ECONOMICBUSINESS&
l3th

ANNUAL REPORT"4"vlt-c-c,,Y,B.2

THE

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

lg66

Copyright, 1966, by The ResearchInstitute forand Business Administration, Kobe

UniversityEÅëonomics

KOBE

ECONOMIC & BUSINESSREVIEW
13th

ANNUAL REPORT/rg.'`'

tt""

THE

l!/,-

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

1966

CoNTENTS
Page

Annual Income under the Corporation Income Tax IJaw.......................................Susumu WATANABE

Trade Controls in Occupied Japan (1945N1949) ......... Fukuo KAwATA

1

9

Patterns of Domestic Shipping Services
Characteristics of Japanese Coastwise Shipping ......Seiji SAsAKi

23

Approaches to the History of Individual Business Units.....,......,......,......................Tadakatsu INouE

35

Cumulated Cost Ratios for the Japanese Economy in 1955.......,,.................................... Nobuko NosE

41

Accelerated Growth of National Income ........................Hikoji KATANo

51

Technological Development and Labour Relationsin the Japanese Shipping Industry ....,.,...........Hiromasa YAMAMoTo

63

Brazilian Position in the Latin American Free Trade Association.......,............................Yoshiaki NIsHIMuKAI

73

Information Specification for Business Management (I)A Case Study .......................,..............................Jiro ONo
Die Privatisierung der PreuBag.......................................Masaya OKADA

87
101

ANNUAL INCOME UNDER THE CORPORATIONINCOME TAX LAW
Susumu WATANABE

I
Concerning the computation of "the amount of income of each businessyear" as the tax basis of corporation income tax, our revised corporation income

tax law provides as follows: The amount of income of each business year of aninland corporation shall be the amount of revenues of the year less expenses
and losses of the year. (g 22-1)

In computing the income of each business year of an inland corporation,amounts to be included as revenues of the year shall be, unless otherwise

provided by the law, the revenue of the year that comes from sales ofassets, onerous or gratuitous offers of assets or services, gratuitous receipts

of assets and other transactions with the exception of capital transactions.
(g 22-2)

In computing the income of each business year of an inland corporation,amounts to be included as expenses or losses of the year shall be as follows:(1) cost of sales, cost of completed constructions and other similar costs,

which are related to the revenues of the business year.

(2) besides those which are prescribed in the above (1), amounts ofselling expenses, general administrative expenses and others excluding those
expenses whose liabilities have not been established by the end of the businessyear excepting depreciation.

(3) losses of the business year due to transactions other than capitaltransactions. (g22-3)

Capital transactions prescribed in the above two paragraphs mean transactions to increase or decrease the capital of a corporation and to distribute theincome or surplus of a corporation. (g224)
In short, the income of each business year is computed by deducting expenses
and losses of the year from the amount of the revenues of the year. In this case,amounts to be treated as revenues of the year are, unless otherwise provided, thesum of revenues from sales, etc. (excluding those belonging to capital transactions), while amounts to be treated as expenses and losses are, unless otherwiseprescribed, the sum of cost of sales, selling expenses, general administrative2 SUSUMU WATANABE
expenses and other expenses and losses (except those belonging to capital transactions). And capital transactions mean such transactions as will cause an increaseor decrease in capital or capital surplus, and the distribution of income or surplus

by a corporation.
These provisions have tried to clarify the contents of revenues, expenses
and losses, while the old provision (article 9) before revision only stated that theincome of each business year of an inland corporation shall be the amount ofrevenues less expenses and losses of the year. And this amendment seems tocontribute to the understanding of the system of income computation under
our corporation income tax law.
But it does not mean a change in the concept of the income ofa corporation.
Rather, it should be so interpreted that the concept of the income of each businessyear as a tax basis, as well as a basic calculation method of the income remains

the same as before, and that the above mentioned amendment is merely a codification of what was not expressed in words before.

This interpretation is supported in part by the following statement from"A Summary of the Revision of the Corporation Income Tax Law": concerning"Arrangements and Rationalizations of Corporation Income Tax System", itstates, "While the present system should basically be maintained, following
amendments should be made in order to bring about arrangements and rationalizations of the system" and "As far as the computation of the tax basis and theamount of tax are concerned, (a) in computing taxable income the principle
should be made clear that revenues are increases in net assets (assets lessliabilities) of a corporation (this idea remains unchanged as before) and
expenses shall be calculated by matching them with revenues."
In this paper we will study some fundamental ideas relating to the measure-•

ment of annual income under the corporation income tax law, laying stress on

the revised code. The first problem we shall consider is the computation
method of annual income under the corporation income tax law.
When we distinguish (a) the method of calculating income by deducting
the expenses and losses from the revenues of a business year (which shall becalled the "profit and loss method" hereunder), from (b) the method of comparing
the end-of-period net assets (the excess of total assets belonging to an enterpriseover total liabilities) with the beginning-of-period net assets (which shall becalled the "net assets method" ,hereunder), it is evident that our corporation

income tax law has chosen the former method.
And yet there is a misunderstanding that our corporation income tax law
relies on the "net assets method" in determining a corporation income. Thismisunderstanding has perhaps come from the use of the words "an increase or

ANNUAL INCOME UNDER THE CORPORATION 3
INCOME 'IrAX LAW

decrease in net assets" in one part of Basic Notifications on the Treatment ofCorporation Income Tax, as follows:
Revenues mean, unless otherwise prescribed by the law, all events which
will lead to an increase in net assets except by capital transactions." "Expenses

and losses mean, unless otherwise prescribed by the law, all events which willlead to a decrease in net assets except by capital transactions."

But these sentences do not imply that income is computed by measuring
an increase or decrease in net assets. Rather the words "an increase or decreasein net assets" are no more than an explanation of the nature of the revenues
or expenses and losses. Namely, they are only an expression of the fact thatwhat will cause increases in net assets are revenues and those leading to decreases

in net assets are expenses and losses. (If unsatisfied with these definitions ofrevenues and expenses and losses, one could define them otherwise from anotherviewpoint. But it is a problem of the formation of a concept and not of a calcula-tion method of income).
In the corporation income tax law we find the words "inventory valuation,"
which, however, do not mean the calculation of net assets at the end (or begin-ning) of a period using the amount determined by a valuation method of inventories. On the contrary, it is for the purpose of computing the cost of inventories

to be deducted from revenues.
On this point, Article 29 of the revised corporation income tax law prescribes

as follows: "When the amount to be included in expenses and losses are computedfor the income determination of each business year, the value of inventories
at the end of the year which shall be the basis of the computation shall be theamount measured by the inventory valuation method which the inland corpora'tion has elected." Further, Article 31 states, "As to depreciable assets of aninland corporation, the amount of depreciation to be included in the expenses
and losses of each business year shall be that part of the depreciation charged
by the corporation in a business year which does not exceed the amount calculat-

ed in accordance with the government ordinance using the depreciation method
which the corporation has elected with respect to the asset." The above-mentioned two articles will serve greatly to clarify the meanings of inventory valuation and depreciation, as they indicate that those procedures are used to determine

income by the "profit and loss method." (In the former law the purpose of
inventory valuation had not been shown, but it was taken for granted that its
purpose was for the measurement of costs of inventories to be included in expenses and losses).
It is possjble to separate income according to its class or source and to impose

no tax or slight tax on some kinds or sources of income. This is called taxation

4 SUSUMU WATANABE
based on the "source of income" concept. On the other hand, taxation of allclasses and all sources of income without discrimination is called taxation basedon the "increase of net worth" concept. From this viewpoint our corporation
income tax law is based on the "increase of net worth" concept, because allsorts of corporation income are taxed indiscriminately. But it should be notedthat it does not rely on the "increase of net worth" concept as a method ofincome computation.

II
As explained above, annual income under the corporation income tax law iscalculated by the "profit and loss" method. Then, what is the relation between

tax accounting and business accounting (based on corporate accounting principles) where income is determined by the same "profit and loss" method? Inother words, is "taxable income" determined by tax accounting equal to "businessincome" determined by business accounting? We must investigate these differences from various sides.
First, the correct determination of a "periodic income" requires the exclu-

sion of prepaid expenses and deferred revenues from current income computation. Under the corporation income tax law, the income of the current businessyear is computed by deducting expenses and losses from revefiues, both relating

to the period. And revenues and expenses and losses are recognized as causesof an increase or decrease in net assets. When we assume that income is only
determined as an increase or decrease in net assets, revenue expenditures alreadymade are treated as expenses and revenue receipts already accepted belong torevenues. Here we find no reason to exclude prepaid expenses and deferred

revenues in the current income determination. Although they are clearlyrevenues or expenses of the current period from the viewpoint of an increaseor decrease in net assets, prepaid expenses and deferred revenues are excludedin the determination of the current year income because revenues and deductions

panicipating in the income computation of each business year must be those"of the current year." The revised corporation income tax law has made thispoint clear, saying, "the amount of income of each business year of an inland
corporation shall be the amount of revenues of the year less expenses and lossesof the year." Prepaid expenses and deferred revenues have also been excludedin the past in the determination of the current year income, and this revised

law was not the first. It can be said, however, that this treatment has beenclarified in words for the first time. The above cited phrase "of the year" isinterpreted as "belonging to the current year."ANNUAL INCOME UNDER THE CORPORATION 5
INCOME TAX LAW

Besides the exclusion of prepaid expenses and deferred revenues in thedetermination of the current year income, accrued revenues and accrued expenses

must be included in order to obtain a correct periodical income. Under our
corporation income tax law accrued revenues are, as a rule, recognized in thecomputation of a periodic income except in an exceptional case where there isa provision that the recognition of accrued revenues is not required. Accrued
revenues mean interests receivable, rents receivable, etc., and "they are thoserevenues considered to have accrued with the lapse of time up to the end of theperiod by the continuous offer of services by contract, so that they are different

from the accounts receivable due to sales of merchandise or products, or fromreceivables resulting from sales of securities, land, buildings, etc." Our corporate

accounting principles assume a conservative attitude regarding accrued revenues

stating as follows: "As accrued revenues are thus related to services not completely rendered by the end of the period, the corporate accounting principles

have adopted a sound convention of favoring cautious procedures as to thetreatment of accrued revenues, and have recognized their exclusion in the determination of the current year income." "So long as they are certain to be collected, however, they shall be listed on the asset side of the balance sheet and shallbe included in the income statement as accrued revenues."
The corporation income tax law requires the recognition of all sorts of
accrued revenues in principle, while the corporate accounting principles demand

only the recognition of those which are sure to be collected. Therefore, there

is room for difference on this point between both accountings.
As to accrued expenses, the corporate accounting principles require them
to be included in the current income computation, which is a matter of course

for the purpose of obtaining the correct income of a period.
"Payables mean that part of debts fixed by specific contract, etc., whichhave not been paid. Accrued expenses are distinguished from payables in thatthe former is related to services already received but not yet paid where services

are rendered continuously by a specific contract. Accordingly, their amountof consideration has already accrued as an expense of a period with the lapseof time or the receipt of services, so it must be considered in the determinationof the current year income, and should be listed as a current liability on theliability side of the balance sheet."

Is it permitted to recognize accrued expenses under the corporation income

tax law? This problem must be solved by judging whether such expenses fallin the category of expenses prescribed in Item 2 of Para. 3 of Art. 22 of therevised corporation income tax law, which states, "besides those which areprescribed in the above (1), amounts of selling expenses, general administra-6 SUSUMU WATANABE
tive expenses and others excluding those expenses whose liabilities have notbeen established by the end of the business year excepting depreciation."In this context an established liability is clearly that in a legal sense. The

basis of an established liability relating to the recognition of expenses means
that, on the one hand, expenses are recognized on the basis of the establishmentof a liability even when a payment of cash has not been made and that, on theother hand, expenses which have not become established as a liabi!ity by theend of the period are excluded in the computation of the periodical income.
This basis constitutes a part of "Kenri Kakutei-Shugi" in a broader sense which

seems to be the ground for our corporation income tax law. Namely, theestablishment of a claim to cash receipts as well as the establishment of an
obligation to pay cash in a legal sense are properly adopted as the basis of recog-

nition of revenues and expenses under the corporation income tax law. (Allclaims to cash receipts and all obligations to pay cash do not always concern re-venues and expenses. Of course there are receipts and payments which do not

become revenues and expenses.)In some cases, it is not clear when the liability is established. We understand, however, that it is not the same as the day when a debt becomes due. The
recognition of accrued expenses, we think, is justified as an established liability.

mNow, what is the relationship between the amount to be included in expenses and losses according to the corporation income tax law and the principleof matching cost with revenue?
It is evident that cost of sales, cost of completed constructions and othersimilar costs are directly related to sales revenue of the current year. The re-lation of selling expenses, general administrative expenses and other expenses
with revenues are not so direct as that between sales revenue and cost of sales,
etc., but those expenses are charged to revenue, treating them for convenience as

expired to produce the revenue of the period in which those expenses occurred.
This relationship is sometimes called a periodic matching. Next, losses are dis-tinguished from expenses in that they are expired costs which have not contributed to the production of revenue. Therefore though they have no relation

with revenue, losses are charged to the period in which they have beenrecognized, considering them as cost not useful in the future.
Incidentally, it should be noted that expenses and losses stated in Para.
3 of Art. 22 of the revised corporation income tax law do not include all expenses

and losses that are to be charged to a current period for the determination ofANNUAL INCOME UNDER THE CORPORATION 7
INCOME TAX LAW

periodic income. Namely, the corporation income tax law disapproves therecognition of those expenses whose liabilities have not been established by
the end of the business year excepting depreciation. But from the viewpointof matching cost with revenue there are some items whose liabilities have notbeen established but, nevertheless, should be recognized as expenses of a fixed
period.

For example, when sales are made under a guaranty agreement, expenses
necessary for replacement or repair in some future time (the obligation to replace or repair has not been established by the end of the year) should be charged

to the revenue from sales of the current period from the viewpoint of matching

revenue and cost. Further, when sales are made with lottery tickets and thelottery takes place in a future period when premiums will be given, the cost of

the premiums should be charged to revenue from sales of the current period.
The obligation to give premiums is not established or fixed by the end of thebusiness year in this case, either. Many similar cases can be cited.

Among these expenses, those which, the corporation income tax law considers proper to be included in the expenses of a period, will be found to matchthe revenue by providing special regulations concerning the setting-up of required

allowances. (Under our corporation income tax law even those allowances which
are proper from the viewpoint of matching cost with revenue cannot be included

in expenses unless specifically recognized by the law). But there are manykinds of allowances which are proper from the business accounting viewpoint
and yet are unapproved by the corporation income tax law.

"The Report on the Arrangement of Personal Income Tax Law and Corporation Income Tax Law" prepared by the Committee on Investigation of Tax
Systems (a consultative committee of the Prime Minister) states as follows:"There is an opinion that asserts the recognition of the following new allowances,(1) an allowance to provide for charges after the recognition of revenue fromsales, as in the case of sales under a guaranty agreement, (2) an allowance toprovide for expenses of premiums in the case of sales with lottery tickets, and(3) an allowance for expenses of restoring a leased real estate property to its
original state.

It seems that these allowances should be provided from the strict standpointof matching cost with revenue. Accordingly an investigation should be madein the direction of introducing these allowances into the corporation income
tax law if the distinction between these allowances and similar reserves can be

drawn and the amount of allowances to be recognized can be properly ascertained."

The allowances now recognized by the revised corporation income tax

8 SUSUMU WATANABE
law are allowances of bad debts, allowances for sales returns, allowances for

employee bonuses, retirement allowances and allowances for special repairs,

and the above-mentioned allowances for sales under a guaranty agreement,
etc. has not yet been approved. Perhaps the distinction between these

allowances and similar reserves could not be drawn and the method ofascertaining the proper amount of the allowances could not be found. At any
rate, such being the case, the statement of "A Summary of the Revision of the

Corporation Income Tax Law" that "the principle should be made clear
that...expenses shall be calculated by matching them with revenues" hasbeen only partially realized, and the system of income determination under
the corporation income tax law can hardly be' said to be constructed on thebasis of matching cost with revenue.
Accordingly, this factor also gives rise to differences between "businessincome" and "taxable income."

TRADE CONTROLS IN OCCUPIED JAPAN(1945-1949)

Fukuo KAwATA

Introduction

he'

The Second World War was brought to an end by Japan's surrender withr acceptance of the Potsdam Declaration on August 15, 1945. The basic

attitude of the Allied Powers toward the international trade of Japan was ex-pressed in the eleventh item of the Declaration. The item reads as follows:"Japan shall be permitted to maintain such industries as will sustain her
economy and permit the exaction ofjust reparations in kind, but not those which
would enable her to re-arm for the war. To this end, access to, as distinguishedfrom control of, raw materials shall be permitted. Eventual Japanese participation in world trade relations shall be permitted."

Although it was made clear that eventually Japan would be permitted toparticipate in world trade, the traditional economic and legal system of Japan

had to be completely changed under the occupation. The aim of this article
is to deal chronologically with principal measures taken by the occupation authori-ties to control and reorganize the foreign trade of Japan.

Section 1. Disorganizaion of the Existing Trading System of Japan
Immediately after the end of the war, the occupation authorities launchedtheir policy of disorganizing the existing trading institutions of Japan, startingwith the dissolution of the Japan Trading Corporation (Nippon Koeki Eidan)
and other main organizations relating to foreign trade directly or indirectly.
This was effected as one of the measures for the demilitarization of Japan.

The directives and memoranda issued by General Headquarters of theSupreme Commander for Allied Powers (SCAP) for this purpose were as follows:(1) Directive No. 3 (September 22, 1945)
In item (7), it is provided that "no imports to, or exports from, Japan of
any goods, wares or merchandise will be permitted, except with the prior approvalof this Headquarters."

10 FUKUO KAWATA(2) United States Initial Post-surrender Policy for Japan (September
22, 1945)
In Part IV, Section 6, it is stated as follows: "Japan shall be permitted
eventually to resume normal trade relations with the rest of the world. During
occupation and under suitable controls, Japan will be permitted to purchase fromforeign countries raw materials and other goods that it may need for peacefu1

purposes, and to export goods to pay for approved imports. Control is to be
maintained over all imports and exports of goods and foreign exchange and financial transactions. Both the policies followed in the exercise of these controls
and their actual administration shall be subject to the approval and supervisionof the Supreme Commander in order to make sure that they are not contrary to
the policies of the occupying authorities, and in particular, that all foreignpurchasing power that Japan may acquire is utilized only for essential needs."

These above documents meant that international transactions of occupied
Japan were placed completely and directly under the control of SCAP. Fromthat time onward, the international trade of Japan was carried on under the strict

control of G H Q until August 1947, when a limited private trade was re-opened.

( 3 ) Memorandum for the Import of Essential Commodities (October 9,1945)This memorandum laid down the conditions of requests to be submitted
to Headquarters on import commodities, and specified the measures to be takenby the Japanese Government.
It stated, "requests to import will not be submitted to this headquarters,

unless: (a) such imports are vital to the maintence of a minimum standard ofliving for the civil population; and (b) credits have been established for paymentsof imports desired by means of exports, approved by this headquarters for thispurpose." The Japanese Government was requested promptly (a) to "submit
its plans for payment for approved essential imports including schedules ofresources presently available to it for payment of imports and a forecast of such

resources as will become available for this purpose by December 31, 1946;"(b) to "submit a plan whereby resources may be made available to provide
necessary foreign exchange and to present to the headquarters for approval its
plan to conserve or prevent the use of resources in Japan, that are not essential

to the maintenance of a minimum standard of living and which are suitable forexport;" (c) to "insure that all practicable'measures are taken to achieve themaximum utilization of essential resources so that imports into Japan are limited

to absolute minimum essentials"; and (d) "to create an agency to be responsible

TRADE CONTROLS IN OCCUPIED JAPAN (1945-1949) 11
for receiving and for the distribution of, imports so as to insure equitable distribu-

tion at a cost consistent with current wages to the public."(4) Memorandum for the Reports relative to import commodities (October 10, 194S)
In this memorandum, it was made incumbent for the Japanese Government
to furnish the following information for each commodity when a request to importcommodities was filed: .
1. a. Quantity consumed each year in the previous 10 years.
b. Quantity imported each year in the previous 10 years.
c. Countries from which it was imported.
d. Quantity on hand.
e. Quantity estimated to be required in the next 12 months.
f. Quantity estimated to be produced locally in the next 12 months.
2. The country of origin from which it is recommended the requested
import be secured and the reason therefor.
3. a. The estimated value in the country supplying the import.

b. The proposed selling price in Japan.
c. The proposed method of distribution.
d. Proposed names of the distributors.
4. a. Major uses to which the commodity will be put.
b. If its end use requires other imports, state what such imports
are and the quantity of such supplies currently available.

5. a. The estimated weight of the shipment in metric tons.

b. The estimated measurement of the shipment in measurement
tons of 40 cubic feet each.
6. The relative urgency of the import.

(5) Memorandum for Export Procedure (March 14, 1946)
Before the issue of this memorandum no fundamental principle or procedure
had been laid down on exports, although many directives were issued on imports.

Commodities had been exported before that date by the order of SCAP, asoccasion arose. The export order of SCAP was issued for such commodities
as were demanded by the Allied Powers, regardless of the needs in Japan. With
the gradual recovery of export industries of Japan, it became necessary to estab-lish a general principle on her export trade. This memorandum referred tothe attitude of G H Q, the responsibility of the Japanese Government, the deli-very of shipment, samples of proposed exports and so on, when applications forexport were submitted.

FUKUO KAWATA

12

Section 2. Building up of New Trading Organizations
under the Occupation
This period ranges from April 1946 to December 1947, during which theold trading system was disorganized, and a new system built up, starting withthe designation of the Boeki Cho (the Board of Trade), as the sole tradingorganization of Japan on April 3, 1946.

Almost all important directives for carrying out foreign trade under the
direct control of the occupation authorities were issued during this period.

Main memoranda were as follows:( 1 ) Memorandum for thb Establishment of Boeki-cho (the Board of Trade)(April 3, 1946)

The memorandum for the import of essential commodities (issued on
October 9, 1945), as was stated above, gave instructions to "create an agency to
be responsible for receiving and for the distribution of imports so as to insure
equitable distribution."

In accordance with this memorandum, the Boeki Cho was created on
December 13, 1945 as an extra-ministerial bureau of the Ministry of Commerceand Industry. On December 18, 1945, Boeki Cho submitted to GHQ an application to be recognized as the exclusive agency of the Japanese Government
to handle all Japanese foreign trade transactions.

Boeki Cho was oMcially recognized by the memorandum of April 3, 1946,
in which it was stated that "all foreign trade will be handled by Boeki Cho on

behalf of the Imperial Japanese Government, except as may be specificallyauthorized to the contrary by the Supreme Commander for the Allied Powers."
It was further provided that "no other agency of the Imperial Japanese
Government, no quasi-govermental or other organization or association, and nonatural or legal person under the jurisdiction of the Imperial Japanese Govern-

ment will perform any foreign trade functions except through Boeki Cho or as

specifically authorized by the Supreme Commander for the Allied Powers."
It also stipulated that "all commercial burdens, risks, claims and other
responsibilities and liabilities as to foreign trade will be assumed by Boeki Cho.

(2) Memorandum for Freezing Material for Export (April 25, 1946)
It was already directed in the memorandum for export procedure issued on
March 14, 1946, that the Japanese Government would be responsible for safeguarding any existing stocks of materials described as available for export, andTRADE CONTROLS IN OCCUPIED JAPAN (1945-1949) 13
preventing any disposal until and unless General Headquarters, Supreme Commander for the Allied Powers, determined that the material should not be exported.

To supplement the above-mentioned memorandum, it was further statedin the memorandum of April 25, 1946 that whenever the Imperial Japanese
Government gave written notice of any type to SCAP that a certain quantity ofa particular material or product was on hand and could be exported, the quantityof that material or product would be frozen and no release would be permitted

for any purpose until SCAP had indicated whether or not it was required forexport.

( 3 ) Memorandum for Reports relative to Import and Export Commodities(May 10, 1946)

The Japanese Government was directed by this memorandum to submit
its requests for imports and exports for the calendar year 1947 by July 1, 1946.

The memorandum dated October 10, 1945 was rescinded by this memorundum,
and all commodities for the proposed import and export schedule had to besubmitted on forms described in this memorandum.

(4) Memorandum for Illegal Import and Export Trade (June 4, 1946)
As was provided in Directive No. 3, item 7 (issued on September 22, 1945),
no imports to, or exports from, Japan of any goods, wares or merchandise would

be permitted, except with the prior approval of Headquarters. The Japanese
Government, however, failed to enforce a strict control on rice imported from

Korea, as it was dubious whether the directive was applicable to import andexport trade with Korea or Formosa. Seeing this, the Headquarters directed
the Japanese Government to take necessary steps to stop this illicit import andexport trade, including the import of foodstuffs from Korea.

(5) Memorandum for Export Procedure (July 16, 1946)
In this memorandum, the export procedure originally outlined in Attach-ment 1 of the memorandum of March 14, 1946, was revised and substantive
changes were made in case of shipment to countries other than the UnitedStates.

(6) Memorandum for Export Procedure (August 26, 1946)
In this memorandum, it was directed that all price quotations should bemade in terms of "FOB Japan ports" instead of FAS.
This change was made retroactive to March 1, 1946.

FUKUO KAWATA

14(7) Memorandum for Freezing Material for Export (August 30, 1946)
In the memorandum of May 10, 1946, freezing was applied only to finishedor semi-finished goods, but in this memorandum it was directed that raw
materials also should be frozen until instructions were received from SCAP.

(8) Memorandum for Import-Export Accounting Control for Japan(November 19, 1946)
This memorandum chiefly concerned accounting control procedures forJapanese imports. The accounting control procedures for Japanese export had
already been shown in the memorandum of March 14, 1946, and in this memorandum only practical points were stated.

Seetion 3. Preparation for Panicipation in World Trade
In 1947, occupation authorities relaxed, to some extent, their strict control
of trade and began to take necessary measures for Japan to participate in world

trade. This change was brought about partly through the intensification of thecold war, and partly through their realization that the economic independenceof Japan was most important for the attainment of the objectives of the occupa-tion. Trade and financial arrangements were concluded with several foreigncountries, and the range of barter trade was enlarged. With the limited reopening of private trade, procedures of trade were revised, branches of foreignbanks in Japan were re•-opened, and foreign buyers were permitted to comeinto Japan.

Thus, preparation for participation in world trade made gradual progress.

Chief memoranda during this period were as follows:( 1 ) Memorandum for Resumption of International Postal Service between
Japan and all other countries (January 2, 1947)

By this memorandum, international postal service between Japan and allother countries was authorized effective January 2, 1947, and paragraph 1 of

the memorandum dated Septemer 5, 1946, concerning the Resumption ofInternational Postal Service between Japan and all other Counrties except Ger-

many was rescinded.
The service, however, was restricted to postal cards (including reply cards)

and letters to and from Japan; one way gift parcel post to Japan, and mailingfrom Japan of such scientific and professional publications as might be approv-

ed by the Supreme Commander for Allied Powers.

TRADE CONTROLS IN OCCUPIED JAPAN (1945-1949) 15
Communications on postal cards and in letters were limited to personal andfamily messages and to business, financial and commercial correspondence, only
for the ascertainment of facts and exchange of information. But the following
letters were prohibited:

1. Letters authorizing the effecting of specific financial and commercial.
transactlons:
2. Letters containing instructions or authorizations effecting property
and financial transactions;3. Letters containing currency, securities, checks, drafts, payment orders or other financial matters.

(2) Memorandum for the Procedure of Export of Samples (February 8,
1947)This memorandum laid down general procedures for the export of samples.

(3) Memorandum for Marking Export Articles (February 20, 1947)
By this memorandum, the Japanese Government was directed to take immediate steps to insure that for every article prepared for export after 15 daysof the receipt of this directive, the immediate container thereof and the outside

package should be marked, stamped, branded or labeled in legible English withthe words "Made in Occupied Japan."(4) Memorandum for Export Procedure (May 3, 1947)
By this memorandum, the export procedure which had been provided forin the memorandum dated March 14, 1946, was simplified.

(5) Memorandum for Export Trade (August 9, 1947)
In this memorandum, several memoranda previously issued on export
trade were rescinded or amended, and the Japanese Government was directed
to take necessary action to establish procedures under which direct sales of ap-

proved items for export might be made by exporters in Japan to foreign buyers
after approval of the contract, and validation of the export license by the Japan-

ese Government and the Supreme Commander for the Allied Powers, and insuch quantities only as were allocated by the Japanese Government and by theSupreme Commander. In this memorandum, the concrete method of trading
after the limited reopening of private trade on August 15, 1947, was stated.

