MITI and the Japanese miracle
Page 26
154,228
Est. 1873. Today Jujo* Paper (63), Oji Paper (69), and Honshu* Paper (88).
4. Kanegafuchi Textiles (47)
145,989
Est. 1887. Today Kanebo*, Ltd.
5. Karafuto Industries ()
117,353
Est. 1913. Merged with Oji Paper
1933.
6. Dai Nippon Textiles (55)
116,398
Est. 1889. Today Unitika, Ltd.
7. Mitsubishi Shipbuilding (2)
112,341
Est. 1917. Today Mitsubishi Heavy Industries.
8. Mitsui Mining (74)
111,827
Est. 1911. Today Mitsui Mining and Mitsui Metal Industries.
9. Toyo* Textiles (48)
111,490
Est. 1914. Today Toyobo*, Ltd.
10. Taiwan Sugar ()
109,539
Est. 1900.
(table continued on next page)
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TABLE
10 (cont.)
Name
a
Total capital in yen
Remarks
II. 1940
(Thousands)
1. Japan Steel (1)
1,242,321
Est. 1934. Today New Japan Steel.
2. Mitsubishi Heavy Industries (2)
969,491
3. Oji * Paper
562,088
4. Hitachi Seisakusho (4)
552,515
Est. 1920. Today Hitachi, Ltd.
5. Japan Mining (30)
547,892
Est. 1912.
6. Japan Nitrogenous Fertilizer ()
540,344
Est. 1906. Postwar Chisso, Ltd.
7. Kanegafuchi Textiles
434,716
8. Tokyo Shibaura Electric (Toshiba*) (8)
414,761
Est. 1904.
9. Mitsubishi Mining
(53)
407,555
Est. 1918.
10. Sumitomo Metals (7)
380,200
Est. 1915.
III. 1972
(Millions)
1. New Japan Steel
2,113,335
2. Mitsubishi Heavy Industries
1,648,235
3. Nippon Kokan* (Steel Pipe)
1,162,308
Est. 1912.
4. Hitachi, Ltd.
1,036,178
5. Ishikawajima-Harima
982,021
Est. 1889.
6. Nissan Motors
949,029
Est. 1933.
7. Sumitomo Metals
930,197
8. Toshiba, Ltd.
852,999
9. Kawasaki Steel
843,838
Est. 1950.
10. Kobe Steel
683,629
Est. 1911.
SOURCE
: History of Industrial Policy Research Institute,
Waga kuni
daikigyo
*
no keisei hatten katei
(The formation and development of big business in our country), Tokyo, 1976, pp. 26, 38, 56.
a
Numbers in parentheses are the rank in 1972 of those corporations still in existence in that year.
oriented solely to the maximum use of existing facilities rather than to investment in new installations.
2
Although Cohen and the Japanese analysts are critical of this policy, it is hard to imagine what alternatives were available to MCI, given the fact that Japan had already entered the war, thereby endangering its most vital imports, before the industrial implications of a
Page 160
long war with the United States had dawned on the military. It is of no great relevance to postwar industrial policy to recall that the Japanese government did not begin to mobilize fully for World War II until after the battle of Midway and the American landings on Guadalcanal (August 1942), but it is of considerable relevance that when the government took action, its policies injected economic bureaucrats much more intimately into the affairs of individual enterprises than they had ever been before. Botched though it surely was, the wartime enterprise readjustment movement lies at the beginning of the path that leads to the Industrial Rationalization Council of the 1950's and to the Industrial Structure Council of the 1960's and 1970's.
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
The problem of converting and closing small enterprises emerged concretely as a result of the failure of the first materials mobilization plan in mid-1938. The Cabinet Planning Board scrapped its original plan in part because it discovered that much of the country's imported materiel was being used not by large enterprises for creating munitions or exports but by medium and smaller enterprises that manufactured for domestic consumption. The CPB's revised plan radically cut imports for these types of businesses, which drove a large number of them into bankruptcy but also raised for the government the question of what to do with the workers who had been forced out of work. In September 1938 MCI took its first steps to come to grips with the problem by creating the Tengyo* Taisaku Bu (Industrial Conversion Policy Department).
The idea behind the department was that through a combination of
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subsidies and governmental pressure, the depressed medium and smaller enterprises could be shifted to production of munitions, production for export, or production of import substitutes. Officials of the department also used techniques learned in the rationalization movement to promote joint management and enterprise mergers for large numbers of firms. The workers who could not be easily reorganized were encouraged and paid to emigrate to Manchuria and China. The Unemployment Policy Department of the new Welfare Ministry also sponsored such emigration in order to help prevent social unrest among the unemployed.
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.
The movement to convert small businesses to a war footing began slowly during late 1938 as an ad hoc response to the stretching out of the China Incident. The government did not agree on a basic policy for the Promotion Department until January 12, 1941, when MCI announced its "General Plan for the Conversion and Closing of Medium and Smaller Enterprises." Two years later the government would need to apply the policy to all enterprises, not jus
t medium and smaller firms.
