On November 18, 1965, after Hyuga's* initial opposition, MITI Minister Mikihimself an LDP faction leader, holder of the record as the longest continuously elected member of the Diet, and a future prime ministergot on the telephone and, according to Hyuga*, promised that if Sumitomo would go along with the production cut through at least the third quarter, he would act favorably on Sumitomo's investment plans for its big Wakayama steel works (the company intended to add a fourth blast furnace and a fourth and fifth rotary furnace, or converter). Sahashi had not been directly involved in this dispute until Hyuga's defiance of MITI, and both he and Miki are vague on whether they consulted each other before Miki's call.
*
However, on November 19, the day after Miki's call, Sahashi also contacted Hyuga and told him that unless Sumitomo backed down, he would use the Import Control Ordinance (Yu'nyu* Boeki* Kanri Rei, cabinet order 414 of 1949) to restrict imports of coking coal for the company to precisely the amount necessary to produce its authorized quota and not a shovelful more. Sahashi here revealed MITI's most authoritarian side, and when the whole matter became public, the press generally backed Sumitomo as the underdog. Hyuga held a press conference in Osaka where he said that since it was his company that was spending the money and taking the risks, he did not see that it was any concern of the government how much the company produced. (This was, of course, not entirely candid, since Sumitomo had profited as much as any other company from government-backed financing and government-guaranteed loans from the World Bank.) More pointedly, however, Hyuga added that MITI favored firms that had ex-MITI bureaucrats working for them, and that it appeared to him as if Vice-Minister Sahashi had overruled Minister Miki. "Which one of them is the minister?" he asked the gathered Osaka reporters. This was promptly transformed by the national press into big headlines
SAHASHI, MINISTER; MIKI, VICE-MINISTER
that stuck in the public mind as a slogan. (This case is similar to the
*
According to Sahashi, Miki's telephone call was merely a matter of courtesy from a senior politician to an influential constituent. His "promise" was extremely vaguean example of what is called
kancho
*
yogo
*.(literally, "official jargon," but meaning a government official's saying yes to a citizen's request as a matter of politeness but with the implication that the official has no intention of doing anything about the request). Hyuga, in Sahashi's view, deliberately misunderstood Miki's meaning. See Matsubayashi Matsuo, ed.,
Kaikoroku, sengo
Tsusan
*
seisaku shi
(Memoirs: postwar MITI policies; Tokyo: Seisaku Jiho* Sha, 1973), p. 141.
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disputes between Minister Ogawa and Vice-Minister Yoshino in 1936 and between Minister Kobayashi and Vice-Minister Kishi in 1941.)
Sahashi was embarrassedhe and Miki had a good relationshipbut he stuck to his guns and won. On January 11, 1966, Sumitomo claimed that it had not rebelled against administrative guidance but had only sought an exception because of its superior export performance, and said that it would go along with the others. Its imports of an indispensable raw material were promptly restored. Leaders of the steel industry had worked behind the scenes to achieve this compromise, and Sumitomo's export quota was also raised.
There were several consequences of this famous incident. Most important, the contretemps had so rattled the entire steel industry and business community, as well as exposing to public view procedures that were normally secret, that the elders of business and government determined to alter the structure of the industry itself by merging the Yawata and Fuji steel companies into one clear industry leader. In March 1970 New Japan Steel, the world's largest steel company, came into being after a lengthy and often fierce fight with the Fair Trade Commission. We shall return to MITI's role in this famous merger in the next chapter.
A less important but no less revealing consequence was Sumitomo Metals' acceptance of its first amakudari bureaucrat. Three years after the incident, in 1969, Hyuga * invited retiring MITI Vice-Minister Kumagai Yoshifumi to join Sumitomo Metals' board of directors. Kumagai had worked briefly for Sumitomo before entering MITI and therefore was more acceptable to the firm than a bureaucrat it did not know. In June 1978 Hyuga moved up to the chairmanship, and Kumagai became president of Sumitomo Metals. Hyuga had obviously learned that his otherwise excellent company lacked one important capability in its executive suite: the bureaucratic skills of a MITI insider.
46
Only three months after his victory over Sumitomo, Sahashi himself decided that he had exhausted his usefulness. He declared, however, that he would not take any of the three paths of amakudari normally followed by high-ranking officials in retirement. He did not want to enter private enterprise because the presence of an outsider only annoyed the long-service employees and interfered with their own chances for promotion. He did not want to enter politics because he was disillusioned with politicians. And he did not want to go to a government corporation, because there he would have to take orders from some vice-minister, and that did not suit him. Sahashi therefore spent the next six years doing economic research and writing a series
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of very useful and candid books. In 1972 he finally took a position as chairman of the Leisure Development Center, a MITI-sponsored association to promote the tourist and recreation industries. When I met him in 1974, he appeared the very model of an international tourist executive: ensconced in an office surrounded with tropical fish in tanks, recently returned from a visit to the South Pacific, and dressed in a white safari suit, he answered my questions frankly, and passionately defended his beloved MITI. He was not known to the press as "Mr. MITI" (
Misuta
*
Tsusan-sho
*) for nothing.
