Many attempts have been made to explain Japan’s phenomenal economic growth following the Second World War, and theories have continued to develop even in the post-bubble era. As the economic situation has changed, however, one may wonder how a nation that achieved such breathtaking growth suddenly ended up in the economic doldrums. Japan has experienced a recession for over a decade and the country’s debt rating is being compared to Botswana’s by serious newspapers and debt rating agencies. Once popular theories presented in books as Chalmers Johnson’s "MITI and the Japanese Miracle" have consequently undergone major modifications and few if any scholars visit Japan to study the country’s business practices.

Under these circumstances, it is important not to forget that the growth achieved by Japan after World War II in fact was unique in the sense of its longevity and strength. While the system that fuelled the economic success story must also take some blame for the current recession, it is nonetheless interesting to study why the system actually was so successful. This paper will focus primarily on William G. Ouchi’s 1984-book "The M-Form Society", this in relation to how his theory may be reflected in Richard Katz’s "Japan: The System that Soured" and T.J. Pempel’s "Regime Shift". Following a discussion on this issue, an analysis will be given to determine which of Ouchi’s corporate theories that best fit with the thoughts presented by Pempel and Katz.

William Ouchi sees society as in an economic gridlock, and argues that the American government does not help provide solutions for real problems faced by businesses. The M-Form Society, which the author believes is a solution to this problem, entails structuring the business-government interface along the lines of certain multidivisional corporations that try to balance division autonomy with organisational teamwork. Ouchi presents three different kinds of organisations. The first he terms the "U-Form Structure", which simply represents a traditional American company with several related subdivisions. A variation of this, the H-Form Organisation, can be interpreted as for example General Electric, in other words a corporation that has several unrelated subdivisions. The author does, however, view the M-Form Structure to be the most effective and profitable, this both on a societal and company level.

In "Regime Shift", Pempel offers a primarily institutional approach to studying the Japanese economy. He emphasises the intelligent use of scarce resources to stimulate growth, in particular the limited spending on defence. This was evidently dependent on a capable bureaucracy, represented by the Ministry of Trade and Industry (MITI) and the Ministry of Finance (MOF), for not to mention the stable rule of the Liberal Democratic Party (LDP). Pempel also takes a strong interest in other unique institutions, in particular those of the financial system. In addition to taking an institutional view of the economy, however, Pempel does not ignore for example the high Japanese savings ratio, the fixed exchange rate under the Bretton Woods system, the Korean War, or other historical incidents that contributed to stimulating economic growth. His approach is, in other words, more circumstantial than that of Ouchi.

The main idea behind Ouchi’s theory is that the operating units of an organisation are "partially independent and yet partially dependent upon the whole". In contrast, the overview presented by Pempel appears to be overall more complex, and an adoption of the institutions described by the latter seems to be a much more daunting task than simply adopting the ideas presented by Ouchi. Of the four major points made by Pempel to describe Japan’s high economic growth in the pre-bubble era, Ouchi’s organisational theory can only be reflected in one or two. For instance, the enormous economic benefits derived from the economic alliance with America have little relevance to the M-Form Structure, and the long-term rule of the LDP is at best a result of the latter. Still, Ouchi is evidently not only concerned with the Japanese economic success story, but also with how so-called Japanese organisational theory can be successfully implemented also in the United States. The latter issue will only be briefly touched upon in this paper, and considering that Ouchi’s book is out of print, the M-Form Structure appears to be a relatively minor issue also in American societal debate.

Still, by concentrating on certain parts of the rather complex historic presentation given by Pempel, it is possible to find some elements that can be interpreted as being reflective of Ouchi’s M-Form Structure. Pempel’s approach to understanding the economy is largely, though not exclusively, institutional. "Government efforts to restructure many Japanese industrial sectors fell largely to the LDP", writes Pempel, and also Ouchi applauds the efforts of government to provide guidance in the economy without interfering with market forces. Still, Ouchi emphasises that MITI is part of a network that again resembles the M-Form Structure: "In essence, MITI and the trade associations of Japan together constitute a network that is the social memory, the community, of the Japanese economy". Pempel presents an example of this when he refers to the creation of the FACOM 230-250, a government-private sector machine, which was built by MITI in co-operation with Fujitsu, NEC, and Oki. This, as earlier mentioned, is the kind of system Ouchi believes can be successfully implement in the United States.

