Beyond the epistemological dichotomy of technical efficiency and social legitimacy in institutions: The emergence of an electrical transaction in Japanese manufacturing industry


Information and Communication Technology (ICT), particularly with the diffusion of the Internet, stimulates electrical transaction. A large part of the discussion conducted mainly by economists, has advocated the technical openness of the electrical transaction as “electrical market”, which is expected to reduce asymmetric information and the other costs incurred, to be more flexible to environmental changes and also to increase innovation. However, contrary to these expectations, the Japanese electrical market has not been successful in this respect. Although many electrical markets were established in the 1990s, most of these have already shut down. Some extremely contend that electrical transaction itself should not correspond to keiretsu-the institution of Japanese manufacturing firms.

In our work, we focus on an electrical transaction that was established by NC Network Co.-a venture firm founded by the suppliers of keiretsu. The firm initially aims to support cooperation between suppliers beyond the partition of their parent manufactures. Their network is one of few successful electrical transactions in Japanese manufacturing industry, which has more than 13,000 registered members. An important aspect to be noted is that the transaction organized by NC Network Co. isn’t employed the logic of the openness of electrical markets. Instead, it is consistent with continuous changes through the history of keiretsu. Keiretsu has reformed its rules and procedures by means of seeking the efficiency of divergent interests, neither its relationship has been already adjusted. Therefore, NC Network Co. is perceived as a current representation of the institutional arrangement in the Japanese manufacturing industry.

In this paper, we attempt to theoretically examine the above mentioned situation as the dissolution of the epistemological dichotomy between technical efficiency and social legitimacy in institutional theories. On the one hand, economists have considered organizations as institutional instruments to achieve technical efficiency. On the other hand, sociologists have considered technical efficiency (or technology) to be an external factor of institution or occasion of institutional change. We believe that the rearrangement of keiretsu and the emergence of the electrical transaction are endogenously led by technical pursuit of self-interests, which are latent conflictive interests within institutions.

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