Peter F. Drucker

, Managing in Turbulent Times

The Growth of Industrial Policy, 19251975

© 1982 by the Board of Trustees of the Leland Stanford Junior University

William W. Lockwood

Perhaps the oldest and most basic subject in the study of political economy is the relationship between governmental institutions and economic activity. The distinctions in this field lie at the heart of all modern political analysis: free trade versus mercantilism, socialism versus capitalism, laissez faire versus social goal setting, the public sector versus the private sectorand, ultimately, a concern with procedures (liberty) versus a concern with outcomes (equality). Japan occupies a preeminent place in this discussion as both a model and a case. Japan's postwar economic triumphthat is, the unprecedented economic growth that has made Japan the second most productive open economy that has ever existedis the best example of a state-guided market system currently available; and Japan has itself become a model, in whole or in part, for many other developing or advanced industrial systems.

The history of MITI is central to the economic and political history of modern Japan. Equally important, however, the methods and achievements of the Japanese economic bureaucracy are central to the continuing debate between advocates of the communist-type command economies and advocates of the Western-type mixed market economies. The fully bureaucratized command economies misallocate resources and stifle initiative; in order to function at all, they must lock up their populations behind iron curtains or other more or less impermeable barriers. The mixed market economies struggle to find ways to intrude politically determined priorities into their market systems without catching a bad case of the "English disease" or being frustrated by the American-type legal sprawl. The Japanese, of course, do not have all the answers. But given the fact that virtually all solutions to any of the critical problems of the late twentieth centuryenergy supply, environmental protection, technological innovation, and so forthinvolve an expansion of official bureaucracy, the particular Japanese priorities and procedures are instructive. At the very least they should forewarn a foreign observer that the Japanese achievements were not won without a price being paid.

In this history and analysis I attempt also to reveal some of the Japanese language of bureaucracyits concepts, euphemisms, and slogans. For readers who do not know Japanese, the parenthetical recurrence of Japanese terms in romanization may be annoying. If so, I apologize, but it must be stressed that the language of all bureaucracy is euphemistic and often opaque; students of Japan who have mastered the language will want to know precisely what I have translated, particularly since titles of laws and organizations in Japan are often rendered in English in several different ways. At the same time, for the reader who is interested in Japan but does not read Japanese, all terms, laws, book titles, and names of associations have been translated into English. Japanese personal names are given in the Japanese manner, surname followed by given name. A full list of cabinets and of ministers and vice-ministers of MITI for the period 1925 to 1975 is presented in Appendix A. Some readers may also have difficulties in distinguishing among the numerous names of Japanese people that occur in this book. Nakamura, Nagamura, Nakayama, and Nagayama are all quite distinctive names when written in Japanese, but in English they tend to blur. I do not apologize for this. Too many studies of bureaucracies and state policies read as if they were dealing with disembodied abstractions with little reference to the way things actually happened. This book is in part about working bureaucrats, and their names naturally occur often.

My greatest debt is to Sheila K. Johnson for her professional editing of my prose and her typing of the entire manuscript.

One

1. Indices of Japanese Mining and Manufacturing Production, 19261978

AML

Natural Resources and Energy Agency

The Japanese "Miracle"

(1975 = 100)

Manufacturing industries

Year

All industry

Public utilities

Mining and manu- facturing

Mining

All manu- facturing

Iron and steel

Non- ferrous metals

Metal finished goods

Ma- chinery

Ceramics and cement

Chem- icals

Petro- leum

Manufacturing industries

Year

All industry

Public utilities

Mining and manu- facturing

Mining

All manu- facturing

Iron and steel

Non- ferrous metals

Metal finished goods

Ma- chinery

Ceramics and cement

Chem- icals

Petro- leum

If we use a slightly different base linefor example, if we take 195153 to be 100then the index of gross national product for 193436 is 90; for 196163, 248; and for 197173, 664; and the index of manufacturing production for 193436 is 87; for 196163, 400; and for 197173, 1,350. Over the whole postwar era, 1946 to 1976, the Japanese economy increased 55-fold.

²

By the end of our period Japan accounted for about 10 percent of the world's economic activity though occupying only 0.3 percent of the world's surface and supporting about 3 percent of the world's population. Regardless of whether or not one wants to call this achievement a "miracle," it is certainly a development worth exploring.

A second and entirely different set of explanations of the Japanese miracle belongs to the socioeconomic school, or what I have sometimes called the "anything-but-politics" approach to "miracle" research. This broad school includes four major types of analysis that often overlap with each other but that are clearly isolable for purposes of identification, although they rarely appear in pure form. These are the "national character-basic values-consensus" analysis favored by humanists in general and the anthropologically oriented in particular; the "no-miracle-occurred'' analysis, chiefly the work of economists; the "unique-structural-features" analysis promoted by students of labor relations, the savings ratio, corporate management, the banking system, the welfare system, general trading corporations, and other institutions of modern Japan; and the various forms of the "free-ride" analysis, that is, the approach that stresses Japan's real but transitory advantages in launching high-speed growth in the postwar world.

The national-character explanation argues that the economic miracle occurred because the Japanese possess a unique, culturally derived capacity to cooperate with each other. This capacity to cooperate reveals itself in many wayslower crime rates than in other, less homogeneous societies; subordination of the individual to the group; intense group loyalties and patriotism; and, last but not least, economic performance. The most important contribution of the culture to economic life is said to be Japan's famous "consensus," meaning virtual agreement among government, ruling political party, leaders of industry, and people on the primacy of economic objectives for the society as a wholeand on the means to obtain those objectives. Some of the terms invented to refer to this cultural capability of the Japanese are "rolling consensus,"

⁶

''private collectivism,"

⁷

"inbred collectivism,"

⁸

"spiderless cobweb,"

⁹

and "Japan, Inc."

¹⁰

Exemplars of the "no-miracle-occurred" school of analysis do not literally assert that nothing happened to Japan's economy, but they imply that what did happen was not miraculous but a normal out growth of market forces. They come from the realm of professional economic analyses of Japanese growth, and therefore in their own terms are generally impeccable, but they also regularly present extended conclusions that incorporate related matters that their authors have not studied but desperately want to exclude from their equations. Hugh Patrick argues, "I am of the school which interprets Japanese economic performance as due primarily to the actions and efforts of private individuals and enterprises responding to the opportunities provided in quite free markets for commodities and labor. While the government has been supportive and indeed has done much to create the environment for growth, its role has often been exaggerated."

¹⁴

But there is a problem, he concedes. "It is disturbing that the macro explanations of Japanese postwar economic performancein terms of increases in aggregate labor and capital inputs and in their more productive allocationleave 40 percent plus of out put growth and half of labor productivity growth unexplained."

¹⁵

If it can be shown that the government's industrial policy made the difference in the rate of investment in certain economically strategic industries (for instance, in developing the production and successful marketing of petrochemicals or automobiles), then perhaps we may say that its role has not been exaggerated. I believe this can be demonstrated and I shall attempt to do so later in this study.

Discussions of the Japanese economy in purely economic terms seem to founder on their assumptions rather than on their analyses. It is assumed, for example, that the Japanese developmental state is the same thing as the American regulatory state. Philip Trezise argues, "In essentials, Japanese politics do not differ from politics in other democracies."

¹⁷

But one way they differ is in a budgetary process where appropriations

precede

authorizations and where, "with the single exception of 1972, when a combination of government mishandling and opposition unity led to small reductions in defense spending, the budget has not been amended in the Diet since 1955"; before that there was no pretense that the Diet did anything more than rubber-stamp the bureaucracy's budget.

¹⁸

The third prevalent type of analysis of the Japanese miraclestressing the influence of unusual Japanese institutionsis by far the most important of the four I have isolated, and the one that has been most thoroughly discussed in Japan and abroad. In its simplest form it asserts that Japan obtained a special economic advantage because of what postwar Japanese employers habitually call their "three sacred treasures"the "lifetime" employment system, the seniority (

nenko

*) wage system, and enterprise unionism.

²¹

Amaya Naohiro of MITI, for example, cites these three institutions as the essence of what he terms Japan's

uchiwa

(all in the family) economic system; and in reporting to the Organization for Economic Cooperation and Development's Industry Committee during 1970, the former MITI vice-minister Ojimi* Yoshihisa referred to various "typically Japanese phenomena" that had helped Japan to obtain its high-speed growththe phenomena again being the three sacred treasures.

²²

Because of these institutions, the argument goes, Japan obtains greater labor commitment, loses fewer days to strikes, can innovate more easily, has better quality control, and in general produces more of the right things sooner than its international competitors.

It is unnecessary here to describe each of these institutions. Most of them are quite familiar even to novice Japan watchers, and others will be analyzed in detail later in this book since they constitute some of the primary tools of the government for influencing and guiding the economy. What needs to be stressed is that they constitute a systemone that no individual or agency ever planned and one that has developed over time as ad hoc responses to, or unintended consequences of, Japan's late development and the progrowth policies of the government. Taken together as a system, they constitute a formidable set of institutions for promoting economic growth (a "GNP machine," in Amaya's metaphor), but taken separately, as they most commonly are, they do not make much sense at all.

²⁵

And this is the primary reservation that one must make about the unique-institutions explanation: it never goes far enough and therefore fails as anything more than a partial explanation.

Lifetime employment, Japanese style, offers many advantages from the point of view of economic growth: it provides a strong incentive to the employer to operate at full or close to full capacity; it inhibits a horizontally structured trade union movement; and, in the words of Ohkawa and Rosovsky, it gives the Japanese entrepreneur "a labor force without incentives to oppose technological and organizational progress even of the labor-saving type."

³⁰

But it does not exist in isolation and would not work without the rest of the system of "unique institutions."

Nakamura Takafusa finds the roots of a whole range of important institutions in the wartime control eraincluding the bank-centered keiretsu (industrial groups based on the Designated Financial Organs System of the time) and the subcontracting system, which though it existed before the war was greatly strengthened by the forced mergers of medium and small enterprises with big machinery manufacturers (the so-called

kigyo

*

seibi

, or "enterprise readjustment," movement discussed in Chapter 5).

³³

The theory of the "free ride," our fourth category of explanations, argues that Japan is the beneficiary of its postwar alliance with the United States, and that this alliance accounts at least for the miraculous part of Japan's rapid economic growth, if not for all of it. There are three ways in which Japan is said to have enjoyed a free ride: a lack of defense expenditures, ready access to its major export market, and relatively cheap transfers of technology.

Home demand led Japan's growth for the twenty years after 1955. The demand was there, of course, before 1955, but with the coming to power of the Ishibashi government in December 1956 and Ikeda Hayato's return to the post of minister of finance, Ishibashi and Ikeda launched the policy of "positive finance." Under the slogan "a hundred billion yen tax cut is a hundred billion yen of aid" as the basis for the fiscal 1957 budget, Ikeda opened up domestic demand as it had never been opened before.

³⁸

Balance of payments problems slowed positive finance during the "bottom-of-the-pot" recession (with its trough in June 1958), but the economy responded quickly to government discipline and rebounded in the Iwato Boom (July 1958-December 1961), during which Ikeda became prime minister and launched the Income-doubling Plan. The propelling force of the economy in this and later periods was private corporate investment nurtured by favorable expectations for the longer term that were created by the government; it was not export sales.

From the enactment of the Foreign Capital Law in 1950 (it remained on the books for the next thirty years), the government was in charge of technology transfers. What it did and how it did it was not a matter of a "free ride" but of an extremely complex process of public-private interaction that has come to be known as "industrial policy." MITI is the primary Japanese government agency charged with the formulation and execution of industrial policy.

Nowhere is the prevalent and peculiarly Western preference for binary modes of thought more apparent than in the field of political economy. In modern times Weber began the practice with his distinction between a "market economy" (

Verkehrwirtschaft

) and a "planned economy" (

Planwirtschaft

). Some recent analogues are Dahrendorf's distinction between "market rationality" and ''plan rationality," Dore's distinction between "market-oriented systems" and "organization-oriented systems," and Kelly's distinction between a "rule-governed state" (

nomocratic

) and a "purpose-governed state" (

telocratic

).

⁴⁰

I shall make use of several of these distinctions later, but first I must stress that for purposes of the present discussion the right-hand component of these pairs is

not

the Soviet-type command economy. Economies of the Soviet type are not

plan rational

but

plan ideological

. In the Soviet Union and its dependencies and emulators, state ownership of the means of production, state planning, and bureaucratic goal-setting are not rational means to a developmental goal (even if they may once have been); they are fundamental values in themselves, not to be challenged by evidence of either inefficiency or ineffectiveness. In the sense I am using the term here, Japan is plan rational, and the command economies are not; in fact, the history of Japan since 1925 offers numerous illustrations of why the command economy is not plan rational, a lesson the Japanese learned well.

In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on

developmental

functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of government-business relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates. A regulatory, or market-rational, state concerns itself with the forms and proceduresthe rules, if you willof economic competition, but it does not concern itself with substantive matters. For example, the United States government has many regulations concerning the antitrust implications of the size of firms, but it does not concern itself with what industries ought to exist and what industries are no longer needed. The developmental, or plan-rational, state, by contrast, has as its dominant feature precisely the setting of such substantive social and economic goals.

These various distinctions are useful because they draw our attention to Japan's emergence, following the Meiji Restoration of 1868, as a developmental, plan-rational state whose economic orientation was keyed to industrial policy. By contrast, the United States from about the same period took the regulatory, market-rational path keyed to foreign policy. In modern times Japan has always put emphasis on an overarching, nationally supported goal for its economy rather than on the particular procedures that are to govern economic activity. The Meiji-era goal was the famous

fukokukyohei

* (rich country, strong military) of the late nineteenth and early twentieth centuries. This was followed during the 1930's and 1940's by the goals of depression recovery, war preparation, war production, and postwar recovery. From about 1955, and explicitly since the Income-doubling Plan of 1960, the goal has been high-speed growth, sometimes expressed as "overtake Europe and America" (

Obei*

ni oikose

). Amaya lists the goals of the past century in detail:

shokusan

kogyo

* (increase industrial production),

fukoku-kyohei

(rich country, strong military),

seisanryoku

kakuju

* (expand productive capacity),

yushutsu

shinko

* (promote exports),

kanzen

koyo

* (full employment), and

kodo

*

seicho

* (high-speed growth).

⁴²

Only during the 1970's did Japan begin to shift to a somewhat regulatory, foreign-policy orientation, just as America began to show early signs of a new developmental, industrial-policy orientation. But the Japanese system remains plan rational, and the American system is still basically market rational.

⁴³

In market-rational systems such as the United States, public service does not normally attract the most capable talent, and national decision-making is dominated by elected members of the professional class, who are usually lawyers, rather than by the bureaucracy. The movement of elites is not from government to the private sector but vice versa, usually through political appointment, which is much more extensive than in Japan. The real equivalent of the Japanese Ministry of International Trade and Industry in the United States is not the Department of Commerce but the Department of Defense, which by its very nature and functions shares MITI's strategic, goal-oriented outlook. In fact, the pejorative connotations in the United States of terms such as "Japan, Inc." are similar to those surrounding the domestic expression "military-industrial complex" referring to a close working relationship between government and business to solve problems of national defense. (Not to be outdone, some Japanese have taken to calling the Japanese government-business relationship a ''bureaucratic-industrial complex.")

⁴⁵

American economic decisions are made most often in Congress, which also controls the budget, and these decisions reflect the market-rational emphasis on procedures rather than outcomes. During the 1970's Americans began to experiment with industrial policy bureaucracies such as the Department of Energy, but they are still rather wary of such organizations, whose prestige remains low.

Second, both types of systems are concerned with "externalities," or what Milton Friedman has called "neighborhood effects"an example would be the unpriced social costs of production such as pollution. In this instance, however, the plan-rational system has much greater difficulty than the market-rational system in identifying and shifting its sights to respond to effects external to the national goal. The position of the plan-rational system is like that of a military organization: a general is judged by whether he wins or loses. It would be good if he would also employ an economy of violence (be efficient), but that is not as important as results. Accordingly, Japan persisted with high-speed industrial growth long after the evidence of very serious environmental damage had become common knowledge. On the other hand, when the plan-rational system finally shifts its goals to give priority to a problem such as industrial pollution, it will commonly be more effective than the market-rational system, as can be seen in the comparison between the Japanese and American handling of pollution in the 1970's.

Looked at historically, modern Japan began in 1868 to be plan rational and developmental. After about a decade and a half of experimentation with direct state operation of economic enterprises, it discovered the most obvious pitfalls of plan rationality: corruption, bureaucratism, and ineffective monopolies. Japan was and remained plan rational, but it had no ideological commitment to state ownership of the economy. Its main criterion was the rational one of effectiveness in meeting the goals of development. Thus, Meiji Japan began to shift away from state entrepreneurship to collaboration with privately owned enterprises, favoring those enterprises that were capable of rapidly adopting new technologies and that were committed to the national goals of economic development and military strength. From this shift developed the collaborative relationship between the government and big business in Japan. In the prewar era this collaboration took the form of close governmental ties to the zaibatsu (privately owned industrial empires). The government induced the zaibatsu to go into areas where it felt development was needed. For their part the zaibatsu pioneered the commercialization of modern technologies in Japan, and they achieved economies of scale in manufacturing and banking that were on a par with those of the rest of the industrial world. There were many important results of this collaboration, including the development of a marked dualism between large advanced enterprises and small backward enterprises. But perhaps the most important result was the introduction of a needed measure of competition into the plan-rational system.

Observers coming from market-rational systems often misunderstand the plan-rational system because they fail to appreciate that it has a political and not an economic basis. During the 1960's, for example, when it became fashionable to call the Japanese "economic animals," the most knowledgeable foreign analysts avoided the term because, in Henderson's words, there was "no doubt that Japan's center of gravity is in the polity not the economya source of puzzlement for Japan's numerous economic determinists of various Marxist stripe in academia and opposition politics."

⁴⁸

One did not have to be an economic determinist or a Marxist to make this error; it was ubiquitous in English-language writing on Japan.

All of these motives influenced Meiji Japan, and there were others that were peculiar to Japan. Among these was one deriving from the treaties Japan was forced to conclude after its first contacts with Western imperialism in the nineteenth century: Japan did not obtain tariff autonomy until 1911. This meant that Japan was not able to aid its developing industries by the protective duties and other practices recommended by the market-oriented theories of the time, and the Meiji government consequently concluded that it had to take a direct hand in economic development if Japan was ever to achieve economic independence.