( 6 ) Interim Import-Export Policies for Japan by the Far Eastern Com-mission published on August 11, 1947. (FEC Policy Decision, July 24, 1947)

16 FUKUO KAWATA
The Far Eastern Commission decided, on July 24, 1947, "Interim ImportExport Policies for Japan", which were recommended to the Supreme Commander for the Allied Powers to be put into practice, and were made public on

August ll, 1947. ,These policies included 16 items, dealing with (I) long-range policy objec-

tives, (II) interim controls, (III) development of an import-export program,(IV) imports, and (V) exports.
According to the explanation by the United States Government Authorities,
this decision endorsed the policies already carried out in Japan by the UnitedStates, with the exception of item 16, which was newly added concerning exportsof gold, silver and other precious metals.
In item 16, it was provided that stocks of gold, silver, cultural objects andother precious metals, precious stones andjewels should be disposed of as follows:a. Cultural objects, produced prior to September 1, 1945 should not
be exported.
b. Stocks of gold, silver, precious metals looted from occupied areas
should be treated in accordance with the Far Eastern Commission
policy and pending establishment of a new restitution policy, items
known to have been looted or probably looted, should not be export-

ed from Japan.
c. Stocks of gold, silver, other precious metals, precious stones andjewels of clearly established Japanese ownership ultimately should
be disposed of as reparations.
In the meantime, values of such Japanese assets should be preserved, butsuch assets themselves could be used as a means of acquiring foreign exchange
to aid in financing production programs designed to contribute to the revivalof productivity in a Japanese peace economy. In the case of exports of theabove-mentioned assets equal opportinity to acquire these assets in return for
acceptable currency should be granted to all member countries of the Far Eastern

Commission. In accordance with the decision of the Far Eastern Commission,
General MacArthur announced on August 14, 1947, a plan to use approximately$137,OOO,OOO worth of Japanese-owned gold and silver made available by the
Far Eastern Commission as a base for acquiring foreign exchange to aid in re-viving a peaceful Japanese economy.

The $137,OOO,OOO would be used to form the Occupied Japan Export-Import
Revolving Fund to be utilized as a credit base against which private or govern-

mental financing institutions of allied or neutral countries would be asked toadvance funds or commodities to activate their foreign trade with Japan.
A spokesman for the Economic and Scientific Section of GHQ stated that

TRADE CONTROLS IN OCCUPIED JAPAN (194S-1949) 17
the formation of this Fund represented an important step toward the re-creation of Japan as a selfsupporting trading country. In order to export, Japan
had to import raw cotton, wool, iron, salt, petroleum products, wood pulp] hemp,

metals, rubber, and a number of other commodities. OnlY by export could
Japan secure the means to feed all her people, and other nations needed thoseexports.

The use of this new credit base wou!d permit Japan to reactivate her exportindustry so that when the Peace Treaty would be signed, her international credit

standing would be satisfactory. Japan's efforts towards reconstruction would
enhance her standing among the commercial countries ofthe world. In view ofthis and the urgent need for Japan's products it is anticipated that international credits based on the Funds would be offered in large volume.

Section 4. Further Relaxation of Trade Control
World economy in the late forties was facing a dollar shortage, which prevented the normal development of international trade. Occupied Japan belonged
to the dollar area and trade with Japan was made in terms of dollars. This is

one of the factors which impeded the growth of Japan's trade with non-dollar
countries, as they were short of dollars. It was, therefore, decided in June 1948
to conclude bilateral trade agreements with sterling countries in order to promote

Japan's trade with them.

During 1948, the number of countries concluding trade arrangements withJapan increased. With the expansion of trade volume and the diversificationof traded commodities, the pound sterling, beside the U.S. dollar, came to be
used as the acceptable currency for the settlement of international accounts.

The trading system under the direct control of SCAP had gradually beenchanged, but it was after the "Johnston Report" (which was published on April

26, 1948) that the principle of aid to Japan made a remarkable change. The
categories of commodities imported into Japan, which had been limited to those
goods vital to the maintenance of a minimum standard of living for Japanesepeople, were extended to include those materials necessary for economic reha-•bilitation.

According to the "Johnston Report", the United States decided to startfrom the fiscal year 1949 (that is, beginning in July 1948) the EROA (Economic

Rehabilitation in Occupied Area) aid beside the existing GARIOA (Government
Appropriation for the Relief in Occupied Area) aid. This measure proved very
effective for the later rehabilitation of Japan's economy.

On August 15, 1948, Boeki Cho announced a drastic revision of the pro-18 FUKUO KAWATA
cedure for private export. Through this revision, export contracts withforeign buyers could be concluded directly by Japanese private exporters, ins-

tead of through Boeki Cho.
Although the contracts were subject to the approval of SCAP, it was quite
significant that private Japanese exporters were allowed to negotiate with foreign

buyers directly. Letters of credit of buyers which had been opened to Boeki
Cho, came to be opened to private exporters. Sellers, not Boeki Cho, could negotiate directly with buyers for the settlement of claims arising from contracts,

provided, however, that all settlements were subject to approval by the Japanese

Government and the Supreme Commander for the Allied Powers.
Before this revision export prices had been fixed by SCAP in terms ofdollars, but thereafter Boeki Cho decided the minimum dollar price ("floor price")of export goods after approval by SCAP. As this floor price was the minimum
price for each commodity, the exporters were not allowed to sell at prices belowthat level, but they could sell goods at any price higher than the "floor price."
Hence, the higher the dollar price contracted, the higher the yen price received.

This served as an incentive to export trade promotion.
In spite of these measures, Japan's exports in the first half of 1948 were lower

than in the same period of the preceding year. This was partly due to theimport restrictions of foreign countries and partly due to infiation in Japan. •This declining export was quite contrary to the expectations of the UnitedStates that Japan's economy should become self-supporting. The United States
Government, therefore, issued an interim directive to GHQ, on December 17,
1948, to make the Japanese Government enforce the nine-point stabilization
plan, laying emphasis on the prompt achievement of economic self-suMciency.
The objectives set forth in the interim directive of the United States are:

1. To achieve a true balance in the consolidated budget at the earliest

possible date by stringent curtailing of expenditures and maximum expansion
in total government revenues, including such new revenues as may be necessary
and appropriate.

2. To acclerate and strengthen the program of tax collection and insure
prompt, widespread and vigorous criminal prosecution of tax evaders.
3. To assure that credit extension is vigorously limited to those projects

contributing to the economic recovery of Japan. '4. To establish an effective program to achieve wage stability.
5. To strengthen and, if necessary, expand the cdverage of existing pricecontrol programs.

6. To improve the operation of foreign trade controls and tighten existing foreign exchange controls, to the extent that such measures can appropriately

TRADE CONTROLS IN OCCUPIED JAPAN (1945-1949) 19
be delegated to Japanese agencies.

7. To improve the effectiveness of the present allocation and rationing
system, particularly to the end of expanding exports.

8. To increase production of all essential indigenous raw material andmanufactured products.
9. To improve ethciency of the food collection program.
10. To develop the above plans to pave the way for the early establishmentof a single general exchange rate.

The directive proceeded from the premise that "the prompt economic
stabilization of Japan is a primary objective common both to the Allied Powers

and the Japanese people". "The fundamental objective of this action - is theprompt achivement of that degree of economic self-suMciency which alone canjustify and insure political freedom".

As far as trade was concerned, the directive referred (in item 6) to theimprovement of the operation of foreign trade controls and to the tighteningof existing foreign exchange controls. It is significant that the directive (initem 10) suggested the early establishment of a single general exchange rate.
Before the issue of the directive concerning the nine-point stabilization

plan, the Far Eastern Commission decided, on November 18, 1948, the policy
to encourage an increase in Japanese exports for the re-establishment of a selfsustaining economy. It is noteworthy that the establishment of a single exchange

rate for the yen was recommended in item 9 in this policy decision. In thosedays, multiple exchange rates or different price ratios had been applied according

to the category of commodities, the ratios ranging from 150 yen to 600 yen per
U.S. dollar.

Section 5. Toward the Normalization of Trade Mechanism
In 1949, the tendency toward the relaxation of trade control became apparent.

This was due to the change in the minds of occupation authorities. They
realized that a self-sustaining economy of Japan could not be accomplished bysuch strict measures controlling her international trade as had been carried onin the past.

Among the important measures taken in 1949, were the establishment ofa single othcial exchange rate for the yen at 360 yen per one dollar, permission

for the purchase of foreign exchange credits for the purpose of stimulating
exports, permission for the establishment of overseas agents of Japanese trading
firms, abolition of the "floor price" system, and permission for private imports.

20 FUKUO KAWATA
It was significantly pointed out by Mr. Joseph M. Dodge, Finance Adviser
to General MacArthur concerning the Japanese Economic Stabilization, in his
statement on March 7, 1949 that "while it is not too dificult a matter to computea rate based on present circumstances, that is not all there is to the problem...

; it is one thing to establish a single othcial rate and another to defend it after

it has been established." To maintain a single exchange rate, inflation had
to be stopped. A series of drastic anti-inflationary measures had to be put
into practice according to his advice to stabilize Japan's economy.

It was on April 23, 1949 that a memorandum for the establishment of an
oMcial exchange rate for the yen was issued at last.

( 1 ) Memorandum for the Establishment of an OMcial Exchange Ratefor the Japanese Yen (Apri1 23, 1949) 'The Japanese Government was directed to take steps necessary to put into
effect at OOOI hours, April 25 1949, an oMcial foreign exchange rate of 360
Japanese yen to one U.S. dollar. Rates for other currencies were to be basedon this rate translated into U.S. dollar values of such currencies as were register-ed with the International Monetary Fund. This rate was to be basic for all
permitted foreign trade and exchange transactions, including transactions forwhich the military conversion rate was then applicable, as well as deposits
to the United States Aid Counterpart Fund for Japanese Stabilization.

(2) Memorandum for Purchase of Foreign Exchange Credits for the
Purpose of Stimulating Exports (June 24, 1949)

By this memorandum, Japanese exporters were allowed to obtain a certain
amount of foreign exchange. This foreign exchange could be used for paying
expenses of travelling and staying abroad, of establishing branches in foreigncountries, of obtaining necessary materials for credit transactions, and of pur-chasing foreign patents and know-how,(3) Memorandum for the Plan to safeguard Exports against probabledangers arising from the abolition of the floor price system (October 22, 1949)

When this measure was taken, there was a rumor that Japan's exports would
decline to one-third of the planned figure by the effect of the devaluation of
the pound sterling (on September 18, 1949), and the yen would also be devaluated sooner or later.

On October 15,1949, General MacArthur issued a statement denying thedevaluation of the yen. This statement was endorsed by the abolition of thefloor price system. The direct object of this step was to make export prices

TRADE CONTROLS IN OCCUPIED JAPAN (1945-1949)

21

flexible in order to promote Japan's exports without devaluing her currency.

(4) Memorandum for a License for Free Exports (October 20, 1949)
Although private export trade with some restrictions, had already been
permitted on August 15, 1947, and a drastic change in the procedure of private
export trade had also been effected on August 15, 1948, there still remained theapproval of Boeki Cho and the validation of General Headquarters as barriers
to freer private exports. These barriers were largely reduced by this memorandum. By this measure, about 850/o of total exports were exempted from theapproval or validation of the above organizations.

(5) Memorandum for Private Imports (October 21, 1949)
Private trade had so far been prohibited, but it was directed by this memo-

randum that from January 1 1950 onwards, private imports would be permitted,
and details of coinmodities to be imported and of import procedures would laterbe published by the Japanese Government.
Thus, in 1949 the relaxation of trade control was remarkable. In view ofthis situation, General MacArthur issued the "Statement concerning Return ofPrivate Import to Normal" on December 27, 1949.
In the statement, it was announced that "the Supreme Commander had
authorized the transfer of control of the equivalent of $67,OOO,OOO in pounds

sterling and U.S. dollars to the Japanese Government. The Bank of Japan,
acting as agent for the Foreign Exchange Control Board, will take control of thesefunds for the account of the Supreme Commander with fu11 authority to delegate
and re•-integrate its powers of operation to the Foreign Exchange Bank in orderto facilitate the implementation of private imports in accordance with the Foreign

Exchange Control Law and under SCAP surveillance."
The statement referred to the introduction of the import license systemand foreign exchange budget systern. Under the import license system, appropriate government agencies had to publish lists of goods and payments forwhich import licenses would be considered. Importers were to apply directly
to designated foreign exchange banks for licenses with which to effect private
procurements in accordance with such lists.
"Licenses would be considered by banks in accordance with fund availabili-ties as determined by the Bank of Japan as agent for the Foreign Exchange
Control Board, and in general be issued on a first-come-first-served basis. The

license would assure the importer that he could purchase with yen the foreignexchange needed to consummate his approved import." Under the foreignexchange budget system, goods and payments to be authorized were programmed

22 FUKUO KAWATA
in a quarterly foreign exchange budget which was carefu11y prepared by theJapanese government and reviewed by General MacArthur's Headquarters.
The budget was to itemize expected proceeds from Japanese visible andinvisible exports and to program imports and payments in accordance with theforeign exchange or trade agreement credit determined to be available.

A new task was imposed on the Bank of Japan as agent for the Foreign
Exchange Control Board. The Bank of Japan was to take title to the transferredfunds on behalf of the Japanese government and to be responsible for maintaining central records and determining funds and credit availabilities upon whichbanks could issue import licenses. This action, as SCAP oficials indicated,"reflected the final major steps in returning Japan's trade to normal channels."

In the meantime, the draft of Foreign Exchafige and Foreign Trade Control

Act was submitted to the Diet on November 21, 1949. This Act was drawn
up as a fundamental law for Japan to prepare herself for future participation in

the International Monetary Fund after signing the Peace Treaty. The practiseof c.i.f. pricing for exports and f.o.b. pricing for imports, which had been
sent for approval to GHQ by the Foreign Exchange Control Board, was approved on December 17, 1949.
Moreover, it was announced on January 10, 1950, by the British Governmentthat Japan should be exempted from the application of the "Trade with EnemyAct." Through this measure, Japan's trade with the sterling areas was normaliz-ed. With the outbreak of the Korean War on June 25, 1950, the so-called"Korean Boom" took place, and Japanese trade made remarkable progress by
this impact. We may well say that Japan had virtually returned to the world
market by the latter half of 1950, although the Peace Treaty was not signed
until September 8, 1951, being put into force on April 28, 1952.

References
Foreign OMce, Japanese Government: Nippon Senryo oyobi Kanri Jtiy6
Bunsho Shfi (Documents concerning the Allied Occupation and Control ofJapan) 1949.
Ministry of International Trade and Industry: Nippon Boeki no Tenkai(Development of International Trade of Japan) 1956.

Economic Planning Agency: Sengo Keizai Shi (Boeki-Kokusai ShtishiHen) (Economic History of Postwar Japan - Section of Trade and Balance ofPayments) 1962.

PATTERNS OF DOMESTIC SHIPPING SERVICES
Characteristics of Japanese Coastwise Shipping

Seiji SAsAKIAs a rule, there are two or three kinds of shipping services in every country,

at least, in the great Powers of the world. One is home service, in which ships

transport domestic cargoes from one native port to another. The other is theso-called foreign service and is often subdivided into the following two: First,

transportation service between one's own country and foreign countries in whichships carry trade-goods, either exports or imports: Second, cross trade service
from one foreign country to another, in which ships navigate quite outside their.
own terrltory.
It is, of course, true that the development of the navigation area from acoastwise route to an ocean route, as well as from the river to the sea, was itselfvery clear and most important in the growing process of our modern shipping
industry, and that the overseas advancement of shipping activities, especially,

ocean carriers, ocean routes, ocean navigation or ocean shipping should be infact the main object for our study on the shipping of today. Nevertheless hometransportation service which is composed of not only sea-borne or coastwise
service but that on rivers, canals and lakes, is actually carried on in almost all

countries. It is often connected inevitably with the national economy andnational life. In this meaning, it is also very important for us to study thedomestic shipping service, although the majority of academic persons and business experts are in general apt to pass over it lightly.
In this article we wish first to show some patterns of such domestic shipping
services in the world, even though our main aim is, of course, to grasp the special

conditions of our own Japanese domestic service as compared with foreign
similar services. Each country has its own characteristic domestic shippingthat has many specialities with some similarities. The Japanese domestic
shipping has among others its own special pattern. Only with this clear recogni-tion we shall be able to reach a true understanding of Japanese actual domestic
shipping conditions. On the other hand, this recognition makes a real specialityof our present Japanese shipping industry, composed of internal and external
services, clear with their dithcult circumstances and future expansion power.

24 SEIJI SASAKII Relation Between the Three Principal Types of ShippingEÅëonomy and Japan's Domestic Shipping Service
Professor S. Sawa has described completely and clearly the historical process

and practical situation of world shipping economy in his famous book, Kaiun-

Riron-Taikei,-theoretical system of shipping-, 1949. His explanationon the following three principal types (patterns) of maritime transportation as apart of the national economy is very much to the purpose:i. Transportation inside each national economy (shipping service on acoastwise route).

ii. Transportation between one's own national economy and other national
economies (shipping service on foreign (external) routes).

iii. Transportation between other national economies (shipping service
from one foreign country to another foreign country, that is, a crosstrade service).

He also puts them into a table adding each main function as follows:main function

type

main routeNo,1 type

coastwlse route

help domestic

commerce

coastwlse route

help domestic

commerce

foreign route

help foreign

coastwlse route

help domestic

foreign route

help foreign

No,2 typeNo,3 typefrom foreign to foreign route

receipt ofcommerce
commerce
commerce

international

freight

Based on Professor Sawa's classification, we can begin to grasp the actual
situation of domestic shipping services, especially of the Japanese.

The Japanese domestic shipping is apparently very simple and pure, becauseof the physical shape of the land and of the real service-form. It may easily

correspond to the first type. In our country all ships which are engaged indomestic transportation service are nothing but coastwise vessels fixed for thesea entirely, and their service is a great help to domestic commerce.
This fact is clearly a speciality of our Japanese domestic shipping on the

one hand. But Japanese shipping, as a whole, corresponds to the second typein the above table. With this fact in mind we have to be carefu1 to grasp what

our real and essential domestic shipping service means. Moreover using sucha method as to grasp the domestic shipping service from the point of view ofrelating its main route with its main function has another problem, that is, wheth-

PATTERNS OF DOMESTIC SHIPPING SERVICES 25
er it is also suitable to all shipping countries in the world.

First, Japanese domestic shipping is entirely coastwise. It excludes almost

completely routes on rivers, canals or lakes. This comes of course from thenatural condition of the country that makes it easy to separate internal transporta-tion services from external transportation services. There are also a few other

European countries, an island empire or a peninsular kingdom, in which theirdomestic shipping services are at the first glance grasped in the viewpoints ofcoastwise route and of helping function for their domestic commerce. However,there are so many continental countries either in the connection with othercountries or independently. Moreover almost all of these continental shipping
countries, as well as some of European island empires or peninsular kingdoms,

have often their own or common rivers, canals and lakes, in where even many
foreign ships are able to engage in the water-borne transportation services
actively.

In the United States of America the route from Atlantic ports to Pacificports via the Panama Canal is surely coastwise and domestic according to theirlaw. The same kind of domestic sea-borne transportation service is also carriedon between the Mediterranean and the Atlantic in France and Spain. These
domestic routes include the coasts of other countries in their concept of "coast-

wise route" or "coasting route", The United States of America even declaresthat the route between the mainland and Hawaii is domestic, though their ships
have to navigate on the ocean for several days.

While the term (concept) "coastwise route" or "coasting route" is mostwidely opposed to the term (concept) "ocean route", the former is used in themeaning of a domestic route inside each own country including not only thecoast but rivers, canals and lakes. The Japanese domestic route is wholly coast-

wise within their territory, but in some of the other countries they are often
various and beyond the limits of their own coast. From this standpoint, Japanese

coastwise and domestic shipping serves their domestic commerce completely;
for the ships transport their own domestic cargoes only inside their own coasts.
In this sense Japanese coastwise service has the only function of aiding their own

domestic commerce. In many foreign countries the domestic route does notcorrespond to only a coastwise route and has not always a single function ofhelping their own domestic commerce. From the above-mentioned general attitude let us investigate further particulars of foreign domestic shipping services

and show their patterns.

SEIJI SASAKI

26

II External Characteristics of American and European Domestic
Shipping Services in Comparison with Pure
Japanese Coastwise Service'A) Domestic services of the U.S.A. shipping
As aforesaid, there are two very long domestic shipping services in the UnitedStates of America; one is the intercoastal route carried on between their Atlantic
ports and Pacific ports,(i) and the other is the so-called Hawaiian route connect-

ing the Hawaii Islands with the Pacific coast of the mainland. Both are fairly

important to the U.S.A. national economy, while they are very special in comparison with ordinary domestic shipping services in the world, especially withthat of Japan.

The former intercoastal route connects the East and the West by the longest distance along the coasts of North and Central America via the Panama
Canal. The coast belongs not only to the U.S.A. but to many other countries
like Mexico, Guatemala, Salvador, Honduras, Nicaragua, Costa Rica, Panama
and British Honduras. Sometimes, ships may call at Cuba and at other West
Indian countries. At this point the U.S.A. intercoastal service covers far
more than their own coast (territory).
The Hawaiian route is rather close to an ocean route; for it stands at a different level from general isolated island routes in other countries, besides ships

must navigate for several days on the Pacific Ocean.
The intercoastal navigation to connect their own coasts which are separat-ed by the territory of other countres is not always an American specialty.
Both France and Spain have similar domestic shipping service as will be statedlater on. Even Mexico, Guatemala and Honduras in Central America, Pakistan
and Saudi-Arabia in Asia may have the same sea-borne transportation problem

either in theory or in the future. Japan and many of the other European
shipping countries, however, do not have such an isolated shipping service.
It is also questionable whether the French and Spanish intercoastal services
between the Atlantic and the Mediterranean are as important to their national

economies as the U.S.A. intercoastal service. In this meaning, both abovementioned American domestic shipping services are very characteristic as compared that of other countries.

In comparison with the Japanese domestic coastwise shipping service the( 1 ) The domestic route between Alsaka and the mainland (Pacific coast) is not taken up
in our discussion because it is not so important.

SHIPPINGSERVICES
OF DOMESTICPATTERNS
busy water transportation carried on in rivers, canals and lakes is very special,because few so-called modern steamers (motor ships), especially cargo-steamers,
navigates on Japanese rivers or lakes. There are only very small wooden vessels

and so-called barges on all Japanese rivers and small canals. The sightseeing
passenger-boats, motor-boats and yachts are the only modern ships to be foundon Japanese lakes, while small boats of farmers and fishermen are the maincargo-vessels on a few of the larger lakes. So the American water carriage
on the Mississippi River and the Great Lakes stand on quite a different levelfrom that of Japan.
As stated in another paragraph, river transportation service is also carriedon actively in European countries. Even many large countries in Africa, Asia,

Australia and South America have also busy water transportation on their own
rivers. Moreover the British river transportation service is very importantin connection with their national economy, in spite of their being a small
island empire. So the U.S.A. water carriage on their own rivers and canals
may not be uniquely American, although it is evidently quite different fromJapanese domestic coastwise shipping. However, the U.S.A. river transportation,
especially on the Mississippi, has a fairly distinct characteristic on the points of

its long distance, of its being their own river, and of their home goods, etc., incomparison with European river services.
The domestic water carriage on the Great Lakes is also quite specially
American at any rate, even if Canada has some part in the transportation. Few
Asiatic or European countries have such great lakes, in which many modern ships
can engage in their own domestic water carriage, or foreign trade. Incidentally,

the Great Lakes have the largest connection with so-called ocean shipping not

only of the U.S.A. and Canada, but of other main shipping countries. It isespecially important as one of the largest stages in our own Japanese overseas
shipping activity.

Compared with Japan, the American river carriage represented by theMississippi is also a very special domestic water transportation, which has large

economical importance. But the majority of main shipping countries have asimilar, if less long and less complicated in content, river water carriage.

B) Domestic Services of European Shipping
The domestic water carriage of European shipping countries is rather
more related to Japanese domestic coastwise service in comparison with thatof the U.S.A.. There are some parallel points in the domestic shipping
services of a few European countries and Japan not only apparently but functionally. However, many of the European shipping countries, even including27

28 SEIJI SASAKI
the few similar shipping countries, have their own active river and canal services

inside the concept "domestic water carriage," as well as the U.S.A.. Such an
European domestic water carriage is indeed different from the simple Japanese
coastwise service. European river and canal transportation services are note-

worthy in connection with the economical activity of their own country and ofEurope as a whole. It sometimes also has connection with world shipping
business and economy. Moreover, it composes in fact almost half or more of
the whole internal water carriage in each European shipping country. Evenin the United Kingdom, the country most resembling Japan in the common
sense, such river and canal transportations are very active and important.
On the other hand few lake transportation services are carried on in Europe,

as in Japan. The Swedish lakes are used for cargo transportation with modern
ships exceptionally. There are convenient water routes connecting the Baltic

Sea with the North Sea through a system of canals. However, such Swedishlakes are quite small in comparison with the Great Lakes, and their transporta-tion service is also much less important. It may also be said that no Swedishlake has its own independent shipping or water carriage business as regards
cargo transportation. All other European lakes are only opened to small sightseeing boats or Iimited local services.

The service carried on along coasting routes is, of course, very importantin Europe. It is shipping service in the real meaning of the term and is themain domestic water transportation using the sea, which forms all of our Japanese

domestic shipping service. This European coasting service which is truly substantial like the river service, shows that each country or each group has someindividual characteristics but that they all have something in common as well.
There are several kinds of patterns among the main shipping countries like thatof the British coastwise service which is an island kingdom, that of the Italiancoastwise service which is a penisular kingdom and that of the Portuguese
coastwise service which has only an own coast. On the other hand there aresome group patterns; the Scandinavian countries commonly carry on a fjord
coastwise service, the west European countries have a rather flat coastwise
service, and France and Spain show a special pattern as stated previously.
We cannot overlook these differences or characteristics in the whole European
domestic coastwise shipping service.

When we attempt to approach such an European domestic water carriage
service from the point of view of getting any good pointers for Japan, all of
the above-said apparent patterns with their own specialities are naturally very

instructive, for some of them give useful information while others give only alittle or nothing. For example, the French long roundabout route between

PATTERNS OF DOMESTIC SHIPPING SERVICES 29
the Mediterranean and the Atlantic coast-the service from Marseilles to L'
Havre-has hardly any connecting reference, even if it is on a smaller-scalethan that of the U.S.A. carried on between the Atlantic coast and the Pacificcoast via the Panama Canal. Also the curved route like a hair-pin from Veniceto Genoa, is in a sense distantly related to the Japanese domestic route on the
difference that one is an island empire while the other is a peninsular kingdom,

even though such a roundabout route from Fushiki (on the Japan Sea) toOsaka or Tokyo (on the Pacific coast) is actually and similarly in anothersense carried on in Japan.
In spite of the rough grasp in a lump, on the whole, the above-said basic
and special characters of European domestic shipping service show distinctly
an original pattern in itself and in company with individualistic patterns in eachcountry. While European domestic shipping seems at first sight to be closer
to that of Japan than to America, its real pattern has its own specialities either

individually or as a whole. Even the coastwise services of a few European
countries which seem to be most similar to Japanese domestic shipping service
have often some individuality in its formal figure as well as in its economical

activity. European water carriage on rivers and canals, distinct from the sea,
is itself without relation to Japan. Nevertheless, it uses very often the sameship in size and sort as Japanese domestic shipping and even European
coastwise shipping. Also its practical methods of navigation, operation andtransportation business are almost the same. The difference in its formal
figure may not be necessarily important to us. Therefore the greatest careis exercised with reference to this matter.

C) Domestic Service of British Shipping
It may be better to refer to British domestic shipping service a little morein comparison with the Japanese; for both seem to resemble each other not
only in a common sense but even in the substance of the practical performanceof their transportation business or in the size and sort of ships used, though
there are several remarkable distinctions in their economical activities.

British domestic shipping service consists roughly of two internal parts.

One is the purely seaborne coastwise service that corresponds with that ofJapanese domestic shipping. Another is the water carriage on their rivers andcanals distinguishable from the sea. The latter is hardly to be found in Japanas above-mentioned. All British rivers are not so much wider or longer thanJapanese rivers, but are deep enough for large ships to navigate. The canals
are also highly developed in Britain. These are the main reasons for the growthof British river and canal transportation, which gives a distinct British character30 SEIJI SASAKI
as compared to that of Japanese domestic shipping service.
This British water carriage on rivers and canals, however, has few substantial

differences from the coastwise service either English or Japanese as regards theships used and their operation. In the actual performance of cargo transportation and the business administration of all enterprises there appears no change

between the two. They both use almost the same sort of ships, small-sized or

middle-sized steamers or motor ships, often commonly. Large barges over
one or two thousand tons that are used to a great extent on continental rivers

are seldom found on British rivers, nor has Japanese shipping used them yet.
When we consider the domestic shipping service as true transportation that is
carried on by comparatively small-sized vessels on domestic water routes, there
is no substantial diflierence between British coastwise shipping service and theirriver (and canal) transportation service. Incidentally, the Kihansen, the special
Japanese semi-steamer closer to a sailing-vessel, is hardly ever used in British

domestic shipping circles, even though some British shipowners still own andoperate their small wooden steamers.

Last, we must pay attention to a characteristic resemblance between the
British domestic shipping service and that of Japan, even if it may partly departfrom our main subject. Many British domestic ships are transporting theirdomestic coal, which is produced in two main coal-mine areas and is carried
to a few manufacturing centers. This very much resembles the Japanese
domestic shipping, in which the transportation of coal is still the most importantbusiness for many shipowners or shipping enterprises, and moreover the actual

service is carried on along fixed routes from Kyushu and Hokkaido (coalmine areas) to Tokyo, Osaka and Nagoya (manufacturing centers). Even if
the importance of coal-transportation is really declining, it still forms a common

backbone of both countries' domestic shipping services.

