1.Reconstruction Period (1945-1954)

(1) SMEs in the Reconstruction Period

Many SMEs began operation in the chaos after World War II. However, they faced great difficulty with problems such as the lack of materials for production and severe inflation, preferred distribution of materials to weighty large-scale industries under the measures for postwar recovery. SMEs were troubled by a low management level, especially in financial accounting; lack of technology, and funding capacity; aimless investment and production, etc.

(2) The Establishment of the Small and Medium Enterprise Agency

In 1947, the Act Concerning Prohibition of Private Monopoly and Maintenance of Fair Trade (the Japanese Antimonopoly Act) and the Law for Elimination of Excessive Concentration of Economic Power were enacted to implement measures for introducing a democratic economy. As part of the measures for SMEs and in order to prevent economic centralization, the Small and Medium Enterprise Agency was established in 1948 as an extra-ministerial bureau of the Ministry of Commerce and Industry under the guidance of GHQ (the General Headquarters of Allied Powers). Japan's measures for SMEs started then and have continued ever since.

(3) Preparing the Basic Tools for SME Measures

During the postwar recovery period, the basic tools for SME measures were prepared, including financial resources, cooperatives and management consulting and guidance.

<Financial Resource>

In addition to the Shoko Chukin Bank already established in 1936, the National Life Finance Corporation was established in 1949 to extend loans to SMEs who had been in difficult financial situations. Then the Japan Finance Corporation for Small Business was established in 1953 with government equity to facilitate long-term funding for SMEs.

To strengthen the financial weakness of SMEs such as a lack of security, the complementary credit support system was started with Small and Medium Enterprise Credit Insurance Law in 1950 and the Credit Guarantee Association Law in 1953.

<Cooperatives>

The Law on the Cooperative Association of Small and Medium Enterprises was enacted in 1949 with the purpose of correcting the social and economical disadvantages of SMEs and of uplifting their social status. Then cooperatives and groupings of SMEs proceeded.

Further more in 1953, the organization and functions of the Chamber of Commerce and Industry, an incorporated body based on the Civil Code of that time, was strengthened by giving it a legal status based on the Chamber of Commerce and Industry Law.

<Management Consulting and Guidance>

Management Consulting and Guidance are very important for modernizing and rationalizing SMEs’ management. So the Management Consulting System and the Consulting Desk for SMEs were both begun in 1948. The Registration System of SMEs Consultant was started in 1952 and subsidies for municipal governments were prepared in order to promote the guidance program.

<Taxation>

An important system in this category, the so-called “Blue Returns”, started. Since the old official assessment was replaced by the self-assessed taxation system after the War, SMEs were in chaos due to incomplete bookkeeping and the fear of over-taxation. To resolve this situation, the Blue Returns system began in 1949, allowing certain tax merits if a tax return is made with a “certain formula of quick bookkeeping.” This system resulted in not only the improvement of financial accounting but also the strengthening of financing systems for SMEs.