⁵²

Within the developmental state there is contention for power among many bureaucratic centers, including finance, economic planning, foreign affairs, and so forth. However, the center that exerts the greatest

positive

influence is the one that creates and executes industrial policy. MITI's dominance in this area has led one Japanese commentator to characterize it as the "pilot agency," and a journalist of the

Asahi

who has often been highly critical of MITI nonetheless concedes that MITI is "without doubt the greatest concentration of brain power in Japan."

⁵⁵

MITI's jurisdiction ranges from the control of bicycle racing to the setting of electric power rates, but its true defining power is its control of industrial policy (

sangyo

*

seisaku

). Although the making and executing of industrial policy is what the developmental state does, industrial policy itselfwhat it is and how it is doneremains highly controversial.

There are two basic components to industrial policy, corresponding to the micro and macro aspects of the economy: the first the Japanese call "industrial rationalization policy" (

sangyo

*

gorika

*

seisaku

), and the second, "industrial structure policy" (

sangyo

kozo

*

seisaku

). The first has a long history in Japan, starting from the late 1920's, when it was quite imperfectly understood, as we shall see later in this book. MITI's

Industrial Rationalization Whitepaper

(1957) says that industrial rationalization subsumes a theory of economic development in which Japan's "international backwardness" is recognized and in which "contradictions" in the areas of technology, facilities, management, industrial location, and industrial organization are confronted and resolved.

Robert Gilpin offers a theoretical defense of industrial structure policy in terms of a posited common structural rigidity of the corporate form of organization:

The particular mix of tools changes from one era to the next because of changes in what the economy needs and because of shifts in MITI's power position in the government. The truly controversial aspect of these mixes of toolsone that greatly influences their effectivenessis the nature of the relationship between the government and the private sector. In one sense the history of MITI is the history of its search for (or of its being compelled to accept) what Assar Lindbeck has called "market-conforming methods of intervention."

⁶²

MITI's record of success in finding such methodsfrom the founding of the Ministry of Commerce and Industry (MCI) in 1925 to the mid-1970'sis distinctly checkered, and everyone in Japan even remotely connected with the economy knows about this and worries about MITI's going too far. MITI took a long time to find a government-business relationship that both enabled the government to achieve genuine industrial policy and also preserved competition and private enterprise in the business world. However, from approximately 1935 to 1955 the hard hand of state control rested heavily on the Japanese economy. The fact that MITI refers to this period as its "golden era" is understandable, if deeply imprudent.

What difference does industrial policy make? This, too, is part of the controversy surrounding MITI. Ueno Hiroya acknowledges that it is very difficult to do cost-benefit analyses of the effects of industrial policy, not least because some of the unintended effects may include bureaucratic red tape, oligopoly, a politically dangerous blurring of what is public and what is private, and corruption.

⁶⁴

Professional quantitative economists seem to avoid the concept on grounds that they do not need it to explain economic events. For example, Ohkawa and Rosovsky cite as one of their "behavioral assumptions . . . based on standard economic theory and observed history . . . that the private investment decision is mainly determined by profit expectations, based among other things on the experience of the recent past as affected by the capital-output ratio and labor-cost conditions."

⁶⁵

The controversy over industrial policy will not soon end, nor is it my intention to resolve it here. The important point is that virtually all Japanese analysts, including those deeply hostile to MITI, believe that the government was the inspiration and the cause of the movement to heavy and chemical industries that took place during the 1950's, regardless of how one measures the costs and benefits of this movement. A measurement of what MITI believes and others consider to be its main achievement is provided by Ohkawa and Rosovsky: ''In the first half of the 1950s, approximately 30 percent of exports still consisted of fibres and textiles, and another 20 percent was classified as sundries. Only 14 percent was in the category of machinery. By the first half of the 1960s, after the great investment spurt, major changes in composition had taken place. Fibres and textiles were down to 8 percent and sundries to 14 percent, and machinery with 39 percent had assumed its position of leading component, followed by metals and metal products (26 percent)."

⁶⁷

As late as 1973 MITI was writing that Japan's industrial policy just grew, and that only during the 1970's did the government finally try to rationalize and systematize it.

⁷⁰

Therefore, an individual interested in the Japanese system has no set of theoretical works, no locus classicus such as Adam Smith or V. I. Lenin, with which to start. This lack of theorizing has meant that historical research is necessary in order to understand how MITI and industrial policy "just grew." Certain things about MITI are indisputable: no one ever planned the ministry's course from its creation as the Ministry of Commerce and Industry (MCI) in 1925, to its transformation into the Ministry of Munitions (MM) in 1943, to its reemergence as the MCI in 1945, down to its reorganization as MITI in 1949. Many of MITI's most vital powers, including their concentration in one ministry and the ministry's broad jurisdiction, are all unintended consequences of fierce intergovernmental bureaucratic struggles in which MITI sometimes "won" by losing. This history is well known to ministerial insidersit constitutes part of their tradition and is a source of their high esprit de corps but it is not well known to the Japanese public and is virtually unknown to foreigners.

Nakamura Takafusa locates the "roots" of both industrial policy and administrative guidance in the controlled economy of the 1930's, and he calls MITI the "reincarnation" of the wartime MCI and MM.

⁷¹

Arisawa Hiromi says that the prosperity of the 1970's was a product of the "control era," and no less a figure than Shiina Etsusaburo, former vice-minister, twice MITI minister, and vice-president of the Liberal Democratic Party, credits the experiences of old trade-and-industry bureaucrats in Manchuria in the 1930's, his own and Kishi Nobusuke's included.

⁷²

Tanaka Shin'ichiwho was one of the leading officials of the Cabinet Planning Board (Kikaku-in) before it was merged with MCI to form the MM, and who became a postwar MITI officialargues that wartime planning was the basis for the work of the postwar Economic Stabilization Board (Keizai Antei Honbu) and MCI.

⁷³

And Maeda Yasuyuki, one of Japan's leading scholars of MITI, writes that "the heritage of the wartime economy is that it was the first attempt at heavy and chemical industrialization; more important, the war provided the 'how' for the 'what' in the sense of innumerable 'policy tools' and accumulated 'know-how.'"

⁷⁴

The Economic Bureaucracy

The origins of this separation between power and authority are to be found in Japan's feudal past and in the emergence of the developmental state during the Meiji era. For reasons that will be made clear in a moment, Japan in the late nineteenth century adopted for its new political system a version of what Weber called "monarchic constitutionalism," the form of government that Bismarck gave to imperial Germany. The Bismarckian system is described by Weber's editors as follows: "The prime minister remained responsible to the king, not to parliament, and the army also remained under the king's control. In practice, this arrangement gave extraordinary power first to Bismarck, then to the Prussian and Imperial bureaucracy, both vis-à-vis the monarch and the parliament."

⁶

Japan had some reasons of its own, in addition to Bismarck's personal influence on a few key Meiji leaders, for finding this arrangement preferable to the other models it looked at in the course of its "modernization." One of the most serious consequences for Japan of adopting this system was its decision in 1941 to go to war with the United States and Great Britaina decision in which neither the monarch nor the parliament participated. But what is perhaps most important more than a generation after the Pacific War is that the system persisted and became even stronger, even though it was formally abolished by the Constitution of 1947.

The Meiji leaders did not plan to perpetuate samurai government under a new guise, nor for that matter were they much interested in creating a modern state officialdom. Their reasons for creating a "nonpolitical" civil bureaucracy were, in fact, highly political. They were trying to respond to strident public criticism of the monopoly of power by the two feudal domains (Satsuma and Choshu*) that had led the successful movement against the Tokugawa shogunate, and the corruption that this domination was generating. They also hoped to demonstrate their "modernity" to the West in order to hasten revision of the unequal treaties that had been forced on Japan. And, most important, they wanted to retain authoritarian control after 1890, when the new parliament (National Diet) opened and political parties began public campaigning for a share of power.

¹⁰

Prewar bureaucrats were not "civil servants" but rather "officials of the Emperor" (

tenno

*

no kanri

) appointed by him and answerable only to him. Imperial appointment bestowed on them the status of

kan

, the primitive meaning of which in its Chinese original is the residence of a mandarin who presides over a city, and which still retains some of this early meaning in its contemporary usage to refer to judges (according to one legal authority, kan connotes officials with power who are not highly constrained by law).

¹³

This high social status linked them back in time to the samurai and forward to the postwar bureaucrats in their possession of intrinsic authority rather than extrinsic, or legal-rational, office. It meant that they were largely free of external constraints. "The present-day bureaucrat," writes Henderson, "is not, of course, identical with the warrior bureaucrat of the Tokugawa regime or even the new university-trained Imperial bureaucrat of prewar Japan. But they have all, until recently, been largely above the law in the sense of independent judicial review." Rather than a rule of law, Henderson finds that "a rule of bureaucrats prevails.''

¹⁴

Isomura and Kuronuma concur. Even in the postwar world, they argue, Japan has had an administration "for the sake of the citizenry" and not an administration carried out with the "participation of the citizenry." In

.45

This "aura" formerly attached to samurai can still be found in some of the terminology now associated with bureaucrats. For example, the common term for governmental authorities is "those above" (

okami

). It is also said that Japanese do not normally question the authority of the government because they respect its "samurai sword" (

denka no

hoto

*), which refers directly to a samurai family's heirloom sword. Such a jeweled sword symbolized the status of a samurai household rather than being a weapon designed for killing people. Yamanouchi says that use of the term reflects the popular consciousness of the law as being a symbol of authority, not something that the possessor of authority need actually use. The change from the old constitution to the new, Yamanouchi argues, did little to change this attitude. For example, the effectiveness of MITI's informal administrative guidance is said to rest in the final analysis on its "samurai sword": both the government and industry find it more convenient to work on this basis rather than through the actual swords of litigation and penalties.

¹⁸

For reasons that are still none too clear, the occupation authorities, or SCAP (Supreme Commander for the Allied Powers), never singled out the civilian bureaucracy as needing basic reform. However, SCAP eliminated completely from political life one major rival of the economic bureaucracy, the military; and it transformed and severely weakened another, the zaibatsu. Both of these developments propelled the economic bureaucrats into the vacuums thus created. Equally important, SCAP broke up the prewar Ministry of Home Affairs (Naimu-sho *), which had been the most prestigious and powerful of ministries under the Meiji Constitution. The powers of the old Home Ministry were distributed primarily among the new ministries of Construction, Labor, Health and Welfare, Home Affairs (at first called "Local Autonomy"), and the Defense and Police agencies. But the loss of power by the Home Ministry also offered new jurisdictions into which the economic bureaucrats could expand; for example, the Home Ministry's wartime regional bureaus and its police power to enforce rationing passed, respectively, to the Ministry of Commerce and Industry and the Economic Stabilization Board.

Amaya Naohiro of MITI feels that the purge of business leaders, if not of bureaucrats, was very helpful to the postwar economy; he compares it to the purge of feudal leaders that actually accompanied the Meiji Restoration.

²³

The postwar economic purge eliminated from industrial life the rentier classwhat Weber calls the "property classes" (

Besitzklassen

) as distinct from the "professional classes" (

Erwerbklassen

), which includes entrepreneurs and highly qualified managersand thereby greatly rationalized the zaibatsu, as well as allowing for the creation of new zaibatsu. Perhaps the most important rentier interest eliminated from economic life was the Imperial Household itself, which had been a significant owner of shares in the prewar and wartime "national policy companies."

²⁴

But the purge did not really touch the economic bureaucrats themselves.

An amendment to the National Public Service Law enacted during 1948 compelled the reexamination of all officials from assistant section chiefs up to and including administrative vice-ministers. Despite protests from older officials, this examination took place on January 15, 1950and instantly became known as the "Paradise Exam," since officials could smoke, drink tea, and take as long as they wished (some stayed all night). As a result, about 30 percent of incumbent officials failed to be reappointed, but the government simultaneously undertook a matching 30 percent reduction in force, so the net result was that no new blood entered the bureaucracy except through regular recruitment channels.

The bureaucracy did not simply preserve its influence, it expanded itin two ways. First, the requirements of economic recovery led to a vast ballooning of the bureaucracy. Wildes offers figures showing that during the first three postwar years the size of the bureaucracy increased 84 percent over its highest wartime strength.

³¹

Whether or not SCAP saw the irony in this, the Japanese people certainly did. In a famous lead editorial in

Chuo

*

koron

* in August 1947, the editors wrote:

The second reason for the expansion of bureaucratic influence was the relative incompetence of the political forces SCAP had fostered to replace the old order. Cadres of the old political parties brought again to leadership of the government by the new constitution had never (or not for almost twenty years) exercised political power. Moreover, some of the most competent among them had been purged. The American-style tradition in which party leaders become deeply involved in administrative affairs and the drafting of legislation had never been well established in Japan in any case. Under the Katayama government, created on May 24, 1947, the cabinet ministers were so lacking in expertise and so unfamiliar with legislation that everyone had his vice-minister sitting next to him in the cabinet room in order to advise him on what to do.

³³

This state of affairs ended in January 1949 with the establishment of the third Yoshida government. Yoshida Shigeru (18781967) was himself a former high-ranking bureaucrat of the Ministry of Foreign Affairs, and he established the "bureaucratic leadership structure" (

kanryo

*

shudo

*

taisei

) that has formed the mainstream of Japanese politics to the present day.

In addition to these leaders, many middle-ranking Diet members were also drawn from the ranks of state officialdom. In 1946 Liberal Party (conservative) ex-bureaucrat Diet members accounted for only 2.7 percent of the total. Yoshida raised the number to 18.2 percent in 1949, and this proportion has held firm ever since. As of 1970, 69 members of the House of Representatives (23 percent) and 50 members of the House of Councillors (37 percent) were ex-bureaucrats belonging to the Liberal Democratic Party (LDP). In 1977 the respective figures were 27 percent and 35 percent.

³⁴

Not surprisingly, the influence of former bureaucrats within the Diet has tended to perpetuate and actually strengthen the prewar pattern of bureaucratic dominance. Spaulding notes that 91 percent of all laws enacted by the Diet under the Meiji Constitution (18901947) originated in the executive branch and not in the Diet.

³⁶

The pattern is similar in the postwar Diets. For example, in the first Diet under the new constitution, May 20 to December 9, 1947, the cabinet, which acts on behalf of the bureaucracy, introduced 161 bills and saw 150 enacted, while members of the House of Representatives introduced 20 bills and saw 8 enacted. In the 28th Diet, December 20, 1957, to April 25, 1958, the cabinet introduced 175 bills and saw 145 enacted, while members of the House of Representatives introduced 68 bills and saw 15 enacted.

³⁷

This pattern more and more has become unfavorable to private members' bills. Cabinet bills originate and are drafted exclusively within the ministries. They are then passed to the LDP for its approval and introduction in the Diet. As a matter of routine, ministerial officials are also present in the Diet to explain their legislation and answer questions.

And on those questions there is considerable debate. Do the councils actually provide civilian input to the bureaucracy's decisions, or are they merely covers for bureaucratic power, intended to provide the public with a façade of consultation and consensus? Former MITI Vice-Minister Sahashi said in an interview that as far as he was concerned deliberation councils were important primarily as a device to silence in advance any criticism of the bureaucracy.

³⁹

Kawanaka Niko* believes that deliberation councils are actually important weapons of the bureaucracy in the struggles that occur within and among ministries to promote particular policies: the important names that appear as members of a council are not so much intended to impress the public as they are to influence and warn off rival bureaucrats, one ministry's clients serving to counterbalance those of another ministry.

⁴⁰

Interest groups exist in Japan in great numbers, but there is no theory of pluralism that legitimates their political activities. The parties developed what strength they had before the war by representing private interests to the government, and this heritage too was passed on to their postwar successors. One of the reasons that there are so few private members' bills passed is that virtually all of them are based on appeals from constituents or are intended to serve some special interest. Many party politicians themselves accept the orthodoxy of a vertical relationship between the state's activities and their own activities. "They tend," writes Campbell, "to perceive voters as animated almost solely by particularistic, pork-barrel desires rather than by concern over issues of broad social policy."

⁴⁵

This "puppet Diet," working through its LDP majority, has nevertheless served as a mediator between the state and society, forcing the state to accommodate those interests that could not be ignoredagriculture and medium and smaller enterprises, for exampleand, on occasion, requiring the state to change course in response to serious problems such as pollution. At the same time, it has held off or forced compromises from those groups whose claims might interfere with the development program. By and large, it has done so equitably, maintaining a comparatively level pattern of income distribution and of hardships.

⁴⁸

In the case of outsidersfor example, consumer groups, local conservationists, or groups hostile to the alliance with the United Statesthe government's policy is to ignore them, or if they become very powerful, to seek a compromise with them through the LDP. The Japanese people understand these relationships and support them not as a matter of principle but because of the results they have achieved. They have developed what Kawanaka labels a "structure of organizational double vision," by which he means the tendency for subordinate or dependent parts of the structure to perceive the intentions of the dominant or guiding parts and to formulate their own policies as if the superior's policies were their own. It all looks like consensus to outsiders, but it is, in fact, dictated by a calculation of the balance of forces and a sense of Japan's vulnerability. Rather than consensus, Kawanaka proposes the concept of "interlocking decision-making," which acknowledges the symbiotic relationships among the bureaucracy, LDP, and the business community. The characteristics of such interlocking decisions, he suggests, are bureaucratic leadership, obscured responsibility, and fictive kinship ties.

⁴⁹

The Japanese bureaucracy jealously guards the practice of making no political appointments below the ministerial level; the bureaucrats believe that this helps establish their claim to be above politics and to speak only for the national interest. One of the bureaucracy's greatest fears is "political interference" in its internal affairs or, worse, a ministry's being made subservient to a party or a politician. Even though the minister is legally in command of and responsible for everything that happens in a ministry, a delicate relationship between him and the vice-minister inevitably exists from the outset. The norm is for the minister to fear his bureaucrats and to be dominated by them; one journalist suggests that the only time a minister ever enjoys his post is on the day he is photographed in formal dress at the Imperial Palace as part of the cabinet's investiture ceremony.

⁵¹

If this norm prevails, the bureaucrats are satisfied. But what they really want is a minister who will leave them alone while at the same time taking responsibility for the ministry and protecting it from intrusion by other politicians or

Ministry of Finance officials claim to fear powerful ministers from their own service, men such as Kaya Okinori, Ikeda Hayato, or Fukuda Takeo.

