Enterprise and Society Advance Access published online on September 25, 2007
Enterprise and Society, doi:10.1093/es/khm076
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Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth
RANDALL MORCK is Stephen A. Jarislowsky Distinguished Professor of Finance and University Professor at the School of Business at the University of Alberta; as well as Research Associate at the National Bureau of Economic Research. Contact information: School of Business, University of Alberta, 3-23 Business Building, Edmonton, AB, Canada, T6G 2 R6
MASAO NAKAMURA is Konwakai Japan Research Chair and Professor at the Sauder School of Business and the Institute of Asian Research at the University of British Columbia. Contact information: Sauder School of Business, The University of British Columbia, 2053 Main Mall, Vancouver, BC, Canada V6 T 1Z2
randall.morck{at}ualberta.ca
masao.nakamura{at}sauder.ubc.ca
Paul Rosenstein-Rodan argues that economic development requires coordinated investment in many interdependent industries, and prescribes a flood of state-controlled investment across all sectors—a so-called big push. Widespread government failure defeated twentieth-century ‘big push’ schemes. But spillovers across firms and industries, and from public goods, hold-up problems, and capital market limitations are real, and justify coordinated growth across sectors if it can be done without government failures. Large, extensively diversified pyramidal business groups of listed firms dominate the histories of developed economies and the economies of developing economies. Arguing that such groups provided this coordination in prewar Japan after a state-run big push failed, we propose that pyramidal business groups are private-sector mechanisms for coordinating big push growth, and that competition between rival groups induces efficiency unattainable in a state-run big push. We postulate that a successful business-group led big push requires economic openness, basic public goods, rule of law, separation of the state from business, and a timely demise of business groups when the big push phase is complete. Where these criteria are not met, growth stalls and oligarchic families become too powerful to dislodge.
We are grateful for helpful comments, encouragement, and suggestions from participants in the Society for the Advancement of Socio-Economics 2006 conference in Trier, Germany, and the Asian Finance Association, Financial Management Association, 2007, conference in Hong Kong, as well as from Franklin Allen, Caroline Fohlin, Juro Teranishi, Andrei Shleifer, Yupana Wiwattanakantang, and Bernard Yeung; and especially from Gary Herrigel, Ken Lipartito, and two anonymous referees. We also thank Louise Hébert and Elisabeth O'Kane for careful editing. Support from the Social Sciences and Humanities Research Council is gratefully acknowledged.