleverly minimized the impact of the committee. Gu Zhenfu (Koo Chen-h1), chairman ofTaiwan Cement, was named to head the trade committee, even though his company's sales were overwhelmingly domestic arid most of Taiwan's trade was conducted by small companies in light industry. Professor Jiang Shuojie (T. S. Tsiang), a well-known monetary economist from Cornell University, was assigned to head budget and taxes, rather than finance. Many observers complained that staffing the committee with bureaucrats, the defenders of the status quo, undermined the possibility of reform. The breadth of the mandate (finance, budget and taxes, trade, industry, administration, and regulation) also made concrete reform difficult. Finally, Premier Yu did not invest the committee with power to implement its proposals. Even when the committee members agreed on proposals for change, the bureaucracy was free to ignore them, and did so. 72 When Zhao Yaodong, one of the three chairs, suggested that bimonthly follow-up meetings be held to monitor progress, his proposal was greeted with vigorous applause. A phone call from the Cabinet, however, quickly nixed the idea. As one CEPD official summarized the Reform Committee, "it was clearly more political than economic in inspiration." 73 The committee was designed not to enhance government-business cooperation and capacity for collective action, but to take public attention away from the Cathay scandal, and at that task it succeeded brilliantly. 74 The Economic Reform Committee only reinforced the dominant trend away from the intimate cooperation among firms and between business and government symbolized by Japan. 75 The hands-off approach was clearly evident in policies toward the minimills. In spite of government talk of supporting the most advanced minimills, when the recession pushed several large and well-equipped mills into bankruptcy, the statecontrolled banks refused to provide support. 76 This was precisely the pattern of "the little fish eating the big fish" that the industry association most feared, and which Japanese economists had tried to avoid (albeit

88

Aliernativrs to Cartels in Taiwan :1 lVlinirnill Indush)

with limited success) through creation of institutions such as the capacity disposal fund. The government response to the Industrial Development Advisory Council's meetings on steel provided another example. In July 19~5 the council began a series of hearings attended hy representatives of the industry association, the IDB, Taipower, the Bureau of Environmental Protection, the Ministry of Finance, and other agencies. Dr. Liu Taiying, director of the Taiwan Institute of Economic Research (a quasigovernmental think tank founded by Taiwan Cement's Gu) served as secretary general. Liu called for a structurally depressed industries law patterned after Japan's and for an administrative reshuffling to give the Ministry of Economic Mfairs power over financial and tax issues so that it might function like Japan's MITI. Like many others in Taiwan he had been impressed by the dramatic accomplishments of postwar Japanese industry and called for learning from the Japanese approach. Liu argued that it was particularly important to control new entry and reduce excess capacity, and he cited the great "success" of MITI's structurally depressed industries law as a model. 77 TISIA head Hou Zhengtingjoined in with arequest that the minimill industry be allowed to form a "recession cartel" to prop up prices. 7R Despite Liu's e±Iorts to copy Japan, the Industrial Development Advisory Council's influence was severely limited after Xu Lide's fall from the Economics Ministry. The government declined to support recession cartels, capacity disposal funds, or legislation for structurally depressed industries. The only assistance came in the form of slight reductions in tariffs and harbor fees on scrap and old ships. 79 The ITRI report, completed in 19~6, called for a vigorous industrial policy and support for technology upgrading and collective activities such as unified purchases of scrap, cooperative exports, and a planned division of labor. It advocated mandatory reporting of capacity and production, grading of firms, and support for the most technologically advanced firms. Like the advisory council, it was largely ignored. 80

ECONOMIC RECOVERY AND THE SHIFT IN GOVERNMENT-BUSINESS RELATIONS

As in japan, no sooner had the industry association finished asking the government for support than the ever-cyclical minimill market began a steep recovery. Large-scale spending on public works drove up the demand for rebars, structural shapes, and other minimill products. Revaluation of the New Taiwan dollar cut the cost of imported scrap. In the early 1990s the minimills ran at virtually full capacity. 81 From the bottom of the

8g

COLLECTIVE ACTION IN EAST ASIA

recession in 1984 to 1992 production of steel by minimills more than tripled, increasing from 1.6 million tons to 5·3 million tons. Despite the wave of bankruptcies in the mid-198os, the total number of minimill firms did not decline, as failed plants were restarted and several new firms entered. Existing firms made big investments, with Donghe pioneering the way in H-beams. The frantic wave of investment raised fears that overcapacity would reappear, but in the short run capacity management was not a problem. Local firms simply recaptured market share lost to the imports sucked in by buoyant domestic demand. 82 With the emergence of a competitive party system in the early 1ggos, the association began to achieve some success in convincing the government to support collective action, including, if necessary, cartels. It was aided by its position as one of the few industries undertaking aggressive domestic investments, as well as the increasing prominence of leading steel industrialists, such as industry association chairman Hou Zhenxiong, who was chosen chairman of the government-invested Taiwan Aerospace Company. In early 1993 the Ministry of Economic Affairs finally passed the long-sought sectoral plan for the steel industry. In addition to measures such as technological support and sympathetic consideration of petitions against alleged dumping of imported steel, the ministiy pledged its help in a number of collective efforts. It planned to create an industrial park specifically for steel firms and to help firms find and collectively purchase land for regional scrap recycling centers. The government promised to develop a supply-and-demand model, carry out capacity utilization surveys, and provide warnings to avoid "unhealthy competition.""'' The industry association pushed for regulation of capacity expansion and explored numerous collective opportunities in mainland China. The effectiveness of the new systems could only be tested by a serious market downturn, but the contrast to the earlier unwillingness of the government to become involved in the minimills capacity management problems was striking. 84 Political changes also transformed policy toward China Steel. In the late 1g8os it lost the right to control steel imports. Then the increasingly active legislature began to constrain the mill's investments, blocking a planned move into Malaysia and closely questioning expansion in Taiwan. New firms entered both regular and specialty steel production in competition with China Steel and Tangrong. A prominent KMT legislator from Gaoxiong invested first in a huge hot coil rolling company competing with China Steel and then in a million ton per year minimill operation.85 For its part, China Steel built electric furnaces and made small investments in bars, wire, and other products traditionally dominated by minimills. 86 In 1995 it was privatized. 87

Alternatives to Cartels in Taiwan s Minimill Industr)' CONCLUSION

The dilemmas of instability and overcapacity that engulfed Taiwan after the oil shocks were at least as severe as those in Japan. Over onethird of the firms in the industry went bankrupt. 8 R Government policy, though, was completely different. The government did not lack for policy instruments, and it frequently imposed bans or limitations on entry and expansion. The difference lay in objectives. Taiwan's government opposed cartels as inflationary and cast a suspicious eye on any form of collective action as a potential threat to the ruling party and its goals of autonomy, control, and social stability.~ 9 These outcomes cannot be explained simply in terms of variations in culture, business networks, and bureaucratic structure, which were at any rate powerfully shaped by politics. The IDB of the Ministry of Economic Mfairs, like MITI, was favorably disposed to private firms, including resort to collective action. However, it was constrained by the rest of the ministry as well as the conservative functionaries charged by President Chiang with control over the party apparatus, the cabinet, and the banking system. Nor was ethnic distance between Taiwanese businessmen and mainland bureaucrats the crucial impediment to cartels and other forms of collective action. The supportive IDB was staffed by both mainlanders and Taiwanese, as were the conservative banks. Premier Yu, a mainlander and long-time confidant of the Chiang family, was highly suspicious of private collective action, but Econmnics Minister Xu, also a mainlander, was a major supporter. Nor was it true that Taiwanese firms had no inclination to cooperate or collude. They tried on numerous occasions, but with the government aloof or (in the case of cartels) repressive, cooperation quickly broke down. Executives in Taiwan's steel firms often approvingly cited the agreed-upon division oflabor in the Japanese steel industry, unaware that it had operated for but a brief time in the early 1970s and had been supplanted by policy conflict over cartels and recurrent price wars in the H-beam market. The exception that proved the rule was the Taiwanese government's support of export cartels or cartels to import key raw materials, since they posed no threat of inflation or subversion and imposed burdens only on foreigners. Even here, the cartels were monitored by the government and on occasion hijacked by the government for diplomatic purposes, against vigorous protest by the industry. 90 Similarly, the lack of supportive business networks was an artifact of policy, not culture, economics, or technology. Until the 1g8os the industry association was run by security hacks sent down by the government. Private integrated mills were not allowed until after democratization. The

CoLLECTIVE ACTION TN

EAsT AsiA

only large trading firms were Japanese. Unlike the case in Korea or Japan, the government declined to use policy incentives to create large domestic traders. Banks were owned by the government, as were the largest construction firms. Most of the manufacturing sector in Taiwan was in private hands, but the crucial infrastructure surrounding it was owned or controlled by the government. Once the political system liberalized and the government and party became more dependent on busfness support, culture, networks, and bureaucratic attitudes underwent m,Yor transformations. The Economics Ministry began to encourage and support the industry association and its plans for cooperation. The government privatized China Steel and permitted establishment of new integrated steel mills. Though strong increases in demand for steel prevented the outbreak of price wars in Taiwan, the change in policy stance was unmistakable. The government devised its first industrial policy for steel, published new regulations to permit the formation of cartels in depressed industries, and supported c£~ forts by the industry association to coordinate investment.

CHAPTER FIVE

Standard Setting and R&D Consortia in japans Video Industry

The more people who communicate by facsimile or e-mail, the more valuable a facsimile machine or e-mail account becomes to its owner. Similarly, the utility of a CD player varies in proportion to the availability of CDs to play on it. Network externalities stimulating the growth of fellow users and complementary products characterize many electronic products, but they require standards. Standardization stimulates demanrl, encourages the production of complementary prorlucts such as computer programs or movie videos, and cuts costs through economies of scale and rapid movement down the learning curve. Standarrlization is primarily a coordination problem. Each company would prefer to enshrine as standard the approach with which it is most familiar. In many cases substantial patent royalties are at stake. However, once a standard is designated or emerges from the market, producers ·have little incentive to abandon the standard and its network externalities for an isolated approach. With coordination issues such as standards, the difficulties come up front, getting firms to agree on one format or protocol. In contrast, cooperative research and development (R&D) is closer to a prisoner's dilemma. With consortia, the problem comes in organizing an appropriate research structure. Consortia hold the promise of reducing reduplication in research expenses and making feasible projects normally subject to spillover effects and appropriability problems, so that firms no longer fear that their research efforts will benefit others more than themselves. Consortia allow firms to explore risky new approaches and build relations with potential suppliers of subcomponents or associated products, facilitating achievement of economies of scale. However, even after a consortium is under way, the participants are constantly tempted to free ride on

93

COLLECTIVE ACTION IN EAST ASIA

the efforts of other firms-to reduce their contribution of financing or researchers, or make use of results produced by others while guarding their own research discoveries. Structuring and managing R&D consortia to avoid free riding presents ongoing challenges. Often consortia serve as templates for establishing new standards; sometimes standardization is their primary purpose. The problems of setting standards and managing consortia in the Japanese electronics industry occurred in an environment very different from that of the steel minimills. Consumer electronics was a rapidly growing industry with numerous opportunities for product differentiation. Just a handful of electronics firms in Japan were capable of designing and manufacturing video cassette recorders (VCRs) and other video products. Consumer electronics was largely-though not as completely as often asserted-neglected by government policy in favor of other components of the electronics complex, such as semiconductors, computers, and telecommunications. Apart from the early stages of a few products, consumer electronics did not sell a significant portion of its output to government. The differences between steel and electronics reveal the operation of policies toward collective action in radically different economic environments. Government and business in Japan displayed a marked preference for collective action to create a common format and technology base. Consortia were relatively straightforward and the role of partisan politics largely indirect. The ruling party was sympathetic to requests for budgetary allocations to support consortia, particularly if they included a role for small businesses and local communities, though consortia budgets were subject to oversight and not immune from cutbacks. Consortia did not require universal participation. Firms that found them uncongenial could abstain or, in some cases, join separate consortia. Setting standards was harder than managing consortia, though not as difficult as managing cartels. The magnitude of the stakes and the breadth of required participation in setting standards put greater strain on the Japanese bureaucracy. Politicians believed that cooperation was a good thing and occasionally directed the bureaucracy to facilitate attainment of a consensus approach to standards. At critical points the ruling party fired or threatened to fire public officials who attempted to defY the industry consensus. After the late 1950s, both the budget and the quality of personnel and projects at the Ministry of International Trade and Industry's (MITI) Agency for Industrial Science and Technology (AIST) fell decisively behind those of the private sector, and AIST played almost no role in development of consumer electronics. The Ministry of Posts and Telecommunications (MPT) was even more lacking in autonomous technological capacities.' The government winnowed the competing for-

94

s

Standard Setting and R&D Consortia infapan Video Industry

mats and avoided the plethora of incompatible approaches that frequently bedevilled the United States. However, for better or worse, through the early 1ggos, rather than settling on a single definitive standard or format in a particular area of electronics, Japan repeatedly settled into a struggle between two competing industry camps.

STANDARD SETTING

When japan emerged from the allied occupation in the early 1950s, it based its television broadcasting system on the National Television Standards Committee (NTSC) format developed in the United States. As Japan became a player and then a dominant force in the world video industry, government and firms alike became convinced that Japan had to take the initiative in establishing new standards. · Early Broadcast and Commercial VCRS: Meeting the Ampex Threat

In the early 1950s an innovative new maker of audiotape recorders called Sony requested help from AIST to develop VCR~. The agency turned Sony down,just as it had refused for a brief time to allow the small but rapidly growing company to import semiconductor technology. Then in 1956 the California company Ampex created the first practical VCR, a huge and expensive affair crammed full of vacuum tubes. When japanese broadcasters lined up to buy the Ampex units, MITI became concerned about loss of foreign exchange and the competitive threat to the Japanese electronics industry. In june 1958 AIST awarded Sony a small subsidy to create a "dead copy" of the Ampex model. The early failure of MITI to recognize Sony's potential is often seized on by foreign skeptics of Japanese industrial policy; its brevity and reversal in the face of the foreign threat is virtually unknown. 2 Other subsidies went to larger companies such as Matsushita, which developed the critical video-recording head. Subsidies for establishment of new video technology continued into the late 1g6os, just as subsidies and tax breaks, along with cooperative research, standardization efforts, and other forms of collective action, had proved critical in the development of black-and-white television sets in Japan. 3 In addition to providing direct subsidies, MITI sponsored the creation of a VCR roundtable composed of the electronics companies, private broadcasters, a~d the national broadcaster Nippon Hoso Kyokai (NHK), whose laboratories were already working on VCRs. The roundtable worked to set a common direction for the Japanese industry, reverseengineer Ampex's new deck, and block Ampex's patents. It succeeded on

95

COLLECTIVE AcTION IN EAST ASIA

all three counts. Sony and other firms quickly learned from the Ampex model. The Japanese government refused to recognize Ampex's VCR patents until the company established a joint venture with Toshiba in 1964. 4 Imports were limited to a few broadcasting units. In 1959 the government revised the broadcasting law to require NHK to support the technology development efforts of private firms.~' NHK made its patents available to Japanese firms, held demonstrations of its technology, and transferred technology to individual firms. NHK labs also sponsored collective activities. NHK established standards for testing equipment and videotape. Engineers from NHK laboratories worked with Matsushita in the development of recording heads and collaborated ;vith private firms on advanced technologies such as slow motion." Japan seized the lead in mass production ofVCRs, and in 1963 Sony began exporting VCRs to the United States.

Industrial VC&: Unified !-Format and U-Matic Once Japanese electronics companies forged the lead in VCR development, they confronted the challenge of creating formats for smaller, cheaper VCR~. The most important early users were schools. By 1967 problems with incompatibility led MITI and the Ministry of Education to "request strongly" that manufacturers settle on a standard. The Electronics Industry Association of Japan (EIAJ) established a video committee. Mter two years of research it established a Unified !-format for Y2-inch open reel VCRI EAST ASIA

mercia! product for electronics manufacturers and a threat to the private broadcasters, "two-line" conflict reappeared. Even R&D consortia split into multiple versions. In the 1ggos political change led to deregulation, a redrawing of the competitive map, and a dampening of two-line struggle. New entrants, some from abroad, entered the broadcasting business, pushing NHK and the private broadcasters closer together. MPT developed a more open, flexible, and limited approach to standards, and MPT and MITI renewed their support for consortia to develop new video technologies and standards. NHK was the first to broadcast radio and television in japan. Unlike the private broadcasters it possessed a large research laboratory, and it pioneered development of television cameras, color television, and videotape recorders. The key to understanding NHK's incentive to develop something as complex and expensive as HDTV was its cost and revenue structure. Where the private broadcasters depended on advertising, NHK's revenues stemmed from mandatory viewer fees. Both the level of monthly fees and NHK's budget were subject to approval by the Diet. As a public entity in a labor-intensive, white collar business it had high fixed costs. Yet it could not simply ignore the Japanese ideal of "permanent employment" and dismiss workers if it hoped to maintain public support and continue attracting high-caliber recruits. This structure of costs and revenues left NHK vulnerable to technological obsolescence. NHK personnel were convinced that broadcast technologies stagnated every thirty years, and that it was imperative to ride the waves of new technologies. 46 The transition fron~ radio to television broadcasting and then from black-and-white to color television justified higher listener and viewer fees. Soon after introducing color broadcasting in Japan in the mid-1g6os, NHK's Science and Technical Research Laboratories began research on the future of broadcasting, including direct broadcast satellites and high-definition television. The Hi-Vision format created by NHK improved picture quality by increasing the number of vertical and horizontal scanning lines, strengthened color separation, and canceled the ghost images sometimes seen on conventional televisions. Hi-Vision also delivered CD-quality sound. Whereas NTSC had an aspect ratio of four to three, Hi-Vision imitated the wide sixteen to nine ratio of feature films. NHK established the broadband (uncompressed) studio Hi-Vision standard almost unilaterally. Initial specifications were set for the 1985 international exposition at Tsukuba. After consultation with the United States and Canada, NHK modified the Tsukuba format slightly in several areas, including field rate and bandwidth. 47 At the 1986 meeting of the international radio and television standards body, the Europeans and Americans, alarmed by Japan's growing lead in advanced television,

ro6

Standard Sri/ ing and R&D Consortia in japan's Video Industry

turned around and rejected NHK's Hi-Vision. The international standards hody met again in May 1990. While no breakthrough was possible on the fundamental issues dividing Europe andJapan, such as the number of scanning lines and the field rate, agreement was reached on twenty-three of the twenty-seven technical parameters, largely following the Japanese proposal. Mter slight modifications the MPT ratified HiVision as the national studio standard. 48 For the next half decade, virtually all research on advanced television conducted in Europe and America depended upon Hi-Vision equipment produced by Japanese electronics companies. The broadcasting format was not as simple as the studio standard. HiVision's clear and detailed images devoured spectrum. With the compression techniques available in the early 1g8os, NHK was unable to squeeze the Hi-Vision signal into the 6 MHz bands allotted to conventional television. With help from Sony, NHK developed a compression technique called Multiple Sub-Nyquist Encoding (MUSE). MUSE used an analog encoding system to compress the signal into 8 MHz, the space available on direct broadcast satellites. The stated purpose of satellites was to improve reception in remote areas, but NHK's real goal was to pave the way for provision of new and lucrative broadcast media. 49 NHK's MUSE broadcasting format faced somewhat more domestic competition, but it prevailed in the end. A professor from Nagoya University approached MPT's Telecommunications Technolot,'Y Council with an alternative proposal, but he never submitted it formally. More important was an application by the telephone giant NIT, potentially a formidable rival to NHK. 50 Mter a year and a half, the council decided in favor of MUSE. MPT officials explained NHK's victory in technical terms, saying it was more complete and cost-effective, but this was a sensitive issue and the council's records were not publicly available. At any rate, technologically, politically, or both, NHK was too far ahead. MUSE was formally promulgated as a national broadcast standard along with the Hi-Vision studio standard in March 1991. Standard setting for auxiliary elements of HDTV covering reception and display proceeded relatively smoothly. Agreement was reached in 1gH8 on the size and shape of glass packages for large picture tubes. This allowed manufacturers to reach economics of scale on the large, widescreen models necessary to provide the full HDTV experience. 5 1 The television working group of the EIAJ's HDTV committee then issued three sets of guidelines covering such areas as channel reception, displays and names of connectors, media recognition, and time codes. Progress in all these areas was straightforward. 5 2 The burden of promoting Hi-Vision was borne largely by NHK. It invested heavily in new production equipment, mostly in conjunction with

