Competition in Japan

J apan registered a remarkable 6.5 percent rate of economic growth from 1955 to 1990, catching up with high-income western countries in its level of economic development. During the 1950s, 1960s, 1970s and into the 1980s, Japan’s share of world exports rose dramatically, from 2.9 percent in 1960 to 6.1 percent in 1970, 8.2 percent in 1980, and a peak of 9.8 percent in 1985 (Porter, Takeuchi and Sakakibara, 2000). Japanese firms were increasingly successful internationally in large, visible industries such as automobiles, semiconductors and consumer electronics. The striking economic success of Japan was widely attributed to a set of economic institutions and policies that encouraged collaboration and limited competition. The Japanese case, then, called into question many of the bedrock assumptions of competition thinking. It seemed to show that there was a different path to economic prosperity. This article begins by examining competition in Japan and the supporting policies and institutions during the twentieth century. Many factors seem to suggest that competition in Japan has been less intense, but there is an awkward complication—the empirical evidence about the intensity of competition in Japanese industry does not support the conclusion. The story, clearly, is more complicated. We seek to reconcile the apparent differences between policy and institutional circumstances and the empirical evidence by examining the types of competition that prevail across Japanese industries and the underlying causes. Japan indeed pursued an array of policies that limited competition, but these policies were not applied throughout the economy. In fact, those industries in which competition