Holding Company and Bank: An Historical Comparative Perspective on Corporate Governance in Japan, subsequently published in "Seoul Journal of Economics", 2004, vol.17-3. )

In this paper I describe the outline of the historical evolution of corporate governance in Japan, and intend to derive some insights on its future. While two alternative systems, the holding company-based system and the bank-based system were available in the 1920s, the former started to proliferate. However, the experiences during the Second World War made the corporate system choose the other fork in the road, the bank-based system. The changes in employment system and production management were complementary with the changes in corporate governance and finance. The Japanese corporate system, which was faced with a bifurcation in the 1920s and the 1930s, is now facing another bifurcation.

"Ownership Changes and Economic Efficiency: Plant-Level Evidence from the Japanese Cotton Spinning Industry, 1900-1911"

This paper investigates how ownership changes affect the plant performance, focusing on the cotton spinning industry in early twentieth century Japan, where many plants experienced ownership changes. Through analyses of detailed plant-level data, it is revealed that, after ownership changes, plants tended to focus on low grade and low price products and, at the same time, total factor productivity, machine productivity and profitability of the plants significantly increased. These results indicate that the plants were managed and utilized more efficiently under the new ownership.

"Supplier Networks and Aircraft Production in Wartime Japan"

The Japanese aircraft industry, which operated on a very small scale before World War II, became Japan's largest manufacturing industry by the end of the war. In this paper, we explore the causes of the growth of the aircraft industry during this time by focusing on the No. 5 Works of Mitsubishi Heavy Industries Co. We find that during the war, the supply of basic inputs increased substantially: the labor force, equipment and "machinery parts" were in sufficient supply, and none of them were binding constraints on production. A binding constraint existed in the supply of "special parts." Put differently, aircraft production expanded as the supply of special parts increased. This increase in the supply of special parts and even faster growth in the supply of machinery parts came about through the expansion of supplier networks in terms of both the number of suppliers and the geographical area in which they were located. These findings imply that outsourcing played a key role in the rise of aircraft production in wartime Japan.

"Industrial Development, Firm Dynamics and Patterns of Productivity Growth: The Case of the Cotton Spinning Industry in Prewar Japan, 1894-1924"

This paper explores the relationship between patterns of productivity growth and the development stage of an industry, using firm-level data on the cotton spinning industry in Japan in the late nineteenth century. It is found that patterns of productivity growth depend on the development stage of the industry. In the earlier stage of industrial development, productivity growth of each firm, namely the within effect, was the sole major source of aggregate productivity growth. On the other hand, once the industry had matured, resource reallocation across firms became a major source of aggregate productivity growth, along with the within effect. This relationship between patterns of productivity growth and the development stage of an industry is considered to reflect the stage-dependent patterns of innovation and competition.

"The Role of the Merchant Coalition in Pre-modern Japanese Economic Development: An Historical Institutional Analysis"

This paper examines the economic role of the merchant coalition (kabu nakama) in Japan during the the eighteenth and the first half of the nineteenth century in Japan. During this period public sector enforcement of contracts was imperfect. Kabu nakama substituted for the public sector, using a multilateral punishment strategy. When the government (Bakufu) prohibited kabu nakama in 1841, the growth rate of the real money supply contracted, efficiency of price arbitrage declined, and the inflation rate increased.

"The Role of the Merchant Coalition in Pre-modern Japanese Economic Development: An Historical Institutional Analysis"

This paper examines the role of the merchant coalition (kabu nakama) in the eighteenth and the first half of the nineteenth century in Japan, from the standpoint of Historical Institutional Analysis (Greif[1997, 1998]). Quantitative economic history literature has made clear that market-based economic growth started around the end of the eighteenth century in Japan. On the other hand, the Bakufu, the central government, repeatedly promulgated Aitai Sumeshi Rei (Mutual Settlement Decree), prescribing that the public authorities would not accept suits on pecuniary affairs. This implies that the public system for third-party enforcement was not working well. Activities of the merchant coalition substituted for the public third-party enforcement. Many of the merchant coalitions' codes wrote that all of each coalition's members should suspend transaction with those who cheated any one of the members of the coalition. This was the multilateral punishment strategy (MPS), formulated by Greif[1993]. It is hypothesized that kabu nakama played the role of contract enforcement using the MPS, which reduced incentives for the transaction counterparts to cheat, and thereby promoted a market economy. Also, this paper empirically examines this hypothesis, using an opportunity of a natural experiment. In 1841, the Bakufu prohibited the coalition, intending to eliminate monopoly. The above hypothesis implies that prohibition of the coalition lowered the performance of the market economy. As predicted, we found that the growth rate of the real money supply contracted, that the efficiency of price arbitrage declined, and that inflation rate went up.

"Selection and Imitation in Institutional Evolution: Analysis of Institutional Change in Japan, 1960-1999"

This paper presents an empirical framework to analyze institutional changes, and applies it to the evolution of several economic institutions in Japan, specifically main banking system and long- term employment. Ideas of evolutionary biology and organizational ecology are applied to the empirical analysis on institutional evolution. The basic question is how selection and imitation work in the evolution of the economic institutions. I focus on four factors of fitness, namely (i)growth rate, (ii)exit (death) rates, (iii)entry (birth) rate, and (iv)rate of the change of attribute. (i), (ii) and (iii) represent selection, while (iv) represents imitation in the process of evolution. Constructing a data set on the population of the industrial firms in Japan, I examine how the composition of the firm population has changed over time with respect to institutional attributes, specifically main bank relationship, to what extent the fitness factors (i)-(iv) have contributed to that change, and whether main bank system has co-evolved with long-term employment.

"Holding Company and Bank: An Historical Comparative Perspective on Corporate Governance in Japan"

In this paper I describe the outline of the historical evolution of corporate governance in Japan, and intend to derive some insights on its future. While two alternative systems, the holding company-based system and the bank-based system were available in the 1920s, the former started to proliferate. However, the experiences during the Second World War made the corporate system choose the other fork in the road, the bank-based system. The changes in employment system and production management were complementary with the changes in corporate governance and finance. The Japanese corporate system, which was faced with a bifurcation in the 1920s and the 1930s, is now facing another bifurcation.

""Voice" and "Exit" in Japanese Firms during the Second World War: Sanpo Revisited"

During the Second World War, the Japanese government and private sector searched for and implemented new mechanisms for coordination and motivation. One of these was sangyo hokokukai (sanpo). Sanpo unit was basically an organization of the employer and employees of each firm, which held meetings to moderate labor relations. Due to the government policy to promote sanpo units, around 70% of the total workers in Japan were organized into sanpo units in the early 1940s. As the members of labor unions and the workers of the companies which had factory committees, were only 7 % and 5% of the total workers in 1936 respectively, sanpo was the first large scale mechanism for Japanese employees to voice. In this paper, I examined the role of sanpo, using prefecture level data and firm level data, based on a framework integrating the "voice view" of unionism and the transaction cost economics. It was found that sanpo reduced the participation rate in labor disputes, and enhanced labor productivity at least in some period.

"Economic Development, Income Inequality and Social Stability in Prewar Japan: A Prefecture-level Analysis"

This paper addresses the relationship between economic development, income inequality and social stability, using the data of prewar Japan. We have made prefecture-level income inequality index, based on tax and wage statistics with respect to four data points, 1888, 1896, 1921 and 1935. Regression analyses of the prefecture-level panel data confirmed that there was an inverse-U shaped relationship between economic development and income inequality. At the same time thorough analyses of the data on thefts and suicides, we found that income inequality gave a negative impact on social stability.