18 as a dangerous and almost unrecognised drift toward collectivism, they, like their socialist opponents, saw no other viable option than embracing the underlying logic of their ideas. They needed to find the courage to be idealistic. The extent of the leap taken, from this position to that of a full-fledged ideologue, is hard to measure. A few steps in this direction need not lead to a deliberate attempt to slant research to achieve a given set of preconceived outcomes. George Stigler himself was never as crude as that. Nor did he ever consciously try to achieve results that fitted with his deeply-held beliefs. But someone who believed so unequivocally in a certain goal would inevitably find evidence to support what he knew (in an almost a priori way) to be correct. It is hard to imagine what data, research, or evidence could have moved Stigler to fundamentally change his views about markets. To lose his faith would have fatally undermined the basis of his moral precepts. For these reasons, Stigler would not surrender his precept that the Trojan horse of beneficial state services ruthlessly advanced collectivist aims at the expense of liberty. But, unlike other clearly confessed ideologues, Stigler refused to rest his case on some simple statement of faith or a claim based on anecdotal evidence. Consistent with his methodology, the assertion of imperilled liberty must be transformed into a testable hypothesis: The proof that there are dangers to the liberty and dignity of the individual in the present institutions must be that such liberties have already been impaired. If it can be shown that in important areas of economic life substantial and unnecessary invasions of personal freedom are already operative, the case for caution and restraint in invoking new political controls will acquire content and conviction. (Stigler 1975: 18). Nonetheless, the ideological drive of the Chicago School remained crucial, and carried over into the establishment of the Law and Economics program in the Law School. As Coase (1993: 244) acknowledges from Simons’ original proposal around 1945 for a new Institute, it: … should not be mainly concerned with formal economic theory nor should it engage substantially in economic research. It should focus on central, practical problems of American economic policy and governmental structure. It should afford a center to which economic liberals everywhere may look for intellectual leadership and support.
III. Proving the Non-existence of Japan – Ramseyer as a Professional Infant Terrible
“Most of what we collectively think we know about the Japanese economy is urban legend. In fact: • The keiretsu do not exist, and never did. An entrepreneurial research institute in the 1950s created the rosters to sell to Marxist economists where Ludwig von Mises turned on the other participants (including Friedrich von Hayek) by denouncing them as ‘a bunch of Socialists’.
19 looking for the monopoly capital that their theory told them would dominate their bourgeois capitalist world. Western scholars hoping for examples of culture-specific forms of economic organization then brought them back to the U.S.31 • The zaibatsu did not succeed pre-war because they bought politicians, exploited the poor, or manipulated dysfunctional capital markets. They succeeded for all the usual varied reasons a few firms succeed in any modern economy. They acquired the (pejorative) zaibatsu label because they happened to be thriving when muckraking journalists in the 1920s and 30s came looking for someone to blame for the depression. • Japanese firms have no main bank system, and never did. Economists popularized the idea as an anecdote on which to peg their mathematical models, and non-economists use it (like the keiretsu) as yet another putatively culture-bound economic phenomenon. • Japanese firms are neither short of outside directors nor badly governed. The charges simply represent yet another variant on populist journalism. Like firms in other competitive capitalist countries, Japanese firms survive only if they adopt governance mechanisms appropriate to the markets within which they must compete. • The Japanese government never seriously guided or intervened in the Japanese economy. When the economy boomed, politicians and bureaucrats did take credit. They had created the success through their own far-sighted leadership, they claimed. Marxist scholars dominated Japanese social science departments, and they were not about to suggest instead that market competition might account for the success. Happy as they were to find an example of successful government intervention, neither were most Western scholars of Japan.”32 (Yoshiro Miwa and J Mark Ramseyer, “The Fable of the Keiretsu, and Other Tales of Japan We Wish Were True” (April 2004) Harvard Law and Economics Discussion Paper No. 471.)
It is in this context that the work of a latter-day Chicagoan starts to make sense. Mark Ramseyer, at first glance, seems to be at best cantankerous and at worse perverse. He takes the most commonly held conclusions about the Japanese economy and denies all of them categorically. At a recent conference in Germany on transformations in governance regimes in Japan, the US and Europe, for example, Miwa and Ramseyer (2005b) insisted that the entire project was flawed because of the misconceived starting point that postwar Japan had developed a regime contrary to important neoclassical 31Alternatively, for example: “The keiretsu do not exist, and never did. An entrepreneurial [US law professor since] the [1990s] [has proved this] to sell to [US law and] economists looking for the [narrowly self-interested economic actors and perfect markets] that their theory told them would dominate their bourgeois capitalist world. [Foreign] scholars [increasingly questioning] examples of culture-specific forms of economic organization then [may feel obliged to bring this world-view] back [from] the US.” 32 In short, perhaps: “There are no Japanese people. This is only a conspiracy by left-wing academics trying to convince the discipline that preferences are not the same throughout the world. We reject this relativistic proposition by empirically demonstrating that all choices made by the hypothetical Japanese are no different than the choices made by people in the US once we take into account differences in effective constraints.”