COLLECTIVE ACTION IN EAST ASIA

private firms, and produced almost all of the Hi-Vision programming. NHK began regular experimental broadcasts in 1989. In 1994 it initiated regular broadcasts nine hours per day. Everyone agreed that Hi-Vision looked stunning. Unfortunately, few viewers were able to receive the signals, especially in their full high-definition form. The first receivers cost $4o,ooo, and even after initiation of full-scale broadcasting they cost $s,ooo or more. Sales were miniscule: approximately 3o,ooo at the end of 1994 and 1oo,ooo in 1995 (some other viewers bought downconverters so Hi-Vision programs could be displayed on regular screens at conventional resolution) .'"1 The contributions of MITI and MPT to HDTV promotion were late and minor compared to those of NHK. They were also shaped by the need to appeal to the electoral concerns of the ruling party. In response to initiatives from NHK, MPT, and MITI, a group of Liberal Democratic Party (LDP) politicians formed the Dietmembers' League for the Promotion of Hi-Vision (Hai-bijion suishin giin renmei). Boasting Hl:J members, including such party heavyweights as Hashimoto Ryutaro, Ozawa Ichiro, and Kato Mutsuki, the league held several briefing sessions with NHK and MPT personnel to get up to speed on Hi-Vision issues and to view spectacular HDTV videotapes. As one member explained the significance of the league. "it is partly a cheerleading and fan club, and also a rnoderator, particularly in settling bureaucratic turf disputes. But above all it pressures the Ministry of Finance on budgetary requests." 54 In December 1987, just in time for the "revival sessions" of the 1988 budgetary process, the league proclaimed that: The government must recognize the important role Hi-Vision plays in increasing the information-intensity of society, and its great potential in stimulating the domestic economy and other areas. The government must devise strong fiscal and budgetary measures to support the ditTusion and promotion of Hi-Vision. 5 5

As is often the case with these informal bodies, the Dietmembers' League

soon lapsed into inactivity. The chairman and driving force of the league, Obuchi Keizo, a former local politician from Kyoto, became secretary general of the LDP, and other members shifted their attention to new issues. The league, though, had already demonstrated the depth of political support for Hi-Vision, particularly for practical applications in the electoral districts. From fiscal year 1988 the annual budget began to include Hi-Vision-related items. Knowing what kind of domestic stimulation the politicians had in mind, MPT and MITI focused on local projects as their major initiative. In September 1987 MPT announced its Hi-Vision Cities Concept, to use 108

Standard Setting and R&D Consortia in japan's Video industry

Hi-Vision to create "lively and charming advanced cities."-" 6 It talked of designating different spots around the country, each with a different theme: Fashion Town, Bedroom Town, Academic Town, Satellite Town, and so forth, 5 7 but in the end such fanciful distinctions were lost. By 1995 MPT had covered the country with thirty-eight model cities. 5 s MITI quickly countered with its own Hi-Vision Communities Concept. By the end of 1994 the ministry had designated thirty-seven local governments. 5 9 Intended applications were somewhat more specific and revealing: "create an international ceramics information center," "introduce Hi-Vision into the Gifu Museum," "help summer tourists [to a small town in Hokkaido] call forth the winter ice skating season." 60 Both programs provided assistance from ministry-related organizations with information, planning, and implementation; tax breaks; and low-interest loans for the purchase of Hi-Vision equipment and softwareY 1 Though the amounts involved were modest, the programs helped increase awareness of HDTV and provided marketS and experience for man{Ifacturers and software producers. According to a top-level Matsushita official, "HDTV will first diffuse in industrial uses, not the broadcasting area led by NHK. The locomotive role will be played by the Hi-Vision galleries springing up around the country at the behest ofMPT and MTTI." 62 At the same time, these prc~jects were clearly political, aimed at allowing incumbent politicians to claim credit for bringing new resources and glamorous new technologies into their districts. The projects were reminiscent of earlier projects, such as MITI's "technopolis" and New Media Community Concept, and MPT's "telecorn plaza," and "teletopia." These concepts were wildly hyped abroad as the secret to Japan's domination of the information society of the futurc, 6~ but in the real politics of the Japanese hinterland things often turned out somewhat differently. The grand-sounding teletopia, tor example, metamorphosed into a practical medium through which to subsidize community-based cable television.';' On balance, the contributions of MPT and MITI were distinctly secondary to those of NHK, and all three were forced to couch their plans in ways consistent with the political needs of the ruling party. NHK's aggressive push into HDTV technology, satellite broadcasting, and video software posed a direct threat to private broadcasters. As the chairman of Tokyo Television put it, "When and if satellite broadcasting is fully realized, the regional stations of the private broadcasters may end up nothing but scorched huts." 65 In late 1983, as NHK neared completion of MUSE, Nippon Television (NTV) led the private broadcasters in an effort to promote enhanced-definition television (EDTV), known in Japan as Clear-Vision. EDTV involved upgrading existing terrestrial (freeto-air) signals so they could still be received by conventional television sets. MPT's initial promotion of Clear-Vision was hardly enthusiastic, but I09

COLLECTIVE ACTION IN EAST AsiA

NTV insisted, so the Ministry positioned it as a free-to-air stepping stone to satellite-based Hi-Vision. In March 1989 the MPT's Telecommunications Technology Council set a provisional standard for EDTV. 66 It reduced ghost signals and improved color a bit, but the improvements were only modest when viewed on existing sets. Despite the need to counter NHK, the other private broadcasters were reluctant to incur investments with no immediate payback in the form of higher advertising revenues. The tensions between NHK and the private broadcasters culminated in the sacking of NHK's chairman Shima Keiji in summer 1991. Shima was ostensibly fired for lying to the Diet about his whereabouts the day NHK's latest broadcasting satellite was destroyed in a launch failure. It turned out he had been ensconced in a Los Angeles hotel with an NHK staffer. Behind the sex and perjury scandal, though, lay a great reservoir of discontent with NHK's aggressive policies, including a raft of new profitoriented subsidiaries, extra charges for satellite reception, and an expensive plan to create a global news service presenting a Japanese perspective to compete with CNN and the BBC. LDP politicians made it clear that NHK had gone too far. In the words ofNonaka Hiromu, chairman of the Telecommunications Committee in the House of Representatives, "NHK should not be in charge of developing Hi-Vision and new media ... Chairman Shima went too far and had to be reined in." 67 A full-scale shake-up of NHK leadership quickly ensued. The new chairman adopted a low posture and dropped the global news service plan. 68 With NHK reined in, NTV and the other private broadcasters pushed forward with a second generation of Clear-Vision. MPT established preliminary specifications in 1993 and announced the final standard in 1995. The computer-friendly progressive-scan approach championed by NTV triumphed over interlaced alternatives. EDTV-2 also incorporated a wide-aspect screen, especially appealing to NTV, a leader in sports broadcasting. Conventional television sets displayed the EDTV-2 picture in "letter-box" form, with black bands at the top and bottom of the screen. The broadcast signal was a little clearer, but on existing televisions still not dramatically superior to NTSC. New television receivers began to incorporate technology capable of reproducing the superior images, but EDTV-2 remained more expensive both to broadcast and to receive. Progressive scan required a great deal of computer memory, and adoption was slow. Clear-Vision settled into an ambiguous relationship with HiVision: on the one hand, it dented the special appeal of Hi-Vision and created uncertainty in viewers' minds about the future of television. At the same time, Clear-Vision increased expectations for signal quality and stimulated the sale of wide-aspect receivers, helping pave the way for HiVision or other HDTV approaches. Soon the majority of new televisions

IIO

Standard Setting and R&D Consortia in Japan's Video lndust1)'

sold in Japan were rectangular, and many incorporated parts of the ClearVision improvements. 69 Standards for high-definition recording devices such as VCRs and videodisks followed a mainstream versus minority pattern that initially resembled the laserdisk and camcorder battles. As in the case of 8 mm, a small group of Japanese firms, with support from MITI and MPT, determined the broad parameters, then convoked an international conference to ratify their approach. This time, however, Sony and Matsushita, the electronics leaders, lined up on the same side. They proposed to use Y4-inch tape to make the new machines light and cheap. Together with Hitachi, they eliminated competing proposals from NEC and Canon. In June 1993 the international conference, totaling eight Japanese and two European firms, reached preliminary agreement. 70 Once again,JVC's determination to preserve its cash cow, VHS, threatened to upset unity. First JVC introduced a high-definition format called Wide-VHS. 71 When advances in digital processing rendered W-VHS obsolete, JVC developed a new digital version, D-VHS. It used a Y2-inch tape to maintain compatibility with VHS but did not support true high-definition signals. 72 This time the mainstream held. D-VHS remained a marginal product, while the new mainstream approach became the basis for DV format digital camcorders, which soon dominated the market in Japan, as well as a platform for development of high-definition VCRs. Once again, two recording formats confronted each other. For a time, CD-sizecl disks known as DVD (originally digital videodisk, later changed to digital versatile disk to reflect broader uses in computers) followed a similar trajectory. DVDs promised to be a powerhouse product, combining lower production costs, random access, a broad range of applications, and (a few years clown the road) high definition and the ability to record. The majority of firms backed a double-platter sandwich approach pioneered by Toshiba in consultation with Time Warner of the United States. Sony and Philips earned a stream of patent royalties from sales of CDs, so they held out for an alternative two-layer approach that could be read from one side, thus maintaining fuller compatibility with music CDs and CD-ROMs. In January 1995 unification seemed imminent, as video firms rallied around the Toshiba/Time Warner approach and the president of Sanyo offered to broker an agreement, but at the last minute Sony and Philips resisted. They appealed to computer companies, which planned to use DVD as a new memory device and insisted on a high degree of compatibility with existing CD-ROM devices. To that point, the struggle seemed reminiscent of earlier struggles over video formats in Japan, in which initial success in narrowing options gave

III

COLLECTIVE ACTION IN EAST ASIA

way to an unwanted but productive two-format struggle. DVD turned out differently, largely because it was no longer just a standard for video hardware. American computer firms and movie studios such as IBM and Time Warner insisted that the Japanese (and Philips) put aside their differences over technology and royalties and come up with a unified standard. This was easy for the Americans to suggest, since none of the American firms was a major supplier of CD-ROM devices or DVD players and since unification promised to reduce distribution costs for American software and videos. In September 1995 the electronics companies reached agreement on standards for DVD video and DVD-ROM, with Sony and Philips conceding on most issues. 73 The influence of digital technologies and American and European firms mirrored larger trends in the consumer video business, long a nearmonopoly of the Japanese electronics companies. When NHK devised its MUSE transmission standard in the early 198os, compression techniques were still too primitive to squeeze the enormous stream of data created by digital video into the 6 MHz of bandwidth allotted to television channels, so MUSE relied on analog signals (in contrast, the Hi-Vision studio standard was virtually entirely digital). Then in 1990 a medium-sized American cable television equipment supplier called General Instruments startled the electronics world with a fully digital compression system. The compressed signal could transmit an HDTV program, but it could also transmit several conventional programs in the 6 MHz of bandwidth formerly reserved for one channel, with room left over to transmit music and computer data. At a stroke, entry barriers to the broadcasting industry were radically reduced. Industry analysts began to envision a world of five hundred channels. American researchers increasingly talked of interactivity and digital television, and denigrated the "pretty pictures" of HDTV. They sketched glowing visions of seamless digital data streams flowing everywhere from telephones and computers to televisions and cellular phones. In practice, things did not proceed so smoothly. Interactivity bombedthe technology was still rudimentary and viewer interest low. Creating a seamless interface between televisions and computers was not easy. Televisions used rectangular picture elements (pixels), computers square ones. Conventional NTSC signals were interlaced-they transmitted half the lines (the odd lines, so to speak) in one cycle, followed by the other half (even lines) in the next cycle (interlace is why television sets shown in movies seemed to flicker). Computers, however, used "progressive scan," painting the whole screen anew on each cycle, eliminating flicker and enhancing resolution. In addition, for all the snide talk of "pretty pictures," the prospect of computerlike applications actually increased the importance of high resolution to make it possible for viewers to read text clearly II2

Standard Setting and R&D Consortia in japans Video Industry

on the screen. Software solutions to all these problems were neither automatic nor cheap. The MPEG (motion picture expert group) standards established internationally in the early 1990s addressed many of the issues in data compression. However, the MPEG standards were deliberately left quite open-ended. They allowed many different levels of resolution and both progressive and interlaced scanning, and researchers continued to tweak the standard to increase compression. Nor did MPEG address such issues as the width of channels or the modulation techniques by which signals should be transmitted, such as the distinction in radio broadcasts between AM (amplitude modulation) and FM (frequency modulation). The issue of how to achieve economies of scale on the basis of such a variegated family of standards still loomed large, and many standards still had to be set nationally. After debating such questions for more than six years, the United States simply abandoned all hope of creating a digital television standard, leaving a host of vexing trade-offs and translation problems to the market. 71 The vigorous advance of new techniques such as digital compression raised fears that Japan was falling behind in the development of an information society, but at first little changed. Then, changes in the political environment made a realignment possible. In summer 1993 the LDP lost control of the Cabinet, and a non-LDP coalition Cabinet headed by Prime Minister Hosokawa came into office pledging wide-ranging deregulation. Hosokawa's ability to implement his promises was limited by his shaky political position and the priority he placed on other issues, particularly reform of the electoral system. Nonetheless, deregulation made progress in a number of areas, including broadcasting, to which Hosokawa devoted special attention. 75 The development of new media technologies in Japan was long hampered by stifling regulations intended to protect existing broadcasters, conservative politicians' control over their local constituencies, and MPT's influence over the industry (including the ability to arrange cushy second careers for retiring officials). To prevent excessive concentration of media ownership, companies were allowed to own only one station each. For decades, the five "key" stations formed a cozy oligopoly. 76 Hampered by small audiences, the numerous local affiliates of the Tokyobased private television networks presented mainly network programs. The major exception was local news, which prominently featured local Diet members. 77 NHK dominated satellite broadcasting, while MPT forced all the private broadcasters to form a single satellite channel, wowmv. 7 s Cable television was equally constrained. Cable networks were not permitted to exceed administrative boundaries-each of the twentythree wards in Tokyo had its own cable system, for example-and companies were not allowed to own more than one cable system. As a result, the I IJ

CoLLECTIVE AcTION IN EAST AsiA

cable industry was fragmented and unprofitable. Programs were limited in quality and quantity. Cable service was expensive and attracted few viewers. Cable television viewership stagnated at less than one-tenth the levels seen in the United States. 79 In December 1993, in response to the Hosokawa cabinet's call for deregulation, MPT issued a major revision of restrictions on cable television. The new policies eliminated the requirement that cable companies be community-based, allowed media companies to own multiple cable systems, and permitted cable concerns to provide local telephone services. Before 1993 foreigners were limited to a 20 percent share in Japanese cable companies, but excessive regulation had deterred foreign investment. The new policy allowed foreigners to acquire a 33 percent stake in cable companies. Almost immediately, leading foreign cable companies formed joint ventures with Japanese trading companies to expand and consolidate the Japanese cable industry. 80 To exploit the ability of new digital compression technologies to provide a far broader array of channels in the same spectrum space, the ministry relaxed the guidelines restricting concentration of mass media to allow companies to control as many as twelve different channels.R 1 The most dramatic change occurred in satellite broadcasting. Three big new companies, two of them joint ventures with foreign investors, commenced operations. Where NHK and the private television networks' wowow had built up a subscriber base of ten million using analog signals, all the new firms utilized digital transmission to deliver a hundred or more channels. First off the mark was PerfecTV, a joint venture of four of the leading trading companies. Toyota, Sony, Matsushita, and NTT later joined as minor partners. It was soon followed by DirecTV, an alliance between Hughes Electronics, a pioneer in American satellite broadcasting and builder of most of the satellites used in Japan, and Culture Convenience Club, a video distribution company, with smaller shares held by companies from the Mitsubishi group. Most dramatic was] Sky B, a joint venture linking the Australian-born Anglo-American media magnate Rupert Murdoch with Softbank, the leading computer software distributor in Japan. Softbank's founder Son Masayoshi, a Japanese of Korean descent, studied computer science in the United States, which contributed to his reputation as a maverick. Son teamed with Murdoch's News Corporation to buy a 21 percent stake in TV Asahi, the first major foreign investment in a Japanese media company. This unprecedented and unsolicited move sent a shock wave through the world of japanese broadcasting.R2 While Murdoch and Son emphasized that they were not interested in taking an active role in management and only wanted to secure software from TV Asahi, the Asahi group resisted, and in the end they sold their shares for no gain. Sony, a far more international company, II4

Standard Setting and R&D Consortia in japan\ Video Industry

then turned around to supply investment and programming to J Sky B and brokered an alliance with Fuji Television. 83 In spring I 994 officials from MPT suggested publicly that Japan should abandon Hi-Vision/MUSE and move to the digital broadcasting technology progressing in the United States and Europe. However, the rising tide of digitalization, deregulation, and new entrants pushed together the formerly feuding existing broadcasters. NHK, the five private television networks, and the electronics firms were outraged that the bureaucrats might create uncertainty among buyers and viewers, and endanger their investments in Hi-Vision. Egawa Akimasa, head of broadcasting policy at MPT, feared that his career would be ruined, so he held a press conference retracting his statement. The next day he reaffirmed the retraction in a meeting with LDP officials. The bureaucratic trial balloons were promptly withdrawn. 84 The conflict then moved to the next generation of broadcasting satellites. Broadcasting satellites were more powerful than the ordinary communications satellites used by the new entrants to the video scene, and they occupied more desirable orbits, which provided consumers with better service even with small antennas. The special orbits, however, were limited and subject to international allocations. Japan was scheduled to receive the right to put up BS-4, with eight transponders, in I 997. NHK hoped to stay with analog transmission until the launch of BS-5 in 2007. The private broadcasters were also reluctant to switch because they had just succeeded in making their collectively owned analog satellite channel ·wowow profitable after vears of losses. NHK and the private broadcasters had no desire to abandon ten million analog viewers to compete on an even basis with the new digital entrants. At first the existing broadcasters prevailed. After fighting off Egawa, they succeeded in having BS-4 separated into two stages and kept the first stage analog. Then the new entrants and MPT finally prevailed. In spring 1997 an MPT advisory commission recommended digitalization of BS-4b, to be launched in the year 2000 with four transponders. 85 Despite the rising competition between the new digital services based on communications satellites and the old analog services transmitted by ground stations and broadcasting satellites, a new two-line struggle did not erupt. Unlike the case in the United States, in Japan a strong consensus supported establishment of broadcasting standards. 86 Given the new national mood criticizing regulation and the appearance of a new and variegated cast of players, the trick was to establish more flexible and international standards that would not set a quasi-official champion against antagonistic "mavericks." When the Telecommunications Ministry established new standards for digital satellite broadcasting in summer 1995, it struck a deft balance between standardization and flexibility. Compression standards followed the international standard MPEG-2, while signal IIJ

COLLECTIVE AcTION IN EAST ASIA

modulation was based on the DVB-S standard developed in Europe. A Japanese approach to signal scrambling was adopted. Though a Japanese standard already existed for "conditional access" to allow viewers to access specific programs, when some broadcasters proclaimed their desire to use their own technologies the ministry decided to leave the issue to individual firms. Similarly, though many Japanese advocated establishing a minimum bit rate to ensure that satellite broadcasting would retain its reputation for superior resolution, opponents successfully argued that broadcasters needed the flexibility to present programs at varying rates (high for sports, low for talk shows, for example) and that viewer choices should determine minimum quality levels. 87 Nor did the ministry simply give in at the least sign of conflict. MPT successfully coaxed PerfecTV and J Sky B, which planned to use the same communications satellite, to settle on interchangeable antennas and receivers, and encouraged work on new techniques to create a unified receiver capable of handling signals from any satellite, analog or digital. 88 In 1998 the two companies merged. MPT and MITI accelerated efforts to develop software solutions such as "middleware" and protocols to allow the smooth translation of digital signals from one platform or application to another. MITI in particular had grown concerned that the old pattern of developing new video standards by cozy groups of Japanese hardware manufacturers tended to lock out the concerns of software producers. 89 As a result, MITI and MPT sponsored the creation of a raft of new consortia, partly to promote new digital video technologies, but mostly to lay a wide and early groundwork for the creation of new standards.

