Institutional Restructuring in the Japanese Economy since 1985

The Japanese economy has experienced an unprecedented period of macroeconomic turbulence over recent years. Even before the 1997 Asian crisis, this had led to a sharp rise in the number of financial institutions experiencing bankruptcy, including a number of large regional banks and an international stockbroking firm. The question we seek to address is, What effect has this economic turbulence since 1985 had on the four institutional foundations of post–World War II Japanese industrial success? First, we examine the Japanese “main bank” system whereby a “main” bank is involved in a special type of long-term relationship with the non-financial firms that it lends to. Second, we review the Japanese employment system characterized by lifetime employment, a seniority wage system, and enterprise unionism. Third, we look at the inter-corporate relationships between main firms and their suppliers. And, fourth, we consider the nature of Japanese industrial policy, the interventionist role of the Ministry of International Trade and Industry (MITI), and the relatively weak role of Japanese competition policy under the authority of the Japan Fair Trade Commission (JFTC). In each case we present evidence that suggests that these institutional foundations of the Japanese “economic success story” have been weakened over the period we look at. Before turning to the institutions, we sketch the wider macroeconomic, political, and supply side situation of the Japanese economy.