MITI and the Japanese miracle
Page 20
Page 118
nese home islands should attempt to mobilize vast quantities of men and munitions on the scale expended from 1914 to 1918 by France, for example, then the effort would certainly bankrupt Japan, no matter what the outcome."
3
The financial panic of April 1927 and the coming to power of a Seiyukai* government headed by a military officer, General Tanaka Giichi, afforded an opportunity to try again to set up an economic planning unit with a military outlook.
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
The Resources Bureau of 1927 undertook the first measures of genuine economic planning in Japan. It pioneered the "materials mobilization plans" (to be discussed later in this chapter) that dominated the economic landscape after the outbreak of war with China. Its main achievement in the late 1920's, however, was to sponsor the Resources Investigation Law (Shigen Chosa* Ho*, law number 53 of April 12, 1929), which required private enterprises to report to the government on their productive and financial capabilities. Since the Resources Bureau had no operating functions (lest it conflict with the territories of the established ministries), MCI was authorized to enforce the law by inspecting factories and mines to determine their resource potential. This was a significant development during peacetime. Interestingly enough, article 2 of this law refers to the need for "plans for the controlled operation" (
tosei
*
un'yo
*
keikaku
) of enterprises, and this use of tosei* in a military economic statute is thought to be the origin of the term in the title of the Important Industries Control Law of 1931, even though Yoshino has denied that his law had a military purpose.
5
If the financial panic of 1927 brought MCI to life as an organization,
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it was the invasion of Manchuria in September 1931 and the assassination of Prime Minister Inukai on May 15, 1932, that brought industrial policy to life as an element of military mobilization. The events of the succeeding few years in both Japan and Manchuria made even more insistent the need for an economic general staff, a coordinating organ that could unite military requirements with civilian capabilities and adjust both. After the militarist assault on Inukai the throne turned to a nonparty government of national unity under Admiral Saito * Makoto (18581936, assassinated in the military coup of February 26, 1936). Takahashi Korekiyo continued as minister of finance, and Nakajima Kumakichi (18731960) of the Furukawa zaibatsu (Furukawa Electric, Yokohama Rubber, Fuji Electric, and others), Yoshino's closest civilian associate in the TIRB, became minister of commerce and industry. Since this was a nonparty cabinet and Nakajima and Yoshino were good friends, the old practice of the vice-minister offering his resignation to a new minister was abandoned.
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 1932 Takahashi also launched his famous policy of deficit financing to overcome the depression (and thereby won the sobriquet that is now associated with his name, "the Keynes of Japan"). Military expenditures in the general account budget rose from 28 percent in 1930 to 43 percent in 1935, and the combined deficit of the years 1932 to 1936 reached an enormous ¥1.9 billion.
6
Takahashi's cutting the yen free from gold also produced a steep decline in the foreign exchange value of the yen. The rate against the U.S. dollar fell from ¥100 = $49 in 1931 to ¥100 = $19 in 1932, and the consequent lowering of prices of Japanese goods overseas fueled a tremendous surge of exports, particularly to South and Southeast Asia, that was loudly denounced abroad as Japanese "dumping." The Ministry of Finance cov-
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ered the deficit through the issuance of bonds, which it sold to the Bank of Japan, and through some tapping of the trust fund accounts (the funds of small savers deposited in the Treasury through the postal savings system). A degree of inflation was expected, but Takahashi's theory was that a return to business prosperity would lead to a "natural" increase in government tax revenues sufficient to retire the debt. These methods were unorthodox for the time (the 1932 budget was the first unbalanced budget in Japan's modern history), and all the Finance Ministry officials under Takahashi were dubious.
7
But the policies seemed to work; Japan was well out of the depression before its international competitors had adopted similar policies (see Table 8).
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
Takahashi's successor gave the army a free hand to spendwhich primarily meant to import needed resourcesand within a year, well before the outbreak of war with China, Japan was facing a full-blown balance of payments and inflation crisis. The Tokyo wholesale price index (193436 = 100) jumped from 99.5 in January 1935 to 123.2 in January 1937and then to 131.0 in April. Since the military had ruled out a tightening up of the economy by the Finance Ministry, the only other recourse was to economic controls and rationing. And the advent of rationing raised new demands that an "economic general staff" be empowered to plan for the whole economy. This economic general staff, in the form of the Cabinet Planning Board, came into being on October 23, 1937, under the added impetus of the China Incident.
Since the creation of the Resources Bureau in 1927, and especially after passage of the Important Industries Control Law in 1931, the military economists' primary efforts had been to enact individual laws in conjunction with MCI for particular strategic industries. The first industry law to be passed that had explicit military implications was the Petroleum Industry Law of March 28, 1934; it remains interesting to-
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TABLE
8
Indices of the World Econom
ic Crisis, 19301935
(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.
day as the direct ancestor and model for the Petroleum Industry Law of 1962. The 1934 law gave the government authority to license the business of importing and refining petroleum, and it required importers to stockpile at least a six months' supply of petroleum in Japan at all times. It also empowered the government to set quotas, fix prices, and make compulsory purchases of petroleum products.