The first half of 1942 was a period of great euphoria for Japan's industrial planners. The 1942 materials mobilization plan was the most optimistic of all of them, and the Cabinet Planning Board even relaxed regulations over the use of petroleum, now that Dutch East Indies supplies were in Japanese hands. Shortly after the fall of Singapore the military expressed its appreciation to the economic bureaucrats for their efforts by supplying the CPB and MCI with large numbers of commemorative rubber balls made of Malayan rubber for distribution to the
shokoumin
* (children of the rising generation).
6
Kishi Nobusuke, at age 46 the youngest minister in Japan's modern history, was
Page 162
immensely popular with the public and received extravagant praise in the press, both for himself and for his ministry.
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.
Most analysts have blamed the zaibatsu for the "spinelessness" of the control associations, but blame should be shared by the ministries. All of the economic ministries fought endless battles of jurisdiction over the designation of an industry as "important" and over influence in its control associations. The first control association, and the model for all the others, came under MCI jurisdiction; this was the Steel Control Association, created April 26, 1941, with President Hirao Hachisaburo* of Japan Steel as the association's presidentor Führer, as the reform bureaucrats liked to call him. However, the steel control association was not so much an MCI invention as an MCI discovery; it had been formed by the steelmakers themselves following the American embargo on selling scrap iron to Japan, and it was little more than a renamed Japan Steel Federation (Nihon Tekko* Rengokai*), the trade association of the industry. Between April 1941 and January 1942 MCI and the Communications Ministry fought over the setting up of a control association for the machine sector, and MCI and the Agriculture Ministry fought over the fertilizer sector. Both of these disputes had to go to the cabinet for settlement. It was only in August 1942 that some 21 control associations covering production and distribution for 15 industries finally came into operation.
The ministries also fought a rearguard action against giving the control associations real authority. Kishi finally broke bureaucratic resistance over this issue by demanding that in return for governmental enforcement powers the control associations appoint full-time presi-
Page 163
dents, and not just accept, ex officio, the chief executive of the largest enterprise in an industry. This resulted in the Transfer of Administrative Authority Law (number 15 of February 18, 1942) and the Transfer of Administrative Authority Ordinance of January 21, 1943, which made the directors of the control associations quasi-governmental officials and gave the force of law to their orders. Hirao resigned as president of Japan Steel and of the Steel Control Association, and he was replaced in both capacities by Admiral Toyoda (MCI minister from April to July 1941). But in most other control associations the zaibatsu simply arranged for an acceptable figure as president, while they retained true control.
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.
The eidan of greatest interest to us in this work was the Industrial Facilities Corporation (Sangyo* Setsubi Eidan), created by law on November 25, 1941, with Fujihara Ginjiro*, ex-MCI minister and founder of the Oji* Paper Company, as president. It was authorized to purchase or lease idle factoriesparticularly factories that had been idled by orders of MCI's Promotion Departmentand to convert them to munitions production. Funds for these objectives came from corporate bonds, which the eidan could issue up to five times its total capital, with the government guaranteeing the redemption and payment of interest on the bonds. The Industrial Facilities Corporation was, in effect, the operating arm of the Promotion Department for the positive implementation of the enterprise readjustment movement.
9
Page 164
Several months passed before the corporation could begin operations; bonds had to be sold, a staff gathered, and clear policies formulated by MCI for its operations. Meanwhile, the war outlook worsened. The battle for Midway was fought in June 1942, and in August American forces began landing on Guadalcanal. One official MITI history notes laconically, "Japan's true wartime economy began only after Guadalcanal."
10
In order to prepare for what he feared was coming and in order to get around the stumbling block of the control associations in a future emergency, Kishi arranged for two Imperial ordinances to be issued, neither of which he could fully implement for more than a year. They did not make a great contribution to the war effort, but their influence can still be felt in Japan in terms of the postwar industrial structure. The first was the Enterprise Licensing Ordinance (Kigyo* Kyoka Rei, number 1084 of December 11, 1941), which made it illegal to open a new business without a government license; the second and more important was the Enterprise Readjustment Ordinance (Kigyo Seibi Rei, number 503 of May 13, 1942), which gave the government legal authority to order any enterprise whatever to convert to munitions production.
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 Corpor
ation, 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.
During the second half of 1942 and into 1943 the Enterprises Bureau used its various policy instrumentsthe two ordinances, the
Page 165
corporation, and virtually unlimited financial powersto convert one industrial sector after another to war production. Toyoda later recalled that he traveled around the country to explain the new policies and was surprised to find he was none too popular.
11
The industry hardest hit was textiles. Following Enterprises Bureau directives, the Textiles and Machinery bureaus forced the reduction of installed spindles from 12,165,000 in 1937 to only 2,150,000 in February 1946, a decline of 82 percent.