March 9, 2012
by Annelise Riles
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One year after Fukushima, where are we?

A year after the earthquake and tsunami, and the nuclear disaster at Fukushima Dai-ichi nuclear power plant that followed, the crisis is most definitely not over.  With almost 16,000 people dead, and almost 4,000 still missing, and many people still living in shelters, the victims and the problems extend far beyond those counted in these already staggering statistics.

First, despite the government’s claims, many people still question whether the nuclear reactor at Fukushima, and the leakages from it, are really yet under control.  Second, the cleanup of the radiated area is barely beginning, relative to the size of the job.

Beyond all this there is the economic toll on the country as a whole. Think of the fisher people who can’t make a livelihood because waters are contaminated, the farmers who can’t sell their livestock (and in some cases have unfortunately resorted to duplicitous tactics to sell food products that don’t meet the government’s already weak standards anyway).  And then there are the many farmers who are not even in affected areas of the country who nevertheless are suffering enormous losses because foreign consumers refuse to buy their products thinking that anything from Japan must be dangerous. There is no plan for compensation for this latter group at all yet, as far as I know.

And the economic effects go far further. Think of the consequences of mandatory reductions in energy usage by factories all over the country.  Think of the financial hit that the holders of TEPCO (Tokyo Electric and Power Co, the company that owns Fukushima Daichi) bonds have taken–and these bond holders, by the way, are everyone: TEPCO had special dispensations to issue large numbers of bonds, and at the informal urging of government, all the big banks, many corporations, many private individuals bought them, and bought shares in the company which are even more worthless than the bonds.  And then there is the effect of a crisis like this on consumer confidence and spending.  We could go on and on.

But one cost that has not been adequately discussed in my view is the human psychological cost of all of this uncertainty.  Imagine what it is like to be a mother, buying vegetables every day at the grocery store and asking yourself, “are these really safe for my child to eat?” and the answer is always the same–who really knows? It depends on which expert you ask.  Imagine the exhaustion older people experienced,  coping without electricity at unpredictable times of day due to rolling blackouts mismanaged by the company, or the stress of office-workers stuck on unthinkably crowded train platforms (or worse yet, inside unthinkably crowded trains) as due to reductions in train service to conserve energy.  All these anxieties, these new forms of stress on a population already stretched to its psychological limits has had its toll–a 20% increase in the suicide rate in the last year, an increase in divorces, in behavioral and developmental problems among children and even physical illness linked to psychological causes.

If there is a sad lesson to be gained from this situation, it is that even in a comparatively rich country like Japan, there is no easy solution to this kind of crisis, no matter what the experts tell us.  I wonder if those of us with similar nuclear power plants sitting on earthquake fault lines in our own countries have fully considered the bargain we have made: do we really understand what the costs of a disaster would be? And do we really have a good reason to believe our own experts when they tell us, just as the same experts told the Japanese public, trust us, the unthinkable will never happen?

March 7, 2012
by Annelise Riles
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Launching Meridian 180

One of my early memories of my childhood in 1970s France, with summer vacations in the Midwestern United States, crystallizes why I am an anthropologist, and what I see is the hope of comparative and international law. The memory  is in two scenes. In the 1st scene,  my 4th grade social studies teacher is teaching us about America. America is a country so polluted she tells us that on every street corner are meters that look like parking meters. When a certain alarm goes off, everyone grabs their oxygen mask from their handbags put the quarter in the parking meter like machine, obtains a dose of oxygen and wears the mask until the sirens tell them that it is safe to remove them. The other students are fascinated, and I go into internal tangles. Should I try to protest that this is utterly false? Should I try to point out that the image of selfish hedonists the teacher is painting does not correspond to anyone I personally know? no, everyone is enjoying the story too much to care.   In the 2nd scene a few months later, I join a bunch of American kids on the playground as they throw rocks across the puddle, declaring that  we are quote bombing France unquote. What follows is a chain of stereotypes of French people explaining why they deserve to be “bombed”, all negative of course, and presumably all drawn from popular media sources since none of these kids have ever been to Europe. My own recollection of all these episodes is not so much outrage as utter confusion: how can people I like and respect have so little awareness of how little awareness they have? As I grew older, of course I had plenty of opportunity to learn how that same question applied in so many ways to myself and my own myopias.  The blinders become fancier, more professional, more technologically sophisticated, more entrenched in complex institutional and cultural relationships, but just as hard to notice, let alone remove, as on that fourth grade playground.