The strength of the Japanese bureaucracy nevertheless peaked in 1964, as the country then joined the OECD. From then on, the role of government in the economy was to become a much more informal than it had been in the past. Ouchi certainly does not consider unlimited government interference in the market as ideal, and emphasises that it should only play the role of an intermediary. He writes on MITI: "It is a critical role in the functioning of an M-Form society, but one that must not intrude into the market process". However, it is difficult to argue that the Japanese government did not interfere in the economy, particularly in the period up to the joining of the OECD. Pempel mentions the importance played by the Foreign Exchange and Control Law (FECL) and the Foreign Investment Law (FIL) in insulating the domestic market. Informal government interference in the economy persisted independently of the OECD-joining, and Pempel writes, "Into the early 1970s, with few major exceptions, Japan was a country almost devoid of significant foreign direct investment". Ouchi mostly ignores the benefits Japan derived from being able to develop market positions abroad without experiencing competition at home. Still, from Pempel he receives some support for the argument that Japan’s institutions are unique, and that Japan perhaps has developed a unique form of capitalism. As will be shown, Richard Katz greatly disagrees with this view.

Published in the late 1990s, Katz certainly had the benefit of hindsight when reflecting on Japan’s post-war growth. The last decade has proven that Japan certainly was not invincible economically, and also that Japanese Industrial Policy certainly has not been without flaws. Concerning the question if Japan in fact developed a superior variant of capitalism, which is the argument Ouchi essentially makes, Katz writes that the Japanese economic development was so successful because that "when industrial policy was applied to genuine infant industries with economies of scale, inter-industry slipovers, and so forth, it greatly accelerated the natural process of catch-up". In fact, Katz does not consider it to be unique that Japan caught up with the West. Instead, he argues that the only distinguishing factor was speed of the catch-up. Industrial and trade policies were successfully applied in order to accelerate the normal catch-up process, but Katz believes that Japan would have caught up with the West at any extent, although it would have taken more time without industrial policy.

One similarity between Katz and Ouchi is that both emphasise that the market is imperfect, and that the government therefore has a role to play in the economy. In addition, Katz appears to appreciate Ouchi’s thoughts on interdependence between the different divisions of a company, and also that this may be reflected in society. However, two major differences need to be addressed also in this respect. First, Katz argues that industrial policy only works in the era of catch-up, and the last decade of stagnation in the Japanese economy seems to support his argument. Not only that, only certain industries should be subject to industrial policy, namely "genuine infant industries characterised by economies of scale, rapid productivity hikes, inter-industry ripple effects, and rapid growth in world demand". Evidently, as Katz also emphasises, this principle was not always followed, this even as Japan was experiencing phenomenal growth. He points to the chemical industry in particular, but also to other industries that were targeted due to political pressure or similar factors. Second, Katz emphasises the importance of ending industrial policy once special protections are no longer necessary. Katz cites Yasusuke Murakami, a well-known proponent of developmentalism: "Once established, however, the relationship between industry and government becomes difficult to terminate; thus industrial policy continues, becoming nothing more than protectionism, and maybe even hampering the development of a competitive environment". Therefore, while it may be argued that Ouchi and Katz share some views on the importance of government involvement in the economy, Katz does not consider Ouchi’s M-Form Structure to be most efficient organisational model. Then again, it is necessary to re-emphasise that Katz has had the opportunity to witness the recent decline of the Japanese economy. Formerly invincible Japanese companies are currently struggling to avoid bankruptcy, and the Japanese bureaucracy is hardly taken seriously by any foreign observers. If Ouchi were to make modifications to his M-Form Structure today, he probably would not be able to draw on many examples from the last two decades to support his theory. Again, quoting Murakami: "If Japan fails to end industrial policy, its post-war developmentalism may be judged a failure".

