MITI and the Japanese miracle

by Chalmers Johnson

  jukagaku

  *

  kogyoka

  *).

  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.

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  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.

  Many voyagers have navigated these waters before me, and a survey of their soundings is a necessary introduction to this study and to my particular point of view. The task of explaining Japanese economic growthand its repeated renewals after one or another set of temporary advantages had been exhausted or removedis not easy, as the frequent use of the term "miracle" suggests; and the term cannot be isolated and applied only to the high-speed growth that began in 1955. As early as 1937 a much younger Prof. Arisawa Hiromi (b. 1896), one of the people who must be included on any list of the two or three dozen leading formulators of postwar industrial policy, used the phrase "Japanese miracle" to describe the increase of 81.5 percent in Japanese industrial output from 1931 to 1934.

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  Today we know why that particular miracle occurred: it resulted from the reflationary deficit financing of Finance Minister Takahashi Korekiyo, who at 81 was assassinated by young military officers on the morning of February 26, 1936, for trying to apply the brakes to the process he had started.

  This earlier miracle is nonetheless problematic for scholars because of what Charles Kindleberger refers to as "the riddle" of how Japan "produced Keynesian policies as early as 1932 without a Keynes."

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  Some Japanese have not been overly exercised by this riddle; they have simply settled for calling Takahashi the "Keynes of Japan."

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  As I hope to make clear in this book, this kind of sleight of hand will not do; there was more to state intervention in the thirties than Keynesianism, and Arisawa and his colleagues in the government learned lessons in their formative years that are quite different from those that make up what has come to be known in the West as mainstream governmental fiscal policy.

  Kindleberger's "riddle" does serve to draw attention to the projec-

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  tionists, one major category among modern explorers of the Japanese economic miracle. These are writers who project onto the Japanese case Westernchiefly Anglo-Americanconcepts, problems, and norms of economic behavior. Whatever the value of such studies for the countries in which they were written, they need not detain us long here. This type of work is not so much aimed at explaining the Japanese case (although it may abstract a few principles of Japanese political economy) as it is at revealing home-country failings in light of Japan's achievements, or at issuing warnings about the possible effects of Japan's growth on other parts of the world. Even the

  Economist

  's brilliant little tract of 1962 might better have been called

  Consider Britain in Light of What the Japanese Are Doing

  , which was in any case its true purpose. Successors to the

  Economist

  include Ralph Hewins,

  The Japanese Miracle Men

  (1967), P. B. Stone,

  Japan Surges Ahead: The Story of an Economic Miracle

  (1969), Robert Guillain,

  The Japanese Challenge

  (1970), Herman Kahn,

  The Emerging Japanese Superstate

  (1970), and Hakan Hedberg,

  Japan's Revenge

  (1972). Perhaps the most prominent work in this genre, because it is so clearly hortatory about what Americans might learn from Japan rather than analytical about what has caused the phenomenal Japanese growth, is Ezra Vogel's

  Japan as Number One: Lessons for Americans

  (1979). My study does not follow these earlier works in advocating the adoption of Japanese institutions outside of Japan. It does, however, try to lay out in their full complexity some of the main Japanese institutions in the economic field so that those who are interested in adopting them will have an idea of what they are buying in terms of the Japanese system's consequencesintended, unintended, and even unwanted.

  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.

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  Before proceeding to sketch the qualities of these types of analysis, let me say that to a certain extent I can agree with all of them. My interest is not in disputing the facts that they have revealed nor in questioning their relevance to the miracle. However, I believe it can be shown that many of them should be reduced to more basic categories of analysis, particularly to the effects of state policy, and that they need to be weighed according to standards different from those used in the past, thereby giving greater weight to the state and its industrial policy.

  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,"

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  ''private collectivism,"

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  "inbred collectivism,"

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  "spiderless cobweb,"

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  and "Japan, Inc."

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  My reservations about the value of this explanation are basically that it is overgeneralized and tends to cut off rather than advance serious research. Consensus and group solidarity have been important in Japan's economic growth, but they are less likely to derive from the basic values of the Japanese than from what Ruth Benedict once called Japan's "situational" motivations: late development, lack of resources, the need to trade, balance of payments constraints, and so forth.

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  Positing some "special capacity to cooperate" as an irreducible Japanese cultural trait leads inquiry away from the question of

  why

  Japanese cooperate when they do (they did not cooperate during almost half of the period under study here), and away from the probability that this cooperation can be, and on occasion has been, quite deliberately engineered by the government and others. David Titus's research into the use of the Imperial institution in prewar Japan to "privatize" rather than to "socialize" societal conflict
is one creative way to look at this problem of consensus.

