Multimedia Mania/abacus-multimedia-mania.iso/dp/0033/00333.txt

Text File | 1993-07-27 | 35KB | 552 lines

$Unique_ID{bob00333}
$Pretitle{}
$Title{Japan
Chapter 4A.   Character and Structure of the Economy}
$Subtitle{}
$Author{Stephan B. Wickman}
$Affiliation{HQ, Department of the Army}
$Subject{percent
government
economic
economy
growth
industrial
nation's
public
japan
corporations}
$Date{1981}
$Log{}
Title:       Japan
Book:        Japan, A Country Study
Author:      Stephan B. Wickman
Affiliation: HQ, Department of the Army
Date:        1981

Chapter 4A.   Character and Structure of the Economy

     Japan's gross national product has been the world's third largest since
1963 (after the United States and the Soviet Union), although in per capita
terms-the equivalent of US$8,900 in 1980-the economy has ranked lower than
most other industrial market economies. This was no mean achievement for a
densely populated nation that depended on imports for the bulk of its raw
material needs and for an economy that was critically disrupted by World War
II. Because economic growth rates often in excess of 10 percent per year were
attained in the postwar period, the gap between Japan and the other major
industrial economies was closed in remarkably short time.

     The reasons for this success were numerous and complex. A latecomer to
the Industrial Revolution that began to transform Europe and the United States
in the eighteenth and early nineteenth centuries, Japan nonetheless sustained
a seventy-year period of increasingly modern economic development before World
War II. This experience contrasted sharply with those of its Asian neighbors.
Many of the conditions favorable to growth persisted, despite the destruction
of the war, including the abundant and literate labor force, productive
agriculture, strong government support for industrial investment, efficient
and large-scale enterprises, and the willingness to import foreign
technologies. Following an initial period of reliance on United States aid to
feed the war-ravaged populace, the economy was able to generate ample domestic
savings to support a high level of constructive investment. Most of these
savings were channeled into manufacturing and the infrastructure to support
it, and under government guidance and private initiative these industrial
projects flourished.

     Other institutional factors have played an important role in determining
the performance of the economy. Many large corporate groupings and individual
enterprises have vied against each other in highly competitive markets. The
multifarious small and medium-sized corporations, though plagued by bankruptcy
during business recessions, responded rapidly to the needs of the larger
enterprises and to consumer demand, and they lent flexibility to the economic
system. The government also aided the economy by promoting cartels or mergers,
providing research funds and credit facilities, and by protecting enterprises
from foreign competition when deemed necessary. Corporate management practices
provided strong incentives for efficient production, while the nation's labor
unions generally cooperated with management to keep wages in line with
productivity.

     Most Japanese industries have been able to pass quickly through a stage
of dependency on imported technologies and government protection to a position
of strong international competitiveness. Licensing agreements for foreign
technologies continued to be important in the 1980s, but innovation,
particularly in the application of scientific breakthroughs to new products,
has distinguished the nation's industry. As a result Japanese products have
become less labor intensive and more capital or technology intensive. In turn
the nation's exports have produced enough revenue to pay for the raw materials
and primary energy so desperately needed to support the national welfare.

     As Japan improved its own capacity for basic scientific research and
development, it could be expected to achieve an enduring technological
advantage in many industries. In the past, however, the nation's achievements
in basic scientific research have been behind those of the United States and
Europe. Some Japanese industrialists still express the fear that the nation
could not only be left behind, but isolated from scientific research and
technological patents developed elsewhere.

     The efficient and highly productive manufacturing sector remained the
heart of the economy in 1981. Innovations in manufactured products stimulated
development in other sectors. The creation of new generations of office
equipment and computers, for example, greatly expanded the production
potential of many service industries. Services were generally labor intensive
and generated more than half the nation's employment and income. Service
enterprises also stimulated demand for manufactures and supported factory
management and operations. Agriculture, forestry, and fishing production,
despite government subsidies, continued to decline relative to other sectors
but remained important for political as well as economic reasons.

     Among the several issues that posed actual or potential problems for the
economy in 1981, the first was how to secure the needed energy to support
production. Japan was almost completely dependent on imported energy, and in
addition to searching for stable suppliers, industry launched a concerted
effort to conserve oil and to develop alternate forms of energy. A second
problem was that of adjusting business strategies to slowing rates of economic
growth. After the international oil crisis of 1973, the economy grew at less
than half the pace of the 1960s. Some industries developed excess capacity and
suffered from rising costs and foreign competition. Problems were also arising
because of the chronic trade surpluses that the economy had registered with
some of its most powerful trading partners since the late 1960s. The prospect
of trade barriers to Japanese exports was all the more threatening in 1981
since much of the economy's growth in that year seemed to depend on export
expansion.

