Many Americans picture the Allied (i.e., U.S.) Occupation of Japan
(1945-52) as the quintessentially good occupation: elaborately planned in advance,
idealistically administered until derailed by anti-Communist indeologues in its later
years, it laid the foundation for Japan’s post-War democracy and prosperity. In fact, the
Americans—especially those Americans celebrated as most "idealist"—did not plan a
Japanese recovery, and for the first several years did not work for one. Instead, they
mostly just planned retribution: whom to hang, and which firms to shutter. Economic
issues they entrusted to Japanese bureaucrats, and those bureaucrats merely manipulated
the controls they had used to disastrous effect during the War. Coming from a New Deal
background in Washington, the Americans enthusiastically urged them on.
Although the Japanese economy did grow, it did not grow because of the
Occupation. It grew in spite of it. In early 1949, Japanese voters overwhelmingly
rejected the political parties offering economic controls. In their stead, they elected
center-right politicians offering a non-interventionist platform. These politicians then
dismantled the controls, and (despite strong opposition from New Deal bureaucrats in the
Occupation) imposed a largely non-interventionist framework. As a result of that choice—and not as result of anything the Occupation did—the Japanese economy grew.
Also John M. Olin Center for Law, Economics, and Business, Working Paper no. 514.
Download PDFFirms in modern developed economies can choose to borrow from
banks or from trade partners. Using first-difference and difference-in-differences
regressions on Japanese manufacturing data, we explore the way they make that choice.
Whether small or large, they do borrow from their trade partners heavily, and apparently
at implicit rates that track the explicit rates banks would charge them. Nonetheless, they
do not treat bank loans and trade credit interchangeably. Disproportionately, they borrow
from banks when they anticipate needing money for relatively long periods, and turn to
trade partners when they face short-term exigencies they did not expect.
This contrast in the term structures of bank loans and trade credit follows from
the fundamentally different way bankers and trade partners reduce the default risks they
face. Because bankers seldom know their borrowers’ industries first-hand, they rely on
guarantees and security interests. Because trade partners know those industries well, they
instead monitor their borrowers closely. Because the costs to creating security interests
are heavily front-loaded, bankers focus on long-term debt. Because the costs of
monitoring debtors are on-going, trade creditors do not. Despite the enormous theoretical
literature on bank monitoring, banks apparently monitor very little.
Also John M. Olin Center for Law, Economics, and Business, Working Paper no. 527.
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