A year ago this week, Japan was hit by them massive tsunami and earthquake, and also suffered one of the worst nuclear crises in history. In the terrible days after that incident, as each of us reflected on what we could contribute, some of us began to think that perhaps we  also needed to confront our own personal and professional and cultural myopias,  and  to find new ways to build relationships that would help us think in new and hopefully more transformative ways about the policies and choices of our societies. We wondered if understanding better how, for example, our own policies look for the point of view of another society, might help us to avoid disasters in the future, and also how we might find ways to work closely on problems that are transnational in character.

The question  of course preceded Fukushima: many of us had a longstanding sense that the intellectual conversation across the Asia-Pacific Rim region about law and regulation broadly conceived is far thinner and less substantive than it could be, and needs to be to satisfy the needs of the current moment. In thinking about the causes, it seems that some obvious ones are persisting language difficulties and difficulties reading and writing in particular, the problems and costs associated with getting very busy people to be able to spend substantial amounts of quality time together so that they can reach a deeper understanding of one another’s positions, and some degree of lack of comfort or trust.  And perhaps among some colleagues a lack of a sense that the conversation is worth investing the large amounts of time that it requires in current formats.

At the same time, many of us feel that the existing venues and formats for serious intellectual discussion are not satisfactory.  How do we encourage a far more substantive dialogue between different forms of disciplinary expertise and between thinkers in different societies?

Beginning in March, 2011, we began to pull together a special group of visionary thinkers–scholars, policy-makers and professionals–and to address some of these communication difficulties by creating a closed, online platform where people can write in their own languages and have their text translated within a short period of time by postdoctoral fellows.  Two Postdoctoral Fellows (one Japanese speaking and one Chinese speaking) are available to take any projects, research questions, or interventions that might surface out of these conversations forward. We called  this emerging conversation and community Meridian 180, after the anti-Meridian, or international date line, that divides the Pacific.  The goal of this project is to invest in the cultural and intellectual infrastructure for the next generation of trans-Pacific relations.  Through a long-term multi-lingual conversation, the project seeks to make connections and facilitate the development of relations of trust among individuals who together have the capacity to generate the new ideas and to lead the publics in their respective societies to face the significant challenges of the current moment.

Meridian 180 is a project of the Clarke Program in East Asian Law and Culture at the Cornell Law School.  It is a non-profit, non-political project funded through private donations and with support from Cornell Law School.  It is comprised of Senior Fellows and of Members in law, the academy, private practice and policy circles who meet regularly via an on-line platform supporting multilingual conversation, as well as periodically in face to face conferences.  Ideas that emerge from these conversations are then incubated and developed, with the help of Postdoctoral Fellows based in Ithaca, NY, into forms in which they can make a difference in each individual society–ranging from policy papers to academic books, blog entries, and individual conversations with policy makers.

Our current forum, “How can we bring closure to crises,” marks the anniversary of the earthquake and tsunami in Japan by reexamining this particular disaster and reconstruction project from various perspectives and by putting the issues in the context of other similar disasters around the world.

After a year of work, we are thrilled that Meridian 180 is now finally official! We still have many challenges, from finding long-term sources of funding to finding a way to convince busy elites to make room in their minds and their schedules to broaden their own cultural and disciplinary horizons.  But what is really encouraging is the progress we are making on complex legal and policy questions like “what is the scope of privacy rights in the digital age?” or “what is the role of the central bank in today’s markets?”  What is even more encouraging is the commitment many of our members have to the project and the sense they have that it serves a purpose in their lives.  For more information please see here.

March 5, 2012
by Annelise Riles
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Japan One Year Later: How Can We Bring Closure to Crisis?