R&D

CONSORTIA

Compared to standardization campaigns, consortia were less contentious and more successful in fulfilling their founders' expectations, largely because they required neither coercion nor unanimity. The ruling party was generally supportive, but except for occasional changes in budgets had little occasion to become involved directly. In the early years, most consortia revolved around NHK. Many of the later consortia were supported by the Key Technology Center, an organization jointly managed by MITI and MPT. The scholarly literature tends to emphasize the ubiquity and intensity of turf conflict in Japan, and without question MITI and MPT competed to use promotion of HDTV to expand jurisdiction. However, the ministries worked out a division of labor, and the formation of the Key-Tech Center muted conflict over consortia. As noted above, MITI and NHK organized the first video consortia in an effort to match the revolutionary VCRs produced by Ampex of the

II6

Standard Setting and R&D Consortia in japans Video Industry

United States. During the struggle between Beta and VHS, industrywide consortia became impossible. Cooperation and coordination existed within the groups, but NHK, the government, and the industry association played no role. Similarly, in the development of 8 mm camcorders, videodisks, and DVD, consortia were used only late in the game to coordinate the details ofstandards. Publicly organized or supported development consortia again loomed large in the development of HDTV. In the early years of development NHK controlled all basic technology and transferred it on a case-by-case basis to the few interested firms. As a market for HDTV equipment emerged, companies took a more active role. NHK reluctantly began to organize development consortia, such as the nine-firm effort to develop the Unihi VCR discussed aboveY 0 One of the most crucial areas was the MUSE decoder, which accounted for nearly half the cost of early HDTV receivers. 91 Around 198 5 NHK organized a "school" (more accurately a classroom) for eleven Japanese electronics firms. Over the next eighteen months it taught them the basic MUSE technology, for which they paid tuition. In early 1988 NHK organized six leading Japanese semiconductor manufacturers in an effort to replace refrigerator-sized cabinets full of discrete components with a few large-scale integrated circuits (LS!s). This time the roles were different. Knowledge of semiconductor miniaturization rather than broadcast technology was the key. The Japanese electronics Iirms led research, while NHK coordinated the project and evaluated the designs to ensure compatibility.Y2 This new approach, with its emphasis on coordination rather than direction, was more typical of R&D consortia in Japan. 9 ~ NEC assumed responsibility for image memory. Matsushita handled signal processing, while Toshiba took charge of the most critical task, designing the logic circuits for image motion detection. Sony, Sharp, and Hitachi entered later and assumed peripheral tasks. The efforts of these firms had to be coordinated closely to ensure compatibilitv in such areas as voltage, signal levels, and timing. In cooperative research efforts of this type, allocating tasks fairly and efficiently was tricky. Predictably, there were complaints. One company groused that ''You can't have one firm monopolizing the development of [crucial] ICs for the decoder. It's necessary for all firms together to help grow the market [shijo o sodateru] ." 94 Sanyo and Mitsuhishi Electric were less committed to HD'IV and declined to participate. Fujitsu, generally considered the best at digital signal processing, conducted research on its own, though it later received some technological assistance from NHK as well. 95 Despite the inevitable complaints and partial abstention, the participants were pleased with the results. The prqject proceeded on schedule and the decoder shrank to one-thirtieth its former size. A top official at NEC Home Electronics noted, "There is no precedent in the world for II7

COLLECTIVE ACTION IN EAST AsiA

several firms to divide the labor and turn such large systems into LSI chips." Why were they able to complete the task in eighteen months? "The three firms showed top secret technology in areas such as semiconductor processing to NHK, which was in charge of circuit design."% The success of the project spurred the late and uncoordinated entry of three American semiconductor firms, who received individual tutoring in MUSE basics from NHK. 97 Even after the first cooperative effort, the decoder was still too large and expensive for individual firms to handle on their own, spurring the formation of more consortia. Rather than forming one giant consortium, the firms fell into four competing groups. In response to pressure from the United States, a number of American firms were included. 98 The work was more strictly partitioned and the role of NHK less significant. The lure of the market beckoned, and the four groups were more akin to international strategic alliances than domestically organized consortia. 99 Mter the decoder, the most important component in an HDTV receiver was the display. To produce the sense of realism and dynamism that was HDTV's greatest selling point required large displays, ideally over a meter in width. The cathode ray tubes used in conventional televisions were poor candidates for the task. As they increased in size they became inordinately heavy, bulky, and fragile. Several alternatives were possible. NHK focused on plasma displays. Plasma gas squeezed into a thin glass sandwich and electrically stimulated produced a bright image that could be viewed from any angle. Plasma displays were potentially inexpensive, but early versions lacked durability. For many years, NHK's efforts in plasma were marked by a striking lack of support. In sharp contrast to other areas of HDTV, not a single firm worked with NHK on plasma displays. Even those firms conducting research in plasma mostly investigated an alternating current version, rather than the direct current approach favored by NHK. In October 1991, NHK overcame this isolation by forming a modest consortium composed ofNHKLabs, Matsushita Electronics, Oki Electric, and Dai Nippon Printing. 100 Progress was slow but significant. In 1994 NHK Engineering Services organized a more substantial consortium, led by a former head of NHK Laboratories. About half of the leading Japanese electronics' firms joined in, along with Du Pont and Texas Instruments. The consortium aimed at creating a 4o-inch screen in time for the 1998 Winter Olympics in Nagano, Japan. 101 This new group attracted late entrants such as Hitachi, and its progress stimulated research by other firms in plasma displays. 10 ~ Through the mid-1990s, most electronics firms focused on liquid crystal displays (LCDs). For NHK, this was a vexing choice. LCDs were singularly ill-suited to HDTV, since they were both difficult to view at an angle and hard to produce in large sizes. For manufacturers, however, LCDs

II8

Standard Setting and R&D Consortia in Japan's Video Industry

made eminent sense: LCD technology had far more applications in other areas of electronics, including miniature televisions and notebook computers. MPT and MITI each sponsored consortia to develop LCDs. MITI's effort was called Giant Electronics Technology Corporation (GTC), an offspring of the Key Technology Center. The Key Technology Center was established in 1985 in a rarejoint effort forced on a reluctant MITI and MPT by the LDP and the Ministry of Finance. Half of the funds for the center came from the Industrial Investment Special Account and a quarter each from NTT dividends and the private sector. The head of Keidanren, Japan's peak business association, chaired the center. 10 ~ The Key Technology Center invested in and provided loans to dozens of research consortia, including many in HD1V, such as GTC, founded in March 1g8g. Spending was projected at 2.8 billion yen over seven years, 70 percent of that coming from the Key Technology Center. The seventeen investors included NEC, Fujitsu, Casio, and subsidiaries of two European firms, Thomson and Hoechst. Sharp, the acknowledged leader in LCD technology, joined the consortium but continued its separate research effort as well. Toshiba, which formed a joint venture with IBM to produce color LCDs for notebook computers, did notjoin. 104 However, doubts remained about the practicality of building very large LCD screens, and after a couple of years the ruling party and the Ministry of Finance slashed the consortium's budget. 105 At the same time MPT formed its own consortium with 70 percent of funding from the Key Technology Center. MPT's consortium honed in on LCD projection displays, which were better suited to HD1V and industrial applications. Investors included NHK, NEC, Seiko-Epson, a Nagoyabased computer design firm, and the railway research institute. The president was an ex-MPT official and the director of research was recruited from NHK. Research efforts were partitioned, with a lab each for all investors except the railway institute, but regular meetings were held across labs. LCD pr~jection displays improved considerably, but they were still bulkier and more complex than the ideal "flat panel," and the quality remained inadequate. 10" A final critical area of development involved compression and conversion of video signals. The Key Technology Center put up 70 percent of the capital to form Graphics Communication Laboratories, a new startup company led by the computer software firm ASCII, with smaller stakes from Hitachi, JVC, and NTT Electronics Technology. Graphics Communication Laboratories aimed at a superresolution "multimedia television" in which HD1V images, computer graphics, picture-phone images, and other video information would all merge seamlessly on one screen. Just the previous year MITI had rescued ASCII, a brilliant firm that had expanded too rapidly, in order to lead and coordinate Japan's catch-up efII9

CoLLECTIVE AcTION IN EAST AsiA

fort in digital multimedia. 107 In 1995 &"enjoined all the major electronics companies in a five-year~ $6o million consortium called Digital Vision Laboratories, which focused on developing a high-definition version of DVD and software protocols to facilitate interoperability among different types of video technology. The same year the major electronics firms joined forces to create yet another video consortium with investment backing from the Key Technology Center, the Advanced Digital Television Broadcasting Laboratory (ADTBL). ADTBL was even more clearly focused on standardization. It focused on improving technology and establishing standards for digital broadcasting by conventional free-to-air stations, including modulation and error correction, as well as the development of the key semiconductor chips to support a uniform receiver. !OH Consortia in the video industry, rather than following a simple "catchup" tr~ectory in which private firms initially depended on government support and mutual cooperation before graduating to atomized competition, revealed a more cyclical logic. As each new technology emerged, consortia, usually centered on NHK, supported by MITI and MPT, or both, played an important role in standardizing formats and research approaches and diffusing capabilities. As the technology approached maturity, consortia declined in importance or split into competing versions. Then, with the next generation of technology, the process began again. Superimposed on this cycle was not a catch-up trend-Japanese electronics firms were further behind the cutting edge in consumer video technology in 1990 than in either 1985 or 1995-but a transformation in the video industry brought about by deregulation that diminished the role of NHK and allowed new competitors, including some foreigners. Unlike the case of capacity issues, where the government was forced to abandon support for cartels, the government's response in the video industry was to reinvigorate R&D consortia. The ministries started earlier, incorporated a wider range of actors, and supplied generous funding from the Key Technology Center.

CoNCLUSJo:r-;

In the early years of video the Japanese electronics industry simply adopted American standards. As Japanese firms forged to the technological frontier a clear pattern emerged: the government supported the industry mainstream in trying to develop a single standard, but a small number of mavericks, usually either independent firms caught up in the expanding video industry (Pioneer, the camera firms) or guardians of previous standards (JVC), resisted the mainstream, leading to a protracted two-line struggle. This struggle was hardly consistent with the I20

Standard Setting and R&JJ Cousortia in Japans Video fndustn

rosier pictures of Japanese as a neatly cooperative "network society." Still, the inadvertent two-line conflict provided a surprisingly effective match of continuity and economies of scale with diversity and competition. Certainly it avoided the periodic paralysis found in the United States, which completely failed to establish standards in such areas as satellite television and HDTV. The organization of R&D consortia was generally smoother, and in areas such as plasma panels and miniaturization of HDTV decoders they made important breakthroughs. The government also organized consortia to produce software and to test and lease video equipment. Consortia were not the only or even the primary mechanism for technology development (most research was conducted in individual firms), but they proved popular and resilient. Consortia elicited widespread participation, but they were not vulnerable to partial abstentions. They could be created, cut back, or redirected without inciting a backlash from the industry. In the 198os, multiple consortia sometimes explored competing research agendas. In the 1ggos, MITI and MPT used the Key Technology Center to start consortia earlier, provide more support, and ensure that a broader range of interests was incorporated. Consortia and standardization efforts were not the only ways the ministries tried to promote consumer video technology. MITI and MPT also provided some tax breaks and low-interest loans to individual companies without regard to the actions of their competitors. 109 Overall, however, these forms of support were quite modest in scope. 110 A striking proportion of government policy was aimed at standards, consortia, and other attempts to overcome network externalities. The government's capacities were adequate to support consortia but often insufficient in standard setting. Pioneer andJVC proved quite capable of resisting MITI, while NHK succeeded in extending the life of MUSE years after MPT tried to switch to digital broadcasting.JVC refused IYHTI's offer of a side payment to abandon VHS, and eventually VHS defeated Sony's Beta. The government had somewhat more success with problem definition and information interchange, particularly when it intervened before products hit the market. The ministries were particularly attentive to, if only partially successful in, overcoming tensions between the collective interest in existing technologies and products and development of future technologies and formats. In the short term, the bureaucracy was usually not entirely successful, as illustrated by the contortions MITI went through trying to promote the new 8 mm standard for camcorders, or the delays MPT faced in moving to digital broadcasting. Nonetheless, the intervention of the bureaucracy almost certainly resulted in a smoother and more rapid shift than if the private sector had had its way. The ministries were not the only public elements in the consumer I2I

CoLLECTIVE AcTION IN EAST AsiA

video industry. NHK (like the old NTT in telecommunications) was a crucial public player. In possessed significant capacities in research, helped set standards, controlled a huge collection of programming, and was an important source of demand for new equipment. Unlike the ministries, it had its own corporate interests, which sometimes collided with those of MITI or other firms, particularly NTV and the other private television networks. Despite these independent interests, the political and legal environment oriented NHK toward collective action. It led standard setting in VCRs and HDTV equipment, and organized numerous consortia. The ruling party structured the policy environment surrounding NHK and consumer video more generally. It exercised oversight over policy, personnel, and budgets. The government passed legislation preventing NHK from manufacturing equipment and competing with private firms. These restrictions prevented NHK from unilaterally setting formats and new directions for video research and forced it to work with and through private companies--often through R&D consortia. NHK budgets and viewer fees were subject to ratification in the Diet and were often controversial. Most of the time, the ruling party left the implementation of policy to the bureaucracy. On occasion, however, the politicians exercised quite direct oversight, grilling MITI on its failure to achieve standardization, sacking NHK chairman Shima Keiji when he became too aggressive and infringed on the market of the private firms, and forcing MPT broadcasting boss Egawa to scrap his plan to abandon the MUSE transmission standard for HDTV. In each case, the political intervention favored collective action by industry over independent initiatives by the bureaucracy. With the political changes of the early 1ggos and the rapid advance of digital technologies that dated MUSE, a wave of deregulation swept in. NHK and the private broadcasters slowed change but could not stop it. Standard setting survived but in a diluted form. The ministries accepted some international standards, such as the MPEG format for image compression, and sacrificed the comprehensiveness and technological purity of earlier years to maintain compliance. The new issues and players heightened the importance of consortia, which turned out to be more flexible and useful than catch-up theory had anticipated.

I22

CHAPTER SIX

Hapless Standard Setting and Direct Provision of Engineering "Consortia" in Taiwan's Computer Industry

Taiwan's personal computer (PC) industry grew from a mere fledgling in the late 1970s to third largest in the world by the mid-1ggos. Most of its technology and standards came directly from the United States, just as in the video industry. However, in one area Taiwan was unable to copy the United States: standards for Chinese-language computing, particularly a code to allow the transfer of documents containing Chinese characters from one computer system to the next. As noted in the case of the Japanese video industry, establishing standards is essentially a coordination problem in which players wish to "meet" at a common point but disagree about exactly where that point should be and how disastrous failure to meet would be. Mediating a mutually acceptable solution is difficult, but once a standard is established firms are unlikelv to defect from the consensus. A second problem for Taiwan's computer industry arose when American computer firms began to block the flow of technology to emerging competitors in Taiwan. Virtually all of the local computer firms were small and entrepreneurial. Lacking the resources to match the frenetic pace of development in Silicon Valley, they looked to the government to establish research and development (R&D) consortia to develop new models. R&D consortia do not depend on universal participation, but the dangers of defection or free riding are greater than in standardization efforts. The PC industry in Taiwan shared many similarities with Japan's consumer video industry. Both produced electronic products primarily for sale to consumers. In both, standards were important but not absolutely essential (unlike the case with facsimiles or most areas of telecommunications). In both cases a handful of key players dominated the industry: I2J

COLLECTIVE AcTION IN EAST ASIA

seven in Japan, roughly ten in Taiwan. Taiwan's industry was less stable, with both more new entrants and more bankruptcies, but in both countries two frrrns were clear leaders. 1 The network density of the computer industry was also relatively high by Taiwanese standards. The great majority of firms clustered in a narrow band of Northern Taiwan between the capital city of Taipei and the science city of Xinzhu, home to two leading technological universities (Qinghua andJiaotong), the Science-Based Industrial Park, and the Industrial Technology Research Institute (ITRI). Most computer firms depended on an agglomeration of suppliers packed in the Taipei-Xinzhu corridor. Leaders in the industry generally shared a sharply defined career pattern: science and engineering degrees from Qinghua, Jiaotong, or National Taiwan University; graduate work and some professional experience in the United States; and possibly a period of affiliation with ITRI or the Science-Based Industrial Park before moving to the private sector. A vigorous industry association emerged relatively early. Network density was thus unusually high for Taiwan, and not so different from Japan. Despite the similarities in policy problems and industrial structures, the goals and capabilities displayed by the two governments differed drastically. The government in Taiwan did not accept, much less support, independent attempts at collective action by the private sector. Even when it agreed that market competition alone would not necessarily produce optimal outcomes, it preferred direct provision by the bureaucracy or quasi-governmental research institutes to collective action by the private sector. The government often relied on American technical advisors and U.S. multinationals-an unthinkable way to solve collective action dilemmas inJapan, but in keeping with the concern ofTaiwan's government to avoid becoming dependent on local business. As for capabilities, the government had access to far more policy tools than did MITT or MPT in Japan. R&D consortia in Taiwan, though superficially similar to those in Japan, initially constituted a strictly limited form of cooperation in which private firms put up a share of the expenses, while quasi-governmental agencies conducted almost all of the critical work and much of the financing. Unfortunately, strength was not matched by agility. The murky jurisdictions and unclear pattern of delegation in Taiwan made standard setting a painful, protracted, and untrustful enterprise. Far from a network state, Taiwan had a muscle-bound state. Democratization exerted relatively little influence over standardization of computer codes. The broad outlines of Taiwan's approach were already settled when the party system opened in rg86, and fundamental solutions came only from external forces such as Microsoft and the International Standards Organization (ISO) over which Taiwan exerted little influence. However, the government redoubled eflorts to improve I24

Taiwan's Computer Industry

the standard-setting process in other areas. In the case of consortia, the early 1ggos witnessed a major transition to a new system in which companies participated in genuinely cooperative development projects, though ITRI's role was still more central than that occupied by government or quasi-governmental organizations such as the Ministry of International Trade and Industry (MITI) or NHK in Japan.

STANDARDIZATION OF CIJINESF- LANGUAGE COMPUTING

Inability to Unify Internal Codes; Two-Camp Struggle over Exchange Codes

Finding ways for computers to input, process, and exchange Chinese characters was crucial not only for the development of the computer industry hut for the computerization of Taiwan, from factory automation to finance, taxation, and hospitals. This problem was much more difficult than in Western countries, where the simple 128-character ASCII code sufficed to cover the Roman alphabet, Arabic numerals, and major symbols. The set of Chinese characters in common use was both much larger and less clearly differentiated than that in Japan, with its two kana syllabaries, or in Korea, with its hangul alphabet. The standard character list in Japan consisted of just 1 ,gso characters, while the average college graduate in Taiwan could read perhaps S,ooo characters. The task of adapting computers to handle Chinese characters fascinated and frustrated Chinese scientists and engineers. The list of difficulties was daunting: how should the user enter characters? What code should be used to represent the characters in binary form, and how should it be arranged? How should the characters be displayed and printed? Perhaps the most difficult questions involved the characters themselves. How many characters were necessary? Which forms were acceptable: What about irregular and variant characters? Addressing all of these issues at once demanded difficult technical and cultural choices among cost, efficiency, comprehensiveness, and flexibility. Moreover, with the continuing advance of technology, the nature of the trade-off continually changed. Computer scientists, tinkerers, and literary figures such as Lin Yutang devised dozens of ingenious input systems, based on pronunciation, radicals (the 214 constituent parts of which at least one appears in all characters), stroke count, analysis of the "four corners," and many others. The internal codes used for processing within the computer followed those developed for Roman letter computing and varied from one manufacturer to the next, severely limiting the development of off-theshelf software packages. I25

CoLLECTIVE AcTioN IN EAST AsiA

The advent of inexpensive PCs made the creation of a useful and userfriendly Chinese-language system increasingly important. As was so often the case in Taiwan, the initial impetus came from abroad. At the 1979 National Development Seminar (guojianhui), which brought back academics, scientists, and engineers who had settled abroad for a brief conference every summer, one of the resolutions called for the development of a standard conversion code to allow computers with different internal codes to communicate with each other. 2 An ad hoc Small Research Group established by an arm of the cabinet's Research, Development, and Evaluation Commission then called for standardizing character forms, identifYing the number of characters in common use, and specifYing a common internal code. 3 The proposal was too controversial to be accepted in toto, for it threatened the basic operating systems of manufacturers. A watered-down version calling for the creation of an exchange code was incorporated into the 1979 Administrative Plan of the Cabinet. 4 The Electronic Data Processing Center of the Directorate General of Budget, Accounting and Statistics (DGBAS EDPC) commenced research and organizational work in january 1980. International influences were also responsible for a parallel effort begun at almost the same time. In the wake of U.S. diplomatic recognition of the People's Republic of China (PRC) the Library of Congress urgently needed to automate its processing of Chinese and other East Asian-language materials. The Library of Congress asked an East Asian Libraries Automation Committee to hold meetings with representatives from the PRC, Japan, Korea, and Taiwan. The committee leaned to the Japanese kanji (character) code but postponed the final decision until the March meeting of the Association for Asian Studies after urgent protests by academics from Taiwan concerned about the shortage of characters in the Japanese list and the replacement of traditional characters with simplified andJapanified forms. Upon returning to Taiwan the scholars contacted minister without portfolio K. T. Li (Li Guoding). Li held a graduate degree in physics from Cambridge and served for many years as minister of finance and then of economic affairs. President Chiang Ching-kuo anointed him unofficial czar of the science and technology sector in Taiwan. Li convened a group of experts to form a Chinese Character Analysis Group. With initial support from the Academia Sinica, Taiwan's national research institute, the group came up with a plan for a comprehensive approach that would incorporate the characters used in japan and the PRC as subsets of the traditional characters used in Taiwan and Hong Kong. They called their creation the Chinese Character Code for Information Interchange (cccn, or quanhanma). When completed, this four-level, twenty four-bit code would accommodate all so,ooo or so Chinese characters, as well as

