This week in Tokyo, I had the pleasure of talking over dinner to Dr Junichi Ujiie, the Chairman of Nomura. As you might expect, he is a great believer in free markets. Many people think that Japan's postwar industrial boom is rooted in its famous Economic Planning Agency: but Ujiie pointed out that this 'planning' body was actually very different from the state planning agencies of postwar Eastern Europe. It worked not through planning in that sense, but by voluntary strategic agreements; and in fact it liberalized trade and capital flows.
He has a point. Certainly, Agency officials tried to push businesses this way and that; but the corporates frequently resisted this pressure. For example, officials tried to block a new steel mill with the latest techology, on the ground that Japan was too small for it; but the mill was built anyway, and was a great success. Plans to 'rationalize' car-making through merging companies was also resisted by the companies themselves: it is unlikely that Japan would have such efficient successes as Toyota or Honda today had market competition been stifled. In electronics, officials tried to block a young company making transistors for the US: they thought it just too small. Luckily they failed, because the company is Sony.
In other words, Japan's great successes were where 'planning' in the old sense failed. Where 'planning' succeeded was the financial markets, where the authorities maintained a bank-centric financial system. Banks, not investors, became the main shareholders in business, competition was curbed, numerous cross-holdings raised risk. And just look what happened there.
Luckily that experience has pushed Japan, falteringly, toward financial market deregulation. Like many other places, though, there is no shortage of commentators who question market forces, even here. Market liberals can never sleep.
