Political and Legal Systems: Impact on Business



Chapter 3 – Politics and Business

CultureQuest End of Chapter Case

Japan: More Laws, Fewer Lawyers

The Japanese political and legal system presents a complex picture. On the one hand, Japan is a democratic state, with strong civic and legal institutions. On the other hand, the country has characteristics of nondemocratic systems. It is a democracy yet just one party, the Liberal Democratic Party (LDP), has run the country almost continuously since the end of World War II. Japan is highly bureaucratic as well. Decisions affecting national policy are often made by ministries with substantial power and influence and ties to business and industrial groups. As a result, it is often said that Japan lacks the pragmatic approach to change that is common in Western democracies, and this is seen as contributing to Japan’s extended economic malaise.

To most foreigners, Japanese politics may appear somewhat puzzling. Policy does not seem to change regardless of who is leading the country, and, in fact, that’s the argument the person in the street gives when asked about his or her lack of interest in politics. “Why bother, nothing changes.” Actually, most legislation isn't produced by the members of the Diet but by ministers and bureaucrats.

The policy-making process in Japan is more similar to the parliamentary systems of Europe and contrasts with the American system, in which presidential appointees attempt to exercise control over branches of the bureaucracy on behalf of the president. It's not uncommon in Japan for the influence and power of a Japanese ministry or agency to outlive the reign of a prime minister, as evident in the powerful Ministry of International Trade and Industry, better known as MITI.

Not surprisingly given the culture, the Japanese political system also has a tradition of group rather than personalized leadership. Elderly statesmen and party chiefs, not individual prime ministers, often make political decisions. Cabinet members are usually appointed to head ministries or agencies for very brief periods of time and at most establish only general policy control. Recently, commentators have begun to question this lack of action.

Japan’s legal system is very different from what most Westerners are used to. For example, only since 1986 have foreign legal consultants (Gaigokuho-Jimu-Bengoshi) been allowed to provide legal services. The requirements were modified in 1994 with the signing of the Amendments to the Foreign Attorney Law. In certain types of practices, licensed legal consultants from other countries can now practice together with Japanese attorneys.

Anyone planning on doing business in Japan should bear in mind that prefectures and municipalities may create laws and regulations independently of each other, so long as they do not contradict national laws. In other words, there are local laws and regulations in addition to laws that are consistent and uniform throughout the country. Each of the 47 prefectures may have a slightly different requirement concerning paperwork, for example.

The Japanese are not very litigious; they generally prefer arbitration and compromise to instituting lawsuits. Lawyers encourage settlement out of court for all disputes, and the amount of money awarded as compensation is a fraction of the amounts awarded in America, for example.

In recent years, more cases have been brought to court, but they have tended to be high-profile suits that had the support of a group. The judge makes the ruling and decides whether and how much to award as compensation; such cases do not go before a jury. Japan had a jury system at one time, but it was discontinued after five years since ordinary citizens were very reluctant to make important decisions about other people's lives. To deter people from filing suits, the plaintiff is required to pay a large filing fee and all legal costs; attorneys may not take cases on contingency.

One of the most significant differences between Japanese law and the law in many other countries has to do with the power of contracts. Japanese contracts are not necessarily meant to be binding. Rather, founded on trust (shinyô), they're often more short statements of mutual intent. The assumption is that if a change occurs in the circumstances of the contract, the terms will be renegotiated.

If you enter into a Western-style contract, which more companies are using as they work with overseas businesses, you will want to hire an English-speaking Japanese lawyer or a lawyer very familiar with Japanese law to guide you through the process. If you or your company is drafting the contract, keep the language as simple as legally possible or provide explanations for legal jargon. Especially in smaller companies, the person appointed to translate or interpret the contract may have limited English-language skills. Legalese will make the document incomprehensible. As you would do with any cross-cultural agreement, be sure to define currency exchange rates and legal processes and language especially clearly.

Multimedia Exploration

The Diet is not something Japanese go on to loose weight; it’s the name given to the Japanese equivalent of the U.S. House of Representatives.

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