     The most complicated issues, however, were distributional-who was to
receive the benefits (or losses) from economic growth? Some groups,
particularly labor and management from the largest corporations, benefited
most directly from the economic system. Others, including consumers, part-time
and nonunionized laborers, women, and small-scale businessmen profited only
indirectly and irregularly. In the 1970s and early 1980s the government had
become more involved in the provision of public welfare than in the past.
Social security, employee and health insurance, housing, transportation, and
pollution control were common areas of focus. The administration of Prime
Minister Suzuki Zenko, however, was committed to the reduction of the massive
and mushrooming national debt, and the scope of government programs in the
future was not liable to increase. In such an environment most families and
individuals would be left to their own resources to adjust to economic
conditions.

Patterns of Development

     Rapid growth and structural change have characterized Japan's economic
development since the Meiji Restoration (1868), the point most historians
regard as the beginning of the nation's modernization. At first the economy
grew only moderately and relied heavily on the traditional agriculture sector
to generate the savings to finance investment in a modern industrial
infrastructure. But after the trough year of 1904, when 65 percent of
employment and 38 percent of the gross domestic product (GDP-see Glossary)
remained in the agricultural sector, modern industry began to expand
substantially. By the late 1920s manufacturing and mining industries
contributed 23 percent of GDP compared to 21 percent for all of agriculture,
forestry, and fishing. Moreover the transportation and communications
infrastructure had developed to a level capable of sustaining heavy industrial
development.

     In the 1930s the economy expanded at the rapid rate of 5 percent per
year, while manufacturing and mining grew to account for over a third of
GDP-more than twice the size of the agricultural sector. Most industrial
growth, however, was geared toward expanding the nation's military power, and
this policy emphasis contained the seeds of its own devastation. By the end of
World War II, 40 percent of the nation's industrial plants and infrastructure
had been destroyed, and production had reverted to levels of about fifteen
years earlier.

     The early postwar years were devoted to rebuilding this lost capacity,
and major investments went to the electric power, coal, iron and steel, and
chemical fertilizer industries. By the mid-1950s production matched prewar
levels. Released from the demands of the militarists, the economy not only
recovered its lost momentum but surpassed the growth rates of earlier periods.
During the 1953-65 period GDP expanded by over 9 percent per year;
manufacturing and mining by 13 percent; construction by 11 percent; and
infrastructure by 12 percent. In 1965 these three modern sectors employed over
41 percent of the labor force while only 26 percent remained in agriculture.

     The mid-1960s ushered in a new type of industrial development as the
economy opened itself to international competition in some industries and
developed the heavy and chemical manufactures. While textiles and light
manufactures maintained their profitability internationally, products such as
automobiles, ships, and machine tools assumed new importance. Manufacturing
and mining value-added (see Glossary) grew at the rate of 17 percent per year
in the 1965-70 period. Growth rates moderated to about 8 percent and evened
out between sectors in the 1970-73 period, as the retail trade, finance, real
estate, information, and other service industries streamlined their
operations.

     The nation's economic prowess faced a severe challenge in the mid-1970s.
The onset of the worldwide oil crisis in 1973-74 shocked an economy that had
become vitally dependent on foreign supplies of petroleum. As a result Japan
experienced its first postwar decline in industrial production together with a
severe round of price inflation (see fig. 6). The recovery that followed the
first oil crisis revived the optimism of most business leaders, but the
maintenance of industrial growth in the face of high energy costs required
shifts in the industrial structure.

     Changing price conditions favored conservation and utilization of
alternate sources of industrial energy. Although the investment costs were
high, many of the nation's most energy-intensive industries successfully
reduced their dependence on oil during the late 1970s and enhanced their
productivity. Technological advances in the field of microcircuitry also led
to the development of new growth industries in consumer electronics and
computers and to savings in already established industries. The net result of
these adjustments was to increase the energy efficiency of manufacturing and
to expand what was called "knowledge-intensive industry." As a result the
services industries have expanded in importance to the economy.

