Thayer Watkins

The Enterprises in
the Public Sector of Japan
Before Privatization


Due to the Occupation of Japan from 1945 to 1952 Japan did not engage in the wave of nationalizations that occurred in the United Kingdom, France and Italy. Nevertheless Japan did emerge from the post-war period with three major public corporations for producing goods and services and five government departments which provided things which could have been supplied by the private sector. In Japan's case these were a continuation of the state control which existed before and during World War II. The three public enterprises were state former government departments that were converted to public corporations under orders from the Supreme Command of the Allied Powers (SCAP). They were:

Japan's Major Public Enterprises
Public EnterpriseYear Established
Japan Tobacco and Salt Public Corporation1948
Japanese National Railways1948
Nippon Telegraph and Telephone1952

In addition to these public corporations in the production sector there were three public corporations in the financial sector and ten smaller special public corporations which were partially or wholly owned by the national government of Japan. At the local government level there were as many as three thousand public enterprises primarily public utilities in the early postwar period. By 1995 the number of these local public corporations had grown to about ten thousand.

The five government departments which continued their prewar operations were the Alcohol Bureau, the Forestry Agency, the Mint Bureau, the Printing Bureau and the Post Office.

Altogether the public enterprise sector of Japan around the turn of the century accounted for about five percent of production and five percent of employment.

Japan tried an experiment in combining public sector with the private sector in the belief that the private sector would promote efficiency in the public sector. This did not turn out to be true. Instead the inefficiencies of the public sector corrupted the private sector elements. These so-called Third Sector enterprises generally operated at a loss and built up substantial debts.

Reasons for the Inefficient Functioning of the Public Enterprises

The reasons for the inefficient operations of public enterprises in Japan are much the same as the reasons for the inefficiencies of public enterprise elsewhere; i.e.,


The modern privatization movement in Japan was initiated with the formation of the Provisional Commission for Administrative Reform (PCAR) in 1981. The PCAR prepared five reports which it submitted to the National Government over a period of three years from 1981 to 1983. These reports called for the privatization of the major public enterprises. Privatization was strongly opposed by organized labor and by Socialist and Communist Party politicians. Most of the politicians of the ruling Liberal Democratic Party supported privatization and plans for privatization were prepared. These plans generally did not implement exactly the plans recommended by the PCAR but incorporated some elements of the recommendations.

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