20 economic principles, with more market-driven approaches only emerging since the 1990s.33 Ramseyer’s approach is essentially that ‘Everything you know about the Japanese economy is wrong, and you are foolish to continue believing otherwise’. This is certainly one way to get noticed – especially in the US academic world, as the versatile British “law and economist” Anthony Ogus remarked at the conference. Or, as one of the founding fathers of the Chicago School of economics put it bluntly: ‘where once it was necessary in writing to pose as merely restating and interpreting doctrine handed down from the Fathers, the surest way to public interest and acclaim now lies through pulling down and overturning everything established or accepted” (Knight quoted in Leeson 2003: 15-16). An ambitious academic knows that the quickest way to get ahead is to create a new path, rather than toil in obscurity adding incrementally to existing knowledge. In this, the academic finds some kinship with the infant given to tantrums. Both are attention seekers. On closer examination, this doesn’t fully explain what is driving Ramseyer’s work. The one consistent feature within his staggeringly voluminous output34 is the insistence that the Japanese economy is (or ought to be) a liberal market economy much like one finds in the US. Following the tenets of the postwar Chicago School, this should be unarguable if we were simply clever enough to spot the obvious. Going even further, the Japanese legal system would almost by definition be efficient. If the system failed to facilitate such economic efficiency there would be a positive incentive to replace it with a superior approach. A similar ethnocentricity can be found in his textbook on Japanese Law: An Economic Approach, co-authored with University of Tokyo tax law professor Minoru Nakazato and published as the third volume of the “Studies in Law and Economics” series of University of Chicago Press that Ramseyer co-edits with Landes.35 They begin 33 Nottage (2005b), asked at the conference to comment primarily on a paper by the much less dogmatic law and economist from the UK, Anthony Ogus (1994; 2005), anticipated such as response. Nottage hoped its extremism would become obvious to participants (especially those more unfamiliar with Japan) if the diverse assertions made over the years by Ramseyer (such as the “myth” of the main bank, the “fable” that Japanese companies disdained shareholders, and so on) were listed up, along with some important counter-evidence, and then if this (almost libertarian) understanding could be counterposed against other alternatives (welfare statist, and “neo-proceduralist” – such as Takao Tanase’s neo-communitarianism, or Shigeaki Tanaka’s more restrained liberalism). Ramseyer and Miwa (2005b), however, ended up unabashedly providing their own summary of all their arguments that Japan had always remained a classic example of a liberal economy! See also (Ramseyer and Miwa 2004), the Working Paper version whose abstract is cited at the outset to this Part III. 34As of January 2006, his Harvard webpages list 158 publications (via http://www.law.harvard.edu/faculty/directory/facdir.php?id=54), beginning with “Thrift and Diligence: House Codes of Tokugawa Merchant Families” published in Monumenta Nipponica in 1979. 26 papers had been uploaded from around 2001 on the widely accessed SSRN database (www.ssrn.com), giving Ramseyer an “all time” ranking of 23rd equal (out of over 55,000 authors). Total downloads were 4281 (ranked 88th). The pace of downloads is accelerating, with 785 being downloaded over 2005, but this represents a ranking only of 161, so more downloads may be due primarily to more people now using SSRN. An inspiration may be Richard Posner and Takeyoshi Kawashima, the doyen of postwar legal sociology in Japan whose “culturalist” theory (divorced from its nuances) was caricatured and crucified by Ramseyer (1988) at an important early juncture in his career. Certainly he has written about their prodigious output, and their undoubted influence in the US and Japan respectively. 35 Indeed, in his review essay, Michigan economist Gary Saxonhouse (2001: 377) faults them for not finding that the Japanese and US legal systems may be even more similar (e.g. by taking US state court rather than federal data to show even closer percentages of de facto plea bargaining in criminal cases).
21 assembling a comprehensive picture of Japanese law organised, not in accordance with the understandings of Japanese jurists, but instead deliberately “according to the questions that US scholars and lawyers ask of their own law … to enable readers readily to compare how US and Japanese solve common problems.” More specifically, the co-authors use the narrow rational maximiser tenet of economics because they “think classic Chicago-school economic intuition (taken alone and without much elaboration) goes far towards explaining much (not all) law-related behavior in Japan” (Ramseyer & Nakazoto 1999: viii). Over subsequent years, this agenda has become even more ambitious, with Ramseyer setting about to prove that virtually all economic and law-related behavior conforms to this tenet, and hence of course that markets function well and pervasively in Japan. Parallels exist with the projects embarked on by early Chicago School economists like Gary Becker, and Law and Economics specialist Richard Posner (until he had to temper theory to real life following his appointment as a Court of Appeals judge). Like them, Ramseyer basically adopts a ‘one size fits all’ approach to research and analysis. Therefore he starts off by assuming that any alternative claim must be incorrect. The game then becomes to round up evidence that allows him to reach this predestined goal. Any claimed difference must naturally vanish upon examination in the same way that vampires lose their existence under the clear light of day. Ramseyer adopts the typical a priori approach that forms the bedrock of postwar Chicago practice. However, given that Ramseyer represents a late practitioner of the original method and one who freely (and perhaps inappropriately) adopts it without any critical change to reflect the intervening decades, the issue becomes whether his version doesn’t itself self-destruct under the probing light of analysis. To gain notice, or even notoriety, he may be pushing the Chicago tradition at least a few steps too far, to the point where its structure collapses due to the lack of intrinsic economic intuition and perhaps even the coherence of the work pioneered by earlier generations. III.A. Markets Clear – Consistently (Only?) in Japan Consider some more specific parallels with the Chicago School approach, extended to the economy, law and politics in Japan. First, Ramseyer and colleagues (notably controversial University of Tokyo economics professor Yoshiro Miwa) have focused much energy recently on proving that “markets cleared” throughout the Japanese economy not only before World War II (see also Ramseyer 1996a), but also afterwards. This has meant gainsaying even the careful work by a US economist whom Ramseyer once seemed to hold in high regard, Hugh Patrick (2005: 123) – albeit based mainly at Michigan, Yale and Columbia – that had emphasised extensive credit rationing by the Japanese government and its far-reaching consequences for economic regulation and corporate organization generally (cf. now e.g. Miwa and Ramseyer 2004). In particular, for example, it must follow from this revisionist view that main banks also never existed, and that equity finance – and hence shareholders – continued Overall, however, he praises their “attempt to show that the Japanese legal system is consistent with conditions that facilitate efficient economic growth…[finding] that in many significant ways the Japanese legal system resembles at a functional level the seemingly very different American system”.
