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Japan's financial markets: Conflict and consensus in policy-making
JOURNAL
OF COMPARATIVE
ECONOMICS
l&620-622
( 1987)
JAMES HORNE, Japan 3 Financial Markets: Conflict and Consensus in Policymaking. Sydney, Australia: Allen & Unwin, 1985. 271 pp., index. Cloth, $33.95. Paper, $13.95. Like many works in the applied social sciences, my own included, this book is put together like a sandwich. The outer slices of bread contain the alleged theoretical questions of interest to the author and his or her proposed solutions to them. The inner tillings of meat, cheese, and pickles contribute the empirical analysis and the attempted demonstration of the theoretically interesting relationships. In the case of this book, it would be best to throw away the bread and go at once for the meat in the center. The author, Dr. James Horne, is an officer of the Australian Treasury and a linguistically trained specialist in the Japanese economy. He appears to have set out to write a book not about Japan’s financial markets but about Japan’s Ministry of Finance (MOF). Thus, his conceptual outer wrappings concern the structure of the Ministry of Finance, its patterns of recruitment and retirement, and, above a& its place and powers in a complex institutional setting. This setting includes a political party that has held a majority of the seats in the national parliament for well over 35 years, numerous other ministries and agencies of the central government, the Bank of Japan and other official financial institutions, and sometimes politically powerful clients of and claimants on the MOF. It seems to me that the author’s work here is unpersuasive, sometimes misleading, and often naive. He has a tendency to beg the critical questions. Thus, for example, government officials always “intervene” in the private sector, as distinct from cooperating with it or operating in it; the MOF “regulates” its clients, as distinct from protecting, representing, or developing them; and the ruling Liberal Democratic Party is never disaggregated into the five or six internal factions that actually run it. The author often seems to confuse the party with the prime minister, who is only a faction leader at the head of a coalition, and thus remarks on “the pivotal significance of the Prime Minister” (pp. 124, 141). By contrast, in the recent Japanese-American negotiations on opening the Japanese telecommunications market to foreign participation, the U.S. trade negotiator referred to “the promises made by Prime Minister Nakasone to President Reagan about solving these issues.” The Japanese negotiator replied, “I don’t know what the Prime Minister
014%596?/87
$3.00
Copyright 0 1987 by Academic Press, Inc. All rights of reproduction in any form reserved.
620
BOOK
REVIEWS
621
promised, But prime ministers come and go. Whatever his desires, he must work through the appropriate ministries. This is our history of more than 100 years” (Business Week, March 11, 1985, p. 67). Most seriously, the author has no sense of history in the development of the Japanese state bureaucracy and therefore finds things that are merely traditional to be mysterious. He rejects the three classical theories of the behavior of bureaucrats toward the public-serving the public’s interest, serving their clients’ interests, and serving their own interests-in favor of his own conception of a range of behaviors from consensus to conflict. The case studies, however, lead me to think that the classical explanations need not be replaced. Despite these reservations, I still strongly recommend this book for careful readers. This is because James Home is a superb analyst of financial markets, financial transactions, and financiers. His six case studies, the meat of the sandwich, contain details and insights into Japan’s recent public financial policies that are not available in any other single source in English or Japanese. The six are (1) the tremendous expansion in the flotation of government bonds that began in 1975 and that increased the governmental dependence ratio, that is, the percentage of expenditures in the General Account Budget financed through bond issues, from 11.3% in 1975 to 29.7% in 1982; (2) the establishment in the late 1970s of a certificates of deposit (CDs) market in Japan in order to maintain the profitability of the 13 main commercial (“city”) banks after government bond underwriting had crowded out more profitable business; (3) the fight over the demand of commercial banks to compete with the politically powerful securities companies in buying and selling government bonds in a secondary market and directly to the public, powers that the banks got only in 1983 and 1984; (4) the fight between the MOF and the Ministry of Posts and Telecommunications over bringing the postal savings service, which in January 1986 had assets of over 100 trillion yen and was the world’s largest “bank,” under MOF’s control (MOF failed); (5) the enactment in 1980 of a new foreign exchange law to replace the occupation-era statute of 1949; and (6) the MOF’s response between 1970 and 1982 to requests by foreign governments, international financial institutions such as the Asian Development Bank, and corporations that they be allowed to float yen bonds in Tokyo. Home handles each of these issues with verve, excellent detail, and mastery of the numerous technicalities involved. Anyone even remotely interested in recent developments in Japanese finance will learn a great deal from reading Chapters 2-7 of this book. On May 29, 1984, amid great fanfare, Japan and the United States signed an agreement on measures for Japanese financial liberalization and the internationalization of the yen. The American secretary of the Treasury declared that he had achieved a breakthrough, but virtually every independent specialist
622
BOOK REVIEWS
on the Japanese political economy held that he had been had. This book helps to explain why. As Horne concludes, “Policies which evolve will not be a straightforward reflection of economic demands but will reflect also jurisdictional disputes, domestic political concerns, and Japan’s changing international interests.” Still, given Japan’s economic weight in the world and the changing international economic environment, we should expect to “see the deregulation of the late 1970s and early 1980s continue to go ahead,” albeit slowly and unevenly (p. 218). CHALMERSJOHNSON University of California Berkeley, California 94 720
