MITI and the Japanese miracle

by Chalmers Johnson

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  Sahashi spent virtually all of his career in the various industrial bureaustextiles, coal, and heavy industrieswhere he was also to spend the four critical years 1957 to 1961. As we saw in the last chapter, in 1951 he clashed with Chief Secretary Nagayama and was exiled to Sendai. Upon his return to the home office, he worked as chief of the Coal Policy Section just as the initial rationalization policies were being undertaken to try to save some of Japan's domestic energy production in the face of imported (and at the time highly price-competitive) petroleum. Because of his successful work in coal, the great senior of coal administration and then vice-minister, Hirai Tomisaburo *, named Sahashi chief of the sensitive Secretarial Section (Hisho-ka), which was the office in charge of all hiring and personnel assignments for the ministry and also the MITI equivalent of MCI's Documents Section (Bunsho-ka), which Yoshino and Kishi had used so effectively to establish the Yoshino-Kishi line.

  Sahashi served longer in charge of personnel than any other postwar official. During his three years in the Secretariat he undertook many important initiatives: he was the first to employ women as career officers in the ministry, he shifted people about on the basis of their capabilities rather than strict seniority (which bothered some of his colleagues), and he eliminated the last vestiges of Nagayama's influence. Most important, he devoted himself to perpetuating the so-called Kishi-Shiina approach (heavy industrialization) to policy-making within the ministry. Through careful and timely transfers of both his seniors and his juniors, he set up the line of descent for the vice-ministership from Ishihara Takeo to Ueno Koshichi* to Tokunaga Hisatsugu to Matsuo Kinzo*and, so he hoped, to Sahashi Shigeru. The key to this strategy was making the post of chief of the Enterprises Bureau the last stop before the vice-ministership, which ap-

  (footnote continued from previous page)

  of the same name,

  Shosetsu

  *

  Tsusan-sho

  * (1975). Akimoto's novel first appeared serially in the popular weekly magazine

  Shukan

  *

  bunshun

  . Both Akaboshi and Akimoto use the real names of people in their books, and Akaboshi's is not really a novel (the word "novel" appears to have been added to try to inhibit attacks on it). All three cover the same groundthe reaction to liberalization, the Sahashi-Imai fight for the vice-ministership, Sahashi's clash with Sumitomo Metals, the involvement of politicians in the personnel affairs of the bureaucracy, and so forthand Akaboshi's differs only in having come first. For a concordance to the names in Shiroyama, see

  Kankai

  , November 1975, pp. 13031; to cite a few examples, Kazagoshi in the novel is Sahashi, Sudo* Keisaku is Prime Minister Sato* Eisaku, and Minister Kuki ("nine devils") is Miki Takeo, MITI minister from June 1965 to December 1966. Sahashi expressed his dislike of Akaboshi's book to me in an interview in Tokyo, September 5, 1974; and Ojimi* Yoshihisa, vice-minister in 1971, has written that he was appalled that the novel should have been published while he was in office (

  Tsusan

  *

  jyanaru

  *, May 24, 1975, p. 44). For Sahashi's elliptical praise of Shiroyama's book, see

  ibid.

  , p. 38.

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  peared to have been achieved in July 1961 when Matsuo Kinzo * moved from the Enterprises Bureau to the top job and Sahashi moved to the Enterprises Bureau.

  In the course of arranging things in this way, Sahashi developed within the ministry two groups, one made up of his close associates and one of men who were more distant from himthey were not yet explicit factions but rather different career specializations within trade and industrial administration. The group closest to him comprised the industrial-policy specialists from the Enterprises Bureau and the industry-specific bureaus; the more distant group was made up of officials who had served overseas in embassy or JETRO postings or who worked in international trade positions within the ministry. Sahashi once described himself as "weak in foreign languages" and as a "domestic-use-only bureaucrat," descriptions that would also apply to most of the people he favored.

  3

  Sahashi's personnel administration was not particularly controversial during the 1950's; it became so only in retrospect, with the onset of liberalization and MITI's response to it. The people whom Sahashi advanced and who in turn helped him were all acknowledged to be the leaders of heavy and chemical industrialization, at the time the basic policy that was widely supported throughout the ministry.

