Unmaking the Japanese Miracle: Macroeconomic Politics, 1985-2000

Recently I have read the following book. Its main points are:

Book title:  Grimes, William. 2001. Unmaking the Japanese Miracle: Macroeconomic Politics, 1985-2000. Ithaca and London: Cornell University Press.

Main points:

Ch. 6. - as Japan entered 1993, important new forces seemed poised to affect macroeconomic policy.(162) The Japanese economy did not seem to have been very stimulated by either of the discount rate cuts of 1992, or by the August fiscal stimulus plan. The stock market remained soft, land prices began to drop. More and more reports were surfacing concerning the bad loans. (162)

- prior to the July 1993 election, political pressure surely compounded the pressure on the Miyazawa administration for economic policy change. Subsequently, the non-LDP coalition government of Hosokawa Morihiro and Hata Tsutomu faced pressure to fix the problem of the economy. (163)

- in the period 1993-7, then, continuing economic problems and political uncertainty were intertwined. Bureaucrats in general and MOF officials in particular, became targets of political and media attacks alleging incompetence, even corruption. (163)

- following a successful vote of no confidence against PM Miyazawa’s administration on June 18, 1993, and the subsequent Lower House election on July 18,  Japan’s first non-LDP PM since 1955 Hosokawa Morihiro, was elected . He entered office as the head of a coalition of seven parties. (168)

- despite consistently strong citizen and market sentiment for fiscal stimulus, the year 1993-7 instead saw a stop-and-go approach to fiscal policy. For the most part, the policies of the increasingly unpopular MOF carried the day. (191)

-the overall strategy by LDP and other politicians to contain MOF included extremely heavy political pressure. As the next chapter demonstrates, by 1955, the MOF goal of maintain autonomy was under fire from a number of new directions. Following the catastrophic failure of the 1997 fiscal consolidation, the Ministry became the scapegoat, and contributed the fundamental structural change and a substantial weakening in its policy-making influence. (195)

-Ch. 7- by the mid-1990s, politicians were gaining a degree of power at the expenses of the MOF while playing within the existing rules of the game of macroeconomic politics. But by 1996, they were beginning to map out a new set of rules that would fundamentally change the game. (196)

- this chapter sticks closely to the themes of structural power and structural changes by focusing on personnel and organization changes. Following that, it turns to actual macroeconomic policies and to show how structural changes promoted policy changes. (197)

- in March 1998, there was finally a break in the old pattern when governor Matsushita and deputy governor Fukui were both forced to resign. The Hashimoto cabinet appointed Hayami Masaru as Governor, a long-retired BOJ OB. The cabinet appointed two deputy governors as well. For the first time since 1969, MOF retirees were excluded from the top ranks of the bank. (198)

- a final set of attacks on the personnel system of MOF could be seen in the forced resignation of two consecutive administrative vice-ministers in 1995.  In 1998, there was yet another forced resignation. (201)

- the attacks on MOF had multiple reasons. For one, the MOF was under fire for having protected weak and corrupt financial institutions. In addition to the scandals, the MOF was also tarred in the public eye with the label of incompetence and arrogance. At least some ruling party politicians were motivated by revenge for the slights of the non-LDP coalition period. With the element in place of widely recognized policy failure, public disapproval, a weakened relationship with ruling politician, and politician’s increased sensitivity to public opinion, the Ministry was vulnerable. (202)

-the reorganization ideas being floated by 1996 were extremely worrisome for the MOF. These included the reform and reduction of government financial institutions. Another idea that constituted an even more profound attack on MOF prerogative was a plan to move budgeting function to the PM office. (203)

-the most significant check on the MOF power in macroeconomic policy making was the revision of the Bank of Japan laws passed by the Diet in June, 1997.(204)

- along with the BOJ law revision, the cabinet also submitted bills to establish a new Financial Supervision Agency to take over MOF’s role as supervisor of the banking, security, and insurance sectors.(207)

- the changes in the macroeconomic policy-making structure seen were truly historic. It would have been nearly unimaginable in 1985, or even 1995, that the MOF would lose its preeminence in monetary policy, let alone be dismembered. BOJ was now largely autonomous. The Diet became the official overseer of the BOJ, it also took back the initiative in budgeting, and was the architect of the dismantling and reconstruction of Japan’s macroeconomic policy apparatus. (215)

Conclusion: over the previous seven chapters, the author has shown that the structures of power and information in Japanese macroeconomic policy making had fundamentally influenced the policies actually followed in japan. (218)

- this study has demonstrated the usefulness in using ‘the framework of institutional competition' in understanding an otherwise dauntingly confusing set of events and policies in the actual historical record. (219).