OF COMPARATIVE
ECONOMICS
l&620-622
( 1987)
JAMES HORNE, Japan 3 Financial Markets: Conflict and Consensus in Policymaking. Sydney, Australia: Allen & Unwin, 1985. 271 pp., index. Cloth, $33.95. Paper, $13.95. Like many works in the applied social sciences, my own included, this book is put together like a sandwich. The outer slices of bread contain the alleged theoretical questions of interest to the author and his or her proposed solutions to them. The inner tillings of meat, cheese, and pickles contribute the empirical analysis and the attempted demonstration of the theoretically interesting relationships. In the case of this book, it would be best to throw away the bread and go at once for the meat in the center. The author, Dr. James Horne, is an officer of the Australian Treasury and a linguistically trained specialist in the Japanese economy. He appears to have set out to write a book not about Japan’s financial markets but about Japan’s Ministry of Finance (MOF). Thus, his conceptual outer wrappings concern the structure of the Ministry of Finance, its patterns of recruitment and retirement, and, above a& its place and powers in a complex institutional setting. This setting includes a political party that has held a majority of the seats in the national parliament for well over 35 years, numerous other ministries and agencies of the central government, the Bank of Japan and other official financial institutions, and sometimes politically powerful clients of and claimants on the MOF. It seems to me that the author’s work here is unpersuasive, sometimes misleading, and often naive. He has a tendency to beg the critical questions. Thus, for example, government officials always “intervene” in the private sector, as distinct from cooperating with it or operating in it; the MOF “regulates” its clients, as distinct from protecting, representing, or developing them; and the ruling Liberal Democratic Party is never disaggregated into the five or six internal factions that actually run it. The author often seems to confuse the party with the prime minister, who is only a faction leader at the head of a coalition, and thus remarks on “the pivotal significance of the Prime Minister” (pp. 124, 141). By contrast, in the recent Japanese-American negotiations on opening the Japanese telecommunications market to foreign participation, the U.S. trade negotiator referred to “the promises made by Prime Minister Nakasone to President Reagan about solving these issues.” The Japanese negotiator replied, “I don’t know what the Prime Minister
014%596?/87
$3.00
Copyright 0 1987 by Academic Press, Inc. All rights of reproduction in any form reserved.
620
BOOK
REVIEWS
621
promised, But prime ministers come and go. Whatever his desires, he must work through the appropriate ministries. This is our history of more than 100 years” (Business Week, March 11, 1985, p. 67). Most seriously, the author has no sense of history in the development of the Japanese state bureaucracy and therefore finds things that are merely traditional to be mysterious. He rejects the three classical theories of the behavior of bureaucrats toward the public-serving the public’s interest, serving their clients’ interests, and serving their own interests-in favor of his own conception of a range of behaviors from consensus to conflict. The case studies, however, lead me to think that the classical explanations need not be replaced. Despite these reservations, I still strongly recommend this book for careful readers. This is because James Home is a superb analyst of financial markets, financial transactions, and financiers. His six case studies, the meat of the sandwich, contain details and insights into Japan’s recent public financial policies that are not available in any other single source in English or Japanese. The six are (1) the tremendous expansion in the flotation of government bonds that began in 1975 and that increased the governmental dependence ratio, that is, the percentage of expenditures in the General Account Budget financed through bond issues, from 11.3% in 1975 to 29.7% in 1982; (2) the establishment in the late 1970s of a certificates of deposit (CDs) market in Japan in order to maintain the profitability of the 13 main commercial (“city”) banks after government bond underwriting had crowded out more profitable business; (3) the fight over the demand of commercial banks to compete with the politically powerful securities companies in buying and selling government bonds in a secondary market and directly to the public, powers that the banks got only in 1983 and 1984; (4) the fight between the MOF and the Ministry of Posts and Telecommunications over bringing the postal savings service, which in January 1986 had assets of over 100 trillion yen and was the world’s largest “bank,” under MOF’s control (MOF failed); (5) the enactment in 1980 of a new foreign exchange law to replace the occupation-era statute of 1949; and (6) the MOF’s response between 1970 and 1982 to requests by foreign governments, international financial institutions such as the Asian Development Bank, and corporations that they be allowed to float yen bonds in Tokyo. Home handles each of these issues with verve, excellent detail, and mastery of the numerous technicalities involved. Anyone even remotely interested in recent developments in Japanese finance will learn a great deal from reading Chapters 2-7 of this book. On May 29, 1984, amid great fanfare, Japan and the United States signed an agreement on measures for Japanese financial liberalization and the internationalization of the yen. The American secretary of the Treasury declared that he had achieved a breakthrough, but virtually every independent specialist
622
BOOK REVIEWS
on the Japanese political economy held that he had been had. This book helps to explain why. As Horne concludes, “Policies which evolve will not be a straightforward reflection of economic demands but will reflect also jurisdictional disputes, domestic political concerns, and Japan’s changing international interests.” Still, given Japan’s economic weight in the world and the changing international economic environment, we should expect to “see the deregulation of the late 1970s and early 1980s continue to go ahead,” albeit slowly and unevenly (p. 218). CHALMERSJOHNSON University of California Berkeley, California 94 720