This coming weekend, at Cornell, we will be holding a very special conference. The conference marks the one-year anniversary of the earthquake and tsunami and subsequent nuclear crisis in Japan. The title of the conference, which will bring together economists, lawyers,
anthropologists, policymakers, literary theorists, and many others from Japan, the US and Europe, is “How can we bring closure to crisis?”  The program is here: http://meridian-180.org/3-11-2012_symposium_schedule

As many of you know, the events on and since March 11, 2011 have had quite a profound impact on me personally and professionally. It’s no exaggeration to say that my own vision of my scholarly and professional mission, and even of what is important in life, has been transformed by the events of the year ago. This conference will offer a chance to reflect on the enduring policy questions but also the more personal aspects of all of this, and also to consider what we had his academics and professionals can do to address the continuing political, economic, environmental crises of the moment. If you are in the Ithaca area and have an interest in attending part or all the program, please let me know. You would be more than welcome.

June 20, 2011
by Annelise Riles
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Japan: The country that can’t cooperate

There was a truly saddening story on the front page of the New York Times on June 13 about events surrounding the Japanese government’s response to the Fukushima crisis in the days immediately after the earthquake. Prime Minister Kan rightly mistrusted the nuclear industry and the government’s own nuclear experts, the article says, and hence relied upon a small group of close advisors, none of whom had expertise in the problem. The officials in the relevant
government ministries with material information that could have saved lives didn’t bother to try to get this information to the Prime Minister because, they said, he didn’t ask for it. The company hid information from the government. The academic experts obscured the issues. According to the Times, these people only started actually speaking to one another when the Americans came in and demanded information–and hence they all had to get on the same page about what to tell the Americans at their daily briefing. As I was discussing this over lunch with a senior bureaucrat today, he sighed–Japanese are people who don’t take any responsibility. And indeed, the only person (save perhaps the Prime Minister and his crew) who took any personal responsibility in all of this to do what they could for the welfare of their fellow-citizens was the manager of the Fukushima plant, did so by actually disobeying the orders of his superiors (and thereby probably saved many lives).

We often think of Japan as a country in which people know how to cooperate, and indeed the foreign news media has been full of wonderful stories about how much cooperation there has been among the citizenry in the aftermath of the earthquake. But at least at the policy and corporate levels this was a case of failed cooperation of an almost unthinkable magnitude with disastrous and enduring consequences.

Although readers of this blog know I am a big defender of Japan against Western stereotypes of all that is wrong with the place, I have to say that the Fukushima incident has given me pause. Japanese may be able to cooperate in certain settings–they know how to work together within the family or the company or how to line up for the subway–but what does this disastrous failure of cooperation and lack of will on the part of politicians, bureaucrats and corporate executives to sacrifice for the public good, or at least take responsibility to do all they can in this case, say about the Japanese cooperative ability? What kind of response is it, for a ministry bureaucrat questioned by the Times as to why he did not inform the Prime Ministry that they had a warning system available to let the public know the radiation risks they were facing and thus possibly avert tens of thousands of future cases of cancer, to say “well, he didn’t ask”?

My own country certainly has its sickening examples of government officials failing to live up to their public responsibilities or work together collegially. But in Japan too, perhaps, there is a need for some serious reflection on how to build a more cooperative culture.

June 14, 2011
by Annelise Riles
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A Japanese Perspective on American Markets

There is an old stereotype of Asian markets that goes like this: Asians don’t really have capitalism, they have relational capitalism. Relationships are what matter first in Asia.  And then the standard critique follows: and that is why their  markets are inefficient, because they care too much about relationships.

In this light, I found the following observation by a Japanese lawyer over dinner the other night about what is wrong with US markets deliciously challenging to the standard dogma: Why, he asked me, when Americans meet in the market, do they insist on pretending they are friends? “When I hire a taxi to take me from point A to point B,” he said, “it is because I want a ride, not a conversation.  Why do I have to engage in the farce that what I am really after is a chat about the weather with the driver? Or when I go to get my haircut, it is because I actually want a haircut.  Or if I want to buy a sandwich, it is because I am hungry, not because I want to make friends with the waitress.  I talk all day long for a living, and yet I find that in America in addition to paying a fee you get charged another kind of charge–you have to do the work of making small talk too.”

