The Political Economy of Japan Bradley M. RICHARDSON

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while most persons grant the importance of investment and saving, disagreement iscommon as to the government role in their stimulation. Nobody would argue againstthe idea that the Japanese governments' conservative fiscal policies increased theshare of wealth which could be potentially allocated to savings and investment. Butthe assertion by some experts that government policy stimulated investment bylowering interest on loans to industry below levels in other countries has beenchallenged by economic research. Interest rates on loans in Japan have been lowerin some periods but this is said to reflect an abundance of savings more thangovernment monetary policy (67). Also, government authorized tax exemptions onsavings deposits are similarly said to have had little effect according to recenteconomic studies, despite widespread assertions to the contrary (68).The government role in lending to industry is another example of policieswhose importance and impact are debated. Given the central role of borrowingrelative to equity in Japanese corporate practice, the role of bank lending ininvestments leading to modernization and expansion was critical. However,commercial institutions provided most of the investment funds in most industries atmost times, as we have seen. This fact notwithstanding, government indicativelending could still have had an unusual leverage effect, given corporations' typicaldependence on debt rather than equity (69). Several scholars have asserted that thisis what took place. Government bank loans are believed to have been of specialindicative significance, especially in the early postwar years (70).Many economists judge that government lending did not play a directindicative role. We have already cited the limiting effects on government bank lendingproduced by an early bias for power, coal and shipping. Other factors such as thecomplexity of bank lending decisions and the increasing availability of loans to allindustries as growth advanced have also been cited as evidence in argumentsagainst seeing government bank loans as having indicative effects (71). In addition,FILP related funds were used increasingly over time to support general infrastructuredevelopment (roads, ports, industrial parks, etc.) and other priority concerns. Lendingto "targeted" growth industries generally failed to reach significant indicative levels,other things being equal, as a result.The alleged limitations on the government's direct role in lending to industryseem credible. However, evaluating Japanese economic policy is much like theproverbial peeling of an artichoke; as each leaf is removed, still another layer isdiscovered. In this case, one of Japan's leading economists has argued thatgovernment bank borrowing was seen by firms as a safety net, and that corporateinvestment strategies were unusually daring as a result (72). Firms could in effecttake risks on the assumption that the government would bail them out if this led toproblems, In this sense, the FILP and related government lending institutions couldhave had a substantial, positive impact on growth.
) A second significant institutional pattern in postwar growth was the highlevel of competitiveness of Japanese firms. Aggressive inter-firm competition is citedfrequently as a causal factor in economic analyses of industry successes, eventhough it is not easily measured other than by anecdotal information (73). However,some aspects of Japanese experience, such as the substantial frequency amongboth small and large enterprises of deviations or defections from inter-firm cartelagreements regarding capacity allocation and other matters suggest themselves asindicators of competitiveness. David Friedman offers the following example of thedifficulties in getting firms to cooperate in the machine tool industry (74):"Though this draft was substantial progress toward an agreement, somegyokai members balked again... Intercompany mistrust was the mainobstacle...changes in gyokai membership further confusedmatters...Outsiders, of course, were under no obligation to observe therestraint agreement...In some segments of the machine tool market outsiderfirms were the largest single manufacturers".High levels of inter-firm competition are said by some to reflect postwarstructural change, especially the breakup of the zaibatsu holding companies and thenew Anti-Monopoly Law's sanctions against excessive concentration and illegalcartels (75). Individual companies' desire for the benefits accruing from marketdomination is another likely correlate of competitiveness. These included tangiblebenefits such as greater economies of scale and perhaps greater certainty as to thedemand for a firm's output. Less tangible rewards such as the higher status assignedto dominant firms also exist in hierarchy conscious Japan. Firm competitiveness mayalso have reflected other forces. Other factors such as strong in-group attachmentsin a society where in and out-group (uchi-soto) distinctions are important, companyloyalties reflecting lifetime employment in the same firm and keiretsu traditions offeudal clan-like loyalties to groupings of firms are also sometimes cited asexplanations of high competition levels. Lifetime employment also means thatsignificant portions of the large enterprise work force depend on firms' survival andgrowth, another potent reason for aggressive firm behavior.Inter-firm competitiveness at a time of high economic expectations was likelya major factor in growth, and may help explain the Japanese economy's tendency insome periods to quickly surpass planned output goals. However, competitivenessalso had potentially negative effects. Competitive capacity expansion in the steelindustry ultimately led to excess capacity in that sector. The same forces appear atwork in the Japanese automobile industry today. The tendency to strong inter-firmcompetitiveness was rightly or wrongly one of the motivations (in addition to a desiresimply to create larger firms) behind MITI planners' efforts in the 1960s and 1970s topromote mergers in the automobile and computer industries (76). Controllingallegedly destructive competitiveness was also a government concern in policies
Page 2 and 3: Japan's economy is one of the succe
Page 4 and 5: West Germany. By 1990 both Japan an
Page 6 and 7: today although the plans are given
Page 8 and 9: percent of the Japanese government
Page 10 and 11: MCI and MITI policy development ass
Page 12 and 13: about the nature of Japanese govern
Page 14 and 15: amounts at a time when the future o
Page 16 and 17: Support for the Japanese computer i
Page 20 and 21: toward medium and small businesses.
Page 22 and 23: played a prominent and to some obse
Page 24 and 25: Textile makers kept obsolete machin
Page 26 and 27: 20 percent increases in the size of
Page 28 and 29: needed less from government banks a
Page 30 and 31: farm. Many persons moved to city ap
Page 32 and 33: Maintenence of adequate levels of e
Page 34 and 35: Japanese economic and industrial pe
Page 36 and 37: manipulation. Some policies also fa
Page 38 and 39: Table2
Page 46 and 47: Figure1
Page 52 and 53: NOTES(1) JOHNSON, Chalmers: MITI an
Page 54 and 55: (26) SAMUELS, R.: op. cit., p. 95-1
Page 56 and 57: policy promoting inter-firm mergers
Page 58 and 59: (85) SAMUELS, R.: op. cit., chapter
Page 60: (113) Diminishment of Calder's cont

The Political Economy of Japan Bradley M. RICHARDSON

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