22 playing the key role in postwar corporate governance.36 These arguments are rather like the bad joke made about (especially Chicago School) economists: if they spot a 100-dollar bill on the footpath, they ignore it because it can’t exist – someone would have already picked it up (McCloskey 1990: 112-3). Similarly, main banks can’t exist because they must represent inefficient arrangements, and firms that recognise broader stakeholders like creditors and employees can’t exist (or will fail) because only those that give primacy to shareholder interests will survive in competitive markets. The game then becomes to marshal data to prove that these deductions hold true.37 Secondly, regarding the broader legal environment for corporate governance, Ramseyer and Nakazoto (1999) also follow the Chicagoan predisposition that “what is, is efficient”, concluding that: Given Japanese economic success, it should come as no surprise that most Japanese corporate [law] rules make reasonably good sense. Only on relatively minor issues are the rules sometimes inefficient. The inefficiency, in turn, probably results from the lack of competitive pressures among incorporating government entities (p.134). These are remarkable claims, and require extensive mental gymnastics and punchy prose to retain even superficial plausibility. For example, they concede that the lack of hostile takeover bids is a “puzzle”. It is only a puzzle given the conventional Law and Economics wisdom prevalent in the US over the 1980s and 1990s, although a wisdom now dented by the excesses of the Enron era. Takeovers (although only after observed to be growing there, of course) are assumed to provide a necessary and sufficient arm’s length market mechanism for controlling incumbent management to the benefit primarily of shareholders, provided legal impediments are limited. Therefore, Ramseyer 36 On main banks, compare Miwa and Ramseyer (2005b) with e.g. Milhaupt (2002). On the importance of equity markets, stock prices and hence shareholders in Japanese corporate governance, compare Kaplan and Ramseyer (1996) and Ramseyer & Nakazoto (1999: 128-135) with the allegedly “wrong” studies by observers such as Ronald Dore, and other developments assessed in Nottage (2001); Nottage and Wolff (2005). 37 This progression is clear, for example, in Ramseyer’s research on main banks. In a chapter in a volume on Japanese main banks co-edited by Aoki and Patrick, (Ramseyer 1994) sets up a series of theoretical reasons why the majority view that they are alive and kicking, playing key roles in Japanese corporate finance and governance, must be wrong. One key argument is that main banks’ implicit promises to help failing firms ought rationally to be made express binding contracts, yet they are not (or at least not litigated as such), so we should conclude that they make no such promises at all. To explain then why we seem nonetheless to see more bailouts by banks, another argument becomes that that Japanese courts have not developed a doctrine analogous to equitable subordination in the US, voiding security interests to punish a major secured creditor who intervened (thus making creditor intervention more common because of being profitable ex post, and hence threats to punish defaulters less credible ex ante). The first argument is very weak given what we know about the pervasiveness of implicit contracts (the real deals) as opposed to express contracts (the paper deals) in many industrialised democracies, but this phenomenon means acknowledging that contracts are made and enforced not just based on a narrow cost-benefit calculus but rather in a much broader socio-economic context (see Campbell et al.. 2003). The second – the lack of an analogous equitable doctrine – is very difficult to prove, as Ramseyer himself acknowledges; but anyway it would not preclude main banks committing to supporting debtors in other ways (or even being virtually forced to sometimes by the government, in exchange for it agreeing to back the banks, which it did – largely implicitly – until the late 1990s: Milhaupt 1999). Despite these weaknesses in the theoretical argument, subsequent regression analyses by Ramseyer claim to have duly proven that main banks not only cannot exist, but indeed do not e.g. Miwa and Ramseyer (2005b), despite different quantitative analysis continuing to show the converse e.g. Lincoln and Gerlach (2004).
23 and Nakazoto must reject the conventional wisdom that hostile bids remain rare due to cross-shareholdings (which would imply that main banks and keiretsu do exist!). Instead, they assert – confessing that they utterly lack data to prove this – that a de facto substitute “perhaps” arises from friendly Merger and Acquisition activity combined with “disguised bribes to the target’s senior executives” (pp. 121-2). The concept of the keiretsu seems to be a particular irritant to Ramseyer who has returned to the subject several times using a number of different variations. To allow any part of common wisdom to stand concerning the keiretsu would be to allow an alternative to competitive markets as the sole form of market efficiency. The solution is to demonstrate that the existence of the keiretsu is a myth (as is so much else of the common wisdom concerning Japan). Ramseyer purports to demonstrate this shameful lack of existence empirically. However his empirics turn out to be more a marketing than a testing tool. His statistical work fails even to meet minimum requirements for such analysis. First, have we devised the correct test? In Ramseyer’s case, the test he performs does not necessarily test the hypothesis he states. He looks at main bank share holding and concludes there is not a preponderance of shares held in a particular group of companies. This ignores the fact that large loans tend to be sold off to several participating banks with the main bank simply taking the lead role as loan originator. Second, is the data employed appropriate for the test? Again, often the exact data needed is not available and proxies have to be used. Ramseyer’s proxies can be wanting, but Ramseyer often glosses over any difficulty. Curiously, he can criticise existing definitions of a keiretsu but then use those faulty definitions as the source for his data. In this way it is difficult to know if the problem lies with the concept of the keiretsu or simply the data employed. Third, are the results of the test being evaluated fairly? Ramseyer here adopts what is one of the more dubious approaches of the Chicago School. The tactic is to push claims to their limit and wait for others to try to knock them down. This is a method that grabs attention but can lack integrity. It’s a sort of a ‘Marines’ approach to Economics. Stigler was certainly one of the leaders of the Chicago School. I think that’s what distinguished the Chicago approach. We take what we do very seriously. And we take it as far as you can (conversation with Sherwin Rosen, November 1997). Ramseyer also employs a statistical strategy that might be called the ‘mego’ approach to statistics, namely ‘my eyes glaze over’ when I attempt to work my way through the volume of statistical tests presented within one paper. The sheer volume of data and statistical tests cause any but the most determined reader to relinquish concerted attempts to examine the empirical work closely. This approach extends generally to all of Ramseyer’s work. Problems in the performance of Japanese markets tend to be attributed to unwarranted government intervention. More generally, the “minor” inefficient rules on the law books actually add up to be many (p. 123). For years these laws have prompted US interests (such as