     The structural changes taking place in the economy, however, were unable
to check the natural tendency for the pace of growth to slacken. As the
economy matured in the late 1970s and the early 1980s, it became unrealistic
for the Japanese to look for annual growth rates of more than 4 to 6 percent.
But these were still remarkable in a world of expensive petroleum and in an
economy having few domestic resources.

     During another round of sudden international oil price increases in 1979,
the strength of the economy was apparent. The economy expanded without the
double-digit inflation that had afflicted other industrial nations and that
had bothered Japan itself after the first oil crisis. In 1981 the prospects
for the economy seemed in line with the patterns of the late 1970s, but there
remained a fear on the part of many economists and businessmen that sooner or
later Japan must fall into the "stagflation" so characteristic of other free
market economies.

     A whole set of complex economic and institutional factors have affected
Japan's postwar growth. First, the nation's prewar experience contained
several important legacies. The Tokugawa era (1603-1868) bequeathed a vital
commercial sector in the burgeoning urban centers, a relatively well-educated
elite having some knowledge of European science, a sophisticated government
bureaucracy, and a productive agriculture (see The Tokugawa Period [1603-1868]
ch. 1). After the Meiji Restoration the success in industrializing to the
point where Japan could vie for world power was an important prelude to
postwar growth and provided a pool of experienced labor.

     Second and more importantly was the high level of investment which
persisted even into the 1980s. Investment in capital equipment averaged over
11 percent of the gross national product (GNP-see Glossary) during the prewar
period, rose to some 20 percent of GNP during the 1950s, and since 1967 has
been over 30 percent each year. An uncommonly high rate of savings, efficient
financial institutions, and government incentives supported this investment.

     The quality of investment was also critical to the economy's performance.
Japan's businessmen imported the latest technologies to rebuild and expand the
industrial base. As a latecomer to modernization, the nation was able to avoid
some of the trial and error needed to perfect industrial processes. This was
especially so during the prewar era, when the importation of capital equipment
and the hiring of foreign technicians was significant. But even in the late
1970s and into the 1980s, technology licensing, patent purchases, and the
imitation and improvement of foreign inventions was important. At the same
time, Japan's industrialists and technicians must be credited with the basic
urge to innovate.

     Japan's labor force contributed importantly to economic growth, not only
because of availability and literacy, but also its reasonable wage demands.
Before and immediately after World War II, the transference of the numerous
agricultural workers to modern industry resulted in rising productivity and
only moderate wage increases. As population growth slowed and the nation
became increasingly industrialized in the mid-1960s, wages adjusted upward
significantly. But cooperation from the labor unions kept salary increases
generally within the range of productivity gains. In addition the average
Japanese worker has been well educated by world standards, and some scholars
have argued that the level of education has consistently surpassed the needs
of the economy since the Meiji period.

     The economy has also benefited from economies of scale. Although medium-
and small-scale enterprises have generated much of the nation's employment,
large-scale facilities have been most productive. Ownership and management of
many industrial enterprises have also concentrated into large units. Before
World War II large holding companies or zaibatsu (see Glossary) dominated most
industry. The groups were dissolved after the war, but new ones have emerged
in different forms. The coordination of activities within these groupings and
the integration of smaller subcontractors into the group operations have
enhanced industrial efficiency.

     Finally a number of circumstances beyond Japan's direct control
contributed to its success. With the exception of World War II, international
conflicts have tended to stimulate the Japanese economy. The Russo-Japanese
War (1904-1905), World War I (1914-18), the Korean War (1950-53), and the
Vietnam conflict (1965-72) brought economic booms. In addition benign
treatment from the United States after World War II facilitated the nation's
reconstruction and growth. United States assistance totaled about US$1.9
billion during the 1945-52 period, or about 15 percent of the nation's imports
and 4 percent of GNP in that period. About 59 percent of this aid was in the
form of food; 15 percent was industrial materials; and 12 percent was
transportation equipment. United States grant assistance, however, tapered off
quickly in the mid-1950s. United States military procurements from Japan
peaked at a level equivalent to 7 percent of Japan's GNP in 1953 and fell
below 1 percent after 1960. Moreover institutional reforms enacted by the
United States during its occupation of Japan, including land reform and the
dissolution of the large zaibatsu families, contributed to the economy's later
performance by increasing competition. In particular the purge of industrial
leaders allowed new talent to rise in the management hierarchies of the
nation's rebuilt industries. Lastly the economy has benefited from foreign
trade, especially since the late 1960s; the goodwill of Japan's trading
partners in accepting its products in the face of their own mounting trade
deficits was not insignificant. It was, however, the high quality and
competitive pricing of those exports that attracted foreign buyers to the
nation's merchandise.