III Characteristics on the Function of American andEuropean Domestic Shipping Services
The above-mentioned general explanation that the greatest economicalfunction of each domestic shipping is to help its country's domestic commerce,or to transport home cargoes inside its own territory, in fact, is available only

on a definite condition and frame. The difference in condition and frame
sometimes causes discord or conflict in the method of explanation. A type ofdomestic shipping that is formed purely of coastwise transportation service israther scarce. In almost all American and European countries the water
carriages on rivers, canals or lakes are very active and important as much as

SHIPPINGSERVICES
OF DOMESTICPATTERNS
coastwise transportation.

Such transportation business on rivers, canals or lakes by modern ships,
as above-mentioned, is often eminently important on the point of its role in thenational economy or in its weight within the whole of domestic transportation
excluding the services of railways, trucks and others. While those water carriages

apart from sea-borne transportation are generally distinct from the narrow ship-ping business which is now apt to be understood as that of ocean navigation
rather than coastwise or coasting navigation, they are often treated en bloc with

their own coastwise transportation as a domestic service. Such an apparent
contradiction seems to result from another common-sense opinion which is apt
to understand analogically domestic shipping consisting of coastwise service
and river, canal or lake services against ocean shipping services equal to overseas
service to foreign countries. In many cases the same sort of ships, both in dimen-sion and size, are navigating between coastwise lines and river, canal and lakeroutes. We can even find such cases where often the same ship is employedin common on both routes. On this point, let us consider for the momentthat American and European domestic shipping consists in substance of two or
three more internal subdivisible parts, that is, coastwise service, river and canalservices, and lake service -or sea transportation and water carriage.

What functional characteristics do they show as far as has been supposed
above? We must first pay attention to the functional versatility of water carriage
carried on in rivers, canals and lakes. The fact that almost all continental rivers,

either American or Europeanj and American lakes are partially owned and usedby several countries, not belonging to any single ownership, and the practicaltendency that the water carriages carried on in rivers and lakes are performed
so much on the aggregate and in liquidity rnake their traMc a many-sided service;for there are first, the pure domestic transportation service helping their domestic

commerce, secondly, the transport service of export and import cargoes helping
the country's overseas trade, and lastly, the cross-trade service - from foreign

to foreign transport service - in connection with another country's commerce.
So these water carriages have not a single economical function. It seems thata few famous European rivers like the Elbe, the Rhine and the Meuse, etc., makenavigating ships engage in more of a so-called foreign trade than in domestic

commerce. A great deal of the ships navigate from their home river-ports toforeign ports, or on routes between ports of other countries. On the other
hand the American Great Lakes are in a special class by themselves being muchbigger, wider and more stormy than the Japanese can imagine. The scale oftransportation business, in the quantity of transported cargoes and in the hugenessof navigating ships is in fact American-sized. Apart from this problem the31

32 SEIJI SASAKI
so-called Great Lakes water carriage is not restricted within the frame of domestic

service either of Canada or the U.S.A., These lakes open their gates to many
foreign ships which are, of course, used originally on an ocean route to help
each others overseas trade. After all, the water carriage carried on in the Great

Lakes includes manyd-sided economical functions. At least, for Japanese
shipping the Great Lakes form one of the most important overseas markets,
which has no connection with their domestic transportation service.

Besides of the above characteristics of American and European river andlake water carriage that can not be found in Japan, we must also give attention

to some characteristics recognized in a common coastwise shipping service
between Japan and other countries.
The U.S.A. intercoastal service between the Atlantic and the Pacific coasts

is no doubt a special domestic transportation activity like those of Canada,
France, Spain, etc.. The ships partially navigate along their own coasts andtransport their home cargoes with a view to help their domestic commerce.

Apart from the problem of the navigating distance, it seems that no
essential difference can be found between such intercoastal services andJapanese coastwise services, However, there is a clear distinction between
the ordinary coastwise service and these long intercoastal shipping activities.
It is a fact that the coast does not belong to only one's own territory; in otherwords ships must inevitably run along longer foreign coasts on their way. These
foreign coasts belong to several countries, at least to over two, each of which

has their own goods and ports expecting the entrance of ships, exclusive ofvery few country iike Spain and Pakistan. These intercoastal service ships are
sure to call at foreign ports on their routes, if the law does not forbid it. In so

far the seaborne transportation services serve partially the so-called foreign
trade. Namely, they have also an economical function to help their own overseas

trade or the foreign commerce of other countries. There is accordingly a very
big and important difference in economical function between the above complex
intercoastal shipping service structure and an ordinary, especially Japanese,
simple coastwise service structure.

Finally, but rather as the most important problem we must keep our eyeson the economical function of European domestic shipping, either river andcanal water carriage or coas ing transportation; in almost all European shipping
countries the majority of so-•called domestic service ships does not always fix

its navigation-field in only its own territory. They engage sometimes in purely
their own domestic transportation and sometimes in foreign trade, even if coast-

wise and ofashort distance. It seems there is no difference between the routeor the service along their own coast and those in neighbouring waters. Narnely,

PATTERNS OF DOMESTIC SHIPPING SERVICES 33
there is an almost perfect combination of domestic (coastwise) service with coastal(adjacent sea) service. The strength of this combination in Europe is nothing
to that in Japan, although a recent growth of the same tendency in the- latter
is itself worth of note.(2)'It is very natural that these European jointly-used(coasting) ships shouldhave an economical function of helping the so-called foreign trade while
promoting their own domestic commerce. While these coasting ships naturallytransport their home cargoes from one domestic port to another domestic port,
they also carry a vast volume of export-cargo and import-cargo from or to theirown country. Moreover, they often engage in cargo trathc from one foreigncountry to another. It seems that the strength and degree of such a dependency

on foreign trade cannot compare with the same in Japan.
Main reasons are first, the geographical neighbourhood or junction ofEuropean countries and secondly historical custom or tradition of European shipping. Oeean cargoes, that is, the main foreign trade-goods are shipped and landed

by big ships in several famous large ports like London, Liverpool, Rotterdam,

Amsterdam, Antwerp, Hamburg, and so on. From or to these biggest tradeports, the cargoes are carried by the smaller coasting vessels. There is a certain organic specialization and cooperation between ocean shipping and coastingor domestic shipping. The latter are very closely related to each other. Other

well-known ports, like Genoa and Marseilles in the Mediterranean, and Oslo,

Bergen, Stockholm and Copenhagen in Scandinavia, etc., also have the same
conditions. Compared with Japanese domestic shipping, of which the connection with exports and imports is said to be still very little, European countries'

coasting or domestic shipping show on the whole a big special economical function to serve their own and all European foreign trades.

(2) In the beginning of April 1965, a tonnage of 406,OOO gross-torns-general cargo ships

387,OOO and tanker 19,OOO- had been jointly-used between the domestic coastwiseroutes and the routes for neighbouring countries. These figures are less than 15
percent of the total registered domestic tonnage of 2,900,OOO gross-tons.

APPROACHES TO THE HISTORY OF INDIVIDUAL
BUSINESS UNITS
Tadakatsu INouE

The first annual convention of the Japan Business History Society after
its formal organization late in 1964 was held at Tokyo University for three days

from November 5 to 7, 1965. While twenty-two scholars presented papers
on "free topics," six made reports on the methodology of business history which

was the "common topic" of the meeting. Among the latter, the writer was
given an opportunity to submit a report on how the history of individual busi-

ness units should be studied as business history. The following is a r6sum6of the paper read at the meeting within the time limit of thirty minutes.

I
The history of a business unit-a business man, a firm, or a company-holds a preeminent position in research in business history. Take, for example, Harvard Studies in Business History, the first series of monographs inbusiness history issued under the auspices of the Harvard Business School
since 1931. Almost all the monographs numbering nineteen volumes as of1955 are either biographies of business men like John Jacob Astor, Jay Cooke,

and the Hancocks or the histories of cornpanies such as the MassachusettsFirst National Bank, the Waltham Watch Company, and the Saco-Lowell Shops.
To take another example, there is the Business History Review or its ancestor
Bulletin of the Business Historical Society. Most of the articles which fi11 up
the space during the past forty years are the histories of individual business men

and firms. This is the same as to the periodicals and series of monographs
issued in Germany, England, France, and Australia.
Although the history of individual business units occupies a high positionin the study of business history, all the histories of this type are not worthy ofthe name of business history. Besides the books and articles contributed tothe above mentioned periodicals and series, there are innumerable stories aboutbusiness men and companies which would not qualify as business history.
Sometimes, they are Pieces of propaganda which were written on the inside andon behalf of the business men or companies concerned. Sometimes, they are
journalistic articles which were written to be sold in order to obtain a living

36 TADAKATSU INOUE
for the author. Those stories about business men and companies do not belong
to the school of truth, not to mention their gualification as business history.

Even among histories written by scholars, however, there are those histories
about business units which do not qualify for the field of business history.
They may be economic, political, social, or legal histories of business units.
It is necessary, thus, for a student who has the intention of writing a historyof a business unit as business history to follow a certain method peculiar tobusiness history. Then, what is this method of business history?
It must be noted also that, while the history of individual business units
holds a preeminent position in research in business history, it is not the only
subject, area, or type of study that calls for research in the discipline of businesshistory. It is only prejudiced opinion to identify business history with businessbiography and company history. There are, to be sure, other approaches tobusiness history. According to the Iate Professor Gras, for example, "there
are ... the history of a function, such as production or marketing, the historyof a whole industry, such as meat-packing or cotton texiles, and, of course, thegeneral history of business." Then, what position does the history of individual

business units hold in the whole system of business history?

It seems to me that there are at least two problems as mentioned above
which would cause discussions among scholars under the subject imposed uponme, that is, how the history of individual business units should be studied asbusiness history. At this meeting, however, I will arbitrarily take up only the
first problem for fear that my remarks should become too wide to reach a settle-

ment within the time alloted.

II
What is the principle or method to be followed in writing the history of abusiness unit not as an ordinary biography or company history but as businesshistory? This question we are going to discuss in the following pages is inevitably

related to that old but still new problem of what business history is. As every-

one can find, there are several opinions even among business historians about
the substance of business history. Thus, acccording to which opinion theyhold, the writers will present fairly different types of business biographies andcompany histories. For this reason representative points of view among businesshistorians are examined here.

( 1 ) There is a group of business historians who follow business history

as conceived and developed by Professors N.S.B. Gras and H.M. Larson.
The outstanding characteristic of this school is that it proceeds from the stand-APPROACHES TO THE HISTORY OF INDIVIDUAL 37
BUSINESS UNITS

point of administration. It seems to me that the term "standpoint of administration" or "administrative point of view" means three things in terms of epistemology. First, it expresses what is the central interest of this group of his-

torians and, therefore, what is the object (Erkenntnisgegenstand) of this typeof business history. Scholars in this group are primarily concerned not withthe public aspects of business, but with the private aspects. They are originallyinterested not in the function which the business units perform within the national

economy, but in the action, in the doing, in the living stream of efforts of thebusiness institutions themselves. In short they emphasize the developmentof business administration, that is, of policy, control, and management. It isnatural, thus, that the term "business" as the object of business history should
be defined as "the administration of the combination of labor, natural resources,

and capital in the production and exchange of goods or services with a viewto earning profit."

Second, the "standpoint of administration" points out the method by which
historians of this school approach the object of business history. For this, how-ever, we can quate a pithy statement made by Professor Larson: "Businesshistory proceeds from the standpoint of administration. Thus it has a central
point to which to relate the various factors concerned, a center which throughpolicy, control, and management co6rdinate the various factors. Again, it may
deal with only a part of an aspect of a business unit, industry, or system, but
it looks at that part as a segment of a whole which is directed by administrators."

Differing from the economic determinism which leaves no important place foralternatives of policy, control, and management, this approach emphasizes theprocesses of trials of specific personalities in meeting the needs and opportunities

created by a changing environment.
Lastly, the "point of view of administration" may be a standard one canuse in making judgments about rightness and wrongness on a decision or action.
The business historian of this school, with the interest and goals of a scholar,

judges a decision or action as a business administrator would do, though there

are, of course, other points of view-the various other individuals or groups
concerned, and finally the total community or nation.
Now, what are the criteria of a good history of a business unit in terms ofbusiness history as conceived and developed by Professors Gras and LarsorilFirst of all, the work must focus its attention on the administration of a business

unit over a period of time. Secondly, the history must present the events fromthe point of view of the busy men responsible for the destiny of the unit. Only

by showing these executives as they meet the needs and seize the opportunities

created by a changing environment can the process of the changes that have

38 TADAKATSU INOUE
occurred in business administration be meaningfu11y presented. And, lastly,
it must refer to the results of the choices of alternatives in using various factors

in given situations to accomplish the end of the unit.

(2) There is a group of Marxians who are interested in research andwriting on the history of business. Take, for example, those scholars in Eastern

Germany. In writing the history of individual business units, such as Carl
Zeiss (Jena) and Mansfeld, which were operated as private, profit-oriented
enterprises in pre••revolutionary days, they proceed from the standpoint of classstrife. For them, a business enterprise is the very place where a capitalist sweats

his laborers who, in turn, struggle against him. Thus, differing from theabovementioned business history which considers the events only from thepoint of view of the business administrator, this type of study gives attention

to stories about wage workers, the conditions under which they work, and theirstruggles for better working conditions, not merely to those of the capitalist

and manager, the latter, in the Marxian conception, is merely a managing

substitute for the former. •(3) There is a group of scholars who are attracted to the problem-

area of economic development and the relationship of entrepreurship to economic

development which was originally illuminated by Professor Schumpeter. Although there arise various ramifications, the ideal type (in Weber's terminology)of this school is well illustrated in Dr. Fritz Redlich's early book History ofAmerican Bttsz'ness Leaders: A Series of Studies, Vol. 1: Theory: Iron and Steel:Iron Ore Mining (1940). The objective of the book is stated as follows: "Letme emphasize anew that I am dealing only and specifically with the creative
entrepreneur, the entrepreneur who is important from the viewpoint of economic

development. I do not deal with the pioneers in the American sense, although
it will be necessary to mention some of these; for mere expansion of industry
is not interesting in the light of this research." It must be apparent to everyone

that Schumpeter's conception of the creative entrepreneur who is the bearerof economic development is the leading idea of this research. Please compare
this with a study of the development of business administration which is but
little concerned with the function which the business men and firms perform
within the national economy.

(4) In a modified form of Schumpeter's theory, Dr. Redlich suggests
another approach to the history of business in an essay titled "Innovation in Busi-ness," which was contributed to the American Journal of Economics and Sociology
in April, 1951. The essay, on the one side, draws a sharp line between develop-

ment and growth. The former is a qualitative change, while the latter, incontrast, is quantitative in character. On the other side it draws lines between

APPROACHES TO THE HISTORY OF INDIVIDUAL 39
BUSINESS UNITS

innovation and re-innovation, between primary and derivative infiovation,
between derivative innovation and copying, and between copying and routine.
Then, it points out that, while development is due to the creative (and semicretative) entrepreneur, the man able to achieve primary and derivative inno-vations in various degrees, growth is due to the copying entrepreneur as well as
the creative (and semi-creative) entrepreneur. It seems to me that the interest

or objective of the writer of this essay is broaden to include not only the
relationship of the creative entrepreneur in Schumpeter's sense to economic
development, but also that of the copying entrepreneur to economic growth,which had no important place in his History of American Business Leaders.
( 5 ) Lastly, we shall have to take up Professor Arthur H. Cole's BusinessEnterprise in its Social Setting which, in a sense, is a summary volume reflecting

the operations of the Research Center in Entrepreneurial History in the decade
after 1948. It seems to me that this book is based on the following fundamental
considerations. First, the leading idea in the study of entrepreneurship is "tostudy the central figure in modern economic development, and, in my way of
thinking, the central figure in economics." Here one may see the subject of
the relationship of entrepreneurship to economic development which was dis-covered and formulated by Professor Schumpeter. But, secondly, the word
"entrepreneurship" is interpreted in a much wider sense than in Schumpeter'ssystem: "Usually, the word will be employed to mean function or activity.
Here I shall have in mind the purposefu1 activity (including an integrated sequenceof decisions) of an individual or group of associated individuals, undertaken to
initiate, maintain, or aggrandize a profit-oriented business unit for the produc-tion or distribution of economic goods and services." The important thing isthat "there is nothing in the definition given above that requires the employment
of innovation in the activities of entrepreneurship, at least innovation in theusual sense." For the author, "the spread among business institutions of
new ways of doing things, from one location to others, from industry to industry,

and from plant to plant, is much more important for economic growth than theinitiation of such new ways at specific points in space and time." Here one
may see the same idea as shown in the above-mentioned essay by Dr. Redlich.
But, thirdly, Professor Cole sees the economic and social consequences of entre-

preneurship in a still more broaden sense. For example, he casts doubts upon

the traditional assumption of economists that the entrepreneur should know
instantly what is being done and how he should respond in the face of market
criteria. He finds that there is no regard for misinformation, conflict of
information, and lack of information. And, thus, he sees the need of researchin conditions internal to the business units, such as the lines of authority and40 TADAKATSU INOUE
communication between the administrative ofices and oMcers and the information and data that fiow through these lines of communication and authority.

Finally, it must be noted that the concepts and models as developed bysociologists and psychologists, such as social reputation, role and sanction
structure, or changing locus of effective sanctions, are successfully applied tostudies of entrepreneurship.

III
Making a survey of the history of business history, we have renewed ourunderstanding of how many points of view appear in this field of historicalresearch and study. Then, how should those interested in writing business bio-graphies and company histories think? It seems to me that there are several
alternatives in deciding one's attitude. The first is to insist on a particularistic

definition of the substance of business history as the late Professor Gras might
do. This attitude, however, will not be a way of enriching the tasks of businesshistory, though it has been somewhat useful in creating and establishing a new
field of historical study against traditional historical scholarship in the economic

field. The second is to attempt to arrive at a single mutually acceptable de-finition of business history. There are, to be sure, many business historians

who have spent much time and endeavors to achieve this. But, how and whenwill it be attained? Dr. Redlich's recent term "history of business and businessin history" is undoubtedly usefu1 to put various opinions about business history

in order. But what is the leading idea to unify these two categories? It seems

necessary, as Professor R.C. Overton said at the Business History Conference

held at Harvard Business School on October, 1961, to declare a period ofpatience to see whether performance will not jell our combined efforts intoa systematic whole. And the third is to choose and realize one's point of viewin accordance with what his central interest or objective is and then to expand
and enrich the tasks which call for research by absorbing the results of scholars

who proceed from other points of view. Whatever standpoint he might choose,the business historian of the present is marching forward along this line.

CUMULATED COST RATIOS FOR THE JAPANESEECONOMY IN 1955.*
Nobuko NosE

I. Introduction
Cumulated cost analysis, which has been promoted by Dr. G. Stuvel(i)and his successors,(2) is a very useful tool for analyzing the structure of national

income by industry groups and for measuring the influence of any economic
plan.

Present study attempts to estimate the cumulated cost ratios by Japaneseindustry groups in 1955. For this purpose, first we intend to show a model
for computing the ratios. Second, we provide the tables of the ratios by industry groups and by destination categories. For our attempts, the Japaneseinter-industry tables in 1955 are used as the empirical data. Third, we intend

to analyze the cumulated cost structure in the Japanese economy in 195S andto compare this structure inter-temporarily. On this stage, our chief attention

is put on the two main cost factors, imports and wages. And finally we intend

to make a brief comment on the result and on further study.

II. Model for computing cumulated cost ratios
Cumulated cost analysis attempts to estimate the ratios by two kinds ofcumulations ; to estimate the ultimate distribution of final factor costs payment byindustry groups and to determine the ultimate destribution of sales by industry

groups to the final destination categories (final demand). The former process
is termed as `cost cumulation', and the latter is termed as `destination cumula-tion'. In the both cases, the principle is common and consistent. The basic
cost items are three: direct cost, intermediate cost and total cost. Direct cost
* 'I'he author is profited very much by Dr. Stuvel's kind guidance and suggestions•Also the author particularly acknowledges Mr. S. Tamino's help for computing the data.
( 1 ) G. Stuvel, The Use of National Accounts in Economic Analysis. Income and Wealth,series IV, (London: Bowes & Bowes), 1954, pp. 319-321. G. Stuvel, Systerns of Social
Accounts, (Oxford: Oxford University Press), 1965, pp. 227-230.
( 2 ) G. F. Loeb, Experience with Input-Output Analysis in the Netherlands, Input-Output
Relations, (Leiden H. E. Stenfert Kroese N. V.), 1953, pp. 167-18S. Central Bureauof Statistics, Cumulated Cost Ratios for the Netherlands Econorny in 1950, Statistical

Studies, No 6, Nov. 1955, pp. 3-30.

42 • NOBUKO NOSE
is the total of final factor cost paid directly by each industry concerned and iscalled alternatively as non-cumulated cost. For example, wages which anindustry, sayi pays to laborer's household, say k, are direct labor cost. Intermediate cost is the final factor cost which is paid by the other industries, sayl, who has delivered the intermediate products to the industry i For example,
imports which are paid by l to make an intermediate products for 1' as 1"s input

is intermediate import cost. The total of them is total cost and is called alternatively as cumulated cost. Final cost factors consist of imports, net indirecttax, wages, profits, depreciation allowances and an item for adjustment. On theother hand, final destination categories consist of consumption, stockpiling, go-vernment consumption, fixed capital formation and exports. We can deconsolidate more as Japanese statisticians do: fixed capital formation into government

fixed capital formation, and devide exports into exports in ordinary sence andextraordinary exports respectively.

In the both way of cumulation, we use an assumption about a certain fixed
relationship in inter-industry delivery of goods and services. As rnentioned
above, Japanese inter-industry tables provide the empirical basis for getting
the cumulated cost ratios by Japanese industry groups.

i. Model for computing the ratios.
As our industry division is detailed one (35 sectors), it is preferable toestimate the ratios by an inversion method shown below.

Let x,i as an amount paid by industry J' to industry i, rki as an amount
paid by 1' to final cost factor k and 2i as total sale of 1', then 2j=2 xij+2yki.

ik
Also let pij-m X

2i li , gki= Yxkji and rkj= iki' respectively. Here, gk,, Pii, rkj are]'th industry's direct cost ratios, intermediate cost ratios and total cost ratios
respectively.

In the three cost ratios there are some relationship as follows.

mnm

2rki--Epkj+2gkj--i •••••••••••••••••••••....................,......(i)k=1 k=1 k=1'n
rki=gkj+2rkiPii••••••••••••••-..•.,.,.......,...........................(2)l=1(S•:--'l; ::; y)where rki is direct cost ratios of the industry l who provides intermediate
products to i(3) Government of Japan, Ministry of International Trade and Industry, Research andStatistical Division, Interindustry Analysis for the Japanese Economy, (Tokyo, So-bunsya), 1962.

CUMULATED COST RATIOS FOR THE JAPANESE 43
ECONOMY IN 1955

Now we intend to represent the ratios in Japanese industry groups byusing matrix nortation. Let P as a matrix whose one element is pkj, 9 as amatrix whose one element is gki, and R as a matrix whose one element is rki .

Then,

9=:R(I-P) "m..mm".m".".."m"."..,""-.""".",.."..(3)or R=9(I-P)'i....H.........."."...."."........................,........(4)where I is the unit matrix.

ii, Model fer cumulated destination ratios for cumulated cost by destination
categorles.

Let VV as an amount paid for goods and services by final destination
category k to industry i.

nThen T=2PVik,
wik=vaiblTk=part of Tk paid to i, Now let sith as cumui=1,

lated cost ratios of destination k in relation to final cost factor .i. Then we get
as follows:n •••••••••••••••••••••••...••••••••••.................,.........(5)sik=2riiwih
l=i
in matrix nortation,

S-Rva "..".",""""."""".".."".......-.".".".""."."".(6)where W=(wik) and S=(sik)•
Substituting the relationship given in (4) into (6),S-9(I-P)-iW. ................".".".................................(7)Then, after computing the ratios by above equations, we can estimate cumulated
cost quotas easily, deviding the direct cost by the total cost and the intermediate

cost by the total cost. For abreviation, we like to use simbols D, I and T for
direct cost ratios, intermediate cost ratios and total cost ratios respectively in thefollowing sectors.

IIL Result
Table 1 represents the results of the cumulated cost ratios by industry
groups. First, using the table 1, we intend to investigate the general featureof Japanese industries. It is remarkable thati direct rate of turnover is 44.10/,

and this rate is comparatively low,(`) and ii cumulated wage ratios and profit

ratios are considerably high comparing with the other cost categories. More-(4) In Netherlands, the rate of turnover is about 70.1O/o. Central Bureau of Statistics, Cu-

mulated Cost Ratios for the Netherlands Economy, ibid p. 15 and Table 2. In Japan,
this ratie is 11.60/.. See Table 1.

44 NOBUKO NOSE
over, we can find that some industries depend much on external economy (or,in other words, cumulated import ratios are high), while another industries depend much on the domestic economy (or, in other words, theircumulated domestic factor cost ratios are high). But instead of these variancesby industry groups, the average cumulated import ratio in Japan is not so high.

Then, we intend to analyze cumulated cost ratios by every industry groups,
using Table 1 and Table 2.
Table 2 is got by rearranging table 1 according to the order of co-eficient.
First, we intend to investigate import ratios. It indicates that petroleum products industry's direct import ratio (MD) is 42.4 and the highest in the all Japa-

nese industry groups. As for the total import ratio (MT), petroleum products
industry's figure is the highest too. This industry does not buy from otherindustries, so that its intermediate import ratio (MD is 1.4 and is the least.

Pulp, iron and steel and chemical industry buy much from the others and their
Mi are more than ten times of petroleum products industry's Mi. Natural textile
industry's cumulated import ratio is resemble to that of petroleum products indu-

stry's. On the other hand, in service, trade, mining industry, electric powerindustry and construction industry, their cumulated import ratios are considerably

low. Generally, corelation coeMcient between MD and MT is high and thecoeMcient between MD and Mi is low. Typical example is petroleum products
industry and the reverse case is iron and steel industry.

Second, we intend to investigate cumulated net indirect tax ratios. Table
2 indicates that food industry's non cumulated net indirect tax ratio TD,
intermediate net indirect tax ratio Ti and total net indirect tax ratio TT
are high. On the other side, in natural textile and iron and steel industry,

TD, Ti, TT are low. Petroleum products industry's TD, TT are high insteadof low Ti. Chemical industries (fertilizer, chemical intermediate productindustry)' TT are high because their Ti are high. Generally, the corelation coethcient TD and TT is O.983 and highest in all cost categories. The
corelation coeMcient between TD and Ti is O.O03 and the least.
Third, we intend to investigate the cumulated wage ratios. Table 2 indicates that scrap industry and miscellaneous groups' direct wage ratios (vaD)
are blank. Therefore, we should omit these industries from analysis. Thenpetroleum products industry's W. and intermediate wage ratio (VVi) are the liest

respectively. Its WD is 3.7 and VV, is 4 and total wage ratio (WT) which is theliest also is 7.7. Natural textile industry's wage ratios are the same way. On
the other hand, coal mining's W. is 47.4 and the highest. Coal mining's WT is

the highest too, instead of that her vai is low. In transportation and roadindustry the situation is resemble to coal mining industry. As a whole, inCUMULATED COST RATIOS FOR THE JAPANESE 45
ECONOMY IN 1955

chemical industries PV, are high because they buy much from the other industry

groups. Generally, the corelation coeMcient between WD and WT are 83.10/o
and not so high. As for the coeficient between W. and PVi, it is -O.136.
Forth, we intend to investigate cumulated profit ratios. It is remarkablethat average of the direct profit ratio (P.), the intermediate profit ratio (Pi)and the total profit ratio (PT) are the highest respectively in those of the all

cost categories. As for individual industry group, scrap industry's PD and
PT are high as agriculture and trade industry. On the other hand, petroleum

products industry's PJ (==5) and PT (=17.9) are the iiest respectively. In
road industry, PD, Pi, PT are low. In iron and steel industry (including cost,

wrought and rolled iron industry) Pi, PT are comparatively high instead of
their low P.. Generally speaking, in service industries their Pi are low andin chemical industries Pi are high. The corelation coeMcient of PD and PT

is O.82 and that of P. and Pi is -0531. • .
Fifth, we intend to investigate cumulated depreciation allowances ratiosfrom Table 1 and 2. These tables indicate that scrap industry and miscellaneousgroups' figure are blank. Therefore we should omit them from analysis. Inelectric power industry, her direct depreciation cost ratio dD is the highest,
therefore, her total depreciation cost ratio dT is highest. On the contrally,

petroleum products industry's intermediate depreciation cost ratio di and dT

are the lowest (her d. is comparatively high). Transportation and mining
industry have high d. and dT, while chemical industries have high di and dT.
Table 1 indicates that corelation coeMcient between d. and dT is O.90 and iscomparatively high, while the coeMcient between dD and dJ is -O.174 andnegligeable. Electric power industry's ratios are typical case.

