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ABSTRACT
Moody's and Standard & Poor's, the major American credit rating agencies, were expected to outcompete and overwhelm the local agencies in Japan during the 1990s. The local Japanese rating agencies were widely understood to be compromised by their links to government and banks. Why have the influences of the American agencies in Japan diminished, while the local Japanese agencies survived? We emphasise the concept of ‘systemic support’ as a solution to this puzzle. Our broadened definition of systemic support incorporates dominant elites’ support and protection of subordinates in exchange for loyalty and obedience. We argue Japanese society's anti-liberal, anti-free market norms (epitomised by systemic support) are a form of counter-hegemony, and this has resisted American financial hegemony and prevented capitalist dominance from severing long-term social relations (including management-labour alliances). Credit rating in Japan is an ideational battlefield between the market liberalisation and anti-free market camps within the Japanese elite. The American agencies’ market friendly, short-term profit-seeking mental framework clashes with the continuing attachment to systemic support in Japan. Similar conflicts can be witnessed in other constrained market economies in Asia and Europe, where corporate bailouts often occur, and local agencies compete against the American majors.
Acknowledgments
Earlier versions of this paper were presented at the 57th annual convention of the International Studies Association, Atlanta, 16–19 March 2016, and the PAIS Research Conference, University of Warwick, England, 30 June 2016.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. In 1998, R&I was established by the merger of the two local rating agencies, Japan Bond Research Institute (JBRI), a subsidiary of Nikkei (media company), and Nippon Investor Services (NIS) supported by Japanese financial institutions and the Ministry of Finance (MOF). JCR was also backed by domestic financial institutions and MOF.
2. This section draws upon Sinclair (Citation2005, Chapter 2).
3. The term ‘administrators’ was originally used by van Wolferen (Citation1989).
4. Sony and Honda are examples of rare Japanese big businesses founded by entrepreneurs after the Second World War. It is extremely difficult for Japanese entrepreneurs to grow their SMEs into big businesses.
5. James Burnham (Citation1941) argues that regardless of corporate or government ownership, with the separation of control and ownership, the critical boundary between dominant elites under the name ‘managers’ (such as business executives and bureaucrats), who will eliminate the old capitalist class, and the mass of society, was control of the means of production rather than ownership. The preconditions for managers’ or administrators’ social dominance in Japan were inadvertently created by the US occupation forces’ elimination of major capitalists and the subsequent shift from pro-labour to pro-management policy.
6. Interview with Toshio Yamagishi, emeritus professor of social psychology at Hokkaido University, in November 2015
7. Takeuchi (Citation2000, p. 391) maintains that Japanese companies offer quasi-public space for their employees. Habuka (Citation2014, pp. 39–40) contends that public and private fields are inseparable in Japan in that employers and employees represent ‘public (dominant)’ and ‘private (subordinate)’ statuses, like the relationship between bureaucracies (public) and companies (private), and that people in dominant positions are supposed to protect subordinates.
8. Interview with Yoshio Shima, professor of management at Tamagawa University, in November 2015. He used to be a banking sector credit analyst at S&P and head of Japan credit research at Deutsche Bank.
9. Kurosawa (Citation2001, pp. 105–108) claims that Japan has sought to form a ‘riskless society’ for both corporate bond issuers and investors, in which individual corporate risk is transferred to the government and corporate groups. Shima (2005, pp. 283–284) is critical that Japanese institutional investors tend to invest in bonds based on credit ratings rather than their own credit judgements so that borrowers with non-investment grade ratings can find few local purchasers.
10. Interview with Professor Yoshio Shima in November 2015.
11. Interview with Professor Toshio Yamagishi in November 2015.
12. Interviews with Professor Yoshitake Masuhara at Hiroshima University of Economics (previously a member of the House of the Representatives and a highly ranked MOF official) and Yasuyuki Kuratsu, CEO of Research and Pricing Technologies (former managing director at Chase Manhattan Bank), in November 2015.
13. Neoclassical economists such as Heizo Takaenaka (Minister of State for Economic and Fiscal Policy) had close relations with Doyukai leaders and formulated neoliberal policy under the Koizumi administration.
14. Horie was accused of window-dressing Livedoor's consolidated sales by 5.3 billion yen in profits from the sale of its own shares held by the investment partnerships in which Livedoor invested.
15. Shinichiro Suda (Citation2006, p. 37), a journalist, maintains the following statement by Motonari Otsuru, head of the special investigation squad who would later be in charge of the Livedoor case, at his inaugural press conference in April 2005 reflected public repulsion: ‘by all means, we would like to prosecute wrongdoing resented by hardworking people, unemployed people due to job cuts, and business people who comply with laws although they recognise that they could make large profits if they breach laws’. In addition, the judge's following comment on the Murakami Fund case at the Tokyo District Court stunned even Yasuhito Omori (Citation2007, p. 182), head of the Financial Markets Division at the Financial Services Agency: ‘Murakami's extreme pursuit of profit above all else by buying low and selling high is appalling’. The two court cases reflected anti-free market norms held by both Japanese society and legal elites.
16. Both Miyauchi and Ushio were the most influential leaders of Doyukai during the Koizumi period. Miyauchi, de facto founder of Orix (the largest Japanese non-bank), maintained the chairmanship of the Deregulation Committee under the Cabinet Office from 1996 until 2006. Ushio was a private sector member of the Council on Economic and Fiscal Policy from 2001 until 2006.
17. The Supreme Court judge, who triggered the revision of the money lending law, and both LDP politicians and Financial Services Agency officials who were involved in the revision appeared to share an anti-free market perspective and feel repulsion against aggressive capitalists including founders and management of non-banks.
18. Ichiro Ozawa was Secretary General of the LDP (1989–1991), but defected from the LDP to become a mastermind of the Hosokawa administration. At that time, Ozawa was known as a neoliberal ideologue, but he started supporting social democratic ideas when he became president of the Democratic Party of Japan in April 2006.
19. Both JCR and R&I were registered as NRSROs (Nationally Recognised Statistical Rating Organisations) with the US SEC in 2007, but the latter withdrew from NRSRO on its own business judgement in 2011.
Additional information
Notes on contributors
Fumihito Gotoh
Fumihito Gotoh is teaching and research fellow in the Department of Politics and International Relations at the University of Warwick. He focuses on East Asian politics and political economy, comparative capitalisms, and the politics of finance. Previously, he was a senior credit analyst in Tokyo for the Industrial Bank of Japan, Merrill Lynch and UBS.
Timothy J. Sinclair
Timothy J. Sinclair is an associate professor of International Political Economy at the University of Warwick. The New Masters of Capital, his first book on the US credit rating agencies, was published by Cornell University Press in 2005. He was a New Zealand Treasury official in the late 1980s.