Overall, while Katz does not deny that Japan’s use of industrial policy was effective, he does not believe that it provides a model for the United States or developed European nations to follow. Similarly, he does not share Ouchi’s enthusiasm for consensus making, nor does he understand Ouchi’s enthusiasm for Japan’s political system. Concerning the time-consuming process of Japanese consensus making, Ouchi argues: "It is unlikely that a bill could survive with major technical or political flaws, and faced with a constituency that had to put up so much work into a bill, it is unlikely that any legislator of any nation would ignore or oppose it, except with very good reason". Following this logic, the recent farm bill signed by President Bush should be superior in nature due to the extensive consensus making that took place in both houses, but still most observers consider the bill to have major flaws. As earlier mentioned, the relationship between industry and government becomes difficult to terminate once a relationship has been established. Similarly, while the M-Form Structure may be effective in developing an economy, the inability of the decision making authorities to make quick and difficult decisions during for instance a financial crisis may endanger a country’s prospects for economic revival. Yet again, Ouchi could not have foreseen this danger as his theory was developed before the burst of the bubble.

According to Ouchi, there are three different types of organisational structures. This was touched upon briefly earlier in this paper, yet it is interesting to analyse what structures that best reflect the ideas presented by Katz and Pempel. In a sense, it is tempting to claim that all of the three models to some extent reflect the thoughts of the two latter authors. To start with the U-Form organisation, more commonly known as the functional organisation, Ouchi writes that "The organisation is unified, or U-Form, in the sense that it can stand only as a unity. No subportion of the organisation can exist on its own". Many will claim that this perception holds true for the what has become known as the Japanese system, namely that no single part of the system can be successfully adopted on its own. The system of lifetime employment, for instance, only makes sense if studied in addition to other parts of Japan’s HR system, and then again in relation to the entire economic system. While the C.E.O. is generally perceived as being the leader of a company, the latter is often considered to be headless creature moving relatively independently of decisions made by the nominal head of the company. Similarly, although attempts have been made to point out for example MITI as the mastermind behind Japan’s economic development, the Japanese success was more likely a success of relatively independent units working towards a common goal; To catch up with the West.

Obviously, the decision making process in a traditional American company is more centralised than what has been the tradition in Japan, where top management often serves a rather ceremonial role. Still, Katz does believe that Japan developed a unique and superior capitalist system following the Second World War. While he clearly emphasises that industrial policy helped speed up growth, Katz also argues that growth would have occurred even without the use of industrial policy, and in addition that the system made many mistakes along the way. In other words, Katz’s argument is that Japan’s spectacular economic growth was achieved due to effective economic policy making, import control, and several other factors commented upon earlier in this paper. He thus demystifies Japan’s industrial policy by emphasising that Japan was successful because the country’s economy was at the development stage. As a consequence, it may sound as a contradiction to claim that Katz anyway agrees with some elements of the M-Structure, but it is rather their judgement of the system that differs. This obviously reflects back on the earlier made points on the value of hindsight, yet the negative identifies with Katz connects to the Japanese system stem from a decade of experience in the post-bubble era. Thus, while Katz also describes the intermingling of government and business interests, and approves of the use of industrial policy to support infant industries, he sees the limits of the M-Form Structure. Pempel, however, uses a different approach in order to explain Japan’s rapid growth, and his institutional approach and focus seem closer to Ouchi than Katz’s rather sober analysis.

As mentioned earlier, Pempel attempts to explain the rise of the Japanese economy by focusing on the country’s unique institutions. Still, he also points out the undemocratic aspects of the system: "Meanwhile, interests and sectors tied to the LDP and to bureaucratic agencies had regular and steady access to power; anti-conservative interests or non-aligned citizens found it correspondingly difficult to organise and to operate. As a result, conservatives could mobilise governmental power with singular cohesion in the interests of whatever agenda they set". Although Pempel thus accepts the intermingling of interests between politicians, bureaucrats, and business, the picture he presents is much less flattering than that drawn by Ouchi. Currently, Japanese people appear to generally agree upon that Japan is in dire need of economic and political reform. Still, while this may be the view of a majority of the population, there is little evidence of actual change. Ouchi writes that the implementation of an M-Form society in the United States will "create the units of social memory that will make social choice possible, which will break our political-economic gridlock". If Japan is the closest existing example to an M-Form society, the current economic situation does not leave this argument much credibility.