Sixth, we intend to investigate cumulated value added ratios. Two tables
indicate that in petroleum products industry and in natural textile industry ofwhich cumulated import ratios are very high, the intermediate value added ratio

Yi and total value added ratios YT are low respectively. In electric powerindustry and in scrap industry, the direct value added ratios YD and YT are very

high in spite of that their Yi are low. In coal products industry and iron in-

dustry, YD are low and their YT are low. Generally, service industries' YD
and YT are high as mining industries. In chemical industries, Yi are highwhile their YD and YT are not very high. The corelation coeMcient between
Y. and YT is little and that between YD and Yi is less.
Table 4 represents that cumulated import ratios and wage ratios by Japaneseindustry groups in 1951 and 1959. Comparing these with table 1, we find thatin Japanese industry groups' cumulated import ratios are more changeable thantheir cumulated wage ratios. For example, in general merchandize, processed46 NOBUKO NOSE
metal product, trade and scrap industry, their cumulated import rhtios radicallyfall and in coal product industry and non-ferrous metal industry the rates rise.

Cumulated wage ratios are comparatively stable and generally tend to fall.
Table 4 indicates that petroleum product, cement, iron and steel and automobile
are typical cases. Finally, we intend to analyze the cumulated cost ratios bydestination categories represented in Table 4. It indicates that exports depend

much on imports because the coeMcient is the highest. Exports are the mostimport-intensive category in the all destination categories. The order of import-

intensiveness of every destination category is: exports, stockpiling, consumption, extraordinary exports, fixed capital formation. The least import-intensive

category is government consumption. As for cumulated net indirect tax ratio,

consumption depends most on it. The order of net indirect tax intensivenessis consumption, stockpiling, extraordinary exports, exports. The least one isgovernment capital formation. On the contrally, Table 4 indicates that the
goods destined for government capital formation is labour-intensive because
the ratio is the highest (O.4339). The order of labour intensiveness is: governmerit capital formation, private capital formation, exports, private consumption.

The least one is government consumption. Table4 indicates the order of
profit--intensiveness. That is; stockpiling, and extraordinary exports, con-sumption, exports. Stockpiling and extraordinary exports depend much on
profit. The least destination category for encouraging profit is government
consumption. The information provided by Table 4 suggests which destination category is a dominant factor for net national income formation. As fordepreciation allowances ratios, exports much depend on this cost ratios and theorder of depreciation allowances-intensiveness is exports, consumption, exttraordinary exports, stockpiling. The least one is goods destined for government consumption. Table 4 indicates also that exports, extraordinary exports,
consumption and private capital formation create total value added considerably

because their coeMcient are high. The least category for creating total value

added is government consumption.

rv. Concluding remarks
The conclusion which we have got by analyzing the table is as follows.

1. Japanese industry groups are classified according to their cumulated
cost ratios: group 1 is high D with high I, group 2 is high D with low I, group

3 is low D with high I, group 4 is low D with low L Group 2 is subdivided
into subgroup A that has high T and subgroup B that has low T, while group 3
is subdivided into subgroup C that has high T and subgroup D that has low T.

CUMULATED COST RATIOS FOR THE JAPANESE 47
ECONOMY IN 1955

For example, in respect of import ratios, iron and steel industry belongs to group1, petroleum products industry belongs to group 2 and to subgroup A, while
agriculture belongs to group 2 and to subgroup B in respect of wage ratio.

2. As for destination categories, government consumption is the least
factor for encouraging value added and its components. The goods destinatedfor investment, for government or for private use, are labour-intensive, while

exports and extraordinary exports are capital-intensive. On the other hand,
the goods destinated for stockpiling and for exports are import-intensive. It
is our regret that we can not devide consumption into durable consumption andnon-durable one on this stage of analysis. We intend to improve this pointin further research. Moreover, we intend to compare the cumulated cost ratiosinternationally as intertemporarily. These attempts also remain as further task.

Cumulated Cost Ratios inTable 1.
Industry

NumberNet Indired Tax

Import

Cord

D

T

I

167

477

193

670

54

39

23

474

595

35

178

213

77

41

118

35

21

20

41

297

131

428

142

172

314

144

37

181

15

13

28

352

72

424

273

132

43

261

82

127

209

74

274

87

8S

172

104

235

101

265

366

120

314

62

24

34

MetalMining

4

5

27

Food
NaturalTextile
ChemicalTextile

5

Fertilizer

ChemicalProduct(!ntermediate)

ChemicalProduct(FinalUse)

Cement&Pottery
Iron&Steel

Cast,Wrought&RolledIron
ProcessedMetalProductNonferrousMetal
Machine(ForIndustry)
PrecisionMachine

39

130

218

6

392

24

416

6

7

44

69

113

7

8

26

212

238

5

77

14

10

40

47

87

27

11

58

53

111

7

13
14
15

16
17

18

19

20
21

22
23

ElectricMachine(ForIndustry)
ElectricMachine(ForHoushold)Automobil

24

193

424
112

64
73
31
129
13
7

66
15
17

12

49
14

91

65
52
37

108
155

84
57

81
55

67

T

I

76

3

12

D

121

2

GeneralMerchandize
CoalProducts
PetroleumProducts

T

91

3

57

I

--u

Petroleum&NaturalGas

20

D

24

CoalMining

9

T

242

438
203
129
12S

68
237
168
91
123

96
72

79

13

246
6
17

10
21
3

4
15

18
11

43
13

12

32
26

30
23
28
29
10

37

38

48
27
19

23
22
22

24
26
26

18

39
31

44
50
35

42

103

211

110

256

138
197

42

256

37

43

85

55

58

150
190
371

366
288
387

40

77

241

326
346

111

235

111

216

327

188

197

385

22

50

166

216

37

40
3S

69
39

82

199

166

181

88

176

200

210

217

185

178

193

79
116

281

347

264

410
402
371

70

20

90

348

14

39

53

339

25

31

56

299

419

58

88

146

315

377

11

63

74

343

433
268

129

68
108
131

50
281
287
297

440
512

384
198
179

349

32

72

8

56

64

34

51

85

21

85

106

38

13

51

38

79

117

CR2 CR2 631
CR1 CR1 610
26

45

69

114

428

16

55

71

86

338

1,OOO

625

375

1,OOO

604

361

965

607

393

1,OOO

CR1
CR1 CR1 388
CR1 CR2 222

238

973

740

260

1,OOO

482

870

479

521

1,OOO

362

584

614

386

1,OOO

249

665

914

293

707

1,OOO

161

601

762

187

813

1,OOO

CR2 CR2
CR1 CR1 252
CR4 CR3 35575
CR1 CR1

700

952

272

728

1,OOO

661

913

292

708

1,OOO

534

889

413

587

1,OOO

683

758

268

732

1,OOO

451

111

562

875

125

1,OOO

182

615

797

294

706

1,OOO

248

623

871

312

688

1,OOO

264

611

875

337

663

1OOO'

932

438

562

1,OOO

763

249

751

1,OOO

805

1,OOO

25

CR16 CR21 CR37
CR32 CR7 CR39

CR4 CR4 CR8
2

407

525

1

120

643

1

162

670

832

195

380

529

909

387

613

1,OOO

237

640

877

303

697

1,OOO

333

571

904

348

652

1,OOO

435

493

928

452

548

1,OOO

50

377

544

921

389

611

1,OOO

574

933

371

629

1,OOO

621

907

298

702

1,OOO

583

906

335

665

1,OOO

280

655

935

285

715

1,OOO

409

535

944

414

586

1,OOO

35

48

409

457

19

47

66

1

53

389

22

58

80

1

107

392

89

286

167

183

241

278

499
375

408
461

1!

49

60

23

46

69

32

52

84

43

51

8
3

47

735

2

411

46S

T

662

249

277

I

940

162

188

D

961

51

442

T

309

252

1

I

351

CR36 CR20 CR56
CR20 CR14 CR34

104

395

D

T

I

81

405

198

413

48
27

97

27

D

Total

Valueadded

Adjustment

Allowances37

60

Weaving&Apparel
Paper&Pulp
Lumber&WoodenProducts

Depreciation

Profits

14

29

15

91

!

per capita

15

31

22

D

T

I

Groups91Agriculture,Forestry,Fishing

D

Wages

Japanese Industry

CR1 CR1
44

CR2 CR2

25

12

55

67

88

31

119

127

219

346

139

279

418

4

46

50

359

26

20

73

93

45

29

74

142

248

390

96

289

385

3

55

58

Shipbuilding

27

12

82

94

13

25

38

201

213

414

104

292

396

5

55

60

CR1 CR1 286
CR2 CR2 323

Construction

28

5

60

65

6

33

39

182

228

410

86

342

528

5

53

58

Roads,etc.
Trade

29

5

51

56

2

26

28

358

200

558

24

260

284

24

48

72

30

2

16

18

22

21

43

197

125

322

429

128

557

30

30

60

678

304

982

680

320

1,OOO

Transportation

31

18

49

67

12

34

46

366

129

495

70

158

228

131

33

164

579

354

933

597

403

1,OOO

ElectricPower

32

6

23

29

6

21

27

227

175

402

227

123

350

151

41

192

611

360

971

617

583

1,OOO

Service

33

6

37

43

29

39

68

254

163

417

174

203

377

55

41

96

CR1 CR1

512

445

957

518

482

1,OOO

Scraps

34

1

48

49

6

6

54

54

787

89

876

16

16

787

164

951

788

212

1,OOO

Miscellaneous

35

28

53

81

1

48

49

145

145

496

186

682

36

36

9

CR2

7

506

413

919

534

466

1,OOO

Average

57.0

59.1

116.2

28.5

26.3

177.0

338.1

161.3

252.1

413.4

83.4

-2.1

-4.3

384.6

500.9

885.4

441.6

558.4

1,OOO

r.T-D
r.D-I

O.921

-O.162

54.7

161.2

O.983
O.O03

-O.13635.5

47.8-O.531

-2.3

2

O.516

O.900

O.823

O.831

2

-O.174-O.871

Cumulated Cost Ratios by

Table 2.

D

D

T

I

D

T

I

Coef-

Coef-

In-

Coef-

In-

Coef-

In-

Coef-

In-

dustryficient

dustryficient

dustryficient

dustry ficient dustry ficient dustry ficient dustry ficient

34

1

13

14

30

18

34

30

16

4

27

35

4

22

32

29

29

4

2
3
5

30
32

23

3

35

18

28

5

2

24

2

39

19

29

5

6

24

33

43

8

32

29

34

49

38

3

32

29

56

28

20

6
6
7

1

33

37

1

60

14

24

12

17

37

28

65

6

25

12

5

39

31

67

11

27

12

10

47

25

67

7

19

13

34

48

17

68

1

2

15

31

49

23

72

16

22

15

12

49

9

77

23

17

29

51

24

31

18

16

52

35

9

20

3S

53

10

26

20

11

53

8

26

25

35

28

1

In-

D

T

I

Coef-

In-

In-

Coef-

4

3

2

1

Coef-

6
18

35

34

54

13

77

29

18

22

13

37

4

72

35

145

13

1

24

12

42

1

76

1

2

14

32

27

18

50

6

85

1

15

19

27

19

82

2

18

19

4

28

5

82

1

2
3
4
5
6
6
6
6
7
7
9

6

12

4

Coef-

In-

Coef-

In-

In-

Coef-

Coef-

In-

Coef-

In-

Coef-

In-

Coef-

In-

In-

Coef-

In-

ficient

CR39
CR37

75

13

111

13

562

18

120

34

164

6

584

8 C R34

8

161

4

238

12

758

16 C R08

19

162

30

304

8

762

11 C R04

11 C R03

14

182

1

309

18

763

16 C R04

23 C R02

6

222

2

351

14

797

25

35 C R02

27 C R02

21

237

31

345

19

832

56

24

9 C R02

58

13

1

50

13

179

35

13

13

34

16

7

C R36

14

24

34

89

12

198

34

34

16

35

36

15

CR32

7

14

2

35

32

123

2

213

26

4

20

25

50

8 C R20CR21CR20
8 CR14

15

167

18

48

30

128

31

228

24

1

27

24

50

14

CR16

15 C R07

6

172

19

53

4

132

29

284

25

30

30

13

51

16 C R04

121

5

209

8

62

31

158

3

314

27

6

31

23

51

34

30

125

18

216

14

68

3

172

6

339

28

31

33

5

53

36

36

6

3

37

28

3

20

29

28

14

85

5

127

21

264

31

70

2

178

5

348

23

32

21

8

31

6

87

31

129

19

281

5

74

35

186

14

349

10

30

21

22

35

21

88

3

131

10

288

10

79

1

193

32

350

8

11

5

39

26

58

23

27 C R02

5

20

22

11

35

1

91

18

166

8

314

28

86

12

198

22

375

20

11

33

41

30

60

5

23 C R02

21

22

2

37

7

101

35

145

30

322

22

89

33

203

33

377

5

14

2

41

20

60

6

19

23

20

37

8

103

10

150

14

326

26

96

6

235

8

377

16

16

32

41

27

60

28

2

10

10

23

27

38

9

110

33

163

16

327

9

97

23

241

11

384

18

19

23

43

10

64

26

22

11

22

24

24

39

15

111

32

175

25

346

6

104

17

249

26

385

12

21

18

47

18

66

79

31

12

27

25

7

39

16

111

21

176

15

346

27

104

29

260

15

395

19

22

25

46

21

81

24

13

29

26

28

39

25

127

20

181

20

347

27

le7

11

268

27

396

21

23

21

46

16

87

27

13

8

26

21

40

10

138

11

190

9

366

15

108

5

274

4

405

29

24

24

47

20

91

12

13

24

26

3

41

26

142

23

185

7

366

11

116

20

277

23

408

6

25

29

55

26

93

9

14

23

26

12

42

20

166

24

193

24

371

7

120

24

278

17

411

30

30

20

23

55

27

94

4

15

17

27

30

43

24

178

17

197

17

385

13

129

25

279

25

418

22

32

11

51

31

9

57

22

96

2

15

11

28

14

43

28

182

19

199

11

387

16

131

14

281

7

419

9

32

17

51

17

31

21

57

11

111

15

17

12

29

9

44

17

188

29

200

26

390

25

139

22

286

16

428

11

34

22

52

10

40

28

60

7

113

21

18

26

29

31

46

11

197

22

210

32

402

3

142

15

287

28

428

17

35

7

44

15

65

21

123

3

21

9

3o

17

48

30

197

8

211

23

402

17

162

26

289

9

440

13

38

11

58

24

67

16

125

17

21

25

31

35

49

22

200

27

213

22

410

23

167

27

292

19

442

14

15

64

7

69

15

129

30

22

7

32

10

50

27

201

16

216

28

410

33

174

16

297

18

457

21

66

26

73

5

130

2

23

28

33

15

55

23

217

25

219

12

413

24

183

h/

299

24

461

16

73

22

81

19

168

10

27

31

34

16

58

32

227

28

228

27

414

20

188

8

315

20

5

91

27

82

14

203

33

29

14

37

33

68

33

254

15

235

33

417

32

227

28

332

21

14

112

20

84

18

237

23

43

15

38

23

69

3

297

14

241

4

484

4

273

9

343

10

512

18

129

14

91

8

238

26

45

33

39

26

74

4

352

26

248

3

428

30

429

19

389

12

193

18

108

12

242

25

88

5

43

25

119

29

358

9

256

31

495

1

477

21

392

6

392

19

155

6

416

5

218

35

48

13

256

31

366

7

265

29

SS8

35

496

18

13

424

8

212

13

438

13

246

16

48i

5

261

2

474

12

371

2

595

34

787

10

33

In12

13

3
3
4
5
5
8
8

3

Coef-

In-

dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry ficient dustry
12

6

T

I

Coef-

ficient

54

10

Coef-

dustry

In-

34

13

D

T

I

In-

40

34

D

T

I

Coef13

6

D

T

I

Coef-

7

6

5

In-

34

34

Industry

C R02

7

249

32

360

5

870

9 C R02

15

248

3

361

15

871

C ROI

9

252

6

362

16

875

6 C ROI

10

252

35

21

877

4 C ROI

26 C ROI

16

264

33

413
44s

11

889

C ROI

20 C ROI

28

280

5

482

22

904

12 C ROI

10 C ROI

26

286

23

493

27

906

30

33 C ROI

33 C ROI

27

323

17

525

26

907

69

20

10 C ROI

12 C ROI

22

333

20

529

20

909

71

27

20 C ROI

2 C ROI

11

355

11

534

10

913

29

72

10

26 C ROI

34

25

359

29

535

7

914

48

8

74

18

6 C ROI

25

24

377

24

544

35

919

49

19

80

21

5

C ROI

24

20

380

22

571

24

921

1

81

29

34

13

5

388

25

574

23

928

22

84

19

25

28

17

407

27

583

17

932

11

85

1

24

30

29

409

18

643

31

933

28

53

17

86

22

13

22

23

435

8

601

25

933

26

55

4

90

17

28

31

13

451

16

611

28

935

38

27

55

33

96

33

30

3

35

506

14

615

1

940

15

45

16

55

9

104

9

22

32

33

512

26

621

29

944

1

54

10

56

12

106

12

31

18

1

31

579

15

623

34

951

465

33

55

19

58

15

114

2

3

19

1

3

604

21

640

9

952

499

7

58

8

63

14

117

31

32

29

2

2

610

28

655

33

957

4

70

15

69

2

118

3

18

1

17

2

32

611

10

661

30

2

77

9

72

7

146

32

19

1

21

4

1

631

7

665

2
3

961

557

1

670

31

131

14

79

31

164

11

1

29

2

35

7

30

678

19

670

32

971

409

35

682

3

144

12

85

3

181

35

9

17

2

4

25

4

735

12

683

4

973

433

34

876

32

151

7

88

32

192

26

21

4

34

787

9

700

30

982

Note: 1, 2, 3, 4, 5, 6,7

mean import, net indirect tax, wages, profits,

C R02

depreciation

1

allowances, adjustment, value

added respectively.

965

FOR THEJAPANESECOST RATIOSCUMULATED1955

49

ECONOMY IN

Table 3.

Cumulated Import Ratios
and 1959

and WageRatios in 1951

1

W 1959

M 1951

M 1959W 1951

39

60

129

193

496

2
3

42

30

477

60

36

411

336

4

63

23

443

438

5
6
7
8
9

117

96

152

230

564

459

143

182

116

125

332

301

340

244

233

323

106

93

331

338

10

56

101

287

287

11
12
13
14
15
16
17
18
19

220

138

337

331

343

341

234

312

470

352

102

48

201

185

295

335

177

r49

317

330

101

119

326

314
367

90

73

41S

256

285

312

200

188

187

365

269

20

135

99

391

343

21
22
23
24
25
26
27
28

165

29
30
31
32
33
34
35
average

Note:

237

294

251

115

102

445

371

70

80

468

423

99

94

446

396

103

68

443

248

110

113

441

374

107

108

438

398

70

68

367

375

71

64

328

440

29

16

296

350

80
53

73

530

458

38

484

325

63

42

327

385

150

65

275

78

145

50

205

123

143

125

341

314

M, W meancumulated import ratios

and cumulated wage ratlos

respectively.

$

Table 4.
Cost factors

Con$urnption

Cumulated Cost Ratios by Destination
Government

Consumption

StocksFixed Capital

Fixed Capital

Formation(Private)(Governrnent)

Categories

Formation

Exports

per caplta
Extraordinary

Exports

Total of Final

Demands

Imports
Net Indirect Tax

72. 737

31. 821101.937

7L911

50.34S

143. 127

71. 9622

78. 430

26. 823

56. 826

41. 434

36. 607

50. 865

55. 426

64. 0843

Wages

308. 965

158. 905

214. 428

409. 825

433. 915

363. 432

331.984319. 322

4

Profits

439. 914

21L827504. 418

389.985

270. 067

439. 182

464. 321

410. 778

8. 09938.265

61. 670

58. 310

90. 998

74. 479

74. 530

CR O. O04

1. 096

C R10. 095

O. 026

CR 2.926

902. 908

789. 994

934. 389

926. 240865. 789

1

5

6
7

Depreciation

allowances
Adjustment
Value added

CR 2.939

O. 407

7L 027
CR 8. 945

904. 771

436. 225

837. 744

76. 011

z
o
co

c
x
o
Z
o
m
a"

ACCELERATED GROWTH OF NATIONAL INCOME
Hikoji KATANo

R.F. Harrod [4, 5] and E.D. Domar [2] have shown that a steady growthof national income depends on both the average propensity to save and invest--

ment productivity (or reciprocal of capital coeMcient), which are assumed asparameters given from the outside of their theoretical systems. The steady
growth rate of national income is the product of these two factors. Then,for increasing the steady growth rate of national income, either the average pro-pensity to save or investment productivity should be increased. In this paper,
we will assume a constant investment productivity. So an increase in the steady

growth rate of national income shall be brought about by an increase in the.
average propenslty
to save.
In this paper, we do not consider any investment function, which describesa private enterpriser's behabior to invest. The investment level, which isdetermined by the equilibrium system, is the investment level required formaintaining steady and accelerated growth. And we assume here that thisrequirement can be always maintained by the direction of the planning authority.

Therefore steady and accelerated growths of national income can be always kept
within planned paths. In this connection, we do not examine in this paper thestability or instability of growth paths.

In a developing country, it would be very diMcult to increase the average
propensity to save by one effort to a suMcient level to take the economy into aself•-sustained situation. So, for a developing country, a mechanism to steadily

increase the average propensity to save shall be considered. This process canbe supported by a constant marginal propensity to save which is larger than the
average propensity to save at the inital time period.
This process, by which the average propensity to save in steadily increased,

can be developed by a generalization of Domar's steady growth model. This
steadily increasing average propensity to save brings about a steadily increasing

growth rate of national income. We call this growth with increasing growthrate the accelerated growth. On this accelerated growth path, the higher themarginal propensity to save, the higher the growth rate of national income.

Contributions by Domar-Fel'dman [3] and P.C. Mahalanobis [6, 7] have,on other bases of tl)inking, developed their ideas of the accelerated growth ofnational income. They develop their models from the view-point that theHIKOJI KATANO

52

accelerated growth of national income can be attained by increasing the invest-

ment allocation ratio to a sector producing capital goods. We can prove thatthe higher investment allocation ratio to a sector producing capital goods has
the same effect of accelerating the growth rate of national income in the long-run

as a higher marginal propensity to save has, The higher the investment allocation ratio to a sector producing capital goods, the higher the marginal propensity

to save. And the higher the marginal propensity to save, the higher the growthrate of national income in the long-run, Then the higher the investment allocation ratio to a sector producing capital goods, the higher the growth rate of national

income in the long-run.
At last, let us consider a feasible situation where the investment produc•tivity of a sector producing capital goods is smaller than that of a sector producing

consumption goods. Consideration on this situation lets us know that for main-taining the marginal propensity to save at a constant level required for thedeveloping economy into a self-sustained situation, the investment allocation
ratio to a sector producing capital goods should be kept at a level several times

that of the required marginal propensity to save.

I. Harrod's Steady Growth of National Income
R.F. Harrod's contribution to the theory of economic growth was to show
the dependence of steady growth of national income on both average propensity
to save and investment productivity: the growth rate of national income is the
product of these two factors.

Harrod's model consists of Keynesian aggregates. The price situation is
kept constant. There is a certain relation between investment and incrementin national income under normal capacity conditions. Assets are assumed tobe permanently used. The average propensity to save is always kept constant,
Output as a whole is distributed only to investment and consumption. Foreign
trade is not considered.

Fundamental assumptions in Harrod's model are the following two:
1. Demand-supply (saving-investment) equilibrium is always maintained,

and
2. Production process is always operated under normal capacity conditions.

Under these assumptions, Harrod's model is constructed as follows,

AY(t)=al(t)(1) S(t) =aY(t) ,I(t) =- S(t)where Y(t), I(t) and S(t) stand for national income, investment and savings at

ACCELERATED GROWTH OF NATIONAL INCOME 53
time t, a for average propensity to save and a for investment productivity. The

first relation shows that a certain amount of investment can generate national
income increment being o times of the investment under normal capacity condition. The second relation means that savings is a constant fraction of national

income at all time periods. And the last relation shows the saving-investment
equilibrium condition.
For initial conditions [Y(O) and I(O)] given from the outside of this system,

the levels of national income and investment at time t can be determined byequilibrium system (1).

Y(t)=(1+aa)'Y(O)(2) I(t)=(1+ao)'I(o) 'These relations express growth paths over time of national income and invest-

ment respectively. On these growth paths, each growth rate is kept constantover time. We call a growth with a constant growth rate a steady growth.

II. Domar's Steady Growth of National Income
From a different origin of thinking in Harrod's model, E.D. Domar presented

the same kind of steady growth of national income.

The framework and assumptions of Domar's model are almost the sameas that of Harrod's. However, Domar constructs his model with a constantmarginal propensity to save instead of a constant average one as in Harrod's
model. Here is the only difference between Harrod's model and Domar's.
Thus Domar's fundamental model is constructed as follows:d Y(t) = al(t)(3) dS(t)-= sdY(t) ,dl(t)-=dS(t)where s stands for marginal propensity to save. The first relation has the same

implication as the first relation in (1) has. The second relation shows that
increment in savings is a constant fraction of increment in national income.
The last relation stands for a continuous saving-investment equilibrium condition.

For simplicity, Domar assumes here that the marginal propensity to saveequals the average one, Then the equilibrium system (3) becomes
AY(t)=:'Lal(t)(3*) AS(t)-:aAY(t) .
AI(t)-AS(t)54 HIKOJI KATANO
From this equilibrium system (3*), the levels of national income and investment
at time t can be determined for given initial conditions.

Y(t)-(1+a6)'Y(O)(4) I(t)=(1+a6)'I(O) 'These results show the same steady growth paths as Harrod's model does.
III. Steady Increase in Average Propensity to Save
The most urgent need of a developing economy is to increase its national
income level as rapidly as possible. According to the lessons given by Harrod'sand Domar's steady growth theories, the growth rate of national income is
proportional to both the average propensity to save and its investment produc-

tivity. Therefore, an increase in the growth rate can be brought about by anincrease either in the average propensity to save or in investment productivity.

However, in this paper, we will develop our arguments under the condition ofa constant investment productivity. So the growth rate will increase only
through an increase in the average propensity to save.

For a developing economy, it may be very diMcult to increase its average
propensity to save by one effort to a suMcient level for a "take-off" of theeconomy.(i} So we will consider here an average propensity to save to steadily
increase into a suficient level for taking off a developing economy into a self-sustained situation. This process of steady increase in average propensity tosave can be supported by a constant marginal propensity to save which is given
at a larger level than the average propensity to save at the initial time period.
( 5 ) [s l s>a(O)] = const.

The outline of this process can be shown by Figure 1, which is pictured
with the horizontal axis in terms of national income and the vertical axis of savings.

An initial situation of national income and saving-investment is pointed at[Y(O), S(O)]. An average propensity to save at the initial time period isa(O)==S(O)!Y(O). When a marginal propensity to save after the initial time
period is kept constant and at a higher level than a(O), the average propensity
to save at time t(t>O) becomes larger than a(O), and steadily increases as timegoes on. Because as we have assumed

AS > S(O) .
dY y(o)( 1 ) According to Rostow [10], for taking off a developing economy into a self-sustained
situation, the average propensity to save has to rise somewhere around 50/. to over 100/.

of the national income.

ACCELERATEDNATIONAL
INCOMEGROWTH OF

55

s

AS
AS =sAYS =a(O)YAYY(y(o),s(o))
oFigure 1

we haves(o)S(t) S(O)+dS
Y(t) - Y(O)+dY> Y(O) 'We have to examine this steadily increasing process of the average propensity

to save in detail. Under the fundamental assumptions (1) and (2), for constantlevels of the marginal propensity to save and investment productivity, the growthrate of national income at time t is

dY(t)

]Y(t)

I(t)

- Y(t) ' I(t)Y(t)

and the growth rateof investment is

dl(t)

]Y(t)

AI(t)

A Y(t)

I(t)From these relations, weY(t)-==a(t)•a ,.

-s.o .

I(t)have(1+a(t- 1)o) Y(t- 1)

I(t)=(1+so)I(t-1).

Thus we have
1+sa(6) a(t)=-a(t-1)
1+a(t-1)aThis shows that when s is larger
For a constant s and a, the relation (6).

than a(t-1), a(t) isalways larger

than a(t-1).

is a difference

equation in a.

By solving

HIKOJI KATANO

56

this equation, we have(7) a(t)-=a(o) i+ a(o)-itlil-ia+,.),-ii

sFrom this relation, we can deduce(8) lim a(t) -s .
t.ooThis shows that the time path of a(t) converges to s for any initial value of theaverage propensity to save. So it becomes clear from these relations that whenthe marginal propensity to save is larger than the average propensity to save at
the initial time period, the average propensity to save at time t is steadily in-creasing and converging to the marginal propensity to save.
This process is graphically explained by Figure 2, which is constructedwith the horizontal axis in terms of a(t-1) and the vertical axis of a(t). On thisplane, the curve (6) and the 45O line through the origin are pictured. Only the

non-negative region is economically meaningfu1. Interaction between the curve
and the 450 line through the origin explains the convergence process of theaverage propensity to save to the constant marginal one, s.

a(t)- d-- t- i-- --- "- ----- - --p -s-- -"----------

l
l

1
l
l
1
I

'
1

1
t
l
l

l
'

1

1

45 el
o•

1

a(O)

a(t -1)s

Figure 2

Thus, as the average propensity to save gradually increases and converges
to the marginal propensity to save given as a constant, the growth rate of national

income also gradually increases and converges to a certain value which is equal
to the growth rate of investment, that is

ACCELERATED GROWTH OF NATIONAL INCOME 57(9) lim a(t)•o=s•o .
t-ooThis means that the larger the marginal propensity to save given as a constant,the larger the growth rate of national income.

rv. Accelerated Growth of National Income.