     The consequences of Japan's economic growth have not always been
positive. Large-scale and modern industrial enterprises exist side-by-side
with the smaller and technologically less developed firms, creating a
condition of economic dualism (see Glossary). The stability of profits and
wages in firms in the former group greatly surpasses that of those in the
latter. Likewise, temporary employees, mostly women, have received much
smaller salaries than permanent workers. The modernization of the service
industries (including trade, banking, and real estate) and the provision of
subsidies to farmers have reduced some wealth differentials, but they remained
a source of political concern in the 1980s.

     Additionally Japan's preoccupation with boosting the rate of industrial
growth has led to the relative neglect of some consumer services and also to
the worsening of industrial pollution. Housing and urban services, such as
water and sewage systems, and social security benefits have lagged behind the
development of the manufacturing industries. Agricultural subsidies and the
complex distribution network have also kept the prices of essential consumer
goods very high by world standards (see Living Standards, this ch.). Concern
about industrial pollution came to a head in the 1970s. Although many
industries had significantly reduced the level of pollution by 1981, it
remained a potent public issue and a direct consequence of industrial growth.

     Finally the nation's rapid economic growth has led to increasingly
problematic trade surpluses in Japan's favor, which have upset even the
country's allies (see Background and History, ch. 5). Since the second oil
crisis in 1979-80, much economic growth has been the result of export
expansion. In late 1981 the growing dependence on exports and the sluggish
demand from domestic consumers was disturbing the nation's own economic
policymakers. Many economists argued that continued prosperity would require
Japanese consumers to increase their personal consumption and the maintenance
of a more equitable international balance of trade. Economic prosperity,
therefore, has not diminished the importance of economic issues in the
national political life. Indeed it was a major task of the government to
balance the demands of the nation's most important economic groups to form an
optimal economic strategy.

Government Policy and Guidance

     Although Japan's economic development was primarily the product of
private entrepreneurship, the government has directly contributed to the
nation's prosperity in a number of ways. Its actions have helped to initiate
new industries, cushion the effects of economic depression, create a sound
economic infrastructure, and protect the living standards of the citizenry.
Indeed so pervasive has government influence in the economy seemed that many
foreign observers have popularized the term "Japan, Inc." to designate this
alliance of business and government interests. Whether Japan in 1981 actually
fit this picture seemed questionable, but there was little doubt that
government agencies continued to influence the economy through a variety of
policies.

     The most important national economic agencies were the Ministry of
Finance (MOF) and the Ministry of International Trade and Industry (MITI),
though a host of other organizations performed essential economic functions
(see Institutions for Trade, ch. 5). The Economic Planning Agency (EPA),
Federal Trade Commission (FTC), and Ministry of Agriculture, Forestry, and
Fisheries (MAFF), for example, wielded considerable influence (see
Policy-making Dynamics, ch. 6). Achieving a consensus on national economic
policy was the ideal, but ministries and consultative bodies often vied with
each other over finances, projects, and policies.

     Long-term economic planning was purely indicative and subject to frequent
and overlapping adjustments. The EPA was responsible for drafting long-range
plans in consultation with other economic agencies. The most recent EPA plan
spanned the 1979-85 period and contained targets for the growth of GNP,
investment, taxes, and other variables. Simultaneously, however, MITI and
other agencies have developed a set of policy "visions" for the 1980s. In
either form such long-term strategies were hardly as important as the
day-to-day adjustments of economic policy. Some leaders in private business
have even derided economic planning in Japan as being inaccurate, if not
completely ineffectual.

Monetary Policy

     Throughout most of the postwar period the economy has responded quickly
to changes in the supply of money and credit, and monetary policy was the
primary instrument of government control. By restricting or expanding the
money supply the government was able to restrain or to stimulate economic
growth almost at will. Each economic recession, for example, was preceded by a
period of tight monetary policy and followed by an expansionary policy.

     The Bank of Japan, the nation's central bank, was responsible for
conducting the government's monetary policy. The bank's policy board consisted
of the bank governor, representatives from the EPA and the MOF and appointees
from the private banking community. The most influential guidance over the
board's decisions, however, came from the Banking Bureau of the MOF. Since
much of the nation's economic activity depended on the provision of credit,
the MOF had a strong influence on private enterprise. In 1981 Japanese
businesses were becoming less dependent on domestic banking credit than in the
past, and direct government control was slowly waning (see Banking and
Finance, this ch.).