An Imperial ordinance put MCI in charge of administering the law, and Yoshino, as vice-minister, set out to negotiate with Japan's foreign suppliers (chiefly the Standard Vacuum and Rising Sun oil companies). One of Stan-Vac's representatives in Japan recalls that in late 1934 Yoshino himself was not difficult to deal with or antiforeign, but that both of them had agreed it would be better to postpone their negotiations until after the current Diet session had ended in order to lessen possible military charges that MCI was bending to foreign coercion.
9
The result of the negotiations in 1934 was that the foreign suppliers more or less met the terms of the law in order to keep the Japanese business.
The Petroleum Law affected the ministry most directly by authorizing the creation of a Fuel Section in the Mining Bureau. Three years later, on June 9, 1937, this section became the Fuel Bureau (Nenryo* Kyoku), an external agency of MCI charged with making fuel policy, developing new sources of petroleum, promoting the synthetic petroleum industry, and administering the Petroleum Industry Law. It
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was MCI's first industry-specific bureaua pattern that the whole ministry would adopt in 1939and it was the first bureau of MCI to which military officers on active duty were seconded.
10
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
Muto himself was shot to death at North Kamakura station on March 9, 1934, by an unemployed worker. Two ministersNakajima of MCI and Hatoyama of educationalong with a former vice-minister of finance and top business leaders were arrested and subjected to a sensational public trial that lasted from June 1935 to October 1937. All were ultimately acquitted. Three prominent businessmen who were arrested went on to hold positions as ministers in postwar cabinets (Kawai Yoshinari in the first Yoshida cabinet, Nagano Mamoru in the second Kishi cabinet, and Mitsuchi Chuzo* in the Shidehara cabinet).
The role of Yoshino Shinji in the Teijin case deserves mention here. The interesting point is that he never said a word about the case even though many of the defendants were his close personal and professional associatesNakajima as his minister and former TIRB colleague; Mitsuchi as a former counselor of the old MAC; Kawai as a former MAC bureaucrat (he resigned at the time of the rice riots); and Nagano as a director of the Tokyo Rice Exchange. Moreover, although the disposition of shares of stock put up as collateral by the Bank of Taiwan was the responsibility of the Finance Ministry's bank inspectors, the supervision of the stock exchanges was still under the jurisdíction of MCI. Yoshino did not have to know directly about the disposition of Teijin shares, but the manipulation of prices on the Tokyo and Osaka stock exchanges had to be of interest to MCI.
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When Nakajima resigned as minister on February 9, 1934, he was succeeded for the remainder of the Saito * cabinet by Matsumoto Joji*, the famous legal scholar who later figured as an adviser on the constitution in 1946, and whose draft SCAP rejected in favor of its own. In 1934 Matsumoto favored vigorous prosecution of the Teijin defendants and made life difficult for Yoshino over the matter. Yoshino, however, never said a word on the subject of the Teijin case. He may have felt, along with many others at the time, that the case was a frame-up by the militarists and rightists to destroy ''liberal" elements in politics. If so, his silence can be explained by the fact that it was extremely dangerous in the mid-1930's to contradict the nationalists on any subject. The Teijin case appears in retrospect to have been the equivalent in party politics of the Minobe casethe ouster of Minobe Tatsukichi from Tokyo University on charges of lèse majestéin academic life.
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
&nbs
p; *, the successors to the Meiji-era
genro
*), peers, political party leaders, and representatives of big business.
In order to service this brain trust, the Okada government also set up a Cabinet Research Bureau (Naikaku Chosa* Kyoku, established by Imperial ordinance 119 of May 11, 1935). This was not the older military-oriented Resources Bureau of 1927, also attached to the cabinet, but a new organ made up of bureaucrats detached on temporary duty from the main ministries to serve in this elite body. Two years later the Cabinet Planning Boardknown at the time as the "economic general staff"came into being by combining the Cabinet Research Bureau and the Resources Bureau.
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In 1935 the Cabinet Research Bureau was the stronghold of the variously termed "new bureaucrats" (
shinkanryo
*), "reform bureaucrats" (
kakushin
kanryo
*)or, in Nakamura Takafusa's description, civilian bureaucrats who were attracted by Nazi ideology.
12
Ide and Ishida bluntly define the reform bureaucrats as "anti-liberal, anti-parties, nationalistic, pro-military, pro-fascist, and above all in favor of strengthening governmental control."
13
They were found in all ministries and rose to influence after the assassination of Inukai as part of the vigorous intrabureaucratic competition to fill the vacuum left by the political parties. By cooperating with the military, whether for ideological reasons or just because that was the way the wind was blowing, some bureaucrats rapidly advanced their own careers.
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.