For constructing an accelerated growth model, let us give up Domar's
assumption that the marginal propensity to save equals the average one, andgeneralize on Domar's steady growth model. In this connection, we shallreturn to equilibrium system (3).

In equilibrium system (3), the levels of national income and investment
at time t can be determined for their given initial values(2)a(O)((1+sa)t- 1)] Y(O)(10) Y(t)-[1+s(11) I(t)===(1+sa)I(O).

The relations (10) and (11) show the growth paths over time of national income
and investment. Here the investment is still steadily growing, but the growthrate is different from the growth rate in Harrod-Domar's steady growth: thegrowth rate of investment is now the product of the marginal propensity to saveand the investment productivity.

From relation (10), the growth rate of national income becomes(12)

A Y(t)=a(t)•a .
Y(t)a(t) varys over time, and steadily converges to s (the marginal propensity tosave). This is the same conclusion as we have taken in the preceding section.
This means that the larger the marginal propensity to'save given as a constant, the larger the growth rate of national income.

V. Marginal Propensity to Save & Investment Allocation Ratio.
In the previous sections, we have shown that the larger the marginal propensity to save given as a constant, the larger the growth rate of national income.
Let us examine this result from the view-point of an investment allocation ratio.
( 2 ) This type of growth path of national income has already been used as a planning modelof the First Five Year Plans in India. Cf. P. C. Mahalanobis & M. Mukherjee [8]and K. A. Naqvi [9].

58 HIKOJI KATANO
Following the procedures developed by Domar-Fel'dman and Mahalanobis,
let us examine the characteristics of the accelerated growth of national income.

The following model can also be constructed in terms of Keynesian aggregates.

Two sectors are considered in the model: Sector 1 producing capital goods
and Sector 2 producting consumption goods. This sectoral classification is
not for an intersectoral analysis of economy but for analysing an allocationof total investment to respective sectors. The price situation is kept constant.
There are certain relations, in respective sectors, between investment and incre--ment in national income under normal capacity conditions. Assets in respec-tive sectors are assumed to be permanently used, and foreign trade is notconsidered.

Investment at timetis allocated to Sectors 1 and 2. k stands for investment

allocation ratio to Sector 1. We do not consider the other producing sector,
so that (1•-k) consequently becomes the investment allocation ratio to Sector 2.
Let I(t) be total investment (output of Sector 1), and I,(t) and I,(t) be investments

allocated to the respective sectors, so that I(t>== Ii(t)+I,(t). Let ai and a2 be

the investment productivities of the respective sectors, which are assumed tobe constant. Then we have the relation of these magnitudes to investment
productivity as a whole of economy as follows(13) o=:ko,+(1-k)a2 •In Section 1, the investment allocated to this sector kl(t) generates an incrementof income of this sector al(t) being a, times of the investment. And in Section
2, the investment allocated to this sector (1-k)I(t) brings about an increment of

this sector AC(t) being a, times of the investment.

Other notations are the same used in the previous sections.

And let us take fundamental assumptions (1) and (2). So our equilibrium

system becomesd Y( t) == AS(t) + liC(t)AS(t)=sd Y(t)(14) dl(t)-dS(t)AI(t)-ko,I(t)dC(t) ==(1-k)a,I(t)The first relation shows the balance equation of the national income increment,
and the second relation expresses the saving function with the constant marginal

propensity to save. The third relation stands for the continuous saving-invest-

ment equilibrium condition. And the last two relations stand for relations

ACCELERATED GROWTH OF NATIONAL INCOME 59
between investment and increment of income of the respective sectors undernormal capacity condition.
In this equilibrium system, ai and o2 are parameters, which are exogenously
given from the outside of the system. The allocation ratio of total investment
to Sector 1 is given as a policy instrument, which shall be at the optimum size

chosen by the planning authority. This size depends on what the authority
considers to be the purpose of economic development. Thus we have fiveunknowns [Y(t), I(t), S(t), C(t) and s] for five equations included in system(14). When the initial levels of national income and investment are given,
these five unknowns are uniquely determined by the five equations for given
Y(O) and I(O).

By solving simultaneous equations (14), we haveI(t)-(1+sa)tl(O)a(O)(15) Y(t)-[1+((1+sa)'-1}]Y(O) ,ss--ka,/ lka,+(1-k)a,l

where

a=ka,+(1-k)o2 .
These relations show the same situation as accelerated growth has. The only
addition is the third relation in (15). This shows the marginal propensity tosave as a function of the allocation ratio of total investment to Sector 1. Thismarginal propensity to save is required for maintaining the policy to keep theallocation ratio of total investment in Sector 1: so we call this the reguired marginal propensity to save.

The relations=ka,f(ko,+(1-k)a,)shows that the value ofs corresponds to only one value of k.(3) This meansthat when the value of k is given, the value ofs can be correspondingly deter-

mined by the value of k. And here, the economically meaningful region anddomain of s and k are(16) ofgssl, osksl.
Especially, when ai=a2, vve haves=k .
( 3 ) This relation has been proved, from another point of view, by S. Chakraverty [1].

60 HIKOJI KATANOThis means that in this special case, the marginal propensity to save equals
the allocation ratio of total investment to Sector 1.

From the third relation in (15), we have(17)ds
=aio2/o2>O .
dk

This shows that the higher the allocation ratio of total investment to Sector 1,

the higher the marginal propensity to save. However, we already know thatthe higher the marginal propensity to save, the higher the growth rate of national

incorne in the long-run. Thus, along line of Domar-Fel'dman and Mahalanobis, we see that the higher the allocation ratio of total investment to Sector 1,

the higher the marginal propensity to save, and the higher the marginal propensity to save, the higher the growth rate of national income in the long-run.

However, in the fundamental equation of accelerated growth of national
income (the second relation in (15)), a(O) is given by the initial conditions,but a depends on the allocation ratio of total investments to Sector 1 for given
investment productivities of the respective sectors. Considering relation (13),the higher the allocation ratio of total investment to Sector 1, the higher a forai>a2, the constant a for ai==a2, and the lower o for ai<a2. So in caseoi>a2,the initial growth rate of national income a(O)a is increased by a higher

allocation ratio of total investment to Sector 1. 0n the other hand, in caseoi<a2, the initial growth rate is decreased by the same cause, We consider thecase ai<a2 as feasible in an actual situation. An increment in income perunit of investment may be smaller in Section 1 than in Sectian 2. In this feasible case, a higher allocation ratio of total investment to Sector 1 brings abouta lower growth rate of national income at the initial time period. However, ahigher allocation ratio of total investment to Sector 1 accelerates the growthrate of national income over time. And this acceleration of the growth rate
can suMciently cover any loss at the initial time period. Thus the growth rateof national income is accelerated in the long-run.

Moreover, from the relations mentioned above, we haved2s -2a162(Ol-a2)(18) dk2- a3 'From this relation together with the other relations concerned with the marginal

propensity to save, we see a relation between the marginal proponsity to saveand the allocation ratio of total investment to Sector 1, which are pictured in

Figure 3. The marginal propensity to save is the increasing function in the
allocation ratio'of total investment to Sector 1. And this increasing function

ACCELERATED GROWTH OF NATIONAL INCOME61s•1(1, 1)

ai>a2

ara2
al<a2

k
o
1

Figure 3diminishes for oi>a2, linear proportional for ai==a2, and increases for ai<o2.
In the feasible situation mentioned above, where ai<a2 , the marginal propensity
to save is always smaller than the investment allocation ratio to Sector 1. And,ds
dk

for a lower value of the investment allocation ratio to Sector 1, the value ofis rather small; after the value of the ratio becomes higher than a certain level,dsdk

the volue ofbecomes rapidly larger and larger. This means that in afeasible situation of economy, for maintaining the marginal propensity to saveat a constant level required for taking off the developing economy into a self-sustained situation, the investment allocation ratio to Sector 1 should be kept
at a level several times of the required marginal propensity to save.(`)

References
1. Chakraverty, S., The Logic of Investment Planning, North Holland Publishing Co., 1959.
2. Domar, E.D., Capital Expansion, Rate of Growth, and Employment, Chapter 3 of his Essays in the Theoror of Economic Growth, Oxford University

Press, 1957.
(4)

In the Plan Frame of the Second Five Year Plan in India, P. C. Mahalanobis [7] proposed a one-third inve$tment allocation ratio to Sector 1. For making this Plan Frarne,

parameters (6i=O.2 and a2==O.35-1.25) were estimated. For example, let us takean average a2==O.8. Then one-third of an investment allocation ratio to Sector 1means about 110/o of the marginal propensity to save.

62 HIKOJI KATANO
3. Domar, E.D., A Soviet Model of Growth, Chapter 9 of his Essays in the
Theory of Economic Growth, Oxford University Press, 1957.
4. Harrod R.F., An Essay in Dynamic Theory, The Economic lournal, March
1939.
5. Harrod, R,F,, Towards a Dynamic Economics, McMillan & Co., 1952.

6. Mahalanobis, P.C., Some Observations on the Process of Growth of
National Income, Sankhya': The Indian Journal of Statistics, Dec. 1953.

7. Mahalanobis, P.C., The Approach of Operational Research to Planning in
lndia, Asia Publishing House, 1963.
8. Mahalanobis, P.C. & M. Mukherjee, Operatlonal Research Models used
E in Proceedings of the 'Second Internationalfor Planning in India, contained
Conference on Operational Reaarch, ed. by J. Banbury & J. Maitland,
English Universities Press, 1961.

9. Naqvi, K.A., Models of Growth and Indian Planning, Yojana (Special
Number: Conference of Asian Planners), Oct. 1, 1961.
10. Rostow, W.W., The Take-off into Self-sustained Growth, The Economic
Journal, March 1956.

TECHNOLOGICAL DEVELOPMEN'I" AND LABOUR
RELATIONS IN THE JAPANESE SHIPPING
INDUSTRY
Hiromasa YAMAMOTO

After the Second World War in various fields of industry the technologicaldevelopments including automation have been developing, accompanied by
the large impacts on industrial relations.

In the shipping industry there were few important technological developments except the invention of the diesel engine after the appearance of steam
and iron ships. However, in recent years several countries have developed thestudy of ship automation and the ships which have adopted the automation
apparatus in the engine-room are already in operation.
In this article the writer wishes to give a brief survey upon the automation
adopted by the Japanese merchant fleet and the impact of the program of improv-

ing labour productivity upon the labour-management relations of the shipping
industry.

I
Program for the development of shi automation in Japan(')
In March 1959 the Minister of Transport referred the development programfor ship automation and also technical problems to be solved to the Naval Ar-

chitecture Council. The Council submitted to the Minister in February 1960
the report that comparatively long period would be needed to complete the ship
automation and that the research and study with regard to the ship automation
should be developed in an adequate order so that each result of the study may
be immediately applied to the ship building.
Following the report the Ministry of Transport started in 1960 the threeyear plan for modernization and speed up of ships providing the subsidy amount-ing to approximately 100 million yen for the fundamental study of ship automa-tion. At the same time the Ministry of Transport drew up the long-term
development program for modernization of ships aiming firstly at the automation( 1 ) refer to; Ministry of Transport, Reports of test design of modernized ship; High-Speed

Cargo liner, 1963, Tanker, 1964, Ore Carrier, 196S (Japanese)

64 HIROMASA YAMAMOTO
of the main and auxiliary engines and also the modernization of loading facilities for the reduction of the crew costs, secondly the adoption of new ship design

including improvement of shell for the reduction of the shipbuilding costs,

and thirdly the development of the crude oil engine. In 1963 the Ministrybegan' the second three-year plan for the systematic study of ship automationon the one hand, and also requested the Japan Naval Architecture Association

to complete test designs of modernized ships which was intended to put inpractical use the ship automation having been developed or expecting to beeasily developed. The study groups of the association completed the test
designs of a cargo liner in March 1963, a tanker in March 1964, and an ore
carrier in March 1965.
In drawing up these ship designs, the designing groups succeeded in reducing the manning scale of test ships to about a half in comparison with those ofships of similar class. A cargo liner of 9,OOO gross tons was designed to be
operated with twenty members, a tanker of 65,OOO deadweight tons with nineteen

members, and an ore carrier of 65,OOO deadweight tons with fourteen members.
The reduction of manning scale of the test designs was to be attained throughthe automation of the main and auxiliary engines which were controlled by theoperater at the bridge, in addition to the adoption of highly mechanized berthingapparatus on the one hand, and through the reorganization of work relationships

among the crew on the other hand. In the test ships the traditional working
system such as deck and engine-room departments was abolished and integrated

to ship-operating department, while the crew to be composed of the new typeof well-trained members. It was required for them to fulfi11 both duties ofordinary deck and engine room departments and also able to operate the automa-tion apparutus and other new mechanizm. Therefore, in order to operate the
newly designed ships by the expected number of the crew which is much fewer
than those of traditional ships, the reform of the educational system for shipoMcer and seamen is necessary in addition to the retraining of oMcer and ratings.

At present if the ships are constructed according to the developed designs
mentioned above, it is impossible of reducing the manning to the scale intended

by the designing group, because laws, such as Seamen's Act and Ship Safety
Act, providing the manning scale and also qualifications of crew members hindersuch a large scale reduction, even if we do disregard the conflicts between mana-

gement and labour with regard to the integration of work system and the reduction of the manning scale. As is suggested in the preceeding paragraphs, though

the test design of automatic ships developed in Japan in recent years seems to
be located in the earlier stage of ship automation, it has already shown impact

on manpower requirements and work relationships, and it has brought many

TECHNOLOGICAL DEVELOPMENT AND LABOUR RELATIONS 65
IN THE JAPANESE SHIPPING INDUSTRY

important problems to be solved in near future by both management and labour
such as retraining, displacement and adjusting the relationship between labourand management.
II
Automation and Mechanixation of the Japanese Merchant Fleet
and Reduction of the Manning Scale
According to the common usage in Japan, the ship of which engines areoperated remotely andlor the main and auxiliary engines are more or less automat-

ed are called automatic ship. Such ships-so-called "automatic ship"-arefitted with some of highly mechanized apparutus for ship operation, berthing

and communicatlon, and also provide the crew with modern living spaces.
The first ship which adopted automation of engine-room in Japan is the
Kinkazan-maru, cargo liner of 10,OOO deadweight tons. She succeeded in her

maiden voyages in December 1961 with fourteen members of engine-room
department. At that time the number of the crew was forty, but after the test

voyage period the crew has been reduced to thirty-seven in number which is
fewer than the manning of ordinary ships of similar size by ten. The Mississippi-maru, cargo liner of 9,050 gross tons was constructed in May 1964 basedon the test design of automatic ship stated in the preceeding section. Her manning scale is twenty-eight which is fewer than that of ordinary ship of simiiar sizeby twenty. However, the number of her crew does not reduce so greatly as
expected by the test design group, and the work system on board ship also hasn't
been realized according to the idea of the test design because of the existenceof seamen's act. Therefore, if the laws pescribing the qualifications of the crew

and the manning scale were remedied, and further if the negotiations between
labour and management regarding to reform the work system reached to agree-

ment, the manning scale of the Mississippi-maru would be decreased muchfurther.

It is estimated that in 1964 there were fifteen ocean-going automatic ships

among Japanese ocean-going fleet, which amounted to about two per cent of the
fleet.{2) However, the ships which will be constructed henceforth by Japanese

shipping companies are expected to adopt more or less automation and/or
highly mechanized apparutus, because all Japanese shipowners, facing the big
bargaining power of seamen's union and the steady increase of seamen's wage,
feel it necessary to adopt ship automation so as to decrease the ratio of the crew

(2) The All Japan Seamen's Union, the Nineteenth Annual Report, p. 128.

HIROMASA YAMAMOTO

66

Table 1. The comparison of the manning with
automatic ship and ordinary ship

regard toSS. Kinkazan-maru SS. Missippi-maru
Cargo liner
Cargo liner

othcers

ratmgsdeck department

5

englne-roomswireless operating

3

purser

2

total

15

deck

12

englne-room7

steward

6

total

25

grand total

40

ordinary

cargo
of

ship
similar

sizel

2

5

4

)2

3
2

14

l6

14

g

13

ig

34

7

48

source; The Ministry of Transportation and Communicationee according to the manning scale before the productirity program was enforced.

cost of total operating cost. In consequence so-called automatic ships seemto be added to Japanese merchant fleet in a comparatively rapid pace.
In addition to the adoption of automation by newly-built ships, after the
remedy of manning clause in trade agreement in April 1961 (see the next section)

various kinds of mechanical apparatus and instruments have been introduced
to a considerable number of ships already in operation, accompanied by thetransfer of works to shores which had been performed on board, so as to decrease

the manning through the mechanization and reduction of ship works. Amongthe mechanizations introduced into Japanese ships already in operation there
were autopilot, auto-alarm and other self-controller and remote indication
apparatus in various kinds of mechanism. Interphone and various kinds ofelectric instruments have been also adopted.

m'Technological Development and Labour Relations
1. Co-operation of seamen's union for program of improving labour productivity and the remedy of the manning agreement.
Before entering into consideration of the problem, it may be usefu1 to givea brief survey for the labour-management relation of the Japanese shipping
industry and the characteristics of seamen's employment system.
. In Japan both oMcers and ratings are organized by the All Japan Seamen's
Union, the single industrial union in the Japanese shipping industry. The
union maintains collective bargaining with two shipowner groups of ocean-goingTECHNOLOGICAL DEVELOPMENT AND LABOUR RELATIONS 67
IN THE JAPANESE SHIPPING INDUSTRY

ships and also with two shipowner groups of coastwise trades ships. Seamen

are employed permanently by respective shipping companies, and they are N
promoted according to seniority based on the period of the continuous employ-ment in the same company. Consequently the movement of maritime labour
between shipowners seldom occurs in Japan, though seamen often change their

ship in the same company by the direction of the company. Promotion fromratings to oMcers is comparatively dificult due to educational system for seamen

and also due to the company promotion policy.
Seamen's union decided in the fourteenth National Convention of October

1955 to co-operate with management for the program of improving labour
productivity, in sharp contrast with the left-wing union policy which madeclear their resistance against the program. The decision of the union for co-operation is based on following reasons, Automation and mechanization ofships may be expected to provide union members with better working conditions and safety. It seems sure that the program of improving labour productivity may give impact on manpower as it develops. But the union will beable to counteract by gaining shorter work hour and longer pald vacation whichmake union members possible not only to secure employment but to enjoy
leisure time and other social life. The union also expects to gain larger relative

share in proportion to the increase of labour productivity when the program
develops.

The remedies of manning clause in the trade agreement may be regarded
as the first co-operation of the union with companies' program of improving
labour productivity. For ocean-going ships the union agreed with the remedyof the manning clause in April 1961, and for coastwise ships in October 1959.

Trade agreement before the remedy defined that the manning scale was to be
determined according to the standards such as gross tonnage, horse powers ofthe main engine and also areas in which the ship would operate, without any
regard to the volume of works to be performed in the ship or to the degree of

mechanization of ships. In addition the number of the crew of Japanese ships
set by the old manning clause was more than those of most foreign flag ships not
only in total number but especially in case of a ship doctor and wireless operators.

But new agreements as to the manning, abolishing the old standards by which
manning had been set, defined that each company might decide unilaterally the
number of the crew of respective company ships in consideration of the volumeof ship's work under the premise of eight hour work day, securing holidays,
and preventing daily overtime work, if the captain of the ship concerned consent-

ed with it. Thus, shipping companies might decide the manning scales ofrespective ships without negotiation or consultation with the union, though it

68 HIROMASA YAMAMOTO
is necessary for companies to give immediate notice to the union after the deci-sion. Confiicts concerning the manning scale were to be dealt according tothe ordinary grievance proceedures. These changes of the manning clausegive shipping companies the incentive to reform the work relationships of thecrew and to adopt automation and mechanization of ships for the purpose of
reducing the manning scale and the crew costs.

2. The reduction of the manning by the program of improving labour
productivity

After the remedy of the manning clause, most shipping companies haveproceeded the program of improving labour productivity. The program which
is applied to ships already in operation includes the reduction of works on board

ship through the abolition and decrease of works by transfer of a part ofjobs
to shoreside and by mechanization of ship on the one hand, and the reorganiza-tion of working system on the other hand. For example, cleaning of exhausttrunk casings has disappeared from the jobs of engine-room department insome ships. Various kinds of desk work have been transfered to the company
oMces on land. Some ships are to defer some of maintenance works such as
painting to the period when the ship would stay in dock. Port relief system
is also adopted so as to help the crew when the ship is in port.

When the volume of works on board ship has reduced by the program,
it is quite natural that working system and job classification of the crew should

be changed. Though the change of working system did not destroy the traditional divisions of work such as deck, engine-room and steward department,
the job classification of ratings were considerably changed. As for deck department jobs of carpenter, store-keeper and quartermaster are integrated into
"deck-hand", and ratings are classified as boatswain, deck-hands (able seamen)

and deck-men (ordinary seamen), Under new job-classification some membersof deck-hands stand watch according to the three-shift system while others
fu1fi1 their duties as day men, and there are fewer day men than old work organi-zation because productivity program has decreased the volume of maintenanceand repairing work. A similar kind of changes has occurred in engine-roomand steward department.
The work organization of automatic ships also maintains the traditional
departmental division of works as stated before, though panel control appears

among the works of engine-room department and re-classification of jobs has

been enforced. Companies give crew members of automatic ship necessary
training for several months. In case of these ships the manning scale is usually
decided after the they have finished test voyages.

69
TECHNOLOGICAL DEVELOPMENT AND LABOUR RELATIONSIN THE JAPANESE SHIPPING INDUSTRY

Table 2 shows the decrease of the manning of the Japanesemerchant

fleet due to the program of improving labour productivity which was

enforced

during the period from July 1961 to March. 1963.
Table 2. Decrease of the manning of the Japanese merchant

fleet, (July 1961-March 1963)
g-.g
ee.:

a

fLM
o-

t:

S.8Z gksqngs:•g zygfl gREs. tohZ
seft

eo
e.
o

v8 ao
th
ee
as

gtg•2'emgg

B g co

4•$

?• ge

eq oP

g.
o=

rt .h

gg

gttzB.B•a•:uao

V.'

o

ge,

eeog
x2-g
=
gog

g
b

vH-

Shipping companies engaged
mainly in foreign trade

Shipping companies engaged
mainly in coastiwise trade

98

70

864

2, 302

2.7

45, 593

103

22

64

137

2.1

13, 935t

Source; A.J.S.U., the Eighteenth Annual Report (Japanese), pp. 9ZF95.

Among the vessels in which the manning is decreased there are thirty oceangoing ships and nine coastwise trade ships newly built while the rests are ships

which were in operation when the program was enforced. Therefore, it isrelevant to consider that the decrease of the manning in this period has been

produced mainly by the reduction of crew members who were on board ships
already in operation. The surplus of seamen which was resulted by the program
was absorbed in the same shipping firm either as a port relief or as a reseved

member of the crew or as the crew member of newly built ships, because thesurplus was rather small in comparison with the total number of seamen employed and the program of improving labour productivity in Japanese shipping
industry has not brought the radical change to the qualifications of seamen yet.

3. Grievances of union members in relation to working conditions
In April 1964 the seamen's union researched the opinions of union members regarding to the program of improving labour productivity enforced byrespective shipping companies. According to the result made public by theunion, though members of the union did not always object to the union's cooperation with the management for the program, considerable number of themwere unstisfactory to working conditions on board ship after the program had
been enforced. Because they felt that the manning had been reduced in larger
proportion to the reduction of volume of works on board ship, so that the volume

of works per head to be performed or intensity of works had consequently

HIROMASA YAMAMOTO

70

increased.(3)In face to the unsatisfaction of union members the union proposed to the

management to remedy the manning clause in the trade agreement, while theunion endeavored vigorously to improve the working conditions through grievance proceedures. In April 1965 the union reached to the following agreement with the management in relation to the remedy of the manning clause;that when the company intended to decrease the manning of a ship, the company
would notice the devices of decreasing works and the contents ofjobs in detailduring the period of three months prior to the determination, that at the deter-

mination of the manning the company would pay adequate consideration tothe opinions of the union, that as for the overtime works more than thirty hours
a month an extra overtime rate should be applied, that the period on board shipby which a seaman would be qualified to take a paid vacation would be shor-

tened by a month, and that in case of ocean-going ships the company would
endeavour to adopt port relief system at home port.(4)By this remedy of the trade agreement the seamen's union suceeded inremoving the grievances of union members regarding to working conditions.
However, there remain several important problems for the union to be solvedin near future. One of them is to increase wages of seamen in proportion to theincrease of productivity of labour, while other of them are programs with which

the union will be able to adapt itself to the changing conditions that ship

automation will produce. In the next section, the union program for ship
automation will be dealt briefly.

rv
Problems the seamen's union facing to

Up to the present the productivity program including ship automation
which has produced in the Japanese shipping industry has not given large impact
upon the work organization on board ship, manpower requirements as to in quality

and quantity and the relation between labour and management. It is due to thefact that automation and other technological developments which have been
adopted by the Japanese merchant fleet stand only at the earlier stage of develop-

ment which may be expected to occur in future. However, it ought to be expected that ship automation will develop in accelerated speed under the conditions
that each shipping firm, facing to the tendency of decreasing supply of labour,(3) Sen-in Shinbun (newspaper of A.J.S.U.), July 15, 1964.

(4) Sen-in Shinbun, May 1, 1965.

TECHNOLOGICAL DEVELOPMENT AND LABOUR RELATIONS 71
IN THE JAPANESE SHIPPING INDUSTRY

has to compete in the international trade routes. Consequently it is inevitable

for the seamen's union of Japan that in near future it will face the problems

which will occur in accompany with the development of ship automation.
The union does not make public the concrete program by which the union
will prepare for the situation in future. However, the outline of the program
may be found in the report of the union which was issued in July 1964 in responseto the inquiry of the International Transportation Workers' Federation withregard to the conditions of ship automation in Japan and also to the union program

for them. According to it the seamen's union intends to counteract the decreas-

ing demand for seamen due to ship automation by shorter work hour and longer
paid vacation.

With regard to the change of seamen's qualifications the union plans toreorganize and enlarge the retraining course of seamen which is now enforced.
In addition, the union pointed out the importance of improving the social security

for seamen in order to aid the unemployed who might be produced in the processof ship automation.
However, the union does not consider the possibility that ship automation

would change the relation between labour and management. The change ofwork relationships and manpower requirements contains the possibility ofdestroying the physical condition by which the industrial union could be organiz-

ed and have been maintained, because the traditional skills of seamen will be

no longer needed as the ship automation will develop, and because the speed
and scale of adopting ship automation will differ among shipping firms due totheir financial situations or trade conditions. In Japan seamen are employedas permanent employees by shipping firms, and there is little labour mobility
between shipping firms. Therefore the effect of ship automation upon thelabour-management relations will appear more drastically in Japan than in any
other countries. Accordingly prospects for future labour management relationsin the Japanese shipping industry depend upon whether the unlon will be able
to maintain its industrial organization under the unusual employment systemand the different speed of ship automation penetrating shipping firms.

BRAZILIAN POSITION IN THE LATIN AMERICAN
FREE TRADE ASSOCIATION
Yoshiaki NISHiMUKAIIThe ECLA reports have made clear the necessity of establishing a common
market for the economic development of Latin America.
According to one of these,(i} the necessity is based on the progress of theimport substitution process in Latin America. The developing countries inthis region have a highly increasing demand for imports, especially for machin-eries, equipments and raw materials, while the demand for their exports has
been on the decline, and the capacity to import, as a consequence, has recently
been stagnant or decreasing. One of the solutions for overcoming this diMculty
is to produce within this own region goods and services required for their eco-nomic progress. The possibility of promoting this process of substitution forimports, on the other hand, depends on some important factors, such as the
expansion of their domestic market, the availability of capital, and the existenceof skilled laborers. In most of the Latin American countries, however, thesefactors are limited, if we consider them with respect to each country. Therefore,

the diMculty of imports constitutes one of the basic obstacles to the economic
development of this region. The only solution to avoid this unfavorable situa-tion, as the ECLA report said, is to create a common market, by which thenecessary conditions for import substituion can be improved.
But, regarding the Brazilian economy, there is another important viewpoint

which is different from the ECLA report. Even if it can be accepted that formost of the Latin American countries, the necessity of import substitution andthe insuficiency of domestic markets make a common market condition sinequa non to economic development, the case of Brazil must be considered separately: the Brazilian domestic market is the Iargest on this continent; her continental

expansion with disposable resources, facilitate substitution for imports. Under
these conditions, it is reasonable to allege that a common market will be useful
but not necessary for Brazilian development. It is said that this is the general(1) ECLA, The Latin American Common Market, New York, 1959.