24 the United States Trade Representative and the American Chamber of Commerce in Japan) to insist on the liberalisation of many of these mandatory rules (e.g. as to share types, transfers, buybacks, minimum capitalisation, decisions by shareholder consent, and choice of directors and/or statutory auditors to monitor management)38. Many have been completely or substantially relaxed as a result of sweeping reforms to Japanese corporate law over the last 15 years (Fujita 2004). Even domestic interests have sought more flexibility within corporate organizations to facilitate the goal of revitalising the Japanese economy (albeit, perhaps, to the main benefit of managers rather than shareholders: Milhaupt 2003).39 And so it goes on, for other areas of law subjected to economic analysis by Ramseyer, dominated by the precept that “what is, is efficient” – and perhaps, in the rare cases where it may not be, can be readily remedied by further market-driven solutions. For example, he remains sceptical about strict liability obligations imposed on manufacturers for defective products by the Product Liability (PL) Law of 1994, in addition to liability under the 1898 Civil Code for negligence in supplying goods. True to his cynicism about legal or regulatory interventions derived from “public choice” theory, the subject of his Coase lecture during his first year at Chicago Law School (Ramseyer 1995), he asserts – again contrary to a much more fine-grained analysis of the Law’s genesis, emphasising the rebirth of consumer power, international developments, and so on (Nottage 2004: chapter 2) – that it was pushed along by manufacturers of safer products seeking to raise compliance costs for and hence keep ahead of their competitors. Yet, at the same time, Ramseyer (1996) argues that some of these manufacturers had already developed a private ordering scheme as a more efficient substitute for strict-liability obligations imposed on all manufacturers40. Specifically, he objects to such PL because “it forces sellers to bundle insurance contracts with the goods they sell. Basic theory, however, suggests that if some buyers want bundled insurance contracts, then in unregulated markets some sellers will offer them” (Ramseyer and Nakazoto 1999: 99-101). The theory behind this is clear. Universal schemes lead to an inefficient allocation of risk between buyers and sellers as well as creating a potential moral hazard problem. When Ramseyer and Nakazoto examine the Japanese situation they find, lo and behold, that this is exactly what Japanese manufacturers did before the PL Law pursuant to the “Safety Goods” or SG scheme (and others) from the mid-1970s. Some firms helped develop safety certification standards set by their industry association, got specific product types certified, then were able to take out insurance against claims for 38 Perhaps economists of Ramseyer’s persuasion would dismiss these US efforts as pure rent seeking – American interests seeking additional and unjustified benefits. Yet, the reforms loosen mandatory rules to allow firms to battle. 39 It is unclear what Nakazoto and Ramseyer (1999: 134) mean by “the lack of competitive pressures among incorporating government entities” as one possible cause of “minor” inefficient rules in Japanese corporate law. Perhaps it refers to the contrast with competition among states in the US, a battle largely won by Delaware, to offer the most flexible corporate law regime in order to attract “business” from corporations. (West 2001) picks up on this point as a reason why Japanese corporate law reform has mostly been driven by external shocks, not internal development; but that explanation does not square well with reforms especially over the last 5-10 years (Nottage 2006). 40 A private scheme must in the Ramseyer world inevitably be more efficient since anything that governments can do, the private sector can do better.
25 product defects (the small “premium” for which is allegedly built into the sale price). This insurance was then paid out (voluntarily) on a strict-liability basis if consumers were able to prove to the association that a product was manufactured defectively (as opposed to negligently). Unfortunately, there are all sorts of problems with this analysis – in particular, the theory sounds plausible, but the empirical foundations are weak in many respects. For example, once again a “puzzle” is acknowledged: over nearly two decades, only 339 claims (averaging 460,000 yen each) were paid out of 727, for over 100 types of products registered under the scheme (Ramseyer and Nakazoto 1999: 104-6). Yet the main reason given for this is that “probably” the scheme, by design, disproportionately covers only the safest products – hence generating few injuries, and few claims.41 If so, then, why do such manufacturers spend time and money to have their products certified and insured? And if the scheme was such an efficient solution, why have so few products been certified, compared to the thousands of purely voluntary standards developed and published by Japanese and international bodies? Equally or more plausible is that the SG manufacturers and the industry more generally supported the scheme as one way to pre-empt the government responding more broadly to widespread safety failures in the late 1960s and early 1970s, by imposing strict-liability in tort or stricter government safety standards. The former was delayed until the PL Law of 1994, and the latter have also remained rare (only six mandatory standards ever imposed under the Consumer Product Safety Law of 1974: Nottage 2005 APLR). This success for manufacturers has come at a small cost, given the limited payouts under the SG scheme. Likely explanations for such payouts, in turn, are that a strict-liability standard was not voluntarily applied, especially for the common cases of warning and design defects.42 Also, manufacturers made little effort to publicise their scheme among consumers. Ramseyer and Nakazoto either fail to mention or simply downplay longstanding concerns expressed in such respects (e.g. Sarumida 1996). This response is predictable because the efficiency of the scheme must turn on it having broad coverage, and being accepted by consumers on the basis of informed consent. No matter, investigators like Ramseyer never let contrary data (or a search in good faith for missing data) ruin a nice theory consistent with the Chicago School belief that markets always work, rendering government intervention unnecessary43. Thirdly, Ramseyer has had no compunction in extending this belief to explain Japanese politics, in its broadest sense. (By doing so, he helps economics live up to the 41 The text also “suspects (the SG system itself provides no data on point) that the SG firms (like the more reputable American firms) handle the most serious product defects outside of the official claims procedures through straightforward product recalls” (p 263 n 92). The year after publication, however, was when Japanese firms belatedly began recalling unsafe products – ranging from foodstuffs, consumer electronics and automobiles – and the public (and the government) realised that Japan’s recall system was not functioning effectively either. 42 Again, in a footnote (n 263), they concede: “The limitation to defectively manufactured goods (as opposed to claims over warning or design defects) is only our inference. Because the council’s deliberations are not public, we do not know how broadly it interprets the concept of defect. 43 Ramseyer channelling the spirit of the Chicago school sometimes utilises an approach to data that might be described as ‘When my facts disagree with what I know to be true, I ignore the facts or find a better set’.
