Dangou

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Dangou/Dango
Informal practice commonly found in Japan
Japan map.png
Map of Japan, where Dangou/Dango commonly takes place.
Japan flag.png
Flag of Japan.
Entry written by Shuwei Qian.
Shuwei Qian is affiliated to School of Slavonic and East European Studies, University College London.

Original text by Shuwei Qian

Dangou (sometimes spelt Dango) consists of two Japanese kanji characters, dan meaning ‘dialogue’ and gou meaning harmony. Originally, the meaning of dangou was consultation or conference, but the meaning has changed and come to refer to a practice of cartel- a mutually agreed position to pre determine the successful bid for a contract within the Japanese procurement system. Thus, its equivalent English term is bid rigging.

Dangou, has a long history dating back 500 years to the Edo era, and as such it may be argued there is no other case in the world that has such a pervasive and codified system as is found today in the Japanese public construction system (Woodall 1993: 297[1]). Japanese citizens were so accustomed to this practice that it was not until not until after the end of the Second World War, with America’s intervention in the Japanese domestic market that scandals relating to dangou were publically acknowledged and reported by the press (McMillan 1991: 201[2]).

One illustration of how dangou practices work is found in the example from the late 1980s of an American company who decided to submit a bid for constructing toilet facilities at the US Yokosuka Navy Base. The American company participated in the bidding process, unaware that over 100 national and local contracting projects were in place at the base, rigged by the Yokosuka ‘teahouse’ network. The Americans were surprised that all the other companies bid at highly inflated levels and that there was little variation in the levels at which they bid. As the only foreign bidding company they won the contract with a reasonable bid price, which was half that of the bids made by the Japanese companies. Without the American company’s bid, the Yokosuka ‘teahouse group’ (an informal network of Japanese contractors) would have won the contract, but more importantly, at a highly inflated price. After the bidding process was concluded, the Americans overheard the Japanese complaining about letting a gaijin (an outsider) interfere with their internal rules of bidding. The Americans feared harassment and vandalism by the losing group, but some months later a raid on the offices of the Yokosuka ‘teahouse’ group, known as the ‘Star Friendship Club’, produced evidence of dangou and endemic bid rigging.

Over time, Dangou has been viewed as part of the unique political culture and history of Japan. For this reason the Japanese mode of doing business is simply explained to Westerners by the word ‘dangou shakai’ meaning ‘society’. In the first instance it is necessary to explain dangou’s embedment with Japanese society throughout history as part of the ‘iron triangle’. The ‘iron triangle’ here represents the relationship between politicians, government bureaucrats and business. The triangle functions in the following way: businesses take it in turns to win competitive bids, operating from a position of strength because they are armed with the prior knowledge of the ceiling price of the bid, which has been leaked to them in advance by government bureaucrats. In return for the information, the bureaucrats are guaranteed a high-profile position in the company after retirement. Meanwhile the politicians who are responsible for the public construction programmes receive a kickback (Black 2004: 603[3]). The retired bureaucrats are called amakudari (descents from heaven). This ‘iron triangle’ has its origins in ancient Japanese culture, but was also influenced by behaviours found in the centralised Soviet style of management (Ross 1994: 64[4]). A second reason for dangou’s popularity is the fact that with the exception of big firms and tycoons, the major part of the Japanese economy consists of small and medium sized businesses, often family businesses, that have endured from one generation to another. Apart from being part of a personal network, dangou embodies a benign practice for the purpose of helping small firms survive harsh competition from business giants. Another contributory factor that explains dangou’s unshakable position in society is the age of globalization. In the process of globalization, traditional Japanese businesses perceive themselves to be under constant attack from international corporations, thus practicing dangou provides them with protection (Black 2004: 611[5]). In the opinion of dangou participants, dangou has saved the Japanese economic environment from being polluted by outsiders and prevented unpredictability and instability in the global market (Ross 1994: 65[6]).

Considered from the socioeconomic perspective, dangou can be regarded as a rational corollary of the specific economic environment of post war Japan (Woodall 1993: 298[7]). Firstly, as understood literally, the process of dangou requires consultations taking place among participants. The optimum number of dialogues is considered to be N(N-1)/2. Since the tendering system designed by the procurement department of government normally regulates the number (N) of participants in the bidding pool to a range from 10 to 12, the actual number of dialogues taking place in the process of dangou is limited to a manageable number (Woodall 1993: 301[8]). Secondly, as mentioned above, this tendering system is designed by the government to guarantee the quality of participating businesses, and to provide a natural barrier against opportunistic outsiders who might be attracted by the potential profit created in the collusion process (Woodall 1993: 302[9]). Thirdly, to stabilize the illegal group behavior, mechanisms of punishment were developed. Thus to ensure loyalty, if one of the conspirators broke the dangou (Dangou yaburi), they were automatically ostracized from all trade associations as they had lost the confidence of the group (Woodall 1993: 303[10]). These informal devices elicit compliance since in Japanese society no business can survive without close associations, nor survive the loss of social capital. Another layer of protection for dangou participants are the disincentives for whistle blowing (Woodall 1993: 303-4[11]). In Japan, a pension is paid according to one’s longest length of service. Hence, no one can afford to change jobs frequently or to suffer the loss of their social network; therefore the price of opportunistic bidding is too high.

