Skip to content

Yoshiro Miwa & J. Mark Ramseyer, Policy Loans and Economic Growth: The Case of the Industrial Bank of Japan in Pre-War Japan (Ctr. for Int'l Res. on Japanese Econ., Discussion Paper No. CIRJE-J-26, May 2000) (in Japanese).


Abstract: For decades, scholars outside of economics have explained Japanese economic growth through prudent government management. Although economists have been more critical, even they have usually viewed favorably the role the government played in finance. In these favorable accounts, they often give the Industrial Bank of Japan (IBJ; Kogin) a central place. Founded in 1902 to encourage long-term industrial investment, the bank maintained a reputation as the "central bank for manufacturing." During those pre-war decades, observers continue, it also developed the monitoring technology now basic to the "main bank system." In the article that follows, we show that the IBJ never lived up to this reputation. We make four broad points. First, the IBJ never received from the government subsidies sufficient to have significantly increased the funds available to manufacturing firms. The subsidies it could offer began modest, and stayed modest. Second, despite its billing, during the early decades it did not lend primarily to manufacturing firms. Third, when in the early years it lent to borrowers dictated by the government, it lent pursuant to a political rather than high-growth dynamic. When it lent to government-dictated borrowers in the later pre-war years, it did so to subsidize the war. Last, the IBJ never developed any unusual ability to monitor borrowers. In the end, the manufacturing firms in pre-war Japan simply did not need another bank. Granted, to fuel their expansion they needed vast amounts of investment. But it was money they could -- and did -- obtain directly from the financial markets themselves.