Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth

Posted: 30 Jun 2008

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business

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Abstract

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.

Suggested Citation

Morck, Randall K. and Nakamura, Masao, Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth. Enterprise and Society, Vol. 8, No. 3, pp. 543-601, 2007. Available at SSRN: https://ssrn.com/abstract=1152582 or http://dx.doi.org/10.1093/es/khm076

Randall K. Morck (Contact Author)

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Masao Nakamura

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