Table Of ContentStudies in Economic History
Juro Teranishi
Culture and
Institutions in
the Economic
Growth of Japan
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Juro Teranishi
Culture and Institutions
in the Economic Growth
of Japan
JuroTeranishi
ProfessorEmeritus
HitotsubashiUniversity
Kunitachi,Tokyo,Japan
ISSN2364-1797 ISSN2364-1800 (electronic)
StudiesinEconomicHistory
ISBN978-4-431-55626-8 ISBN978-4-431-55627-5 (eBook)
https://doi.org/10.1007/978-4-431-55627-5
©SpringerJapanKK,partofSpringerNature2020
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TothelateprofessorsFujinoShozaburo,
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TomyfriendsFukudaShin’ichi, Inoki
Takenori,HughPatrickandthelateRoyama
Shoichi.
Preface
As globalization proceeds, the institutions of countries have increased similarity
with each other, partly owing to the modernization led by Occidental capitalism
andpartlytotheinstitutionalcompetitionthereafter.Reflectingthehomogenization
of institutions, culture related to economic behavior has also shown significant
convergence in order to facilitate international transactions and interactions. In
view of the recent difficulties in policy coordination related to global issues,
however, it seems that the internalized part of culture, both beliefs and values,
remains substantially different between countries in various geographical, ethnic
andreligiousconditionsandwithdiversehistoricalbackgrounds.
Claiming that economic variables that have been regarded as causes of
economicgrowth,suchastechnologicalprogress,theaccumulationofphysicaland
human capital and economy of scale, are not real causes but only phenomena of
economic growth, Douglas North has maintained that the fundamental
determinantsofeconomicperformanceandgrowthareinstitutionsandthatculture
playsonlyasecondaryandsubsidiaryrole.Institutions,definedashuman-devised
rulesofthegame,suchasregulations andlaws,aremajorandfundamental actors
that cause growth through structuring and ordering the market mechanisms and
coordinatingtheincentivesofeconomicagents.IfwefollowNorth’sassertion,the
aforementioned diversity in internalized culture does not matter for economic
performance. This book claims, however, that not only institutions but also the
internalized culture, defined as the historically transmitted beliefs and values
specific to each country, is also indispensable as a fundamental determinant of
economic performance. Culture was the main factor in some countries for
structuringandorderingthemarketsandcoordinatingincentives,throughbringing
about conventions and establishing the norms of behavior of individuals. Japan,
before the Meiji Restoration in the mid-nineteenth century, is a typical case. It
seems that North’s emphasis on institutions is not a balanced view. Both
internalizedcultureandinstitutionscouldevolveautonomouslyandberesponsible
forbringingaboutworkableandefficientmarketorder:institutionsmainlybyway
of providing constraints on individual behavior and culture mainly through giving
risetoconventionsandthestandardsofconductfollowedbyindividuals.Thisbook
contends, further, that, through influencing the cost of developing institutions and
vii
viii Preface
culture, the internalized part of culture is closely related to the choice by which a
countrychoosesamongthealternativesofinstitutions,culture,orsomemixofboth
tostructureandordermarkets.Wewilltrytoconstructacoherentmodeltoexplain
the dynamics of the evolution of culture and its interaction with institutions
coveringthethirteenthtotwentieth-centuryJapan.