Taiwan:, ComputeT Industr)'

simplified andjapanified forms, the Korean hangul, Manchurian, and Tibetan, as well as the Roman alphabet, Arabic numerals, and special mathematical and scientific symbols. cccn was accepted by the automation committee and soon gained recognition from the ISO. Computers built by a Boston-based computer scientist from Taiwan incorporating cccn won orders from the Library of Congress, a consortium of East Aian departments of American university libraries, and the U.S. Air Force, as well as the military and the ruling Kuornintang (KMT) party in Taiwan." The problem was that these two strains of international stimulus and domestic response led to the creation of two incompatible codes. In September 1g8o the National Science Council (NSC) attempted to bridge the gap by convening a two-clay gathering at the central Taiwan mountain resort ofXitou of some forty computer experts, including the DGBAS EDPC group and the founders of cccn. In the ensuing clash of egos and technical approaches, the camp led by the budgeting directorate stressed the importance of efficiency, low cost, practicality, and domestic applications, which implied the superiority of a sixteen-bit code with a limited number of characters. The CCCII experts, on the other hand, championed the idea of a comprehensive, internationally accepted code, which would necessitate a twenty four-bit structure. The two sides argued passionately over which was more efficient and sanctioned by Chinese tradition: ordering characters first by number of strokes and then by radical, as the representatives from the data processing center advocated, or radical first and then stroke number, as the CCCII group insisted." The resulting compromise aimed to conciliate the two sides, but the thrust of the decision was clear: a sixteen-bit code with stroke order first. 7 The cccn camp had lost. Both groups continued their efforts. In February 1981 the EDPC group completed the initial draft of a sixteen-bit, 16,ooo-character code, based on the famed dictionary Cihai. They named it the Chinese Industrial Standard Code for Information Interchange, or CISCII.' The cccn group refused to accept the ambiguous "Xitou principles" and managed to secure a grant for $1 oo,ooo from two private foundations and $4oo,ooo from the Council for Cultural Planning and Development (CCPD), another cabinet-level agency, to continue work on CCCII. They commissioned four universities and technical institutes to compile a character list. 9 The Cabinet's computerization committee ordered a one-year trial period of both stroke-order and radical-order versions of sixteen-bit codes. It ordered the NSC to lead and coordinate a Conversion Code Small Group to settle the conversion code problem. 10 Though this joint committee approach cast the NSC and the EDPC in simultaneous roles as both coach and referee, it held out the promise of garnering support from a wide spectrum of affected agencies. The Taipei Computer A

Input A1ethods: Providing Evaluations Rather than lviandating Standrmls If computers were to become widely popular it was important to simplify and unify the interface most important to the average user-how to put writing into the machine-to encourage computer literacy in a land where even familiarity with Western typewriters was limited. Each system had drawbacks. Some were fast but occasionally inaccurate, others produced no ambiguities but were slow. Some were fast and accurate in the hands of accomplished users but difficult to learn and remember. As of 1983 at least thirty-one approaches appeared on the market. 16 Input methods could be standardized in several ways. The Institute for the Information Industry (III), a quasi-governmental foundation established by K. T. Li that played a role in software similar to that of ITRI in hardware, urged computer manufacturers to set their own standard. However, since ease of input was a major element of competitive appeal, III's suggestion did not bear fruitP Alternatively, the government could ratify two or three methods, perhaps one phonetic svstem and one or two radical or component-based methods. A prominent spokesperson for this view was Stan Shih (Shi Zhenrong), founder and president of Acer Computers, Taiwan's largest computer company. 18 The Economics Ministry announced that it would commission III to undertake an evaluation and limit government procurement to computers using one or two standard methods. 1" Even this idea proved too sensitive. In response to interpellation from a member of the legislature, the head of the Ministry of Eco129

CoLLECTIVE AcTioN IN EAsT AsiA

nomic Mfairs' National Bureau of Standards rejected the idea of unifying systems. 20 III continued to conduct surveys on ease and frequency of use, but refrained from making recommendations. In the Taiwanese context, with no private sector computer consulting firms and no consumer journals like Software Digest, this was an important job, but it did not significantly reduce the plethora of input methods and the associated training costs. 21 Internal Codes: JBlvl and the Big-5 Software Consortium

Nor was it possible to create a new standard internal code. During summer 1983 IBM secretly approached III for assistance in creating a Chinese character set and internal code for its ssso model computer, which the company had recently introduced in Japan. Through Ill, IBM also secretly acquired the CCCII character list and the highly rated Cangjie input method, named after the mythical inventor of Chinese characters. Press leaks created an uproar. Critics questioned the low price and the intimate relations between some III staffers and IBM. Many feared that Taiwan's expertise and m~or comparative advantage in computers with Chinese character processing capabilities would slip away to Japan and the PRC. Government officials defended the deal on the grounds that it gave a boost to Taiwan's software industry and was necessary to prevent IBM from using simplified character sets developed in Singapore or the PRC. They promised not to give the IBM ssso preference for computer procurement by government organs. 22 The IBM ssso did go some way toward fulfilling these hopes. A version of the III-IBM 5SFJO code, which contained 16,ooo characters in a twopart, sixteen-bit code, became the basis for the largest cooperative software project ever undertaken in Taiwan. At the urging of hardware manufacturers who feared that lack of Chinese-language software would . limit computer sales, III organized a group of seven hardware makers and six software firms to create an integrated package of five popular programs, including an accounting spreadsheet and a word processor. The group created both Chinese and English versions. The participants dubbed the package Big-s. 23 The companies invested six million NT, while III contributed four million NT in labor. The Economics Ministry's Industrial Development Bureau (IDB) lent ten million NT from the Cabinet's new Fund to Encourage Private Enterprises to Develop Industrial Products. Big-s was the first project so honored. Unfortunately, failures of coordination plagued the Chinese-language half of Big-s. Each software firm assumed responsibility for one of the programs (one firm soon dropped out), but ensuring consistency and compatibility across the programs proved difficult. Each of the hardware IJO

Taiwan :s Computer Industry

firms struggled to make the internal code and input-output systems more compatible with its own models. Several manufacturers found that differences in internal codes made it difficult to run Big-5 on their machines. Acer abandoned Big-s altogether. The problem of marketing was even more severe. Unable to devise a satisfactory way to allow everyone to sell the package, the firms finally decided they would submit bids. The winner, Systex (Jingye), became general distributor. Systex's strategy of bundling Big-s essentially free with its computers made it difficult for the software firms to make a profit selling it as an independent package. Systex sold a modest 4,ooo-odd copies, while the other firms sold only negligible amounts. III lost a great deal offace. Nevertheless, Big-5 emerged as one de facto conversion code. In june 1984 the TCA's software standardization committee formally endorsed the III's Big-s code. 24 In the 1990s Big-s became the most common format for Chinese-language Internet applications emanating from Taiwan. Chinese-Character Operating Systems: Standards Suggested and Abandoned

The government had least success in the area of operating systems. The lack of a standard operating system, an "MS-DOS" or "Windows" for Chinese, posed a major barrier to the growth of a flourishing software business for Chinese computers. With the growth in size and sophistication of local firms, it became conceivable to create a domestic operating system. First, the Economics Ministry announced a Next-Generation Chinese Computer Research and Development Project. It arranged to have Academia Sinica handle theoretical work, while ITRI's electronics laboratory took charge of hardware and operating systems and III coordinated development of applications software. 25 The Next Generation plan, conceived not long after the massive publicity surrounding Japan's FifthGeneration Computer Project, proved excessively ambitious and was quietly dropped. Next, in November 1984, III and the IDB suggested that other firms might adopt the one legal Chinese operating system already in existence, Acer's just-completed Chinese version of CCP /M, which could emulate MS-DOS, though at a cost in expense and occasional incompatibility. While they did not use the term "national standard" the implication was clear-and controversial. Critics asked why III and ITRI could not work together to develop a system, and why III was trying to push one firm's system. Others argued that operating systems should not be decided at meetings but through the market. The IDB and III promised to have ITRI contact IBM and Microsoft about acquiring rights to modify MSDOS for Chinese, and to coordinate and support efforts to transfer Acer's IJI

COLLECTIVE AcTION IN EAST ASIA

Chinese operation systems to other firms. 26 IDB's New Industrial Products Fund advanced 20 million NT (just under half the total cost) for further development of Acer's operating system. 27 By July 19H:), Acer's Chinese operating system Saizhuge (smarter than the legendary strategist Zhuge Liang) hit the market. Saizhuge 1-2-3, a spreadsheet based on the Saizhuge operating system, became the largest selling software program in Taiwan, with almost four times as many sales as its closest competitor, the Big-s package. 28 Nevertheless, Saizhuge did not become a standard operating system. Eventually Microsoft established a subsidiary in Taiwan and created a Chinese-language version of the Windows 3.1 operating system, which established a de facto standard. 29 Politics Halts the CISCII Unification Effort With little progress in standardizing internal codes, input and output methods, and operating systems, attention shifted again to exchange codes. As before, the greatest sticking point was the proper number of characters. The july 1982 version ofCISCII contained only 12,000 characters. Industry figures unanimously recommended expansion of the conversion code to accommodate all the characters in existing data bases, estimated at 22,ooo-:3F),OOO. The Cabinet's Information Industry Small Group ordered completion of a 23,ooo-character code. 30 This idea soon conflicted with adherence to ISO requirements and the group confined itself to ordering the Education Ministry to supplement its list of 4,8o8 basic characters with the remaining characters found in primary and junior high school textbooksY The Small Group instructed Irving T. Ho (He Yici), vice-chairman of the NSC and executive secretary of the group, to finalize the new version. Ho was a Stanford Ph.D., a long-time senior engineer at IBM, and the man entrusted by K. T. Li to handle the conversion code business. His brother Irwine Ho (He Yiwu) was a member of the Central Committee of the ruling party. Ho convened a group of experts from both the CISCII and CCCII camps, as well as Jia Yuhui, head of the Data Communications Institute of the government's Directorate General of Telecommunications. This group appeared to include all the relevant interests, but Jia Yuhui and Irving Ho never even met, the CCCII people continued on their own way, and the group was unable to accomplish anything.:>~ When the third version of CISCII appeared in October 1983, it included the extra basic characters but no irregular or variant forms, for a total of 13,053 characters. The code was an uneasy hybrid. A sixteen-bit code represented the 5,401 basic characters while a twenty-four-bit code covered the entire set, including the basic characters. One section remained open for users to define extra characters. 3 :1 CCCII and the revised CISCII were to IJ2

Taiwan 5 Comjmta Indust?)'

compete on the marketplace for two years before a final decision was made. Despite the support of K. T. Li, his software adYisor Irving Ho, the Cabinet's cross-ministerial Small Group, and the computer manufacturers, the sixteen-bit, limited-character CISCII approach was still unable to vanquish cccn. The obstacle was not bureaucratic wrangling but party politics. Zhou Hongtao, a powerful old politico, minister without portfolio, and cochairman with Li of the Cabinet's Small Group, strongly supported CCCII. The KMT Central Committee used a voting system based on the cccu, and the military created an islandwide communications system based on CCCII. Yan Jiagan, a leading technocrat and former president, and the KMT organ, the Central Daily News, both supported cccn on the grounds that it was more international and thus better able to resist the depredations of the Chinese communists and theJapaneseY No one was happy to see the decision postponed yet again, but no mechanism existed to make an authoritative decision. The Telecommunications Directorate Adds a Third Code

In the midst of this flurry of development a new and powerful competitor quietly entered the conversion code contest. In the late 1970s Taiwan's telephone subscribers expanded at the fastest pace in the world, completely overwhelming the directory system. Complaints rose alarmingly. In response, Communications Minister Lin Jinsheng, a Taiwanese and former local politician, ordered the Directorate General of Telecommunications (DGT) to computerize the communications systems. He did not know or care about the technology, he said, 'just do it fast." The DGT began plans to offer advanced data communications services. 35 To handle these tasks, the DGT's Data Communications Institute revamped iL~ century-old Chinese-character telegraph code. The system, which represented each character "vith three Roman letters (and later a sixteen-bit code), was not technically sophisticated but had the great virtue of stability: the codes of existing characters had never changed. In August 1983 the DGT expanded the code to over 16,ooo characters, with room for users to add 8,836 more (for example, "strange names," or the entire set of simplified characters used in mainland China). Naturally, coming from a telecommunications agency, it was compatible with international standards. 36 With a yearly budget of 12 billion NT (about U.S. $300 million), the DGT was the largest consumer of computers in Taiwan. In February 1985 Mitac, Taiwan's second largest computer company and a major supplier to the DGT, changed its internal code to the new DGT code.'l7 Later that year, with support from the IDB and III, Mitac released a new workstation I]]

COLLECTIVE AcTION IN EAST ASIA

based on the DGT code capable of handling 24,000 characters. 3 H Six months later Acer marketed a powerful new Chinese character expansion card containing the DGT code. 19 A survey of users by the Electronic Data Processing Center found that the DGT code was far and away the most common internal code. No one used CCCII or even CISCII, though anumber used the similar Big-s and IBM ssso codes. Competing Codes and an Unstable "Standard"

While DGT quietly increased the reach of its code, CISCII was revised yet again. A cross-ministerial CISCII Technology Small Group convened by Irving Ho recommended more changes, including complete adherence to ISO standards and a sixteen-bit format and addition of an optional list of 2,o8o rare and variant characters. When the new CISCII was officially proclaimed as national standard CNS 1 1643 in March 1 g86, it looked markedly similar to the Big-s code endorsed by a majority of computer firms a year and a half earlier. 40 Observers grumbled about the limited number of characters, the long delay, the instability caused by the repeated revisions, and many aspects of the decision-making process (particularly the uneasy quasi-governmental status of Ill), but most firms and users seemed relieved finally to have some kind of standardY The apparently successful conclusion of the long conversion code struggle rested on two factors: lack of enforcement of the "standard" in government procurement and ignoring the competing codes. Some computer companies, such as Mitac and Hewlett-Packard, conducted significant business with DGT and feared that they would be at a competitive disadvantage if adherence to the new CISCII were made a prerequisite to winning government contracts. In the end, the government granted a grace period of indefinite length. The official in charge of government computer procurements down played the whole idea of establishing an official standard: "We emphasize transfer and exchange, communication, not 'standards.' " The standard, he said, was like Mandarin Chinese: everyone should know it, but no one would be forced to speak it at home. 42 While this was perhaps a reasonable approach to internal codes, it was an odd way to characterize an exchange code. Even more important was exclusion of both the CCCII camp and the DGT code. Irving Ho and the other figures involved in CISCII accepted that CCCII was the standard for library work and language analysis-and otherwise ignored it. They also ignored the DGT code. This strategy of ignoring and excluding the rival codes exacted a high price. Advocates of the other approaches continued their efforts and threatened the authority of the "standard." The CCCII group continued compiling its monumental code and proselytized strenuously at international meetings. The cccn

IJ4

Taiwan's Computer Industry

leaders charged that CISCII was "not just inferior, but a catastrophe and an embarrassment." 43 Jia Yuhui, head of the DGT's Data Communications Institute, was equally derisive of CISCII, calling it "the biggest joke under heaven," primarily because of the limitations of the character set. He contended that the CISCII team fundamentally failed to understand the nature of large systems and unwisely extrapolated from experience in small tests: K. T. Li is very smart, but he is not a computer man. He has depended on Irv-

ing Ho, who also is very smart and moreover is a computer person with impressive "VIP" credentials that K. T. respects (Stanford Ph.D., 20 years with IBM). However, he's a hardware man and doesn't understand the complexity of software problems. In addition, both K. T. and Ho are too busy, and K. T. in particular lacks a staff, someone to push and implement. As a result, they have depended on committees, not a good way to achieve rapid decisions and finn actions. DGT refused to change its code or procurement patterns and continued to promote its own code. 11 Not only did the 1g86 C!SCII standard not eliminate CCCII and the DGT code, it did not even solve all the problems of computer producers, and had to be revised and extended. Handling more than a few specialized characters through user-defined spaces led to great interchange problems. In 1g88, responding to complaints from users, DGBAS added 6,319 characters in the former users' space. A 1990 survey by the Central Standards Agency revealed continuing dissatisfaction, so the agency delegated the job of coordinating revisions and extensions to III. Finally, in April 1992 the revised version of CNS 1 1643 was promulgated. It now contained 48,027 characters, more than three times the original number, arranged in a different order. 15 In the end, Taiwan's inability to create a stable and widely accepted national standard code for Chinese character interchange was ameliorated only by outside forces. In 1983 the ISO, from which Taiwan was excluded, began work on a code that could incorporate all the alphabets in the world and avoid the inconsistencies of earlier ISO guidelines. It was big and complex, using thirty-two-bit codes to represent characters, and subject to negotiations and delays from the various national representatives. In 1987 a group of American hardware and software firms led by Xerox and Apple, impatient with the lack of progress and eager to expand sales of American software, began an alternative effort that came to be called Unicode. The sixteen-bit Unicode was capable of holding 65,536 characters and incorporated various national standards in toto. Integrating Chinese, Japanese, and Korean presented the greatest difficulties, but Unicode 1.0, containing 27,ooo characters, was released in 1991. 46 Mter some skirmishes, a compromise was reached in which ISO essentially

IJJ

CoLLECTIVE AcTION IN EAsT AsiA

incorporated Unicode, including the Unihan section for Chinese characters, as a subset of a new comprehensive standard, ISO 1o646Y Computer scientists and linguists from Taiwan began to cooperate with their counterparts from the mainland on Chinese character issues. Surveys in Taiwan revealed that go percent of users hoped that these developments would eventually lead to a common internal code. 4s Taiwan's inability to determine conversion and internal codes was thus finally superseded by the efforts of foreign companies and international organizations into which it had minimal input.

R&D

CoNSORTIA IN THE CoMPUTER INDUSTRY

Apples and Oranges: Computer Countnfeiting and Its SujJfmssion For Taiwan's export-dependent electronics industry, devising computers able to crack foreign markets was just as important as processing Chinese characters. The introduction of the IBM PC in 1981 made exports feasible. With a fixed standard for software, Taiwan's firms could treat the computer as another commodity appliance, without having to worry about providing applications software. The problem was getting technically adequate and legally acceptable machines to the United States at a reasonable price. In this effort ITRI led the way with technology transfer and engineering support, often in the form of highly subsidized development "consortia" in which computer firms jointly contributed to product development by ITRI. Through the 197os Taiwan was almost completely dependent on imported computers, producing only a few crude laboratory models with imported semiconductors. The island did have a well-developed light industrial base. Electrical and electronics parts were inexpensive and widely available, and local universities and technical institutes turned out large numbers of electrical engineers. Taivvan became one of the world's largest suppliers of small electrical motors and power supplies, handheld calculators, digital watches, and television receivers. The success of the Apple II, with its open architecture, led to the appearance of counterfeit Apple computers. Apple II clones provided many people their first chance to use a computer, and they soon found their way to Hong Kong, Southeast Asia, and even back to the United States. Concern for the morals of the younger generation caused the government to impose a ban on electronic video games, pushing a number of former game producers into the business of cloning Apples. By one account, the number of Apple computers in Taiwan reached 1 oo,ooo, of which only about 1 ,ooo were legal imports. 49 In late 1982 Apple sued importers for conn-

Taiwan s Computer Industry

terfeiting and persuaded American customs authorities to han the import of Apple clones. Apple's lawyers persuaded Taiwan's Ministry of the Interior to register Apple's computer software, even though Taiwan's copyright law did not yet cover software.' 0 Industry Calls for Government Support of Collective Design

Apple's aggressive moves stunned the local industry. Some of the perpetrators were pirates pure and simple, copying every detail of Apple's hardware, software, and manuals, or at most devising an "Orange" or "Banana" logo. Others, including industry leader Acer, were interested in establishing a legitimate computer operation but were not fully abreast of the rapidly evolving American view of intellectual property rights, for the United States had only revised copyright laws to include computer code in 1gRo. Both pirates and aspiring legitimate firms frantically sought to avoid losing their primary product. In response to the industry's calls for help, Song Tiemin, head of the electronics and precision machinery division of the Economics Ministry's IDB, com·encd a meeting of Apple II producers and personnel from III and ITRI's Electronics Research and Service Organization (ER-"lO, later reorganized into the Computer and Communications Laboratory). Song asked Wang Fuqing, head of the microcomputer section at ERSO, how to rebut Apple's charges and maintain compatibility. Wang told him to forget Apple. The problems of the copiers were severe, and with the advent of IBM's personal computer the Apple II had no future. Moreover, ERSO had experience in designing machines around the Intel 8o86/8o88 microprocessors that IBM had chosen for its Pc.·>~ After the meeting Wang's chief designer, Tian Benhe, proposed a PC project to ERSO's deputy director Yang Ding)'uan, but Yang waited to see more concrete signs of demand from the private sector. In February 1983 ERSO received a request from Acer for an exclusive project to develop IBM-compatibles for Christmas shipments to the United States. \Vang and Tian began working feverishly, but Acer abruptly ordered a halt at the end of March, when IBM announced it would introduce a more advanced model. Despite Acer's freeze, Wang and Tian pressed forward. By the end of April, Acer concluded that IBM's new XT model would not seriously threaten the PC market. In the meantime, ERSO director Hu Dinghua and deputy director Yang received numerous telephone calls from other computer firms requesting help in developing PCs. ERSO agreed to continue the project but insisted that it he open to other firms. ERSO renamed the project MCP-1, for "multiclient project." Despite this decision to open up the project, both private and government preferences restricted participation to a limited number of firms.

