How did the Japanese government manage to continue spending liberally on public works while at the same time maintaining low budget spending? The former allowed the Liberal Democratic Party (LDP) to maintain majority position by satisfying its constituents, while the latter allowed the Ministry of Finance (MOF) to have a sound fiscal policy. Gene Park's illuminating study addresses this puzzle by focusing on the role of policy finance—the use of credit and other financial mechanisms to achieve public policy purposes—in the form of the Fiscal Investment and Loan Program (FILP). He argues that the “FILP was a critical component of the postwar political settlement” (p. 247) that enabled the government to “spend without taxation.” By collecting postal savings and pension reserves into the Trust Fund Bureau Fund under the MOF control, the FILP funded many quasi-governmental agencies that carried out public works and social welfare provisions for the LDP constituents, provided employment for amakudari bureaucrats, and supported local governments.

Although the protagonist of Park's story, public finance, could be a relatively dry topic, the argument of this book is very sexy. It reads like a mystery novel that unravels the long-kept secret of Japan's economic miracle and the LDP's strong fifty-plus-year grip on political power. That secret is FILP funding. The FILP developed into its current form of policy finance under the U.S. Occupation as the Japanese government faced the externally imposed budget restraint of the Dodge Line (chapter 3) and struggled to channel capital flows to industries and the war-ravaged population. Later, as the need for public financing in support of industrialization slowed in the 1970s, the Japanese government began to use the FILP to defer difficult fiscal choices and to finance the LDP's pork-barrel strategy, which often funded lower-quality businesses and projects that reflected the ruling party's political priorities (p. 147). Meanwhile, the FILP constituted an important part of Japan's redistributive strategy through public works and support for small and medium enterprises. The FILP scheme was a very useful funding tool as the MOF, other ministries, and the LDP struggled with the fiscal “trilemma” of taxes (which the LDP did not like to increase), budgetary spending (which needed to expand to sustain both welfare and public works to the LDP constituents) and budget balance.

This secret weapon that “linked the developmental and cliental sides of Japan's political economy” (p. 249) has become problematic in the long-run because the FILP is credit based. Thus when the projects funded by the FILP fail, partly due to the moral hazard of easy funding, the government has to step in and cover the losses. In addition, as the FILP expanded in the 1990s at the time of financial uncertainty in Japan, it encountered massive criticism from the private financial sector for unfair competition (chapter 7). The call for reform emerged after the LDP's temporary breakup in 1993–94 and paved the way for a new electoral system ending Japan's clientalistic single non transferable vote system. Due to political resistance, however, FILP reform progressed slowly in the 1990s before Prime Minister Koizumi (2001–6), who had long believed in and fought for postal privatization and dismantling of the FILP, implemented fundamental reform (chapter 8).

This study provides an invaluable contribution to our understanding of Japan's post-war political economy and illuminates the quasi-fiscal foundation of the LDP's political longevity and its final demise. There is so little written on Japan's massive FILP that the clear and thorough explanation of its mechanism alone (chapter 2) is highly appreciated. The book, however, also provides convincing politico-economic explanations for phenomena not satisfactorily explained by the developmental state literature or the literature on the LDP rule. Park's work also contributes to our understanding of the nature of Japan's redistributive and welfare mechanism, which is quite puzzling in comparison to other OECD countries.

The book has also provided two insightful starting points for future studies. One, the book remains short on the qualitative analysis of micro political dynamics regarding how the LDP's electoral logic influenced FILP allocation and vice versa. The study has done a credible job of supporting the link between the FILP and the LDP's electoral fortunes by resorting to inferential statistics: the regression results demonstrate that FILP allocations helped the LDP win seats in Lower House elections, and the LDP controlled government channeled the FILP to the constituents (chapter 5). Although convincing, the approach is arm's-length; a case study that traces both implicit and explicit connections of the FILP and votes should be the next step.

Two, Park highlights the distributive nature of Japanese policy finance by making references to the similar mechanisms in Italy and France. But it would be even more interesting to compare the case of Japan with other Asian developmental states such as South Korea or Taiwan. These East Asian countries are known to lack well-developed welfare systems, and they face fiscal crises as their traditionally austere budgets meet political and electoral pressure to expand. I hope Park will continue working on this fruitful intellectual enterprise.