Inourmodel,cultureiscomposedoftwoparts,bothofwhicharecomposedof
beliefsandvalues:thebehavioralpartandtheinternalizedpart.Thebehavioralpart
ofculture,behavioralbeliefsandvalues,isinchargeofdailyinteractionsbetween
individualsandsocialgroupsinthecoordinationofmarketbehavior.Gametheoretic
interactionsofindividualsareatypicalrepresentationoftheworkingofthebehavioral
part of culture. Internalized beliefs are related to the structures and details of the
worldthatindividualsexperience,andinternalizedvaluesarerelatedtothecriteria
ofrationalbehaviorsuchascognitive,ethicalandaestheticvalues.Thebasicmode
oftheworkingofthebehavioralpartofcultureisdependentontheinternalizedpart
ofculture.Inaddition,therelativecostsofestablishingcultureandinstitutionsina
countryaremainlyinfluencedbytheinternalizedculture.Eachindividualisassumed
todevelopamentalmodeltodecipherandevaluatehisenvironment,theworldhe
experiences,andtoexpresshisopinionaboutthedesirablemethodofstructuringand
orderingmarketsandshapingincentives.Webelievetherelativecostsaredependent
ontheeasinessofsummarizingtheopinionsofindividualsand,hence,onthecontent
ofinternalizedbeliefs.ThecostsofestablishinginstitutionswerelowintheOccident,
wheretheinternalizedbeliefabouttheexperiencedworldwasbasedonthenotion
of the public, which was more or less homogeneous among individuals; while in
Japan,wheretheinternalizedbeliefwascomposedofothersnearby,themembership
ofwhichdifferssignificantlyamongindividuals,thecostwashigh.
InJapanbeforetheMeijiRestorationinthemid-nineteenthcentury,individuals
weremainlyinterestedintheinteractionwithothersnearby,andtherewasscarcely
any notion of the public and society as a whole in the internalized beliefs of
individuals, partly owing to the strong concerns with the accumulation of karma
through interaction with others nearby in the imaginary concept of transmigration
in Buddhism. Moreover, concerns with others nearby was especially strong in
Japan owing to historical experience. Religious reform in Japan took place in the
midst of the acceleration of the marketization of the economy when the ancient
centralizedeconomicsystembegantodecline,sopracticesimplificationpromoted
by the reform induced the behavior to seek religious merits for enlightenment in
occupational activities. Individuals were motivated to be distinguished in their
occupationalactivities,sothatoccupationalspecializationandthesocialdivisionof
labor were accelerated further. Owing to this sanctification of occupational
behavior,interactionwithothersnearbycametohaveasignificantinfluenceonthe
internalizedviewofindividuals.
Because the membership of the group of others nearby differs significantly
among individuals, the establishment of efficient institutions for ordering and
coordinating market conduct through summarizing the diverse opinions in society
was very costly, so that structuring and ordering the market economy was mainly
carried out by culture, especially ethics, in pre-Meiji Restoration Japan through
Preface ix
establishing conventions of conduct and standardization of conduct. Ethics were
purposefully developed and disseminated by the government and elites, such as
privateintellectualsandthesamurai,duringtheTokugawaeraintheseventeenthto
mid-nineteenthcenturies.Conventionsofconductwereagreeduponwithinasmall
group,thenormsofgroupinteractionwereestablishedamonggroupsand,further,
thechainrelationshipsbetweengroupsexpandedgraduallyontothemacrolevel.In
the Occident, where there was the religion-related notion of the public and of
humans created by the omnipotent God as well as collective intentionality among
individualsintheformofparticipationandcooperationinsocietalactivitiesinthe
internalized culture of individuals, it was less costly to establish institutions that
could bind constituents. Individuals were ready to gather, or ready to imagine
getting together in one place as in the models of the social contract theory and
couldagreeuponrulesallatonceatthemacrolevel.
Itisimportanttonotethatthedifferenceofcostsiscausedbytheeasinessofthe
convergence of mental models, the representation of internalized culture at the
individuallevel,throughinteractionamongindividuals.IntheOccident,themental
modelismainlycomposedoftheconceptofthepublic,whichwascommonlyheld
among individuals by and large, while in Japan the mental model was mainly
composed of others nearby in the imaginary process of transmigration, the
membership of which differed considerably among individuals. The difference in
the content of mental models explains the degree of easiness of sharing of mental
models, hence level of collective intentionality at individual level, giving rise to
differences in costs to establish institutions between Japan and the Occident. In
Japan, where content of the mental models among individuals differ significantly,
the sharing of mental models is not easy, so that cost of establishing institution is
high,comparedwiththeOccident.
