MITI and the Japanese miracle

by Chalmers Johnson

  économie concertée

  , or what the Japanese call the "mixed economy" (

  kongo

  *

  keizai

  ).

  *

  In addition to Morozumi, MITI men with this sort of experience included Hayashi Shintaro* (director of the JETRO office in Hamburg, 196165), Komatsu Yugoro* (Japanese Embassy, Bonn, 196065), and Masuda Minoru (Japanese Embassy, Brussels, 196266).

  22

  Before Sahashi's downfall, these officers were strong supporters of his proposed law, but during the late 1960's they shifted to the so-called international faction.

  Morozumi was a major author of the Special Measures Law, contributing to it his experience gained in General de Gaulle's Paris, his fear of "American capital," and his knowledge of French precedents for what Sahashi wanted to do in Japan. On August 25, 1961, Sahashi named him chief of the First Enterprises Section in the Enterprises Bureau. Other participants in the drafting of the law were Takashima, the bureau's deputy director; Miyake Yukio, chief of the Industrial Fi-

  *

  According to Stephen S. Cohen, "The

  économie concertée

  is a partnership of big business, the state and, in theory though not in practice, the trade unions. The managers of big business and the managers of the state run the modern core of a nation's economymostly the oligopoly sectors. Positive cooperationnot conflict, as in a market ideologyis its motor. The state is not a silent partner; it is an initiating, active partner. It intervenes in every aspect of economic affairs, encouraging, teaching, sometimes even threatening. Its purpose is to promote economic modernization: greater efficiency, greater productivity, greater expansion. The partnership works for the general interest; and it works outside the traditional political arena. Parliament and the constellation of institutions that surrounds parliament are not necessary for the smooth functioning of the system. . . . The

  économie concertée

  is the new higher civil servants' favorite model of economic and social organization. It is fundamentally an attitude of cooperation between the stewards of the state and the managers of big business."

  Modern Capitalist Planning: The French Model

  (Cambridge, Mass.: Harvard University Press, 1969), pp. 5152. Former MITI Vice-Minister Ojimi* Yoshihisa states bluntly that "the Special Measures Law was actually an attempt to introduce the French

  économie concertée

  into Japan." Ojimi Yoshihisa and Uchida Tadao, "Nihon no kanryo* gyosei* to kanmin kyocho* taisei" (Japan's bureaucratic administration and the public-private cooperative system),

  Gendai keizai

  , September 1972, p. 30.

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  nance Section and a protégé of Sahashi's; and two younger officers, Konaga Keiichi (who later served as Prime Minister Tanaka's assistant and was the actual author of Tanaka's

  Plan for the Reform of the Japanese Archipelago

  ) and Uchida Genko * (an engineer who had played an active role in fostering the automobile industry).

  23

  The Enterprises Bureau first entitled its brainchild the Draft Law of Special Measures for Strengthening the International Competitive Ability of Designated Industries. It was the cabinet that changed its name. Article 1 spelled out the law's objectives: to promote the sound development of the national economy by raising the international competitive ability of designated industries in order to counter the effects of liberalization. Article 2 designated the first three industriesspecial steels, automobiles, and petrochemicalsand authorized the designation of others by cabinet order after consultation with the Industrial Structure Investigation Council. Articles 3 and 4 incorporated the public-private cooperation formula, which Sahashi held to be the very heart of the whole law.

  24

  These articles authorized three-way committees (

  kondankai

  ), composed of representatives of government, industry, and finance, which were to establish and carry out "promotion standards" for each particular industry. It is perhaps worth noting that the Japanese word kondankai (discussion group, or committee) implies more than its English equivalents.

  Kenkyusha's

  *

  New Japanese-English Dictionary

  (4th ed.) gives for kondankai the Italian word

  conversazione

  , "a verbal agreement between two or more parties," which suggests something less than a contract but considerably more than a "conversation."

  Articles 5 and 6 required managers of designated industries to cooperate in raising the competitive ability of their firms, said that banks had to "give heed to" loan requests from designated industries, and ordered government banks to assist them. Articles 7 and 8 provided for "structural financing" for designated industries, various tax exemptions to be specified by cabinet orders, and reductions in the corporate income tax. Article 9 legalized "cooperative behavior" by enterprises in a designated industry and specifically exempted such behavior from the purview of the Antimonopoly Law. Articles 10, 11, 12, and 13 were given over to legal technicalities. Like most Japanese statutes, the Special Measures Law was comparatively short.

  25

  Disclosure of the contents of the law in the Industrial Structure Investigation Council immediately set off three major controversies. The first was the old favorite of self-coordination versus public-private cooperation. Much in the tradition of Kobayashi Ichizo* at the time of Prince Konoe's New Structure Movement, Ishizaka Taizo*, the

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  venerable head of Keidanren, let it be known that he favored self-imposed control. He went on to say that "all the government has to do is watch for fires and thieves. It can leave the rest of work up to civilians"; but he also believed that "opponents of foreign investment are like grown men wearing diapers, refusing to leave their mothers' breasts."