     The main instruments for monetary control were the lending and discount
policies of the Bank of Japan, supplemented by a form of banking control
called "window guidance" (see Glossary). The central bank periodically
adjusted the discount or bank rate-the rate of interest charged on central
bank loans and discounts to commercial banks. The discount rate was set high
during periods of monetary restraint and low during expansion. Through "window
guidance" the central bank set quarterly loan quotas for each major public and
private banking institution, based upon the lending record for the same
quarter of the previous year.

     Less important instruments of monetary control were reserve requirements
and operations in the financial markets. The Bank of Japan determined the
ratio of reserves to be deposited in the central bank for all types of deposit
institutions. The maximum reserve ratio allowed by law was fixed at 20
percent, but the actual requirements were much lower, typically less than 2
percent. In 1980 the bank's total reserves averaged about 2 percent of total
deposits at financial institutions. Until the mid-1970s the Bank of Japan
engaged in only limited forms of open market operations. The gradual
liberalization of the financial system and the need to increase government
borrowings, however, have caused the government to become increasingly active
in the marketing of securities. Purchasing securities in the open market was
therefore another means of pumping money into the system.

     Japan's monetary policy has shifted significantly since the mid-1970s.
Just before and during the first oil crisis, monetary policy was usually
expansionary, both in order to promote full employment and to eliminate the
foreign trade surpluses. As the oil shortage developed, however, the rapid
expansion of the money supply resulted in double-digit inflation accompanied
by a massive business recession. Subsequently the nation's monetary
authorities placed price stability above all other policy objectives. The
government's argument was that in the long run the goals of full employment
and external balance would best be served by restraining the growth of the
money supply.

     By closely monitoring price increases, strictly adhering to quarterly
targets for money supply growth, and liberalizing some forms of bank interest
rates, the Bank of Japan was able to halt the inflationary pressures from
excess domestic demand. The test of this conservative monetary policy came
during the second international oil crisis. Petroleum price increases were
passed on to Japanese consumers in the form of higher relative prices for
those commodities that used oil as a major input, thus exacerbating inflation.
But the government resisted the temptation to expand the money supply. In fact
the central discount rate rose to an all-time high of 9 percent in mid-1980.
As a result the nation experienced less overall inflation than other developed
economies.

Fiscal Policy

     The government's fiscal policy revolved around the formulation of the
national budget, which was also the responsibility of the MOF. The Budget
Bureau of the MOF prepared expenditure budgets for each fiscal year (FY-see
Glossary) based upon the requests from government ministries and affiliated
agencies. The Tax Bureau was responsible for adjusting the tax schedules and
estimating revenues. The ministry also issued government bonds, controlled
government borrowing, and administered the Fiscal Investment and Loan
Program-sometimes referred to as the "second budget."

     Three types of budgets were prepared for the approval of the National
Diet each year. The general account budget included most of the basic
expenditures of current government operations. Special account budgets, of
which there were about forty, were designed for special programs or
institutions where close accounting of revenues and expenditures was
essential. (These accounts included public enterprises, state pension funds,
and public works projects financed from special taxes.) Finally there were the
budgets required for the fifteen major public enterprises, including the three
public service corporations, ten loan and finance institutions, and the two
special public banks (see Public Corporations, this ch.). Although these
budgets were approved before the start of each fiscal year, they were usually
addended or revised with supplemental budgets. The nation's local budgets were
heavily dependent on transfers from the central government (see table 2,
Appendix).

     Although general government expenditures were smaller as a proportion of
GNP than in most other industrial economies, the government's fiscal policy
was not restrictive. Government fixed investments in infrastructure and loans
to private and public enterprises strongly stimulated both current and
long-term production. In 1979 the total fixed capital formation from
government and public enterprises was about 13 percent of GNP. The effective
level of investment, however, was higher. Loans from the Fiscal Investment and
Loan Program, which were outside of the general budget and funded primarily
from postal savings, went to public and private enterprises as well as to some
of the special accounts. The total amount of these loans represented more than
20 percent of the general account budget, and their total effect on economic
investment was not completely accounted for in the national income statistics.