The demobilization of the Japanese economy really only began during the early 1960's with trade and exchange liberalization; the statement in the 1956
Economic White Paper
, "We are no longer living in the days of postwar reconstruction," was about five years premature. Until trade liberalization was forced on it, Japan had operated a totally closed economy in which all of its contacts with the rest of the world were mediated and brokered in government offices. Trade liberalization beganit did not enda complicated process of opening the Japanese economy to the full range of commercial and competitive pressures that affect all of the world's market economies. Not until 1980, when the Foreign Capital Law of 1950 was finally abolished, could it be said that Japanese economic demobilization was more or less complete. Although the Japanese economy prospered enormously from the global trends toward trade and capital liberalization, the actual process of removing Japan's controls was a harrowing one for both Japan and its trading partners. The period from approximately 1960 to 1980 left scars, as we shall see in the next chapter, that twenty years later were still affecting the Japanese-American alliance.
In January 1981 the special commission of distinguished Japanese and American leadersthe "wisemen"who had been appointed in May 1979 by Prime Minister Ohira* and President Carter to examine factors affecting the long-term economic relationship between the two countries, issued its report. Under the general subject "Japan's Market: Open or Closed?" the wisemen discussed administrative guidance:
One of the most difficult aspects of the Japanese economic system for non-Japanese to understand is the nature of the government-business relationship. The more embracing set of consultations between the private and public sectors and less of an adversary relationship than in the United States lend substance in some American eyes to the concept of a "Japan, Inc." This image presents a very false and misleading impression of the Japanese economy. It is also very harmful to United StatesJapan economic relations because it cre-
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ates the false impression that Japan can manipulate exports and imports at will. Business does not m
eekly respond to government fiat nor is government the creature of business. Most Japanese, however, do acknowledge the existence of government reliance on administrative guidance, usually describing the informal means by which government attempts to influence business without resorting to legislative or regulatory measures as would be the case in the United States.
47
As this chapter has sought to show, administrative guidance became a salient feature of the Japanese government-business relationship only in the context of trade liberalization and MITI's failure to provide a new legal basis for its guidance activities. Until then the government's role in economic decision-making had been guaranteed by its management of the foreign exchange budget. After that budget was abolished, the government continued to play its traditional role just as alwaysbut without its old explicit power to compel compliance through control of an industry's or an enterprise's foreign trade.
The government's role in the economy, either before or after trade liberalization, has never been highly constrained by law. To be sure, the Japanese economic system rests on a legal foundationbut usually on short, very general laws, the Special Measures Law being a good example. The actual details are left to the interpretation of bureaucrats so that the effects can be narrowly targeted. And large areas of economic activity are covered by neither general laws nor detailed cabinet or ministerial orders, but are left to administrative guidance. The power of administrative guidance is rather like the grant of authority to a military commander or a ship captain to take responsibility for all matters within his jurisdiction. Administrative guidance is a perfectly logical extension of the capitalist developmental state, with its emphasis on effectiveness rather than legality.
The power of administrative guidance greatly enhances the ability of Japanese economic officials to respond to new situations rapidly and with flexibility, and it gives them sufficient scope to take initiative. The Japanese have unquestionably profited from the elimination of legal middlemen and the avoidance of an adversary relationship in public-private dealings. Needless to say, this cozy relationship between officials and entrepreneurs is open to abuseand, as we shall see in the next chapter, it has on occasion been abused. But given the general developmental imperatives of postwar Japan, the public has been willing to accept the trade-off between bureaucrats occasionally exceeding their mandate and quicker and more efficient economic administration. As the degree of trade and capital liberalization in-
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creased, administrative guidance declined, but it will never disappear completely from the Japanese scene, given the public's awareness of Japan's economic vulnerability and its acceptance of the need for governmental coordination of economic activities.
As the last of the old-style industrial-policy bureaucrats, Sahashi worked hard to mitigate the effects of liberalization and to continue high-speed growth as long as possible. Following his period in office, MITI encountered a storm of criticism of its activities, and the cooperative relationship between government and business began to crack under demands by the private sector for the restoration of self-control. However, shortly after the first "oil shock" of 197374, MITI again found a call for its servicesto lead third-stage knowledge-intensive industrialization and to correct many abuses that had accompanied the renewal of self-control. The ministry also underwent an internal reform and redefinition of the qualities of a MITI official. Unlike Sahashi and his fellows of the older generation, the new MITI official was to be experienced in international affairs, adept at foreign languages, and as much at home with trade administration as with industrial policy. In contrast to Sahashi's self-description as a "domestic-use-only bureaucrat," his successors were "cosmopolitan nationalists.''