⁵²

Ikeda, in particular, was always an activist minister in whatever ministry he headed; and he became famous for shaking up the Ministry of Finance in order to remove fiscal conservatives who were blocking his plans for rapid economic growth, and also in order to enlist the ministry in support of his own political ambitions.

⁵³

The trade and industry bureaucrats generally liked Ikeda when he was MITI minister, largely because they agreed with him, but when they disagreedas for example over the pace of trade liberalization in 1960he won. He also once gave orders that MITI men could not talk to the press without his approval because he was tired of reading in the newspapers about new economic initiatives that he knew nothing about.

⁵⁴

He did not, however, interfere in ministerial personnel affairs.

Agriculture is often said to be the first ministry to have been "politicized" by the LDP because of the LDP's dependence on the farm vote. However, agriculture ministries are rarely "nonpolitical" in any country. At least one other ministry in Japan, Education, has always been under tight LDP control because of the party's ideological struggle with the communist-dominated teachers' union; there has never been even a pretense of bureaucratic independence at Education. As for MITI, over the years since its creation in 1949, prime ministers and ministers have attempted to gain control and use it for political purposes. MITI bureaucrats have been implacable in their resistance to these efforts, often citing the negative example of Kono and agriculture. We shall analyze some of these MITI cases in detail later in this book, since they have often influenced the basic industrial policies of the ministry.

Although relations between bureaucrats and politicians are understandably delicate in the Japanese political system, the focus of bureaucratic life is within the ministry itselfand there informal norms and their occasional violation generate real passion. Landau and Stout remind us that "bureaucracies are fusions of artificially contrived and naturally developed systems. Apart from their formal properties, they are characterized by interest groups, personal networks, patron-client relations, brokers, and derivative coalitions."

⁵⁷

These informal ties sustain an organization's "culture," helping it to function effectively by inspiring loyalty, easing communications problems, socializing newcomers, generating new ideas in the clash of values and so forth. Throughout this book I shall be dealing with MITI's fabricated propertiesabove all with the famous industry-specific vertical bureaus that were its formal organization from 1939 to 1973but it is the informal practices and traditions that give life to an organization and that make its formal organization interesting.

Before the war the Ministry of Commerce and Industry included in its ranks such high-status figures as Baron Ito * Bunkichi, who was the illegitimate son of the Meiji oligarch Ito Hirobumi and who became the patron of Yoshino Shinji, one of the two or three most important figures in the history of MITI. Kido Koichi*, of noble ancestry, was in the Ministry of Commerce and Industry before the war and became the wartime Lord Keeper of the Privy Seal. Shiina Etsusaburo* was the nephew of Goto* Shimpei, the chief administrator of Taiwan in the Meiji era, president of the South Manchurian Railroad, and the rebuilder of Tokyo after the earthquake of 1923.

Keibatsu and kyodobatsu are part of any large Japanese organization, but gakubatsu is without question the single most important influence within the Japanese state bureaucracy. The cliques of university classmates are inseparable from bureaucratic life, because it is their university degrees and their success in passing the Higher-level Public Officials Examination that set bureaucrats apart from other elites in the society. Gakubatsu also forms the most pervasive "old boy" network throughout the society as a whole.

University

In place of the term gakubatsu, some Japanese analysts prefer

Todaibatsu

* (cliques of Tokyo University classmates) because of the predominance of Tokyo University graduates in the bureaucracy and in the upper echelons of the banking and industrial worlds. Even among the Todaibatsu*, there is the batsu of all batsuthe alumni of the Tokyo University Law School. In order to understand their influence it is necessary to know that when an entering class joins a ministry, its members are permanently divided into two career pathsthe path of "administrative officials," or generalists (

jimukan

), and the path of "technical officials," or specialists (

gikan

). This distinction differs from that between career (class A exam) and noncareer (class B exam) officials, but it has almost equally serious consequences. It is based on academic specialization in the university.

Within MITI only the head of the Mine Safety Bureau is open to a gikan officerin fact, only to a graduate of the School of Engineering, Department of Mining, Tokyo Universityand even here a pattern of alternation between generalists and specialists has developed. All other major posts in MITI and the other ministries, excluding the Construction Ministry and detached research institutes and other specialized organs, are monopolized by administrative officers. And the greatest source of administrative officers is the University of Tokyo's Law School.

Where graduate was placed

Once in the bureaucracy, the Todai group in an entering class in a ministry works together to ensure that its members prosper and that others are frozen out of choice positions. Sakakibara Eisuke, a bureaucrat turned professor, recalls that his entering class at the Ministry of Finance in 1965 had a total of 18 members, 16 of which were from Todai and 2 from Kyoto University. Among the 18, 5 had economics degrees while the rest had law degrees. More usual was the class of 1966, with 21 members, of whom 20 were law graduates.

⁷⁰

Under such circumstances a young official not from Todai will have difficulties in being promoted much beyond the section chief level. As the

Mainichi

reported, "When a Waseda University man was appointed to a bureau chief's post in the Ministry of Agriculture and Forestry some time ago, the event was played up prominently in all the newspapers."

⁷¹

Nonelite class B exam bureaucrats do not circulate nearly so frequently. The pattern among them is to settle down in one section for years and become what is called a "walking dictionary" or "human encyclopedia" (

iki-jibiki

), the common term for those who do the detailed work of a section and who show the new career officers the ropes. Occasionally a walking dictionary will be promoted to section chief, but this is rare, and it never occurs in a key policy-making section.

^*

The process of separating out those who will resign early and those who will stay in the ministry is called

kata-tataki

(the tap on the shoulder) or

mabiki

(thinning out). It is the responsibility of the vice-minister and the chief of the Secretariat, who are also responsible for finding the soon-to-be-retired officials good new positions on boards of directors. The final weeding out comes at the vice-ministerial level, when one man from one class is chosen by the outgoing vice-minister as his own replacement and when all the new vice-minister's classmates must resign to insure that he has absolute seniority in the ministry. The new vice-minister in turn devotes his efforts to seeing that these high-ranking retirees (and fellow classmates) get good amakudari landing spots. New positions for retiring vice-ministers are found for them by the minister and by the ministry's elder statesmen (sempai).

Each class has its "flowers" (

hana

)that is, candidates with strong credentials for the vice-ministershipand members of the class take pride in one of their comrades representing them at the top. For example, the

ju-hachi-nen

*

gumi no hana

(flowers of the class of 1943) at MITI were Sho* Kiyoshi, Yajima Shiro*, Miyake Yukio, and Yamashita Eimei. During 1973 Sho ended his MITI career as director-general of the Medium and Smaller Enterprises Agency, Miyake as director-general of the Patent Agency, Yajima as chief of the Heavy Industries Bureau, and Yamashita made it to the top as MITI vice-minister from July 1973 to November 1974. Needless to say, when one class produces two vice-ministersas happened twice in MITI (Ishihara Takeo and Ueno Koshichi*, both of the class of 1932, succeeded each other as vice-minister between 1955 and 1960; and Imai Zen'ei and Sahashi Shigeru, both of the class of 1937, succeeded each other as vice-minister between 1963 and 1966)great strains are imposed on the internal norms of ministerial life.

In contrast to the views of Sahashi and Hayashi, Ojimi* Yoshihisa, a vice-minister, defends the system. He argues that strict rules of seniority and early retirement make Japan's top bureaucrats more youthful and energetic than those of other countries, and that because of their vigor they can generate more good new ideas. At the same time, the system of senior-junior (sempai-kohai*) relations, which extends beyond the period of bureaucratic service, ensures that their actions are watched by men with great experience.

⁷⁶

It should be added that an additional result of the system of early retirement and subsequent reemployment in big business or politics is another link between a ministry and its main clients. The practice of bureaucratic descent from heaven thus generates one more kind of factional tie among the central groups of Japanese societyfactions based on financial considerations (zaibatsu, in the nonspecific sense of the term).

Actual corruption among higher officials in Japan has occurred but is uncommon. In general, the Japanese public places greater trust in the honesty of state officials than in the honesty of politicans or business leaders. Such petty corruption as does occurgifts from businessmen, golf club fees, dinner parties, junketsis more common among noncareer officials than among the higher bureaucrats, and was more common in the period of shortages in the 1950's than in later years.

⁸⁰

When such incidents do involve higher officials, the press and public are quick to condemn them. For example, charges of the misuse of public funds in several public corporations and efforts to apprehend the guilty were national causes célèbres during 1979 and 1980.

⁸¹

And the press and opposition parties are very watchful. The

Mainichi

, for example, reports that "toward the end of November of 1973, Nozue Chimpei, a member of the House of Councillors, conducted a unique study. He and his staff examined the trash cans at the construction and transport ministries to study how conservation policies were being carried out. After seven days of investigation, they found that the trash cans at the two ministries were filled with empty bottles of Johnny Walker and other expensive foreign liquor, and empty gift boxes bearing the names of senders."

⁸²

The reemployment of retired government bureaucrats on the boards of industries currently designated as economically strategic also creates many opportunities for hand-in-glove relationships. A classic case was the so-called Hakone railroad war of the late 1950's between two big private railroad systems, Seibu and Tokyu*. The issues involved the development of tourist railroads and bus franchises in and around the Mount Fuji area, a rail route from Ito* to Shimoda, and tourist boats between Atami and Oshima* Island. In every instance the Ministry of Transportation gave approval or issued licenses to Tokyu. The explanation of informed observers was that the president of Tokyu, Goto* Keita (18821959)one of the pioneers of the railroad, hotel, and department store businesses in Japanwas also a former official of the government railways and a minister of transportation in the Tojo* cabinet. The vice-president of Tokyu and president of the Tokyu*-backed Toei* Film Company was Okawa* Hiroshi, also a veteran of the Japanese National Railways. The executive director of Tokyu and also president of Tokyu Rolling-Stock Company was Yoshitsugu Toshiji, who had served in the old Railroad Ministry for more than twenty years. In addition, Karasawa Tsutomu, the Tokyu managing director; Kawahara Michimasa, president of the Tokyu-affiliated Keihin Rapid Transit Company; Torii Kikuzo*, vice-president of the Tokyu-affiliated Sagami Railroad Company; Shibata Ginzo*, president of the Tokyu-affiliated Hakone-Tozan* Railroad Company; Kajiura Kojiro*, president of the Tokyu-affiliated Enoshima-Kamakura Electric Railway Company; and Kawai Kentaro*, president of the Tokyu-affiliated Shizuoka Railway Company, were all former officials of the Ministry of Railways or its postwar successor, the Ministry of Transporta-

Thus one reason for the private sector's participation in amakudari is the extensive licensing and approval authority (kyoninkaken) of the government. Companies believe that having former bureaucrats among their executives can facilitate obtaining licenses from the ministries. The Ministry of Construction exercises licensing authority over the building industry, the Ministry of Transportation over rail and air transport and the bus and taxi business, the Ministry of Finance over the banks, and MITI over the key industriessteel, electric power, and chemicals in the 1950's, automobiles and appliances in the 1960's, advanced electronics in the 1970's, computers, robots, and new sources of energy in the 1980's. With this in mind it becomes understandable that whereas during the 1950's and 1960's very few ex-MITI officials joined foreign-affiliated firms, during the 1970's, with MITI's new commitment to the "internationalization" of the Japanese economy, ex-MITI officials began to appear in Matsushita-America, IBM Japan, and Japan Texas Instruments.

⁸⁶

The most senior amakudari positionsfor example, the postretirement landing spots of MITI's vice-ministers (see Table 6)are bases from which to coordinate the strategic sectors. At this level the Western distinction between public and private loses its meaning. As Eleanor Hadley remarks about the prewar zaibatsu, "The combines' strength was regarded as national strength but their profits were seen as private property."

⁸⁸

In the postwar world this relationship persists, except that the weight of the government is much stronger. Sato* Kiichiro*, former president of the Mitsui Bank, observes that "during and after the war, . . . Japan's economy was controlled until it has become second nature with us to uphold a planned, controlled economy."

⁸⁹

(Parentheses under names indicate years of active service in MITI)

Name

Vice-minister dates

Amakudari position(s)

The Japanese government-business relationship does not always work as smoothly as it appears to on the surface. A major check to its effectiveness, one that often alters the various relationships within the establishment in unforeseen ways, is competition among ministrieswhat the Japanese call "sectionalism." Some observers believe that it is the most important characteristic of the Japanese government, either limiting its potential effectiveness or mitigating its enormous powers.

⁹⁴

To judge by the Japanese term commonly used to describe it

gun'yu

*

kakkyo

(the rivalry of local barons)one would think that the Japanese believe sectionalism is an inheritance from the samurai era. Certainly one demonstrable cause of sectionalism was the Meiji Constitution of 1889, with its provisions for "independent responsibility to the throne," meaning that ministers and their ministries were not accountable to the prime minister, the cabinet, or the Diet, but only to the Emperorand hence to no one but themselves. The drafters' intent was to prevent rivals to the oligarchs from coming to power and using the government against them, but the actual result was numerous instances in which the military ministries used their radical independence to defy all authority. And many scholars believe that the lack of coordination between the army, the navy, and the rest of the government during the Pacific War was a major cause of Japan's overwhelming defeat.

⁹⁵

The postwar expansion of the bureaucracy followed by efforts to reduce its size reinforced this tradition. A bureaucrat's security and livelihood became dependent on maintaining or expanding his ministry's jurisdiction. Shrinking jurisdictions threaten not only the bureaucrats' active-duty positions but also their amakudari prospects, since a ministry needs clients and captive organizations to hire those of its retired members who do not have readily marketable skills. Tradition and circumstances thus produce an intense "territorial consciousness" (

nawabari ishiki

), punctuatedin Sakakibara's wordsby "gangster-like struggles over jurisdiction" (

yakuza no nawabari arasoi

) throughout the state bureaucracy.

⁹⁷

The longest continuing struggle in the Japanese government, dating from well before the war, has been over the attempt to take control of the budget away from the Ministry of Finance in order to lodge it in the cabinet or some supraministerial coordinating agency. In 1955 Kono * Ichiro* conceived of an independent budget bureau; in 1963 the Temporary Administrative Investigation Council recommended creation of a system of cabinet assistants to oversee the budget; and in 1970 Kawashima Shojiro* called for the establishment of an Overall Planning Agency (Sogo* Kikaku-cho*). The Ministry of Finance successfully beat back all these proposals. Regardless of what the constitution says, the coordinating power of the Japanese executive branch is exercised through the three annual budgets (general account, special accounts, and government investment), and control over them is in the hands of the Budget Bureau and the Financial Bureau of the Ministry of Finance.

The case of the Economic Planning Agency (EPA) has been the most widely studied and reported.

¹⁰⁰

Suffice it to say that MITI and the Ministry of Finance both hold strong positions at the EPAMITI controls its vice-ministership (since the 1960's a prestigious terminal appointment within the MITI personnel hierarchy) and the head of its Coordination Bureau, together with several section chief positions; Finance names its chief secretary and some important section chiefs. The positions MITI controls are valuable to it because through them it is able to place its own representatives on the Bank of Japan's Policy Board and on the deliberation council that supervises the Ministry of Finance's trust fund accounts, which are used to fund the investment budget.

However, the Police Agency ran into trouble holding on to its bureaucratic turf because its predecessors did not recruit many new officials during the key class years of 1948 to 1952. The Ministry of Finance, on the other hand, took in about 50 successful examinees in 1947 and 1948 each, and from 40 to 50 during each of the years 194953. By the middle of the 1970's the Finance Ministry was under heavy pressure to find positions for some of these now high-ranking officials, and the Defense Agency looked promising. In June 1974 the Finance Ministry finally succeeded in placing Tashiro Kazumasa, formerly of the Finance Ministry's Secretariat, as the vice-minister of defense. Even though defense issues were becoming increasingly important to the Japanese during the 1970's, the Defense Agency itself was preoccupied by the Police-Finance struggle. The real losers in this fight, as at the EPA, were the pure defense bureaucrats, those who went to the Defense Agency directly from the university.

¹⁰⁴

MITI maintains a modest but choice portfolio at Defense: it controls the chief of the Equipment Bureau position and the main defense equipment section. The Welfare, Postal Services, Labor, and Foreign Affairs ministries also have one or two section chief positions under their control in the Defense Agency.

The struggle for nawabari (literally, "roped-off areas") is one of the passions of the Japanese bureaucracy. However, this may well be one of the hidden, if unintended, strengths of the Japanese system. As Hollerman argues, "If 'the government' of Japan were actually a highly coordinated set of agencies, its powers could be applied with overwhelming force. Instead, partly as a result of sheer ambition for status and partly as a result of divergent interests within the society itself, there is intense rivalry and jealousy among the ruling agencies and their personnel. In competing for power, they tend to neutralize one another's authority to some extent."

¹⁰⁷

MITI's internal pecking order is different from that in other ministries. Although most of its vice-ministers have served as chiefs of one of the sections in the Secretariat, the Secretariat itself is not the final spotor "waiting room" (

machiai-shitsu

)for the vice-ministership, as it is in other ministries. The internal MITI rank order is as follows:

MITI also differs from other ministries in the degree of internal democracy it supports and in the authority it gives to younger officials. The ministry believes that the most fertile time in the life of a bureaucrat for generating new ideas is when he serves as assistant section chief (

kacho-hosa

*). MITI tries to tap this capacity through a unique institution known as the Laws and Ordinances Examination Committee (Horei* Shinsa Iinkai). It is composed of the deputy chiefs of the General Affairs or Coordination sections in each bureau throughout the ministry. All major policies of the ministry are introduced and screened at this level, and no new policy can be initiated without its approval. For a young assistant section chief to be named chairman of this committee is a certain sign that he is on the "elite course" toward becoming a bureau chief and, possibly, the vice-minister.

A part of the MITI perspective is impatience with the Anglo-American doctrine of economic competition. After the war MITI had to reconcile itself to the occupation-fostered market system in Japan, but it has always been hostile to American-style price competition and antitrust legislation. Sahashi likes to quote Schumpeter to the effect that the competition that really counts in capitalist systems is not measured by profit margins but by the development of new commodities, new technologies, new sources of supply, and new types of organizations.

¹¹⁸

MITI is highly competitive internationally, but it is often irritated by the disorderly competitive scramble among its domestic clients. As Robert Ozaki says, "Sometimes it is assumed [by MITI] that the adverse effects of private monopoly will not arise if the monopolists are Japanese."

