"'Market' and 'Marketization': From the Japanese Experience"

At least until very recently, with various reasons, many, particularly those in and around the governments both in developing economies and former socialist economies, have studied the past history of Japan to draw lessons for development strategies and/or the 'marketization' of a command economy to a market economy. Talk about Japan's economy, however, is full of misconceptions, and this movement, often emphasized with a phrase 'East Asian Miracle', is based upon false ideas: at least before the 1970s the Japanese economy was a command economy, undeveloped market economy directed from the top(MITI and Ministry of Finance); the role of the government has been great in recovering from the war destruction and in promoting her economic growth. Japan is well known for a vast number of active small business, the creation and development of which many economies recognize as critical for economic development and 'marketization'. Focusing upon small businesses and the government policies for them during Japan's Transition Period, 1945-1955, the period between the war destruction and the 'high growth era', this paper describes in detail the past history of small business, the environment conditioned them, and the role of small business policies. A special focus is placed upon the machine tools industry, which suffered from the transition the most seriously and also has been the basis for the Japan's postwar industrial success. This paper concludes that the most important lesson the governments of the developing economies and/or transition economies should learn from the Japanese experience is that imposing inappropriate restrictions on the market mechanism and using it inexhaustively, whatever may be the reason, will incur tremendous cost to consumers over a long time.