He has a point–we Americans seem to need to dress up our capitalism as if it were relational capitalism.  In Japan, at least, in contrast, when you pay for a service, you don’t have to pretend the seller of the service is your new best friend.

June 3, 2011
by Annelise Riles
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An Episode in Japanese Markets

Yesterday I had an adventure that exemplifies some of the enduringly unique aspects of the Japanese market.
I left my office at 5:30 pm and took the thirty minute subway ride to Aoyama for my evening dinner appointment.  I arrived in Aoyama thirty minutes early and so settled into a cafe with a cappuccino to pass the time. Thirty minutes later I went to pay, intending to scoot right on to dinner.  That is when I discovered that I had left my wallet at the office.
First, I need to explain how this mistake was even possible. After all, in New York or Paris, without a wallet you wouldn’t get far.  But in Japan, virtually all transportation costs, from the subway to trains to buses and taxis, are settled through an electronic card called a PASMO.  You can pay for all kinds of other things with PASMO too such as purchases at convenience stores. It is a very advanced system backed by a legal and technological infrastructure that is years ahead of anything in the US now. But unfortunately for me my PASMO was not accepted at the coffee shop nor at the restaurant where I was heading.

So what to do? I summoned the waiter and apologetically explained my predicament. I expected a furious response but he showed not even a hint of concern or annoyance.  Just pay me later, he said. Can you imagine a New York waiter having that kind of trusting and generous reaction when faced with a customer he or she had never seen before? I gave him my business card and left.

I phoned my business dinner appointment and again profusely apologized for the fact that I was going to have to borrow money from him despite the fact that I was due to be the host. No problem he said. He had the equivalent of $600 in cash with him so he could cover it. Not a credit card, but a huge amount of cash was going to solve the problem. This was possible because Tokyo is relatively safe enough from theft that people don’t worry about carrying around that much cash. And so my friend’s usage of cash also reflects the weak power of credit card companies over consumers relative to the United States.  If you pay cash you don’t have the temptation to go into debt over ordinary indulgences.

When my colleague arrived for dinner he joked, “but is your wallet safe on your desk?” I realize it doesn’t sound like a joke at all to American ears.  On the contrary, if I were in New York or even in Ithaca this concern would have been a serious part of the dilemma I was facing. Would my wallet still be sitting on my desk in the morning when I went to retrieve it?  But we both understood that this was not something I even needed to worry about. As we finished dinner I borrowed some more cash from him and we stopped by at the cafe to pay my bill from earlier in the evening. The waiter wasn’t the least bit surprised to see me, and gave me back my business card.

The final episode in this adventure happened early the next morning when I went back to my office to retrieve my wallet. I needed to meet my dinner partner from the night before  at 9:00am on the other side of town for an academic conference and wanted to repay him the $500 or so cost of dinner. But my bank–actually not a bank but the local post office in fact–did not open until 10:00am. What to do? I simply walked into the convenience store around the corner, put my card in the machine and withdrew the cash. For this I was charged a fee of approximately US $3.00 I bought a nice envelope, since it would be gauche to hand over cash without an envelope, and headed back to the subway.

Japanese convenience stores, open 24 hours, on almost every street corner, are magnificent consumer centers. You can buy all kinds of things there from deli meals to airplane tickets to cell phone contracts to a clean pair of underwear. Young people have started using them for their banking needs more than banks themselves because you are never more than five minutes away from one and you can do your business at any time of day or night.  Of course it did cost me something. But not more than what I would have paid to use another bank’s ATM in the US and I doubt that I could have withdrawn that much cash at most ATMs.

All in all, as a consumer I have to say that this incident was unbelievably low hassle relative to what I would expect at home. In fact you could say that my whole foolish mistake was enabled by how convenient it is, say, to purchase transportation services. I should add that my encounters with service providers at every step, from the waiter in the cafe to the automated cash machine in the convenience store, were courteous, helpful and respectful. No surly staff or incompetent bank employees in a telecenter.  For me at least, this all counts for a positive aspect of a market.

