The Best of the Bureau/The_Best_of_the_Bureau_Bureau_Development_Inc._1992.iso/dp/0033/00334.txt

Text File | 1992-08-07 | 28KB | 461 lines

$Unique_ID{bob00334}
$Pretitle{}
$Title{Japan
Chapter 4B.   Government-Business Relations}
$Subtitle{}
$Author{Stephan B. Wickman}
$Affiliation{HQ, Department of the Army}
$Subject{corporate
system
banks
government
percent
miti
corporations
group
japan
industry
see
pictures
see
figures
}
$Date{1981}
$Log{}
Title:       Japan
Book:        Japan, A Country Study
Author:      Stephan B. Wickman
Affiliation: HQ, Department of the Army
Date:        1981

Chapter 4B.   Government-Business Relations

     The government utilized several legal and discretionary methods for
influencing industrial activity. Each ministry or agency had the right to use
what was termed "administrative guidance" (see Glossary) to pressure
industries to conform voluntarily to policies or procedures that could not be
legally enforced. For example it could suggest ways in which several
industries might cooperate to achieve an economic gain for the community. Or
it could enact regulations to protect failing industries. At other times
guidance seemed more negative, as when a ministry or agency attempted to
restrict the production of export commodities.

     Each arm of the government had the right to utilize "administrative
guidance" in the area of its charter, and MITI was by far the most active and
important organization in this respect. MITI helped industry form production
cartels, explore new types of technology, or adjust marketing strategies.
Because of overlapping responsibilities, however, MITI was sometimes opposed
by other agencies, such as the FTC.

     An example of MITI guidance can be drawn from the electronics industry.
As early as 1965 the department within MITI in charge of the electronics
industry became aware of the potential importance of integrated circuits. MITI
was able to find funds to pass out to a group of producers to conduct
cooperative research efforts. MITI also prevented foreign companies from
setting up shop in Japan, except with a domestic partner, and the first such
linkage was between the United States firm of Texas Instruments, Inc. and the
Japanese firm, Sony. Soon Texas Instruments' patented technology became
available to Sony and other domestic producers. Integrated circuits began to
appear in a whole range of products from calculators to automobiles, and MITI
was able to open the economy to competing imports in 1970. By the middle of
that decade, the technological gap between Japan and the originators of
integrated circuits had closed completely.

     MITI also played a large role in forming industrial cartels, although
each cartel had to be approved by the FTC. Under provisions of the
Antimonopoly Law, which was revised in 1977, "recession cartels" could be
formed when conditions in a particular industry reduced prices below the
average production cost and threatened the survival of a significant number of
producers. Membership in the cartel was voluntary. "Rationalization cartels"
were permitted in order to improve the technical efficiency and product
quality of an industry, and these were formed by limiting the use of a
particular technology or new product lines. Other cartels were allowable when
passed as special legislation by the Diet. In these cases FTC approval was not
necessary, and special cartels tended to be more numerous. Finally MITI could
organize "guidance cartels" by advising industries of desirable levels of
output, prices, and investment.

     The other major type of MITI involvement in the industrial structure was
its merger activities. Mergers had to be approved by the FTC, and compliance
was only voluntary. But such was the power of MITI that the FTC seldom refused
its requests. Additionally, unless an enterprise was particularly powerful, it
could scarcely afford to shun MITI guidance. Before the liberalization of
foreign trade in the mid-1960s, MITI used its control over the issuance of
foreign exchange licenses as a means of persuading private industry to bend to
its will. Although the ministry has lost much of its authority over particular
types of economic activity, maintaining good relations with the appropriate
department of MITI remained an important prerequisite to business in Japan in
1981.

     On the other hand the responsibility of the FTC was to prevent the
harmful concentration of power in the nation's markets. According to the
Antimonopoly Law, corporations engaging in unauthorized price cartels were to
receive penalties in excess of 100 million Yen. The FTC was also empowered to
break up an enterprise whose market share exceeded 50 percent of one industry.
Two corporations that controlled over 75 percent of a market were also
designated as monopolies and subject to FTC regulation. The FTC was reluctant,
however, to challenge the nation's powerful business elites and other more
powerful government agencies.

     A number of semigovernment advisory councils, committees, or boards
facilitated the dialogue between government and business. In 1980 there were
around eighty-five such committees attached to various economic ministries or
their departments, and their membership included government representatives,
academic experts, businessmen, and respected citizens. Often their
deliberations were only for show, and major policies were decided behind
closed doors. Several key agencies were: the Economic Council, attached to the
EPA; the Industrial Structure Council, affiliated with the Industrial Policy
Bureau of MITI; the Transportation Council, attached to the Ministry of
Transportation and responsible for recommending price increases; and the
Central Social Health Insurance Council. In addition there were key business
lobby groups that represented the interests of particular industries, large
and small (see Business Interests, ch. 6). It was difficult to judge which of
these economic forces was most powerful in controlling the course of the
economy in 1981. In general the power of the ministries declined as the
nation's large business enterprises accumulated assets, but the ministries
were important sources of financial, technological, and legal support,
particularly during economic crisis. The best characterization was probably
one of a plurality of business and government interests which, tempered by
concern for the average consumer and citizen, vied with each other over
specific policies and directions for the economy.

Banking and Finance

     Japan's financial system was geared toward providing industrial rather
than consumer credit. Throughout most of the postwar era the extensive system
of private and public banks has provided essential loans to industry. About 90
percent of the nation's financial assets flowed into the corporate and public
sector through the banks, while only 6 percent went through the stock market.
At the same time, however, the government has maintained strict control over
the banking system, which has led both domestic and foreign bankers to clamor
for decontrol. Government reforms in the late 1970s and early 1980s have
tended to liberalize the banking system, at least partly in order to attract
the nation's largest corporations away from financing abroad. Securities
trading was kept legally distinct from banking.

     Commercial banks were the most important private lending institutions and
engaged mostly in the provision of short-term industrial loans. There were
seventy-six such banks in 1981, of which the thirteen "city banks" were the
core (see table 4, Appendix). These banks received deposits to support their
loans, but they have also had to borrow in the interbank money markets for
call loans and commercial bills. "City banks" have borrowed from 60 to 90
percent of their funds from the sixty-odd regional or local banks. The overall
surplus of deposits over loans in the local banks has been falling, however,
as these institutions have been required to divert their funds to underwrite
more and more local public bond issues.

     Much of the nation's long-term credit originated in the public banks,
particularly th