Masahiko Aoki

The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies

BL Gives a definitive description and analysis of the main bank system BL Strong contributors BL Understudied subject BL Incorporates results of a major World Bank research programme BL Balances institutional description with financial theory and empirical analysis This volume looks at systems of corporate finance, concentrating on the Japanese main bank system. The remaining chapters describe different systems, assessing to what extent the Japanese system can serve as a model for developing market economies and transforming socialist economies. The basic characteristics of the main bank system are examined here, its roots, development, and its role in the heyday of its rapid growth. The volume looks at how the system has performed and at its strengths and weaknesses. It goes on to look at how the system has changed and what its approprate role is as deregulation, liberalization, and internationalization of Japans financial markets have proceeded over the past two decades and a new issue securities market has emerged. A basic conclusion of the book is that banking-based systems are in most cases the most appropriate for industrial financing until a rather late stage of a countrys economic and financial development. It aims to identify the conditions under which banks are better able that securites market institutions to evaluate the credit worthiness of borrowers and the viability of new projects, to monitor the ongoing performance of firms, and to rescue or liquidate firms in distress. Note: Contributors: Masahiko Aoki, Theodor Baums, V.V.Bhatt, John Campbell, Yasushi Hamao, Toshihiro Horiuchi, Takeo Hoshi, Anil Kashyap, Dong-Wong Kim, Gary Loveman, Sang-Woo Nam, Frank Packer, Hugh Patrick, Yingyi Qian, Mark Ramseyer, Clark Reynolds, Satoshi Sunamura, Paul Sheard, Juro Teranishi, Kazuo Ueda, Contributors to this volume - Hugh Patrick, Masahiko Aoki, Paul Sheard, Juro Teranishi, Kazuo Ueda, Frank Packer, Mark Ramseyer, Toshihiro Horiuchi, Satoshi Sunamura, John Campbell, Yasushi Hamao, Theodor Baums, Sang-Woo Nam, Dong-Won Kim, V. V. Bhatt, Clark Reynolds, Yingyi Qian, Takeo Hoshi, Anil Kashyap, Gary Loveman

The Japanese firm : the sources of competitive strength

Masahiko Aoki and Ronald Dore have edited an authoritative account of the Japanese firm and the sources of its success, including contributions from some of the best, and best known, scholars in the field. The book represents an attempt to explain and understand aspects of the firm in the Japanese economic system, and to explain the corporate success of Japan. It is interdisciplinary in approach, containing both theoretical and empirical work, and has contributions from the fields of labour economics, comparative institutional analysis, information economics, finance, organizational theory, economic history, political science, and sociology. Chapters range from contemporary descriptions--of training (in overseas subsidiaries as well as Japan), of R&D structures, of product development practices, of finance and corporate governance, of trading relations, especially between small and large firms--to an historical overview of the evolution of Japanese management in the wartime planned economy. The book also situates Japan in the literature of economic analysis and in the on-going debate about trade-offs between equality and efficiency. The contemporary media would have us believe that the Japanese system of management--characterized by lifetime employment, emphasis on long-term, slow consensual decision-making, heavy investments in training, R&D, and quality, close inter-enterprise ties, and short rations for shareholders--is in crisis and about to change fundamentally. This book will enable the reader to decide just how solid the foundations of the Japanese enterprise system are, and to identify the rationale that lies behind it.

Endogenizing institutions and institutional changes

This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. First, it proposes a new definition of institution based on the notion of common knowledge regarding self-sustaining features of social interactions with a hope to integrate various disciplinary approaches to institutions and their changes. Second, it specifies some generic mechanisms of institutional coherence and change – overlapping social embeddedness, Schumpeterian innovation in bundling games, and dynamic institutional complementarities – useful for understanding the dynamic interactions of economic, political, social, organizational, and cognitive factors.

The Contingent Governance of Teams: Analysis of Institutional Complementarity

The first purpose of this paper is to design a model of governance structure, called the contingent governance, which can control the free-riding problem in teams in the second-best manner. The second is to show, by a new method of comparative static analysis, that the effectiveness of the contingent governance may be enhanced by complementary institutional arrangements of the imperfect labor market and bank-centered financial system. The paper discusses the implications of such institutional complementarity for the dynamic change of the Japanese main bank system and financial system design of transitional economies.