I3/

COLLECTIVE ACTION IN EAST ASIA

ERSO wanted to keep the project manageable. The IDB hoped to limit participation to large firms capable of performing research. The firms themselves faced a collective action dilemma. Increasing the number of participants spread costs but also meant keener competition once the computers hit the market. ERSO contacted fourteen computer firms, received replies from seven, and in july signed contracts with five, including Acer and Systex. Some other major firms, such as Mitac, decided to go on their own. Four more firms later joined the project, for a total of nine. By the end of the year the Taiwanese computer firms began a mad scramble to export IBM clones. Unfortunately, IBM claimed that ERSO's design infringed copyrights protecting its BIOS (Basic Input and Output System), and American customs officials impounded a number of shipment. 52 ERSO engineers had developed the BIOS independently, but they did not realize how demanding IBM was. They were tempted to fight, but the counterfeiting issue was so sensitive (the U.S. International Trade Commission had just issued a report citing Taiwan as the world's largest source of counterfeit goods) that ERSO leadership ordered them to rewrite the BIOS. Mter two weeks of intensive work they completed the rewrite, and in May IBM acknowledged that the new version was legal. 5 3 The legal problems were followed by a worldwide shortage of semiconductor chips that delayed production and then by a major IBM price cut, all of which limited the success of the ERSO project. Acer completely abandoned the ERSO BIOS. Other firms began to pass customs with the ERSO BIOS, but often only after expensive delays. Computer makers turned to markets in Europe, Southeast Asia, and elsewhere that did not demand BIOS documentation. Though the ERSO firms eventually earned a fair return on the cooperative project, in the months immediately following the BIOS incident ERSO was the target of widespread criticism. ERSO Organizes a New Cooperatively Funded Design Project

Mter solving the BIOS problem, Taiwan's computer industry faced the challenge of keeping up with IBM's next model. ERSO's microcomputer manager Wang Fuqing was in the United States to obtain an advanced degree when IBM announced the PC-AT in August 1984. He immediately facsimiled a report back to ERSO, which had already begun a research project based on the 286 microprocessor featured in the AT. On Wang's return ER'iO established a project team, and in November IDB invited twenty-odd firms to discuss ways to improve joint research projects. Mter the problems .vith the MCP-1, ERSO had few takers. When ERSO agreed to provide a "total solution," including design of the cabinet and modules, the offer was accepted by three of the larger firms: Copam, Systex, and Tatung (Datong). The first two were large manufacturers, but not

Taiwan s Comjmtrr Industry

among the leaders in design. Tatung, the largest producer of electrical appliances in Taiwan, was having trouble holding computer engineers because of its bureaucratic management. ERSO promised that additional firms could not join the pn~ect without permission from the founders. Even without enlisting new partners, their initial financial burden was reduced when IDB agreed to finance about half of the design costs. 54 ERSO's PC-400 project was much quicker and more successful than its predecessors. The ERSO personnel became experts on intellectual property rights and registered their AT BIOS in the United States even before signing contracts with the three firms. Since the models were virtually identical, the three firms competed on manufacturing efficiency and marketing rather than design. Interviews confirmed that the participating firms were highly satisfied with the quality and profitability of ERSO's AT clcmes." 5 The success of the PC-400 project restored ERSO's credibility and revived the interest of firms in cooperative projects. Impressed with the rich profit margins of the high-end AT and the success of the ERSO project, new companies entered the computer industry. IBM clones from Taiwan overcame their reputation for poor quality and uncertain compatibility. Taiwan's microcomputer exports rocketed from U.S. $2 million in 1982, to $12 million in 1983, and $240 million in 19fl5. By 1992 they topped $2.:) billion. 56 As the market expanded, new sources of technology appeared. Many computer makers acquired BIOS and integrated circuit packages from American firms such as Phoenix, AMI, and Chips & Technologies.'' 7 ER.'-)0 continued to clone the various iterations of the PC, but as private firms increased their capabilities it embarked on new chores. ERSO took advantage of its substantial patent portfolio to negotiate a cross-licensing agreement with IBM. 58 It negotiated an inexpensive collective license for local firms to package MS-DOS with their computers. Unfortunately, ERSO was unable to prevent many tiny firms from unauthorized or excessive copying of the software. Microsoft canceled the collectiye license and renegotiated with private firms on a one-to-one basis. Rates soared.:>y. Electricity generation, long a perfect monopoly, with one producer for each of ten regions throughout the country, was liberalized. A number of manufacturers built electric power facilities for sale to the regional power companies. 24 The Cabinet accepted a recommendation from MITI's Industrial Structure Council to liberalize the import of petroleum product">. This step, taken against the strong opposition of all but two of the refin-

IJJ

COLLECTIVE ACTION IN EAST ASIA

ers, unleashed a major restructuring of the industry.~" Sato Taiji, the battered but unrepentant head of Lions Oil, proclaimed his determination to import oil independently. 26 He was not alone: the National Federation of Agricultural Cooperatives, long a bulwark of LDP support, imported oil from South Korea, undercutting domestic prices by 20 percent. 27 Petroleum companies were especially concerned about the entry of leading retailers Daiei andjusco. 28 Under political pressure to reduce regulations, other ministries also began to reevaluate decades-long policies to exclude new entrants, a crucial step in breaking up established patterns of collusion. 29 The Ministry of Posts and Telecommunications accepted the activities of "call-back" firms, most of them based in the United States, as a way of cutting international phone rates, despite the opposition of Nippon Telephone and Telegraph (NTT) and Kokusai Denshin Denwa (KDD). It also encouraged the entry of new domestic long-distance firms.:lo The Ministry of Transportation, long wedded to the three leading domestic Japanese air carriers, agreed to loosen price regulations and allowed the entry of new upstart carriers patterned after Southwest Airlines of the United States. 31 This change of ministerial strategy was accelerated by a new Adminis- · trative Procedures Law passed during the reformist Hosokawa cabinet.'~~ The law constituted a significant check on the use of the supposedly unofficial "administrative guidance" that ministries had long used to control companies, particularly would-be new entrants. The new law required ministries to provide explicit written standards and specific statutory authority for any administrative guidance (for example, requiring would-be newcomers to negotiate the terms of their entry with existing producers) and to reply to applications in writing within a specified period. This new law helped stimulate new entry in fields as diverse as natural gas distribution, pharmacies, and Internet services. The law was not a panacea. Existing firms were reluctant to use the new law for fear of souring relations with the ministries. Nonetheless, it was instrumental in allowing many new entrants to undermine de facto cartels. In the words of a leading business periodical, "The Administrative Procedures Law is a weapon to liberate Japan from the vested interests that have come to bind it hand and foot." 33 Despite widespread conviction that political leadership was inadequate and covert ministerial opposition to reform unabated, the cu~ mulative impact of reductions in regulation and the entry of new producers turned out to be substantial. A survey of business investment in tgg6 revealed that the biggest increases in investment came not from traditional leaders such as autos and semiconductors but from mobile telecommunications, retailing, and electricity generation-all areas in which deregulation had recently led to a surge of new entrants. 31

Extending the Political Logic in Time and Sjmce

Cartels

The greatest policy changes concerned cartels and antitrust. Cartels were always difficult to implement in Japan, as the case study in Chapter 3 demonstrates. Extralegal administrative guidance was often inadequate. The government often found it necessary to pass special laws to buck up administrative authority, such as the large retail stores law that forced would-be discounters to negotiate with local mom-and-pop stores before opening new outlets, 35 the depressed industries laws, and the petroleum import control law of 1985. This visible legislation made the ministries more vulnerable to political criticism. It also worried even favored firms that excessive controls might constrain tl1em. In the 1990s, as the political situation became less stable, firms were even less sure that the government would wield strong powers in ways favorable to them. Keidanren jousted with the FTC over mergers and holding companies, but it aggressively promoted the movement to reduce restrictions and cartels, many of which restricted its members. 36 MITI Vice-Minister Tsutsumi said, "At one time we created many special exemption cartels, but recently we have turned around and worked feverishly to dismantle them." 37 The early 1990s witnessed a dramatic decline in the number of cartels legally exempted from the Antimonopoly Laws. In the early 1980s Japan had about 500 cartels. As late as 1988 there were still 31 o officially sanctioned cartels, including several recession cartels. Mter the political upheavals of 1989 and 1993 they quickly declined. Despite the continuing recession and rapid decline of the textile industry, in October 1993 MITI eliminated 89 textile cartels that had been on the books for four decades. 3 " The FTC made it clear that it would not authorize new cartels. By 1994 only 67 cartels remained, and even these were scheduled for abolition. Most striking was the complete lack of depression and structural rationalization cartels during the extended and painful recession of the early 1990s. 39 Mter 1989 the FTC, once derided as "the watchdog that doesn't bark," began to take more aggressive action. It sharply increased the fines it charged violators of the antimonopoly law and for the first time in almost two decades began launching criminal investigations. Nor were the targets all small fry. Among those fined and charged were producers of cement, chemicals, and heavy electrical equipment. The commission forced Japan's four major brewers to publish announcements that recommended retail prices were not compulsory, spurring the development of a market in discounted beer. Its raids and orders disrupted cartels in foreign books and control over retail prices by the small oligopoly of domestic cosmetic firms. 40 As noted in Chapter 3, the FTC forced the steel companies to abandon joint trade negotiations with

I57

COLLECTIVE ACTION IN EAST ASIA

China, in the process opening up export opportunities for smaller steel firms. The commission also prodded other ministries to reduce cartelistic restrictions in a whole range of industries from rice distribution, tobacco, and alcohol to taxi cabs, airplanes, telecommunications, and banking. This increased activity was backed by organizational and legal changes. From 1989 to 1995, while budget pressures forced most other ministries and agencies to cut personnel, the FTC increased its staff by almost 10 percent and increased the number of investigative personnel by more than 70 percentY For the first time, it instigated raids against suspected cartels even without complaints from victims. 42 In 1994 it issued a report detailing the specific circumstances under which adherence to "administrative guidance" by MITI and other promotional ministries could expose firms to prosecution under the Anti-Monopoly Law. Among the areas singled out were supply and demand forecasts of the kind the ministries had long issued in steel and shipbuilding. 43 In 1996 Prime Minister Hashimoto named Negoro Yasuchika, the second-highest-ranking public prosecutor, to head the commission. The selection marked the first time in many years that a former bureaucrat from the Ministry of Finance did not head the FTC. Real and important changes in cartel policy did not immediately make the FTC as strong or active as the An1erican antitrust authorities, particularly in prosecuting informal cartels created by restrictions on entry and pricing. Jawboning increased more dramatically than sanctions. The watchdog begun to bark frequently, but only occasionally did it bite. Progress was slow in finance, where the Ministry of Finance was determined to uphold stability (and profitability) at a time of tremendous pressure on the financial system, and even slower in tackling illegal cartels in the construction industry ( dango), where resistance from contractors and their political backers was ferocious. Nonetheless, the FTC's more aggressive approach marked a significant break from the past. Even in banking and construction FTC actions had some impact. 44 If the Japanese FTC still lagged behind the Anlerican FTC or the antitrust division of the Department of Justice, it came to compare quite favorably with antitrust bodies in Europe. 45 Observers have suggested a number of nonpolitical explanations for changes in cartel policy. One possibility is that reduced acceptance of cartels reflects a long-term trend based on the transformation and internationalization of the Japanese economy. There is some truth to this. The total number of cartels began declining back in the 1960s, and in the late 1980s Japanese firms accelerated overseas investments. Notwithstanding this international investment, new candidates were far from unavailable: textile firms, minimills, and others would gladly have formed cartels if the government had allowed them. Moreover, as noted above, the decline in

Extending the Political Logic in Time and Space

cartels accelerated suddenly in 1g8g, when the LDP lost control of the Upper House. FTC policy shifted even more abruptly and dramatically. The number of kankoku or "recommendations," the FTC's strongest administrative action, tripled in 1ggo, and remained at tl1e new levels in succeeding years, despite the pressures of recession. (See Table 1). Another possible explanation is Anlerican pressure. Again, there is some truth to this claim. The Bush administration made antitrust something of a priority. It is hard to attach a precise weight to American pressure, since it occurred at the same time as major political and economic shifts in Japan. In general, though, analysts concur that foreign pressure for policy change is relatively ineffective absent powerful political support from within Japan. 46 In the case of antitrust, American pressure was relatively ineffectiveY

Table 1.

JAPANESE FTC "RECOMMENDATION," 1986-1994

Fiscal Year

Number of "Recommendations"

1986 1987 1988 1989 1990 1991 1992 1 993

8 4 6

1 994

7

22 30 34 31

21

Source: Kosei Torihiki Iinkai, Nenji Hokoku [Japanese Fair Trade Commission, Annual Report] 1990, 1994.

Finally, the common claim that any policy change in Japan must have been led by the bureaucracy is hard to sustain in the case of antitrust. The FTC, after all, was long seen as a weak agency, ignored or rebuffed by the more powerful line agencies and (until the appointment ofNegoro) subject to oversight by alumni of the very line agencies with which it jousted. The crucial question is precisely why the FTC was strengthened. An ironic alternative might be that MITI was the key force for change, since MITI and its major client Keidanren came to recognize that cartels were passe and counterproductive. 18 This approach begs the crucial question of why change occurred when it did. Criticism of cartels dated back decades. MITI officials long viewed cartels as necessary evils and were often reluc1

59

COLLECTIVE ACTION IN EAST AsiA

tant to authorize them. Even when the LDP was securely in control, cartels often required special backup legislation such as the depressed industries law and petroleum industry law. 49 The widespread criticism of excessive regulation and the weakened position of the LDP made it virtually impossible for MITI to sustain formal cartels after 1g8g. On balance, the ministry seemed relieved to rid itself of an onerous, contentious, and often unproductive task, but it did not lead the way in bringing about the abolition of formal cartels or the strengthening of the FTC. Only the change in the larger political environment expressed in public opinion, the stance of the business community, and, above all, the political parties accounted for the trend to abandoning cartels. Standards

The impact of the changing political environment was less extreme in the area of standards. The government's standard-setting efforts were also open to criticism as excessive and ineffective regulation. Business leaders and journalists were sharply critical of the government's failure either to achieve complete unification of formats (as in consumer video) or to prevail internationally (as with the HDTV transmission standard MUSE). In 1996 the ministry announced that it would devolve responsibility for many of the Japan Industrial Standards (]IS) to the private sector. 50 MITI and the Ministry of Posts and Telecommunications moved further "upstream" in the standards-setting process, and became less inclined to try to coerce recalcitrant firms to comply. Nevertheless, demand for some coordination by the government remained. In the case of the steel industry, early efforts at development of electronic data interchange (EDI) were fragmented and limited to upstream-downstream transactions such as sales from integrated makers to their affiliated retailers or coil centers. MITI's desires notwithstanding, steel companies were unwilling to allow users direct access to all possible sources. With extended recession in the industry the firms relented, and received a subsidy from MITI to help develop a standardized EDI system that would directly link all suppliers and consumers of steel,5 1 The government also had a continued but subdued role in the consumer video industry. Some observers in Japan claimed that digitalization rendered format disputes irrelevant. A bit is a bit, they claimed. Many Japanese business leaders, journalists, and technocrats emphasized the importance of globalization and the need to strike up international strategic alliances with American and European firms. No longer, they argued, would Japan be able to set a standard at home and hand it to the International Standards Organization (ISO) for ratification after a few minor revisions, as had happened with the Hi-Vision studio standard.

r6o

Extending the Political Logic in Time and Sjmce

This emphasis on the need to embrace globalization was often linked to criticism of the old political and economic order in Japan for producing excessive exports and engendering resistance and suspicion abroad. 52 This rosy vision of a universalizing wave of digital technology and evermore encompassing global alliances was not entirely without foundation. In the case of multimedia, for example, MITI left standard setting largely to the private sector. In the area of digital compression of video images, Japanese firms largely followed the American lead and adopted MPEG standards endorsed by the ISO. Nevertheless, the hands-off view was exaggerated. For starters, the idealized American alternative of standard setting through smooth market interaction was highly misleading. The American system led to a number of quagmires such as "three different, incompatible digital direct-broadcast satellite services," and broadband digital networks in which "the five regional broadband networks being built in the United States are totally incompatible with each other." 53 In HDTV, the drama of General Instruments' last-minute submission of a digital transmission technology was widely interpreted as proof of the superiority of the flexible American system, but in the end the Federal Communications Commission (FCC) forced the leading contenders to form a "grand alliance." Nearly seven years after General Instruments' application, the FCC threw up its hands and abandoned the attempt to create a standard for digital television." 4 Global harmonization also proved impossible, as the Europeans insisted on developing their own digital standard. 55 In many cases Japanese firms collectively occupied major or dominant positions in product markets, and they wanted standards. In some cases standards promised to provide a competitive advantage. In others, domination of crucial skills made inevitable a major Japanese role in setting world standards for the next generation of equipment, as in 300 mm silicon wafers for semiconductors. 5 6 Japanese electronics executives emphatically rejected the American laissez-faire attitude toward standards and called for a continuing government role, albeit in accommodating rather than aggressive form. 5 7 The standard-setting process became more open, flexible, and international, but MITI and the Ministry of Posts and Telecommunications did not disappear from the picture. Consortia

Least affected by changes in the Japanese political environment were consortia. From a purely technical viewpoint, this is surprising. Many analysts criticized Japanese firms for timidity, lack of vision, and excessive dependence on groupism and government sponsorship. After about 1985 the conventional wisdom was that consortia in Japan were outdated, a I6I

COLLECTIVE ACTION IN EAST A_rsity of Chicago Press, 1993). 64. Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton:. Princeton University Press, 1995). 65. Scott Mainwaring, "Politicians, Parties and Electoral Systems: Brazil in Comparative Perspective," Comparative Politics 24:1 (October 1991), pp. 21-43. 6o. One minor exception: for a brief period in the mid-198os the l\ew Liberal Club was brought into the Cabinet as a coalition partner. Since the NLC was small, composed of ex-I ,DP politicians, and soon reabsorbed into the ruling party, I ignore it here. 67. Calder, Crisis and Compensation; Hirose Michisada, Seiji to Kane [Politics and money] (Tokyo: Iwanami Shoten, 1g8g). 68. Mark Tilton, Restrained Trade: Cartels in japan:~ Basic l'vtaterials Industries (Ithaca: Cornell University Press, 1996). 6!)· Supplementary seats were added to the Legislative Yuan after 1969, but until 1992 the number was limited, so the KMT's hold on power was not in question. 70. Russell Hardin, Collective Action (Baltimore: Johns Hopkins Lniversitv Press, 1982), p. 25, is firmly refuted in Sandler, Collective Action, p. 44· 71. Thomas C. Schelling, The Strategy of Conflict (Cambridge: Harvard Universitv Press, 1 960), p. 55· 72. Duncan Snidal, "Coordination vs. Prisoner's Dilemma: Implications for International Cooperation and Regimes," American Political Sciencr Review 79 ( 198 5), pp. 923-942. 73· Robert D. Putnam and Nicholas Bayne, Hanging Together: The Seven-Power Summits (Cambridge: Harvard University Press, 1984). Note that some economists argue that it is better not to attempt to coordinate macropolicies: Barry P. Bosworth, Saving and Investment in a GlobalEconomy (Washington, D.C.: Brookings, 19~-n), pp. 20-2/J.. 74· Nor do all problems involve the straightforward summing up of provisions. Other possibilities include "weakest link" (alliance defense, pest control) and "best shot" (scientific breakthroughs). I ignore these other possibilities here. Sandler, Collective Action, pp. 36-3 7. 7 5· Alternatively, it can be conceptualized as a set of externalities (your production hurts the price of my products) for which contractual compensation is difficult and normally illegal. Creating a mechanism to allocate and enforce production limitations (i.e., a cartel) and protecting it against possible opposition from consumer industries and the government is itself a collective action problem. 76. For a statistical survey, see Shirai Iwao and Kodama Furnio, Kyodo Kenk.yu ni Ok.eru Sanlw Kigyo ni Kansuru Chosa Kenk.yu [Quantitative analysis on structure of collective R&Ds [sic] by private corporations in Japan] (Tokyo: National Institute of Science and Technology Policy, Science and Technology Agency, 1g8g).