¹¹⁹

During the 1970's many of these old MITI attitudes were modified by a new "internationalism." Nonetheless, Japanese commentators such as Kakuma have some reservations about the depth of the change; he calls the new MITI leadership the "nationalist international faction" and refers to the coming of the "age of the cosmopolitan nationalists."

¹²⁰

The Rise of Industrial Policy

The break-up of the Ministry of Agriculture and Commerce had been long in coming. Petitions calling for a separate agriculture ministry had been introduced in the Diet every year since 1918; and after the "rice riots" of the same year the issue had assumed major political significance. Equally important, with the emergence of the governments based on political parties that followed the passing of most of the Meiji oligarchs, genuine pressure groups were beginning to have a profound effect on Japanese governmental policy. Although in essence agricultural interests and their political allies were kicking commerce out of the Ministry of Agriculture and Commerce, the leaders of commercial administration were quite pleased to see this happen, particularly since they were in a position to execute the details of the split. The situation was somewhat comparable to the division in 1913 in the United States of the old Department of Commerce and Labor into two separate departmentsat the insistence of the American Federation of Labor and not of business interests.

¹

Attending to agriculture was certainly the most important activity of the new ministry. As Horie notes, Japan had one "God-sent" product in the form of raw silk, without which it might never have brought its trade deficit under control.

⁷

In addition to the supervision and promotion of agriculture, the new ministry was charged with the administration of all laws and orders relating to commerce, industry, technology, fishing, hunting, merchant shipping, inventions, trademarks, weights and measures, land reclamation, animal husbandry and veterinary affairs, forests, and the postal service. It combined functions that had been divided since the Restoration among the ministries of Finance, Civil Affairs, Industrial Affairs, and Home Affairs.

MAC's sponsorship and operation of the Yawata works produced an identification between the ministry and big steel that has lasted to the present day. Long after the post-World War II Allied occupation had denationalized the steel industry, the Japanese public continued to believe that MITI officials had a soft spot in their hearts for the newly created "private" Yawata Steel Company. The press regularly suggested that Yawata officials had an unfair influence over the government, and went as far as to nickname MITI the "Tokyo Office of the Yawata Steel Company."

⁸

Certainly in 1970, at the time of the merger of the Yawata and Fuji steel companies into New Japan Steelmaking it the world's largest steel producer and recalling the old nationalized company of 1934no one in Japan thought MITI was either neutral or anything but pleased by the development. The trade and industry bureaucrats throughout this century have had a strong influence over Japan's steel industry, a relationship made all the more explicit by the Tokyo sales office of the Yawata works being located in the Ministry of Commerce and Industry building until 1934.

There was not much work for them to do there, however. Before World War I commercial affairs and industrial affairs were always subordinate to the Agricultural Affairs Bureau, and they were regularly combined into one Commercial and Industrial Bureau (Shoko * Kyoku) as an economy measure. They were finally separated into two bureaus only in May 1919. The chief commercial function of MAC was supervising the insurance companies, the stock and commodity exchanges, and the warehousing businessall sectors of the economy that the commercial wing of the ministry would lose to other agencies by the time of the Pacific War. Industrial administration was almost nonexistent. Since the Matsukata reforms, and particularly after the creation of the Diet and the end of the 189495 war with China, the government's overall policy toward industry and foreign trade had become a more or less orthodox version of laissez faire. Even when MAC tried to take some initiative in the industrial arena, its ties with industrial leaders were weak, except for the personal relations between the oligarchs and the zaibatsu, and industrialists commonly ignored what government bureaucrats had to say.

¹⁰

In any case the biggest industries were the cotton textile firms of Osaka, and they were fiercely independent and suspicious of Tokyo.

The efforts and the politics of people like Yamamoto were not particularly appreciated among the dominant agriculturalists within the ministry. Their orientation was physiocratic (

nohonshugi

*), and they felt a philosophical sympathy for the rural way of life, so they were not pleased by the rise of industrialism or by the growing influence of the zaibatsu. Soejima Sempachi, a commercial-track official who was nonetheless serving as chief of the Agricultural Policy Section at the time of the 1918 "rice riots," later charged that the whole Agricultural Affairs Bureau was sympathetic to the interests of landlords.

¹²

This was probably true, but it must be understood that agricultural bureaucrats also represented one wing of then current liberal opinion. To them the most serious social problem of the nation was rural poverty and tenancy, a problem to which they believed the government was insufficiently attentive, particularly in comparison to the privileges it extended to the zaibatsu.

The effect of the war boom on agriculture was equally profound but much less satisfactory. A significant rise in all price levels accompanied the growth of industry (see Table 7), but most important was the rise in demand for rice by the rapidly urbanizing industrial labor force. The government's policy at the outset of the boom was to allow prices to go up, hoping to increase production in that way. This was also what the politically influential landlords wanted. The landlords were organized into the Imperial Agricultural Association (Teikoku Nokai*), founded in 1910 as the successor to the Great Japan Agricultural Association (Dai Nihon Nokai) of 1881, which began as a quasi-official organization for landlords and was oriented toward rural improvements.

¹⁷

During the war, however, the Teikoku Nokai became more of a pressure group than an agrarian improvement society. Its interests were in rising prices for domestic rice and high tariffs on imports, which profited both landlords and their tenants.

(July 1914 = 100)

Month

Index

The new Hara cabinet, representing the Seiyukai* party, had to deal promptly with the matter. Hara made Yamamoto Tatsuo minister of agriculture and commerce for the second time, and Yamamoto pushed the Rice Law of 1920 through the Diet. It removed duties on imported rice and initiated a program for developing rice cultivation in the Japanese colonies of Taiwan and Korea. The law also established a system of price controls over rice that has persisted in one form or another to the present day. Yamamoto's policy thus secured food supplies at reasonable prices for Japan's growing industrial labor force, but in combination with the postwar recession of the entire economy that began in the spring of 1920, it also worsened the agricultural depression and tenant unrest that wracked Japan throughout the 1920's.

¹⁹

In 1913 Takahashi became minister of finance in the same cabinet in which Yamamoto Tatsuo served as minister of agriculture and commerce. After the assassination of Hara in 1921, Takahashi briefly became prime minister (192122). However, antiparty forces were attempting to reestablish their supremacy, and they organized a series of nonparty bureaucratic governments. In order to resist this movement, Takahashi took the unusual step of resigning his title (he was a viscount by then) and his legal position as head of his family, thereby again becoming what of course he had been borna commoner. He then stood for election to the House of Representatives in the district of the late Hara Kei in Iwate prefecture. After a difficult campaign he won. He and his colleagues forced the bureaucratic government of Kiyoura to resign, a government was formed based on a coalition of all the political parties, and in June 1924 Takahashi again accepted a ministerial portfolio, that of agriculture and commerce. It was as the last minister of MAC that Takahashi presided over the split. (After this term in office Takahashi went on to serve as minister of finance in four more cabinets, until he also was assassinated on February 26, 1936, in the abortive military coup d'etat.)

²⁰

During late 1924, while the preparations for this event were taking place, Nakai Reisaku, class of 1903 and former chief of the Forestry Bureau, became vice-minister of MAC. Shijo * Takafusa, class of 1904 and Takahashi's main internal ally, remained as chief of the Industrial Affairs Bureau.

^*

Takahashi would have preferred Shijo as vice-minister, but he had no control over internal bureaucratic developments. Then an unusual opportunity developed.

Shijo and Yoshino also arranged one other thing. The Agriculture Ministry moved to new quarters in Kasumigaseki, but Commerce retained and rebuilt on the property it had occupied since 1888. This was located in old Kobiki-cho* ("the sawmill quarter") adjacent to the Kabuki theater and about midway between the Tsukiji fish market and Shimbashi station. Every MAC or MCI bureaucrat who has written his memoirs has recalled the actors, geisha, and "teahouses" in the neighborhood, and some of them have blamed their slow careers on too much

asobi

("play") being readily available.

²²

MCI remained in Kobiki-cho until Tojo* moved it as his new Ministry of Munitions to Kasumigaseki.

For MCI and the other economic bureaucracies the problems were conceptual. What was causing the recession to persist so long? Should anyone, including the government, do something about it? Why was the international balance of payments in chronic deficit? Why were corporate profits so low? What should be done? Numerous theories circulated. Japan was different from all other economies because of its "dual structure" (zaibatsu versus thousands of medium and smaller enterprises). Japan was experiencing an "overproduction crisis" because of the war boom. Japan was a victim of "destructive competition" because of the unrestricted growth in the numbers of banks and enterprises. And Japan was simply entering the "stage'' of "monopoly capitalism" as foretold by the German Marxists.

In this general milieu, one person within MCI stands out as beginning to have some interesting ideas for reenergizing the economy. He was Yoshino Shinji. Yoshino's legal training at Todai1* had not taught him much about the economy, but after he returned from San Francisco in 1915, he had some experiences that gave him a more than purely bureaucratic perspective. The first was a period of duty as a transferee to the Home Ministry, during which he worked as a factory inspector in Kobe. There he discovered the world of medium and smaller enterprises (

chusho

*

kigyo

*), which during the 1920's and 1930's Japanese defined as manufacturing enterprises with from 5 to 30 employees (small) and from 30 to 100 employees (medium).

During the early 1920's, while serving as a section chief in the Industrial Affairs Bureau, Yoshino became one of the first government officials to gain expert knowledge of the medium and smaller enterprises sector. He discovered that despite the strategic importance of the modern zaibatsu enterprises, medium and smaller factories employed the overwhelming majority of Japan's industrial workers. Even more important, the zaibatsu firms produced primarily for the domestic market, but the medium and smaller enterprises concentrated on production for export. With a few exceptions such as rayon, silk yarn, and cotton textiles, where large enterprises were also strong exporters, medium and smaller manufacturers of sundries such as bicycles, pottery, enamelware, canned goods, hats, silk textiles, and so forth were contributing from 50 to 65 percent of all of Japan's exports. And they were losing money doing it.

²⁷

There were several precedents for cartels in Japan. The Japan Paper Manufacturers Federation of 1880, the Japan Cotton Spinning Federation of 1882, and the Japan Fertilizer Manufacturers Federation of 1907 were the main trade associations with cartellike powers before World War I.

²⁸

The Production Cooperatives Law of 1900 had authorized prefecturally supervised industrial unions (

sangyo

*

kumiai

), but despite their name, these were actually agricultural cooperatives, not industrial manufacturers.

²⁹

They were also hampered by the fact that in 1917 MAC, in an attempt to control the wartime prices of food and clothing, had prohibited them from agreeing on prices or wages. The primary functions of the early cartels were inspection and grading of products. The Japanese were not unfamiliar with cartels, but those authorized in 1925 were new in that they sought to organize a part of the whole economy, not just particular industries.

Nakahashi became minister in the wake of the financial panic of 1927, which forced the resignation of the first Wakatsuki cabinet. This crisis was the culmination of all the panics that had afflicted the Japanese economy during the 1920's, and it constitutes the true dividing line between the "old testament" and the "new testament" of Japanese trade and industrial administration. It also marks the onset of the world depression for Japana period of economic stagnation and of radical attempts to find solutions to endemic problems that afflicted the rest of the world only three years later. On the significance of the 1927 panic, Nawa Taro* observes, ''MCI already existed as a body, but the financial panic brought it to life as an organization."

³³

Before any attempt to lift the gold embargo could be undertaken, however, the government had to get its own financial house in order, and this meant resolving the matter of the outstanding earthquake bills. During the 52nd Diet (December 1926 to March 1927), the Wakatsuki (Minseito) government introduced two bills that would convert the outstanding earthquake bills into ten-year government bonds. The opposition parties complained bitterly that the government wanted to use the people's tax revenues to aid the capitalists, and during the course of a heated Diet debate the minister of finance accidentally revealed just how shaky the nation's entire banking structure really was. Runs began on banks, although they temporarily cooled after the Diet passed the bills on March 23.

In this climate of opinion, the new minister of commerce and industry, working with and on the inspiration of his chief of the Documents Section, Yoshino Shinji, undertook an initiative that is acknowledged to be the beginning of modern Japanese industrial policy. On May 23, 1927, Minister Nakahashi set up within MCI a Commerce and Industry Deliberation Council (Shoko* Shingikai). Its charter was to examine broadly what was ailing the Japanese economy and what the government ought to do about it. As a joint public-private forum, it is the direct antecedent of the 1950's-era Industrial Rationalization Council and its successor, the Industrial Structure CouncilMITI's number one official channel to the business community. Nonbureaucratic members of the 1927 council included all the leading businessmen of the time. Among the most influential in the actual deliberations were Okochi* Masatoshi, who was both a Todai* professor of engineering and a prominent private industrialist, and Nakajima Kumakichi of the Furukawa zaibatsu, who later became an important MCI minister.

On July 2, 1929, the Minseito* returned to power, and Prime Minister Hamaguchi appointed Inoue Junnosuke minister of finance. Inoue proceeded to carry out his plan to lift the gold embargo, but he and other members of the government now linked the step to the industrial rationalization movement. The gold standard would tie Japan's prices to world prices, they said, and industrial rationalization would strengthen the nation's international competitive ability. Prime Minister Hamaguchi himself argued to the Commerce and Industry Deliberation Council during 1929 that "industrial rationalization is not just a matter of timely policy but must be a movement of all the people."

³⁷

Yoshino deliberately created the TIRB as a detached bureau headed by the minister in order to prevent internal ministerial rivalries from crippling its activities. He involved all of the ministry's bureau and section chiefs in it and gave it an unconventional internal structure. Instead of sections, it had only two large departments, the first headed by Kido Koichi*, who was concurrent chief of the Documents Section in the Secretariat, and the second headed by Yoshino, who was concurrent chief of the Industrial Affairs Bureau.

Leftists and antizaibatsu elements were skeptical about the rationalization movement. They sometimes referred to it as "Japanese-style rationalization," meaning wage cuts, reductions in the number of employees, and a stretching out of working hours.

⁴⁰

There was also some international criticism to the effect that rationalization was a cover for "social dumping," a term of abuse that was especially applied to Japan at the time. During the early 1930's the International Labor Organization distinguished between what it called "commercial dumping"an unfair business practiceand "social dumping"a form of alleged exploitation of workers. Commercial dumping meant "an operation that consists in exporting goods at less than cost of production plus a fair profit, and at the same time, selling the same goods on the home market at a higher price than the cost of production plus a fair profit,'' whereas social dumping meant "the operation of providing the export of national products by decreasing their cost of production as the result of depressing conditions of labor in the undertakings which produce them or keeping those conditions at a low level if they are already at such a level."

⁴¹

The Japanese always resented the charge of social dumping, believing they were in fact trying to take the measures necessary to eliminate it.

During the year 1930 the ruling Minseito * government attempted to politicize MCI, much as the LDP would attempt to do to MITI some thirty years later. The industrial rationalization movement had made MCI an important center of policy, and the party clearly wanted to maneuver bureaucrats friendly to it into positions of leadership. The attempt ultimately failed, but it resulted in Yoshino Shinji's becoming vice-minister in 1931 and in Kishi Nobusuke's being sent to Germany to report back to the TIRB on the industrial rationalization movement there. The actual political incidents of 1930 are of slight importance in themselves, but they had consequences of lasting significance, among them the establishment of the so-called Yoshino-Kishi line in the ministry until 1936. Bureaucrats, like politicians, deal in power, and struggles for power are an inextricable part of bureaucratic life, regardless of what models organization theorists may have favored from Weber to the present.

Tajima was an unusual appointment. He had had no experience in any of the ministry's home office bureaus, having spent the later part of his career as head of the Fisheries Bureau during the MAC era, then as a transferee to the Tokyo metropolitan government, and most recently as chief of the Fukuoka Mine Inspectors Bureau. The last was the key to his appointment. Fukuoka was an important post since it exercised supervision over Japan's main coal fields, which supplied fuel to the Yawata steel works. The bureau chief there had to work closely with the powerful zaibatsu coal mine operators. Tajima had apparently developed something of a constituency in Fukuoka and was known to be ambitious to enter politics as a member of the Minseito* party. After his retirement as vice-minister in December 1931, he did join the Minseito and was elected to the Diet as a member from Fukuoka for some three terms. Tajima's appointment in 1930 appeared to the bureaucracy and to the political world as an attempt by the Minseito to take over the MCI. It was partly to overcome the rumors that Vice-Minister Tajima lacked the appropriate political independence for an Imperial bureaucrat that the succeeding Seiyukai* government ousted him and appointed Yoshino in his place. It was rumored that Takahashi Korekiyo himself had a hand in recommending Yoshino, even though Yoshino was only 43 years old and so had to be passed over nine of his seniors and three of his classmates.

Kishi obtained about 50 signed letters of resignation from a few higher officials and from several noncareer officials. He threatened to present these to the minister if the pay cuts were not rescinded. Kishi's motives do not appear to have been primarily monetary; he was also concerned about the welfare of the noncareer employees and about the government's austerity measures as they applied to the military. During 1930 Yoshino and the minister worked out a compromise to paper over the dispute, and Yoshino used his first opportunity to get Kishi out of the country in order to let tempers cool. Kishi spent seven months (MayNovember 1930) in Berlin reporting on the industrial rationalization movement, and his reports directly influenced the path it took in Japan. One of Kishi's reports, that of July 13, 1930, was addressed to Kido Koichi * as one of the two department chiefs in the TIRB; it is of such interest in relation to the history of industrial policy that it was reprinted in

Chuo

*

koron

* in September 1979, almost fifty years after it was written.

⁴²

The first modern Japanese answer to this question was the Important Industries Control Law (Juyo* Sangyo* Tosei* Ho*, law no. 40, introduced in the Diet on February 25, 1931, passed April 1, 1931, and in effect from August 16, 1931). It was the most important product of the TIRB and the single most important piece of industrial legislation until the National General Mobilization Law of 1938 and the Important Industries Association Ordinance of 1941, which was based on the mobilization law. According to the 1931 law, control was to be exercised within an industry by the enterprises themselvesthat is, the law legalized so-called self-control (

jishu

tosei

*) in the form of treaty-like cartel agreements among enterprises to fix levels of production, establish prices, limit new entrants into an industry, and control marketing for a particular industry. The 1931 law took as its model the unions of medium and smaller enterprises of 1925; however, it strengthened government approval powers over such unions and extended them to big business.

⁴⁵

The result, as Eleanor Hadley puts it, was a "cordial oligopoly" in the large-scale advanced sectorsas contrasted with the "cutthroat oligopoly" of the post-World War II period.