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  Many instances to be discussed later in this study illustrate how the government has consciously induced cooperation among its clientswith much better results than during the Pacific War, when it sought to control them. In the final analysis it is indeed probable that Jap-

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  anese basic values are different from those of the Western world, but this needs to be studied, not posited; and explanations of social behavior in terms of basic values should be reserved for the final analysis, that is, for the residue of behavior that cannot be explained in other more economical ways. Actually, the explanation of the Japanese economic miracle in terms of culture was more prevalent a few years ago, when the miracle had occurred only in Japan. Now that it is being duplicated or matched in the Republic of Korea, Taiwan, Hong Kong, and Singaporeand perhaps even in some non-East Asian nationsthe cultural explanation has lost much of its original interest.

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  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."

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  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."

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  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.

  Many Japanese would certainly dispute Patrick's conclusion that the government provided nothing more than the environment for economic growth. Sahashi Shigeru, former vice-minister of MITI (the Ministry of International Trade and Industry), asserts that the government is responsible for the economy as a whole and concludes, "It is an utterly self-centered [businessman's] point of view to think that the government should be concerned with providing only a favorable en-

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  vironment for industries without telling them what to do."

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  There have been occasions when industries or enterprises revolted against what the government told them to doincidents that are among the most sensational in postwar politicsbut they did not, and do not, happen often enough to be routine.

  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."

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  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.

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  Another difference between Japan and the United States is to be found in the banking system. Before the war the rate of owned capital of all corporations in Japan was around 66 percenta rate comparable to the current U.S. rate of 52 percentbut as late as 1972 the Japanese rate of owned capital was around 16 percent, a pattern that has persisted throughout the postwar period. Large enterprises obtain their capital through loans from the city banks, which are in turn over loaned and therefore utterly dependent on the guarantees of the Bank of Japan, which is itselfafter a fierce struggle in the 1950's that the bank lostessentially an operating arm of the Ministry of Finance. The government therefore has a direct and intimate involvement in the fortunes of the "strategic industries" (the term is standard and widely used, but not in the military sense) that is much greater than a formal or legal comparison between the Japanese and other market systems would indicate. MITI was not just writing advertising copy for itself when in 1974 it publicly introduced the concept of a "plan-oriented market economy system," an attempt to name and analyze what it had been doing for the previous twenty years (the twenty years before that it had spent perfecting the system by trial and error).

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  The plan-oriented market economy system most decidedly includes some differences from "politics in other democracies," one of them being the care and feeding of the economic miracle itself.

  The "no-miracle-occurred" school of miracle researchers agrees that Japanese economic growth took place but insists that this was because of the availability of capital, labor, resources, and markets all

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  interacting freely with each other and unconstrained in any meaningful ways. It rejects as contrary to economic logic, and therefore as spurious, all the concepts that the Japanese have invented and employed continuously in discussing and managing their economysuch concepts as "industrial structure," "excessive competition," "coordination of investment," and ''public-private cooperation." Most seriously, from a historical point of view, this explanation short-circuits attempts to analyze what difference the government's intervention has actually made by declaring in advance and as a matter of principle that it made no difference. The result is, as John Roberts has put it, that Japan's " 'miraculous' emergence as a first-rate economic power in the 1960s has been described exhaustively by Japanese and foreign writers, and yet very little of the literature provides credible explanations of how it was done, or by whom."

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  This study is an attempt to answer these questions.

  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.

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  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.

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  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.

  This argument is undoubtedly true, but it has never been clearly formulate
d and is, at best, simplistic. There are several points to be made. First, the three sacred treasures are not the only "special institutions," and they are certainly not the most sacred. Others include the personal savings system; the distribution system; the "descent from heaven" (

  amakudari

  ) of retired bureaucrats from the ministries into senior management positions in private enterprises; the structure of industrial groupings (

  keiretsu

  , or the oligopolistic organization of

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  each industry by conglomerates); the "dual economy" (what Clark usefully terms the system of "industrial gradation"

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  ) together with the elaborate structure of subcontracting it generates; the tax system; the extremely low degree of influence exercised over companies by shareholders; the hundred-odd ''public policy companies" (public corporations of several different forms); and, perhaps most important of all, the government-controlled financial institutions, particularly the Japan Development Bank and the "second," or investment, budget (the Fiscal Investment and Loan Plan).

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  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.