Electoral influence and economic policy: Political Origins of Financial Aid to Small Business in Japan

The debate surrounding the role of bureaucrats and politicians in Japan's economic policymaking process has largely been advanced through the presentation and discussion of case studies. Some cases have shown that economic policy is dominated by Japan's bureaucracy, whereas others have shown that electoral politics has been the primary determining factor. To be sure, both the bureaucracy and the Liberal Democratic Party (LDP) have been influential, and sorting out when and in what economic policy areas each has its influence remains a puzzle. This article addresses this issue by developing and testing a model of electoral influence that specifies the conditions under which one would expect electoral considerations to take precedence over more institutionalized (bureaucratic) procedures in the economic policy-making process. The model is informed by the idea that some economic policy areas are more important to Japan's previously ruling LDP than others, and what these are depends on the characteristics of the groups that support the LDP and the issues that affect their interests. Also, given that economic policy is a tool that has been available to the LDP to influence its continuation as ruling party, the timing of political intervention will necessarily revolve around the strength of its electoral majority. By examining Japan's postwar policy of providing financial aid to small- and medium-sized firms, this article will show that the timing and amount of aid extended to small- and medium-sized firms was influenced by the ruling party's attempts to ensure the partisan loyalty of this essential support constituency.