⁴⁶

The Important Industries Control Law was a relatively short statute of only ten articles. According to its terms, when two-thirds of the enterprises in a particular industry agreed to a cartel, MCI would examine its contents and, if it approved, then authorize (

ninka

) the cartel. The government could also change the terms or nullify the agreement. And it could force nonparticipants in the cartel agreement to abide by its terms if they did not do so voluntarily. As a result of an MCI-sponsored amendment to the law (introduced in the Diet during September 1932 and passed during 1933), the ministry obtained the powers to approve investments that would expand facilities by cartel members and to approve members' decisions to curtail production. Needless to say, all members of an industry were required to submit frequent reports on their investment plans and activities to the government. It is in this law that we find the origins of the government's licensing and approval authority and of the practice of "administrative guidance," which together became the heart of postwar industrial policy. To assuage skeptics in the Diet, the law had a five-year limitation written into it; on August 15, 1936, it was extended for another five years but it was superseded by the National General Mobilization Law before the second time period expired.

At the time the control law was deliberated and enacted, Yoshino clearly stood for self-imposed control in industry and for government cooperation with private control agreements. However, the year 1931 ended up giving self-control a bad name, particularly insofar as it involved the zaibatsu, and this led to powerful demands for its opposite, namely, state control (

kokka

tosei

*). The reason was the "dollar-buying" scandal. On September 21, 1931, England announced that it was leaving the gold standard because of the depression. This should have signaled the failure of Inoue's policy; Japan could not maintain the gold standard if its main trading competitor did not also abide by it. However, the Japanese gold embargo was not reimposed until three months later, and in the interim the zaibatsu banks engaged in an orgy of dollar buying, using yen they knew were soon to be devalued. Mitsui alone is said to have made $50 million in international currency transactions. The speculation ended in December with the return to power of the Seiyukai* (the last political party regime until after 1945) and Takahashi's reversal of Inoue's policy.

On December 21, 1931, as part of the Seiyukai's* housecleaning after taking over from the Minseito*, Yoshino Shinji was named vice-minister. He held the post until October 7, 1936. Although the TIRB had been associated with the Minseito party, the Seiyukai* retained it because of the positive appeal of its ideology and because Yoshino, who was thought to have Seiyukai sympathies even though he was publicly neutral, was now in charge of the ministry.

Another theme of this early period was the search for criteria of managerial and enterprise performance other than short-term profitability. Via the industrial rationalization movement, which began in the late 1920's but reached its full flowering only during the 1950's, the Japanese began self-consciously to think about how to build into enterprises and whole industries incentives to promote labor peace, job security, capital formation, increased productivity, and the development of new products. Although the earliest efforts at rationalization were largely frustrated by zaibatsu power and interests, a concern with rationalizationthe attempt to gain a competitive edge through superior organization, labor peace, and cost cuttingis the most consistent and continuous feature of Japanese industrial policy throughout the Showa * era. The greatest achievement of the early days of MCI was to begin seriously to forge a government-business relationship that was oriented to cooperation and development and that took the position of the whole Japanese economy vis-à-vis competitive foreign economies as its primary frame of reference.

This theme of historical continuity also draws attention to the fact that industrial policy is rooted in Japanese political rationality and conscious institutional innovation, and not primarily or exclusively in Japanese culture, vestiges of feudalism, insularity, frugality, the primacy of the social group over the individual, or any other special characteristic of Japanese society.

Economic General Staff

The 1918 law was virtually an afterthought of Japan's participation in World War I. But in order to prepare for the possible need to implement the law, the government on May 31, 1918, set up a Munitions Bureau (Gunju Kyoku) as a semidetached unit of the cabinet to prepare economic mobilization plans and to gather statistics on munitions industries. Its first chief, Hara Shoichiro* of the navy, worked hard at these tasks, but he found it almost impossible to get cooperation from the established ministries. On May 15, 1920, the government sought to lower the visibility of the bureau by merging it with the cabinet's Statistical Bureau to create a new agency called the Census Board (Kokusei-in). This idea did not work any better than the first onethe military officers and statisticians squabbled over turfand on November 30, 1922, with the military somewhat in disgrace because of the Siberian expedition and with the government trying to cut costs, the Census Board was abolished. The government transferred all the mobilization plans and accumulated statistics to MAC and from it to MCI, where they greatly enhanced the resources of the Secretariat's Statistical Section. Murase Naokai, the vice-minister of MCI from 1936 to 1939 and a very important figure in our later discussions in this chapter, was working in the cabinet at the time the Census Board was abolished. He says that he recognized that these mobilization materials would be useful to his ministry in administering industrial policy, and he implies that he had a hand in having them transferred there.

²

On May 26, 1927, the government established a Resources Bureau (Shigen Kyoku) as a semidetached organ of the cabinet. Because a heavy military presence in the old Munitions Bureau had led to conflicts with other ministries, this time the government toned down the military element, recruited bureaucrats from other ministries, and set up a joint public-private deliberation council to discuss resource questions. The staff of the Resources Bureau was smallonly five peoplebut MCI sent to it one of its important young officials, Uemura Kogoro*, class of 1918, who was destined to become in May 1968 the president of Keidanren, the most influential post in the country for making policy for the business sector. Uemura spent the rest of his bureaucratic career working in the "economic general staff," where he rose to the position of vice-president of the Cabinet Planning Board in 1940. His position in the Resources Bureau was one of the earliest links between MCI and the military planners before the two were formally merged in 1943 in the Ministry of Munitions.

⁴

As we saw in the last chapter, Takahashi reimposed the gold embargo in December 1931, an action that advanced the government's intrusion into the private economy well beyond that of the cartels authorized by the Control Law. In order to make the embargo effective, the government also passed the Capital Flight Prevention Law (Shihon Tohi* Boshi* Ho*, law number 17 of July 1, 1932); and when that proved to be ambiguous and therefore evadable, it passed the Foreign Exchange Control Law (Gaikoku Kawase Kanri Ho, law number 28 of March 29, 1933), which made all overseas transactions subject to the approval and licensing of the minister of finance. Although no one at the time could have imagined it, governmental control over the convertibility of yen lasted uninterruptedly until April 1, 1964, and over capital transfers until the capital liberalization policies of the late 1960's and early 1970's.

During the autumn of 1935 the demand for goods began to outrun supply, and prices started to rise. Takahashi applied the brakes to military spending in order to control inflation and the balance of payments, but a section of the military revolted against what it took to be his civilian interference in the army's modernization efforts and assassinated him on February 26, 1936. Takahashi was once quoted to the effect that "it is much harder to nullify the results of an economic conquest than those of a military conquest," but this was a lesson that many more Japanese had to learn before they took it to heart after the Pacific War. His remark might well serve as an epitaph for his eraas well as a promise of the MITI era to come.

⁸

(1929 = 100)

Country

1930

1931

1932

1933

1934

1935

Wholesale Prices

Japan

82.3

69.6

77.2

88.5

90.2

92.5

United States

90.7

76.6

68.0

69.2

78.6

83.9

England

87.5

76.8

74.9

75.0

77.1

77.9

Germany

90.8

80.8

70.3

68.0

71.7

74.2

France

88.4

80.0

68.2

63.6

60.0

54.0

Mining and Manufacturing Production

Japan

94.8

91.6

97.8

113.2

128.7

141.8

United States

80.7

68.1

53.8

63.9

66.4

75.6

England

92.3

83.8

83.5

88.2

98.8

105.6

Germany

85.9

67.6

53.3

60.7

79.8

94.0

France

99.1

86.2

71.6

80.7

75.2

72.5

SOURCE

: Arisawa Hiromi, ed.,

Showa

*

keizai shi

(Economic history of the Showa* era), Tokyo, 1976, p. 52.

Meanwhile, during 1934 the first of two political events that were to lead to the creation of the economic general staff in its most fully developed form erupted on the political scene. This was the Teijin scandal that brought down the Saito* cabinet. The second incident was the military mutiny of February 1936 that dramatically increased military influence over the whole society. In January 1934, in a series of articles in his

Jiji

shimpo

* newspaper, the businessman and political polemicist Muto* Sanji charged that a group of ministers and higher officials were corruptly manipulating the stock of the Imperial Rayon Company (Teijin) for their own profit, and that Teijin shares held by the minister of finance since the bail out of the Taiwan Bank in 1927 had been secretly sold to them. It is unclear to this day whether Muto sincerely believed what he wrote or whether his charges were part of a militarist plot to discredit the political parties and their capitalist supporters. The effect of his charges is not, however, in dispute; they contributed strongly to the belief that civilian politicians were hopelessly corrupt.

¹¹

After the Teijin incident the cabinet of Admiral Okada Keisuke (July 1934 to March 1936) sought to dispel the public's (and the military's) doubts about economic administration by establishing a Cabinet Deliberation Council (Naikaku Shingikai)what the press called its "supplementary cabinet"to advise it on economic policies. However, when the prime minister declared that his council was intended "to remove technical economic matters from political interference," the Seiyukai* vigorously opposed the council as a bureaucratic and militaristic device. Partly because of this Seiyukai boycott, the president of the Minseito* and one of Japan's most accomplished political manipulators, Machida Chuji* (18631946), entered the cabinet as MCI minister even though most party politicians shunned Okada's "nonparty" government. Machida retained Yoshino as vice-minister for political reasons of his own, but in retrospect Yoshino believed that he should have resigned at the time. Okada's council was composed of fifteen members from among the "senior statesmen" (

jushin

*, the successors to the Meiji-era

genro

*), peers, political party leaders, and representatives of big business.

In old-line ministries such as Finance and Foreign Affairs, the mainstream of bureaucratic leadership tried to resist the growing influence of the military, but these ministries tended to lose power over the decade to the ministries that cooperated, such as MCI. Within MCI Yoshino was critical of the reform bureaucrats as "flatterers of the military," even though his protégé Kishi was a model reform bureaucrat and Yoshino himself was in good favor with the military because of his essentially technocratic political stance.

¹⁴

Yoshino also recognized that the admission of military officers on detached service into MCI, a practice he had authorized for the Fuel Bureau and several other new units, affected the ministry's personnel affairs. The militarists regularly used their political power to block promotions of young officials whom they considered insufficiently "reformist." Most of the officials working in industrial administration, as distinct from commercial administration, became reform bureaucrats to some extent, and this led to a factional alignment under Yoshino's successors and under Kishi that would affect the ministry for decades to come.

Some important reform bureaucrats in MCI and in closely related economic bureaucracies were Kishi Nobusuke, Shiina Etsusaburo, Uemura Kogoro*, Kogane Yoshiteru (director of the Fuel Bureau in 1941 and a postwar Diet member), Hashii Makoto (who served in the postwar Economic Stabilization Board and then became president of Tokyo Gauge Company), Minobe Yoji* (Minobe Tatsukichi's nephew, chief of the Munitions Ministry's Machinery Bureau and postwar vice-president of Japan Hydrogen Industries), Wada Hiroo (from the Agriculture Ministry and postwar minister of agriculture in the first Yoshida cabinet), Sakomizu Hisatsune (from the Finance Ministry and postwar director-general of the Economic Planning Agency and postal minister in the Ikeda cabinets), Aoki Kazuo (from the Finance Ministry, president of the Cabinet Planning Board, and postwar member of the House of Councillors of the Diet), and Hoshino Naoki (from the Finance Ministry, president of the Cabinet Planning Board, and postwar chairman of the Tokyu* hotel chain and the Diamond Publishing Company). Not surprisingly, a few of the reform bureaucrats turned out to be not rightists but left socialists and cryptocommunists; their presence on the "economic general staff" produced a major scandal in 1941, as we shall see later in this chapter.

The pronounced "new bureaucrat" coloration of both the deliberation council and the Research Bureau in the Okada cabinet produced strong denunciations by some political party and business leaders. The deliberation council soon became a dead letter and was quietly abolished when the government changed. The Research Bureau, however, persisted and became embroiled in one of the historic controversies of the early controlled-economy era. A plan like the Petroleum Industry Law of 1934 was sponsored by the Cabinet Research Bureau for the reorganization and state control of the electric power generating and distributing industry. In this instance, however, the owners of the companies resisted fiercely, and business leaders denounced the bureau for its advocacy of "bureaucratic fascism" and ''state socialism."

¹⁹

One such compromise choice as minister of MCI was Ogawa Gotaro * (18761945), a former Kyoto University professor of economics and an elected member of the House of Representatives since 1917.

^*

Ogawa made it known that he intended "to eliminate the control faction in MCI," and he had several reasons for wanting to do so. First, he was from Kansai and reflected the Osaka business world's hostility to the controlled economy. Second, he was worried about working with a vice-minister who had been in office for five years and who might try to upstage him. Third, as a leader of the Minseito*, he did not like Yoshino's Seiyukai* leanings or Kishi's ties with Choshu* political and industrial figures (for example, with Matsuoka Yosuke*, then president of the South Manchurian Railroad, foreign minister at the time of the Axis alliance, and the uncle of Sato* Hiroko, the wife of Kishi's brother Eisaku). Finally, Ogawa evidently distrusted both Yo-

Ogawa offered Yoshino the presidency of the newly established Tohoku* (Northeast) Industrial Development Company, a Japanese version of the Tennessee Valley Authority for the development of a backward region. And Ogawa said to Kishi that the Kwantung Army had strongly requested Kishi's services in the Manchurian government (which was true). Yoshino contemplated refusing to resign on grounds that as an Imperial official he could not be dismissed, but he thought better of it. He realized that he had remained as vice-minister too long and was aware that junior officials in the ministry were holding meetings about the political situation from which he was excluded.

²¹

On Yoshino's birthday, September 17, 1936, he and Kishi jointly submitted their letters of resignation. Yoshino went to Tohoku, where he had been born, and Kishi became the deputy director of the Industrial Department of the government of Manchukuo.

Murase thus had no experience in industrial administration or in the TIRB. He leaned toward the commercial wing of MCI, which was oriented to medium and smaller enterprises, the insurance business, the stock exchanges, and tradeand which reflected the business world's wary approach to the controlled economy. Murase's greatest achievement as chief of the Commercial Affairs Bureau was securing the passage in 1936 of the Commercial and Industrial Cooperatives Central Depository Law, the enabling legislation for the Shoko* Chukin* Bank. This was and is today the leading governmental financial organ devoted exclusively to support of medium and smaller enterprises. Murase became known as a champion of the small businessman, and after the Pacific War he served from February 1953 to February 1958 as chairman of the bank he had founded in 1936.

^*

The first MCI official sent to Manchuria was Takahashi Kojun*, a former Documents Section chief, who went in June 1933 and became deputy director of the Industrial Department (Jitsugyo-bu*, which changed its name during 1937 to Sangyo-bu*). During the autumn of 1933 Takahashi returned to MCI to recruit more officials, and Kishi strongly recommended that he approach the young TIRB official, Shiina Etsusaburo* (Kishi was Shiina's sempai by three years). This established a relationship between Kishi and Shiina that was as long lasting as that between Yoshino and Kishi. If the Yoshino-Kishi line prevailed in the ministry during the first half of the 1930's, the Kishi-Shiina line dominated it during the 1940's, 1950's, and well into the 1960's. Shiina served in the Industrial Department of Manchuria from 1933 to 1939. In addition, Kishi sent Okabe Kunio (chief of MITI's Trade Promotion Bureau in 1951 and, after retirement as a bureaucrat, the managing director of JETRO and a director of MITI's Electrical Resources Development Company). In his memoirs Yoshino refers to both Shiina and Okabe as members not of his faction but of "Kishi's faction."

²³

There has been a good deal of controversy about Kishi's role in this plan. After the war the Prosecution Section of the International Military Tribunal for the Far East summoned Shiina some eight times to its offices at Ichigaya to ask him about Kishi's part in formulating the plan. His reply was that the plan was already completed when Kishi arrived and that Kishi had been invited to Hsinking primarily to supervise its implementation. Shiina was certainly the man to ask, since he had been conducting industrial surveys in Manchuria since 1933, and, according to Kishi,

he

was the central figure in drafting the 1936 plan. On another occasion, however, Kishi indicated that he had had a major input into the plan while serving in an advisory capacity in Tokyo.

²⁵

Whatever the case, when Kishi arrived, he insisted that Chief of Staff Itagaki Seishiro* of the Kwantung Army give him a free hand to implement the plan. Itagaki agreed, and army participation in Manchurian industrial affairs declined significantly.

Kishi subsequently wrote that in Manchuria he "imbibed the ideas of industrial guidance," and Shiina contends that the experience of economic planning in Manchuria was as important for the later "materials mobilization plans" and their postwar equivalents as the work of the Cabinet Resources Bureau. The biggest Manchurian undertakings were the dams for hydroelectric power generation on the Sungari and Yalu rivers and the extensive land reclamation projects. Mangyo * built electrical transmission lines larger than any that had been constructed in Japan up to that time, and the Japanese aluminum industry, which requires large quantities of electric power, was first established in Manchuria.

The petroleum and automobile laws were the first of a series of laws designed to provide special governmental financing, taxes, and protective measures for individual industries, and the first that were defended in terms of national defense needs. Their importance cannot be overstated. They were resurrected during the 1950's and 1960's for different industries and for nonmilitary (but nonetheless national defense) objectives. They are a part of the prewar heritage most directly relevant to postwar industrial policy. Other laws passed during the late 1930's were the Artificial Petroleum Law (August 10, 1937), the Steel Industry Law (August 12, 1937), the Machine Tool Industry Law (March 30, 1938), the Aircraft Manufacturing Law (March 30, 1938), the Shipbuilding Industry Law (April 5, 1939), the Light Metals Manufacturing Industry Law (May 1, 1939), and the Important Machines Manufacturing Law (May 3, 1941).

²⁸

These laws did much to promote the particular industries concerned, but politically they represented compromises between the state-control and the self-control persuasions. The business sector was still strong enough to withstand state and public pressure and to insist on private ownership and a large measure of private management, which is closer to the postwar pattern than some of the other measures enacted by the state-control group during the 1930's.

The Foreign Office opposed this plan, but MCI supported it. Terao Susumu, one of the leaders of MCI's Trade Bureau since its creation in May 1930, recalls that in 1937 they were searching for something like MITIthe first agency in Japan to combine industrial administration with the supervision of foreign trade.