74 YOSHIAKI NISHIMUKAI
opinion among economists and business men of Brazil,{2) though a definite
conclusion must be reached only after more profound studies.
In fact, the process of import substitution in Brazil has already been develop--

ed much more intensively than that of other Latin American countries. But
Brazilian industrialization based on the substitution process suffers from threemain flaws which have weakened its contribution to improving the standard ofliving. In the present stage of development, it is the most important problem
to eliminate these flaws. From this point of view, the economic significanceof a common market or LAFTA, the first step in the development of the Latin

American Common Market, to Brazil must be re-examined.
The first flaw in industrialization is that all industrialization activity is direct-

ed towards their domestic market to the detriment of exports, be they industrial

goods or new primary commodities.{3) The Montevideo Treaty provides apartial solution to this problem. The differential treatment that the membersof LAFTA accord one another means in practice that the importing country
provides a subsidy for the exporting country. By encouraging exports, this will

enable a gradual change to be made in the structure of production. Brazil
which is a relatively advanced country in this region can expect that exports,
especially of industrial products, will increase, and this will contribute to theincrease of her industrial productivity which will expand the possibility of theirexports to non-member countries. This observation can be justified by thefact that one of the principal objects of the Treaty of Montevideo is the expansion of intra--regional trade of new commodities, including industrial products.

The second flaw is that the choice of industries to be established has been

based more on circumstantial reasons than on considerations from the economic
field and consequently, in many instances, the substitution process has been
directed especially towards industries producing consumer goods. The gradualdevelopment of LAFTA will make it possible to embark on a co-ordinatedimport substituion in respect to raw materials, intermediate products and capital

goods from the rest of the world. This is the object of mutual agreements oncomplementarity by industrial sectors stipulated in the Montevideo Treaty.
This would mean that imports of Brazil would become diversified again andrecover the flexibility they are now losing.

The combination of the first two defects in the industrialization processleads to the third flaw, that is, failure to strengthen the structure of Brazilian(2) J. P. de Almeida Magalhlies, Desenvolwimento Econ6mico, Rio de Janeiro, 1962, pp.

95-96.
(3) ECLA, Economic Dewelopment, Planning and International Co-operation, Santiago,
1961, pp. 14-15.

BRAZILIAN POSITION IN THE LATIN AMERICAN 75
FREE TRADE ASSOCIATION- so as to withstand external fluctuations. This brought about a new
economykind of external vulnerability resulting from the disappearance of the reducible
margin of imports. When exports decline cyclically, inability to import essential

goods has an unfavourable effect on the rate of growth and even leads to a con-traction of the economy. The most adequate remedy is not to curtail income
until imports fall to the level where they can be balanced by exports, but toreadjust imports so that with a smaller volume it will still be possible to maintainthe level of income and to continue to raise it, But, for this remedy, it is neces--sary that there exists a reducible margin of imports. In Brazil, as a result of
the import substitution policy referred to above, such a reducible margin has

been narrowed until it is insuMcient for the proposed readjustment. Economic
growth, then, suffers a setback or slackens its pace, until the situation rights

itself through import substitution and the encouragement of new exports. It
is, therefore, necessary for Brazil to pursue a more far-sighted policy that antici-

pates the requirements of economic development, instead of merely attempting

to meet them when they arise. In such a policy, import substitution and thebolstering of new exports have to be carried on as a continuous and regular pro-cess. LAFTA can contribute to make it easier to implement the policy throughthe elimination of the first two defects in the Brazilian industrialization process.

Concluding the considerations refered to above, the significance of LAFTA
to Brazilian economy has to be appreciated not from the standpoint of the acceleration of import substitution but from all angles, especially from the viewpointof correcting the fiaws in its industrialization. LAFTA can assume an importantrole in correcting these flaws through the possible expansion of exports, includ-ing some manufactured goods, and regional co-operation in the import substi-

tution process. In this sense, it can be said that LAFTA is not only useful
but indispensable to Brazilian economic development, at least in its present
stage. However, it is natural that the importance of LAFTA should be lessened, if the expected functions do not satisfy the requirements of Brazilian econo--my. In reality, the present situation of LAFTA contains some inportant pro-blems in performing the objects of the Treaty of Montevideo. We can findthese problems in Brazil's attitude at recent conferences of the contracting parties.

II
In the First and the Second Conference of the Contracting Parties, Brazil
showed a positive attitude in carrying out the objects of the Treaty, acknowledg-•
ing its leading position based on the fact that it is one of the most industrializedcountries in the region and has the largest market that includes half of the total

76 YOSHIAKI NISHIMUKAI
population of the member countries. Brazil reduced appreciably her importduties on important commodity items from the members of LAFTA and exempted these imports from some restrictions. The number of products benefited by these concessions was increased at the Second Conference and the National Lists, which became effective on January, 1963, contained 7.565 conessions,among which 1,243, or 16.40/, were conceded by Brazil.(`)
However, it was made clear at the initial conference that Brazil's positive
attitude was not followed by other members, which, with a few exceptions, only

sought to gain concessions offered by Brazil and did not try to reciprocratewith concessions which could substantially contribute to the expansion of intra-

regional trade. Moreover, the products contained in the National List of eachcountry had no similarity, and this made Brazil doubt the effects of LAFTA on

its economy. The Montevideo Treaty aimed to expand intra-regional tradethrough double effects consisting of the National Lists and the Common List.
But this presupposed that results of negotiations of the National Lists would

tend to be projected and reflected in the Common List. For this purpose, it
is indispensable that the principles which lead to the negotiation of the National

Lists are the same as those forthe Common List. Mutual concessions realized in
the initial negotiations of the National Lists did not have the object of liberalizing

the regional trade ofa determined product. They aimed at an exchange of advantage based on the conception of reciprocity. This was a natural consequenceof the mechanism of negotiations provided in the Treaty, which had not any automatic requirements for across-the-board reductions of restrictions on commodities

actually or potentially entering the trade. For example, even if Paraguay
reduced restrictions on steel pipe imported from Brazil-therefore from allother members - this did not mean that all members had to reduce restrictions

on this commodity. The economy of scale is an important factor in the production of steel pipe; but only a combined market between these two countries

is insuMcient to constitute such a factor. Therefore, for Brazil which foundthat one of the effects of LAFTA was the expansion of export of manufactured
goods, it was necessary in order to channel the results of the National Lists into

the Common List, that all the members regard the conception of reciprocity
as that in which they would give identical concessions to the same products.
But this was hardly acceptable to the other members who had already createdsome industries and had planed to establish others.

Confronted with these situation of LAFTA, the Brazil's attitude changed
remarkably after the Third Conference from first being progressive to becoming(4) Conj"ntura Econ6mica (International Edition), April, 1963, p. 41.

BRAZILIAN POSITION IN THE LATIN AMERICAN 77
FREE TRADE ASSOCIATION

conservative later. Brazil decreased'the number of products which become
effective in the National List of 1964. This can be verified by the fact thatthe number of products newly contained in the Brazilian List only corresponded
to less than 90/. of the overall total.{5} In addition, the rate of reduction of res-trictions on commodities already contained in the Brazilian National List waslessened as much as possible. This striking change of Brazilian attitude wasbased on the intention to acquire reciprocal concessions which Brazil had given

to the other members, much more than it had received. This was directly
motivated by the fact that Brazil had experienced a considerable deficit in thebalance of intra-regional trade, to which we shall refer later.

Another important fact which showed the change in Brazilian attitude at

the Third Conference was the proposal of a resolution which required theco-operation of an economic development policy and a commercial policy, andthe harmonization of trade restrictions. This proposal came from the necessity
for Brazil to transform LAFTA into a customs union as soon as possible, because
if the margin of privilege of intra-regiona! trade stayed unchanged, it would be

diMcult to expand and diversify intra-regional trade and this diMculty would
constitute a crucial problem for Brazil which, as a relatively advanced country
in that region, had suffered from competition with the rest of the world. Brazil's

proposal was adopted as Resolution No. 75 with the support of some of theother members.
With respect to the control of foreign capital, Resolution No. 81 was also
adopted. The problem of the control of foreign capital constituted one of thespecial aspects of LAFTA, as well as the disparity of economic level among

the member countries and the diMculty of transportation. This Resolution
recommended studies on the possibility of harmonizing the criteria connectedwith the control of foreign capital, so that investments might not be concentrated

in only some sectors or regions with less productivity and primitive economic
structure through excessive stimulus given by some members to foreign capital.
In fact, the policies of the members applying for foreign private investments

are of various kinds from extremely free to highly restrictive. This meansthat any stimulus given by a country to foreign investments in a determined
sector can give rise to serious trouble to other countries which have alreadyestablished that particular sector. Considering this possibility, Brazil insisted at the first negotiotion of the Common List held in 1964 that products

to be contained in the Common List should be those imported from non-member"(5) CEMLA, Boletin Quincenal, Vol. X, Ntim. 4, 25 de febrero de 1964, p. 58.

78 YOSHIAKI NISHIMUKAI
countries, that is, mainly manufactured goods.(6) Because concessions permitted on products contained in the Common List are, different from those of
the National List, irrevocable and import duties and other restrictions on thesecommodities are to be totally eliminated after the completion of the formationof a free trade area. Brazil intended to increase her investments in the manu--

facturing industry which had a comparative and absolute advantage among
member countries, by means of including manufactured goods in the Common
List and of harmonizing the policy of foreign capital among the members.
It can be said that Brazil's requirements mentioned above show that thesituation of LAFTA was then not satisfactory to this country. But the unsatisfactory effects of LAFTA, which stiffened the attitude of Brazil can not exclu-t

sively be attributed to the opportunism and adherence to industrialization shownby other members. The fundamental cause existed in the provisions of theMontevideo Treaty itself. But an analysis of this aspect is beyond the scopeof this study. We shall concentrate our observation on the Brazilian positionin the trade among the members of LAFTA.
III
LAFTA became effective on January 1, 1962, after the installation of
the Permanent Executive Committee and the holding of the First Conferenceof the Contracting Parties. Only a few years have passed since the beginningof activities by LAFTA. Therefore, it is impossible to appreciate all aspectsof LAFTA and, in fact, its activity has been chiefly directed toward the expansion of intra-•LAFTA trade. This is the reason why we shall focus our attention

only on changes in intra-regional trade, without considering other aspects ofthe function of LAFTA, such as benefits of the regional division of labor, economy

of scale, terms of trade, competition and consequent improvement of productivity, infant creation and protection.

However, even with regard to the movement of intra-LAFTA trade, it is
diMcult to verify clearly any contributions after the establishment of LAFTA.
In addition, available statistical data are not suMcient to appreciate its effect.

With these restraints, we shall given an outline of the changes in intra-regional
trade.

As shown in Table 1, this trade had rapidly increased from 659 million
dollars in 1961 to 951 in 1963, or an increase of 44.30/.. The level in 1963

corresponded with the highest of the 1950's. The percentage of intra-LAFTA(6) "ALALC e os Capitais Internacionais," Desenvolvimento Cla9 Conjuntura, ano XIII,
no. 9, setembro de 1964, p. 56.

BRAZILIAN POSITION IN THE LATIN AMERICAN 79
FREE TRADE ASSOCIATION

Table l. Intra-LAFTA Trade (million of dollars)
As a
Year

Exports

Imports

Total

Indices

1952==100

percentage

oftotal trade
1952

359

449

808

100. 0

8.4

1953

509

525

1, 034

127.9

IL3

1954

495

539

1, 034

127.9

10. 4

1955

508

574

1, 082133. 9

ILO

1956

3S8

408

94. 8

7.6

1957

396

441

103. 6

8. 1

1958

374

403

96. 1

8. 2

1959

324

355

1960

340

37S

1991

299

360

1962

355

420

1663

425

526

766
837
777
679
715
659
775
951

84. 0

7.2

88. 6

6. 9

8L5

6. 0

95. 9

7.0

117. 7

8. 4(Source) CEMLA, Boletin 9uincenal, NUm. 13, 10 de julio de 1964, p. 223.

trade over the total trade of the members increased from 60/. in 1961 to 8.40/.

in 1963. This rate was also among the highest levels ofter the late 50's. The

trade between Brazil and other member countries was expanded by 700/. inthe period from 1961 to 1963, although the remarkable decrease of wheat imports from Argentina registered in 1961 made it diMcult to get on overall idea

regarding the influence exercised by LAFTA. Brazil's trade with other members absorbed 8.30/. of its total trade in 1963, while this rate was only 7.20/.

in 1959-1960 (See 'Table 2).
Table 2. Intra-Regional Trade of Brazil (million of dollars)
As a
Year

Exports

Imports

Total

Balancepercentage

oftotal t.;adell. 13296. 6+37.5-100.8
-9. 6

339.9

-49. 5

12. 35

1952

124. 4

86. 9

211.3

1953

108. 7209. 5

318.2

1954

143. 5

153.1

1955

145. 2194. 7

6. 20

9. 28

1956

99. 8

117. 1

216.9

139.8

114. 1

253.9

-17.3
+25.7

7. 98

1957

1958

143.1

106, 6249. 7+36. 5

9. 62

1959

75.1

117.0

192. 186. 4108. 3194. 7

-4L9
-2L9

7.23

1960
1961

95.2

45. 2

140. 4

4. 90

1962

75.8

128.6

204. 41963

75.9

164. 0239. 9

+50.0
-52.8
-88.1

(Source) Desenvolvimento ew Coniuntura, ano VIII, no. 9, setembro de 1964, p.

VIII, no. 2, fevereiro de 1964, p. 85.

8. 81

7. 13

7. 60
8. 29

18 and ano

80 YOSHIAKI NISHIMUKAIThe balance of intra-regional trade of Brazil, however, became adverse
and the deficit amounted to 88.1 million dollars in 1963. It was because imports increased to 164 million dollars, which reached the highest level since

1955, on the other hand, exports decreased in 1963 by 200/. as compared withthose in 1961 and showed the lowest level of the last twelve years. As we haveseen, this unfavorable balance of intra-regional trade was the principal motive
to stiffen Brazil's attitude in the negotiations at the Third Conference.
But a violent fluctuation in trade was one of the fundamental characteristics

of intra-regional trade of Brazil (See Table 2). Both exports and imports were
not stable and thus the balance of trade did not show a special trend. Moreover,the balance of trade during the ten years before LAFTA became effective
registered an import surplus amounting to 91.3million dollars. Therefore,
the unfavorable balance of intra-regional trade of Brazil during 1962-63 could
not be attributed only to the relative deterioration of Brazilian position resulting

from negotiations for reducing the restrictions. Nevertheless, it must be
noted that the balance of trade by countries in each of the two years before andafter LAFTA became effective showed some important changes: the balancewith Chile turned from an export surplus of 4 million dollars to an import surplus

amounting to 27 million dollars; the import surplus found in the trade with
Mexico, which was only 2.6 million dollars, rapidly increased to 26.5 million
dollars; the deficit in the balance of trade with Peru increased from 4.6 to 26.3
million dollars (See Table 3).
Table 3. Balance of Intra-LAFTA Trade of Brazil(thousand of dollars)
1960

1961

1962

1963

Argentina-38, 476+37, 620-37, 086-41, 800

Colombia

+215

+910

+123

+300

Chile

+2, 965+ 1, 146-6, 219-20, 900

EcuadorMexicoParaguay
Peru

+39

+67

+25

o

-1, 155- 1, 425- 10, 049

- 16, SOO

+567

-18

+1, 174+7, OOO-2, 169-2, 438- 12, 263

- 14, OOO

Uruguay+ 16, 071

+ 14, 169

+ 11, 500

+3, 200

Total-21, 943+50, 031-52, 805-88, 100(Source) Desenvolvimento & Conjuntura, ano VIII,

The second feature of the intra-regional

no. 9, setembro de 1964,

p. 84.

trade of Brazil was its

concentra-tion in trade with a few countries, such as

Argentina, Chile and

Uruguay.

Brazilian trade with these three countries has

traditionally absorbed

about 990/.

BRAZILIAN POSITION IN THE LATIN AMERICAN 81
FREE TRADE ASSOCIATIONof'her total trade with countries associated now with LAFTA.(7) Even in
the period from 1960 to 1961, this occupied about 950/.. This percentage,
however, tended to decline after 1962, chiefly because of the decrease of imports,that is, 85.80/. in 1962 and 83.20/. in 1963. The percentage of imports fromthe three countries declined remarkably from 960/, in 1960 to 79.10/o in 1963,
while that of exports remained relatively stable. On the other hand, the tradewith Mexico rapidly increased because of the expansion of imports, the rateof which was about 110/. in 1963, whereas it was only 1.30/. in 1960. The same
trend could be found in imports from Peru and exports to Paraguay (See Table
4 and 5).
Table 4. Brazil's Exports to the LAFTA Countries
1960

US $1,OOO 6eo

US $1,OOO

1963

1962

1961

% US $1,OOo % US $1,OOo %Argentina

56,39263. 367.43670.9

48, 46164. 0

46, 200

60. 9

Colombia

253

O.3

1, 149

1.2

157

O. 2

500

O. 7

11, 551

13. 4

8. 7689.3

9, 35012.3

10, 400

13. 7

o

o

O.2

28
304

o. o

O.4

1, 400

L8

L2

74
219
593

O. 1

Paraguay
Peru

41
189
995
371

o. o

O.6

2, 1342. 8

2, 9003.8

O.4

1, 241L3

1, 244

L6

1, OOO

L3

Uruguay

16, 597

19. 2

15, 726

16. 5

14, 130

18. 7

13, 500

17. 8

Total

86, 389

100. 095, 206

100. 075, 805

100. 075, 900

100. 0

Chile

EcuadorMexicoO. 2(Source) Desenvolvimento

Ctsr Conjuntura, ano VIII, nQ. 9, setembro deTable 5.

Brazil's Imports from the LAFTA Countries

1961' 11960
US $1,OOO

J06o

us $1,OOO

1964, p. 84.

1962

1963

% US $1,OOO % US $1,OOO

so6o

Argentina

94. 868

87. 6

29, 81666,O85, 547

66. 6

88, OOO

53. 7

Colombia

38

230

O.5

44

o. o

200

O. 1

8, 586

o.o
7.9

19. 1

7, 622

16.9

15, 569

12. 2

31, 300

EcuadorMexico

2

o. o

7

o.o

3

o. o

o

o

1, 344L3

1, 644

3.6

10, 353

8. 0

17, 900

10. 9

Paraguay
Peru

428

O. 4

611

L4

957

O. 7

900

O. 5

2, 5402. 3

3, 6798.2

13, 507

10. 5

15, 400

9.4

Uruguay526

O. 5

1, 557

3.4

2, 6302.0

10, 300

6. 3

Total

108, 332

100. 045, 175

100.0

128, 610

100. 0164, OOO

100. 0Chile

setembro de 1964, p. 84.

(Source) Desenvolvimento Cof Conjuntura, ano VIII, no.

9,(7) "ALALC-Pr6positos e Planos," Desenvolvimentou Conjuntura, ano VIII, no.

setembro de 1964, p. 69.

9,

82 YOSHIAKI NISHIMUKAIThe third feature was that the trade of Brazil with the members of LAFTA
was concentrated in a few products both in exports and in imports. In exports,
the major part was occupied by coffee, banana, pine-tree and mate. In imports,
wheat, fresh fruits, niter and malt constituted the main staples.{8) But after

LAFTA became effective, the composition of intra-regional imports of Brazil
made a striking change, that is, the percentage for food appreciably declined

and instead that of raw materials and intermediate products increased (SeeTable 6). Food absorbed about 900/. of the imports of Brazil from LAFTAl

Table 6. Composition of lntra-Regional lmports of Brazil (O/o)
1 lgsglg6o l lg61 l lg62

1963

1

I

Livestock

O. 2

O. 4

2. 2

L3

Raw Materials

4. 2

5. 8

16. 8

12. 1

11.0

Food

90. 4

85. 4

59. 5

60. 8

46. 5

Chemicals
Machineries
Other Manufactured Goods

LO

2,4

4. 6

3. 2

3. 8

o.o

O. 3

O. 5

O. 5

2.0

4. 2

5. 5

15. 6

22.0

33. 9

Special Transactions

o. o

o.o

O.6

O. 1

O. 1

100. 0100. 0100. 0100. 0100. 0

Total

/

l
j

2, 5

(Source) Desenvolvimento & Conjuntura, ano VIII, no. 9, stembro de 1964, pp. 92-99.

Table 7. Composition of lntra-Regional Exports of Brazil (O/o)
1959

1960

1961

1962

1963

Livestock

O.6

o. o

O. 1

O. 1

o.o

Raw Materials

34. 9

35.5

40. 0

34. 0

36. 6

Food

59. 5

55.9

47. 8

5L5

51.3

Chemicals

1.4

L7

L7

Machineries

L8

L6
LS

1.4

6.0

9.8

6. 8

Other Manufactured Goods

O. 9

4.3

3. 1

2.7

3.0

Special Transactions

O. 9

Ll

L2

O. 5

O. 6

100. 0100. 0100. 0100. 0100. 0Total(Source) Desenvolvimento S Conjuntura, ano VIII, no. 9, setembro de 1964, pp. 92-99.

countries in 1959, but this percentage sharply declined to 610/. in 1962 and46.50/, in 1963. The main cause of this change was the decrease of wheat imports from Argentina, resulting from the bad harvest of that country. On thecontrary, the imports of other manufactured goods-consisting mainly ofintermediate products-rapidly increased from only 4.20/. in 1959 to 33.90/.
in 1963. The prineipal cause of this increase can be found in the reduction of(8) Ibid., p. 69.

LBRAZILIAN POSITION IN THE LATIN AMERICAN 83
FREE TRADE ASSOCIATION

import restrictions on copper, zinc and lead from Mexico, Chile and Peru. In
the item of raw materials, remarkable increases can be observed in wool andliquid gas from Argentina, crude petroleum from Chile and wool from Uruguay.
These changes observed in the composition of imports indicate the effort ofBrazil to convert imports of these products from extra-regional countries tothat from members of LAFTA. As campared with the aspect of imports, there
can be seen no significant change in the composition of exports. Exports offood and raw materials still constituted about 900/. of the total exports to LAFTA

countries. The only appreciable change was a little increase in exports ofmachineries which consisted of sewing machines, type-writers, elevators andrailway vehicles.

rv
Now we shall analyze some factors which gave rise to the unfavorable balanceof intra-regional trade of Brazil. On the side of exports, we can find threeprincipal factors which unfavorably influenced their expansion. These are, (1)the impact of political instability which became aggravated from the middleof 1961, (2) the overestimatation of the rate of exchange despite the accelerationof inflation, and (3) the economic recession of Argentina which is the greatest

market for Brazil. Above all, the second factor became a great obstacle to the
expansion of exports. For example, the rate of exchange which was fixed at thelevel of 450 cruzeiros (equivalent to 1 dollar) on September 6, 1962 by Instruction No. 230 of SUMOC, was not modified until April 22, 1963, while the generallevel of prices increased more than 400/, in the same period.(9) Thus, thefundarnental causes which unfavorably influenced exports of Brazil were found
not in the relative deterioration of Brazil's position resulting from negotiations

in reducing and eliminating trade barriers, but in its internal factors, Thisconsideration will be justified by Tables 8 and 9.

Table 8 shows the evolution of 28 principal export items which were given

concessions by other member countries. In spite of the concessions, theseexports decreased as compared with the level which had been reached before
LAFTA became effective. The percentage of intra-regional exports of Brazil
declined from 850/. in 1960--61 to 810/. in the 1962-63 period. Only a few
commodities, such as iron ore, cotton, railway vehicles and sewing machines,
showed a little increase. These facts indicated that the benefits which Brazil

was conceded by other members were, in large part, offset by their internal(9) Desenvolvimento Cigr Coniuntura, ano VII, no. 2, p. 98, ano VIII, no. 2, p. 80 and Conjun-

tura Econ6mica, ano XVIII, no 2, indices econ6micos.

YOSHIAKI NISHIMUKAI

84

Table 8. Brazilian Exports with Concessions of
Duties and Other Restrictions
19S9

1960

Customs(thousand
1961

1962

of dollars)

1963

12

2

2

4

RaW Materials

22,16128, 08134, 258

21, 990

23,518Food

42, 349

46, 785

43, 10737, 056

36, 609

21
537
6

50
313
725

45
797
881

32

19

1, 5652, 66526

7

6S, 086

75, 956

79, 088

60, 671

62, 822

Livestock

Chemicals
Machineries
Other Manufactured Goods
Total(Source) Desenvolvimento

Table 9.

pp. 92.-99.

& Conjuntura, ano VIII, no. 9, setembro de 1964,
Brazilian Imports with Concessions of Customs

Duties and other Restrictions (thousand
1962

149

519

1,113

3, 203

3,776

4, 4493,207

3, 20791,74226, 389

77, OOO

73, 234531

1, 084

1, 932

197

402
77

1, 252

16

5Sl

3,513

3, 943

5,175

27, 025

46, 827

110,772

100, 891

37, Oll

109, 613

128, 954

1960

Livestock136

Raw Materials

2, 959Food

103, 633

Total

1963

1961

1959

Chemicals
Machineries
Other Manufactured Goodsof dollars)(Source) Desenvolvimento & Conjuntura, ano VIII, no. 9, setembro de 1964, pp. 92-99.

unfavorable conditions.

On the side of imports, it must be noted that Brazil, which was confronted

with an increasing demand for raw materials and intermediate products andwith the inflexibility we have just mentioned, conceded a reduction in import

restrictions chiefly on these commodities and tried to increase their importfrom the members of LAFTA. As a consequence, imports of raw materials
and other manufactured goods-consisting mainly of intermediate products- sharply increased (See Table 9). Considering by commodities, a remarkableincrease can be found in copper and sheet iron from Chile, sheet iron, copper,

zinc and lead from Mexico, and copper, zinc and lead from Peru. The importof these four products, which were only 3.9 million dollars in 1960-1961, increased to 69.5 million dollars, or by seventeen times, in the 1962-1963 period.

The share of these imports in intra-regional imports of Brazil also rose from2.50/. to 23.70/,, respectively. In addition to the concessions given by Brazil,
it is doubtless that the overestimation of their rate of exchange contributed tothe increase of imports.

BRAZILIAN POSITION IN THE LATIN AMERICAN 85
FREE TRADE ASSOCIA'I["ION

In conclusion, we can see some important changes in the structure of theintra-regional trade of Brazil after LAFTA became effective. They are theincrease of trade with member countries, especially with Mexico and Peru, thedecrease of imports from three southern countries, and a sharp increase of imports of raw materials and intermediate goods. But the export of manufactured
goods, which was expected to be an effective measure in the economic develop-

ment, did not increase. Moreover, the balance of intra-LAFTA trade was
highly unfavorable to Brazil. As we have seen, these facts made this country
stiffen its attitude in negotiations for reducing import restrictions. But theseunfavorable situations resulted not only from the deterioration of the Brazilian
position in the negotiations, but from internal factors such as its political insta-

bility and overestimation of the rate of exchange. Therefore, the economic
significance of LAFTA to Brazil cannot be estimated only by the unfavorable
balance with which it was confronted.
Nevertheless, there remains another aspect of the problem. Even if internal

factors which gave rise to the unfavorable balance can be adequately solved in
the near future, the effects of LAFTA on Brazilian economy will not necessarily

be satisfactory. Because LAFTA contains its own basic problems which havemade it diflicult to promote the liberalization of trade and the economic integra-

tion of member countries. They are with regard to the mechanism of reducing
and eliminating import restrictions, the agreement on complementarity, and theprinciple of reciprocity, an analysis of which is not within the scope of this study.

But the contribution of LAFTA to the economic development of Brazil and allother members can not be perfectly realized without the solution of these
problems.

INFORMATION SPECIFICATIONFOR BUSINESS MANAGEMENT (I)-A Case StudyJiro ONoI
The so-called "Systems Approach" has recently become one of the mostremarkable tendencies in the study of business administration, especially froma few years ago.
In this approach, "Information" is regarded as one of the most basic components or elements which build a business system. That is, it is considered

to have the same significance as "Personnel," "Equipment," "Material,""Money," "Energy," etc. This is because many kinds of information areconverted into various actions through "Decision Making," then fed back from'action-points to decision-points and reconverted into the next corrected actions;{i)that is, they, including their processing- and communication-technology, play
the part of the nervous system in a business.

Moreover, we must specially note that as the scale of a business grows
larger, the more important the function of the above-mentioned information
technology becomes, and that the cost of information (for its gathering, process-ing, storing and communicating) has a tendency to form a more and more
substantial part of the whole expenses in a business. "Accelerated Innovation"and "Dynamic Development of Social Economy" require that all business enterprises, in spite of their growth and complexity, increase their adaptability-

not only of individual functions, but also of the whole of each business-tointernal and external conditions which are always changing with very highspeed, by means of information technology. That is, for the promotion of theiradaptability, information technology is very essential. We are certain that thisis the reason why many businesses in Japan have promoted othce automation,
installing PCS or EDPS, from about ten years ago.
However, there are still some dithcult problems in putting this information

technology into practice. As one we can point out the problem of what kindsof information are necessary for the management of a business.
( 1 ) J. W. Forrester; Managerial Decision Making-in M. Greenberger edit. "Management and the Computer of the Future", 1962, p. 36Np. 91.