     Taxes formed the major share of government revenues, and the total tax
burden in 1979 represented 17.4 percent of GNP. This was low in comparison to
other developed economies but was an increase over the 15.8 percent tax burden
for 1971. Individual income and corporate taxes provided some 67 percent of
the revenues. Income taxes were graduated and progressive; the higher brackets
were given smaller deductions and higher tax rates than the lower.
Corporations could claim special deductions or accelerated depreciation for
certain activities, such as investment in pollution control equipment. Many
types of individual savings and welfare expenditures were also deductible. An
inheritance tax and indirect levies on specified commodities, travel, capital
gains, and securities transactions were less significant. A major source of
revenue came from contributions to social security (an extra-budgetary item).
If these payments were added to the national tax revenue, the total burden to
the economy would come to about 25 percent of GNP in 1979.

     Increasing the level of taxation by some six or seven percentage points
of GNP during the 1979-85 period was a major long-term goal of the government.
To accomplish this the government planned to institute a value-added tax as
soon as politically feasible. The first significant initiative to start such a
tax caused a controversy for Prime Minister Ohira Masayoshi in 1979, but
popular resistance to the proposed system seemed to be lessening in 1981.
Prime Minister Suzuki Zenko planned to implement a value-added tax of some
kind as early as 1983. It was not known whether corporate and personal income
taxes would be cut as a result of the added tax revenue.

     The need for additional state revenue was a growing cause of public
concern as the central government registered a deficit that was over 5 percent
of GNP in 1979. The rising levels of expenditures, including efforts to
finance the public debt, prompted the government to make massive issues of
public bonds. These issues reached over 14 trillion Yen (for value of the
yen-see Glossary) in FY 1980, or 34 percent of the total planned budget for
the year. Amidst the reluctance of the nation's banks to purchase the bonds at
artificially low rates of interest, the Suzuki cabinet planned to reduce the
level of bond issues drastically and to balance the budget within five years.
The FY 1981 budget incorporated the reduction of bond issues to less than 30
percent of revenues for the first time in four years, while increasing the
corporate and commodity taxes to expand revenues. The government also planned
to decrease its subsidies for the national pension plans and social security.
Overall the nation's planned expenditures from the general account were to
increase only by 9.9 percent in FY 1981, the smallest increase in twenty-two
years. If the government debt service payments and transfers to local
governments were excluded, as the MOF did in its analysis of expenditure
trends, the general expenditure would increase only by 5.3 percent. The
fastest growing budget items in 1981 were for defense and social security.

Public Corporations

     Japan's numerous public corporations were unique features of an otherwise
wholly private enterprise economy. At the end of 1979 there were 111 such
corporations at the national level and several thousand at the local level.
Those at the national level were normally affiliated with one of the economic
ministries, although the extent of direct management and supervision varied.
The receipts of the national corporations represented about 6 percent of GNP
in 1979, and they employed about 941,000 people, or 1.6 percent of the labor
force.

     The government divided the national-level corporations into several
categories (see table 3, Appendix). The first category included the three main
public service and monopoly corporations: Nippon Telegraph and Telephone
(NTT), Japanese National Railways, and Japan Tobacco and Salt. The second
category included the major development corporations. Together these two
groups of corporations utilized the bulk of the funds from the Fiscal
Investment and Loan Program. Their activities were devoted to housing,
agriculture, highways, water resources, ports, energy resources, and urban
projects. Other categories of corporations included those charged with special
government projects, loans and finance, and special types of banking. Public
corporations at the local level usually were involved with utilities.

     Public corporations benefited the economy in several ways. Some, like
NTT, were important sources of technology development funds or poles around
which private industry could cluster. Others performed vital public services
that private industry would find it impossible to finance. The development
banks, particularly the Japan Development Bank, were important sources of
long-term investment funds and were instrumental in shaping the pattern of
industry. Since they also added revenue to the national budget and were
(theoretically) self-financing, the corporations required little from the
government in the way of financial support. These enterprises also provided
employment for retired bureaucrats.

     The system of public corporations had negative aspects as well, however,
in that their operations were apt to be less efficient than those of the
private sector. In some of the corporations, close government supervision
impeded corporate responsibility. The decision to increase railway fares, for
instance, required as much politicking as rational economic analysis.
Conflicts between corporate heads who were retired from competing ministries
and envy among career employees who saw their paths to advancement blocked by
the influx of retired officials also created frequent management problems.
Labor relations were often less harmonious in the public than in the private
sector, and some of the nation's most debilitating strikes or work slowdowns
have been launched by the public transportation workers. Given their
traditional importance to the economy, however, the number of public
corporations would probably remain about the same in the 1980s.