The Political Economy of the Japanese Financial Big Bang: Institutional Change in Finance and Public Policymaking (review)

In The Political Economy of the Japanese Financial Big Bang, Tetsuro Toya offers a political explanation of Japan's "Big Bang" of 1998–2001. The Big Bang was the seminal piece of Japanese financial regulatory legislation of at least the last quarter century, and probably since the U.S. occupation. As such, it is essential to students of Japanese political economy that we understand its meaning not only in economic but also in political terms. Toya's book is, to my mind, the single best available study in English regarding the Big Bang, combining a thorough and effective description of the reforms and events surrounding them with a sophisticated political analysis of how such revolutionary change became possible.

Before reviewing the book itself, I should note two unusual aspects. First, the author was in a unique position to provide insight into the substance and politics of Japanese financial reform, having been a junior Ministry of Finance (MOF) official and having obtained a Ph.D. in political science from Stanford University. The book is essentially his dissertation. Second, and sadly, Toya died prematurely, but his friend Jennifer Amyx collaborated with his family to get the work published by a major university press. Given the time and difficulty involved in getting one's own work published, Amyx is to be commended for her efforts to make this work available to scholars (although in the editor's introduction she modestly states, "It was my privilege to edit and prepare the manuscript for publication, as a tribute to the author" [p. vi]).

The unusual circumstances of the publication of the book mean there is essentially no updating from the time of Toya's completion of his dissertation in 2000. This is less than ideal in the sense that it would have been nice to know how the analysis of the book would have applied to events during the eras of Prime Ministers Mori Yoshiro¯ and Koizumi Jun'ichiro¯. However, it also means there has been no post hoc revision of analysis to fit the previous case. At the same time, there is no avoiding the fact that this is essentially a very well-edited dissertation, which helps to explain why the theoretical and literature review sections are longer and more involved than many readers would choose, as well as a certain level of repetition. But these are minor flaws, and I will not dwell on them.

The book accomplishes three separate but related tasks: the development of a theoretical approach to institutional change, which focuses on strategic interaction among institutional actors; a thorough description of the Big Bang and related financial legislation, along with a history of their adoption; and an application of the theoretical framework to the historical events. In general, the parts are well integrated.

Toya's starting point is that the Big Bang confounds many of the standard understandings of Japanese politics and policymaking in terms of both process and results. He argues that the Big Bang legislation was surprising in several ways: it was comprehensive and revolutionary rather than incremental and piecemeal; there were only minimal efforts made to compensate those firms that were expected to suffer losses from the changes; and the expected winners (foreign financial institutions, financial consumers, and a few of the largest and healthiest Japanese financial institutions) were not the sectors most closely associated with political power in financial policymaking. In terms of process, creation of the Big Bang framework and legislation largely avoided both the traditional pathways of sector-specific, ministry-affiliated advisory councils (shingikai) and the Policy Affairs Research Council (PARC) of the Liberal Democratic Party (LDP). Thus, the process did not seem to fit with bureaucratic-dominance, politician-dominance (principal-agent), bureaupluralism, or industry capture models of behavior.

How then should we understand the path of the reform? Toya draws on Aoki Masahiko's approach...