26 unfortunate cliché of being the imperialistic science.) Working now with a political scientist currently posted at Yale, but stationed at UCLA in the early 1990s during Ramseyer’s years there, they have applied “rational choice” theory to ridicule the conventional wisdom that bureaucrats primarily governed postwar Japan. Not content with the growing counter-argument that governance had in fact been or become more diffuse (Abe 1991), Ramseyer and Rosenbluth (1993) argued that it was the conservative LDP politicians – driven solely by the narrow incentive of maximising votes and power – who were firmly in control, with bureaucrats doing their bidding. That early work also hypothesised that Japanese judges would comply with the policy preferences of LDP politicians, since their longstanding tenure undermined any incentive to have a truly independent judiciary. With a colleague from UCLA days (now at Indiana University), helping on the econometrics, he has since engaged in endless regression analyses to prove that this is true. The collected works of Ramseyer and Rasmusen (2003) show that judges who ruled against LDP preferences in selected “politically charged cases”, at least until its fall from power in 1993, suffered poorer careers. Again, there are many difficulties with this analysis. One consistent criticism has been that the courts may indeed have developed a bias in favour of the government but quite independently of the LDP, as a means of maintaining broader public confidence in the judiciary. These critics point out also that Ramseyer and Rasmussen have never even tried to find direct evidence of politicians leaning on certain judges (Haley 2006). Other specific criticism is now being directed at various conclusions they draw from their data (Upham 2005: 428-439). Even if they are largely correct, it doesn’t much help legal advisors or commentators addressing a particular case (even “politically charged”) as regression analysis always deals in aggregates. Nor did those original studies continue much beyond 1993 allowing us to test or guess what might happen next.44. More generally, it is hard to know what other implications to draw from their book besides the obvious. Judges – widely considered to embark on a lower paid and lower profile career out of a true sense of public service – should be treated as being self-interested and even as venal as politicians, bureaucrats, and other socio-economic actors as conceptualised by the Chicago School. 44 Cf. Nottage (2005); Abe and Nottage (2006). Now we have an inkling, of sorts. Ramseyer and Rasmusen (forthcoming) conduct extensive quantitative data to examine how appointments to the Supreme Court as well as lower courts have changed in the wake of the LDP’s loss of power in 1993 and subsequent slow return to coalition government. They find little change to past practices, which in fact is deeply disturbing for their original theory. One “immunising strategy” (as economists call it) to preserve the theory might be to argue that nothing has changed in Japanese politics. In private conversation, Ramseyer had previously suggested that. To his credit, this untenable view is not now pursued. The only real alternative is to switch tack completely, and advance a new proposition: to “obviously speculate” (p. 27) about “issues beyond the scope of our data”, that “the key to the success of the Japanese judiciary probably lies instead in uniformity – particularly, in the uniformity rather the judicial output”, not just their hard work. They concede they lack data on dock clearance rates to gauge the latter, and simply assert for the former that judicial careers are monitored for consistency with precedent, which allows them to reach a broader conclusion: Japanese courts produce predictable judgments economising on litigation costs by facilitating out-of-court settlements. But this strategy raises its own problems. If both factors are so important, then not properly accounting for them empirically in earlier studies surely undermines the conclusions reached. If they are not determinative – and this is certainly arguable given the more substantive approach to legal reasoning shared by both Japan and the US (Nottage 2002) – then this new conclusions from this latest study cannot be maintained, and the original theory therefore loses credibility.
27 Never mind, however. The Chicago-style approach has achieved a growing influence on political science in US circles, and Ramseyer’s theory in this field is too comforting for Chicago adherents to reject despite concerns about the data and their implications. Never mind, moreover, the more circumspect acknowledgement by Coase himself that it may not necessarily be true that: … an approach developed to explain behaviour in the economic system will be equally successful in the other social sciences. In these different fields, the purposes which men seek to achieve will not be the same, the degree of consistency in their behaviour need not be the same and, in particular, the institutional framework within which the choices are made are quite different (Coase 1978: 208). III.B. Believe Nothing Said The second set of parallels with harder-core early Chicago School economics lies in Ramseyer’s disinterest in people’s attitudes or stated intentions, as opposed to “hard data” on their actual behaviour45. Thus, he would not believe bankers or debtors even if they state categorically that they have main bank relationships involving implicit promises of bailouts or other more diffuse characteristics. Nor would he give weight to managers who say they care for their employees more than shareholders. Even industry associations who might concede that they never really voluntarily moved from a negligence to a strict-liability standard in operating their insurance schemes for defective products would receive short shrift from Ramseyer. Or, albeit less likely, he would also dismiss those who might even confess that they never really wanted to publicise their scheme to ensure consumers’ informed consent to the schemes. Nor would Ramseyer give credence to judges who might insist that they tend to rule in accordance with LDP preferences in narrow categories of cases only, or mainly, due to their view that the proper role of the judiciary in their democratic polity is to retain public trust on such points. Nor would he give weight to the assumption that these judges can retain such trust only by heeding the voice of a clear majority of citizens, subject to such decisions being justifiable within the rules and broad principles set out in the relevant legislation (cf. e.g. Hagiya 2004). Also banished would be any contention that to comply directly with politicians’ preferences would risk having the persistently high levels of trust in the judiciary undermined by the much lower and declining public trust in politicians – and indeed the bureaucracy – in contemporary Japan (Schwartz and Pharr 2003). All and any such utterings would be dismissed as “anecdotes”, swamped by quantitative data (analysed statistically using econometric 45 In standard economic models, individuals respond to market forces. They don’t shape them. Stated intentions are apt to be misleading due to the limited comprehension of the actor. The same approach holds within political and legal marketplaces. This approach is made clear by Gary Becker in his evaluation of what constitutes evidence. I don’t think you can talk with restaurant managers, in fact, about such things. You know they are not trained, they know in a certain deep sense, but they are not trained to articulate why things are happening (Conversation with Gary Becker, November 1997).
