Randall Morck and Masao Nakamura present a new interpretation of Japanese economic take-off following the Meiji Restoration of 1868, building on the old idea of a "big push" originally developed by Paul Rosenstein-Rodan. The big-push notion is usually taken to justify large-scale and coordinated investments by the public sector to overcome complementarities and scale problems in development. The twist is that Morck and Nakamura argue the big push was engineered by the private sector--namely, by the Zaibatsu. In so doing, they also provide a new justification for the prevalence of business "groups" in developing countries:
Our big push theory of pyramidal business groups differs from other explanations of pyramidal business groups. Business group firms may well let firms coinsure each other to spread risk.Group firms may well trust each other to do business in economies where corruption stymies arm’s length dealing. Without denying such possibilities, we suggest a broader argument that subsumes them. The highly industrially diversified pyramidal structure common to business groups throughout the world permits a controlling shareholder to stem hold-up problems and coordinate growth across diverse complementary industries, permitting very rapid growth financed by public equity -- a big push.
Morck and Nakamura emphasize the special circumstances in Japan that may have made this private-sector led big push particularly potent:
Japan’s economic history suggests a big push can succeed under certain circumstances despite gloomy evidence to the contrary. Specifically,
1. The state gives an initial shove, marginalizing traditional elites, reforming basic institutions, perhaps even subsidizing technology imports, and then withdraws its hand. This withdrawal checks government failure problems.
2. Pyramidal business groups emerge to propel the big push. An undisputed controlling shareholder focusing on the apex firm’s value, prevents hold up problems and coordinates cross-industry subsidies, as group member firms tap public equity markets to capitalize cascades of subsidiaries spanning all relevant industries. At least to some extent, this echoes what a selfless central planner coordinating a big push would do
3. The controlling shareholders are marginalized as the big push nears completion. This prevents entrenched oligarchy problems from reversing the big push.
4. All this is done with limited trade barriers and no barriers against foreign investment.
In other words, not your grandfather's big push.