The highly concentrated nature of business coupled with persistent government intervention in the economy are two of the principal factors behind Japan’s economic success prior to the lost decade, but they are also thought to be two of the principal factors behind Japan’s subsequent economic stagnation. Abenomics has identified the current corporate-governance-model as the source of slow growth. I will argue Abenomics fails to take into account Japan's reluctance to denationalize industry and reduce cronyism (amakudari). Cronyism will be shown to be a direct result of the reluctance to fully denationalize industry.
Arguments exist that support shareholder and management prioritized models. However, widespread corruption, manifested in the practice of amakudari, is rarely mentioned as an impediment to advancing economic growth policies.
An explanation for the hesitation to address amakudari will be provided. Either the practice is so widespread that raising this issue would implicate too many people or, alternatively, it is paramount to the way the current political regime administers its power. In the latter case, it would be equivalent to the red phones in China. The answer is probably a combination of both.
My data (collected from Bloomberg) will provide some insight as to how companies have adapted to the “third arrow” of Abenomics. However, as my thesis suggests, the heart of the issue is difficult to document. There are no easy ways to measure cronyism from outside the system. Therefore, short of waiting for a whistleblower, measuring companies’ responses to the new reform is the best methodology available.
