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Article Excerpt
Introduction
Markets for industrial logs in Canada and Japan have evolved along different paths. The Canadian and particularly British Columbian model of industrial log allocation emphasizes a monopolistic government allocation of (publicly owned) timber licenses to relatively few large buyers. Plots of crown land are auctioned but rarely lots of logs. In practice the appraisal of specific logs is almost always internal to these large enterprises, often realized 'in a flash' by head rig operators in sawmills and their laser-guided saws. Within British Columbia (BC), the phase of post-Fordist restructuring in the 1980s and 1990s created a leaner, more functionally flexible workforce while introducing sophisticated (usually foreign-made and often computer numeric controlled [CNC]) machinery (Barnes and Hayter 1992). As part of this restructuring, there is evidence of a nascent secondary manufacturing wood sector and associated social divisions of labour (Rees and Hayter 1997), including a score of enterprises that have moved up the value chain to produce precut and log homes (Reiffenstein, Hayter and Edgington 2002). For the most part, however, the small firms that populate these secondary manufacturing initiatives face great difficulties in gaining access to even small lots of timber suitable for their needs. The allocation of timber through the value chain, most particularly at the critical stage where logs are sorted, is still dominated by internal markets and mass production. In response, BC's provincial government is seeking to radically reform this system in large part by the stimulation of small-scale log auctions.
Japanese experience provides a fascinating alternative, possibly instructive model of timber market evolution. Thus, in Japan a well-established, widespread system of timber market auctions, featuring the exchange of privately owned logs, is increasingly threatened by imports organized according to mass production principles. Indeed, in recent decades, Japan has become increasingly dependent on lower-priced imports of forest products (unprocessed, semi-processed and fully processed) from a burgeoning list of supplying countries, including Canada (Edgington and Hayter 1997). At present imports supply 80 percent of Japan's wood product requirements (Iwamoto 2002). The production and distribution systems for handling these imports, for instance large integrated paper and sawmill complexes at tidewater locations, have been designed around a system of mass production (Iwai 2002).
Yet, small-scale market auctions for domestically produced timber remain important, distinctive features of forestry throughout the country, except Hokkaido. Historically, these auctions were developed as part of what may be termed 'flexibly specialized' patterns of industrial forestry that are locally differentiated and organized by large populations of small, often tiny organizations (Patchell and Hayter 1997; Patchell 2002). Domestic production chains connect forest owners, primary and secondary wood processing activities, hierarchically structured wholesalers, and carpenters and other house builders with a vast domestic market that comprises buyers with strong preferences for wood-based structures constructed in distinct Japanese styles. The creation of meiboku, or 'special wood products of high value' to meet Japanese tastes, reflects and indeed symbolizes regional and local variations in specialized forestry production throughout Japan. Diverse actors add value to meiboku throughout the commodity chain, from silvicultural practices such as tree binding that coax highly prized irregularities in tree growth to specialized meiboku log auctions, the festive atmosphere of which celebrates the beauty of wood.
The valuation and appreciation of individual lots of wood is not limited to meiboku; regular timber auctions throughout the country ensure that logs are allocated to their highest and best use. As this extensive national system of flexibly specialized forestry expanded rapidly in the 1950s and 1960s, investments in silviculture and reforestation grew in tandem, albeit protected by tariffs on imported timber and a highly distinctive 'wood culture'. Under a regime of flexible production, Japanese forests were managed locally, profitably and (arguably) sustainably, in this period. However, as the mass production of forest products has been fuelled by enhanced access to global log markets, the Japanese domestic flexibly specialized system of forestry and timber allocation has become less profitable and sustainable. As Iwai (2002, xx), Japan's pre-eminent Dean of Forestry, recently stated: 'forest management in Japan is not sustainable in general, and most Japanese forests are becoming unhealthy'. As profitability has declined, small private forest owners have become less interested in silviculture and rising competition has forced widespread rationalization of forest manufacturing activities. In response, the national government introduced a new Forest Law in 1991 to address these economic and environmental concerns and reinforced support for the log auction system throughout Japan.
This article assesses the evolution, rationale and functions of Japan's timber auctions. Timber auctions were primarily created in post-war Japan as part of 'modern forestry' and provide key roles linking small-scale (private) forest owners to the value chain that is consummated in Japanese homes. Indeed, we suggest that auctions are the fulcrum of flexibly specialized forestry and production in Japan and an assessment of their nature and scope provides an index of the performance and direction of the system as a whole.
In broad terms, the conceptual point of departure for the analysis is provided by interpretations of industrialization processes as a contest between alternative forms of industrial organization, the polar extremes of which are represented by the standardized mass production model organized by giant firms and a differentiated flexible specialization model organized by networks of small firms (Piore and Sabel 1984). Specifically, this article addresses an important gap in economic geography's debate on flexible specialization concerning the nature of markets. In particular, auctions represent a form of organizing exchanges (along with brokers and wholesalers) that are neglected in this literature that has been concerned primarily with 'firms', notably with respect to direct bi-lateral firm-supplier relations, subcontracting, trust, and other non-traded interdependencies (Storper 1997). While considerable attention has been given to the power relations between core firms and suppliers, there is a strong tendency within economic geography to generalize buying and selling among firms as 'interactions' to be understood in terms of firm-level characteristics. Although there are exceptions (e.g., Patchell 1993a, b), firm interactions or firm-supplier relationships are generally not explicitly examined as markets per se. But markets are themselves distinct, problematical institutions that are socially constructed, contested and need to be given analytical identity.