The passing of the Kishi-Shiina line did not mean the end of high-speed growth. Whereas Japanese productivity had grown at a rate of 9.5 percent on an average annual basis between 1950 and 1967, it increased to 10 percent during 196773 and held steady at 8.3 percent during 197879, following the severe effects of the oil shock. By the end of the 1970's Japan and its ally, the United States, together produced each year about 35 percent of the total new output of the planet and engaged in almost 20 percent of the world's total trade. Japan had become a rich nation. The real legacy of people like Sahashi was not their "control bureaucrat" mentality but their having shown the nation how to change its industrial structure in order to meet changes in the economic environment, and how to do so without relinquishing the advantages of either democracy or competition. Thanks to MITI, Japan came to possess more knowledge and more practical experience of how to phase out old industries and phase in new ones than any other nation in the world.
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Eight
Internationalization
During the decade from the recession of 1965 to the recession after the first "oil shock" (1974), the paths of MITI and of Japan first diverged and then came back together again. Japan attained the zenith of its postwar economic growth, but MITI suffered from a classic case of the greatest bureaucratic infirmity of allfulfillment of mission and loss of function. One issue after another plagued the ministry in this eraindustrial pollution, revolts against its administrative guidance, charges of corrupt collusion with big business, inflation, public dismay at some of the consequences of its industrial location policy (especially the virtual depopulation of some Japan Sea coast prefectures, such as Shimane, and the overcrowding of the Tokyo-to-Kobe industrial zone), and serious damage to relations with Japan's main economic partner, the United States, because of trade imbalances, an undervalued yen, and Japanese procrastination in implementing capital liberalization.
By the mid-1970's the ministry began to show renewed strength: it successfully redefined its mission, changed its personnel, gave itself a new structure, and shed the parts of its heritage that were no longer relevantand all the while it reasserted those elements that Japan still needed. The oil crisis and all of its ramifications gave the ministry a new lease on life. MITI's primary problem at the time was to understand what changes were needed, to answer its critics, and to hold off rivals, such as the Ministry of Finance, who saw advantages for themselves in MITI's weakened influence. One official characterized 196869 as the worst year in MITI's history, and Vice-Minister Morozumi Yoshihiko (197173) referred to the years leading up to the basic reform of the ministry in July 1973 as a "long, dark tunnel."
1
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It all began with capital liberalization. After Japan had joined the OECD in 1964with more reservations to the OECD's capital liberalization code than any of the sixteen other members except Spain and Portugalthe country seemed to forget that reasonably free movement of capital among the signatory nations was one of the OECD's fundamental goals. However, there were many foreigners who were quick to remind the Japanese that they had agreed to end restrictions on direct foreign investment in the Japanese economy. Japan gained several advantages from membership in the OECD, including greater ease in floating its securities in overseas markets; and it was itself, of course, a major investor in Korea, Taiwan, and Southeast Asia. The slowness of Japanese compliance first came up in May 1965 at the Japanese-American Financial Leaders Conference. Demands that Japan liberalize were made again in July at the Japanese-American Joint Committee on Trade and the Economy, repeated in December at the Business International convention in Tokyo, and repeated again in February 1966 at the OECD itself.
2
The very thought of capital liberalization struck terror in the hearts of MITI officials and Japanese industrial leaders. In their view trade liberalization had meant only meeting world competition in terms of products (quality, design, price, and so forth), a level at which Japan had worked out the successful strategy of importing technology from Europe and America, combining it with Japanese labor power, and then offering to the market products that were able to compete profitably with those of other countries. But capital liberalization meant competition at every level of an enterprisein technology
, capital resources, managerial skills, and all the rest. The low levels of capitalization of Japanese firms, a consequence of the indirect financing system invented during the capital shortage of the Korean War period, made them easy targets for foreign acquisition. The issue, of course, was nationalistic rather than economicthe belief on the part of some Japanese that the United States had for all intents and purposes "bought" Western Europeand was about to buy Japan, as well.
MITI had long feared that some such catastrophe might easily occur, and during the recession of 1965 (particularly after the bankruptcy of Sanyo* Special Steel), it began to deride what it called Japan's "cherry-blossom-viewing and sake-drinking economy," by which it meant numerous low equity, over-invested firms wholly dependent upon government-guaranteed bank loans.
3
If such firms could not even survive a domestic recession in a hothouse economy, how were they going to compete with the Fords, du Ponts, and IBMs of the world? The ministry argued that the solution to these problems was
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to promote large-scale mergers in order to produce concentrations of economic power on a par with the United States and West Germany. It wanted to reduce the "big six" steel companies to, say, two or three, and the automobile manufacturers from ten (Daihatsu, Fuji, Honda, Hino, Isuzu, Mitsubishi, Nissan, Suzuki, Toyo * Kogyo*, and Toyota) to two (Nissan and Toyota). The problem with this approach was that it was hard to merge Japanese firms, given their company unions, lifetime employment systems, and keiretsu affiliations. Moreover, such a policy would put MITI squarely on the side of big business, or even worse, of zaibatsu business. Some observers reinterpreted MITI's old slogan of "scrap and build" (first applied to the coal industry) to mean "scrap medium and smaller enterprises" and "build Mitsubishi Heavy Industries."
MITI and the Japanese miracle Page 43
