MITI and the Japanese miracle

by Chalmers Johnson

)and that the Konoe brain trust and the Cabinet Planning Board were also infiltrated with redswhich came close to saying that the army itself was promoting Bolshevik policies. The business spokesmen also argued that the separation of management and ownership and the reduction of interest and profits would only worsen the already critical shortage of capital. Some

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  seven private economic organizations, led by the Industrial Club, sent written statements of protest to the cabinet. The business community would tolerate self-regulation in order to expand production and further the war effort, but they wanted no part of the economic side of the New Order. The government and the business community deadlocked over the issue.

  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.

  When Kobayashi returned and saw Kishi's proposal, he denounced Kishi and his plan in a speech to the Industrial Club, calling the proposal a reflection of "red thinking," a fatal charge in the prevailing political climate. Others recalled Kishi's actions at the time of the protest over the pay cut a decade earlier and contended that he had always been "a little red."

  55

  Unable to counter these charges, since he

  was

  advocating a Japanese version of national socialism, Kishi had to resign on January 4, 1941.

  Kishi was only the biggest casualty of the businessmen's offensive. Beginning on January 17 and continuing through April 1941, the police took into custody some seventeen civilian officials of the CPB and charged them with violations of the Peace Preservation Law. All were held in prison for three years before being released on bail. Their trials were finally held during 1944 and 1945, and all but one were found not guilty. This so-called Cabinet Planning Board incident has never been fully explained. Some hold the view that it was a frame-up by the business community and that the police had no more evidence against those arrested than that they had been known to read works by Lenin and Kautsky and sing communist songs.

  56

  One of the most important among those arrested, Inaba Hidezo* (then working in the materials mobilization planning unit), has two theories: the first is that the army on its own wanted to get rid of officials in the CPB who were accurately if pessimistically reporting to the cabinet that Japan

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  did not have the material means to wage war successfully against Great Britain and the United States; and the second is that the incident was a rather unimportant purge of mildly Marxist bureaucrats by the Thought Police.

  57

  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.

  Kobayashi himself became a casualty of the Cabinet Planning Board incident. During early 1941 CPB elements tried to get even with him by attacking his personal fortune and accusing him of income tax evasion. In order to try to end the whole affair, Konoe and Home Minister Hiranuma, who represented a kind of conservatism that was lukewarm about national socialism, arranged for a balanced purge: on April 4, 1941, both MCI Minister Kobayashi and CPB President Hoshino were forced to resign. Given the problems they had encountered, Konoe and Hiranuma decided that they had better look for military officers as replacements. Lieutenant General Suzuki Teiichi became president of the CPB and headed it for the rest of its existence. Looking for a similar type to head MCI, Konoe first chose Admiral Toyoda Teijiro*, a former vice-minister of the navy and son-in-law of a Mitsubishi director. However, Toyoda shortly left, first to become foreign minister and then to be president of Japan Steel (he returned as minister of munitions under the Suzuki cabinet at the end of the war). Konoe therefore selected another admiral, Sakonji Seizo*, a former chief of naval staff and the head of the North Sakhalin Petroleum Company (a Mitsui affiliate), and he headed MCI until the Tojo* government was established.

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  The stand-off over policy between the government and the business community still had to be resolved. MCI therefore came up with a compromise that retained many CPB ideas but that more than met the business community's objections. Instead of going to the Diet with a new law, as the CPB wanted to do, MCI proposed amending the mobilization law and then implementing industrial control through Imperial ordinances. This would avoid any further public debate on the subject. The result was the Important Industries Association Ordinance (Juyo * Sangyo* Dantai Rei, Imperial ordinance 831 of August 30, 1941). It created control organs for each industry but assigned the management functions originally sought by the bureaucrats to civilian industrial leaders. All enterprises in an industry became members of a "control association" (

  toseikai

  *), which was a special legal entity comparable to a government-authorized cartel; control associations were empowered to allocate materials, set production targets, and distribute products of the member firms. This approach was very similar to Yoshino's in the Important Industries Control Law of 1931. Business had won a major point: the president of each control association was invariably the chief executive officer of the largest enterprise in an industry, and as a result the control associations were utterly dominated by the zaibatsu.

  59

  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

  Although the "control bureaucrats" finally came to power, they did not change Japanese industrial policy significantly. They were always hampered by the structure of industrial control that they had inherited. As T. A. Bisson noted from the perspective of 1945, during the Pacific War Japan operated essentially a private enterprise economy with surprisingly little governmental interference.

  61

  One result
is pointed out by Mark Peattie: "The myriad of controls, under which

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  Japan fought first the China War and then the Pacific War, provided no overall coordination, but rather left the prosecution of these conflicts scattered among various and competing agencies. At the same time, Japan's economy, subjected to conflicting pressures from business and military leadership, remained partly free and partly controlled. Such a system could hardly be called totalitarian and in any event was ultimately disastrous for Japan's war effort."

  62

  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.

