MITI and the Japanese miracle

Page 203

After only a few years of the Bank of Japan's monetary expansion, the Japanese industrial system took on one of its most distinctive characteristicsthe pattern of dependencies in which a group of enterprises borrows from a bank well beyond the individual companies' capacity to repay, or often beyond their net worth, and the bank in turn overborrows from the Bank of Japan. Since the central bank is the ultimate guarantor of the system, it gains complete and detailed control over the policies and lending decisions of its dependent "private" banks. This so-called indirect financing formula (

kansetsu

kin'yu

*

hoshiki

*) is really only indirect in appearance. As Ito* explains, "Unlike prewar enterprise which was founded on the basis of its own capital, postwar enterprise has been dependent on loans from commercial banks for about 7080 percent of its capital; and in the final analysis these loans are provided on credit from the Bank of Japan, Japan's central bank."

⁹

The opposite side of this coin, of course, is a relatively slight dependence on equity. "In 1935," writes Broadbridge, "68 percent of industrial funds raised, apart from reserves and depreciation, were derived from sales of stock; in 1963, the figure had fallen to 10 percent.''

¹⁰

At least in terms of its financing and ownership structure, Japan was a more capitalist country in the 1930's and 1940's than it was in the 1950's or 1960's.

Ichimada himself appears to have been reluctant to see the system of overloaning expand as far as it did. He regularly declared that the limits of central bank underwriting had been reached, and that a capital crisis was imminent.

¹¹

Also, in order to protect himself and his bank, he became increasingly dependent on guidelines supplied by MITI's Enterprises Bureau on the amounts of capital various industries would need for a given period, and above all on the industries that other branches of the government were protecting and promoting.

¹²

If the Bank of Japan or the city banks had ever ventured very far from MITI's guidelines and taken on support of an undesignated industry, the risks not just to a particular bank but to the whole system would have become intolerable.

Although it was born of the capital shortage that accompanied the Dodge Line (and is not, as some writers contend, an element of Japanese culture itself), the system of bank overloans was also attractive to Ikeda and his MITI colleagues.

¹³

It revealed such possibilities of control over and coordination of their highly limited resources that they took steps to continue and institutionalize the system. As Ikeda noted in 1952, dividends on equity shares are paid from corporate profits after taxes, whereas interest on bank loans is deductible for tax purposes. It was thus less expensive for an enterprise to borrow the