Notes

Among the best academic studies are Wakasugi Ryuhei, Gijutsu Kakushin to Kmkyu Kaihatsu no Keizai Bunseki: Nihon no Kigyo Kodo to Sangyo Seisaku [Technological innovation and research and development: firm behavior and industrial policy in Japan] (Tokyo: Toyo Keizai Shinposha, 1g86) and Jonah D. Levy and Richard]. Samuels, Institutions and innovation: Research Collabmation as 1echnology Strategy in JajJan, (Cambridge: MIT Japan Program, 1989). A summary of an in-depth study is Gerald Hane, "The Real Lessons of Japanese Research Consortia," Issues in Science and Technology I 0:2 (Winter 1993). PP· s6-6z. 77· Daniel I. Okimoto, "Regime Characteristics ofJapanese Industrial Policy," in Hugh Patrick, ed.,japan High Technology industries (Seattle: University of Washington Press, 1986), pp. 3.5-95; Hiroyuki Odagiri and Akira Goto, "The Japanese System of Innovation: Past, Present, and Future," in Richard R. Nelson, ed., National Innovation S)·stems: A Comparative Analysis (New York: Oxford l:nivet·sity Press, 1993), pp. 76-114. 78. Hane, "Real Lessons"; for an in-depth case study of VCRs, see ltami Hiroyuki, Nihon No VTR Sangyo Naze SP-kai o Seiha DP-kita No Ka [Why was Japan's VCR industry able to control the world?] (Tokyo: NTT Shuppan, 1989), esp. chaps. 5-6. On the problem of coordination failures and incomplete appropriation in upstream-downstream connections, see Linda R. Cohen and Roger G. 1\oll, The Technology Pork Barrel (Washington, D.C.: Brookings, 1991), pp. 18-1g; Masahiro Oknno-Fujiwara, "Interdependence of Industries, Coordination Failure and Strategic Promotion of an Industry," journal of international Economics 2:) ( 1988), pp. 2.5-43· 79· Wakasugi, Gijutsu Kakushin to Kenkyu Kaihatsu. So. Yukihiko Kiyokawa and Shigem Ishikawa, "The Significance of Standardization in the Development of the Machine Tool Industry: The Cases ofJapan and China," Hitotsubashijournal ofEconmnics, 28:2 (December 1987), pp. 123-154 and 2~p (June 1988), pp. 73-88. Despite civil war, warlordism, andJapanese aggression many areas of Chinese industry that did not require standardization, such as textiles, grew rapidly. Thomas G. Rawski, Eronomic Growth in Prewar China (Berkeley: University of California Press, 198g). 81. Kof..,ryo Gijutsuin Hyojunbu, Kogyo H_)ojunka no ilyumi: Kog;yo Hyojunho Shiko 40-shunen [The course of industrial standardization: the fortieth anniversary of the enforcement of the Industrial Standards Law] (Tokyo: Nihon Kikaku Kyokai, 1989). 82. Joseph Farrell and Carl Shapiro, "Standard Setting in High-Definition Television," Brookings Papers on Economir Activity (Washington, D.C.: Brookings, 1992), pp. 1 -93· 83. On small-N research see David Collier, "The Comparative Method," in Ada W. Finifter, ed., Political Scimce: The State of the Discipline 11 (Washington, D.C.: American Political Science Association, 1993), pp. IO:J-I 1 g. 84. I did not examine Chinese character (kanji) codes in Japan because the problem was not comparable: the Japanese used far fewer Chinese characters and had available two standard syllabaries (the kana). It is suggestive that standardization of character codes occurred much earlier and more easily in Japan and that the standards remained relatively stable. See Ken Lunde, Ur11ierstandingjapanesr Information Processing (Sebastopol, Calif.: O'Reillv & Associates, 199~).

s

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NoTES TO PAGES 2.

How

27-34

PARTIES A!';D POLITICS SHAPE POLICY OBJECTIVES AND ORGANIZATIONAL

CAPACITIES 1. T. J. Pempel, ed., Uncommon Democracies: The One-Party Dominant Regimes (Ithaca: Cornell University Press, 1990). 2. J. Mark Ramseyer and Frances McCall Rosenbluth, japan:, Political Marketplace (Cambridge: Harvard University Press, 1993). 3· Masaru Kohno, "Rational Foundations for the Organization of the Liberal Democratic Party in Japan," World Politics 44:3 (April 1992), pp. 369-397. 4· Sato Seizaburo and Mat~uzaki Tetsuhisa,jiminto Seiken [The LDP Regime] (Tokyo: Chuo Koron, 1986). 5· Michihiro Ishibashi and Steven R. Reed, "Second-Generation Diet Members and Democracy in Japan: Hereditary Seats," Asian Survey 32:4 (April 1992), pp. g66-379· 6. Kent E. Calder, Crisis and Compensation: Public Policy and Political Stability in japan, I949-1986 (Princeton: Princeton University Press, 1g88); Hirose Michisada, Seiji to Kane [Politics and money] (Tokyo: Iwanami Shoten, 1g8g). 7· Iwai Tomoaki, Seiji Shikin no Kenkyu: Rieki Yudo no Nihonteki Seiji Fudo [Research on political campaign financing: The Japanese-style political climate for interest inducement] (Tokyo: Nihon Keizai Shinbunsha, 1990); Gerald L. Curtis, The japanese Way of Politics (New York: Columbia University Press, 1g88). 8. Takashi Inoguchi, "The Political Economy of Conservative Resurgence under Recession: Public Policies and Political Support in Japan, 1977-1983," in Pempel, ed., Uncommon Democracies. g. Iwai Tomoaki, Rippo Katei (Tokyo: Tokyo Daigaku Shuppankai, 1988). 10. John Creighton Campbell, "Policy Conflict and Its Resolution within the Governmental System," in Ellis S. Krauss eta!., eds., Conflict infapan (Honolulu: University of Hawaii Press, 1983), pp. 294-334. 11. Mathew D. McCubbins and Gregory W. Noble, "Perceptions and Realities of Japanese Budgeting," in Peter F. Cowhey and McCubbins, eds., Strur:ture and Policy in japan and the United States (New York: Cambridge University Press, 1995). 12. Tsuji Kiyoaki, Nihon Kanryosei no Kenkyu (Tokyo: Tokyo Daigaku Shuppankai, 1969); Chalmers Johnson, 'Japan: Who Governs? An Essay on Official Bureaucracy," journal ofjapanese Studies 2:1 (Autumn 197 5), pp. 1-28. 13. Mathew D. McCubbins and Gregory W. Noble, "The Appearance of Power: Legislators, Bureaucrats, and the Budget Process in the United States and Japan," in Cowhey and McCubbins, eds., Structure and Policy; Ramseyer and Rosenbluth, japans Political Marketplace. 14. Nihon Keizai Shinbunsha, jiminto Seichokai [LDP PARC] (Tokyo: Nihon Keizai Shinbunsha, 1983). 15. lnoguchi Takashi and Iwai Tomoaki, Zoku Giin no Kenkyu: jiminto o Gyujiru Shuyakutachi [Research on Diet members in tribes: The actors who control the LDP] (Tokyo: Nihon Keizai Shinbunsha, 1987). 16. McCubbins and Noble, "Perceptions and Realities"; Rinji Gyosei Chosakai OB-kai, Rincho to Gyokaku: Ni nen kan no Kiroku [The Rincho and administrative reform: The two year record] (Tokyo: Bunshinsha, 1983). 17. Takeo Kikkawa, "Functions of Trade Associations before World War II: The Case of Cartel Organizations," in Hiroaki Yamazaki and Mato Miyamoto, eds.,

206

Notes Trade Associations in Business History (Tokyo: University of Tokyo Press, 1g88), pp. 53-83. 18. Chalmers Johnson, 1\1.[11 and the Japanese Miracle (Standford: Standford University Press, 1982). 1 g. Daiichi Ito, "Government-Industry Relations in a Dual Regulatory Scheme: Engineering Research Associations as Policy Instrument~," in Stephen Wilks and Maurice Wright, eds., The Promotion and Regulation of Industry in Japan (New York: St. Martin's Press, 1991). 20. For the text of the law, see .foho Roppo (Showa 63 Nenban) [Six laws on information (1g8g)] (Tokyo: Tsusan Shiryo Chosakai, 1988), pp. 386-388. 2 1. Richard J. Samuels, The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective (Ithaca: Cornell University Press, 1987), pp. 103, 123, 131-132; Ito, "Engineering Research Associations"; on legislation for structurally declining industries, see Frank K. Upham, Law and Social Change in Postwar japan (Cambridge: Harvard University Press, 1987). 22. Johnson, MI1I and thejaj1anese Miracle, pp. 255-265. "Administrative guidance" alone was not an adequate substitute. Takashi Wakiyama, "The Implementation and Effectiveness of MITI"s Administrative Guidance," in Stephen Wilks and Maurice Wright, eds., Comparativf' Government-Industty Relations (Oxford: Oxford University Press, 1986), pp. 211-231. 23. Cf. Samuels, Business of the japanese State. 24. Hung-mao Tien, The Great Transition: Political and Social Change in the Republic of China (Stanford: Hoover Institution Press, 1989). 25. Zhongyang Xuanju Weiyuanhui, Zhonghua iHinguo Xuanju Tongji Tiyao (35 Nian-76 Nian) [A synopsis of electoral statistics of the Republic of China (1946-1987)] (Taipei: Zhongyang Xuanju Weiyuanhui, N.D. [1987]); Yung-mao Chao, "Local Politics on Taiwan: Continuity and Change," in Denis Fred Simon and Michael Y M. Kau, eds., Taiwan: Br'yond the Economic lvliracle (Armonk, N.Y.: M. E. Sharpe, 1992). 26. Edwin A. Winckler, "Elite Political Struggle, 1945-1985," in Edwin A. Winckler and Susan Greenhalgh, eds., Contending Approaches to the Political Economy of Taiwan (Armonk, N.Y.: M. E. Sharpe, 1g88). 27. Andrew J. Nathan, "The Legislative Yuan Elections in Taiwan: Consequences of the Electoral System," Asian Survey 33:4 (April 1993), pp. 425-438; Garv W. Cox and Emerson Niou, "Seat Bonuses Under the Single Nontransferable Vote System: Evidence from Japan and Taiwan," Comparative Politics 26:2 (January 1994), pp. 221-236. 28. Tun:jen Cheng, "Democratizing the Quasi-Leninist Regime in Taiwan," WorldPolitics41:4 (July 1989), pp. 471-499. 29. Chien-kuo Pang, "The State and Economic Transformation: The Taiwan Case," Sociology Ph.D., Brown University, 1988. 30. Mick Moore, "Economic Growth and the Rise of Civil Society: Agriculture in Taiwan and South Korea," in Gordon White, ed., Developmental States in East Asia C~ewYork: St. Martin's Press, tg88). 31. Jung-en Woo, Race to the Swiji: State and Finance in Korean Industrialization (New York: Columbia University Press, 1991), pp. 166-169. 32. Shirley W. Y. Kuo et al., The Taiwan Success Story: Rapid Growth with Improved Distribution in the Republic of China, 1952-1979 (Boulder, Colo.: Westview, 1981).

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34-40

33· Chen Shimeng et al.. Jiegou Dangguo Ziben Zhuyi: Lun Taiwan Guanying Shiye zhi Minyinghua [Dismantling party-state capitalism: On the privatization of state and party-owned enterprises in Taiwan) (Taipei: Chengshe, 1991), pp. So-81. 34· Xiao Xinhuang eta!., Longduan yu Boxue: Weiquan Zhuyi de Zhengzhi Jingji Fenxi [Monopoly and exploitation: A political economy analysis of authoritarianism] (Taipei: Taiwan YanjiuJijinhui, 1989). For a summary of comparative surveys on corruption see Hilton L. Root, Small Countries, Big Lessons: Governance and thl' Rise ofEast Asia (New York: Oxford University Press, 1997), p. xv. 35· Fengyun Luntanshe, ed., Toushi Dangquan Renwu [Observations of figures in power] (Taipei: Fengyu Luntanshe, 1985). 36. Harold R. Isaacs, The Tragedy of the Chinese Rruolution (Stanford: Stanford University Press, 1951). 37· Parks M. Coble, Jr., The Shanghai Capitalists and the Nationalist Government, I927-I937 (Cambridge: Harvard University Press, 1980). 38. Richard C. Bush, The Politics of Cotton Textiles in Kuomintang China, I92J-I9J7 (New York: Garland, 1982). 39· Hsi-sheng Ch'i, Nationalist China at War: Military Defeats and Political Collapse, I9J7-I945 (Ann Arbor: UniversityofMichigan Press, 1982). 40. William C. Kirby, "Continuity and Change in Modern China: Economic Planning on the Mainland and on Taiwan, 1943-1958," Australian journal of Chinese Affairs '!4u./vVho"s H7w in the Contemporary Republic of' China (Taipei: Zhongguo Mingren Zhuanji Zhongxin, 1991); Rrjmblic of China Yrarbooh (Taipei: Government Information Office, annual). 57· Compare the levels of personnel and timding of central agencies listed in Organization offapan or Gyosei Kikozu (Management and Coordination Agencv, annual) and Kuni no }osan (Ministry of Finance, annual) with the figures reported in Yang Zhiheng, Yusuan Zhen,t,rzhixue de Gouzhu [The structure of budget politics l (Taipei: Guojia Zhengce Yanjiu Zhongxin, 1991). For example, MITl had a staff of about 1 z,ooo in 1991, while Taiwan's Ministry of Economic Affairs had a little over 4,700 to cover an economy about one-twentieth the size ofJapan's. 58. National Science Council, Executive Yuan [Xingzhengyuan Guojia Kexue Weiyuanhui], 7honghua Minguo KPxue jishu Yaolrzn [Indicators of science and technology], (Taipei: Xingzhen~oryuan Guc~ia Kexue Weiyuanhui), 1993. 59· Sun Cheng, "Lengyan Kan Gong-veju de Gong \'ll Guo" [Casting a cold eye on the successes and failures of the Industrial Development Bureau], Tianxia, 1'\ovember 1981, pp. 2,1-21); "Pingxin Lun Gongycju Caizu Qianhou" [A calm discussion of the Industrial Development Bureau before and after reorganization], Tianxia, April 1982, pp. 34-36; Yang Aili, 'jiehe Rencai yu Xingzheng: Wenguan Zhidu .Jixu Gaige" [Uniting human resources and new administration: The civil service system urgently requires ref()rm], Tianxia, August 1984, pp. 12-24; Yang Mali, 'Taiwan Qidai Xin Wenguan" [Taiwan expects new civil servants], Tianxia, June 1992,pp. 118-126. 6o. National Science Council, Executive Yuan [Xingzhengyuan Gu(~ia Kexue Weiyuanhui], Zhonghua Minguo KPxuefishu Nianjian (Minguo Quishijiu Nian) [Republic of China yearbook of science and technology ( 1990)], (Taipei: Xingzhengyuan Guojia Kexuc Wcivuan hui, 1991), pp. 4!)9-460. 61. Interview, Directorate General of Budget, Accounting, and Statistics (DGBAS), summer 1g86. See also Huang Shixin. Minzhu Zhen1:,rzhi yu Guojia Yusuan: Woguo Zhengfu Yusuan Zhengce zhi Xingcheng [Democratic politics and the national budget: The Formation of our government's budgetary policies] (Taipei: Guojia Zhengce Yanjiu Zhongxin, 1990), pp. 1og-1 1 5·

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TO

PAGFS 40-46

62. Interview, Executive Yuan Science and Technology Advisory Group (STAG), August 1992. STAG contained eleven advisers, of whom nine had Western names and two Japanese. Guojia Kexue Weiyuanhui, Kexue Jishu Nianjian, 1990, P· 41. 63. Dennis Fred Simon, "Taiwan's Emerging Technological Trajectory: Creating New Forms of Competitive Advantage," in Dennis Fred Simon and Michael Y. M. Kau, eds., Taiwan: Beyond the Economic Miracle (Armonk, N.Y.: M. E. Sharpe, 1992), pp. 123-147· 64. Industrial Technology Research Institute [Gong)'e Jishu Yanjiu Yuan], Bashier Niandu Nianbao [ 1993 annual report] (Hsinchu: ITRI, 1993), pp. 4-5. 65. Larry Wilmore, "Determinants of Industrial Structure: A Brazilian Case Study," World Development 1T10 (198g), pp. 1601-1617. 66. Johannes Hirschmeier and Tsunehiko Yui, The Development ofjapanese Business, r6oo-r98o, 2nd ed. (London: George Allen & Unwin, 1981). 67. Banri Asanuma, "Manufacturer-Supplier Relationships in Japan and the Concept of Relation-Specific Skill," Journal of the japanese and International Economies 3 ( 1989), pp. 1-30. 68. Okimoto, Between MIT! and the Market; and Michael L. Gerlach, Alliance Capitalism: The Social Organization ofjapanese Business (Berkeley: University of California Press, 1992). 69. For the well-documented example of television receivers, a highly profitable industry in which there was no new entry, see Kozo Yamamura and Jan Vandenberg, 'Japan's Rapid-Growth Policy on Trial: The Television Case," in Gary R. Saxon house and Kozo Yamamura, eds., Law and Trade l5sues of the japanese Economy: Arnerican and japanese Perspectives (Seattle: University of Washington Press, 1986). An exception is the mainframe computer industry, which witnessed a consolidation in the 1970s, partly in response to government policy. 70. Nihon Keizai Shinbun.]apan Economic Almanac r992 (Tokyo: Nihon Keizai Shinbunsha, 1992), p. 239· This source provides concentration ratios for a broad array of products. For an example of the exaggeration of competition in the auto industry, see Tsuruta Toshimasa, Sengo Nihon no Sangyo Seisaku [Postwar Japanese industrial policy] (Tokyo: Nihon Keizai Shinbunsha, 1982), pp. 168-174. Compare this account to Nihon Kogyo Ginko, Nihon Sangyo Tokuhon, Dai 40-han [Readings on .Japanese industry, 4oth ed.] (Tokyo: Toyo Keizai Shinposha, 1984), pp. 162-167. 71. Rodney Clark, The japanese Company (New Haven: Yale University Press, 1979), pp. 6o-62. 72. Uekusa argues that overall concentration declined from the high levels of the early 1970s, mostly due to a large increase in new firms in new technology areas, hut docs not provide information on how many of these new firms were associated with large oligopolists. Masu Uekusa, "Industrial Organization: The 1970s to the Present," in Kozo Yamamura and Yasukichi Yasuba, eds., The Political Economy of japan, vol. 1: The Domestic Transition (Stanford: Stanford University Press, 1g87). 73· W. Carl Kester, japanese Takeovers: The Global Contest for Corporate Control (Boston: Harvard Business School Press, 1991). 74· Raymond Vernon and Yair Maroni, eds., State-Owned Enterprises in the Western Economies (New York: St. Martin's Press, 1980).

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;Votes

75· This was a constant theme in author interviews. 76. For a revisionist view stressing the emergence of trust and cooperation within industrial districts in Taiwan, see Chen Jiexuan, Xieli Wangluo yu Shenghuo ]iegou: Taiwan 7hongxiao Qiye de Shehui.Jingji Fenxi [Cooperative networks and the structure of livelihood: The economic and social analysis of small and medium sized firms in Taiwan] (Taipei: Lia~ing, 1994); Ke Zhiming, Taiwan Dushi Xiaoxing Zhizaoye de Chuangye, .Jingying yu Shengchan Zuzhi [Entrepreneurship, management and productive organization in small-scale manufacturing industries in Taiwan's cities] (Taipei: Zhongyang Yanjiuyuan Minzuxue Ya~iusuo, 1993); Su Yuqi, "Kanbujian de Youshi: Bianxingchong Zuzhi" [Hidden advantage: Amoeba organization], Tianxia, April 1993, pp. 20-31. 77. Marco Orru eta!., "Organizational Isomorphism in East A~ia," in Walter W. Powell and Paul DiMaggio, eds., The New Institutionalism in Organizational Analysis (Chicago: University of Chicago Press, 1991 ). 78. Karl J. Fields, Enterprise and the State in Korea and Taiwan (Ithaca: Cornell University Press, 1995). 79· Cho Soon, The Dynamics of Korean Development (Washington, D.C.: Institute for International Economics, 1994), p. 71. So. Mark Tilton, Restrained Trade: CaTtels in .Japans Basic Material5 Industries (Ithaca: Cornell University Press, 1995). 81. Leonard H. Lynn and TimothyJ. McKeown, Organizing Business: Trade Associations in America and japan (Washington: American Enterprise Institute, 1988). 82. Honsho.Jiro, Keidanren: Zaihai Sohonzan no Sugao [Keidanren: The true face of the temple headquarters of big business] (Tokyo: Toyo Keizai Shinposha, 1985). There were periodic complaints in Japan that Keidanren was declining in importance. See for example Nikkei Weekly, japan Economic Almanac I992, pp. 44-45; Far Eastern Economic Review, September 24, 1992. Most of these complaints compare. the messy world of the present to an idealized past. As the economy became larger and more diverse, Keidanren s influence may have declined somewhat. Either way, the contrast to Taiwan was still great. 8g. Interviews; Fu Xiuping, "Gonghui Jiaose Jixu Chongxin Dingwei" [The role of industry associations requires urgent readjustment], Zhuoyue Zazhi, July 1992, pp. 91-103; Zhonghua Minguo Quanguo Gongye Zonghui, Zhonghua Minguo Gongye Tuanti Minglu [Index of ROC Industry Associations] (Taipei, Annual). 84. Zhonghua Minguo Xiandai Mingren Lu [Who's who in the Republic of China] (Taipei: Zhongguo Mingren Zhuanji Zhongxin, 1991), pp. 459, 1069. See also Sima Xiaoqing, "Taiwan Qiye .Jie de Liang da Zhong Chang Wei" [Two big central committee members from Taiwan's business community], in Caixun Zazhishe, cd., Toushi Caijing Renrnai [A penetrating view of human connections in business and finance] (Taipei: Caixun Zazhishe, 1986), pp. 26o-269; Far Eastern Economic Riroiew, February 1, 1990, pp. 40-41. 85. ·while Lin and particularly Gu apparently were rewarded handsomelv for taking on political duties, their firms were not awarded national champion status. New entrants to the cement and electronics industries gradually eroded the dominant positions Taiwan Cement and Datong held in the 1950s. The same held true in the 196os and 1970s for Gu's China Trust in nonbank finance and forYulong, the pioneering automobile firm often seen as closely allied with the government. The government did not accord these firms exemptions from competition

