NATIONAL INSTITUTIONAL STRUCTURES, TRANSACTION COST ECONOMIZING AND COMPETITIVE ADVANTAGE - THE CASE OF JAPAN

Japans economic success since World War II has been striking. Modern J apan was the first major industrial economy to emerge from outside the Western tradition. Economically devastated in 1945, by 1990 Japan had the world's second largest economy and a GDP per head 20 percent grea ter than that of the United States. In this paper it is argued that on e reason for Japan's success is that the costs of achieving cooperatio n and specialization ate lower in Japan than in the West. Cooperation and specialization have been acknowledged to have a beneficial impact upon productivity ever since Adam Smith wrote about cooperative specia lization in the context of the division of labor. Modern economic theo ry, however, suggest that in a world of self-interested individuals th e costs of achieving cooperation and specialization are substantial. I n this paper it is argued that the cultural value system that Japan ha s inherited from its preindustrial past, and particularly the Tokugawa period, helps facilitate cooperation between individuals and encourag es them to undertake productivity-enhancing investments in specializat ion. This lowers the costs of achieving cooperative specialization. In turn, the lower costs of achieving cooperative specialization have he lped Japanese enterprises adopt practices such as self-managing work t eams and long-term supplier relations that are consistent with obtaini ng a productivity-based competitive advantage in the world economy.