Business Groups and the big push in Japan

Topics: Economics, Meiji period, Japan Pages: 2 (1037 words) Published: October 25, 2014

Business Groups and the Big Push: Meiji Japan’s Mass Privatization and Subsequent Growth Assignment: Summarize the main points. How convincing do you find the paper? This paper discusses how and by whom a so-called “Big Push” should be operated. A big push is a flood of state-controlled investment across all sectors, sparking off industry (micro level) and economic (macro level) growth. It argues that a state-run big push is likely to fail and instead, pyramidal business groups can coordinate such a big push overall and more efficient. Japan is chosen as the example of such a business-coordinated big push success. The authors argue that nowadays we know that intensive state intervention leads to political rent-seeking, whereas investments go into productive projects which can accelerate economic growth and progress, opposite to rent-seeking. It is therefore likely that an elite will try to take advantage of, or influence governmental decisions and investments. The main argument for a state-run big push is the issue of hold-up problems: In order to develop complementary industries, investors need to be certain of the demand from complementary industries when they’ve built their industry. Sometimes even subsidizing one with the help of the other is needed. Since that seems normally not to be the case, state-run intervention is called for. That explanation was the state-of-the-art-model to coordinate a big push. Japan undertook the following and ended up – as already mentioned – through government failure in a financial crisis. As a result, the prior created state-owned enterprises (SOE) were mass-privatized. Wealthy families and entrepreneurs bought those and in turn, built up zaibatsu, large diversified pyramidal groups of listed firms. Within those structures, an apex family firm controlled a first tier of listed firms, each of which controlled other listed firms, and so on. That had several advantages: In terms of e.g. lawsuits, those firms where...
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