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.
Yoshida and Shirasu were genuinely committed to SCAP's program for the restoration of Japanese international trade, but they also were motivated by political and bureaucratic interests of their own in pushing the reform. As noted earlier, Yoshida had a deep aversion to MCI and to its close association with the controlled wartime economy and the military. Shirasu shared these views, and in addition he wanted to clean up what he claimed were corrupt practices in the BOT that he had discovered after taking office as director.
60
Yoshida planned to elevate both the Ministry of Finance (under his protégé Ikeda) and his own Ministry of Foreign Affairs to positions of greater influence in economic administration vis-à-vis MCI, and Yoshida as well as Shirasu believed that trusted Foreign Office people would be better at export promotion than the industrial policy bureaucrats. Thus, Shirasu's original idea was not so much to merge the BOT and MCI as it was to place a restaffed BOT inside MCI in order to reform it and keep it under control.
MCI officials were aware of these intentions of Yoshida and Shirasu, and they did what they could to forestall the worst. On February 2, 1949, they sent a comparatively young MCI official, Nagayama Tokio (class of 1935), to the BOT as chief of the Trade Section in the General Affairs Bureau; he was to keep tabs on Shirasu's plans. Unfor-
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tunately for MCI, this turned out to be one of the most abortive maneuvers its leaders ever undertook. Shirasu turned Nagayama around and made him one of his own lieutenants. Nagayama then returned to MITI, where he was dubbed "Emperor Nagayama," to become the first head of the MITI Secretariat (194953) and the official in charge of personnel appointments (the case of "Emperor Nagayama" is discussed further in Chapter 6).
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).
During early 1949 rumors circulated that Shirasu himself intended to become MITI's first vice-minister. This was the moment of truth for the old MCI. Its last vice-minister, Matsuda Taro*, undertook to negotiate personally with Shirasu to try to prevent this from happening. He succeeded through a compromise in which it was agreed that Matsuda would resign, that Nagayama would take over the Secretariat even though there were men senior to him in the ministry, and that the directors of the new International Trade Bureau (ITB; the old BOT reborn within MITI) would come from the Foreign Ministryin return for all of which MCI could name one of its own people as vice-minister (Matsuda named Yamamoto Takayuki, a "Kishi-Shiina line" official). As it turned out, the first four ITB directors were, in fact, very distinguished diplomatsnamely, Takeuchi Ryuji*, later ambassador to West Germany, who served from May to December, 1949;
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Oda * Takio, later ambassador to Indonesia, who served from December 1949 to June 1951; Ushiba Nobuhiko, later ambassador to the United States (197073) and in 1977 "minister of external economic relations" to deal with the U.S.-Japan trade crisis, who served from June 1951 to July 1954; and Itagaki Osamu, later ambassador to the Republic of China (Taiwan), who served from July 1954 to September 1956. It was against this backdrop of strong Foreign Office coloration that MITI came into being and Yamamoto began trying to rebuild the Kishi-Shiina line from within. Nonetheless, from the third Yoshida cabinet of February 1949 to the fall of the fifth Yoshida cabinet in December 1954, the prime minister named eight different people as MITI minister, only two of whom had any political clout at all (Ikeda, briefly, and Aichi Kiichi at the very end). This was, of course, Yoshida's way of showing that he still regarded MITI as of no political importance.
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.
The last minister of MCI and the first minister of MITI, Inagaki Heitaro* (an industrialist from the old Furukawa zaibatsu, the president of Yokohama Rubber, and a member of the House of Councillors), made a speech at the time of MITI's inauguration. He pledged the new ministry to international trade and export promotionor "trade number one-ism" (
tsusho
*
daiichi-shugi
) as he put it.
61
Inagaki added, however, that an increase in production, the rationalization of enterprises, and the raising of the technical level of industry were all prerequisite to an expansion of trade. He entrusted these vital tasks to the Enterprises Bureau, the only internal bureau he mentioned by name. The old MCI cadres found this very satisfactory. For almost a decade they had not paid much attention to trade and certainly not to export promotion. But the new ministry seemed to offer great opportunities for
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their skills, and industrial guidance in the name of trade promotion seemed like a better and more secure basis for their existence than war production or postwar rationing. The future was looking brighter.
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 enc
ouraged 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.
SCAP believed that the Foreign Exchange and Foreign Trade Control Law of December 1949 was merely temporary. As it wrote in one of its official histories:
This broad enabling act authorized the Government to maintain a unified system of control over foreign exchange and foreign trade transactions only to the extent necessary to safeguard the balance of international payments, and in effect transferred to the Government certain responsibilities which had been exercised by SCAP since the beginning of the occupation. The restrictions in the law were to be gradually relaxed by cabinet orders and ministerial ordinances as the need for them subsided.
