Abstract
This paper offers an institutional analysis of the Japanese war economy from 1937 to 1945. I focus on how a basic task common to every economic system, that is to coordinate the activities of a large number of agents, was achieved in the Japanese war economy. How was information communicated, and what incentive systems were introduced to motivate people? The Japanese government intended to carry out the task in a centralized manner. In other words the government tried to transform the Japanese economic system into a centralized planned economy in order to concentrate resources on the military sector. For this purpose several important institutional reforms were put into practice. One aspect of those reforms was related to the communication of information. The control associations (toseikai), the main bank system, and the subcontract system respectively made government-firm, bank-firm, and inter-firm communication effective. The other aspect was related to the corporate governance structure. The prewar Japanese firms were very similar to Anglo-Saxon capitalistic firms. The shareholders were owners of the firms in a literal sense, and the employees did not have any commitment to the firms. The wartime reforms restricted the rights of shareholders and firms came to have cooperative characteristics. In the last stages of the war the government was obliged to accept a more decentralized economic system. Profit was approved officially as an incentive system and the role of shop-floor decision making increased. In the process of decentralization, the bank-firm and inter-firm communication systems were reinforced and continued to function in the postwar period as the institutional basis for economic reconstruction and growth.