  Just before Ishihara Takeo retired as vice-minister in June 1957, he asked Sahashi what post he would like in the ministry in return for his long and effective service as personnel officer. Sahashi chose deputy director of the Heavy Industries Bureau, which was just then at the peak of its influence and also the most old-fashioned bureau in the ministry. The Heavy Industries Bureau had jurisdiction over both the nurturing and the export sales of steel, machine tools, general machinery, automobiles, electronics, heavy electrical equipment, rolling stock, and aviation productsand over the industries that turned them out. Machines in general were beginning to occupy a commanding share of Japan's high-value-added exports, and its enterprises were also among the leading investors in all domestic industry. The Heavy Industries Bureau was at the cutting edge of the Kishi-Shiina line (and, it should also be noted, Kishi was prime minister from 1957 to 1960, Shiina MITI minister from 1960 to 1961). Sahashi had chosen well.

  Among his many duties Sahashi had to deal with the steel industry. One of his first achievements was setting up a price maintenance cartel for steel in 1958 and getting it approved by the Fair Trade Commission. This type of work was not difficult for a MITI officer. Steel had been a government enterprise for half of the twentieth century, and

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  most of the people Sahashi dealt with were either his ministerial seniors or industrialists he had known since his wartime work in the Iron and Steel Section of the Munitions Ministry. They included Ojima Arakazu, Kishi's successor as vice-minister in 1941 and subsequently president of Yawata Steel, one of the two successor companies to Japan Steel after SCAP had broken it up; Inayama Yoshihiro, who had entered MCI in 1927 as an official at the then state-owned Yawata works and who in 1962 followed Ojima as president of Yawata Steel; Nagano Shigeo, president of Fuji Steel, the other successor of old Japan Steel, and a man who had worked with Sahashi in the wartime Iron and Steel Control Association; Fujii Heigo, a Yawata vice-president and a man who came to Sahashi's aid in his clash a few years later with the non-state-oriented Sumitomo Metals Company; and Hirai Tomisaburo *, a Yawata director and the vice-minister who had appointed Sahashi to the Secretarial Section in 1954. Ojima would soon be playing a key role in MITI's affairs as head of the new Industrial Structure Investigation Council, the ministry's blue-ribbon committee for thinking of ways to counter the effects of liberalization. Sahashi's relations with the Yawata and Fuji steel companies were cordialso cordial that when he was vice-minister, leaders of Sumitomo Metals would charge that MITI had become the "Kasumigaseki office of Yawata Steel."

  4

  Not so cordial were Sahashi's relations with the International Business Machines Corporation. The IBM case did, however, afford him one of his first opportunities to appear as a samurai warding off the "invasion of American capital." MITI already had various policies intended to exclude foreign enterprises from the Japanese domestic marketinformal rules such as not allowing foreigners more than a 50 percent share in a joint venture, restricting the number and voting rights of foreigners on the boards of directors of Japanese firms, stopping foreigners from buying Japanese firms without the firm's consentand, ultimately, excluding all foreign participation in the Japanese economy without MITI's permission. In a sensational case of the late 1950's, the Heavy Industries Bureau had done everything in its power to obstruct a proposed joint venture between Singer Sewing Machines of the United States and Pine Sewing Machines of Japan. Singer, the prewar leader,
was attempting to recapture its old markets, but MITI was fostering a domestic sewing-machine industry, and so it slapped production limitations on the Singer-Pine collaboration.

  5

  IBM, however, posed special problems. Since it had organized itself in Japan as a yen-based company, MITI's controls over the use or repatriation of foreign exchange did not apply. More important, IBM

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  held all the basic patents on computer technology, which effectively blocked the development of a Japanese computer industry.

  Sahashi wanted IBM's patents and made no bones about it. In as forthright a manner as possible, he made his position clear to IBM-Japan: "We will take every measure possible to obstruct the success of your business unless you license IBM patents to Japanese firms and charge them no more than a 5 percent royalty."