Similarly, considering Pempel’s comments on the Japanese political system, it gives reason to question how even an M-Form society can be truly inclusive, as there will always be individuals who disagree with the majority consensus. In particular, he mentions that organised labour was systematically excluded from government, and that agriculture and various businesses dominated the latter. While the clan culture, which will be discussed shortly, may be inclusive for some, the democratic qualities of the system are doubtful at best. Thus, when Pempel comments on the difficulties faced by opposition forces in Japan, he introduces readers to a part of the Japanese system that is ignored by Ouchi.

For a corporation or society to be truly successful, Ouchi claims that different governance forms need to be present. These are the market, bureaucracy, and finally clan modes of governance. While the first two are rather self-explanatory, the latter is meant to stimulate an atmosphere of teamwork. According to Ouchi, in the U-Form structure, the different divisions of a company are likely to fight over resources, and the internal competition that exists between divisions may prove to be unhealthy rather than simply stimulating. If the clan governance is present, however, each division "will use only as much of the common resources as he truly needs, and each will help to replenish those common goods". The author’s Utopian flair is quite admirable, yet Ouchi ignores the cultural traits that made the system work in Japan. Clan cultures can evidently develop in the West as well, with Wal-Mart being a successful example, but one can also argue that the group culture has been a hindrance for Japanese attempts to build up a financial industry. In addition, the M-Form Structure embeds in its philosophy free flow of information between different divisions. Following various American scandals in formerly renowned banking, consulting, and accounting firms, guidelines are currently drawn up to separate different business divisions. Thus, while the M-Form Structure may be suitable in some business sectors, as for example industrial production, it may prove less effective in other areas. The failure of Japan to develop a successful service sector may provide sufficient evidence to support this argument.

William Ouchi’s theory of the M-Structure Organisation does in many ways fall into the same category as Chalmers Johnson’s "MITI and the Japanese Miracle". While certainly interesting reading, both books failed to predict the current Japanese recession. In addition, it is generally argued that both authors provided theories that sounded credible at the time of publishing, but the current understanding of the growth of Japanese industry is more complex. In the 1980s, the Japanese economy mystified foreign observers, as it appeared to be unstoppable, yet there is not denial that the rise of Japan was considered a threat to Western culture and lifestyle, a factor that made Japan the object of nervous attention.

In addition to explaining Japan’s economic growth, however, Ouchi also sought to clarify what the West could learn from Japanese business practices. Some lessons were undoubtedly drawn through the study of Japanese businesses, particular in the manufacturing sector. Toyota may still be the most effective car manufacturer in the world, but some of the superiority it once possessed in comparison to its American competitors has faded. This is evidently not only due to improved efficiency in the West, but the production costs in Japan have increased and made it more difficult to compete with industrialising countries in Southeast Asia and elsewhere. As a consequence, Japan is being forced to focus on the service sector, and is in this sense again attempting to catch up with the United States. Still, yet so far, Japan has not been able to successfully transform its economy, and government attempts at stimulating the economy through industrial policy have largely been unsuccessful.

Richard Katz makes many of these observations in his analyses of the Japanese economy, yet also seeks to create a more nuanced picture of the economic growth period following World War 2. Pempel, Katz, and Ouchi all seem to approve of industrial policy in order to promote growth, but Katz is again the most reluctant of the three. Overall, while there may be disagreement on what caused the growth of the Japanese economy, it appears evident that the system that once worked no longer is efficient. The issue is, however, to decide what change is needed.

Ouchi’s M-Form Structure may not be dead, but it has certainly shown its limitations. Similarly, while industrial policy may be a thing of the past in Japan, several countries in Southeast-Asia are attempting to implement elements of the Japanese system. This might create an even tougher competitive environment for Japanese businesses, and ironically, may cause Japan to meet its own system in the door.