Dangou not only inflates government expenses, causing government deficit and wasting taxpayers’ money, but it also avoids fair competition and encourages particularism and corruption, which could eventually hurt the development of the Japanese economy. It is estimated that dangou is responsible for inflating Government expenditure by between 30% and 50% (McMillan 1991: 209[12]). The inflation of government expenses can be used as one of the measurements of dangou. The second method of estimating the extent of the practice is to evaluate the number of scandals reported in the media. Thirdly, it is possible to estimate levels of dangou according to the extent of legislation passed to prohibit this crime. Since the legal reforms of the early 2000s, laws such as the anti-monopoly law, and a law against kansei dangou have been passed, yet little success can be observed thus far in deterring the practice (Yoshida &Park 2014: 144[13]). Research on dangou also heavily depends on the findings of investigations of suspect companies and subsequent convictions, but the networks of participants are extremely hard to break.

Another informal practice related to dangou is Ten no koe (voice from heaven). This term is used as a metaphor to describe a practice whereby before a bidding process starts, a government official claims to have heard a voice from the Gods urging him to use a particular company. As a result the bidding process is ignored and the ‘recommended’ company is automatically appointed (Logan 1994[14]). On one hand, the absence of any competition makes this informal practice even more suspect than dangou. On the other hand, on certain occasions it may be explicable- for instance if specific technologies, skills or patents are required, which only the chosen company is in possession of, it may be considered ethical. However in practice, Ten no koe is usually seen as excuse invoked when the dangou process has broken down and an emergency solution is needed to obtain the ‘right’ result.

In China, dangou is known as Weibiao. Literally, it means ‘bidding being surrounded by companies in a union’. Weibiao and dangou share cultural similarities. Thanks to the same influences of Confucian culture, the tradition of gift giving is widely used not only in Weibiao but also in the infamous informal practice called Guanxi. The starting point of gift giving, in both cases, is to maintain and strengthen Jinmyaku (Japanese for personal networks), which is directly translated as Guanxi in Mandarin. However, there are significant differences between the two informal practices of Weibiao and Dangou, which may be explained by crucial differences in the economic and political environment of the two countries. Firstly, although both China and Japan passed anti-bid rigging law, in neither case has the legislation made a significant difference in prohibiting the practices. Yet, the problem of the Japanese anti-Kansei Dangou law is in its enforcement, whilst the problem in China is that the law itself is less detailed, leaving loopholes for people to continue practicing Weibiao (Weishaar 2010: 409[15]). Secondly, as a socialist country, a huge percentage of the Chinese economy is taken by state run businesses. However, state run companies are eliminated from the anti-Weibiao law thanks to complicated measures in force to protect national reserves. As a consequence, this encourages a certain level of bid rigging because state run companies cannot be prosecuted. (Jingshifaxun 2009[16]). In the Chinese case, bid rigging often happens in less developed states along with other traditional informal practices, whilst in Japan the practice occurs within a well established, developed market economy in a democratized system. Furthermore, although defined as illegal by the government and outdated, dangou is both traditional and habitual within the Japanese economy.

References and Bibliography

  1. Hiyoshi, J. 2006. ‘The problem of dango in public construction and the reform of bidding system’, 13 March, https://www.jri.co.jp/page.jsp?id=5623 In Japanese
  2. Kyodo News. ‘2010. 1,757 got jobs via amakudari from 07 to 09’, 24 August, http://www.japantimes.co.jp/news/2010/08/24/national/1757-got-jobs-via-amakudari-from-07-to-09/#.VyFRYiMrJhB
  3. Kyodo News. 2010. ‘ASDF chief sacked, 49 disciplined for Chiba supply depo bid-rigging’, 16 December, http://www.japantimes.co.jp/news/2010/12/16/national/asdf-chief-sacked-49-disciplined-for-chiba-supply-depot-bid-rigging/#.VyHWniMrJhA
  4. Oyamada, E. 2015. ‘Anti-corruption measures the Japanese way: prevention matters’, Asian education and development studies, 4: 24-50
  5. The Japan Times. 2006. ‘Enough of make-believe bidding’, 7 February, http://www.japantimes.co.jp/opinion/2006/02/07/editorials/enough-of-make-believe-bidding/#.VyFS-yMrJhA

Notes

  1. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  2. McMillan, J. 1991. ‘Dango: Japan’s price-fixing conspiracies’, Economics and politics, 2: 201-218.
  3. Black, W. 2004. ‘The dango tango: why corruption blocks real reform in Japan’, Business ethnics quarterly, 14: 603-623.
  4. Ross, L. 1994. ‘Understanding the Japanese way: a new look at the dango shakai’, World affairs, 157: 63-78.
  5. Black, W. 2004. ‘The dango tango: why corruption blocks real reform in Japan’, Business ethnics quarterly, 14: 603-623.
  6. Ross, L. 1994. ‘Understanding the Japanese way: a new look at the dango shakai’, World affairs, 157: 63-78.
  7. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  8. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  9. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  10. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  11. Woodall, B. 1993. ‘The logic of collusive action: the political roots of Japan’s dango system’, Comparative politics, 25: 297-312.
  12. McMillan, J. 1991. ‘Dango: Japan’s price-fixing conspiracies’, Economics and politics, 2: 201-218.
  13. Yoshida, D. & Park, J. 2014. ‘Japan’, in Latham and Watkins (eds.), GLI-Bribery and corruption first edition. London: Global Legal Group: 142-149.
  14. Logan, T. 1994. ‘On dango: the famous Yokosuka navy base toilet job’, November, http://www.jpri.org/publications/occasionalpapers/op1.html
  15. Weishaar, S. 2010. ‘China’s public procurement regime comparative and theoretic insights’, Maastricht Journal Europe, 17: 406-441.
  16. Jingshifaxun. 2009. ‘Advices about including procurement in state-run companies in legal surveillance’, 9 June, http://www.jingsh.com/Research/MeetingContent/3076 In Chinese