28 methods) that prove the contrary at the aggregate level, or that remain simply as an intrinsic reflection of mass delusion.46 Likewise, all that counts in explaining civil or criminal litigation patterns are statistics uncovered from the courts and elsewhere, along with the a priori theory assuming rational litigants primarily settle rather than sue if the substantive (monetary) outcome is relatively predictable. Unfortunately, such statistics only seem to be readily available and the outcomes so predictable in the field of traffic accidents (Ramseyer and Nakazoto 1989). Yet this has not prevented the argument from being generalised – in a subtle manner – to explain much other litigation behaviour in Japan (Ramseyer and Nakazoto 1999: 99, 180). To be sure, Ramseyer acknowledges some limits in his study of traffic accidents, but basically puts the burden on others to adopt his precise methodology and uncover contrary “hard data” 47 – even though that may be impossible in a country where there are far fewer tort cases and (partially because of that) less heavy involvement of insurers keeping such data: First, typical or no, automobile accidents are a large part of the court docket in any industrialised society. Typical or no, they are important in their own right. Second, as of the mid-1990s, we know of no one who has collected any systematic data that contradict the conclusions we reach on the basis of these traffic accident data [namely that, notwithstanding the allegedly consensual and harmonious nature of Japanese society, those injured do not ignore the law]. If other disputes settle differently, no one has yet collected systematic data to prove it. (Ramseyer and Nakazoto 1999: 95 [and 99]) Subsequently, however, Tanase (2001) has isolated increasingly more litigious behaviour in traffic accident dispute resolution over recent decades, and added quantitative analysis linking tort litigation partly to the socio-cultural milieu in different parts of Japan. This behaviour forms one basis for his broader neo-communitarian understanding of Japanese law and society (Tanase forthcoming). Quite similarly, to understand disputatious behaviour over noisy karaoke, West (2002) turns not only to monetary factors (to explain especially why claimants seek – free – intermediation by local government officials, rather than lawsuits), but also “social capital” indices and case analysis (to explain settlement behaviour). These more nuanced explanations of Japanese dispute resolution practice also resonate with recent large-scale survey evidence. For example, Tanase (2005: 24-5) found that three-quarters of respondents asked even about traffic accidents – where disputants are usually strangers and ought 46 By backing himself into this methodological corner, Ramseyer cannot really seek out “anecdotal evidence” (e.g. from a long-retired senior judge) to counter Haley’s point that there appears to be no documented instance of an LDP politician leaning on individual judges in politically charged cases, or (more importantly) the Supreme Court General Secretariat when it assigns judges so as to better or worsen their subsequent careers. Instead, he can only assert that conservative politicians achieve these outcomes – “proven” by the regression analyses of career paths – by the Japanese judiciary fearing and anticipating (like good English butlers!) this potential on the part of the LDP. 47 Put more simply in marketing terms: the Chicago approach is to push a theory to its limit, until it verges on self-implosion. The challenge thrown down to doubters is to prove the theory wrong, but by using the tests devised by the theory’s originator. The trick, discovered early on at Chicago, is to be in the position of dictating the terms of debate.
