Atrophied Embeddedness: Towards Extending Explanation of Japan’s Growth Slowdown

Abstract

The economic sociology concept of embeddedness represents a valuable conceptualisation for the incorporation of social network interaction into economic theory. This paper utilises embeddedness as the theoretical underpinning to provide a complementary and supplementary explanation to standard economic explanations for the slowdown in economic growth in Japan in the 1990s. It puts forward a new variant of embeddedness—‘atrophied embeddedness’, to argue that embedded ties can become too entrenched, hindering competitiveness and compromising economic growth. This notion of embeddedness is demonstrated in relation to Japan. The paper examines the operation of embedded ties in four key areas of the Japanese economy: inter-firm interaction with an emphasis on the autoindustry; embedded relationships within the financial sector; networks in the internationalisation of firms and embeddedness between government and business, including a case study of the construction industry. It argues that while embedded ties have several advantageous facets, they also have the potential to be an impediment to growth, flexibility and adaptability to change. Network ties can expand and become so rigidly structured, as to become obstacles particularly in the face of changing economic circumstances.