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Business Groups and the Big Push: Meiji Japan’s Mass Privatization and Subsequent Growth

Business Groups and the Big Push: Meiji Japan’s Mass Privatization and Subsequent Growth. Working Paper by: Randall Morck and Masao Nakamura Presented by: Cap Perry. The Rundown. The idea of a “big push” Japan’s shock therapy and the lead up to the “big push” Japan starts “big push”

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Business Groups and the Big Push: Meiji Japan’s Mass Privatization and Subsequent Growth

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  1. Business Groups and the Big Push:Meiji Japan’s Mass Privatization and Subsequent Growth Working Paper by: Randall Morck and Masao Nakamura Presented by: Cap Perry

  2. The Rundown The idea of a “big push” Japan’s shock therapy and the lead up to the “big push” Japan starts “big push” Zaibatsu propel “big push” Lessons learned

  3. Big Push Introduction Big Push: state-coordinated effort to achieve economic takeoff Multiple failures – only Japan successful Difference: business groups substituted the state

  4. Japan’s Shock Therapy • Isolated until 1858 • Political tsunami occurs (Meiji Restoration) • Meiji era ushered in • Japanese sent abroad for studies • Modernization unrivaled • Institutional change • Most old wealthy merchant families were eclipsed

  5. Japan’s Big Push • State-Owned Enterprises (SOE) • Built new industries essential to modernization • Massive effort from 1868-1885 • 3 main ministries (industry, interior, agriculture) • Industry: build regions into a nation • Interior: maintained budgets for SOEs • Most important SOEs established by the state anew

  6. Japan’s Big Push (cont) • Government Failures • Financing for modernization became insufficient • Unsustainable inflationary spiral • Monetary reform • Slashed SOE subsidies • Key Effects • Budgetary excesses made visible • The allure of privatizing inefficient SOEs • Justify benefits against realistic costs

  7. Japan’s Big Push (cont) • Mass Privatization • 26 large SOEs by 1896 • Gov’t received gains from privatizing • Raised 45 million yen between 1884 and 1889 • Meiji Japan’s government no longer involved

  8. Zaibatsu • Pyramidal Business Groups • Tiered business structure • Japan’s form = Zaibatsu • Advantages: • Family owns every firm in pyramidal group • Apex firm’s controlling S/H only needs modest wealth • Existing firms’ earnings can finance new firms • Protection from lawsuits

  9. Zaibatsu (cont) • Zaibatsu facilitate big push growth • Customers and suppliers grow in tandem • Siphon money between firms • National savings on a huge scale • Controlling S/H has interest in profitability and ethics • Venture into new industries • Take over big push

  10. Why Did Japan Succeed? • Main reasons: • Feudal elite bow out • Japanese government take hands-off approach • Zaibatsu families become marginalized

  11. Learning from Japan • Big Push can succeed if: • State gives initial shove • Pyramidal business groups propel big push • Controlling S/H marginalized • Big push done with limited trade barriers and no barriers against foreign investment

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