May 30, 2011
by Annelise Riles
0 comments

The Nightmare of Transparency

In a recent Business Week article, Hernando de Soto is once again peddling his simplistic view of property rights as the path to pure market transparency. He argues, to considerable journalistic and popular acclaim, that the problem with derivatives markets is simply that property rights are not sufficiently well defined and standardized.  Bring in good old fashion property law and related tools such as title registration, he argues, and the markets will magically clean up.

As I discuss at some length in my book, the proposal is preposterous from the point of view of anyone who knows anything about property law. Property rights are never clear in the way that non lawyers imagine them to be.  As I show with regard to actual cases of property claims in the derivatives markets, as is the case with ordinary property rights, there is tremendous room for interpretation, confusion, conflict and gamesmanship within the language of property law.

De Soto should know better.  He claims to have come upon his insist through field research, and I would venture that even a few casual conversations with any legal expert in the derivatives markets would reveal how property sets the stage for conflict of a different kind rather than bringing pure clarity to things.  But since I have laid out the problems with De Soto’s claim that property achieves transparency in the book, let me ask a different question instead: is transparency tout court always a good thing?

One of the painful rituals of daily life in Tokyo at the moment is the daily review of government statistics on radiation levels.  In response to complaints that it was not sufficiently transparent about radiation risks, the government is now drowning us in numbers.  There are readings taken by each city, each prefecture, and by the national government for each city and prefecture.  There are numbers for each kind of radiation–cesium, iodine, and so on.  Of course the numbers produced by the national and local governments rarely match up.  And we are given no explanation of these numbers since that would be the biased view of government officials–it is just purely transparent information. Truck loads and truck loads of it.

So we the citizens are left to ask ourselves every day how we translate these numbers into an answer to questions like, is it safe for my four year old to play outside today? Is it safe for me to drink the milk or the water? What are the odds of my dying of cancer as a result of my exposure to the rain this summer? And so on.

My husband and I both have PhDs in social scientific subjects and are used to working with data. And yet the deeper we try to dig into these numbers–to compare them for example against the safety standards set by international bodies–the more confused things become. First, it is as if just about every international organization, and every local data collecting body in Japan, has its own system of units.  Conversion between these units turns out to be basically impossible as they are apples and oranges, measuring different things. But some of the problem is simply the violence of probabilities. Learning for example that exposure increases cancer risk by a certain percentage tells you nothing about your own situation since it is based on averages, across global populations (is the average nuclear victim an eighty year old Swede or a twenty year old Bangladeshi?).  And in the case of nuclear accidents we have so little data anyway that those probabilities are probably best described as guesses.

But even though we know that these numbers tell us next to nothing, we can’t stop ourselves. The information is there, it is transparent, so we feel almost compelled to enter into it. Its analysis becomes the daily ritual of our worry.  Did iodine levels go up or down compared to yesterday? And what does that mean, anyway relative to how much iodine our child absorbed, or how much he can absorb?  Every day this analysis of the numbers ends with the same sick feeling in the stomach of total confusion, total lack of clarity about an issue of paramount importance to our family. I experience this daily ritual as its own kind of political violence.  It is as if this absurd cacophony of purely ordered data is taunting me, leaving me all the more exhausted and demoralized.

Now I realize this transparency nightmare seems quite far away from the wonders of property law de Soto would prescribe for the derivatives markets. Yet it is not so different in fact.  After all, market transparency, which is what he advocates, is just a matter of the availability of data. If the data is available, the theory goes, some smart people will make sense of it all. And yet data itself is only meaningful within a framework.  Our problem is that we lack a framework for analyzing the numbers because the people who produced the numbers themselves also lack a singular and coherent framework.  In that situation, the consumer of transparency is saddled with the absurd burden of making meaning–making something standard and comparable–out of what by definition is not standard.  This is often the case in the derivatives markets as well.  In the derivatives markets traders often dodge the pure impossibility of the task by just doing what everyone else is doing–using the same model, the same pricing tool as the next guy, even if we all know its limitations. That is called a herd mentality and we have seen its disastrous effects.

