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Race for the Exits: The Unraveling of Japan's System of Social Protection

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Leonard Schoppa's thesis starts from the concepts of exit and voice developed by political scientist Albert Hirschman. For Hirschman, the degree to which national authorities pursue reforms is a function of the ease of social actors to escape problems ("exit") or to organize collectively to demand change ("voice"). Authorities are forced to react when exit behaviours become so widespread that the problem at hand develops into a crisis (people "vote with their feet") or when social actors overcome obstacles to collective action and voice their discontent (people "take to the streets"). As a consequence, we should expect the most reform-oriented policies in sectors or in circumstances when exit costs are either very low, provoking a race for the exits, or when they are so high that people have no other solution but to organize and press for change. The propensity to reform is the lowest in intermediary cases when exit costs are neither high nor low, and so when there is neither mass exit nor organized protest.

In Race for the Exits, Leonard Schoppa applies this simple model to the dynamics of reform in contemporary Japan and looks in particular at the decisions made by two types of social actors: firms and women. He argues that the postwar welfare system rested on sacrifices made by these two actors. Firms maintained domestic production and protected their core workers as part of the "convoy capitalism" led by the Japanese bureaucracy. Women left the workforce to marry, raise children, and eventually care for aging parents and in-laws. As this system of social protection unravelled in the 1990s, the author offers four case studies illustrating the incentive for reform or lack thereof depending on the frequency of exit or voice behaviours.

The two cases where firms were faced with an exit option are industrial delocalisation and financial off-shoring. Industrial delocalisation to emerging countries with lower labour costs and fast-growing markets occurred for a variety of reasons; but one consideration was the comparison between domestic production costs and costs of producing abroad. Firms and authorities could have acted collectively to reduce costs at home through various policy reforms: market liberalization, deregulation of public utilities, job flexibility, recourse to immigration, etc. But private companies didn't push hard for reforms, and bureaucrats didn't construe foreign direct investment as a problem that needed to be addressed: if anything, they encouraged the trend toward delocalisation, despite the risks of hollowing out the productive core of the Japanese economy. We are here confronted with a median case in Hirschman's model: some exit did occur, but it wasn't a massive outflow, and little voices were raised.

On the contrary, the risk of financial off-shoring led the Japanese authorities to implement prompt and far-reaching reforms of the domestic financial sector. Financial flows face very little exit costs, and investors can arbitrate between various financial centres offering more or less the same services. Japanese firms did start to invest heavily in euro-markets in the mid-1980s, prompting the government to take action and reform the Tokyo market with a Big Bang approach. The presence of foreign investors, as well as the option for Japanese companies to list their shares on foreign markets, exerts a competitive pressure that force market authorities and regulators to stay on the cutting edge of financial development.

Women faced with the difficulty to combine the pursuit of a career and family obligations have different kinds of exit options. The traditional model forces women to choose between a career and a family; it also puts pressure on elder daughters to take care of their ailing parents or in-laws. Both trends are fiercely resisted by modern women, who cherish their autonomy. But their actions had very different results on birth-rate policies and aged care, the two cases examined by the author.

Working mothers can exit the workforce to become full-time mothers or take a part-time job compatible with raising children. Or they can postpone and ultimately give up motherhood to pursue their career. In a society that expects young office ladies to resign when they marry, they can also defer marriage. This, of course, leads to lower birth rates, a problem that authorities were slow to realize and reluctant to address. An alternative course of action for women would have been to claim their right to combine career and motherhood and to demand the social infrastructure and collective changes that would make the two compatible: paid leave for child-rearing, shorter work hours, nursery schools, child allowances and other financial incentives as well as more participation of husbands to household chores. Authorities, faced by the shrinking population problem, finally realized that these policies were necessary to improve birthrates, but they recoiled at the costs involved; besides, there were little collective demands to implement such changes.

Long-term care of dependent parents was a different issue. Contrary to child-bearing, there was no exit option: dependent parents had to be taken care of, and the rapidly aging population made the problem even more acute. As Schoppa documents, women organized as early as the 1980s and took this issue to the public arena, putting pressure on the state and on local governments to provide adequate care through various mechanisms: long-term care insurance, nursing facilities, home care services, etc. As a result, Japan now boasts one of the most advanced system of aged-care support.

This book illustrates the power of applying a simple theoretical model to a complex reality. Economic and social issues are seldom treated together, but the dynamics of voice and exit make it possible to compare reforms in these two sectors. It also explains why Japan has implemented far-reaching reforms in some sectors and has blocked any progress in others. For all these achievements, Race to the Exits should be highly commended.