Government-Firm Relationship in Postwar Japan: Success and Failure of the Bureau-Pluralism

In this paper, we identify the common organizational and institutional factor behind the success and failure of the Japanese economy, focusing on the industrial policy and the government-firm relationship. The key concept is the bureau-pluralism. The bureau-pluralism in Japan is an outcome of path dependent evolution of the economic system. Based on the experiences during WWII, the bureau-pluralistic system, including deliberative councils and industrial associations, evolved, which worked efficiently to coordinate economic growth in 1950's and the high growth era. Its effectiveness was supported by the condition that industries were highly complementary in this period. Consequently, on one hand, there were few serious conflicts among industries and their counterparts in the bureaucracy, which made it possible to avoid the bad influence of the conservative bias, due to the vested interests of the existing industries. On the other hand, this complementarity was sources of numerous coordination failures in the various aspects of the economy. In order to detect and resolve these coordination failures quickly, the decentralized decision making and horizontal coordination of the bureau-pluralism worked efficiently. However, the same attribute of the bureau-pluralism impeded the Japanese economy to adapt to the change of the global economy since 1980's. First, the newly growing industrial fields as information and telecommunication, were across the border of existing industries and therefore the bureaucratic jurisdiction, which caused serious jurisdiction disputes among ministries. Second, the reforms necessary to adapt to the global change collided with the interests of the existing industries and ministries. Those jurisdiction disputes and the conflicts with the vested interests are difficult for the bureau-pluralism to resolve.