The Japanese Financial Crisis, Corporate Governance, and Sustainable Prosperity

The purpose of this paper is to take issue with the perceptions of the weakness of the Japanese economy and the relative strength of the American economy for generating sustainable prosperity -- the spreading of the benefits of economic growth to more and more people over a prolonged period of time. The main propositions on the sources of sustainable prosperity that underlie this argument are: 1) the economic development of advanced economies depends critically on the investment strategies of corporate enterprises to generate organizational learning; 2) both U.S. and Japanese corporate enterprises are making, and will continue to make, investments in organizational learning that can result in higher quality, lower cost products; 3) the prevalence of strategies of U.S. corporations that favor the downsizing of corporate labor forces and the distribution of corporate revenues to financial interests means, however, that the corporate contribution to organizational learning in the United States will fall short of that required for sustainable prosperity; 4) in contrast to this "downsize and distribute" strategy of U.S. corporations, Japanese corporate enterprises are pursuing, and will continue to pursue, a strategy of retaining corporate revenues and reallocating the labor force in ways that promote sustainable prosperity; 5) the choice between the downsize and distribute strategy that is more prevalent among U.S. corporations and the "retain and reallocate" strategy that is more prevalent among Japanese corporations reflects fundamental institutional differences between the two nations in the ways in which, at the macroeconomic level, money is saved and invested and, at the microeconomic level, corporate enterprises are governed; 6) in terms of sustainable national economic performance, the downsize and distribute strategy supports a system of saving and investment that favors living off the past, whereas the retain and reallocate strategy supports a system of saving and investment that favors investing for the future.