  6

  In one of his negotiating sessions, Sahashi proudly recalls, he said that "we do not have an inferiority complex toward you; we only need time and money to compete effectively."

  7

  IBM ultimately had to come to terms. It sold its patents and accepted MITI's administrative guidance over the number of computers it could market domestically as conditions for manufacturing in Japan. Since IBM leased its machines rather than selling them outright, in 1961 Sahashi responded by setting up a semiofficial Japan Electronic Computer Company, financed by the Development Bank, to buy hardware from domestic producers and lease it to customers. To ensure MITI's control, he appointed the old MCI senior, Murase Naokai, president of the leasing company.

  Sahashi's vigorous industrial xenophobia made him quite popular with many industrialists, but in another realm of his official activitiesrelations with the political worldhe was not nearly so clever or perceptive an operator as he had been vis-à-vis IBM. Ever since the creation in 1955 of the Liberal Democratic Party, politicians slowly had been rising in power as rivals to the bureaucrats, although the bureaucrats were not fully attuned to what was happening. First the military bureaucrats and then the economic bureaucrats had dominated Japanese government from 1932 to at least 1955. From around 1960, however, a milieu comparable to the one that Yoshino Shinji had worked in during the 1920's began to reappear; the new politicians were much more dependent on the bureaucracy than they had been in the earlier period, but on the other hand they had much stronger constitutional powers than before. The bureaucrats were lulled because after Ishibashi's untimely resignation in 1957 because of illness, his successors as prime minister had all been famous ex-bureaucratsKishi, Ikeda, and Sato*.

  *

  However, even Ikeda and Sato had to pay attention to the political process; they were not merely for-

  *

  Some Japanese political analysts lament the control from 1957 to 1972 of the prime ministership by former bureaucrats. They comment rather wanly that if only Ishibashi had worn an overcoat on the February day in 1957 when he attended an outdoor celebration at his alma mater, Waseda University, the political history of postwar Japan might have been quite different. See

  Yomiuri shimbun

  , Political Department,

  Sori

  *

  daijin

  (The prime minister), rev. ed. (Tokyo: Yomiuri Shimbun Sha, 1972), p. 80.

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  mer bureaucrats but had also become very skilled politicians. This is something Sahashi did not understand.

  The LDP was quite prepared to leave basic policy-making to the bureaucracy, but when bureaucrats began to try to use politicians in their own intrabureaucratic struggles, they had to be prepared to provide a quid pro quo. For example, while still director of the Heavy Industries Bureau, Sahashi had a brilliant idea for the promotion of exports of Japanese machineshe would send a ship outfitted as a floating industrial exposition to call at American and European ports. For this purpose he first used a converted cargo vessel, but he really wanted a new ship, to be constructed at government expense and specifically designed as an oceangoing trade fair. Officials of the Budget Bureau were not convinced that the new ship was needed. In order to bring some pressure on his budgetary colleagues to change their minds, Sahashi sought the assistance of Ono * Bamboku (18901964), a powerful LDP faction leader, strong man of the "party-men's factions" (as distinct from the ex-bureaucrats' factions) in the Diet, and a fellow native of Gifu prefecture. Ono came through, Sahashi got his ship, and everyone agreed that it was a splendid idea. (Ironically enough, seventeen years later the Japanese loaned the ship, the

  Sakura Maru

  or

  Cherry Blossom

  , to the United States so that it could bring

  its

  products to show off in Japanese ports.)

  8

  Sahashi made only one mistake; he forgot to thank Ono. A few years later, after Sahashi had tried this ploy with a few other politicians (some of them Ono's rivals), Ono got evenand Ikeda could not help Sahashi since Ikeda had political problems of his own. The

  Sakura Maru

  was very effective as a kind of waterborne JETRO, but it came back to haunt Sahashi in 1963 when he sought the vice-ministership.