The Role of Government in East Asian Economic Development: Comparative Institutional Analysis

The role of government in East Asian economic development has been a contentious issue. Two competing views have shaped enquiries into the source of the rapid growth of the high-performing Asian economies and attempts to derive a general lesson for other developing economies: the market-friendly view, according to which government intervenes little in the market, and the developmental state view, in which it governs the market. What these views share in common is a conception of market and government as alternative mechanisms for resource allocation. They are distinct only in their judgement of the extent to which market failures have been, and ought to be, remedied by direct government intervention. This collection of essays suggests a breakthrough, third view: the market-enhancing view. Instead of viewing government and the market as mutually exclusive substitutes, it examines the capacity of government policy to facilitate or complement private sector co-ordination. The book starts from the premiss that private sector institutions have important comparative advantages over government, in particular in their ability to process information available on site. At the same time, it recognizes that the capabilities of the private sector are more limited in developing economies. The market-enhancing view thus stresses the mechanisms whereby government policy is directed at improving the ability of the private sector to solve co-ordination problems and overcome other market imperfections. In presenting the market-enhancing view, the book recognizes the wide diversity of the roles of government across various East Asian economiesincluding Japan, Korea, Hong Kong, Malaysia, and China and its path-dependent and developmental stage nature.

Communities and Markets in Economic Development

This book explores the role of community in facilitating the transition to market relationships in economic development, and in controlling and sustaining local public goods such as irrigation, forests, grazing land, and fishing grounds. Previously it was customary to classify economic systems in terms of varying combinations of state and market control of resource allocation. In contrast, this book recognizes community as the third major element of economic systems. This new approach also departs from the conventional view that markets and community norms should be treated as mutually exclusive means of organizing economic activity, instead clarifying the situations in which they may become complementary. Further discussion focuses on the conditions under which management of local commons can, and should, be delegated to local communities rather than subjected to the control of central government. These and other issues are investigated by twenty-one leading scholars from economic history, development economics, agricultural economics, and institutional economics. The resulting volume is the latest in a set of four books about East Asian developmental experiences, co-sponsored by the Economic Institute of the World Bank and the Stanford Institute of Economic Policy Research. It will appeal to economists and other social scientists with an interest in economic development, history, comparative systems, and institutional economics.

The Japanese Firm as an Innovating Institution

At one level, this paper may be regarded as an exercise in comparative industrial organisation. We are primarily interested in accounting for the highly successful performance of Japanese manufacturing firms in the innovation process. In pursuing this goal, however, it will be necessary to ‘unpack’, and to examine critically, some intellectual baggage that has strongly shaped and influenced the approach to innovative activity in the recent past. To the extent that our approach is convincing, it suggests a reordering of focus and emphasis in the study of innovation.

Managerialism revisited in the light of bargaining-game theory

Abstract This lecture proposes to view the modern firm as a coalition of shareholders, employees, and business partners, rather than to identify it with a single maximizer such as an entrepreneur. This view may be thought of as a revival of the original thought of managerialism, but tries to go further by analyzing implications of the interactions of those agents on the behavior of the firm in a bargaining-game theoretic framework. The lecture reviews the literature on game theoretic approaches to the theory of the firm, and discusses a few important theoretical and institutional issues.

An Investment Planning Process for an Economy with Increasing Returns

This volume collects 22 articles by Masahiko Aoki, selected from writings published over the course of his 45-year academic career. These fascinating essays cover a range of issues, including mechanism design, comparative governance, corporate governance, institutions and institutional change, but are tied together by a focus on East Asia and a comparative institutional framework.

Dual Stability in a Cambridge-type Model

In this paper we are concerned with the dynamic properties of a multi-firm model of the Cambridge-type. The essential feature of the model is the assumption that, in making decisions concerning investments and prices, firms lack an exact knowledge of future demands and equilibrium prices. The dual stability-instability property of Leontief models (e.g. [2], [6, pp. 81-84]) or saddle-point property of neoclassical models (e.g. [1], [3]) is essentially due to the unrealistic assumption of perfect foresight. The first object of this paper is to show that, relaxing this assumption, a dual stability property for both quantities and prices holds. As firms must create output capacity for unknown future demand, excess capacity may result when out of equilibrium. But it will be shown that a certain type of investment behaviour where the firms learn from past experience would tend to adjust the structure of productive capacity to steady-state requirements. As for the price system, full cost pricing is assumed. In the short period, the firms produce as much as they can sell at fixed prices and they then revise these prices when a change in costs occurs. Furthermore, it will be assumed that the money wage rate increases at certain periods of time and that the firms pass it on in the form of higher prices. The second object of this paper is to examine under a simple Cambridge saving condition how real phenomena such as the rate of equilibrium growth, the stability of the input-output system, and the level of real wages are affected by the bargaining power of workers as well as by the monopoly power of firms.