2II

NorEs To PAGEs 46-55 and mainlander-dominated firms gradually lost gmund to those run by Taiwanese. Cf. Marshall Johnson, "Classification, Power, and Markets: Waning of the Ethnic Division of Labor," in Simon and Kau, eels., Beyond the r:conornic Miracle, pp. 81-83. 86. Takeo Kikkawa, "Functions of Trade Associations Bef(>re World War II: The Case of Cartel Organizations," in Hiroaki Yamazaki and Mato Miyamoto, eds., ]lade Associations in Business History, (Tokyo: University of Tokyo Press, 1988), pp. 53-83. 87. Eleanor M. Hadley, Antitrust in .Japan (Princeton: Princeton university Press, 1970). 88. Frank K_ Upham, Law and Soria[ Change, p. 189. 89 . .J. Mark Ramseyer, "The Costs of the Consensual Myth: Antitrust Enforcement and Institutional Baniers to Litigation in Japan," Yale Law Joumal 94 (1985), pp. 6o4-645; Nikkei, July 24, 1993; fikai: the name was changed to Futsuko Denro Kogyokai in May 1978 after the last of the open hearths was decommissioned. Ouchi, Kogata Boko, pp. 491-492, 501-511. 1o. Interview, Nomura Research Institute, March 2 5· 1986. On the role of trading companies, see Ouchi, Kogata Boko, pp. 130-143. 11. Ouchi, Kogata Boko, p. 678. 12. Nikkei, March 4, 1972, p. 7; April6, 1972, p. 7; April 23, 1972, p. 6;June 15, 1972, p. 7:June 30, 1972; Decembe1· 12, 1972, p. g. 13. Ouchi, Kogata Boko, pp. 7 46-749; Nikkei, July 2 1, 1973, p. G. 14. Ouchi, Kogata Boko, p. 747· 15. Ouchi, Kogata Boko, p. 497. Nikkei, October 29, 197 4, p. 8. 16. Nikkei, January 1 8, 197 5. p. 6. 17. Nihkei,July 24, 1~J75, p. 7, Nomura interview. 18. Nikkei, June 4, 1975, p. 7:June 17, 1975, p. 7; esp.July g, 1975, p. 7 and August 9, H)7 5, p. 3: November z(), 197 5, p. 7. On the export cartel, see J'eklw Kai [Steel industry] (Tokyo: Nihon Tekko Renmei),June 1985, pp. 67-68. 19. Nikliei, October 29, 1~)7!), p. 7; November 11, 1975, p. 7;]uly 9, 1975, p. 7· 20. Interview, Japanese Federation of Iron and Steel Workers' Unions, May 15, 1986. 21. Nikkei,Januaty 18, 1975, p. 6; February 10, 1975, p. 8. 22. Nikkt!i, September 20, 1962, p. 4; Omura Kazuo, "Tokyo Seitetsu" [Tokyo steel manufacturing] (Nomura Sogo Kenkyujo, !\:RI Kigyo Repoto, No. ;")cl23,.fanuary 31, 1982), p. 6. 23. Interview, Tokyo Steel, March 1986. See also Nikkei, particularly August 7, 1960; March 15, 1962; May 26, 1962; September 20, 1962; November 2, 1962; October 5, 1962. 24. Ishikawa, Saihensr:i, pp. 221-224. 2 5· Tanabe Takanori, Tekko Gyo (Tokyo: Toyo Kcizai Shimposha, 1981), p. 2 20. 26. Nikkei, February 11, 1975, p. 6: August 6, 1974, p. 9; cf. also Nikkei,June 21, 1969, p. fi· 27. Interview, Keio University, March 5, 1986. 28. Tanabe, Tekko Gyo, p. 219. 2I.J

NoTEs To PAGEs 55-62 29. Ouchi, Kogata Boko, pp. 498-499, 754-769; Tekko Kai, June 1976, pp. 26-2930. Only four firms opposed capacity controls. Tekko Kai, June 1976, pp. 26-273 1. Ouchi, Kogata Boko, pp. 500-501. 32. TekkoKai, March 1977, pp. 58-69; Nikkei, February 17, 1977; Asahi,January 21, 1977; Nikkei, March 1, 1977; March 16, 1977. 33· Ishikawa, Saihensei, pp. 223-224; Nikkei, March 16, 1968, p. 5; December 18, 196g, p. 5;August 15, 1971, p. 8; October 25,1972, p. 6; TekkoKai,July 1976, pp. 26-2g; Nikkei, January 28, 1977 evening edition; Nikkei, January 29, 1977; Asahi, March 1, 1977; Godo Seitetsu Kabushiki Kaisha (Osaka: Godo Seitetsu, ND [ 1

9 8 5 ]).

34· Masumijunnosuke, Contemporary Politics in japan (Berkeley: University of California Press, 1995), pp. 186-193. 35· Robert D. Putnam and Nicholas Bayne, Hanging Together (Cambridge: Harvard University Press, 1g87). 36. Nikkei, May 27, 1977, p. 3; May 30, 1977, p. I;.June 2, 1977, p. 3; Koizuka Fumihiro, Kozo Fukyo to Sono Jittai [The tme nature of stmctural depression] (Tokyo: Kyoikusha, 1978), p. 14; Furukawa Kotau, "Zasetsu Shita Tsusansho no 'Fukken' Koso," [MITI's failed attempt to recover its powers], Ekonomisuto, February 28, 1978, pp. 40-43. On the politics of the depressed industries law, see also Richard Boyd and Seiichi Nagamori, "Industrial Policy-Making in Practice: Electoral, Diplomatic and Other Adjustments to Crisis in the Japanese Shipbuilding Industry," in Stephen Wilks and Maurice Wright, eds., The Promotion and Regulation of Industry in Japan (New York: St. Martin's Press, 1991), pp. 167-204. 37· Asahi,June 2, 1977. 38. Watanabe Kohei, Tekko C.yokai [The steel industry] (Tokyo: Kyoiku-sha, 1979), pp. 199-200; Takeuchi K(~ji, "Heidenro Gyokai ni Tsunoru Scisaku Fushin" [The increasing lack of confidence toward policy in the open hearthelectric furnace steel industry], Ekonomisuto, February 28, 1978, p. 45; Tekko Kai, July 1977, p. 68. 39· Asahi,]uly14, 1977;Nikkei,July2I, 1977;August4, 1977; TekkoKai,December 1977, p. 58; Asahi, August 17, 1977; 'Tekko Kai, November 1977, pp. 8o-81. 40. Nikkei, August 30, 1977. 41. Tekko Shinbun, November 10, 1977; 'Jekko Kai,January 1978, p. 34· 42. Nikkei, October 21, 1977, p. 1; Asahi, December 15, 1977 evening edition; Tekko Shinbun,January 14, 1978, p. 1; Tekko Kai, February 1979, pp. 57-59; Japan Metal Bulletin, cited in Bethlehem Steel Corporation, "japanese Government Promotion of the Steel Industry: Three Decades of Industry Policy" (June 1983), p. 29. 43· TekkoShinbun, November 5, 7, 8, 10, 12, 1G, 1977:]anuary 1, 1978, p. 2. 44· MITI's decree was officially an "antei meirei"; "Stabilization Order by the Minister of International Trade and Industry: Adjustment Regulation for Concrete Reinforcing Bars," Tekko Shinbun, November 21, 29, 1977. 45· Asahi, December 2, 1977; Tekko Shinbun, February 1, 1978, p. 1; March 1, 1978, p. 1; Nikkei, December 2, 1977, p. 4; December 5, 1977, p. 8. 46. Asahi, August 25, 1980, p. g.

2I4

47· Furukawa," 'Fukken' Koso," p. 41; Nikkei,January 11, 1978, p. ;). 48. Nikkei,January 20, 1978, p. 3; Nikkei, February 18, 1978, p. 3· 49· "Kozo fukyo Taisaku Hoan ni Hantai Suru Kakukai no Ikensho, Kenkai, Yoseisho" [Letters of opinion, views, and requests from all areas opposing the structurally depressed industries bill], Asahi]anaru, February 24, 1978, p. 111. 50. Interview, Tokyo Steel Manufacturing, December 17, 1985. 51. Asahi]anaru, "Hantai Suru," pp. 111-112. Tekko Shinbun,January 25, 26, 1978; Nikkei, January 28, 1978; Furukawa," 'Fukken' Koso," p. 43· 52. Nikkei, January 26, 1978, p. 2; Furukawa, " 'Fukken' Koso," p. 42; Nikkei, February 21, 1978, p. 3· 53· Nikkei, January 31, 1978, p. 8; February 1, 1978, p. 9; February 17, 1978, p. 3· 54· Takuichi, "Heidenro Gyokai," p. 44; Tekko Sh£nbun, February 4, 1978, p. 1; February 8, 1978, p. 2; Nikkei, February 4, 1978, p. 3· 55· Interview, Toshin Steel, April 30, 1986; Tokyo Steel Ikctani interview. 56. Michio Muramatsu and Ellis S. Krauss, "The Conservative Policy Line and the Development of Patterned Pluralism," in Kozo Yamamura and Yasukichi Yasuba, cds., The Political Fconorny of.Japan, vol. 1: The Domestic Transformation (Stanford: Stanford University Press, 1987), p. 539· 57· Interview, political staff, LDP PARC, April 8, 1986. 58. Nikkei, February 16, 1~J78 evening edition, pp. 1, 2; Nikkei, February 18, 1978, p. 3· 59· J. Mark Ramseyer, "Letting Obsolete Firms Die: Trade Adjustment Assistance in the United States and japan," Harvard International Law .Joumal22:3 (Fall 1981), pp. 595-619. For a sanitized account by MITI with excellent technical details but little of the politics, see MITI, Tsusho Sangyo-Seisaku-Shi, pp. 2-59· 6o. Tekko Kai,January 1979, pp. 3-12. 61. MITI did approve continuation of the production cartel for another six months. Asahi, March 9, 1978; Nikkei, March 24, 1978; Tekko Kai, April 4, 1977, pp. 69-70. 62. Tekko Shinbun, February 13, 17, 18, 1978; Nikkei, February 19, 1978. 63. Nikkei, August 31, 1~)78, p. 7; Watanabe, Tekko Gyokai, pp. 201-202; Tekko Kai, September 1978, pp. 7o--71; TekkoKai, October 1978, pp. 2-13, esp. pp. 3-5. 64. Tekko Kai, April 1980, pp. 2-1 2; April 1981, pp. 2-10; Nikkei, March 5, 1981, P· 8. 65. Tokyo Steel interview. 66. Interview with and internal documents provided by Association for the Promotion of Structural Improvement of the Electric Furnace Industry, May 8, 1986. 67. Sangyo Kozo Shingikai Tekko Bukai Heidenro Koiinkai, "Tokutei Sangyo Kozo Kaizen Rinji Sochi Ho ni Motozuku Dcnrogyo no Kozo Kaizcn no Hoko ni T~uite" [On the direction of the structural transformation of the open hearth/ electric furnace steel industry based on the Temporary Measures Law for the Structural Adjustment of Specific Industries], Futsuko Denm 42 (August 1983), pp. 1-6. 68. IekkoKai,.June 1977, pp. 26-29; TekkoShinbun, Novemer 10, 1977. 69. Nikkei, July 30, 1977; May 11, 1978; Tekko Shinbun,.January q, 1978, p. 1. 70. Tekko Kai, April 1980, pp. 2-18; April 1981, p. 4; Nikkei, February 1, 1g81;

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:-.JOTES TO

PAGES 62-68

October 1 1, 1981; Bethlehem Steel Corporation, 'Japanese Government Promotion of the Steel Industry: Three Decades of Industrial Policy" (mimeo: June 1983), pp. 32-33· 71. Tekko Kai, October 1978, p. 7· 72. Tekko Kai, April 1981, p. 8. 73· Nikkei, December 20, 1962, p. 4· 74· Ouchi, KogataBoko, pp. 240-292,746-749. 75· Bethlehem Steel, "Government Promotion," pp. 32-33; Tekko Kai, January 1982, p. 6 76. Nikkei, January 16, 1982, p. L 77· Nikkei, September 8, 1981; Asahi, May 19, 1982; October 6, 1982. 78. Otake Hideo, "The Rise and Retreat of a Neoliberal Reform" in Gary D. Allinson and Yasunori Sone, eds., Political Dynamics in Contemporary Jajmn (Ithaca: Cornell University Press, 1993), pp. 242-263. 79· On the negotiations and settlement between MITI and FTC, see among others Nikkei,June 10, 1982, p. 1; Asahi,.June 18, 1982; August 6, 1982; October 6, 1982; Nikkei, November 11, 1982; ~ovember 16, 1982; Asahi, November 28, 1982;january 29, 1983; February 3, 1983; February 4, 1983; February 10, 1983. Frank K. Upham sees the new law as giving MITI a significantly greater role in antitrust issues and, at least in the case of petrochemicals, is impressed at the ability of MITI and the industry association to implement a collective approach to the industry's problems. Neither was true in the case of the minimills. Law and Social Change, pp. 188-198. So. Tekko Kai, April 1981, p. 3; Nikkei, April 13, 198 2. 81. Tekko Kai, [Steel industry) Tokyo, Nihon Tekko Renmei) July 1983, p. 74; Futsuko Denro, 42 [Regular steel produced in electric furnaces) (Tokyo, Futsuko Denro Kogyokai), August 1983), pp. 7-8. 82. iekko Nenkan, 1980 [Steel yearbook] (Tokyo: Tekko Shinbunsha, 1980), p. 18, 1 9 s5 , p. 20, 1 99 1, p. 1 5 . 83. Nikkei, October 11, 1981; November 23, 1983; August 10, 1984 evening edition; September 14, 1984; Asahi, May 12, 1983; February 16, 1984; Japan Compan) Handbook, 2nd Half 1985 (Tokyo: Toyo Keizai Shinposha, 198;]), p. 442. 84. Tekko Nenkan 1992, [Steel Yearbook) (Tokvo: Tekko Shinbunsha, 1992), pp. 7 4 7-7 49· 85. Figures for the mid-1970s are from Ouchi, Kogata Boko, p. 113; for 1g8o from an industry report reprinted in Trkko Kai, February 1982, pp. 66-67; and for 198 5 from the official roster of the industry association Kai-in Kaisha Meibo [List of Member Firms] (Tokyo: Futsuko Denro Kogyokai, April 1, 1985). 86. MITI, Statistics on Japanese Industries 1991, (Tokyo: Ministry of International Trade and Industry 1991), p. 48. 87. Tekko Nenlwn, (Tokyo: Tekko Shinbunsha), various years. 88. Far Eastern Economic Review,.Januai-y 14, 1993, pp. 49-50. 89. Ministry of International Trade and Industry [T~usho Sangyo Sho], Tekko Tokei Nenpo 1987 [Yearbook of iron and steel statistics] (Tokyo: Tsusho Sangyosho Daijin Kanbo Chosa Tokeibu, 1987), p. 162; Tekko Nenkan r992, pp. 237-238. 90. Ministry oflnternational Trade and Industry [Tshusho Sangyo Sho], Tekko TokeiNenpo 1987, pp. 162-164; 1988, pp. 154-1s5; 1991, pp. 154-155. ~)l. Teklw Kai, August 1988, pp. 3-8. 2I6

:-'otes

92. Nikkei, June 8, 1993, p. 25. 93· Tekko Nenkan r992, [Steel Yearbook] (Tokyo: Tekko Shinbunsha 1ggG), P· 75°· 94· Sueo Sckiguchi, 'Japan: A Plethora of Programs," in Hugh Patrick, ed., Pacific Basin Indus triPs in Distress (New York: Columbia University Press, 1991), p. 457. 95· Ministrv of International Trade and Industry [Tsusho Sangyo Sho], Shuyo Sangyo no Setsubi Toshi Keikaku, r992 [Capital investment plans by major industries] (Tokyo: Okurasho lnsatsnkyoku, 1992), p. 185. gG. Nikkei, February 16, 1978 evening edition; March 24, 1978; April 20, 1979· 97· Seiichiro Yonekura, "The Winter Age of the Japanese Steel Industry" (Boston: Harvard Business School Case No. o-68s-oso, 1985); Omura, "Tokyo Seitebu"; Nikkei, August ~q, 1982 evening edition; January 1 3, 1983. g8. Interview, April 1986. 99· Yonekura, "Winter Age," p. 3· 100. Nikkei, August 28, 1984 evening edition, p. 3· 101. Ministry of International Trade and Industry [Tsusho Sangyo Sho], Tekko Tokei ]'lienpo r985 [Yearbook of iron and steel statistics] (Tokyo: Tshusho Sangyosho Daijin Kanbo Chosa Tokeibu, 1985), p. 168. 102. 1eklwKai,January 198;), p. 10. 103. Ministry of International Trade and Industry [Tsusho Sangyo Sho], Tekko Tokei Nenpo r986 [Yearbook of iron and steel statistics] (Tokyo: Tsusho Sangyosho Daijin Kanbo Chosa Tokeibu, 1986), p. 168 H>4. Ministry oflnternational Trade and Industry [Tsusho Sangyo Sho], :rekko Tokei Nenpo r986 [Yearbook of iron and steel statistics] (Tokyo: Tsusho Sangyosho Daijin Kanbo Chosa Tokeibu, 1986), pp. 169; 1987, pp. 162-164. 105. Zaikai, May 30, 1994, pp. 28-31; Nikkei Bijinesu,January g, 1995; Nikkei, July 16, 1993; October 20, 1994; December 10, 1994; February 3, 199.1); Iron Age New Steel11 :2 (February 1995;) Japan A1etal Bulletin, April 1995; Nikkei, December 1, 15, 27, 1994;]apanMetalBulletin,April17, 1995. 106. Nikkei, April 17, 1986 evening edition; Nikkan Kogyo Shinbun, April 3, HJ93; Nikkei, julv 3, 199cl· 107. Nikkei, July g, 1993. 108. Niklwn Kogyo Shinbun, March 3, 1993; Business Times. April 2, 1993; PR Newswire, May 7, 1993· 109. Interview, Nomura Research Institute, Investment Research Department, March 25, 1986. 11 o. MIT I, Statistics on Japanese Industries I99I, p. 48; Yagi Hideo, lma Tekko Sangyo kara Me o Hanasu na [Don't take your eyes off the steel industry now] (Tokyo:KankiShuppan, tg89),pp.49-105. 111. Nihhei, July 3, 1993; December 20, 1994; Iron Age New Steel, February 1995· 112. Nikkei,June 16, 1993;0ctober20, 1994· 113. Minisry of International Trade and Industry [Tsusho Sangyo Sho], Tekko Tokei Nenpo [Yearbook of iron and steel statistics] (Tokyo: Tsusho Sangyosho Daijin Kanbo Chosa Tokcibu), 1997, p. 162; 19()8, p. 154; 1ehkoKai, May 1g8g, p. 78; December 1998, p. !)l; March 1991, pp. 51-62; May 1992, pp. 46-47. 114. Tetsu to Hagane 82:1 Uournal of the iron and steel institute of Japan 1996], pp. 1-7; Nikkei Wel'kly, April 1, 1996. 217

NOTES

TO

PAGES 68-78

115. Tekko Kai, December I 2, Ig88, p. s6; 1etsu to Hagane 7Tl ( 1991)' P· w; Nikkei, February 14, 1992. 116. Tekko Kai, February 1989, pp. 65-67; May 1988, p. 79; Far Eastern Economic Review, August 29, 1991, p. 58; Iron Age New Steel, May 1994; lSI] International 354 (April 1995), pp. 3:53-348; Nikkei BijinesuJanuary 9, 1995; 1etsu to Hagane 81:4 (April1995), pp. 66-72. 1 17. For a review of R&D consortia in the steel industry through 1988, see Shirai lwai and Kodama Fumio, "Kyodo Kenkyu ni Okeru Sanka Kigyo ni Kansuru Kenkyu Chosa" [Survey and research on firms participating injoint research], Kagaku Gijutsu Cho, Kagaku Gijutsu Seisaku Kenkyujo [NISTEP Report No.5], August 1989, pp. 31-33. 118. TekkoKai, May 1992, pp. 46-47. 119. Nikki!i, May 8, 1992; May 30, 1993. 120. Ministry of International Trade and Industry [Tsusho Sangyo Sho], Tekko 1nkl!i Nenpo I 984, [Yearbook of iron and steel statistics] Tokyo: Tsusho Sangyosho Daijin Kanbo Chosa Tokeibu, 1984 p. 169; 1990, p. 155; Nikkei, June 18, 1993,

P· 1 5·

121. An exception is McNamara, though the conflict he describes in the textile spinning industry was not as intense. Dennis L. McNamara, "Association and Adjustment in Japan's Textile Industry," Pacific Affairs 66:2 (Summer 1993), pp. 206-218.