April 21, 2011
by Annelise Riles
0 comments

Raising questions about close-out netting

stock market chartEarlier this month, Stephen Lubben at Dealbook posted an interesting piece querying whether there may be hidden costs associated with giving banks huge breaks in their capitalization requirements under Basel III for close-out netting, the clause in the ISDA master agreement that provides that under a long list of specified conditions such as bankruptcy, reorganization, nationalization and so on, one of the parties to a swap transaction can demand that the two sides close out all their obligations and net them all out.  As I explain in detail in my book, Collateral Knowledge, the reason the parties want to do this is that under modern bankruptcy law, even if Bank A cannot pay Bank B because it is bankrupt, Bank B is still obligated to pay Bank A.  If the two sides have netted out their obligations though, the amount Bank B owes Bank A in this situation will be much less–it’s obligation minus whatever Bank A owed it but couldn’t pay.

One chapter of my book is devoted to the events surrounding the passing of a Netting Law in Japan that would guarantee that netting was enforceable.  At the time, ISDA, the International Swaps and Derivatives Association, was busy pushing such laws through in every major jurisdiction in which derivatives trading occurred. And as Lubben says, everyone in the industry asserts that netting is a universal good. In fact, in the entire period of my research I never heard a single person–not a regulator, not a market participant, not even an academic specializing in derivatives–suggest that there were any possible costs associated with netting. But as my research progressed I became increasingly curious about some of the possible costs. Indeed, ISDA’s furious drive to get netting laws passed all around the world suggested to me that someone at ISDA had to believe that there were at least some judges out there who, faced with a case about the enforceability of close-out netting agreements, might see enough costs there to decide to hold the agreements unenforceable. And yet when I queried people about these issues–even people without a direct pecuniary stake in the matter such as academics and bureaucrats–the question was just dismissed again and again as completely out of left field.

Lubben focuses on one possible problem with close-out netting, the fact that the parties can invoke the clause under the contract for a laundry list of reasons, not simply for actual bankruptcy. His concern is that “letting everyone rush to the exits in time of financial crisis” increases systemic risk.  I am not sure if this is as big of a problem in practice as it appears to be on paper.  My research documents numerous occasions in which parties could have invoked the terms of the netting clause but chose not to do so for a variety of interesting and complicated reasons relating to their calculation of what was in their long term best interest. One of the things I try to do in the book is to show how distant law in the document may be from law in practice in the financial markets and this is an example.

However I have another kind of concern about netting agreements. What I think Lubben is really getting at in his comment is that they run an end game around national bankruptcy laws. This means not only that the parties get to liquidate their agreements for reasons that would not be valid under the bankruptcy law but also that in cases of real bankruptcy or reorganization the parties get out of the rules governing who gets paid first. Under the bankruptcy laws of every country I know, swap counter parties would be close to the end of the line of creditors to be paid in bankruptcy.  In other words citizens, through their legislatures, have decided that when there is not enough money left in a bank to pay everyone, others–secured creditors, employees, and so on–should be paid first. Moreover if you compare the class of creditors who would be paid first with the average class of swap counter parties you will find that the former are more local–employees, landlords, tax authorities–while the latter are far more likely to be offshore. But yet netting says forget all that, swap counter parties’ claims come first, before we even get to the bankruptcy priority list. No wonder ISDA members were worried some judges might not see things their way.

And yet in Japan where I did my research there was absolutely no public debate about the netting law. No NGO took up the issue; no bankruptcy law professors raised any concerns; the opposition did not even raise any questions about it. Perhaps it is not too late, in the context of Basel III, to simply begin to ask whether the benefits to market stability entailed in netting really do outweigh the very serious social costs. That would require at least beginning to recognize what those costs are however.

February 22, 2011
by Annelise Riles
1 Comment

When Companies are Households

The scandal pages coming out of Hong Kong this month are full of intrigue about disputes among family members and various other possible “significant others” over the estate of tycoon Stanley Ho.  The Financial Times’ story on all this basically suggested that mixing family and company was an Asian characteristic, and not a particularly good one at that.  The point was that Asian companies need to separate business from family matters, and to separate the economic interests of each family member from the other if they are to succeed.