29 therefore have less incentive to build a broader social relationship – still felt more affinity to the idea of the injured party connecting with the tortfeasor by requiring an apology. Only one-quarter agreed more with the idea that monetary compensation was enough. This is quantitative evidence suggesting that apology plays an important role in settling traffic accident disputes – consistent with much earlier “anecdotal evidence” (e.g. Wagatsuma and Rosett 1984) – but it does not fit in Ramseyer’s model. It probably cannot, either, because “apology” is a partly socio-cultural phenomenon that is hard to define and record; and because this survey evidence is only about “attitudes”, which the Chicago School is utterly sceptical about. Likewise, Ramseyer’s model and methodological approach cannot readily incorporate strong quantitative evidence (Ohbuchi et al. 2005) that contemporary Japanese disputants in civil matters more generally reported greater satisfaction from the trial processes they experienced not only as a result of substantive legal outcomes. Greater satisfaction also came from more diffuse “procedural justice” elements (such as parties’ sense of the control they retained over the trial process, or “relational factors” such as the neutrality, trustworthiness and respectful attitude of the judge). Acolytes of the original Chicago School are sublimely uninterested in exploring what we mean by “satisfaction”, or more diffuse determinants that cannot readily be assigned a monetary value and singled out in observed behaviour. This narrow approach manages to contrast even with many other contemporary economists.48 III.C. Ideology Rules Ramseyer’s cynicism about attitudes or intentions, and the optimistic belief that markets consistently work well, are linked to the third feature of the Chicago approach: an ideological commitment to laissez-faire methodological individualism. To put this in even broader context, it is important to realise that Ramseyer grew up in darkest Kyushu as the son of a Mennonite missionary. This may help explain his own proselytising urge transmuted into converting all students (and perhaps practitioners) of Japanese law to the unitary and omnipotent Chicago faith.49 Anyway, soon after Mark Ramseyer completed his MA in Japanese studies at the University of Michigan – an institution with a strong Jesuit history, and later famous for its Japanese studies – he published an article noting some parallels between certain “House Codes” (internal rules) of Tokugawa merchant families and the early Protestant view discerned by Max Weber, linking religious virtue to wealth maximisation (Ramseyer 1979: 218). That perspective may have been reinforced by the combination of political conservatism and free-market liberalism propounded by Ronald Reagan, US president from 1981 to 1989. During this period Ramseyer completed his JD at Harvard (in 1982) and began his academic career at UCLA Law School (from 1986, until his move to 48 Cf e.g. Akerlof and Kranton (2005), on how preferences or happiness can change in institutional settings (discussed by Ross Gittins, “People Capital: Workers Retooled as Insiders”, SMH 11-12 June 2005). Even Saxonhouse (2001: 384) chides Ramseyer and Nakazoto for not adding the more realistic assumption of risk-averseness to their simple model, in which case more information about outcomes will probably generate additional trials – yielding “results entirely consistent with observed Japanese behaviour” as revealed by them for major criminal cases. If that assumption is extended to civil litigation as well, this undercuts their conclusions derived from traffic accident disputes. 49 Several other leading US scholars of Japanese law have instead spread the Christian Word in Japan: John Haley, Michael Young, and Mark West.
30 Chicago in 1992)50. Reagan’s reign revived and reinforced the Chicago School’s concern both with Communism abroad and their welfare-state sympathisers in the US. It also fed through to a significant retrenchment in regulating markets, and reduced access to the courts in civil litigation (e.g. Haltom and McCann 2004). The 1980s and even the early 1990s also witnessed strong growth in the Japanese economy, especially compared to the US. For a Chicago School adherent like Ramseyer, this success could only be explained if Japan operated according to efficient market principles. By debunking conventional views to the contrary, Ramseyer was able to transform Japan into an unlikely ally of Chicago style economics. The ideological backdrop to this stance becomes even more apparent when we see his attacks on New Deal sympathisers from the US during the post-War Occupation of Japan (Miwa and Ramseyer 2004), as well as those perceiving and acclaiming subsequent government-led industrial policy in Japan (Johnson 1982, 1984). Ideology becomes even more obvious when blaming “Marxists” for inventing – as a “monopoly capital” analogue inherently predicted by their own theory – the myth of main banks and the keiretsu (Miwa and Ramseyer 2005a). Since the late 1990s, however, the ideological and normative nature of Ramseyer’s mission has become more apparent, despite his continued insistence – at least in writing – that he is undertaking purely positive or descriptive analyses. The increasingly strident and ambitious assertions may be related to the deepening decline of the economy and ever-more comprehensive legal reforms in Japan over this period. If the system was so efficient, why has it faltered? One predictable response would be to represent these as failures of the macro-economic policy rather than market micro-economics. However, there is much evidence to the contrary (e.g. Lincoln 2003), which explains why there has been so much deregulation and legislative reform. An alternative, more realistic response might be for Ramseyer, like most commentators nowadays (e.g. in corporate governance: surveyed in Nottage 2006a), to acknowledge that Japanese law and the economy in fact had developed many inefficiencies. Then he could urge even more market reforms. Ramseyer might still argue that postwar Japan had been characterised by more free markets and corresponding efficiencies than non-Chicago Schoolers had believed. After all, his insistence that free markets were enormously pervasive seems to be underpinned by some hope that this will make it easier to maintain or complete laissez faire. Yet by pursuing his alternative strategy he risks directly exposing the normative features of his agenda. Further, studies along these lines might even yet uncover “inefficiencies” or other aspects objectionable to a Chicago devotee (like main banks, long-term concern for employees, or a broader social egalitarianism). These institutions are and remain quite distinctive to Japan. The danger posed to Ramseyer’s approach is that they may be justifiable under – and thus support – other schools of economic thought, or be justifiable simply on alternative grounds (providing support for state capacity, even in a deregulating world: Fukuyama 2004). These risks are not worth taking, for Ramseyer, so instead we are subjected to an increasingly comprehensive and total application of 50 Interestingly, in earlier days the economics department at UCLA was viewed as a sort of western annex of Chicago. Two stalwarts of the UCLA department, Harold Demsetz and Armen Alchian, significantly influenced the law and economics movement, and Ramseyer’s own work (e.g. on corporate governance).