  As we have noted earlier, the most striking structural characteristic of the capitalist developmental state is an implicit political division of labor between the tasks of ruling and the tasks of reigning. The politicians reign and the bureaucrats rule. This should not be thought of as a cynical comment on modern government or a counsel of despair concerning the realities of democracy. Both sides have important functions to perform. The politicians provide the space for bureaucrats to rule by holding off special interest claimants who might deflect the state from its main developmental priorities, and they legitimate and ratify the decisions taken by bureaucrats. The bureaucrats in turn formulate developmental policies, draft and administer the laws needed to implement the policies, and make midcourse adjustments as problems arise. This general pattern of the democratic developmental state, which we shall consider further in Chapter 9, did not really appear in Japan until after the creation of the Liberal Democratic Party in 1955. But the 1930's were important to its creation both in fostering the rise of the economic bureaucracyor the "economic general staff" to name its true functionand in revealing that although it could and did rule, it could not reign.

  The disarray that developed during the 1930's in the system of government inherited from the Meiji era provided the opportunity for the rise of the economic bureaucracy, and the political problems of the

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  time called it forth. Through the direct and terrorist actions of the military and the ultranationalists, men in uniform took over the government. They co-opted the legitimacy of the Imperial institution and largely neutralized the influence of its managers, and they also weakened and nearly discredited the elected politicians of the Diet. But they could not destroy the interests the politicians representedprimarily those of the zaibatsuand the zaibatsu undertook, in self-defense, to enter the government and represent themselves: they stopped working through politicians. Moreover, the military had neither the capacity nor the leadership ability to formulate and administer the "second-stage industrialization" (that is, capital-intensive industrialization, in contrast to the labor-intensive industrialization of the Meiji period) that its aggressive empire-building plans necessitated.

  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.

  The main contributions of the 1930's to the postwar economic "miracle" were to create and install in the government an economic general staff, and to demonstrate to the satisfaction of all parties concerned that such an agency could not be effective until the political problems of determining who was to reign were resolved. Once installed, the economic general staff never relinquished its new powers or retreated from its mission; Japan would never again return to the laissez faire policies of the first thirty years of the twentieth century. But, equally important, the economic general staff could not really unleash the developmental forces of the society until the defeat of 1945 had broken the hold of the military completely and had tipped the balance of

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  power decisively away from the zaibatsu and in favor of the bureaucrats. Just as World War I had led European nations to assign to the state new tasks of economic mobilization and developmentand to remove these tasks from the agendas of parliamentsso the crises and wars of the 1930's led to the same thing in Japan. But it took the catastrophe of the Pacific War to supply the political prerequisites of the developmental state. By the 1950's Takahashi Korekiyo's observation that "it is much harder to nullify the results of an economic conquest than those of a military conquest" had become not uncommon wisdom but simple common sense.

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  Five

  From the Ministry of Munitions to MITI

  As Japan entered the Pacific War, the Ministry of Commerce and Industry could look back on a decade of considerable accomplishment in terms of planned industrial expansion. Between 1930 and 1940 Japan's mining and manufacturing production had more than doubled, and, equally important, the composition of manufacturing had changed drastically from light industries (primarily textiles) to heavy industries (metals, machines, and chemicals). In 1930 heavy industries accounted for approximately 35 percent of all manufacturing, but by 1940 this proportion had grown to 63 percent. Another way to visualize this shift of industrial structure is to look at the top ten companies in terms of their capital assets in 1929 and 1940 (see Table 10). Whereas at the end of the 1920's three of Japan's ten largest enterprises were textile companies, a decade later only one was. Interestingly enough, the top ten of 1940 bear a much greater resemblance to the top ten of 1972 than they do to the top ten of 1929 (Japan Steel, Mitsubishi Heavy Industries, Hitachi, and Toshiba * were ranked first, second, fourth, and eighth respectively in both 1940 and 1972, whereas only Mitsubishi was even on the list in 1929).

  Not much further expansion of total output occurred during the Pacific War, but the shift from textiles and food products to mining, nonferrous metals, and machines continued and accelerated. The war caused a change of industrial structure almost as profound as Japan's original industrialization, and it decimated Japan's medium and smaller enterprises as well as its previously dominant textile industry. The immediate cause of this shift was the enterprise readjustment (kigyo* seibi) movement, a set of government policies that came to be

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  so heartily disliked by the public that after the war even the phrase was dropped from the lexicon of trade and industry bureaucrats, although they of course invented new euphemisms for the same thing. The wartime shift of industrial structure was emphatically not a byproduct of the working of market forces but was, instead, the invention and the responsibility of MCI. The ministry's pursuit of enterprise readjustment led in 1942 to the creation of the Enterprises
Bureau (Kigyo * Kyoku), which still exists today under the title of Industrial Policy Bureau, to be the control center for both the ministry and the Japanese industrial world.

  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

  TABLE

  10

  The Top Ten Japanese Mining and Manufacturing Corporations, 19291972

  Name

  a

  Total capital in yen

  Remarks

  I. 1929

  (Thousands)

  1. Kawasaki Shipbuilding (14)

  239,848

  Est. 1896. Today Kawasaki Heavy Industries.

  2. Fuji Paper ()

  159,642

  Est. 1887. Merged with Oji* Paper

  1933.

  3. Oji Paper