³⁰

The Foreign Ministry would not hear of it, however, and the idea had to be dropped. Instead, on July 14, 1937 (and wholly unrelated to the outbreak of war with China on July 7), MCI's Trade Bureau was elevated and transformed into a semidetached bureau with its own director-general and secretariat, and with military officers serving in it in policy-making roles. MCI's external Trade Bureau was the direct ancestor of the powerful Board of Trade (Boeki-cho*) of the occupation period, and MITI itself came into being in 1949 essentially as a merger of MCI and the Board of Trade.

On June 4, 1937, the day the new cabinet was sworn in, Finance Minister Kaya and MCI Minister Yoshino issued their famous joint statement of "three fundamental principles" of economic policy: production must be expanded, the country must live within the limits set by the international balance of payments, and the government must control economic activities in order to achieve coordination between the first two principles.

³²

The first principle was aimed at meeting military demands, the second was in response to the demands of business leaders, and the third put the whole country on notice that changes were needed in order to do what the military wanted and still avoid bankruptcy.

The third law is the most interesting. It was Yoshino's brainchild and probably his greatest accomplishment as minister. It bore the imposing title of Temporary Measures Law Relating to Exports, Imports, and Other Matters (Yushutsunyu-hin-to* ni kan suru Rinji Sochi ni kan suru Horitsu*, law number 92), and Yoshino and his associates have gleefully recounted how they chose this wording in order to confuse Diet members (specifically, through their use of legalese such as

kan suru

''relative to" twice in the title, and above all through their insertion of the suffix

to

* "et cetera") and how Yoshino dissembled and gave vague answers to questions in the Diet about the scope of the law.

³⁴

Under the terms of this law of only eight articles, the government was authorized to restrict or prohibit the import or export of any commodity and to control the manufacture, distribution, transfer, and consumption of all imported raw materials. It meant, as Nakamura emphasizes, a grant of discretionary power to MCI to control

everything

if it so chose.

³⁵

The 1937 trade law is the clearest precedent for the Foreign Exchange and Foreign Trade Control Law of 1949, which was MITI's single most powerful instrument for carrying out its industrial policy during the period of high-speed growth and into the present (the 1949 law was rewritten but still retained on the books during 1980).

On May 14, 1937, as a preparatory step toward planning and state control, the Hayashi cabinet had reorganized and strengthened the Cabinet Research Bureau of 1935 and renamed it the Cabinet Planning Agency (Kikaku-cho*). When the Konoe government took office in the following month, it decided to merge the military research unit of 1927 (the Resources Bureau) and the Planning Agency into a new and very powerful organ that would, in theory, command and coordinate the activities of the various ministries. This was the Cabinet Planning Board (CPB). It brought together military officers, detached reform bureaucrats, planners from Manchuria, and (unwittingly) some of the leading Marxist economists of the time into what was hailed as the "economic general staff." It is directly relevant to the history of MITI for several reasons. First, many MCI officials worked there (or, alternatively, many former CPB officials entered MCI after the war). Second, it was merged in 1943 with MCI to create the Ministry of Munitions. And third, it is the precedent for the postwar Economic Stabilization Board and Economic Planning Agency, both of which MITI has either strongly influenced or dominated. Most important, the CPB's method of planning necessitated the reorganization of MCI into industry-specific bureaus, and these were perpetuated in MITI until 1973.

Postwar member of the House of Representatives of the Diet.

The Diet vigorously debated the mobilization law. Leaders of the new zaibatsu approved it, even though they did not like controls, because it signaled more business for them. The old zaibatsu and independent business leaders raised numerous objections and demanded a say in the ordinances that would implement the law (this they received), but they were quieted during 1938 with assurances that the China Incident would end soon, or they were shouted down by military spokesmen in the Diet chambers. Some economic leaders seemed to imply that a façade of civilian control should be maintained in order to prolong friendly trading relations with the United States and Great Britain, to which the military agreed, and dividends on equity shares continued to be paid until virtually the end of the Pacific War, when the zaibatsu no longer objected to the nationalization of their destroyed factories. These zaibatsu ownership rights turned out to be virtually the only civilian rights that were respected throughout the wartime period.

The initial materials mobilization plan, not yet so named, took the form of a report dated November 9, 1937, from the president of the CPB to the prime minister estimating that there was a total of ¥470 million in currency reserves to pay for emergency military imports during the last quarter of 1937. The report also offered a budget for spending this amount. With the China Incident continuing to expand, Uemura's Industrial Plans Department set up a General Affairs Unit for Materials Mobilization Plans (Butsudo* Somuhan*) and charged it with designing a similar budget for the calendar year 1938. This was the first true materials mobilization plan. Prepared in two months, the plan took as its basic assumption that there would be an import capability of ¥3 billion for the year. It then calculated the military and civilian needs that this amount had to cover and specified the exact quantities of some 96 commodities that it authorized for import. The plan also calculated the supplies of each commodity that would be available from domestic production, from Manchuria and China, and from stockpiles. After approval by the cabinet on January 16, 1938, the plan was transmitted to MCI for implementation, using as a legal basis Yoshino's foreign trade law of September 1937. The CPB itself had no operational authority or capability.

The 1939 plan was considerably more elaborate than the one for 1938. Calculated on the basis of quarters of the fiscal year rather than the whole calendar year, it covered about four hundred commodities grouped into ten master categories (steel, nonferrous metals, chemicals, and so forth), and it established an eightfold priority list for the distribution of raw materials:

⁴¹

Although there were many interesting technical problems of conceptualization and procedure in these plans, by far the most lasting influence they were to exercise on later Japanese industrial policy came from the experience gained by MCI in trying to implement them. On May 7, 1938, in order to deal with its new rationing function, MCI created a powerful external unit called the Temporary Materials Coordination Bureau (TMCB; Rinji Busshi Chosei* Kyoku, based on Imperial ordinance 324). The minister of commerce and industry was concurrently its director-generalto signify its importancebut its deputy director was actually in charge. Yoshino was still minister and therefore the first director, although he was dropped from the cabinet less than three weeks after the bureau was created. Its first deputy director and actual leader was Murase Naokai, who served at the same time as vice-minister of MCI.

During the second half of 1938, the quality of life in Japan went rapidly downhill, and this, too, contributed to the TMCB's troubles. The revised materials mobilization plan halved imports for the civilian sector and drove innumerable medium and smaller enterprises out of business. By one estimate some 390,000 bankruptcies occurred during August 1938 alone.

⁴⁵

During the same month the Home Ministry deployed what the public called the "economic police." This involved the stationing in all police offices of twelve or thirteen procurators and investigators who specialized in "economic crimes" and tried to control the black markets and maintain official prices. The TMCB thus became distinctly unpopular with the citizenry.

Yoshino was infuriated by Ikeda's appointment. He realized why Ikeda might be politically preferable to an ex-bureaucrat, but he also believed that Ikeda would not carry out industrial policy faithfully, and that it was an insult to MCI to be put under a zaibatsu minister. Concerning his own future, Yoshino sought the advice of his sempai and long-time friend from MAC days, Ito * Bunkichi, the illegitimate son of the genro* Ito Hirobumi and the son-in-law of former Prime Minister Katsura Taro*. Ito had left MAC in the early 1920's and taken a position in Ayukawa's Nissan zaibatsu. He now urged Yoshino to join his colleague Kishi in Manchuria and invited him to become an executive of the Ayukawa group. The Konoe cabinet recommended Yoshino as president of the new North China Development Company (while still minister Yoshino had drafted the law establishing the company, although the army sponsored it in the Diet), but the army vetoed him as insufficiently nationalistic to head an organization governing territory won by army blood.

⁴⁶

Yoshino was probably lucky he did not get this job, as it very likely would have led to his arrest after the war as a war criminalassuming, of course, that he would have survived the war. Forced to act on his own, Yoshino visited Hsinking, where Ayukawa instead appointed him as one of two vice-presidents (the other was a Manchurian) of Mangyo*. Yoshino was frustrated in Manchuria by excessive army control and Ayukawa's lack of capital for big projects. While working there, he received an Imperial appointment to the House of Peers, and on November 10, 1940, he returned to Tokyo to take it up. He remained an adviser to Mangyo but was replaced as vice-president by Takasaki Tatsunosuke, then president of the Mangyo-affiliated Manchurian Airplane Company. Takasaki was later MITI minister in the second Kishi cabinet (195859), and he was the Japanese sponsor of the famous Liao-Takasaki agreement for unofficial Sino-Japanese trade during the 1960's.

On April 24, 1953, Yoshino was elected to the House of Councillors from his native Miyagi prefecture. He had run on a platform of "economic independence" (from U.S. aid) and "rebuild Japan's economy." In the Diet he served as chairman of the upper house's Commerce and Industry Committee (where he was more of a problem for MITI than the ministry anticipated), and then as minister of transportation in the third Hatoyama cabinet (195556).

During late 1938 Ikeda clashed violently with Home Minister (Admiral) Suetsugu Nobumasa over the attempts to enforce articles 6 (labor control) and 11 (limitation on dividends and forced loans) of the mobilization law. Suetsugu took the view that if the government were going to control the people, it should also control the capitalists. Ikeda was not completely successful in preventing this, but as Tiedemann remarks, ''In the future, control over capital would become tighter, but Ikeda had set the pattern for making the controls on the business community the lightest of all in the war economy."

⁴⁸

A result of his battle was that Ikeda was forced to leave the cabinet, and in January 1939 the Konoe government resigned in favor of the Hiranuma government, which was conservative but not necessarily pro-state control.

The thanks that Murase received for these efforts from his political superiors was to be fired. During the autumn of 1939 a series of issues came to a head that caused a major realignment of MCI personnel. First, it was becoming apparent that materials mobilization planning alone was not going to overcome Japan's industrial weaknesses, which were being exposed daily in the China war. On January 17, 1939, in recognition of this fact, the new cabinet adopted a "General Outline Plan for the Expansion of Productive Capacity" (Seisanryoku kakuju * keikaku yoko*), which had been prepared in the CPB on the basis of ideas first advanced by the Manchurian planners in 1936. The result was a detailed four-year proposal for the promotion of some fifteen industries in Japan, Manchuria, and China. They were steel, coal, light metals, nonferrous metals, petroleum and petroleum substitutes, soda and industrial salts, ammonium sulfate, pulp, gold mining (to earn foreign exchange), machine tools, rolling stock, ships, automobiles, wool, and electric power. The problem with the plan was how to implement it: was it to be through industrial self-control, public-private cooperation, or state control? These issues were debated throughout 1939 and ultimately led in 1940 to the Economic New Structurepart of the Japanese version of Hitler's New Order.

Third, Japan's poorly informed diplomacy had led to the unpleasant surprise of the Molotov-Ribbentrop agreement. Since the Japanese had thought that they were allied with Germany against Soviet Russia, this inexplicable turn of events led the government to resign. Two days before the outbreak of war in Europe a new cabinet was formed. Godo * Takuo (18771956)a doctor of engineering, a former ordnance vice admiral, a recent head of the Showa* steel works in Manchuria, a connection of the Asano zaibatsu through the marriage of his daughter, and a supporter of medium and smaller enterprises as an active director of the industrial unions associationbecame minister of both agriculture and commerce. Godo first told Murase that he wanted him to remain as vice-minister, but less than a month later he shamefacedly had to say that the army had asked for Murase's resignation in order to bring back Kishi from Manchuria. The problems of the bogged-down war in China, the need for industrial expansion, and the rapidly changing world scene had combined to generate a clamor inside and outside the ministry for the return of the Manchurians. Tojo* was already serving as vice-minister of the army, and Hoshino and Matsuoka did not come back until the following year. But Kishi paid quick heed to the call and became vice-minister of MCI on October 19, 1939.

Before Kobayashi arrived on the scene, Kishi had been able to overturn many of Murase's personnel appointments, although he retained his new structure. In December 1939 Kishi made his most important personnel move: he installed his Manchurian colleague and "junior," Shiina Etsusaburo*, as director of the pivotal General Affairs Bureau.

Among Ryu's* friends and readers were some of the officials of the CPB, and they gave his ideas concrete form in a CPB report of September 13, 1940, entitled "General Plan for the Establishment of the Economic New Structure." Its immediate authors were the "star" reform bureaucrats of the Cabinet Planning Board, Colonel Akinaga Tsukizo*, Minobe Yoji* (who had recently returned from Manchuria to the CPB rather than to MCI), and Sakomizu Hisatsune. They called for the seminationalization (

kokyoka

*, literally "to make public") of private enterprises, the creation of industrial control organs that incorporated the then popular Nazi "leadership principle'' (

hyura

*

genri

, or

Führerprinzip

), the "reform of the Commercial Code in order to separate ownership of capital in enterprises from management functions and to establish the public character of industrial management," and strict limitations on profits.

⁵³

The whole report was infused with a sense of outrage that the capitalists were still making a profit while one war was going on and a bigger one was clearly coming.

Between September 12 and October 22, 1940, MCI Minister Kobayashi was out of the country leading a delegation; it included Chairman Mukai Tadaharu of the Mitsui Trading Company and other business leaders and had gone to Batavia, Netherlands East Indies, to negotiate shipments of oil to Japan. The Japanese had been invited, by the major oil companies, with the full knowledge of their governments, in an attempt to appease Japan and stave off an attack on the N.E.I., which at the time seemed imminent.

⁵⁴

While Kobayashi was gone, Prime Minister Konoe ordered each ministry to draw up plans for the implementation of the Economic New Structure. At MCI Kishi was in charge, and in consultation with his old associate from Manchuria, President Hoshino of the CPB, he produced a draft that conformed closely to the September 13 CPB general plan.

The most widely held opinion is that Kobayashi was rightthere were reds in the Cabinet Planning Board. This view is based on the list of those arrested and their postwar careers. The list includes Wada Hiroo, a postwar left socialist and the subject of an uproar in 1946 when Yoshida named him agriculture minister; Sata Tadataka, a left socialist and leader of the Economic Stabilization Board under the Katayama government in 1947; Katsumata Seiichi, a Socialist Party Diet member and leading theorist of the left socialist faction; and Masaki Chifuyu, a postwar socialist mayor of Kamakura. Many of these men had entered the Cabinet Research Board (and, from there, the CPB) through backgrounds in agricultural administration or, at least in Inaba's case, as staff members of the old Harmony Society (Kyocho* Kai), an organization set up in 1919 after the rice riots by the Industrial Club to promote cooperation and friendly relations between labor and management.

⁵⁸

As Inaba says, most of them were not communists but "humanists" attracted to vaguely socialist programs. Nonetheless, they were definitely to the left of most reform bureaucrats.

As relations with the United States deteriorated, the throne in October 1941 turned to General Tojo* and asked him to form a government. He chose as minister of commerce and industry his colleague and friend from Manchurian days, Kishi; and Kishi in turn cleansed his old ministry of people who had not supported him against Kobayashi. Kishi also appointed Shiina as vice-minister. Some of the strains within the ministry were revealed by a unique event. Higashi Eiji, the first head of the General Affairs Bureau in 1939 and director of the Fuel Bureau when the Tojo cabinet was installed, resigned in protest. According to Shiroyama, Higashi sought to protest the recklessness of the movement toward war; as the official responsible for the supply of petroleum, he knew that the war would inevitably be lost.

⁶⁰

There were two major ironies in this situation. First, despite Tojo's* and Kishi's best efforts to achieve state economic control while they were in office, state control was actually realized in Japan only under the Allied occupation, when SCAP in effect transferred the powers of the control associations to the government. Second, although the prewar and wartime system of divided control

was

disastrous for Japan's war effort, when a similar pattern reemerged after the occupation, it proved optimal for Japan's peaceful industrial expansion. The 1930's and the war had demonstrated to all who were involved with postwar industrial policy that neither state control nor self-control alone was adequate to achieve cooperation and coordination. What was needed was an amalgam of the two.

It was in this context that MCI transformed itself from a lowly commercial bureaucracy whose primary task was to represent the interests of capital in the government into a task-oriented planning, allocating, and managing agency for heavy and chemical industrialization. Its officials learned how to introduce new, advanced-technology industries, first in Manchuria and then in Japan itself, and they also learned that they could not accomplish much of anything unless they worked in conjunction with the zaibatsu. Throughout the 1930's MCI was torn by its political alliances. On the one hand, it rose in power vis-à-vis its better established rivals such as the Finance and Foreign Affairs ministries by cooperating with the military and the reform bureaucrats. On the other hand, it also fought against military arrogance and interference in its development plans and kept its ties to the zaibatsu, which were the only sources of capital and managerial ability for second-stage industrialization. The economic bureaucrats never resolved these problems in the politics of the government-business relationship until the true capitalist developmental state came into being after the war.

From the Ministry of Munitions to MITI

Writing at the end of the war, Jerome B. Cohen concluded, "All the evidence indicates . . . that the major [Japanese] reliance for the war-time economic effort, as it was conceived at the outbreak of war, was to be placed upon a further shift in resources from nonwar to war uses rather than upon a lifting of the whole level of output."

¹

Similarly, the authors of MITI's authoritative

History of Commercial and Industrial Policy

comment that the second Productivity Expansion Plan, written by the CPB and approved by the cabinet on May 8, 1942, was

Name

^a

Total capital in yen

Remarks

II. 1940

As early as 1937 Professor Arisawa Hiromi, who in 1975 was one of the leaders of the Industrial Structure Council, had argued against the prevailing wisdom that medium and smaller enterprises were essential to Japan's export capability. Citing the work of the economist and Cabinet Planning Board official Minoguchi Tokijiro *, Arisawa contended that, contrary to MCI policy, fostering and protecting smaller enterprises was a mistake because they were of only incidental importance to Japan's long-term export prospects, although he did acknowledge that they provided work for a large proportion of Japan's labor force.

³

He would have preferred to see all of these small factories organized into large productive units, or at least made subcontractors of large enterprisesan idea that the zaibatsu found quite congenial. One important legacy of the enterprise readjustment movement is today's pattern of extensive subcontracting between large, well-financed final assemblers and innumerable small, poorly financed machine shops.

⁴

In the reorganization of MCI on June 16, 1939, the Industrial Conversion Policy Department was renamed and continued as the Promotion Department (Shinko * Bu). It is not clear who thought of the term ''promotion" or what was meant by it, but the "promotion department" was perpetuated in the MITI era as a component of the Medium and Smaller Enterprises Agency, created on August 2, 1948. MITI historians see in the reorganization of 1939 a fundamental change of function for the ministry; until then commercial and industrial policy had been carried out without reference to the scale of enterprises, but after 1939 policy was explicitly committed to the nurturing of largescale enterprises.