Further, we interpret markets in terms of both transaction costs and embeddedness, a conceptual conjoining that may be considered surprising. After all, Granovetter's (1985) landmark explication of embeddedness that stresses that economic relations are also social and political relations, was explicitly posed as an alternative to the economism of transaction cost theory (Coase 1937; Malmgren 1961; Williamson 1975). Indeed, transaction cost and embedded theories have distinct ideological roots. The former builds on the abstract, relentlessly rational calculations of Homo Economicus, the imaginary hero of neoclassical economics. In contrast, embeddedness connects to Polanyi's (1944) institutionalism and to the radical or dissenting tradition inspired in North America by Veblen that emphasized the political economy of real markets and actors within specific institutional contexts (Tillman 1992; Hodgson 2001). Within economic geography, embeddedness and transaction cost theory have been widely debated largely along these ideological lines (Oinas 1997) and flexible specialization, for example, has been defined from both perspectives (cf. Scott 1982; Storper and Christopherson 1987; Grabher 1993). As Martin and Sunley (2001) observe, however, a disquieting trend in this debate is the demeaning of the economic dimensions of behaviour in favour of dalliance with vaguely defined, untested social and cultural theorizing and they specifically cite embeddedness in this regard. In effect, social and cultural framings of market behaviour are presented as alternatives for any form of economic explanation. As such this interpretation misreads the institutional position.
Embeddedness implies that markets are rooted in the reality of the interdependence of economic and social life. As Bestor (1998, 155) observes, notwithstanding the conceptual ambiguity of this interdependence, 'there is an interactive, mutually constitutive relationship between markets as economic processes and markets as social institutions'. The reality of markets is that they are institutional creations that define and govern economic exchanges. A further (economic) reality of markets is that they are not free, as Coase (1937) originally noted but involve costs and uncertainties. In turn, transaction costs are embedded in institutional structures that feature social and political as well as economic relations that are shaped by place. Bestor's (1998) rich anthropological anatomy of the networking activities of wholesalers and other actors as they organize the myriad auctions that comprise Tokyo's Tsukiji fish market illustrates the potential of this approach. Although Bestor does not use the term, Tokyo's fish market constitutes a remarkably vibrant, powerful example of a geographically concentrated, flexibly specialized community that connects with this study. However, whereas Bestor's (2001, 78) 'multi-sited ethnography' illustrates how market relations at Tsukiji reflexively inform fishing practices and modes of valuation for fish species globally, the scale of relations that govern most timber auctions in Japan are much more closely-knit and rarely extend beyond neighbouring prefectures (Japanese provinces). The economic, cultural and ecological degrees of separation between agents at either terminus in the commodity chain are far less distanciated within Japanese domestic forestry.
The remainder of the article first outlines an institutional interpretation of markets that connects transaction costs, embeddedness and flexible specialization and the second part analyzes domestic timber markets in Japan.
Markets, Transaction Costs and Embeddedness
Markets are forms of exchange but not all forms of exchange are markets. Non-market forms of exchange are organized in many different ways by tradition, custom, and by centrally planned diktat (Polyani 1944). Market exchanges, on the other hand, are organized by prices and feature property rights and choices. Simply stated from a purely economic point of view, 'true' markets are voluntary, regulated exchanges whereby payments are made by buyers, consumers, or demanders for the legally defined property rights of goods and services offered by suppliers (Hodgson 1999). Market exchanges also vary considerably. In the perfectly competitive, 'ideal' or 'open' market model of neoclassical economic theory, arm's-length (independent) competition within and between a (large) 'supply crowd' and 'demand crowd' creates a fair price that balances demand and supply (Rotstein 1977, 9). On the other hand, the exchanges or flows of goods and services within private sector firms do not conform to true or open markets as they are neither voluntary nor arm's length, demand and supply crowds are absent, and property rights remain controlled by the same legally defined entities, the parent corporations. Such 'administered' exchanges within firms may nevertheless be considered a form of market exchange as they are typically assigned monetary value, no matter how arbitrary, firms rely on outside suppliers and consumers to some extent, and administered and market exchanges are substitutes for another. Indeed, this substitution frequently occurs, as referenced by tendencies towards 'contracting out' or 'integration'.
Between open and administered markets there are all kinds of market relations and forms of firm-supplier ('subcontracting') relations, including those organized by monopolists and oligopolists (one or relative few sellers) and by monopsonists or oligopsonists (one or few buyers). Market relations can be further complicated whenever the public sector is an important buyer or seller (as well as regulator).
Auctions often, but by no means always, illustrate a close correspondence with the neoclassical ideal of the perfectly competitive (open) market (Klemperer 2004). While auctions of furniture and paintings are perhaps the best known, corporate takeover battles, eBay, and the allocation of timber licenses or mineral exploration concessions by governments also occur as auctions. Auctions have existed throughout history...
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