31 very constrained Chicago School precepts to the still quite open field of Japanese studies.51 More generally, if you choose to push any theoretical tool or approach too far, it tends to slide into parody, farce or even slapstick. By taking an approach that – even in the hands of the most talented practitioners – has a tendency toward self-parody, the potential for serious absurdity comes when an ambitious academic retains the method and the ostensible objective, but lacks a true understanding of what drives the approach. The program then can degenerate into a pure marketing exercise in which form dominates whatever substance remains. In short, therefore, we must remain not only conscious and critical of ideological underpinnings within the American milieu. We must look more closely into the honne in Japan, as a Princeton historian concluded in trenchantly reviewing what he called Ramseyer’s rational-choice “polemic” on law and economic behaviour in Tokugawa and early modern Japan: Critics of Ramseyer’s approach cannot afford to dismiss it out of hand or invoke culturalist arguments against it, but must rather demonstrate with empirical evidence that however rationally markets operate, they are necessarily constrained by political institutions and their ideological supports. (Howell 1997: 406). IV. Invasion and Resistance At any rate, whether we expect another invasion or not, our views of the human [& Japanese] future must be greatly modified by these events. … it has robbed us of that serene confidence in the future which is the most fruitful source of decadence, the gifts to human science it has brought are enormous, and it has done much to promote the conception of the commonweal of mankind … [But] I must confess the stress and danger of the time have left an abiding sense of doubt and insecurity in my mind. H.G.Wells, The War of the Worlds (1898) Book 2: “The Epilogue”. This paper has identified the close parallels between three key characteristics of much of the Chicago School of Law and Economics, and their fervid application to the analysis of Japanese law through the avalanche of work by J Mark Ramseyer. Given our own training in economics, we can hardly dismiss outright the notion of economic approaches to studying law-related phenomena. We even welcome certain significant strands within the Chicago School itself, notably the “transaction cost economics” founded by Ronald Coase.52 The problem this paper has tried to highlight occurs when ideologically driven theorists within that School, notably Director, Stigler and Friedman, develop consistently fore-ordained conclusions to which they inevitably match suitably supportive evidence. Ramseyer simply extends this approach religiously to an ever increasingly broad swath of Japanese law. 51 More cynically, the need to continually draw attention to his work leads Ramseyer to make ever more extreme claims. He, in effect, is compelled to top his last effort if the repetitive nature of his program is to avoid causing ennui among his readers. 52 See e.g. Nottage (1998).
32 One response is that even others with a bent for economics can lose interest in contesting such studies. Some have found that alternative evidence already undercuts the arguments in certain areas, as with that marshalled by Curtis Milhaupt (2002) regarding main banks. Others see more outright lacunae in Ramseyer’s evidence, which cannot be perfectly filled either way, as with the assertion that voluntary industry association-based insurance schemes against product defects paid out on a strict liability basis before the PL Law came into effect in 1995 (above, Part III.A). Non-economists object to having their research agendas narrowly dictated by a specific view of social science, and what constitutes “evidence” which is open to meaningful debate. Some will find their worst fears confirmed, namely methodology tainted by ideology, while pointing the finger at other approaches and traditions. Those of a hermeneutical persuasion (such as Tanase: Nottage 2006b) will see an extreme Chicagoan approach as instead highlighting the permeability of norms and “facts”, while insisting – ironically – on a strict distinction between the two. Some of Ramseyer’s work (and his conclusions) seems so unlikely that the overwhelming temptation is to dismiss him as just another case of an academic on the make. Unfortunately, such work can create potentially practical problems since it does provide a rationale for politicians and bureaucrats to carry out unjustified ideologically based programs. For Ramseyer this is a conservative policy approach where the private sector is automatically privileged with legal decisions, regulations and enforcement mechanisms reflecting his bias. However, the potential problems would be equally onerous were the suggested policy slanted more to government intervention and regulation. More broadly, taking any approach to an extreme risks making debate and mutual learning quite futile. Extending mainstream Chicago School economics to law in Japan can also rub off on trajectories in other social sciences, such as political science, applied to Japanese phenomena. It can also skew proper assessments of Japan’s current regulatory milieu, essential for effective policy-making. For example, recent reactions to product safety problems (asbestos, defective buildings, and electrical goods) demonstrate a still comparatively strong role for various forms of engagement involving public authorities, rather than leaving matters to private ordering. That is also consistent with considerable “re-regulation” to ratchet up safety, labour and environmental standards in many other countries world-wide.53 But this tendency is unlikely to be appreciated, normatively or even empirically, by those of a strong Chicagoan persuasion. To re-emphasise, economics does offer a valuable form of analysis for any sector of legal studies. But it is no more than an investigative tool. It can become counter-productive if it brings along with it an a priori solution to any and all legal or regulatory problems. In this case the use of economics deteriorates into just another rhetorical strategy. There are fortunately some unintended consequences of Ramseyer’s work. His efforts provide his readers with a valuable object lesson. Economic analysis can be used 53 Nottage manuscript, 31 July 2006, submitted to Griffith L Rev; cf generally Braithwaite and Drahos (2000).
33 to achieve preconceived results. In such cases, economics ceases to be a tool of discovery but instead degenerates into an adjunct of ideological imperatives. Legal scholars would be unwise to dismiss economics as a useful tool for analysing aspects of the law. But these same scholars would be wise to downplay economic analysis that is in reality promoting a pre-ordained ideological objective. Ramseyer’s direct influence on policy-making in Japan appears so far to have remained minimal, despite his laudable efforts to reach out to the nihon-ho world by publishing some works in Japanese. By contrast, his work certainly served as a major catalyst in revitalising the field of Japanese Law in English since the late 1980s, and Japanisches Recht more recently though to a far lesser extent. The Chicago approach to Law and Economics has always retained a remarkable ability to formulate revealing questions, even if their subsequent answers have sometimes seemed overly contrived. Simple “culturalist” approaches are no longer academically credible, and increasingly rare even among non-academic commentaries on Japanese law. New syntheses of historical, sociological, political and economic approaches are emerging.54 As those studying Japanese law are forced to engage with more disciplines, greater scope is created for truly interdisciplinary work. Even those working predominantly as economists need to keep sharpening their methodological tools, and digging up new mines of data, to engage with Ramseyer’s deliberately provocative work. And perhaps one of his most enduring legacies, as it has been with several Chicago economists, is the improvement in prose style expected of all those now active in the field of Japanese law. Hopefully, after almost two decades of reassessments and discussions at various levels, life will go on and a War of the Worlds may yet be averted. As the Romans put it, though: Si vis pacem, para bellum – if you want peace, prepare for war! 54 See generally Abe and Nottage (2006); and more recently e.g. Feldman 2006a and b) [Tuna; also Tobacco].
34 References
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