⁵

This function seems to underlie the meaning of "promotion"namely, the promotion of the expansion of small businesses into larger ones.

Still, Kishi had problems. The control associations for each industry were not working well. The theory behind thema compromise forced on the state-control bureaucrats because of the resistance of the business communitywas the integration of the public and private sectors (

kanmin ittai

).

⁷

The reality, however, was the perpetuation of the privately controlled cartels of the 1931 Important Industries Control Law, which the zaibatsu dominated. Hadley characterizes the control associations as "cartels with a bit of government thrown in."

⁸

The government's power over them was more or less limited to the issuing of licenses. The control associations themselves were busy making good profits, distributing market shares in ways that favored the zaibatsu leaders, and making side deals with the military, regardless of what MCI or the CPB said or did. Moreover, the military often undercut bureaucratic efforts at control by keeping critical materials out of channels and in its own arsenals because of interservice rivalries and military distrust of the cartels' civilian leadership.

Legally speaking, the control associations were joint public-private corporations modeled after the so-called national policy companies (

kokusaku kaisha

) such as Japan Steel or the South Manchurian Railroador after the "licensed companies" such as Nissan and Toyota. Since the disputes between the self-control and state-control groups had made the mixed public-private corporation an acceptable compromise to both sides, the idea occurred to the frustrated MCI bureaucrats that they might get around the control associations and still not draw the wrath of the business community if they created true public corporations with all capital subscribed by the government and the board of directors appointed by a ministry. Thus was born the

eidan

(an abbreviation of

keiei zaidan

, or "management foundation"). The eidan were not necessarily oriented toward war, and one of them still exists todaythe Teito Rapid Transit Authority (Teito Kosokudo * Kotsu* Eidan), which was created in 1941 as the public segment of the Tokyo subway system; they all came into being as bureaucratic devices to bring a sector of the economy under official control while avoiding the weaknesses and zaibatsu domination of the control associations.

Kishi and Shiina next concluded that they needed a new control apparatus within MCI to administer the Enterprise Readjustment Ordinance and to supervise the work of the Industrial Facilities Corporation. On June 17, 1942, they created the new Enterprises Bureau, placed it immediately after the General Affairs Bureau in the ministry's internal chain of command, and designated it as the policy center for all industrial reorganization and production-increase activities. The Enterprises Bureau absorbed the existing Promotion Department and the Financial Section of the General Affairs Bureau. It was made responsible for the supply of capital, the internal organization, the management practices, and the efficiency of all Japanese enterprises. Its duties included supervising the Industrial Facilities Corporation, dealing with all questions concerning medium and smaller enterprises, and inspecting and controlling company financial and accounting affairs. The bureau was divided into four sectionsFacilities (Setsubi-ka), Commercial Policy (Shosei-ka*), Industrial Policy (Kosei-ka*), and Finance (Shikin-ka)and it was given authority over all other bureaus in the ministry in order to insure that its programs were executed. The first director was Toyoda Masataka, Shiina's successor as vice-minister after the war and a member of the Diet from 1953 to 1968.

The full force of the movement hit in 1943. On June 1 the cabinet adopted its "Basic Policy for Enterprise Readjustment to Enlarge Fighting Strength" (Senryoku Zokyo* Kigyo* Seibi Kihon Yoko*).

¹³

This directive divided all enterprises into three categories: the so-called peace industries (textiles, metals, chemicals), munitions industries (aircraft, steel, coal, light metals, and shipbuilding), and daily necessity industries. It ordered that the first category be converted into the second category, and that the third category be abolished. The policy also sought to strengthen the munitions industries by designating all war-related medium and smaller enterprises as belonging to two groupings: "cooperating factories," most of which became subsidiaries (

kogaisha

, literally, "child companies"), that is, permanent subcontractors of large enterprises; and "group-use factories.'' The effect was greatly to increase the industrial concentration in zaibatsu hands (the aspect of the program that is most often noticed), but it also produced a significant shift of the industrial structure toward heavy and chemical industries.

Writing as an Allied analyst of the Japanese economy during World War II, T. A. Bisson perceived the existence of "a chronic behind-the-scenes political crisis throughout 1943," and he was quite right to do so.

¹⁶

The crisis had at least three aspects. First, Tojo and Kishi were seeking to centralize authority over war production, but the business community was resisting this movement, and MCI was being pulled in both directions. Second, the Cabinet Planning Board and MCI were engaged in almost daily shouting matches over priorities and deliveries, in part because the CPB was writing plans for the empire as a whole, including the occupied areas (which were under military control), but MCI had jurisdiction only over Japan proper. And third, interservice rivalries were tending to nullify all efforts at expanded production, particularly production of fighter aircraft, which had become the highest priority for the battles to be fought in Japanese home waters.

Although these men were attached to the cabinet primarily to look after zaibatsu interests, they were quickly educated by Kishi about the problems of the control associations. One sample of Kishi's position is available from a Tokyo radio broadcast of June 23, 1943:

As it turned out, this law came too late to make much difference to the war effort. It merely added another layer of officialdom on top of the control associations, which still allocated materials and distributed products on an industrywide basis. The Munitions Companies Law was the last serious effort of the state-control group before the Allied occupation, and it remained a compromise; with the cabinet council looking on and the Diet increasingly dubious about Tojo's * leadership, Kishi could not go beyond the basic parameters of the capitalist system. The government continued to pay dividends to owners and guarantee their costs of production until June 1945, when the zaibatsu were only too happy to see the government buy out and nationalize their ruined munitions plants.

²⁰

From the perspective of 1945 Allied intelligence, Bisson thought that this structure plus the Munitions Companies Law had "largely rectified" the chaotic situation that had prevailed in Japan's war economy during 1942 and 1943. He was, however, astonished that MCI"this old-line standby of the business interests"and not the military, as had been supposed in Washington, had been responsible for creating the new ministry.

²¹

The MCI officials who went to MM, a contingent that included all of MITI's later industrial faction, were much less sanguine about their prospects for success. Even Shiina, despite his own Manchurian background, later complained bitterly about having to work with arrogant military officers; and many able officials, such as Ueno Koshichi* (MITI vice-minister from 1957 to 1960), found their effectiveness reduced because of clashes with military officers.

²²

One of the first things the former MCI men did when the war was over was to kick out the military officers while retaining the ministry's expanded jurisdiction.

Kishi himself has commented on this strange arrangement, as have numerous outside observers. Kishi says that he told Tojo that as vice-minister he would have to obey Tojo as his minister and superior, but that as minister of state he did not have to obey him because they would both have equivalent ranks. Tojo certainly understood this point, but he appointed Kishi state minister anyway in order to give him sufficient authority to command the generals and admirals who would be working in Kishi's ministry. Tojo remarked to Kishi that military men are trained to take orders according to the number of stars a person wears; a vice-minister has only two stars, but a minister has three.

²⁴

Kishi's becoming minister and vice-minister simultaneously set up and conditioned his clash with Tojo less than a year later. This clash was of much greater significance historically than Kishi's earlier ones (over the pay cuts and with ministers Ogawa and Kobayashi), and it contributed one of Kishi's nicknames, the "quarreler" (

kenka

), and added to his reputation as a man of principle.

²⁵

Kishi nonetheless stood his ground. The inner reality was that powerful figures in the Diet and the Imperial Household agreed with Kishi and wanted to be rid of Tojo. Some of these men were Kido Koichi* (in the palace); Funada Naka (in the Diet); Ino Hiroya (an old MAC associate of Kishi's and one whom Kishi wished had gone to MCI instead of Agriculture in 1925; he served from 1941 to 1943 in the Tojo cabinet as agriculture minister); and Fujiyama Aiichiro* (a prominent businessman and adviser to the navy who plotted with the admirals against Tojo after the Saipan disaster). It appears that Tojo did not dare move against Kishi because he feared Kishi's numerous but unseen supporters. Incidentally, after Kishi became prime minister in 1957, he named Fujiyama minister of foreign affairs in his first cabinet and Ino minister of justice in his second.

On August 15, 1945, the nation heard the

gyokuon

hoso

*the Emperor's broadcast announcing the surrender. Two days later the Suzuki cabinet resigned and was replaced by the transitional government of Prince Higashikuni. Nakajima Chikuhei, the famous aircraft industrialist, was asked to hold the portfolio for MM, which ironically put Nakajima back in nominal control of the aircraft plants that had been taken from him and nationalized only the previous June. Shiina, however, continued to run the ministry. Only ten days after the fighting stopped and barely a day before the first Allied troops arrived at Atsugi air base to prepare the way for General MacArthur, Shiina told several of his younger colleagues that he had an important assignment for them, one that they must complete overnight. They were to recreate MCI before the occupation began.

Since SCAP had decided on an indirect occupation, which left the Japanese government intact even if taking orders from SCAP, the Allies did not demand a reform of all ministries, only those that had been closely connected with the military or the police (one was the Home Ministry), which the occupation ordered abolished. SCAP intended to deal on an individual basis with those bureaucrats whom it held responsible for the warthrough the purge rather than through structural change. But as we saw in Chapter 2, recent Japanese estimates put the number of MCI officials who were actually purged at only 42; and according to SCAP's own figures, it investigated 69 MCI officials but removed from office only 10.

²⁸

Thus Shiina's last-minute ploy worked quite well; the trade and industry bureaucracy maintained its continuity despite the crisis of defeat.

Thus SCAP would sometimes approve of MCI proposals that the Americans thought were temporary expedients but that ended up lasting until well into the 1960's (foreign exchange budgets, for example). As for SCAP's policies calling for zaibatsu dissolution, the officials of MCI's old Enterprises Bureaunow called the Readjustment Department (Seiri Bu)administered this program with enthusiasm. But when it came to economic deconcentration generally, toward which the breakup of the zaibatsu was only a means and not an end, the industrial bureaucrats quickly discovered that there were divisions within SCAP and took advantage of them. Eleanor Hadley, herself a SCAP trustbuster, explains:

Sometimes Japanese officials genuinely did not understand what SCAP wanted them to do. For example, with regard to the Antimonopoly Law (number 54 of April 14, 1947), Morozumi Yoshihiko, who 25 years later became vice-minister of MITI, recalls his painful efforts during the occupation to translate article by article into legal Japanese the draft of the Antimonopoly Law that General MacArthur's headquarters had sent over to MCI for enactment. "It seems laughable today," he writes, "but then we didn't really know what they were talking about."

³³

When Morozumi showed his draft to his "senior," Murase Naokai, then chief of the Cabinet Legislation Bureau, Murase asked him what something he had translated meant and he was forced, much to his embarrassment, to reply that he did not know. Murase got the drift of the law only by looking at the original English text. Needless to say, the Antimonopoly Law was not something the Japanese were able to avoid or evade. As we shall see in the next two chapters, MITI spent the succeeding 30 years struggling to get around Morozumi's handiwork. The tension that developed between MITI on the one hand and the Fair Trade Commission (created by the law) on the other undoubtedly made a contribution to the favorable climate in which high-speed growth took place. This tension, unintended by either SCAP or MCI, may have been one of the occupation's greatest contributions to the economic "miracle."

The emphasis on production rather than stabilization and on heavy industry rather than light industry usually prevailed, but the advocates of the opposite positions were not necessarily wrong. They made their contribution during the "Dodge Line" (194950) and the Korean War (195053), when the advocates of production and of heavy industries had to come to grips with controlling inflation and with Japan's dependence on international trade. It was then that MITI was born and that both sides of the occupation controversies were synthesized to form the high-growth system.

Most important in this struggle was the fact that the key politician of the postwar years, Prime Minister Yoshida, was an ex-Foreign Office official. Yoshida has always acknowledged that he did not know much about and was more or less uninterested in economics, but he had quite firm views on certain other matters about which he knew a great deal. Two such issues concerned Japan's wartime controlled economy and the economic bureaucrats who had cooperated with the military. He deeply disliked both of them. According to many accounts, Yoshida "could not distinguish an MCI official from an insect"; and he was determined to put reliable Foreign Office men over what he regarded as the dangerously national socialist MCI bureaucrats.

³⁷

MCI had to move nimbly in order to survive at all, since its greatest danger came not from SCAP but from its own country's political leader and from some of his official colleagues. As we shall see, MITI did not escape fully from Foreign Ministry influence until 1956.

During 1946 these disbursements led to one of the first big clashes between SCAP and the Japanese over economic policy. Ishibashi Tanzan, minister of finance in the first Yoshida cabinet (May 1946 to May 1947), was a strong advocate of increased production; he boldly argued that "the current economic crisis is not one of inflation but rather of a surplus of unused labor and production facilities. The only way to get out of it is to increase production."

⁴¹

For this purpose Ishibashi was prepared to throw money at industry through war claims payments and price support subsidies and to deal with the resultant inflation merely by issuing "new yen" whenever necessary. SCAP profoundly disagreed; in its view price stabilization had to take precedence over any efforts to restore production. Ishibashi's position reflected the war-bred theories of many industrial bureaucrats who believed that what counted was materials, labor, and outputnot prices and money; SCAP's views were closer to those of Governor Ichimada of the Bank of Japan, who was also a confidant of such senior SCAP officials as General Courtney Whitney.

⁴²

On June 25, 1946, the cabinet finally ended wartime compensation payments, but a month later it took the first steps to restore them under new names. The government set up the Reconstruction Finance Committee (Fukko * Kin'yu* Iinkai), with Ishibashi as chairman, to prepare the way for the Reconstruction Finance Bank (RFB), created on January 24, 1947. It was one of a set of institutions that the Japanese created after the war to try to pull themselves out of the postwar economic collapse and to restore production to prewar levels regardless of the fierce inflation it generated.

⁴³

SCAP derided these institutions as perpetuations of the old cozy relationship between government and business, and the specific acts of Ambassador Joseph Dodge in 1949, which came to be known as the "Dodge Line," were to terminate all further RFB lending and to order the government to balance its budget. Nonetheless, key Japanese leaders contend that the so-called priority production system of 1947 actually worked in that it restored the production of commodities such as coal and steel to levels close to those of the prewar period. The priority production system is significant because it and its institutions were clearly based on prewar and wartime precedents and because, except for the fiscal innovations made in 1949 and 1950 to control inflation, it was the prototype of the high-growth system that MITI and other ministries were to forge during the 1950's.

The new system did not work well. After their governmental subsidies were cut off, the mine operators had difficulty in meeting payrolls. Insufficient coal was being produced to meet both industrial and civilian needs, and the costs of production skyrocketednot least because of the virulence of the new labor movement among the miners. The Planning Office of the MCI Secretariat worked throughout 1946 on policies to overcome these conditions. The chief of the Planning Office was Tokunaga Hisatsugu (a future MITI vice-minister), and assisting him were Takashima Setsuo (a chief of the Heavy Industries Bureau during the 1960's), Morozumi Yoshihiko, and others. They drafted the Temporary Materials Supply and Demand Control Law of September 1946 and proposed the revival of the materials mobilization plansrenamed "materials supply and demand plans"to guarantee shipments of coal to the industrial and transportation sectors rather than to civilians for consumption.

⁴⁵

What they really needed, however, was an institution comparable to the old Cabinet Planning Board or MM's General Mobilization Bureau, an organ that could not only draft further plans but also administer the new control law.

The new organization, called the Economic Stabilization Board (ESB; Keizai Antei Honbu), came into being on August 12, 1946. It was the successor institution to the old CPB and the predecessor of the contemporary Economic Planning Agency. Like both of them, it was a planning and coordinating organ, not an operating unit; MCI was charged with executing its plans. Some of the staff of the new board was drawn from old CPB cadresnotably from among those who had been arrested as "reds" in the Cabinet Planning Board incident of 1941, since they now qualified as civilians. According to its charter, the ESB president was the prime minister, but its actual director was a civilian appointee with cabinet rank.

President, Tokyo Commercial University. MITI minister, 1950.

Priority production was put into effect during the spring of 1947. Under Ishibashi's leadership and SCAP's orders that all ministerial planning functions be transferred to it, the ESB came to life. By May it had grown from a unit with 5 bureaus and 316 employees into a virtually new unit with a secretariat, 10 bureaus, 48 sections, and over 2,000 employees. MCI supplied the largest number of these new recruits. At the same time, the Diet enacted one law after another setting up the government corporations (kodan *) that under ESB orders purchased all major commodities from their producers at high prices and sold them to consumers at low prices, covering the difference with price subsidies from the general account budget. Table 12 summarizes the government's payments of subsidies and indemnities through the 1940's. It reveals that between 1946 and 1949 some 20 to 30 percent of all expenditures from the general account budget went to industry to cover operating costs and priority production.

(Million yen)

Year

The second important but unsuccessful Katayama initiative was a proposal to nationalize the coal industry, an idea borrowed from the British Labour Party's policies of September 1946. Hirai Tomisaburo* of MCI enthusiastically drafted a state control law for the government, but it met with intense hostility in the Diet, despite MacArthur's endorsement of the plan. Mizutani Chozaburo*, MCI minister in the socialist cabinet, attempted to gain publicity for the measure by having himself photographed in a coal mine wielding a pickax and wearing only a loincloth, and he was thereafter always known as the "loincloth minister" (

fundoshi daijin

). After innumerable disruptions and fist fights in the Diet, the heavily modified Law for the Temporary State Management of the Coal Industry (Rinji Sekitan Kogyo* Kanri Ho*, number 209 of December 20, 1947, implemented on April 1, 1948) came into being. It had a three-year time limit and covered some 56 ex-zaibatsu mines. Its only concrete result was to cause a reorganization and vast expansion of the Coal Agency, which by 1950 employed some 12,000 officials. The law did not, however, serve to increase coal production beyond what the priority production system had already achieved, and it was abrogated prematurely on May 2, 1950, unlamented as the last formal effort of MCI or MITI to separate management from ownership and turn management over to the state.

⁵⁰

There can also be no question that the actual institutions of priority productionthe RFB, the Supply and Demand Control Law, the ESB, and the Coal Agencywere recreations of Japan's wartime state apparatus for the economy. RFB financing was copied directly from the wartime policies of the Ministry of Finance and the Bank of Japan. The Supply and Demand Law was, if anything, stronger than any wartime law, since it gave the state control over all commodities, not just over trade. The ESB duplicated the CPB's functions and techniques, and employed many of its personnel. And the Coal Agency was the old Fuel Bureau, reborn without its seconded military officers. The creation of the ESB and the enactment of the Supply and Demand Law also forced the reorganization of MCI on November 9, 1946, into vertical bureaus for each industry, just as the creation of the CPB and its materials mobilization planning had done in 1939. As Jerome Cohen noted at the end of his study of the wartime economy, "The wartime control system with its vestiges of cartel domination was abolished, but the substitute allocation system had a very familiar appearance."

