Spending without Taxation: FILP and the Politics of Public Finance in Japan

By Gene Park | Go to book overview

THREE
The Common Origins of Budget Restraint and FILP,
1945–1953

In retrospect, it is easy to attribute a degree of foresight and intentionality to the government’s policy of budget restraint that became so central to its postwar economic strategy. Budget restraint, however, was the product neither of an autonomous forward-looking Japanese bureaucracy (that is, developmental state) nor conservative political party: The occupying U.S. military authority imposed it on the government after World War II. Prior to U.S. Occupation, the Japanese government had not had a balanced budget for fifty years, and during the war the finance minister, Takahashi Korekiyo, had used deficit financing to pull Japan out of the Great Depression.1 Takahashi’s activist fiscal policy predated the publication of Keynes’s General Theory, a phenomenon that Charles Kindlerberger called “Keynesianism without Keynes.”2 Not only was there no general conservative or bureaucratic preference for budget restraint, there was active opposition to it. Budget restraint limited the Japanese government’s ability to rebuild industry and deliver policies that would ameliorate the harsh postwar social and economic conditions facing the population. Although there were certainly advocates of budget restraint, particularly in the Liberal Party, one of the two parties that would merge to form the conservative Liberal Democratic Party (LDP) in 1955, the conservative camp was a diverse lot that included critics as well. Ishibashi Tanzan of the Liberal Party, one of the architects of Japan’s industrial reconstruction strategy, advocated prioritizing industrial reconstruction at the expense of budget restraint and the inflation that it would engender. A sizeable camp within the Democratic Party, the other main conservative party that would merge with the

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