The analysis in Chapter 2 has suggested that despite poor economic performance, institutional change in the Japanese business system since 1990 has been limited. My argument in this chapter is two-fold. First, on average and all else equal, the rate of institutional adjustment in the present era tends to slow with the degree of societal coordination in the business system and thus in adjustment processes. Formally defined, societal coordination represents the organizing of economic activity and the building of economic institutions through non-market interaction and cooperation of actors (cf. Hall and Soskice 2001; Streeck and Yamamura 2003). Societal coordination is more encompassing than formal regulation in that it also occurs voluntarily, without the involvement of government, and often informally. For instance, the phenomenon of yoko narabi already discussed represents voluntary informal coordination of activities such as investment. No regulations are involved, except in the sense that no regulations exist that prevent this type of behavior.

All advanced economies feature at least some degree of societal coordination. Government rules and regulations, for instance, are typically the result of coordinated action to erect or revise institutions. There is a difference, however, in degree, with some countries leaving relatively more room for market forces while others prefer higher degrees of coordination. In keeping with the literature (Hall and Soskice 2001), I refer to the former as liberal market economies (LMEs) and the latter as coordinated market economies (CMEs), though I am conscious of, and will take into account, considerable variation in coordination within these categories.