You hear this conventional wisdom from European and American experts all the time. In order to succeed, Asian companies need to make their companies look and function just like Euro-American ones.

Really? Now that two out of the three largest economies in the world are in Asia, perhaps it is time to consider European conventional wisdom on what a good company looks like. First, it is not as though shareholder governance always works out so great, as the recent financial debacles in the West have taught us.

But more importantly, writing from Tokyo at the moment, I am repeatedly struck by how much energy, creativity and real economic productivity resides in family-owned companies in this country (what the government euphemistically refers to as small and medium sized enterprises, even though some are actually enormous–as if it were an embarrassment that these companies are also families).  The open secret is that more than 90% of Japanese companies have the majority of their stock held by relatives.  More than 70% of Japanese employees work for such a company, and this does not count the unpaid labor of family members–the spouse who keeps the books, the son who manages the factory floor and so on.

I personally think this is a good thing, not an embarrassment at all. When I get depressed about the lack of innovation in large Japanese institutions–universities, companies, government–I have only to turn to the local restaurant or convenience store or florist to see examples of truly awe-inspiring creativity, intelligence, and perseverence under very difficult economic conditions.  When I get furious at the lack of women and young people in leadership positions in this country, I only have to go around the corner to see how the mom and pop owners of my local stationery store work side by side with their daughter and son-in-law with dignity and mutual respect (and of course the occasional screaming match).

What worries me, rather, is the way all this talk about needing to turn your family business into a “real” company with fancy financial investments and complex ownership structures is having disastrous effects on those who listen. One of the saddest chapters in the recent financial crisis in Japan has been the bankruptcy of so many such family businesses due not at all to poor performance in their business but to their investment in complicated financial instruments that the large banks convinced them they needed.

These companies do have very different economic challenges–one of the principal ones being what to do about succession when the founder or chairperson dies or retires, leaving behind either too many possible heirs or no heirs interested in the family business at all.  But what about the problem that worries the Financial Times so much, about people’s interests being mixed up with each other? Well, this is a problem in Euro-American shareholder governance as well, of course.  And there is no denying that in life in general, and not just in economic life, Chinese and Japanese people sometimes complain about the burdens that come with being so intimately connected with other people.  But there are advantages as well as disadvantages.  The Financial Times does not seem to recognize that the same sense of mutual connection that makes dividing assets difficult at death makes funding a startup relatively easy.  And many of the problems that plague Western companies–problems about how to align managers’ interests with the interests of shareholders–are hardly problems at all when the manager is the daughter of the founder.

And we might query whether Euro-American capitalism is really all that different, or whether the difference is rather one of degree. Many very successful public and private companies in the US and Europe are also largely family owned–from major newspapers to leading automobile manufacturers.

There are real issues here for policy: these companies are largely neglected by government policies long aimed at supporting the big industrial players.  It may also be that too many bureaucrats, trained in the West, are enamored with the Western model and not all that interested in how things work in their own country.  The company laws on the books in Japan for example–borrowed largely from American and European corporate law–don’t fit these companies’ needs or challenges very well.  Thinking about the economy as basically a bunch of household enterprises, incorporated formally as corporations, should cause us to think differently about a whole range of regulatory problems, from labor rights to the promotion of innovation to access to capital and taxation policy.  It also suggests the need for lots more research–we know surprisingly little about how these families/companies work, what role gender, and marriage, and inheritance tax, and social class, and immigration play in their fortunes and strategies.  We know too little also about how they globalize–how they set up operations overseas, and what contributes to success or failure.  And this all suggests the need for a much broader range of methodologies and specialities–notably anthropology and sociology, which have long traditions of expertise in kinship and social organization.  But the first step may be simply to recognize the obvious: so much of markets is really about households and families.

December 15, 2009
by Annelise Riles
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Regulatory Compliance in the Global Financial Markets: What is it? How do we get it?

On December 10, Annelise Riles gave a presentation on the lessons of anthropological research for global financial regulation at the US Treasury Department. Here is an outline of some of the key points of her presentation.

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