MITI and the Japanese miracle

Page 204

funds it needed from a bankassuming that it could get them at allthan to try to raise money through issuing new shares.

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Since the tax system inherited from the occupation was under the control of the Finance Ministry, it was an easy stepalong with many others to be discussed belowto insure that these tax advantages were perpetuated and enlarged. And since the bureaucratic proponents of heavy industrialization saw merits in Ichimada's system, it was continued long after the crisis it was intended to meet had disappeared. A capital market slowly developed in Japan and came to play an increasingly important role in industrial finance, but it did not even begin to rival bank lending as a source of capital until the 1970's.

One advantage of the overloaning system was that managers were not pressured by stockholders, which meant that they could ignore short-term profitability as a measure of their own performance and could concentrate instead on such things as foreign market penetration, quality control, and long-term product development. This became a considerable advantage when Japanese managers began to compete seriously with American firms, since short-term profitability and the payment of dividends were the keys to the availability of capital for American enterprises (not to mention also being the keys to an American manager's longevity in his job). Another advantage was the ease and precision with which the government could employ monetary controls alone to expand or contract the tempo of economic activity in response to international balance of payments constraints. A less desirable feature of the dependence on borrowing was that it left Japanese companies with so little paid-in capital that they were easy targets for foreign purchase. However, this state of affairs only increased civilian demands for the protection of the Japanese economy, which the bureaucrats wanted to pursue anyway on nationalistic grounds. The resultant community of interests reinforced both sides.

Of all the consequences of Ichimada's system, certainly the most important was the fostering of bank keiretsu (conglomerate groups) as successors to the zaibatsu, since without them the Japanese economy might not have enjoyed the high degrees of competition that prevailed in its otherwise government-dominated big business sector. By the 1960's, as we shall see in the next chapter, many MITI officials had begun to doubt the value of this featurebut it must be said that MITI bureaucrats, none of whom had ever experienced an open economic system until the 1960's, have consistently undervalued the role of competition in the structure they created.

Since the time of the stabilization panic, which had made enterprises dependent on banks for their capital, each enterprise had tried