In Section 4.1, we saw that predominant intercorporate stockholdings in Japan have given rise to two types of corporate groups: capital-keiretsu, or subsidiary groups; and former zaibatsu, or financial keiretsu. In this chapter, I focus on the transactional aspects of these two groups. In dealing with the first type, however, I concentrate on a special class of capital-keiretsu characterized by a particular transactional feature, that is, the subcontracting group, which is a stratified, quasi-permanent group of suppliers subcontracting to a major manufacturer.

The bargaining game analysis in Chapter 5 suggested that the coalitional firm tends to limit the size of its employment in order to protect the vested interests of its incumbent employees. I have called this phenomenon the “dilemma of industrial democracy,” because the voice of incumbent employees is enhanced within the firm to the detriment of outsiders' interests. I have argued that this dilemma is manifested in the J-firm in the form of differential employment status (such as that of part-time workers) and have hinted that, to some extent, the increasing hiving off of subsidiaries and reliance on subcontractors by the J-firm may be a similar phenomenon. This may sound like the old dual structure hypothesis: Large Japanese firms exploit their monopsonic positions to make use of smaller subcontracting suppliers as a business cycle buffer.

But the subcontracting group formed by the major contracting firm and its satellite supplier firms is a complex economic institution.