  26

  Although Keidanren refused to support the bill, Sahashi did gain the support of its rival organization, the Japan Committee for Economic Development (Keizai Doyukai*).

  The second controversy concerned the law's stipulation that banks and bankers be included in the various "discussion groups." Leaders of the banking community concluded, accurately, that this was a direct attack on their keiretsu; and the Ministry of Finance responded with indignation to this intrusion into its territory by MITI. Usami Makoto, president of the Mitsubishi Bank and then chairman of the National Banking Association (Zenkoku Ginko* Kyokai*), refused to have anything to do with the Special Measures Law.

  The third controversy was generated by the Fair Trade Commission and its belief that Sahashi was trying to get rid of the Antimonopoly Law once and for all. On December 5, 1962, Sahashi opened negotiations with the FTC concerning the purposes of the law, the threat posed by liberalization to Japan's economy, and the need for cartels. After some six meetings Sahashi seemed to have made some headway with the commission, and on February 1, 1963, the ministry published the law. Nevertheless, after the matter went to the cabinet, Ikeda still had to order the FTC to cooperate.

  Sahashi's main backing in these disputes came from the Industrial Structure Investigation Council. The Industrial Order Committee (headed by Professor Arisawa), which Sahashi had consulted on every step he took, was his main bastion of strength, but during October 1962 the Industrial Finance Committee (Sangyo* Kin'yu* Bukai) also contributed its support. Headed by Nakayama Sohei of the Industrial Bank, and with only four other members (former MITI Vice-Minister Ueno, the president of a paper company, a newspaper executive, and the president of the Export-Import Bank), the committee concluded that adding banks to the discussion groups was an excellent idea and long overdue.

  Given the general furor, the politicians had no choice but to step in and try to resolve these numerous issues. On February 14, 1963, Prime Minister Ikeda ordered all the economic ministers in the cabinet to meet with him on a regular basis until the law's future was decided. Hardly a week after this group went to work, the
Kansai Branch of Keidanren expressed its formal opposition to MITI's pro-

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  posed evisceration of the Antimonopoly Law (as we shall see, there was more to this opposition from Osaka than met the eye). When the ministers finally acted, they changed the name of the law to the more innocuous Special Measures Law for the Promotion of Designated Industries, put a five-year limit on it, altered the ways in which industries could be designated, and strengthened the participation of the minister of finance in the law's administration. With these changes the LDP's Political Affairs Research Council (where former Finance Ministry bureaucrats were very strong) signed on over the objections of the Banking Bureau, and on March 22, 1963, the party gave its final approval. On the same day the cabinet formally voted to sponsor the bill, and on March 25 it was introduced in the House of Representatives and referred to the Commerce and Industry Committee.

  As expected, the opposition parties denounced the law as a return of bureaucratic control, the press personalized it as a "save MITI" bill, pundits referred to it as the "charge of the Sahashi brigade," and orators droned on about the demise of the "economic constitution." Sahashi spent hours answering questions in the Diet, but his problem was not with the opposition. He soon discovered that the cabinet, the LDP, and even his own minister had quietly decided not to make a fight. The Special Measures Law became known as "sponsorless legislation," meaning that the establishment had abandoned it. The bill was never defeated; it simply never came to a vote. The government introduced it in the 43rd (December 24, 1962, to July 6, 1963), the 44th (October 15 to October 23, 1963), and the 46th (December 23, 1963, to June 26, 1964) sessions of the Diet, but after having done that, LDP party leaders never lifted a finger to bring it to the floor for a vote. Officially MITI explained the law's failure as due to ''misunderstandings, [bureaucratic] sectionalism, and political tricks," and called its demise a "bitter setback."

  27

  But there were many in the ministry who understood what had happened. Opposition from the banking community and the Kansai business community was serious, but more serious was the fact that Sahashi himself had become an issue.

  Several incidents had occurred during Sahashi's tenure as director of the Enterprises Bureau to irritate the business community in general and the business community of Osaka in particular, even when Sahashi's policies were proven sound. The best-known incident concerned the Maruzen Oil Company, whose head office is located in Osaka. Founded in 1933, Maruzen was part of the Sanwa Bank's keiretsu (also based in Osaka); it was and is a domestically owned refining and distribution company, but it had a long-term tie-up with Union Oil Company of California, which was a prime supplier of its

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  crude oil. In the wake of the closing of the Suez Canal in 1956, Maruzen's president, Wada Kanji, had signed long-term shipping contracts that during the recession of 1962 turned unfavorable and threatened the company's financial viability. President Wada proposed accepting a very large loan from Union Oil to keep his company afloat, and he applied to MITI for approval of the loan under the terms of the Foreign Capital Law.

  Sahashi turned him down cold, arguing that the company's own mismanagement had caused its problems, and that the introduction of foreign capital in an industry already thoroughly dominated by foreign companies was contrary to the national interest. Wada was not without political influence, which he began to mobilize to put pressure on MITI, but this pressure only caused Sahashi to become more combative. However, in the end Sahashi agreed to organize a five-man committee to try to salvage the Maruzen Oil Company. Chaired by Uemura Kogoro *, it recommended that Wada retire and that MITI negotiate the terms of the loan directly with Union Oil in order to ensure that Union did not gain control of the company. MITI accepted these recommendations: Sahashi struck a deal with Union, Miyamori Kazuo of the Sanwa Bank replaced Wada as Maruzen's new president, and the company was successfully rebuilt. But several Osaka legislators made speeches in the Diet accusing "the bureaucrat Sahashi" of throwing their local business leader Wada out into the streets.