64
Far from being "gradually relaxed," the law persisted for the next thirty years and was still on the books during 1980; it was the single
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most important instrument of industrial guidance and control that MITI ever possessed. As Leon Hollerman put it from the perspective of 1979, "In liquidating the occupation by 'handing back' operational control to the Japanese, SCAP naively presided not only over the transfer of its own authority but also over the institutionalization of the most restrictive foreign trade and foreign exchange control system ever devised by a major free nation."
65
In the next chapter we shall turn to what the officials of MITI did with these and other new powers.
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.
The longer-range significance of the achievement of state control, however, was to reveal its weaknesses. The fundamental political problem of the state-guided high-growth system is that of the relationship between the state bureaucracy and privately owned businesses. If this relationship is overbalanced in favor of one side or the other, it will result in either the loss of the benefits of competition or the dilution of the state's priorities. State control refers to the attempt to separate management from ownership and to put management under state supervision. Whereas big business typically prefers self-imposed control, economic bureaucrats typically prefer state control. During the 1940's, when state control was achieved, its weaknessesthe growth of bureaucracy, irresponsible management, corruption, and lowered efficiencywere also fully manifested. The result was that just as the deficiencies of self-control under the Important Industries Control Law of 1931 led to the movement toward state control, the deficiencies of state control under the Ministry of Munitions and
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the postwar MCI led to the government-business relationship of the high-growth erathat is, to genuine public-private cooperation.
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.
This trend toward genuine public-private cooperation grew out of a combination of the effects of war destruction and the reforms of the occupation. The old zaibatsu were weakened vis-à-vis the state-control bureaucrats by the physical depletion of their capital assets and by the occupation's goal of deconcentrating the economy. At the same time the new constitution and other reforms such as the fostering of the labor movement made state control politically impossible except as a short-term expedient. The economic bureaucrats might rule on the basis of their intrinsic talents, but they could never reign openly under Japan's new democratic system. Thus, both government and industry recognized the need for a political division of laborone that would both advance the positive development program and forestall disruptions of it by the newly enfranchised groups in the society.
The resulting Japanese political system of the 1950's and 1960's bore some resemblance to the ''corporatism" that Charles Maier believes emerged in interwar continental Europe. He writes:
The key to consensus or mere civic peace was either forcible suppression or constant brokerage. Any major organized interest could disrupt a modern economy or imperil social order, hence had to be silenced by duress or granted a minimum of demands. The need for brokerage switched the fulcrum of decision making from the legislature as such to the ministries or new bureaucracies. During the war, ministries of munitions had developed into economic planning agencies. . . . They coopted private business in this task, sharing public powers to increase the scope of regulation. Although wartime controls were not retained, the 1920s did not simply revert to the degree of market freedom prevailing before 1914. . . . A defining characteristic of the corporatist system . . . was the blurring of the distinction between political and economic power. Clout in the market placeespecially the potential to paralyze an industrial economymade for political influence. Consequently, economic bargaining became too crucial to be left to the private market, and state agencies stepped in as active mediators.
66
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The causes of post-World War II Japanese-style "corporatism" were similar, but its priorities were different, and the state played a role that went beyond mediation. The Japanese well understood the potential in their situation for disruption and civil strife as new groups in the society tested and adapted the Allied-installed democratic system. It is astonishing how easily foreign admirers of the tranquility of Japanese society during the 1970's forget the strikes, riots, demonstrations, and sabotage that marked the period 194961. But more important than the need to mediate among the demands of interest groups was the need, recognized by all Japanese, to escape from the economic misery and dependence on foreign assistance that the events of the 1940's had produced. Capital was in short supply, the new technology needed was to be found only overseas, costs were too high, the country imported more than it sold abroad, and the ability to compete i
nternationally was as yet only a dream. Under these circumstances, the role of the state was never questioned. In circumstances quite different from either the 1930's or the 1940's, the economic general staff, enjoying more power than under self-control but less than under state control, was finally given a chance to try to make Japan a wealthy nation.
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Six
The Institutions of High-Speed Growth
No one observing the Japanese economy from the vantage point of Dodge's "stabilization panic" of 194950 could have imagined either the high-speed growth that was to occur between 1955 and 1961 or the "golden sixties" that lay beyond. The years of the Dodge Line and the Korean War were characterized by constant confusion, high hopes alternating with deep despair, political and bureaucratic contention among numerous power centers, and governmental expediency in the face of one crisis after another. The Japanese had to adjust successively to the virtual strangulation of their economy under Dodge's draconian antiinflation measures, to the Korean War boom, to fundamental changes in United States foreign policy, to the deep postKorean War recession, and to the discovery of their own balance-of-payments business cycle. They also had to come to terms with the institutions the occupation had left behind and with the attitudes of their own bureaucrats and industrialists toward these institutions.
MITI and the Japanese miracle Page 31