88 JIRO ONO
In this paper, it is my intention to outline the result of a case study which

was carried out during the year from April 1964 to March 1965 with regard to

this problem, and to examine some important points in the oMce automationof the corporation we studied,

IIFirst, in this section, we shall outline the characteristics financial position

and management problem of X corporation which was the object of our research.

X corporation was organized on May 2, 1920. Its work consists of the
production and sale of pasteboards, pasteboard-boxes and other concerned paper-products for packing. As of March 1965, the capital stock amounted to threebillion yen, the total resources employed were about twenty-three billion yen
and the sales in a year came to about twelve billion yen. These amounts are allof the first rank in this type of industry.

As we can see from the figures in Tables 1 to 8, X corp. has grown rapidly

in about the last four years, that is, from March 1961 to March 1965. Capital
investment (1070/. in its ratio of growth), sales (1000/.), production (1130/.), total

income (1200/,) and number of employees (740/.) has also remarkably increased.

("Total income" is the so-called total corporate income which should belong
to total resources employed by the business, that is, it is profit before subtrac-

tion of interest charges, income tax and other financial cost items.) When we
rank these ratios of growth in their order, they are total income, sales, capital

investment, production and number of employees for the two years till March
1963. These facts show that X corp. made very sound growth within these twoyears.

However, thereafter, both sales and total income of X corp. seem to havea tendency to stagnate. Table 9 shows the decreasing tendency of the profit
ratio of capital; that is, both the turnover and sales profit ratio of capital are

decreasing. This stagnation may have been brought about as a result of therecent economic recession in Japan.
We must also take into consideration the fact that some important characteris-tics of X corp. might tend to make this stagnation much more serious. They
are, (1) Because the revolution in packing technique - that is, the change fromtimber-boxes to pasteboard-cases-has already finished its first stage, thedevelopment of new markets is going to be very diMcult.

(2) The packing pasteboard-case industry is especially liable to be influenced by the business cycle of other industries. Though necessities of life
must be produced and sold with first priority in spite of the recession, packing

Table 1.

tangible

total

fixed assets

assetsComparative Figures of Assets (\1.000)

1961

1961

1962

1962

1963

1963

1964

1964

1965

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

3, 973, 486

4, 499, O13

5, 464, 941

5, 643, 811

5, 719, 985

5, 813, 995

6, 225, 863

6, 859, 540

6, 851, 674

100

113

137

144

146

157

173

173

11, 143, 505

14, 509, 820

15, 652, 116

17, 443,

18, 146,629

20, 352, 396

21, 974, O03

23, 335, 569

23, O02, 219

100

130

141

159

163

183

196

208

207

141
724

H
Z
v
o
7
:
>
6
H
o
Z
m
8
9
:
g
N

2
Table 2. Comparative Figures of Sales (\1.000)

paper

pasteboard

packing case

other

:

1961

i961

1962

1962

1963

1964

1964

1965

Mar.

i1 1963

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

339, 170

544, 209

455, 990

659, 044

768, 029

100

161

135

194'

227

1, 505, 844

2, 149, 181

2, 520, 468

2, 738, 691

2, 928, 251

100

142

167

181

194

234

250

247

227

4, O08, 064

4, 631, 598

5, 133, 585

5, 549, 970

5, 630, 253

I 6,4s6,766

7, 028, 904

7, 701, 617

7, 785, 115

100

115

128

138

141

161

176

178

195

IS9,570

188, 591

215, 457

15S, 437

160, 424

184, 304

198, 535

167, 381

160, 421

1OO

117

134

94

101

115

125

105

101

11, O06, 565

12, 042, 062

12, 288, 699

12, 027, 629

200

205

200

686, 526

682, 823

252

300

203

187

3,511,769

3, 798, 101

3,733,175

3, 449, 270

853, 726

1i

1, O16, 463

total

7,513,579

8, 325, 500

9, 103, 150

9, 426, 957

100

125

135

150

157

1 184

z
S
g
gg

K
>
Z
Q
m
K
m
Z
H
)•

/

6,O12,648

8

va
oo

e

Table 3. Comparative Figures ofSales Ratio of

Each Product

8

1961

1961

1962

1962

1963

1963

1964

1964

1965

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

7. 2%

pasteboard

26. 5

28. 4

30. 1

30. 0

30. 2

3L8

30. 8

3L1

28. 2

packing case

65. 3

6L8

62.1

61.0

60. 0

58. 7

59. 2

62. 2

65.1

other

2.6

2. 6

Z4

L7

L7

1.7

L6

1.2

1.4

total

100. 0100. 0100. 0100. 0100. 0100. 0100. 0100. 0100. 0

paper

5.4%o

7. 3%

5.6%o

8. 1%o

7.s9e

8.4

5.s%o

s.3906,=w
Table 4.

paper

pasteboard

packing caseComparative Figures of

o
o
Z
o

Production (\1000.000)

1961

1961

1962

1962

1963

1963

1964

1964

1965

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

1, 7101, 8612, 0732, 1852, 2662, 214

256

268

263

843

897

1, 307

100

106

155

203

221

246

3, 0363, 9374, 3004, 7125, 0635, 5666, 107

6, 745

6, 740

100

129

142

156

167

184

202

222

221

2, 5743, 0293, 107

3, 202

3, 403

3, 661

4, 0544, 492

4,791

100

117

124

125

132

143

157

173

18S

6, 4537, 8638, 7149, 624

10, 321

11, 3oo

12, 346

13, 503

13,745

100

122

135

149

159

175

191

209

213

total

Table 5.
1961

Mar.

i
1

Comparative Figures ofEach ProductProduction Ratio of

1961

1962

,

1962

1963

1963

1964

1964

1965

Sept.

Mar.

l

Sept.

Mar.

Sept

Mar.

Sept.

Mar.

11.4fe}6o15. 0%

I

17. 8%

ls.o906o

18.4thOo

17. 4%

16. 9%

16.oSOI6.

50. 1

49. 3

:

49. 0

49. 0

49. 3

49. 6

49. 8

49. 0

33.2

33. 0

32. 3

33. 0

33. 3

35.0

100. 0100. 0100. 0100. 0100. 0100. 0

1

]
1

paper
pasteboard,,. i% 1
47. 0

l

,•il

/

/

packing case

39. 9

total

100. 038.5

35.7

100. 0100. 0

l
l

1
/

1

1

/

Table 6. Comparative

-Z
-o
T
g
>
M
o
Z
m
vm
o
-T
N
o
H
H
o
Z
vo
T
tu
C
se
Z
m
gg

Figures of

Total Income (\1.000)))L

total income

1961

1961

1962

1962

1963

1963

1964

1964

1965

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

376, 162

471, 814

688, 076

679, 947

821, 363

801, 783

835, 675

829, 793

831 967

1OO

125

181

179

213

207

221

22o

220

1963

1964

1964

1965

Mar.

Table 7.
1961

1961

'

Comparative Figures of Eomployee
1962

1962

lg63

Sept.

Mar.

Sept.

Mar.

Sept.

870

1,O19

1, OIO

1, 094

1, 067

1, 187

1, 172

133

139

165

164

179

172

191

187

1,331

1, 521

1, 7202, 021

1, 9772, 095

1, 9792, 2862, 216

100

115

129

152

149

156

148

172

167

1, 9572, 3542, 5903, 0402, 9873, 1893, 0463, 4733, 388

1OO

121

133

155

152

163

157

177

174

Mar.

Sept

Mar.

626

833

1OO

K
>
Z
Q
m
K
a
Z
H
i)•

clerical staff

labror force

total

a
v
e
-

Table 8. Comparative Figures

nameof factory

kind of

Yodogawa

paper

Arakawatt

Tonegawa
Osaka

product

case

The Second Osakatl

The First Tokyolt

Shimizu

1961

1961

1962

1962

1963

1963

1964

1964

196S

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

231

227

171

229

224

225

218

222

216

84

85

68

89

90

96

95

105

98

85

t41

202

205

202

l95

204

204

258

237

319

285

289

273

241

238

239

25
182

222

165

pasteboard

The Second Tokyo

pasteboard packing
case

8Each OMceand Factory

Mar.

tl

pasteboard packingof Employee in

272

252

278

256

27

276

43

44

52

47

285

49

--

pa

133

139

120

177

166

168

ISI

50

155

Nagoya

tl

166

198

]49

229

225

220

208

158

208

Kyoto

tl

95

119

88

115

150

165

153

217

152

Kokura

tt

137

145

113

156

152

153

153

160

160

Sapporo

tl

92

120

81

12S

128

139

128

162

144

The NewSapporo

tt

Hakodate

lt

64

80

58

79

76

84

81

98

94

Sendai

Xl

89

97

80

128

126

129

115

143

132

Maebashi

Xl

46

73

72

95

96

116

118

Matsuyama

t/

90

104

88

120

112

135

125

126

133

Wakayama

tl

55

63

56

81

81

90

82

93

90

151

o
o
z
o

Tosu

t/

Hiroshima

n

Shiga

Nagano

39

47

63

64

87

82

89

85

99

84

180

93

tl

89

86

tl

60

62

172

192

191

59

Head Othce
Twelve Branch

149

111

158

156

159

178

237

623

249

280

312

307

345

340

Eleven Agencies

l7

26

22

27

31

41

43

42

42

Other

o

o

114

o

o

o

o

o

o

105

OficesTable 9. Comparative Figures of Three Profitability Ratios
1961

1961

1962

1962

1963

Mar.

Sept.

Mar.

Sept.

Mar.

;

1963
Sept.

L

1964

1964

1965

Mar.

Sept.

Mar.

1

Profit ratio of capital

3. 4%

3. 3%

4. 5

Sales profit ratio

6.2

6.3

8. 5

turnover of capital

O. 55

O. 52

O. 53

I

3.9%o

4. 5%

4. 0%

3. 8%

3.6906,

7.4

8. 7

7.4

6.9

6.7

6.9

O. 53

O. 52

O. 54

O. 55

O. 53

O. 52

3.6%o

Table 10. Comparative Figures of Worker's Productivity (\10.000)
1961

1961

1962

1962

1963

1963

1964

1964

1965

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

Sept.

Mar.

clerical staff

98S

902

956

90S

941

1, OIO

1,130

1, 0381, 030labor force

485

506

501

478

522

540

620

592

620

H
Z
vo
x
K
)•
tl

H
o
z
m
vpm
o
H
vo
>
H
-o
Z
T
o
pa
co

c
Z
m
$
g
>
Z
>
Q
m
K
m
Z
se

e
8

94 JIRO ONO
cases are given only a second or third priority because of their nature in thatthey only "pack" other products for a given time. As a result, the recession
gives amplified effects to the pasteboard-case industry in sales-conditions of price,

lot, quality of pasteboard, colours of print, etc. That is, expenses for packing
are apt to be the first object of cost-saving from the viewpoint of customers.

(3) As I stated before, X corp. is now ranked first in the pasteboardpacking-case industry. Its share in the market is largest. This fact means thatmany other small businesses - especially in the process of packing--case produc-tion whieh is technically easiest, they are said to be a few thousand-are its
competitors, who can more flexibly adapt themselves to their customers' demands
because of their adaptability though their scale of business may be small.

(4) X corp. works on customers' orders which are varied. The sizeof the case, quality of pasteboard, colours and forms of print, lot size of an order,

etc. are naturally different among customers, even in regard to same articles ofthe same size in the same industry. Here we must note that this special charac-

teristic requires much more adaptability on the part of X corp. to the always
changing demands of its customers, and that on account of this characteristic
salesmen are considered to play the most important role in X corporation. Thismeans the importance of coordination between sales plan and production plan,too.

(5) The fifth characteristic is that freight charges play a considerably
significant part in the whole of expenses. It is said that a business will be unprofitable if packing case factories are not within fifty kilometers of their cus-

tomers. As a result, X corp. has many factories scattered throughout the country.

(6) However, the management system of X corp. has been considerably
centralized. The various budgets, in regard to sales, profits, expenses, etc. aredecided by the head oMce; the performance records of each factory (not onlyof production but also of sales, because the factories of X corp. each have theirown sales section) are reported monthly to the head oMce, and each factory iscontrolled on this ground.

(7) A cost accounting system for various kinds of orders has not still
been established. This fact makes the above-mentioned centralized management system useless. Because the sales-force which is considered to be themost important cannot know whether its acquired orders are profitable or not.
Though the performance is periodically compared with the budget as a whole,
it is too late to evaluate the profitability of a present order of a certain kind andits production cost.

( 8) As a result of the above-mentioned characteristics of X corp., it (oreach of its factories) has always on hand a large amount of products and materials

INFORMATION SPECIFICATION FOR BUSINESS MANAGEMENT (I) 9S(paper).

(9) The above-mentioned several characteristics of X corp. make its
oMce work very complex. As we can see in Table 7 and 10, the eMciency ofthe clerical staff did not grow so fast as that of the labor force though numberof the former increased much more. In other words, the rationalization of oMce

work must be considered as one of the most important means to break throughthe present stagnation, if the present centralized management system is to be

improved.

HI
In the case of X corporation's oMce work rationalization, a specification of

information for management, as well as an increase in its processing- and com-munication-capacity, is now necessary. That is, X corp. must now respecify
what kinds of information are necessary in their present given conditions;management system, present grade of othce automation, traditional transaction.
conventlons,etc.
Next, in this section, we will examine the importance of information specification.

The schedules, statements and reports which are made at present in eachdepartment and each factory are as follows:(1) Schedules, Statements and Reports Made by Each Department of

The Head OMce
The Department of Purchase
1. budget schedule of materials purchased.
2. Iist of issued orders for paper.

3. Iist of price of purchased paper.
4. Iist of paper inventory at the end of the month.

5. purchase record of paper.
6. budget schedule of payment for purchase.

The Department of Accounting
1. roughly estimated profit and loss statement.
2. various kinds of statements of accounts.
3. statement of operating ratios.

4. comparative statement of profit and loss.
S. statement of appropriation of earned surplus.
6. report on balances of cash, deposits, notes and debts for the 1ast ten days.

7. schedule of daily cash budget.
8. schedule of monthly cash budget and its performance.

96

JIRO ONO

9.

detailed statement of long- and short-term debts.

10.

record of cash receipts and expenditures for the last six months.

11.

schedule of cash budget.
The Department of Interna! Audit

1.

budgetary statement of profit and loss.

2.

statement of budget variance analysis.

3.

schedules of monthly budget in each of the factories.

4.

report on specially authorized decision-items.

5.

report of internal audit.

1.

The Department of Pasteboard-case Production
schedule of paper consumption plan.

2.

report of each factory's monthly production.

3.

report of monthly prduction analysis of pasteboards and packing-cases.

4.

statement of budget variance analysis of product-cost.

The Department of Paper Production
1.
2.

budget schedule of paper production.
report of monthly paper production.

The Department of Sales
1.

report of sales performance for the last ten days.

2.

collection performance statement.

3.

report of sales-activities for the last ten days.

4.

information for sales.

5.

Iist of sales performance to main customers.

6.

Iist of new accepted orders.

7.

price list of accepted orders.

The Department of Management Service
1.

basic budget schedule.

2.

capital budget schedule.

3.

statement on capital investment.

The Department of AMIiated Companies
1.

report of aMliated companies' monthly production.

2.

roughly estimated profit and loss statement.

3.

performance report of aMliated companies.

4.

cash budget schedules of ten main afiliated companies.

5.

report of afiliated companies' audit.

(2) Schedules, Statements and Reports Made by Each Factory
In regard to purchasing activities,
1.

report on receipts, disbursals and balance of paper (for the last ten days),2.

budgetary schedule of paper consumption (monthly),97
INFORMATION SPECIFICATION FOR BUSINESS MANAGEMENT(I)
3.

report on contingencies occuring concerning the purchased paper(irre-

gularly),4.

statement of analysis of payments-budget variance (monthly),

5.

statement of analysis of purchase-budget variance (monthly),

6.

purchase plan schedule of miscellaneous stores (monthly),
In regard to accounting,2.

detailed statement of consumed paper (monthly),detailed statement of amount paid to sub-contractors (monthly),3.

various kinds of accounts (monthly),4.

report on receipts, disbursals and balance of inventories (monthly),

5.

daily report (daily),

1.

6.

reply to analysis report of budget variance (monthly),

7.

report on specially authorized decision items (monthly),

8.

budget for each of the next six months (periodically),

9.

statement of analysis of cash-budget variance (monthly).

In regard to personnel mapagement,
1.

statement of paid wages, inclusive of extra wages (monthly),2.

list of attendance records (monthly),3.

statistics of monthly occurring accidents (mofithly),4.

schedule of personnel posts arrangement (once a year),5.

schedule of clerical staffs' posts arrangement (once a year),6.

report on education of new employees (once a year).

1.

In regand to production,
report of total amount of production (monthly),2.

report of pasteboards production (monthly),3.

report of packing-cases production (monthly),4.

report on packing-cases production operation (monthly),5.

research report on the lot-size of accepted orders (quarterly),

6.

report on pasteboard's strength test,

7.

inspection report of purchased paper, .

8.

report on pasteboards and packing-cases not manufactured yet oforders have been accepted (monthly),

which

9.

report on receipts, disbursals and balance of paper (for the last tendays),

10.

detailed statement of fixed assets (twice a year),11.

sketch of fixed assets location (twice a year),12.

detailed statement of idle and useless fixed assets (twice a year),13.

statement of various kinds of tax in regard to fixed assets (twice a14.

monthly report on equipments (monthly),report on use of pasteboard manufacturing machine (irregularly),

15.

year),

98

JIRO ONO

16. report on accidents (irregularly).
In regard to sales,
1. report on the sales of main competitors for the last ten days (for the lastten days),
2. schedule of estimated cash receipts (monthly),
3. statement of analysis of cash-receiptsny•budget variance (monthly),

4. statement of analysis of collection-budget variance (monthly),
5. report on C grade afliliated companies (monthly),

6. research report of customers (monthly),
7. research report of collection (monthly),

8. report on the cash receipts of main competitors (monthly),
9. report on sales performance (for the last ten days),
10. report on the last ten days' sales activities (for the last ten days),

11. report on the last ten days' accepted orders (for the last ten days),
12. sales to product cost ratio (for the last ten days),

13. report on accepted orders from green-groceries for the last ten days (forthe last ten days),
14. schedule of sales plan (monthly),
15. Iist of unit price of accepted orders (monthly),

16. Iist of sales performance to main customers (monthly),

17. monthly report on pasteboard (monthly),
18. budgetary schedule of sales to main customers (periodically),
19. schedule of estimated sales in the next period (periodically).
In regard to general business affairs,

1. monthly report on kilometers consumed by company cars (monthly).
The various kinds of information which are made by each of the departmentsin the head oMce are offered to the managements of factories and the managementsof the head oMce, though all management necessarily do not get all kinds ofinformation. On the other hand, those made by each factory are sent to theconcerned depatments of the head oMce. Under certain circumstances, eachfactory is ordered to send a special report to a department of the head oMce.
We will next consider characteristics or problems with regard to the above-

mentioned present information specification in X corp. Frist, we can raise thequestion whether the various kinds of information which are made and offeredin accordance with the order of each concerned department of the head oMce

are suMciently used by the management or not. For example, one of the menin the lower management level in a factory said that he could not understand thereason why he had to make so many reports of a similar kind while he could

INFORMATION SPECIFICATION FOR BUSINESS MANAGEMENT (I) 99
not get necessary information for his work. We are sure that various kinds ofschedules, statements and reports are not always usefu1 for every level of ma-nagement of X corp.
Second, as I have stated before, it must be pointed out that this inconsistency

is brought about by the fact that X corp. adopts a considerably centralized ma-nagement system while the daily activities of local factories and sales-forces
have substantial weight in the whole of X corporation's works.

Moreover, as we can understand from the above-stated materials, most of
the schedules, statements and reports offered by each factory and each department are of a periodical character. They are not so useful for daily disposal ofindividual orders though they are necessary for periodical budgetary controlof each factory or each department. That is, necessary information for the
management of X corp. is not always suMciently specified. Especially, whatkinds of information are necessary for lower managements and sales-forces,
and what kinds of information are necessary for coordination between their
daily activities and their control in the general management view point of X corp.

must be respecified.
Third, it is to the lack of information in regard to sales- and production-

management that X corp. must pay attention in the first stage.
A cost report for each order, a credit status report of individual customer,a coordination schedule of production in accordance with new•-accepted orders
or an alteration in the contents of an already accepted order, a more rationalschedule of centralized inventory or production of paper (at present, paper which
has considerable value is always stored in each factory. Because, otherwise, thefactory cannot meeta suddent order. However a centralized inventory of paper
is not considered as impossible if necessary information is given to paper-manu-

facturing-factories in an appropriate cycle.), etc. must be developed as a be-

ginning in improvement.
Next, additional information necessary for the coordination of all businessactivities of X corp. will have to be examined. However, this problem is too
diMcult to solve in the present stage.
At a future opportunity I hope to examine it more logically.

January 18, 1966

DIE PRIVATISIERUNG DER PREUBAG
Masaya OKADAI
Die ersten Volksaktie sind in der Bundesrepublik im FrUhjahr 1959 anltiBlich

der Teilprivatisierung der PreuBag(i) geschaffen worden. Das erste Objekt derPrivatisierung durch Volksaktien wurde nicht, wie zunichst geplant, das Volks--

wagenwerk, sondern die PreuBag. Das hat mehrere, verschiedenartige GrUnde.
Die ungekltirten Rechtsverhliltnisse beim Volkswagenwerk standen einer raschen

Privatisierung dieses Unternehmens im Wege. Da nun seit dem Beginn der
Propagierung der Volksaktienidee schon fast zwei Jahre verstrichen waren,
muBten die Regierung und die parlamentarische Mehrheit der Bundesrepublik
bemUht sein, Kleinaktien eines anderen Unternehmens anzubieten und zu
sozialen Bedingungen auszugeben, sollte die Volksaktie nicht in den Verdacht
geraten, lediglich eine Wahlparole gewesen zu sein, deren Realisierung hinsi-

chtlich des Zeitpunktes und der Art v611ig ungewiB war.

Unter den vielen bundeseigenen Unternehmen, die einer Privatisierung
durch Volksaktien grundsitzlich fahig sind, standen nach dem Volkswagenwerk
zunichst die Kieler Howaldtswerke Aktiengesellschaft und die PreuBag zur
Diskussion. Die Howaldtswerke sind als Werftunternehmen jedoch besonders
krisenempfindlich und man sah deshalb vorlaufig davon ab, sie in eine Volksak-

tiengesellschaft zu verwandeln. Bei der PreuBag hingegen gab es kaum derar-

tige Schwierigkeiten und Bedenken, und hinzu kam die nicht sehr gut
ausgewogene Bilanzstruktur des Unternehmens, die nur durch ZufUhrung vonEigenkapital behoben werden konnte. Ende 1958 standen einem Anlageverm6gen von DM 167 Millionen nur eigene Mittel in H6he von DM 100 Millionen,
davon DM 75 Millionen Grundkapital gegentiber.(2)Die PreuBag ist als Konzerntochter der VEBA(3) ihrerseits selbst wieder
ein Konzern, der an mehr als einem Dutzend Gesellschaften beteiligt ist undUber 20000 Arbeitnehmer beschtiftigt. Ihre Ttitigkeit umfaBt vor allem die

(1)
(2)
(3)

Preul]ische Bergwerks- und HUtten-Aktiengesellschaft.
Harnmersch;nidt, Rolf: Betriebswirtschaftliche Probleme der Volksaktie, InauguralDissertation zur Erlangung der DoktorwUrde einer Hohen StaatswirtsÅëaftlichen Fakult5t
der Ludwig-Maximilians Universitlit zu MUnchen, 1959, SS. 50--51.
Vereinigte Elektrizitats- und Bergwerks-Aktiengesellschaft.

MASAYA OKADA

102

Erzeugung von Blei, Zink und anderen NE-Metallen, die Gewinnung von
Steinkohle, Kali, ErdOl und Erdgas, den Wasserwerks-, Brunnen- und Rohrleitungsbau und darUber hinaus betlltigt sie sich u.a. auch im Verkehrswesen und
auf dem Gebiet der Kernenergie. Zu alledem ist natifrlich erhebliches Kapitalerforderlich. Seit der Wljhrungsreform bis 1957 hat die PreuBag rund 600

Millionen DM investiert, wovon der ausschlaggebende Teil im Wege derSelbstfinanzierung aufgebracht wurde. FUr die Jahre 1958 bis 1961 wurden
weitere Investitionen in H6he von 350 Millionen DM geplant. Ihre Finanzier-ung erschien durch Abschreibungen bis auf eine LUcke von 120 Millionen DM
gesichert. Um sie schlieBen zu hilfen, war die Aufstockung des nur 75 Millionen

DM betragenden Grundkapitals um 30 Millionen DM auf 105 Millionen DM
geplant.(4)Die eben dargelegten GrUnde waren der AnlaB daftir, daB auf einer auBeror-

dentlichen Hauptversammlung der PreuBag am 2. Februar 1959 der BeschluB
gefaBt wurde, das Grundkapital von DM 75 Millionen um DM 30 Millionen
auf DM 105 Millionen zu erh6hen. Alleinaktiontirin der PreuBag war bislang
die Vereinigte Elektrizittits- und, Bergwerks-Aktiengesellschaft, Hamburg. Die

VEBA ist eine Dachgesellschaft, deren Grundkapital zu 1000/. beim Bund
liegt. AuBer ihrer PreuBag- Beteiligung besitzt sie das Grundkapital der Berg-werksgesllschaft Hibernia zu 1000/. und ist mit Uber 830/. an der PreuBischen
Elektrizittits Aktiengesellschaft beteiligt.{5)Gleichzeitig mit dem Kapitalerh6hungsbeschluB der PreuBag verzichtete
die VEBA auf ihr gesetzliches Bezugsrecht und schuf somit die weitere Vorausse-

tzung fUr die erste Teilprivatisierung eines wirtschaftlichen Unternehmens desBundes durch Volksktien.

II

Das neugeschaffene Grundkapital der PreuBag in H6he von DM 30
Millionen wurde in 300000 Aktien im Nominalwert von je DM 100 gestifckelt.
Die Aktien laufen auf den Inhaber und sind ab 1. April 1959 gewinnanteilberichtigt. Der Gesamtbetrag der Emission wurde von einem Bankenkonsortium
unter gemeinsamer FUhrung der drei GroBbanken zum Kurs von 145 fest Uber-

nommen und zum gleichen Kurs dem Publikum angeboten. Die Zeichnungslisten lagen vom 24. bis zum 31. Marz 1959 bei den Kreditinstituten auf; fUr
die PreuBag-Belegschaft dauerte die Zeichnungsfrist bis zum 4. April.
(4) Hirche, Kurt: Das Experiment der Volksaktie, 1961, S. 84.
( 5 ) Bund der Steuerzahler: Die Bundes-Konzerne, Schach dem Staatskapitalismus durch
Privatisierung, 1957, S. 71 ff.

DIE PRIVATISIERUNG DER PREUBAG

103

Besonders gUnstige Bezugsbedingungen galten fUr die Betriebsangeh6rigen
und Pensionire der PreuBag und ihrer Tochtergesellschaften, insgesamt etwa

34000 Personen. Ferner wurden die Bankprovision und die B6rsenumsatzsteuer, die beim Kauf der Aktien anfallen, von der Gesellschaft getragen undschlieBlich hatten die Belegschaftsangeh6rigen die M6glichkeit, zunlichst nur

200/. des Kaufpreises zu zahlen und den Rest in zwei gleichen Jahresraten zu
entrichten, wobei die Bankzinsen ebenfalls von der Gesellschaft getragen werden.