  9

  While Sahashi was thus engaged in the Heavy Industries Bureau, a fellow member of the class of 1937, Imai Zen'ei, was busy dealing with the prime issue of the time: What should be the country's response to demands from international organizations and from Japan's allies that it liberalize its controls over the economy? Imai had had a career in MITI very different from Sahashi's. Born in Niigata on October 5, 1913, helike Sahashigraduated from Todai* Law, although he came to Tokyo University via the more elite First Higher School (Ichiko*) in Tokyo. During the war he worked on the materials mobilization plans, which was good preparation for his occupation-era assignments in the Coal Agency and the Economic Stabilization Board (see Appendix C). Many leaders of the ministry had identified Imai as one of the most capable officials from the class of 1937 well before Sa-

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  hashi gained prominence. After the creation of MITI Imai worked primarily in international trade administration, and he served in the Japanese Embassy in Washington for the first year after it reopened. He and Sahashi served in the Secretariat at the same time, but in different sections, and Imai received his first assignment as a bureau chief two years before Sahashi got his. It was as chief of the Textiles Bureau from August 1958 to February 1961 that Imai had to confront the liberalization problem.

  There is no question that MITI, as a bureaucracy, feared that liberalization might eliminate its raison d'etre, and for this reason, if no other, it sought to obtain new control powers. However, MITI officials, as economic administrators, were also deeply worried about structural flaws in the system they had createdwhat they sometimes called its

  hizumi

  , or "distortions"and about the likelihood that liberalization would heighten these "distortions." Nationalism played a part in their concernsthe possibility that a fully "opened" Japanese economy would be swamped by larger, much better capitalized foreign enterprisesbut even without the pressures to liberalize, they knew that they would have to do something about the superficially risk-free overinvestment the system was generating. The rise of "excess competition,'' as it was called, coincided with the appearance of liberalization as a policy problem, and the issues involved in dealing with the one greatly influenced the response to the other. The textile industry provided one of the worst examples of overinvestment and excess competition.

  Imai's term as chief textiles administrator was one of deepening crisis. The system of foreign exchange budgets was still in full operation, but Imai recognized that he needed still more controls in order to prevent recurring overproduction in the unruly cotton textile industry. "The abuses that accompanied the allocation system for raw cotton," he has recalled, "were simply extraordinary. I advocated replacing the system with a Raw Cotton Import Public Corporation [Menka Yu'nyu * Kodan*], but the industry violently opposed this idea. The fundamental problem of t
he allocation system was that it encouraged excess investment in production facilities and led to overcapacity. We needed allocation authority over investment, not just over raw materials."

  10

  The big spinnersTeijin, Toray, Kanebo*, and Unitikawere hard enough to control, since they often fell back on the old Osaka tradition of resisting governmental intervention in their affairs; but the smaller manufacturers were even worse. They had borrowed from their banks and invested in their equipment with the full expec-

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  tation that they would receive government-guaranteed allotments of imported raw cotton; the menace of liberalization brought down on the government and the Diet a blizzard of protest from the industry.

  During the late 1950's imports of raw cotton and wool took over 20 percent of the foreign exchange budget, a figure higher than that for crude oil during the 1970's. This situation had to change. Moreover, the United States was starting to object to the flood of "dollar blouses" from Japan, and on November 16, 1960, President Eisenhower promulgated his "defense of the dollar" policy, which the Kennedy administration continued. It reduced dollar payments by U.S. forces stationed overseas, put priority on the purchase of American products for U.S. foreign aid programs, and called for negotiations between the U.S. and Japan over limitations on exports of cotton textiles.

  As a first step in dealing with these problems, in October 1958 Imai convened a meeting of an informal government-industry discussion group called the Textiles Overall Countermeasures Committee (Sen'i Sogo * Taisaku Kondankai). The key figure on the committee was Horie Shigeo, then president of the Bank of Tokyo (the postwar successor to the Yokohama Specie Bank and the country's main foreign exchange institution). Other members included Oya* Shinzo*, former MCI minister and the president of Teijin; Nakayama Sohei from the Industrial Bank of Japan; Inaba Hidezo*, formerly of the Cabinet Planning Board and in 1958 a leading economic commentator; and other leaders of the textile industry.