While the economic development of the Occident was due largely to the
development of industrial technology nurtured under the development of various
institutional devices to coordinate activities, the economic growth of Japan during
the Tokugawa era was caused by the decrease in transaction costs in commercial
activities owing to the standardization of conduct nurtured through the purposive
development of culture and to the effort levels of small producers enhanced by
religiousmotivation.ThedevelopmentofindustrialtechnologyintheOccidentand
the transaction-cost effect of ethics in Japan was also related to the pattern of the
internalized value of culture. In the Occident, cognitive values have gained
importance over time, and in Japan ethical values became dominant toward the
early modern period. This explains the importance of ethical development in
Japanese history and of the development of cognitive sciences in the Occident.
High respect for ethical values explains the importance of the role of culture in
ordering transactions in Japan, and high respect for cognitive values seems to be
responsible for the importance of institutions related to the development of
industrial technology. While internalized beliefs play a pivotal role in the
determination of costs of establishing institutions, internalized value affects the
patternofgrowththroughthechoicebetweencognitiveandethnicvalues.
x Preface
This book is a preliminary attempt to give a coherent explanation of the socio-
economicdynamicsofJapanfromthethirteenthtothetwentiethcenturybymeans
oftheevolutionofinternalizedcultureandtheroleofcultureinorderingthemarkets.
Northdeniedtheactiveroleofcultureinorderingthemarketsonthegroundthat
culture is too persistent to be changed operationally and that change in culture is
difficulttobemanagedpurposefully.BothconditionsdonotapplytoJapanbefore
theMeijiRestoration.DuringtheTokugawaera,thegovernmentledtheprocessof
workingoncultureforthepurposeoforderingsocietyandestablishednewethical
codessuitableforthestabilityofthesocio-economy.Ontheotherhand,institutionsin
JapanbeforetheMeijiRestorationweresubstantiallyinefficientoperationallyowing
to the conflicts in the value system between the two governments, the aristocratic
governmentbasedontheimperialcourtandthesamuraigovernments,aswellasto
theconflictsbetweenfeudalisticrulesandBuddhist-relatedbehavioralconventions
andvalues.Moreover,institutionswereseriouslypersistentdespitetheirinefficiency
duetotheinterestgroupactivitiesofgovernments.Thesamuraigovernmentofthe
Tokugawaeradidnotcareaboutanyeconomicinefficiencycausedbytheinstitutional
devisestodefenditselffromantagonisticpowers.
After the Meiji Restoration, Occidental institutions and industrial technology
rapidly entered Japan, and the Japanese energetically absorbed the Occidental
cultural system crystalized in enlightenment culture. The struggle of the Meiji
leaders to establish national integrity and spirit was an attempt to adapt imported
Occidental institutions to the traditional internalized culture and to maintain the
meritsofhistoricaltraditionasfaraspossible.Whiletheirpoliciesweregenerally
successful, the policy to establish a surrogate or substitute for the concept of the
public, kokutai (national polity), was not—the concept of the kokutai was one of
thereasonsfortheriseofmilitarismduringthe1930s.Itwasapolicytochangethe
historically inherited internalized culture by establishing a surrogate of the
Occidental concept of the public by means of institutional devices. In view of the
persistence of culture, such a policy was destined to fail. It is difficult to believe
that the Meiji leaders were so ignorant that they were unable to understand the
persistenceoftheinternalizedpartofthementalmodels,sowemustconcludethat,
since international tensions in early Meiji Japan were so serious, they adopted the
policy as a second-best policy based on bounded rationality. We believe that,
despite the attempt by the Meiji leaders, the internalized culture nurtured
historically is still living deeply in the mindset of the Japanese. It is not easy to
implementthefusionorsubstitutionofthetraditionalinternalizedculturewithany
‘advanced’ culture of foreign countries. We must be more cautious and serious in
this regard in view of the failure of the Meiji leaders. It seems most important to
findawayforthecooperationandcoexistenceofbothculturesonthebasisofdeep
understanding and mutual respect. Competition and the eventual convergence of
institutionsandtechnologyaswellasthebehavioralpartofcultureareessentialfor
the efficiency of the global economy, while the diversity of and respect for the
internalized culture of countries seems to be indispensable for the harmonious
developmentofglobalcooperationandthemaintenanceofthecreativityofhumans
inthelongrun.