Trotzdem war das Interesse der etwa 22000 aktiven Belegschaftsmitglieder

und der 12000 Pensiontire nur gering, denn es konnten nur etwa DM 750000,
nach dem Nennwert gerechnet, bei diesem Personenkreis untergebracht werden.
Damit verfUgt die Belegschaft nur Uber O.7140/, der Stimmrechte in der Haupt-versammlung.
Wlihrend der Erfolg bei der Zeichnung der PreuBag-Aktien bei der Belegschaft also erheblich hinter den Erwartungen zurUckblieb, war er beim allge-

meinen Publikum auBergew6hnlich groB. Es ist zu entnehmen, daB etwa 210000
Personen Kaufantrtige gestellt haben, die sich insgesamt auf etwas Uber DM
100 Millionen Nennwert belaufen. Dieser Erfolg erstaunt um so mehr, als derKreis der zeichnungs- und bezugsberechtigten Personen begrenzt war.
Kaufantrtige durften nur von deutschen Staatsangeh6rigen gestellt werden, die,soweit sie der Veranlagung zur Einkommensteuer unterliegen, im Jahr 1957
ein steuerpflichtiges Einkommen von nicht mehr als DM 16000 hatten. Personen, die nicht zur Einkommensteuer veranlagt werden, waren nur dann kaufberechtigt, wenn ihre Einkommen aus nicht selbstilndiger Arbeit im Jahr 1958
insgesamt nicht mehr als DM 16000 betrugen. Die EinkUnfte von Ehegatten
wurden dabei zusammengerechnet, doch war jeder Ehegatte berechtigt, einen
Kaufantrag im Zulissigen H6chstbetrag von DM 500 zu stellen. Personen
unter 21 Jahren waren nur bezugsberechnet, soweit sie erwerbstljtig sind und
im tibrigen die genannte Einkommensgrenze nicht Uberschritten hatten. Juristische Personen waren von der Zeichnung grundstitzlich ausgeschlossen.
Im Kaufantrag, der an die Kreditinstitute zu richten war, muBte der Antragsteller zugleich die Euklirung abgeben, daB er die Aktien fUr eigene Rechn-ung erwirbt, den Antrag nicht auf Grund einer Vereinbarung mit Dritten abgibt

und bei keinem anderen Kreditinstitut einen Kaufantrag ftir PreuBag-Aktien
gestellt hat. Ferner muBte er das fUr ihn zusfandige Finanzamt von der sichaus g22 der Abgabenordnung ergebenden Geheimhaltungspflicht entbinden
und das Kreditinstitut ermtichtigen, beim Finanzamt die Bestatigung einzuholen,daB die EinkUnfte des Antragstellers die genannten H6chstbetrtige nicht Uber-

schreiten. Im Verkaufsangebot der PreuBag wurde versichert, daB sich die
Nachpriffung durch die Kreditinstitute nur auf die Frage erstrecken werde, ob

104

MASAYA OKADA

der Antragsteller die Einkommensgrenze nicht tiberschritten hat. Auskunfttiber die genaue H6he des Einkommens wird nicht verlangt.
Angesichts des groBen Erfolges der Zeichnungsaktion beschloB das Bundeskabinett am 3. April 1959, zusljtzlich zu den DM 30 Millionen PreuBagAktien, die aus der Kapitalerh6hung stammen, DM 53 Millionen aus dem Ver-m6gen der VEBA zu privatisieren. Die weitere Privatisierung der PreuBag
war fUr einen sptiteren Zeitpunkt ohnedies geplant.

Auf Grund dieses Beschlusses verbleiben der VEBA, also indirekt dem
Bund, nunmehr DM 22 Millionen Aktien, das entspricht 20.950/. des Grundkapitals. Um bei dem freien Aktienbesitz von insgesamt DM 83 Millionen
Konzentrationen zu unterbinden, die sich im weiteren Verlauf durch Aufkljufe
groBeren Stils an der B6rse ergeben k6nnten, wurde in die Satzung der PreuBag
die Bestimmung aufgenommen, daB jeder Aktionar h6chstens fUr ein Tausendstel
des Grundkapitals, also fUr DM 105000, Stimmen in der Hauptversammlung
abgeben kann. Sollte ein Aktionar, zum Beispiel aus Rendite--Uberlegungen,mehr Aktien erworben haben, so ruhen die Stimmrechte aus den Aktien, die
Uber den Betrag von DM 105000 hinausgehen. AuBer dieser Stimmrechtsbeschrtinkung wurde in der Satzung bestimmt, daB der Bund, unabhljngig von der
H6he seiner Kapitalbeteiligung, vier von insgesamt einundzwanzig Aufsichtsrat-

sitzen besitzt. Der Bildung von Aktienpaketen soll auch die Verpflichtung
der fUnfzig am Konsortium beteiligten Banken entgegenwirken, innerhalb
eines Zeitraumes von ftinf Jahren weder fUr eigene noch fUr fremde Rechpung
Aufkliufe zu tljtigen.(6)Die statistischen Erhebungen des Emissionskonsortiums tiber die berufliche

Zusammensetzung der Kaufinteressenten ergaben folgendes Gesamtbild:
Zeichner
1. Belegschaftsangeh6rige der PreuBag
und ihrer Tochtergesellschaften

2384

Nennbetrag DM
750800. -2. Beamte

17752

8164300. -3. Angestellte

62844

28769400. -4. Arbeiter11025

4•9927oo.-

5. selbstnndige Gewerbetreibende

16397

6. freie Berufe

27274

7. Pensionlire

22139

8. Frauen

56304

7X02000.12708600.10280700.26720300.-

216119100088800. -(6) Hammerschmidt, Rolf: a. a. O., SS. 52-55.

DIE PRIVATISIERUNG DER PREUBAG 105
Wtihrend die gut verdienenden Angestellten und die Frauen den gr6Bten
Anteil (tiber 500/.) der PreuBag-Volksaktien Ubernommen haben, kann das
Interesse der 22000 Beschliftigten in der PreuBag als gering bezeichnet werden.{7)Damit war aus einer Aktiengesellschaft, die bisher nur den Bund zum Aktionlir

hatte, nach der Formel: ,,Aus 1 mach 216000" die zunachst gr6Bte deutsche
Publikumsaktiengesellschaft geworden.(s)III
Das Zeichnungsergebnis der ersten Volksaktienausgabe hat sowohl bei dem
Privatisierern als auch bei den Eigentumsstreuern lebhafte Befriedigung ausgeldst.

Zunachst kann festgestellt werden, daB im Zeitpunkt der Emission eine
breite Streuung der PreuBag-Aktien erreicht worden ist. DM 83 Millionen
Aktienkapital verteilen sich auf 210000 Aktiontire, das heiBt im Durchschnitt ist

jeder Aktionar mit nominal DM 400 an der Gesellschaft beteiligt.(9)Die PreuBag-Volksaktie hielt den AusschluB der juristischen Personen
zwar beim Ersterwerb der Aktie aufrecht und dehnte ihn auch auf die Invest-

mentgesellschaften aus. DarUber hinaus schloB sie-wohlgemerkt immer
nur beim Ersterwerb-auch alle die natUrlichen Personen aus, die jahrlichmehr als 16000 DM Einkommen haben. Diese Ersterwerbsbeschrankungenwerden dem gewUnschten Charakter der Volksaktie (breite Eigentumsstreuung,
Erwerb vor allem durch Arbeitnehrner) auch wesentlich mehr gerecht als die
ursprUnglich geplante Volkswagen-Volksaktie.

Diese hinsichtlich der Eigentumsstreuung positiv zu wertenden Fesseln
sind beim Zweiterwerb und jedem weiteren Verkauf der PreuBag-Aktien beseitigt

worden. Nicht nur natttrliche Personen, sondern auch juristische Personenjeder Art kOnnen die PreuBag--Aktien kaufen. Die Gefahr, daB die PreuBagAktie im Laufe der Zeit in den Portefeuilles bestimmter wirtschaftlicher Ma-

chtegruppen landet, ist also stindig gegeben. .
Das fUr die Offentlichkeit so stark in den Vordergrund geschobene BemU-

hen, eine breite Aktienstreuung und einen Kauf durch solche Schichten zu
erreichen, die bisher noch keine Aktien in Besitz hatten, ist also zwar begonnen,

aber nicht konsequent zu Ende gefUhrt worden. Denn zur Erreichung dieses
Zieles kommt es eben nicht nur darauf an, wer die Aktien zum ersten Male( 7 ) Klug, Oskar: Volkskapitalismus durch Eigentumsstreuung, Illusion oder Wirklichkeit?

1962, S. 55.
(8) Hirche, Kurt: a. a. O., S. 86.
(9) Hammerschmidt, Rolf: a. a. O., S. 60.

106 MASAYA OKADA
erwirbt, sondern wo sie fUr die Dauer bleiben. Htitte die Bundesregierung die
breite Eigentumsstreuung auch fifr die Zukunft sichern wollen, so hatte etwa
der Besitz des einzelnen Aktionars an PreuBag-Volksaktien sttindig auf einengeringen Teil des Grundkapitals beschrtinkt und vor allem bestimmt werden
mtissen, daB auch kUnftig nur Personen mit einem Jahreseinkommen bis zu
16000 DM die Aktien erwerben dUrfen. Allenfalls hatte in begrenztem Umfang
vom Zweiterwerb ab auch der Kauf durch Investmentgesellschaften zugelassen
werden k6nnen. Diese Wege sind bewuBt nicht beschritten worden.(io}Besonders groB war der Erfolg des Verkaufs von Preu6ag-Aktien, soweit
er die Privatisierung wirtschaftlichen Verm6gens der dffentlichen Hand zum
Ziel hatte. Wahrend der Bund ursprUnglich nur den aus der Kapitalerh6hungstammenden Betrag privatisieren wollte, konnte er auf Grund des guten Zeichnungserfolges weitere DM 53 Millionen Aktien beim Publikum unterbringen.
Wenn nach der B6rseneinfUhrung eine starke Nachfrage nach Preu6ag-Aktien
einsetzen sollte, wird der Bund aus dem verbliebenen Bestand der VEBA weitere
Aktien verkaufen k6nnen, was schon im Hinblick auf die Kurspflege wUnschenswert wtire, da ein allzu krtiftiger Kursanstieg nur zu spekulativen Verklinfen AnlaB

geben und die breite Streuung auf die Dauer geftihrden wUrde. Sollten jedoch
alsbald viele PreuBag--Aktien angeboten werden, so wird der Bund diese, ebenfalls aus GrUnden der Kurspflege, selbst kaufen mUssen, da im Fall der PreuBagweder ein GroBaktionlir noch eine Bank die Kurspflege Ubernehmen kann, daden Konsortialbanken, wie bereits erwtihnt, Aufkiufe dieser Aktien nicht gestattet sind.

Insgesamt kann die Teilprivatisierung der PreuBag als ein geglUckter Start

des Volksaktienplanes in der Bundesrepublik bezeichnet werden und es war
sicherlich kein Nachteil, daB mit einem kleineren Objekt als dem Volkswagenwerk
begonnen worden ist.(ii)1965, 11, 17(10) Hirche, Kurt: a. a. O., SS. 88-89.
(11) Hammerschmidt, Rolf: a. a. O., S. 64.

KOBE ECONOMIC & BUSINESS REVIEWCONTENTS
NO. 1 (1953)
Present Day Significance of Free Ports ..........................................Giniiro Shibata

Development of Devaluation-Problem in Post-War Japan ..................Kiyoxo Miyata
Japan's Trade with South and South-East Asian Countries ...............Fukuo Kawata
The Exchange Control Policy in Post-War Japan ...........................Atfasahiro FuJ'ita
On the Official Statistics of Foreign Trade in the Post-War Japan ......HikoJ'i Katano
On Business History ..................................................................Tadakatsa Inoue

Problems of Regional Industrialization in Japan .................,...............Minoru Beika

A Research of Wage Income in Post-War Japan.................................Nobuko Nose'
Revaluation in Japan ..........................,....................................Sttsumu VVatanabe

Last-In, First-Out Inventory Method under the Japanese Tax Law...Munehiro Masu2aki

NO. 2 (1954)
Movements for the Establishment of Free Ports in Japan..................Ginjiro Shibata
Japan's Trade with Latin America in the Post-War Years ..................Fukuo Kawata
The Maritime Competitions in the Early Meiji Era..............................Seij'i Sasaki
Two Deflations in the Showa Era ................................................Masahiro Fuj'ita

Estimation of the Effectiveness of Devaluation on
Balance of Payment Deficit in Japan.................................Hikoji Katano

The Recovery Method of the Japanese Shipping Industry
in Post-War Period................................................Hiromasa Yamamoto
Business Accounting and Tax Accounting....................................Susumu VVatanabe
Spatial Characteristics of Industries Relative to Their
Business Features ....................................................,....Minoru Beika
Stages in Factory Organization ...................................................Tadakatsu Inoue

Accounting for Fixed Assets Revaluation; Recent Views in Japan...Munehiro Masuxaki
On the Structure of the National Income Distribution in Japan............Nobuko Nose'

NO. 3 (1956)
Industrialization and International Trade ......,................................Fukuo Kawata

Econometric Determination of Foreign Exchange Rate of Japanfor 1926-1953.............,.................................................Hikoji Katano

Present Status of Japan's Shipping................................................Ginjiro Shibata

The Distinction between "Shasen" and "Shagaisen" as Historical
Concepts in Japanese Shipping .........................,................Sei'i Sasaki

The Banking System in the Middle Meiji Era (1870-1910)...............Masahiro Ful'ita
Disposition of Cost Variances in Japanese Tax Law .....................Susumu VVatanabe
Structure of Industrial Districts in Japan.......,..................................Minoru Beika

Note on the ZAIBATSU Combines.............................................Tadakatsu Inoue
On the Model-Building for Social Accounting Design ........................Nobuko Nose'

NO. 4 (1957)
The Impact of Exchange Policy on the International Economy
of Japan during the Period 1930-1940........................Laurence P. Dowd
A Note on the Recent Trends of Japan's Foreign Trade ..................Fukuo Kawata

The Development of Overseas Banking System in Japanin the Meiji Era,........................................................Masahiro FnjitaMore on the Structure of National Income Distribution in Japan .........Nobuko Nose'
Reconstruction of the Theory of Purchasing Power Parity ..................Hikoii Katano
Tramp Shipping Freights and International Trade ...........................Ginjiro Shibata

A Little Study on the Transition from the Sailing Vessel to
Steamer in Japan ....,.......................................................Sei'i Sasaki

On the Regulating Policy of Japan Against the Shipping
Conference-Especially in Relation to the Refusal of
the Entry to New Comers ......................,.............Hiromasa Yamamoto
The Price Fluctuation Reserve System in Japan...........................Susumu Watanabe

Locational Problem in the New Major Branches of JapaneseIndustries from 1954 to 1956 ........................,..........,......Minoru Beika
Business Problems in an International Situation....,...,.....,...............Tadakatsu lnoue

NO. 5 (1958)
History of Yen- Its Developments in the Japanese Economy (1).........Hiroshi Shinio
Fundamental Features of the Accumulation of Capitalin the Late Meiji Era ................................................Masahiro Fuiita

Some Aspects of Japan's Trade with South andSouth-East Asia, 19SO-1957 ..........................................Fukuo Kawata

Curves of Diminishing Values of Japanese Merchant Ships
in Proportion to Their Age ..........................................Ginjiro Shibata

The Modernization of Japanese Shipping Based on theTransportation of Hokkaido Marine Products ........................Sei'i Sasaki

Development of the Marine Insurance Industry in Japanin the Meiji Period .............................................Hiromasa Yamamoto
A Assimilagio do Imigrante Japonas no Brasil .................................Hiroshi Saito
Rate of Profit and International Specialization of Production ............Hikoji Katano
Replacement Cost and Lifo Cost......................,.........................Susumu PVatanabe
Spatial Problems of Business Activities.............................................Minoru Beika
The Nature of the Morgan Control ...................,.........................Tadakatsu lnoue

On the Effect of Accelerated Amortization for Tax Purposes ...............Nobuko Nose'

NO. 6 (1959)
History of Yen- Its Developments in the Japanese Economy (2)....,....Hiroshi Shinjo
The Central Banking Policy in the Meiji Era.................................Masahiro Fnjita

Economic Growth, Balance of Payment and Capital Movement .........Hikoii Katano
World Trade and Japan's Export-1953-1957-..............,...............,Fukuo Kawata
Alguns Aspectos da Mobilidade de Japoneses no Brasil........................Hiroshi Saito

Problems of Emigrant-Transportation in Japan ....................,...Hiromasa Yamamoto
Port Labor Conditions in Japan ..........,............,...........................Ginjiro Shibata

The Development of the Concept "Operator" in Japan ........................Sei'i Sasaki
Single Industry Towns in Japan.....................................................,Minoru Beika

On the Application of the Social Accounting
Principle to Business Accounting.......................................Nobuko Nose'
Valuation of Work in Process ...................................................Susumu PVatanabe

Developmental Stages Relating to Theories
of Stock-Equity Accounting .......................,.....................RyuJ'i Takeda
On the Rate of Interest in Business Administration ..............,..................Jiro Ono

Various Classes of Data Processing by Means of Electronic
Computer .....•.••.••.........................................................Hideo Kitani

Company Histories in Japan ........................Tadakatsu Inoue and Yoshiro Ikushima

NO. 7 (1960)
Japanese Emigration and Its Effect on International Payments............Ginjiro Shibata

One-to-One Correspondence Between Goods and Factor Prices............Hikoji Katano
The Gold Standard and Banking Capital in Japan ..,.....................Masahiro Fwfita
World Trade and Economic Growth .............................................Fukuo Kaevata

Singularity in the Structure of the Seamen's Union of Japan......Hiromasa Yamamoto
Some Reflections on Inter-Comparability of Social Accounting ............Nobuko Nose'
The Meaning of Inventories .....,.................,...........................Susumu VVatanabe

Structure of Income Determination on the Balance Sheet ..................Rywfi Takeda
On the Value of Stock Rights and Its Significancein Corporate Finance.............................................................Jiro Ono

Business Features and Management Policies of Industrial
Enterprises in Local Districts of Japan..............................Minoru Beika

NO. 8 (1961)
The Industrial System and Industrial Education in Southeast Asia Now on
the Threshold of Reform; and Japan's Position therein......Kiyoxo Miyata
Industrial Structure and Educational System in India.....................Tadao Miyashita
Industrial Education in India......................................................Tadao Miyashita
Technical Education in India......................................................Tadao Miyashita

Industrial Structure and Vocational Education in Thailand ........,.........Fukuo Kawata
The Industrial Structure and Industrial Educationin the Philippines ........................,..........................Tei-ichi Yamasaki

Industrial Structure and Vocational Education in Indonesia.......,,Hiromasa Yamamoto

NO. 9 (1962)
Problems in Port Administration and Finance in Japan.....................Ginjiro Shibata
Types of Early Modern Japanese Shipowners.....................................,.Seiji Sasaki

On the Employment System of Seamen in Japan .....................Hiromasa Yamamoto
A Study on Japan's Invisible Trade................................................Fukuo Kawata

Problems of Industrial Location relating to Regional Development inJapan ...........................................................................Minoru Beika

The System of Inside Contracting..............................,.................Tadakatsu Inoue

A Critique on Professor Mahalanobis Modei of Economic
Planning in India ............;.............,..............................Hikoii Katano
National Income Concepts: Reconsidered ..........................................Nobuko Nose'
Some Problems of the Installment Basis ....................................Susumu Watanabe

On the Purposes of a Going-Concern Valuation and its Natures ...............liro Ono
Die Betrachtungsweise der neueren betriebswirtschaftlichen
Kostentheorie.....................,...,..................................Tetsuo Kobayashi

NO. 10 (1963)
Revised Accounting Provisions of the Commercial Code of Japan-with Special Reference to the
Corporation Income Tax Law-..................,..............Susumu VVatanabeSocial Accounting as an Instrument of Policy ....................................Nobuko Nose'
Industrial Estates for Small Businesses in Japan.................................Minoru Beika
Rise of the Mutual Financing Business in Japan ..........,.,..............Tadakatsu Inoue

The Introduction of European-Style Vessels in Japan:
A Historical Survey ....,...,................................................Sei-i Sasaki

On Industrial Relations in Japan's Shipping Industry-withSpecial Concern on Personnel Management-............Hiromasa Yamamoto
Regional Disparities in the Brazilian Economy:
A Case Study on the Brazilian Northeast..........,,...,.. Yoshiaki IVishimukai
The Basic Concepts of Going-Concern Valuation ....................................Jiro Ono

A Study on the Current Cost Theory of Fritz Schmidt .....................Isao Nakano

Die Kostenbegriffe fUr die betriebliche Planung ........................,,.Tetsuo Kobayashi
Introducing Prof. Shinje's "History of the Yen"........................Zentaro Matsumura

NO. 11 (1964)
Accounting Profit and Taxable Income......................................,Susumu Watanabe
On Integration in Economic Accounting ..........................................Nobuko Nose'
Vber ,,Cost Accounting Standards" in Japan ..............................Tetsuo Kobayashi
A Note on the Lohmann-Ruchti Effect.....................................,.......Isao Nakano

Management Approach to Regional Development Problems inJapan...........................................................................Minoru Beika

A Research Report on OMce Automation of Middle-Scale Cities inJapan ..........,..................................................................,...Jiro Ono

Die Geschichte der Privatisierung ................................................Masaya Okada

Recent Trends in the Balarice of Payments of Japan ........................Fukuo Kawata
Long-Term Finance in Post-War Japan (1)....................................Masahiro Ful'ita

A Chronological Table of Modern Japanese Shipping-No. 1;
1600tv1799 ...,.................................................................Sei'i Sasaki

The Continuous Employment of Seamen in American Shipping
Industry .....................,......................................Hiromasa Yamamoto

Some Problems of the Brazilian Economic Development Plan
(1963-1965) ..,......................,,..............................Yoshiaki Nishimukai

NO. 12 (1965)
Special Depreciation and Reduced Entry ....................................Susumu VVatanabe
Electronic Data Processing System in Japan ....................................Minoru Beika

A Chronological Table of Modern Japanese Shipping-No. 2, 1800rv1912 ......................................................Sei'i Sasaki

Overseas Operations of Japanese Business Enterprises in Brazil.........Tadakatsu inoue
A Note on Economic Accounting for Government Sector.....................Nobuko Nose'
International Liquidity and the Tokyo Meeting of the International
Monetary Fund ........,................................................Masahiro Ful'ita

Intersectoral Transaction Table with Endogenous Foreign Trade Sector in
the Indian Economy: 1955/56..........................................Hikoji Katano

The System of Reserved Members for Seamen before World War II- The Empolyment System of Searnen in Japan ................................,..............,...........................Hiromasa Yamamoto

On the Automation of Banking in Japan ....,......,....................................Jiro Ono

A Presente Etapa do Desenvolvimento Econ6mico do
Jap5o ........•..,....................•.....................,,..........Yoshiaki Nishimukai

Kostentheorie und dispositiver Faktor..........................................Tetsuo Kobayashi
Grundprobleme der Privatisierung ................................................Masaya Okada

KOBE UNIVERSITY ECONOMIC REViEW 1965
Edited by Faculty of Economics,
Kobe University, Kobe, JapanCONTENTS"Overloan" relative to Economic'Growth- The relation between the banking
and fiscal policy reexamined- ...,...,.........,...:.............,.,.Airoshi Shinio

Notes sur 1'Usage de 1'Alun dans la Teinture
des Draps en Flandre du lle an 13e Siecle ....,,.......:.;.....Ze";ichi Yamase

The Income Disparity of a Dual Eeonomy: Japan's Case..............:...Osantu Tanaka
Modus Operandi of Open-Market Operations ..,....;......................KihanoStike Ohno
Japan's Exports of Sundry Goods ....................`...........................Kiyoshi lkemoto

A Study on Macro-economic Theories ofIncome Distribution ..................,...,....,....................;.....;..Ka2ti Dodo,-"trlP-.,t-.."tldll;"...l-.,"lstVIM..-l-..-qlttdrl-,..db.,-st"tPll-.qt-,./iilllllt".,dd,.,-ttdlll"..dP..-d-"ib-"..,dÅ}..,qldtltl-...dS."-d-"eaik.,,t-.,,-IId:rli,..t-,..+11tttti-,,.,1-.-tlvtP-k

THE ANNALS OF THE SCHOOL OF
BUSINESS ADMINISTRATIONKOBE UNIVERSITY 1965
Edited by The School of Business Administration,

Kobe University, Kobe, JapanCONTENTS
Problems on Measuring the Ba!ance of Payments on Shipping
Account.........................,..........................••........................Itaro Irie

A Theory on the Nature of Double-entry Booklceeping........................Yoshiro Toda

Two Approaches to the Solution of the Rate-of-return Method
versus the Present-value Method in Investment Decision......................................,.......................................Yasutaro Tamba

Development of the Problem of Medium and Small Industries inJapan.......................•••••••.•.......•b...;.......`......,..........,....Noboru Inaba

The Multi-divisionar Organization in Japan...,.i;,.;.`....,.................;.Kuniyoshi Urabe

Recent Low Wages and the Minimum Wage System in Japan.....,......Sttsumu Kaide

THE RESEARCH INSTITUTE FOR ECONOMICS AND
BUSINESS ADMINISTRATION, KOBE UNIVERSITY

•"".

Ill

avIS

HISTORICAL SKETCH
In 1919, a research organization named the Institute for Commerce wasfounded in Kobe Higher Commercial School, one of the chief predecessors ofKobe University, with a gift made by F. Kanematsu & Company, a leading
mercantile firm in Kobe. The organization was designed to carry on and facilitate integrated research on business and commerce and to formulate andpublish the results of these studies and investigations in such form as to makethem available to the business community.

With the founding of Kobe University of Commerce, successor of Kobe
Higher Commercial School, in 1929, the Institute extended its research ac--tivities by adding several divisions. One was the famous Latin-American
Library, which soon became the center of research in this field in Japan. A
room for statistics equipped with various computing machines was establishedand began publication of "Juyo Keizai Tokei" monthly and "Sekai Boeki Tokei"
annually. A filing room was prepared to deposit press clipping files systematicallyarranged by topics and dates. Another room was designed to become the centerof all possible original records and data having to do with the beginning andprogress of Japanese business.

On the campus of Kobe University of Commerce, another organization
named the Institute for Business Mechanization was founded in 1941 utilizing

business machines donated by the IBM Corporation and others. With
Professor Yasutaro Hirai as its head a broad and forward-looking plan forbusiness mechanization in Japan was developed.

In 1944, Kobe University of Commerce changed its name to Kobe University of Economics. After the war, however, the University was consolidated with three other colleges in Hyogo Prefecture to become Kobe University.

With this development, the two Institutes were also amalgamated into the
Research Institute for Economics and Business Administration, Kobe University. At present, the Institute, with its seventeen full-time professional
staff members, carries on studies and investigations in international economy,business administration, and business mechanization in Japan.

LOCATION AND BUILDINGSThe Research Institute for Economics and Business Administration is
located on the campus of Kobe University, Rokko, Kobe. It is a three-story
building named the Kanematsu Kinenkan and has a floor space of about 2,900
square meters, which includes a president's room, forty-one othces, six rooms
used as a library, a room for statistics, three conference rooms, ete. Adjoining
is a one-story building recently built to install business machines.

ORGANIZATION
Under the directorship of a president, the Institute operates with two
research groups one of which consists of five sections while the other has four
sections. Each research group and its sections are as follows:

A Group of International Economy(1) International Trade(2) Economy of Latin-America(3) Maritirne Economy(4) International Finance(5) International Law of Economy

B Group of Business Administration(1) Business Administration and Business Mechanization(2) Accounting(3) International Management(4) Labor Problems
Besides the regular work of the Institute organized in this manner, researchcommittees may be created to carry on any special work requiring the joint
study of academic and business circles. At present, there are three committees,that is, the Finance Committee, Latin-America Committee, and International

Economy Committee.
For convenience and greater eMciency in carrying out its research activities,
the Institute has a general oMce which is responsible for, 1) the collection andpreservation of a comprehensive collection of books, periodicals, pamphlets,and original records and data of finance, trade, commerce, industry and businessgenerally; 2) the classification, cataloguing, indexing, arranging, annotation andcompilation of these research materials; and 3) the formulation and publication

of the results of the investigations and studies accomplished by the professional

staff members of the Institute.
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in the field of business administration in Japan that has been recognized andauthorized by the Ministry of Education. The purpose is to collect and to
make intensive control of all kinds of matefials on business administrationand to make them available to scholars, universities, governments, and businessworld with the aid of modern documentation techniques.

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THE RESEARCH INSTITUTEFOR
l: EcoNoMIcs&BuslNEss
ADMINISTRATION:i Directer:
KOBEMinoru
UNiVERSITY
BEIKA
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l Secretary: Teiji NAKAYAMAlili "H""'''""""-'''''''

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l GROUPOFINTERNATIONAL l GROUPOFBUSINESSi ECONOMICRESEARCH l ADMINISTRATIONRESEARCHl Fukuo KAwATA Professorof lnternational l: Susumu WATANABE Professor of Accounting

i: EconoTnyl Administration
I, Mineru
BxsKA
i Dr. of Econornicsl Administration
andi'; Financei BusineGs
Mechanization
Administration: : Dr.Dr•ofEconoMiCSi
of Businessi Trade Dr. ef Economics t Dr. of Businees
Ii Seiji SAsAKI Professor of Meritime iiPrefessor of Business!, Hiroshi SHTNJO
Professoreflnternationel 1'

i Toraseburo NeMuRA Professer Of TranSPOr" l' Tedakatsu lNouE Professoref lnternational

i tation Dr. of Cornmerce l/ IIanagement
Taro KAwAKAMTiii Jiro YAoiEii MeeahiroFumTAiiil Hikoji KATANo

Professor of Private -1'oshimoto KoBAYASHt Professor ef Labor
International
Law iProblems{
Dr. of Business
Dr.
of
Law
:
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professor of International I
Administration}
Finance Dr. of Econoniics :Associate Professor of: Nobuke NosE
Associate Prefessor of l
Acceuntingil)n of Businete's AdminisRegional Study on Latin l

Americaii

Aseociatc Professor of i Jiro ONoiiInternatienal Trade :ilAssociate Professor of l'i Hiromaea YAMAMOTOli'il YoehiakiiiiMaritime ECOnOMY i/ Masaya OKAOA

Associate Professor of Re- i

NTSHTMUKAT

gional study on Latin l

AmeriÅëa l'li

Ornee: The Xanematsu Memorial Hall,I

THE KOBE UNIVERSITYROKKO, KOBE, JAPAN

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Associate Professor of
Bueiness Administration

and Business Mechanizatlon

Research Associate in
Business AdminiBtration

and Business Mechanizatlon

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