  28

  Meanwhile, on July 18, 1962, Sato* Eisaku resigned as MITI minister, and Prime Minister Ikeda appointed Fukuda Hajime to replace him. Fukuda was a classic politician of the party-men's factions, a former war correspondent (Singapore) and chief of the political department of the Domei News Agency, a five-times-elected member of the House of Representatives from Fukui prefectureand a stalwart of the Ono* faction. Ikeda named him on the recommendation of Ono, whose support he needed to hold off the political challenges coming from both Sato and Kono* Ichiro*. Fukuda was exactly the type of man whom the elite bureaucrats of MITI wouldand didderide as a "small-time politician," but he will never be forgotten within the ministry as the cause of the "Fukuda typhoon" of July 1963.

  During June 1963 Vice-Minister Matsuo Kinzo* was preparing for his amakudari as director (later vice-president) of Nippon Kokan*. He recommended to Minister Fukuda that Sahashi be named as his successora change of command that had been long and carefully planned. However, on July 1, 1963, Fukuda was involved in a wide-ranging discussion with a group of journalists, during which one of them said, "Various personnel matters are pending within MITI.

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  Could you tell us about them?" "Certainly," replied Fukuda. "Since MITI is an agency that serves the public, the fact that Sahashi has gotten a bad reputation with industry makes him unsuitable. I think that Imai would be good. I intend to appoint him as the next vice-minister."

  29

  The ensuing explosion within MITI has become legendary. All work stopped. Just as at the time of the military mutiny in 1936, officials met in groups according to their entering classes to caucus on this unprecedented development. Some were quoted in the next day's newspapers as asking, "How is it that a party-politician minister, who knows nothing about the traditions of our glorious MITI, can pick a vice-minister we don't like?" The press club commented sardonically that the bureaucratic

  amai seikatsu (la dolce vita

  ) at MITI had come to an end. And the public was confused: it thought that the minister always chose his own top subordinates, at MITI and at other ministries. Some cooler heads remarked, "Of course the minister technically has the final say in personnel matters. Both Sahashi and Imai are OK, and except for the fact that Sahashi has developed a faction within the ministry, neither can change MITI as a whole." Thus was born the "Sahashi faction"and its opposite number, the "international faction," which would take over the ministry in 1966. The press coverage of the ''Fukuda typhoon" effectively diverted attention from the Special Measures Law in the Diet and raised enough questions about its author to cause it to become "sponsorless legislation."

  The reasons for Fukuda's action are not hard to find. First, as a party politician in a party increasingly dominated by former bureaucrats, Fukuda wanted to put the bureaucrats in their place. He was often quoted as saying, "It is sheer arrogance that some bureaucrats want to usurp the authority of politicians." Second, both the Maruzen affair and the Special Measures Law had made the business world nervous about a restoration of bureaucratic controls over the economy. Fukuda's action reassured business leaders on this score, since Imai was not only a champion of liberalization but had also won the trust of the prime minister and was the son-in-law of Yamazaki Taneji, president of the Yamazaki Securities Company. Third, LDP insiders believed that there was a link between Sato* Eisaku and Sahashi, and this was something Fukuda's faction leader, Ono* Bamboku, wanted severed.

  The MITI elders were called in to try to control the damage. Outgoing Vice-Minister Matsuo advised Sahashi to keep his mouth shut while they worked out a solution. Sahashi made it clear that even though he and Imai were both from the class of 1937, he would not

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  resign as custom would normally have dictated. The result was a ceremonial meeting, presided over by the great senior Shiina Etsusaburo *, in which it was decided that Imai would become vice-minister, S
ahashi would take Imai's old job at the Patent Agency, Imai would hold the top spot for only a year (he actually stuck it out for 15 months), and Sahashi would succeed him. Sahashi has written that this affair was his most unpleasant experience in 30 years of government service, and one can believe him. Nonetheless, he did have the satisfaction of seeing his ideas for the economy accepted and implemented, even if he and his law were none too popular.

  30

  Throughout this period foreign pressure on Japan to speed up liberalization increased in intensity. At the first Joint Meeting of Economic Ministers of Japan and the United States at the end of 1961, the Americans asked for a faster pace of liberalization than the 80 percent Ikeda had promised; and in September 1962 the IMF recommended a level of 95 percent (the IMF and Japan compromised on 90 percent). Then, on February 20, 1963, the IMF Board of Directors met, rejected Japan's stated reasons for not having shifted to article 8 status, and insisted on a pace of liberalization greater than 90 percent. Japan really had no choice if it intended to continue to participate in international trade. It therefore gave notice that it would formally become an article 8 nation on April 1, 1964, and would simultaneously stop rationing foreign exchange through MITI-controlled budgets.