4·

ALTERNATIVES TO CARTELS IN TAIWAN'S MINIMILL INDUSTRY

1. For extensive data and discussion on the historical evolution of the steel industry since 1895, see Taiwanqu Gangtie Tongye Gonghui (TISIA), Taiwan Gangtie 20 Nian [Twenty years of the Taiwan iron and steel industry] (Taipei: TISIA, 1.983). 2. Lin Ching-yuan, Industrialization in Taiwan, 1946-72 (N.Y.: Praeger, 1973), p. 219. 3· Lin Guoxiong, "Taiwan Gangtie de Xuqiu )U Gongji" [The demand for and supply of steel in Taiwan], Ph.D. dissertation, National Taiwan University, 1978, p. so. 4· Lin, Industrialization in Taiwan, p. 219. 5· Lin, Industrialization in Taiwan, pp. 78-82. 6. TISIA, Taiwan Gangtie 20 Nian, pp. 3, 4-6, 30. 7· Lin, Industrialization in Taiwan, pp. 108-110. 8. TTSIA, Taiwan Gangtie 20 Nian, pp. 3-6, 30, 349-353, 684-68g. g. On the historical development of the ship dismantling industry and therelationship to the rerollers, see TISIA, Taiwan Gangtie 20 Nian, pp. 48-50, 357-359; Earle Hou (Hou Zhenxiong), "The Ship-Breaking Industry in the R.O.C." (Mimeo, N.D.). 10. TISIA, Taiwan Gangtie 20 Nian, p. 117; Lin, Industrialization in Taiwan, pp. 95-97· 11. TISIA, Taiwan Gangtie 20 Nian, pp. 51-52. 12. TISIA, Taiwan Gangtie 20 Nian, pp. 40-41, 1og; You Hongbo, "Taiwan Gongjugang Gongxu Yanjiu" [The demand for and supply of tool steel in Taiwan], Taiwan Yinhangjikan36:1 (March 1985), pp. 155-157. 13. TISIA, Taiwan Gangtie 20 Nian, p. 626; Lin, Industrialization in Taiwan, 218

Notes p. 2 21; Diao Ping and Yao Shifu, eds., Shirla Jianshr yu Guojia Qiantu [The ten major construction project~ and the future of the country] (Taipei: Ganjiang Chuhanshe, N.D. [1975]), p. 112. 14. TISIA, Taiwan Gangtie 20 Nian, p. 688. 15. Taibeishi Yinhang [CitY Bank of Taipei], "Taiwanqu Gangtie Gongye Diaocha Baogao Xupian (3)" [Updated survey report on the steel industry in the Taiwan area (3)],july 197~), p.2; TISL\, Taiwan Gangtie 2oNian, pp. 640-64;). 16. Tongye Gonghui, Taiwan Gangtie 20 Nian, pp. 6, 645,648,652, 69o; ZGSB, July 17, 1973; August 5, 1~)73; August 15, 1973; LHB, August 28. 1974. 17. Jingjibu,]ingjibu Gongbao 10:6 (March 25, 1978), Ministry of Economic Affairs, p. 23; Taipei, March 2_7, 197S. 1S. JJRB, March 7, 1975. 19. TISIA, Taiwan Ganp;tie 20 Nian, pp. 504-;>o5; Zhongguo Gangtie Gufen Youxian Gongsi [China Steel Corporation], "74 Niandu Nianbao" [19S5 annual report], p. 20. 20. Diao and Yao, Shidajianshe, pp. 112-116; TISIA, Taiwan Gangtie 20 Nian, P· 5o6. 21. TISIA, Taiwan Gangtie 20 Nian, pp. 648,690. 22. TISIA, Taiwan Gangtie 20 Nian, p. 652. 23. Taiwan Statistical Data Book (Taipei: Council for Economic Planning and Development), 198 5, p. 21. 24. TISIA, Taiwan Gangtie 20 Nian, pp. 41-42,44-47, 61-62, So. 25. TISIA, Taiwan Gangtie 20 Nian, PP· 506-507; China Steel Corporation pamphlet (Chinese), September 19S3, pp. 15-16. 26. Gongye Shengchan Tongji Yuebao [Monthly report of industrial production statistics], cited in Taibeishi Yinhang, "Taiwanqu Gangtie Gongye" ( 1979), p. 28; Zhonghua Zhengxinsuo, "Taiwanqu Chanye Nianbao: Gangtie Gongye 19So" [Yearly report on industry in the Taiwan area: The steel industry in 19So], (Taipei) p. 67. 27. Jingjibu C71Jngbao w:6, pp. 23-24 (order announced March 7, 1978 and effective immediately; published in March 25, 1978 compilation). 28. ZGSB, February 11, 1970: .URB, June 5, 1979. 29. Ji'ru Eastern Economic Review, April 30, 1982, pp. 49-56; China Steel Corporation, "Annual Report 1977 /78"; Xu Meiping, "Chengbai Yingfo Lun Yingxiong: Zhongchuan Youwu Xiwang, Zhonggang Youwu Yinyou" [Can one attribute success and failure to heroes: Does China shipbuilding have any hope, does China Steel face any lurking dangers], Tianxia,July 1981, pp. 26-35. 30. To my knowledge, Zhao's merger idea was never published as a formal plan. The account here is based on the following sources: William Y. T. Chao, "Steel: A Key to the Nation's Industrialization," China Steel Corporation, Mav 1979; TISIA, Taiwan Gangtie 20 Nian; interviews with China Steel Corporation, October 8, 1986; Longqing Steel Enterprise Company, September 24, 1986; Donghe Steel Enterprise Company, August 20, 1986, September q, 1986. Cf. also Lin, "Taiwan Gangtie de Xuqiu yu Gongji," p. 155· 31. TISIA, Taiwan Gangtie 20 Nian, pp. 661-663, 667-670. 32. ZCSB, April 18, 1979. This threat was also issued to a number of other industries. 33· The electricity shortage quickly turned into an electricity glut. ZYRB, May 3· 1983. 2I9

l'\OTES

TO PAGES 7g-88

34· .ffRB,January 9, 1979. 3S· GSSB, February 11, 1CJ7g:JJRB,.June s. 1979. 36. ZCSB, Februarv 17, H)79: GSSB, February 17, 1979: TISL>\, Taiwan Cangtie 20 Nian, p. 670. g 7. ZGSB, April 18, 1989. 38. Interview, First Section, IDB/MOEA, Augusts, 1986. On the semisecret way in which mills were able to add capacity, see Qiu Muyuan, "Gangtie Yezhe Xunqiu Zengjia Yongdian Liang" [Steel firms seek to increase electricity Yolume], SYH, May 9, 1983. Qiu was a staff member ofTISL\, though he is not identified as such in the article. 39· Taiwnn Stntistiral Data Book 1985, p. 21. 40. CEDP, Irulustr) of Free China, February 1981, pp. 23-24; June 1982, pp. 30-32. 41. For backgrounds of industry association leaders and annual petitions to the government, see T!S!A, Taiwan Cangtie 20 Nian, preface and pp. 613-683. 42. TISL"-, Taiwan Gangtie 20 Nian, p. 693; interviews with TISL"-, September 17, 1986; Longqing Steel Enterprise Company, September 24, 1986. 43· Zhang Bowen, "Dangqian Gangtieye de Wenti ji Zhanwang" [Current problems and prospects of the iron and steel industry], TJYY,July 1982, p. so. 44· The account here of the unified ship purchasing scheme is based on the following sources: Wu Yingchun, "Chaichnan Wangguo de Jinyon yu Yuanlu" [Immediate worries and long-term concerns of the champion ship-dismantling country], Tianxia, April 1984, pp. 3s-38; Gangtie Huixun, April 1984, pp. 21-22; August 198s, p. g; Diyi Shangye Yinhang Zhengxinshi [Credit Department, First Commercial Bank], "Taiwan Gangtic Gongyc zhi Xiankuang yu Zhanwang" [The current condition and future prospects of the Taiwan steel industry], April 1983, pp. 26-27; April 1984, pp. 13-14, 41: Earle Hou, "Ship-Breaking Industry": TISL"-, Taiwan Gangtie 20 Nian, pp. 3s7-359; GSSB, April 2, 1983; April12, 1983;]une 28, 1983; October 23, 198;3; ZCSB,June 30, 19fl3; SYH, \1ay 4, 1983. 4:)· A detailed economic analysis strongly defending the cartel is Hu Shengyi and Zhang Rongfu, "TaiwanJietichuan Chanye zhi Yanjiu: Lianhe Caigou Kate'er Shizheng Fenxi" [Research on the Taiwan ship dismantling industry: Empirical analysis of the unified purchasing cartel], 1'rtiwan Yinhang ]ikon 38:1 (March 1987), pp. 18-43· 46. Diyi Shangye Yinhang, Zhengxinshi, [Credit Department, First Commercial Bank], "Taiwan Gantie Gongye zhi Xiankuang yu Zhanwang" [The current condition and future prospects of the Taiwan steel industry], 1983, pp. 11, 14-1[). 47· GangtieHuixun, December 1984, pp. 11-12; Aprilig84, pp. 21-22. 48. TISIA, 'J'rtiwan Gangtie 20 Nian, pp. 616, 63o-6;p, 642-643, 6ss-6s6, 6s7-6 5 8,66J-663,667-67o. 49· TISIA, Taiwan Gangtie 20 Nian, pp. 677-679. so. GSSB, .July 10, 19fl;). For veto of an early plan by CEPD, see TISL"-, Taiwan Cangtie 20 Nian, pp. 667-670. 51. ]ingjibu Gonggao 15:23 (November g, 1983), pp. 36-37;JJR.B, May 7, 198~r May 18, 19flg;june 2fl, 1983; SrH, May9, 1983:.URB, .\!lay 18,1983. 52. GSSB, October 23, 198;). On the industry's capacity in 1982 ancl1983, see Taibeishi Yinhang, "Taiwan Gangtie Gongye," p. 6; Diyi Shangye Yinhang, "Xiankuang yu Zhanwang," p. 8. 220

J\'otes 53· GSSB,.July 10, 1983; October 23, 1983. 54· SYH, May 4, 1983. 55· Cangtie Huixun, October 1984, p. 7. 56. Interview, Term Loan Department, Jiaotong Yinhang [Bank of Communications], August 20, 1986. Officials from the First Commercial Bank, which compiled a yearly report on the steel industry, were somewhat more knowledgeable, though still extremely cautious. The communication gap betvveen the banks and firms was clear. Interview, Credit Department, August 14, 1986. 57· Gangtie Huixun, March 1984, pp. 13-16. 58. Gangtie Huixun, April 1984, p. 22. 59· Sun Cheng, "Pingxin Lun Gongyeju Gaizu Qianhou" [A fair appraisal of the Industrial Development Bureau before and after reorganization], Tianxia, April 1982, pp. 34-36; Ke Feipeng, "Bianzi Shiling, Hu Luobo Shiwei! Gongyeju Mianlin Lishixing Zhuanlicdian" [The lash has lost its sting, the carrot has lost its flayor: The Industrial Development Bureau faces a historic turning point], Zhuayue Zazhi, December 1986, pp. 30-34. 6o. On the orientation of Zhao and other top economic policymakers in Taiwan, see Gregory W. Noble, "Contending Forces in Taiwan's Economic Policymaking: The Case of Hua Tung Heavy Trucks," Asian Survey 27:6 (June 1987), pp. 683-704. 61. Gangtie Huixun, May 1 g84, p. 1 1. 62. Edwin A. Winckler, "Institutionalization and Participation on Taiwan: From Hard to Soft Authoritarianism?" China Quarterly 99 (September 1984), pp. 48 1-499· 63. Hu Yongan, "Xin Licheng, Xin Xiwang: Jianjie Jingjibu Chanye Fazhan Zixun Weiyuanhui" [New mileposts, new hopes: A brief introduction to the Ministry of Economic Affairs' Industrial Development Consultation Committee], TJYY, March 198;;, p. 10. On Inaba, see ChalmersJohnson, Ml11 and thejapanrse Aliracle (Stanford: Stanford University Press, 1982), pp. 181-82, 189. 64. Gangtie 1-luixun,.January 1985, pp. 6-7; interview with TISIA, Summer 1986. 65. Wen Xianshen, "Chanzihui Reng Dai Kaoyan" [The Industrial Development Consultation Committee remains to be tested], Tianxia, Mav 1985, p. 75; Hu Yongan, "Xin Licheng, Xin Xiwang," pp. to-15. 66. Gangtie Huixun, March 1 9R5. p. 5· 67. Interview, Taiwan Power Company, August :)• 1986; Gangtie Huixun, April 1 9 8 5 , p. 8. 68. Interviews, TISIA, and Taiwan Institute for Economic Research, August 1, 1g8ti. 6g. Far Eastern t:conomic Review, March 7, 1985; March 21, tg8s; September 12, 1985; Tianxia,.Juiy 1984. pp. 30-43; April1985, pp. 61-75. 70. Gangtie lluixun,June 1985, pp. 6-7;July 1985, pp. 7-10; November 1985, p. 8. Petitions are reprinted in Xingzhengyuanjingji Gexin Weiyuanhui Baogao 7 [ExecutiYe Yuan Economic Reform Committee report, vol. 7] (Taipei: Executive Yuan Economic Refi1rm Committee, November 1 g85), pp. 33-196. For some reason the petition from TISIA is not among them. 71. GangtieHuixun, May 1985, p. 12. 72. Many proposals were simply ignored. Almost a year late1~ the CEPD had still not filed the required report on implementation and was quite cynical about the job. Interview, midlevel CEPD official, October 7, 1986. 22I

NOTES TO PAGES 88-101 73· Interview, midlevel CEPD official,June 10, 1986. 74· For evaluations of the Economic Reform Committee, see the official report, especially volumes one and seven, as well as the accounts in Tianxia, June 1985, p. 98; September 1985, p. 88; December 1985, pp. 152-166. 75· Tunjen Cheng and Stephan Haggard, Newly Industrializing Asia in Transition (Berkeley: Institute of International Studies, 1987), pp. 34-38. 76. GSSB, December 27, 1984; Gangtie Huixun, June 1985, p. 14; July 1985, pp. 6-7. See also Gangtie Huixun, August 1986, p. 11. 77· T}YY, pp. 4-5; inteniew with Liu Taiying,July 18, 1986. 78. TJYY, August 1985, p. 10. 79· Gangtie Huixun, October 1985, p. 7;January 1986, p. 15; interview, Ministry of Finance, August 20, 1986. So. The following account is based on Gongye Jishu Yanjiuyuan Gongye Cailiao Yanjiusuo he Gongye Jingji Yanjiu Zhongxin hebian [Materials research laboratory and Industrial Economics Research Center, Industrial Technology Research Institution, eds.], "Taiwanqu Lianzhagang Gongye Fazhan Zhi Yanjiu: Zong Baogao" [A study on the development of steel mills in Taiwan: Overall report], February 1g86, especially pp. 152-174. Additional useful material is in the volume on economics ('Jingji Cengmian"). 81. Department of Surveys and Research, Taiwan Cooperative Bank, Chanye jingji 125 (December 1991 ), pp. 13-28. 82. On the investments and fear of possible future overcapacity, see Chanye ]ingji 125 (December 1991 ), pp. 26-27; Gangtie Zixun, September 1992, pp. 4-5; January 1993, pp. 4-5; .DRB, July 13, 1992; TISIA, Taiwan Gangtie Sanshi Nian [Thirty years of the Taiwan iron and steel industry] (Taipei: TJSIA, 1993), pp. 11-24, 26. 83. GSSB, .January 4, 1993; TISIA, Sanshi Nian, pp. 11, 43-47, 143-44; Chanye Jingji 169 (November 199:)), PP· ss-61. 84. GSSB,.November 17, 1992; Gangtie Zixun, February 1993, pp. 4-5. 85. CSSB, March 25, 1993, p. 15; TJYY, February 1992, p. 59· 86. Gangtie Zixun,.January 1993, p. 5; TJYY, February 1992, p. 58. 87. FarEasternEconomicReview, October 20, 1994. 88. Based on TISIA's report that of thirty-six minimill firms in 1982, eight went bankrupt between .January 1983 and April 1985, plus the addition of at least five firms that failed between late 1985 and mid-1986 (Taiwan Liantie, Guomin, Jinshan, Jian An, and Xingya). TISIA, Taiwan Gangtie 20 Nian, p. 52; TJYY, August 1985, p. 20; Gangtie Huixun, August 1986, p. 11; TISIA 1g86-1g87 roster (Huiyuan Minglu). The number offailures is difficult to measure in the fluid Taiwan environment. Some new firms also started up during the 1g8os, often buying up failed firms at a discount. Sg. In Taiwan concern for stability did not extend to most bankruptcies before the 1ggos. Since manufacturing firms were not tightly linked to banks, traders, and each other, labor was in an even weaker position than in .Japan, and elections were still circumscribed, bankruptcy did not pose the same economic and political dangers that it did in Japan. The KMT's disastrous experience on the mainland created greater concern for inflation and capital flight. go. TISIA, Sanshi Nian, pp. 26-27.

222

Notes 5·

STANDARD SETTING AND

R&D

CONSORTIA IN JAPAN's VIDEO INDUSTRY

1. Chalmers Johnson, "MITI, MPT, and the Telecom Wars: How Japan Makes Policy for High Technology," in Johnson et al., eds., Politics and Productivity: How japan's Development Strategy Works (New York: HarperCollins, 1989). 2. David R. Henderson, former chief staff economist of the President's Council of Economic Advisors, hegins his account of "The Myth of MIT!" with this story. Fortune, August 8, 1983, p. ll3. See also Philip H. Trezise and Yukio Suzuki, "Politics, Government, and Economic Growth in Japan," in Asia's New Giant: How the japanese Economy Works (Washington: Brookings, 1976), p. 798. Leonard Lynn has shown that MITI's delay in permitting Sony to license semiconductor technology was brief and probably did not materially interfere with Sony's development schedule; he does not note the ensuing AIST grant to Sony for VCR development. "MITT's Successes and Failures in Controlling Japan's Technology Imports," Hitotsubashijournal of Commerce and Management 29 ( 1994), pp. 15-33. 3· Hiramoto Atsushi, Nihon no Terebi Sangyo: Kyoso Yui no Kozo [The Japanese television industry: The structure of competitive superiority] (Kyoto: Minerva Shobo, 1994). RichardS. Rosenbloom and Michael A. Cusumano, "Technological Pioneering and Competitive Advantage: The Birth of the VCR industry," California Management Review 29:4 (Summer 1987), p. 58. 4· Itami Hiroyuki, Nihon no VTR Sangyo: Naze Sekai o Seiha Dekita no ka [The Japanese VCR industry: Why was it able to dominate the World], rev. ed. (Tokyo: 1\'TT Shuppan, 1990), pp. 57-58, 169, 195. 5· Itami, VTR Sangyo, p. 170; Broadcasting Law of 1950, as revised in March 1959. GenkoHokiSoran81 (1950), p. 8321. 6. ltami, VTR Sangyo, pp. 158-170. 7· Denshi Kikai Kogyokai, Denshi Kogyo Sanju Nen Shi [Thirty years of the electronics industry association of Japan] (Tokyo: Daiyamondo-sha, 1979), pp. 203, 354; Nikkei, August 28, 1969. 8. Nakagawa Yasuzo, Nihon no ]iki Kiroku Kaihatsu [The development of magnetic recording in Japan] (Tokyo: Diamondo Sha, 1984), chronology pp. 8-9; Itami, VTR Sangyo, pp. 62-63. g. Nihon Keizai Shinbun-sha, ed., Geki-totsu! Soni Tai Matsushita [Collision! Sony vs. Matsushita] (Tokyo: Nihon Keizai, 1978). Other sources include Nakagawa,Jiki Kiroku Kaihatsu; Nikkei Bijinesu, April 14, 1986, pp. 6-2 3, as well as interviews and written materials fromJVC and Sony. 10. Nikkei,July 10, 1976, p. 7· 11. Victor Company ofjapan, 'JVC-Overall View," December 1985, chap. 6, p. 11. 12. Nihon Keizai, Geki-totsu!, p. 62. 13. Itami, VTR Sangyo, p. 68. 14. Itami, VTR Sangyo, p. 46. 15. Broadcasting, December 5, 1977, p. 50. 16. Margaret B. W. Graham, RCA & 77ze Videodisk: The Business of Research (NewYork: Oxford University Press, 1986), p. 213. 17. Nikkei,June 14, 1977, p. 8. 18. Electronic News, May 28, 1979, p. 105. 19. Nikkei,January 21, 1g8o evening edition;January 22, 1g8o. 20. Nikkei, january 22, 1980.

22]

NoTES TO V'7- Nikkei Erekutoronikusu, May 24, 1993. pp. 17;"",-177; Fnr Eastern Economic Review, July 29, 1993, PP· 54-55· 108 . .Japan Key Technology Center, "Research Results," pp. 66-67; Tsushin Hakusho 1995. pp. 265, 291; Nikkei Bijinesu, March G, '994· 109. See for example the section on financial support available from the Fiscal Investment and Loan Program in Tsushin Hakusho I995· 110. For details on promotion programs, see Gregory\