⁵³

(193436 = 100)

Category

1949

1950

Real national income

82

97

Mining and manufacturing

72

94

Agriculture, forestry, fishing

97

100

Exports (including SCAP purchases)

15

35

Imports

30

39

Private plant and equipment investment

70

82

Per capita real national income

69

80

SOURCE

: Japan Development Bank,

Nihon kaihatsu

ginko

*

10-nen shi

(A ten-year history of the Japan Development Bank), Tokyo, 1963, p. 18.

Even though the BOT was attached to MCI, the ministry had very little influence over it. BOT staff members from MCI were heavily outnumbered by Foreign Office officials who spoke Englishan indispensable requirement, since the BOT's main business was with SCAPand who needed assignments during the period when Japan had no other foreign relations. Until April 1947 the BOT conducted its domestic business through some 78 "semigovernmental" trade associations of exporters and importers. These associations were straight postwar continuations of the old control associations, although under new names; when SCAP realized what was going on, it banned any further use of the cartels. They were then replaced by four fully governmental corporations (kodan*), one each for minerals and industrial products, textiles, raw materials, and foodstuffs (see the Foreign Trade Public Corporations Law, number 58 of April 14, 1947). The BOT also controlled the Foreign Trade Fund, which concentrated all U.S. aid receipts and foreign exchange earned from exports into a single account to be used to buy strategic imports.

During the autumn of 1948 both SCAP and the Japanese recognized that they had to make some fundamental changes in the priority production system and in the state trading operations of the BOT. On October 15, 1948, the Ashida cabinet resignedthe prime minister himself had been arrested in the Showa* Denko* scandal over the misuse of RFB fundsand Yoshida returned to power. SCAP was now determined to stop the so-called RFB inflation, for two reasons in particular. First, beginning in July 1948, in order to increase Japanese imports and thereby try to rehabilitate the economy, SCAP had started to draw on two new accounts of U.S.-appropriated aid fundsthe so-called GARIOA and EROA ("Government Appropriations for Relief in Occupied Areas" and "Economic Rehabilitation of Occupied Areas")and it could not afford to see these politically sensitive funds consumed by the fires of inflation. Second, in December 1948 Washington unequivocally ordered SCAP to make the quick attainment of Japanese economic self-sufficiency its primary objective. In order to do this, trade had to be increased, which in turn required the establishment of a fixed commercial exchange rate for the yen, and this could not be accomplished without halting inflation. The world was changing: the Cold War had begun, the communist revolution in China was nearing its denouement, and the United States now saw Japan as a strategic territory of critical importance to its own security and not just as an object for political reform policies that had grown out of the ideological confrontations of World War II.

On December 19, three weeks after Shirasu took over at the BOT, General MacArthur transmitted to the Japanese government his nine-point Economic Stabilization Plan. This called for a balanced budget, strengthened tax collection, limitations on RFB loans, improved controls over foreign trade and U.S. aid, increased production, and several other reforms that were intended to bring Japan back into international commerce but that would also impose very harsh conditions on the Japanese people until the exports started to flow. The immediate objective of the plan was to establish a fixed exchange rate. MacArthur made it clear that concrete policies to implement the nine principles were the responsibility of the Japanese government, but he added that the United States was sending an adviser to assist the government in its efforts and to monitor its progress. This adviser was the Detroit banker and former financial consultant to General Lucius D. Clay in Germany, Joseph Morrell Dodge (18901964).

While these great events were taking place, and almost unnoticed by Dodge or any other SCAP official, the Japanese contributed to the nine-point stabilization plan a reform of their ownone that probably had as great an impact on the Japanese and world economies as any of Dodge's measures. They abolished MCI and the BOT and combined their former functions into a new ministry called the Ministry of International Trade and Industry. Shirasu Jiro* was the prime mover behind this development.

⁵⁹

In retrospect it is clear that the merging of MCI and the BOTor, more precisely, the turning of the BOT into an internal bureau of MCI and giving it a prime position in the ministry's chain of commandwas a brilliant idea. But that it was Shirasu Jiro who had the idea and he and Yoshida who supervised its execution produced some of the most anxious days that the men of the "Kishi-Shiina line" had ever known in their bureaucratic lives.

Another thing the MCI officials did was to write the MITI Establishment Law (number 102, introduced in the Diet on April 22, 1949, passed on May 24, and implemented on May 25). In this law MCI tried to accommodate itself to the new order by putting the prefix "international trade" (

tsusho

*) in front of the name of each of its policy-making and industrial bureaus, the result being a series of odd-sounding titles like International Trade Enterprises Bureau (Tsusho* Kigyo* Kyoku), and so forth. They also grouped all of the bureaus in charge of energy problems into one separate external bureau, the Resources Agency (Shigen Cho*), to downplay their importance. The Resources Agency was abolished in 1952 in the sweeping restructuring of MITI that followed the end of the occupation, but it was reestablished in 1973, when energy policy once again became salient, as the Natural Resources and Energy Agency (Shigen Enerugi* Cho). All of these internal MITI arrangements were intended to reorient it away from MCI's emphasis on internal control and priority production and toward international trade and the promotion of exports; they also had the secondary purpose of trying to smuggle as much of the old MCI as possible past Shirasu's and Yoshida's scrutiny. (MITI's initial internal organization is detailed in Appendix B).

As for Shirasu, after failing to be appointed ambassador to the United States, which he had wanted, he left politics and in May 1951 became president of the Tohoku* Electric Power Company. He and Yoshida had had a parting of the ways. In 1974, for the first time in many years, Shirasu's name was again mentioned in the press. The

Japan Times

reported on August 19 that as the director of the exclusive Karuizawa Golf Club and chairman of its course committee, he refused to allow former American ambassador Robert Ingersoll to play a round on a weekend, even though Ingersoll presented a letter of introduction from Prime Minister Tanaka Kakuei. The rules of the Karuizawa Club prohibit visitors from playing on weekends, and Shirasu stuck to the rules. In order to become a member of the club, one must own a villa in Karuizawa.

During 1949 SCAP began a policy of transferring some of its own controlling and supervisory powers to the Japanese government in anticipation of the coming peace treaty. On February 2, 1949, the occupation delegated to the Japanese government all control over foreign exchange accruing from international trade, and it ordered the creation of a Foreign Exchange Control Board to supervise the investment of these funds in industries that were essential to Japan's economic recovery. To complete the transfer of authority, SCAP encouraged the Japanese government to pass the Foreign Exchange and Foreign Trade Control Law (number 228 of December 1, 1949).

⁶²

Among other things, this law required that any citizen who acquired foreign exchange through trade must turn it over to a government account, and the Foreign Exchange Control Board was put in charge of how these funds would be used. Until the end of the occupation the ESB drew up periodic foreign exchange budgets to spend the foreign exchange thus concentrated, but on August 1, 1952, both the ESB and the Foreign Exchange Control Board were abolished. Their powers to enact and supervise the foreign exchange budget were transferred to the newly created Budget Section of MITI's International Trade Bureau. At the same time the powers of the ESB's old Foreign Capital Committee to supervise all imports of technology and all joint ventures were transferred to the Industrial Finance Section of the Enterprises Bureau.

⁶³

When these changes were made, MITI came to possess weapons of industrial management and control that rivaled anything its predecessors had ever known during the prewar and wartime periods.

Virtually all Japanese regard the defeat of 1945 as the most important watershed in modern Japanese history since the Meiji Restoration of 1868. However, from the point of view of the history of industrial policy, I believe that the 1940's are one continuous era: the period of the high tide of state control. Beginning with the policies of the Tojo* government and continuing with their acceleration by SCAP, the Japanese state came to dominate virtually all economic decisions, from those of zaibatsu enterprises to those of individual households. Tojo and his associates intended this outcome but were unable to achieve it completely; the Allied reformers did not intend it but promoted it anyway, first out of their commitment to making the government more responsible, and subsequently out of their commitment to Japanese economic recovery and growth as part of the renewed global resistance to totalitarianism. The prime political beneficiaries of these developments were the economic bureaucrats; the ultimate economic beneficiaries were the Japanese people.

True state control did not last long after 1949. Its primary contribution to the later high-growth system was the irreversible establishment of the economic general staff at the heart of all Japanese economic policy-making and administration. In the years after the occupation the economic bureaucracy began by degrees to share its powers with big business, consulting it on all important issues, providing state incentives for industrial rationalization, and blurring the distinctions between the state and the private sector by insinuating numerous ex-bureaucrats into the board rooms of the economically strategic industries.

The Institutions of High-Speed Growth

Some of the elements of what became MITI's high-growth system derived from the government's selection of industries for "nurturing," perfection of measures to commercialize the products of these chosen industries, and development of means for regulating the cut-throat competition that the first two sets of policies generated. The tools in the hands of the economic bureaucrats included control over all foreign exchange and imports of technology, which gave them the power to choose industries for development; the ability to dispense preferential financing, tax breaks, and protection from foreign competition, which gave them the power to lower the costs of the chosen industries; and the authority to order the creation of cartels and bank-based industrial conglomerates (a new and rationalized version of the zaibatsu, now made totally dependent on government largesse), which gave them the power to supervise competition. This high-growth system was one of the most rational and productive industrial policies ever devised by any government, but its essential rationality was not perceived until after it had already started producing results unprecedented for Japan or any other industrialized economy.

On June 25, 1950, warfare erupted on the Korean peninsula, and the United States intervened. This development ended the "stabilization panic" quantitatively, if not qualitatively. In addition to the American foreign aid that had sustained the Japanese economy since stabilization began, the United States now began to place extensive orders with Japanese firms for ammunition, trucks, uniforms, communications equipment, and other products needed for the war effort. The Americans also started to buy fertilizers and consumer goods destined for South and Southeast Asian noncommunist countries as part of the American foreign aid effort. For example, between July 1950 and February 1951 the U.S. armed forces and the U.S. Economic Cooperation Administration placed orders with Japanese firms for some 7,079 trucks worth nearly $13 million; this was the key to the revival of the Japanese automotive industry.

⁴

The Enterprises Bureau of MITI supervised these "special procurements" (

tokuju

) to ensure that the foreign exchange thus gained was used for investment in basic industries. For a while the "special procurements boom," as it was called, provided a false sense of euphoria and a feeling that the hard times were over. Special procurements plus the expenditures of U.S. troops and their dependents constituted 37 percent of all foreign exchange receipts in 195253, and they still contributed 11 percent in 195960.

⁵

Bank of Japan; later minister of finance in the Hatoyama and Kishi cabinets.

Ichimada held almost directly contrary financial views. He had served in Germany before the war and was personally acquainted with the German inflation, so he strongly agreed with SCAP's opposition to Ishibashi's inflationary policies of 1947. Throughout the occupation, with most senior zaibatsu executives purged and the commercial banks virtually the only institutions left unscathed, Ichimada wielded enormous powers over the banks and their borrowers through his decisions on how much the Bank of Japan would let them borrow. After Dodge launched his deflation and the "stabilization panic" hit, Ichimadanow known to the press as "Pope Ichimada"came to exercise life-or-death powers over businesses. Partly as a result of his German experiences and partly because most of the inflationists were concentrated in the Finance Ministry, Ichimada came to stand for a deflationary, balanced-budget fiscal policy and for a mildly expansionist monetary policy. During the capital shortage Ichimada upped the tempo of government loans to city banks (the twelve national banks to which the Bank of Japan extends loan privileges), who in turn distributed the funds to the industrialists who were clamoring for money to expand their facilities. He never went as fast as Ikeda and MITI would have liked, but he started the process of central bank "overloaning" that led to the nexus between the city banks and industry that persists to the present day. In the process he virtually insured that SCAP's proposal for a capital market for industrial financing (a stock exchange) would remain stillborn for at least twenty years.

Ichimada himself appears to have been reluctant to see the system of overloaning expand as far as it did. He regularly declared that the limits of central bank underwriting had been reached, and that a capital crisis was imminent.

¹¹

Also, in order to protect himself and his bank, he became increasingly dependent on guidelines supplied by MITI's Enterprises Bureau on the amounts of capital various industries would need for a given period, and above all on the industries that other branches of the government were protecting and promoting.

¹²

If the Bank of Japan or the city banks had ever ventured very far from MITI's guidelines and taken on support of an undesignated industry, the risks not just to a particular bank but to the whole system would have become intolerable.

One advantage of the overloaning system was that managers were not pressured by stockholders, which meant that they could ignore short-term profitability as a measure of their own performance and could concentrate instead on such things as foreign market penetration, quality control, and long-term product development. This became a considerable advantage when Japanese managers began to compete seriously with American firms, since short-term profitability and the payment of dividends were the keys to the availability of capital for American enterprises (not to mention also being the keys to an American manager's longevity in his job). Another advantage was the ease and precision with which the government could employ monetary controls alone to expand or contract the tempo of economic activity in response to international balance of payments constraints. A less desirable feature of the dependence on borrowing was that it left Japanese companies with so little paid-in capital that they were easy targets for foreign purchase. However, this state of affairs only increased civilian demands for the protection of the Japanese economy, which the bureaucrats wanted to pursue anyway on nationalistic grounds. The resultant community of interests reinforced both sides.

A typical Japanese group includes a big bank, several industrial firms, and a general trading company. The bank plays the critical role during expanding business conditions by supplying capital to the members, and the trading company plays the critical role during contracting business conditions by importing raw materials on credit and fiercely promoting exports of products that cannot be sold domestically. SCAP broke up the old zaibatsu trading companies, but as soon as the occupation was over, MITI busily rebuilt them. Mitsui Bussan and Mitsubishi Shoji* were dissolved on November 30, 1947, and their liquidation completed on August 31, 1950. The largest and most successful Mitsui offshoots were the Dai Ichi, Sanshin, and Kyo-kuto* trading companies, while the leading Mitsubishi splinters were the Tozai*, Fuji, and Toyo* trading companies. By the end of 1952, the successor Mitsubishi companies had already recombined, but Mitsui took until the end of 1955 to come back together.

¹⁵

This competition was ultimately caused by the nature of the banks' assets. As Abegglen and Rapp observe, "The financial risks associated with high debt levels are very much reduced in Japan by the fact that the central bank stands implicit guarantor of the debt positions of major Japanese companies."

¹⁷

It was this elimination of risk that above everything else made competition mandatory. And the risks for bank managers were even further reduced by powerful Finance Ministry controls over all interest rates and dividend rates, over the scope of a bank's operations, and over permission to open new branches, which meant that a banker really had only one thing to concentrate oncompetition for the expansion of a bank's share of loans and depositors. Under these conditions city banks did everything in their power to discover and come to the aid of growth industries and growth enterprises. Most important, each bank group had to have its entry in each new industry fostered by MITI or face being frozen out of the truly riskless sectors.

Controlled though the Japanese economy surely was, Ichimada's modest efforts to expand the supply of capital during the dark days of 1950 thus led to much fiercer competition among big businesses than is common in other open economies dominated by oligopolies. Even the government's purely indicative "plans" of 1955 and after (discussed below) fed the competitive fires by revealing the industries that the government planned to commercialize over the coming termthat is, those in which the risks would be close to nil unless Japan itself went under. It is not at all surprising, therefore, or a reflection on the competence of government planners (as some scholars seem to think), that the targets for the designated priority sectors in all EPA plans have invariably been wildly overfulfilled.

¹⁸

Ikeda first proposed an export bank, and this idea went down much easier with the Americans than his second onea new version of the RFB. The lack of adequate banking facilities to handle longer-term loans than were commercially available for the export of capital goods was having a retarding effect on trade, and SCAP therefore readily agreed to the creation of the Export Bank of Japan (law number 268 of December 15, 1950). The bank was established on December 28, 1950, and opened for business on February 1, 1951. The initial capital of ¥15 billion came from U.S. aid counterpart funds and from general account budget appropriations. The prime minister appointed the bank's president, and the Ministry of Finance supervised the bank. In April 1952, when the occupation ended, the government renamed it the Export-Import Bank of Japan and gave it the additional task of lending Japanese importers the funds they needed for advance payments for commodity imports approved by MITI. By 1958 the Export-Import Bank's capital account had risen to ¥38.8 billion, and its total loans outstanding amounted to ¥60.3 billion.

Of the six government banks established between 1949 and 1953 (plus two more that continued undisturbed from the prewar era), the most important for industrial policy was the Japan Development Bank (JDB), created by law number 108 of March 31, 1951.

^*

Despite Ikeda's pleas to Dodge that the JDB be allowed to borrow from the postal savings accounts, Dodge refused. During 1951 Dodge authorized disbursements from the savings trusts for specific government projects, but because of SCAP's hostility to the JDB, the funds could not be assigned to cover such an RFB-like operation. SCAP provided all of the JDB's initial capital of ¥10 billion from counterpart funds, and it allowed the bank to be established only on condition that it would not be permitted to issue debentures, borrow funds, or grant loans to cover an enterprise's operating costs. Old occupation hands were still very wary of reigniting inflation. According to SCAP historians, the JDB "was to provide long-term equipment loans to private enterprise when the commercial banks were not in a position to assume the risks involved."

²¹

Almost as soon as the occupation ended, the government amended the JDB's charter (law number 224 of July 1, 1952) giving it authority to issue its own bonds and lifting the loan ceilings that SCAP had imposed. At the same time the Ministry of Finance modified all of the statutes covering the postal savings accounts, combining them into one large investment pool named the Fiscal Investment and Loan Plan (FILP; Zaisei Toyushi* Keikaku). This "second" or "investment" budget was constructed annually by officials of the Ministry of Finance and of the Industrial Capital Section of MITI's Enterprises Bureau. From 1953 on it became the single most important financial instrument for Japan's economic development.

Much more important than the figures for all industry during the period 195355 are the figures on the JDB's contributions to MITI's designated strategic industrieselectric power, ships, coal, and steel. Some 83 percent of JDB financing in this period went to these four industries, accounting for 23.1 percent of all investment in electric power, 33.6 percent in shipbuilding, 29.8 percent in coal mining, and 10.6 percent in new steel plants.

²⁶

(Hundred million yen)

1953

1954

1955

1956

1957

1958

1959

1960

1961

Private financial organs: