MITI and the Japanese miracle
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Morozumi retired on the day the new structure was enacted and turned over its implementation to Yamashita Eimei (class of 1943, former first secretary in the Canadian embassy, deputy director of the Heavy Industries Bureau, and chief of the Chemical, International Trade, and Enterprises bureaus). On October 6, 1973, the "Fourth Middle Eastern War" (as the Japanese call it) erupted. Ten days later six countries of the Organization of Petroleum Exporting Countries raised their oil prices by 21 percent, and on October 20 six Middle Eastern nations suspended shipments of oil to nations supporting Israel. The "oil shock"a considerably more important event than what the Japanese press had called the "Nixon shocks"hit Japan and the world with stunning force. On November 16, 1973, the cabinet enacted its "Emergency Petroleum Countermeasures Policy," which ordered crash conservation programs; and Japanese political leaders, including MITI Minister Nakasone, set out on trips to the Middle East to try to win friends among nations they had not paid much attention to in the past. Japan was the world's largest petroleum importer and totally dependent on the Middle East. (One of the projects that Nakasone agreed to build in the area in order to cement relations was a $3 billion petrochemical complex at Bandar ShahpurBandar Khomeini after the 1979 revolutionin Iran. Ironically enough, Vice-Minister Yamashita Eimei, who became an executive of the Mitsui Trading Company after his retirement, ended up being in charge of building it. Cost overruns, the turmoil of the revolution, and damage done during the war between Iran and Iraq may have turned it into one of the most expensive foreign-aid efforts the Japanese have ever undertaken.)
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The significance of the oil shock for purposes of this study lies in the fact that it once again reminded the Japanese people that they need their official bureaucracy. The country had had a governmental energy policy in one form or another ever since the Meiji Restoration, and the energy problems of the 1970's provided MITI, in the words of the
Mainichi
, with a "once in a lifetime opportunity" to regain its previous authoritya challenge that it met with great skill and ingenuity.
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The ministry's immediate problem was the impact of the oil crisis on the already "crazy" prices. First heating oil began to rise in price and then to disappear altogether from the market. Then toilet paper and next household detergents became scarce. The public became
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convinced that industrial cartels were using the crisis in order to make huge profits. An atmosphere similar to that at the time of the rice riots gripped the country. Minister Nakasone set up a command post inside MITI that he manned himself with his bureau chiefs and his chiefs of the Paper and Pulp Industry Section in the Consumer Goods Industries Bureau (in charge of toilet paper) and the Chemical Products Section in the Basic Industries Bureau (in charge of detergent). When the taxi drivers went on strike because of a shortage of liquefied petroleum gas, or housewives rioted in Osaka because of a shortage of kerosene, or long lines were discovered in front of supermarkets that allegedly had toilet paper for sale, the MITI leaders tried to send emergency shipments to calm the panic buying. Old industrial policy bureaucrats reared on the slogan that "steel is the rice of industry" now found themselves preoccupied with consumer goods and irate housewives. The leaders of the ministry, who had begun their careers during the occupation, said that it reminded them of the days of the Economic Stabilization Board, when MCI exercised control over all commodities.
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Out of this confusion came two new laws: the Emergency Measures Law for the Stabilization of the People's Livelihood (Kokumin Seikatsu Antei Kinkyu* Sochi Ho*, number 121 of December 22, 1973) and the Petroleum Supply and Demand Normalization Law (Sekiyu Jukyu* Tekiseika Ho, number 122, also of December 22). They gave MITI broad powers to demand reports from wholesalers and retailers on their supplies, to establish standard prices for designated commodities, to draw up plans for the supply of consumer products, and to fine violators. Nakamura compares the petroleum law specifically with Yoshino's trade control law of September 1937, and Kakuma sees in both 1973 laws a return to at least the time of Sahashi's Special Measures Law.
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In essence the new laws legalized MITI's administrative guidance and formally recognized that administrative guidance was in the national interest. Neither law created a "third control era," as some feared they would, but they did begin to tip the balance in Japan from "self-control" back toward "state control."
And yet during 1973, with the country experiencing a 29 percent inflation rate, the question of whether MITI's administrative guidance served the national interest or only the interests of big business remained intensely controversial. It was the Fair Trade Commission that placed this question squarely in the limelight. On October 24, 1972, Prime Minister Tanaka had named a most unusual and independent former bureaucrat, Takahashi Toshihide (chief of the Ministry of Finance's Banking Bureau from April 1963 to June 1965, the period dur-
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ing which the bureau was engaged in constant conflict with Sahashi over the Special Measures Law), as chairman of the Fair Trade Commission. Takahashi simply believed that it was his job to defend the Antimonopoly Law, even though it had been widely ignored in recent years. He was also convinced that the economic events of 1972 and 1973 were related to this flouting of the Antimonopoly Law.
Takahashi could have chosen any of several industries to make his point (steel, for example), but because of the oil crisis he chose the petroleum refining and distribution industry. On November 27, 1973, officials of the Fair Trade Commission raided the offices and demanded to see the books of the Petroleum Association of Japan and of twelve petroleum companies. According to the FTC, ''The on-the-spot inspection was made to investigate a report that the oil companies raised the prices of their products and restricted supplies under the initiative of the association."
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On February 19, 1974, based on the documents his inspectors had collected, Takahashi charged the association and the companies with operating an illegal price cartel and turned the case over to the Tokyo High Public Prosecutor's Office. This was a sensational developmentTakahashi's picture was on the cover of most national magazines that weekand it became even more sensational when the petroleum companies replied that anything they had done in concert had been in accordance with MITI's administrative guidance.
The prosecutors called in numerous MITI officials, including Iizuka Shiro*, then director of the Basic Industries Bureau and formerly in charge of administrative guidance over the petroleum industry, and questioned them closely about their intentions in administrative guidance, what role the Petroleum Association played in it, and numerous other questions MITI was not pleased to have aired in the newspapers. Vice-Minister Yamashita met the press and angrily denied that MITI condoned illegal acts; he argued that the oil companies' prices would have gone up twice as much if the ministry's administrative guidance had not prevented it. But MITI was definitely on the defensive, and its defense was not helped when, on April 16, 1974, the
Asahi
printed the names of 50 former MITI officials, including 5 former vice-ministers, who were employed as amakudari executives throughout the oil industry.
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On May 28, 1974, the prosecutors indicted the Petroleum Association, the twelve companies, and seventeen of their executives, charging that they had criminally violated articles 3 and 8 of the Antimonopoly Lawto wit, that between December 1972 and November 1973 the executives had met some five times and concluded illegal
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agreements among themselves to raise prices and withhold products from the market. MITI was not charged, nor was administrative guidance mentioned in the indictment, but the defendants made it clear that both would form the heart of their defense. The executives each faced a maximum penalty of three years in jail or a ¥500,000 fine.
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So began the famous "black cartel" (
yami karuteru
The case was the first criminal prosecution for a violation of the Antimonopoly Law since its enactment, and the first instance of a government official criticizing administrative guidance in the line of duty since the practice had begun. However, more important than the case itselfwhich dragged on in the courts until 1980, when the Tokyo High Court finally ruled that MITI was not authorized to cause companies to restrict production through administrative guidancewas FTC Chairman Takahashi's attempt to strengthen the Antimonopoly Law. On September 18, 1974, the FTC published its proposed revisions, including one giving the FTC power to order companies to desist from cartels and to lower prices (under the AML as it then stood, the commission could only issue warnings). It also proposed strengthening the rules on splitting companies that had achieved near monopoly control over their industries, authorization of prosecutions for price fixing on the basis of circumstantial evidence alone, and several other changes.
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Even though Keidanren and MITI bitterly opposed the AML revision, the FTC case was given a boost when in November a scandal broke over Prime Minister Tanaka's expenditures of huge sums of money in the July election for the upper house and over charges that he had profited personally from his tenure in officeand, worse, that he had not reported the details to the tax authorities. No legal action was taken against him, but on November 26 he resigned as prime minister. Because the LDP had fallen to a new low in public esteem, Vice-President Shiina Etsusaburo* of the LDP turned to Miki Takeo (MITI minister when Sahashi was vice-minister); among politicians Miki was known to the public as "Mr. Clean." Among his several
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efforts to refurbish the party's tarnished image in the wake of Tanaka's rule by money-power politics (
kinken seiji
), Miki championed Takahashi's law in the Diet.
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Unfortunately for Miki and Takahashi, the prime minister's sponsorship was not enough. The lower house passed the AML revision bill in order to save the prime minister's face, but it did so only on the understanding that Shiina would arrange to have it killed in the upper house, which he did. In February 1976, Takahashi resigned because of frustration and illness. However, as he left the scene, economic critics hailed him as the most colorful and effective chairman in the history of the FTC; and the LDP, now suffering from the thinnest of majorities in both houses, discovered that his proposed revision of the Antimonopoly Law was popular with the public. Thus, on June 3, 1977, a much watered-down version of Takahashi's law was enacted; the law made it somewhat harder for companies to operate blatantly illegal cartels, and it gave the FTC limited authority to break up monopolies.
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The effect on MITI of the black cartel case and the revision of the Antimonopoly Law was to put the ministry on notice that administrative guidance must be used in the interests of the nation and the people, and that the ministry should guard against abuses of its power. MITI had some trouble accepting this message, but it eventually got the point. As former Vice-Minister Morozumi said in a lecture to his juniors in the bureaucracy, as irritating as it can sometimes be, officials are duty bound to act within the law and on the basis of law.
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Under the pressure of all these external events and of its own internal reform, the ministry at last began to internationalize. During 1974 the new Industrial Structure Section in the Industrial Policy Bureau, led by the partly Harvard-educated economist Namiki Nobuyoshi, wrote new plans for the industrial structure that went well beyond both Amaya's 1969 thesis and the Industrial Structure Council's 1971 plan. The new plans also took account of the oil crisis, the economic conflicts with the United States and Europe, the public's changed attitude toward economic growth, and the current recession.
On November 1, 1974, the ministry published its first "long-term vision" of the industrial structure, a document it revised annually for the rest of the decade and published for public discussion. The statement set stringent standards for energy conservation and petroleum stockpiling, spelled out in detail what a "knowledge-intensive industrial structure" would look like, identified protectionism as a serious threat and demanded that Japan "internationalize" for its own good, and in general explained to the public and the politicans where Japan
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stood economically and where it had to go in order to continue to prosper. The vision also introduced the concept of a "plan-oriented market economy." This is essentially Sahashi's old "public-private cooperation formula" as institutionalized within the government; it gives the Industrial Structure Council the responsibility for annual coordination of budget priorities, investment decisions, and research and development expenditures.
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Capital liberalization was finally achieved in the years following the first "vision" statement. On May 1, 1973, the government had announced that Japan was "100 percent liberalized"except that it still protected some 22 industries as exceptions, still applied all the old rules about joint ventures and subsidiaries, and still maintained numerous administrative restrictions on both trade and capital transfers ("nontariff barriers," as they are called). Four of the exceptional industries were the standard "sacred cows" of all countriesagriculture, mining, oil, and retail tradeand one was leather goods, included in order to protect the livelihood of a Japanese underclass, the burakumin. But the other 17 were the new strategic industries that MITI was nurturing.
Computers were the best-known case. Since the late 1960's MITI had poured money into domestic computer research, pushed companies into keiretsu, licensed foreign technology, and held off the competitionin short, MITI had formulated and administered a standard development program on the pattern of the 1950's. Its creation of the Machinery and Information Industries Bureau reflected this campaign: the bureau specifically linked computers and machines in order to prepare the way for the industries that the ministry had identified as export leaders after automobilessemiconductors, numerically controlled machine tools, robots, and advanced consumer electronic goods such as videotape recorders. However, by the mid-1970's MITI realized that protectionism could no longer be used as one of its policy tools, and it therefore scheduled full liberalization of the computer industry for April 1, 1976. Most of the other 17 exceptional industries were opened at the same time, as was retail trade.
The next major sign of internationalization was the ministry's decision to dismantle its main statutory powers, the Foreign Exchange and Foreign Trade Control Law of 1949 and the Foreign Capital Law of 1950. On November 11, 1979, almost 30 years to the day after SCAP approved it as a temporary measure, the Diet enacted MITI's revision of the Trade Law. This revision, which went into effect a year later, abolished the Foreign Capital Law, altered the language of the "basic purpose" of the Trade Law from "prohibition in principle" to "free-
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dom in principle," and reduced the powers of the government to residual rights of intervention in the economy in the event of balance of payments difficulties or other emergencies.
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With a global trade surplus during 1977 of some $17.5 billion, which was a 77 percent increase over 1976, Japan could finally afford to lower its guard somewhat.
The new economic conditions of the 1970's also afforded MITI opportunities to exercise many of the old functions that it had perfected over the previous 50 years. For example, during the late 1970's it was busy creating cartels in the "structurally depr
essed industries" (textiles, rubber, steel, nonferrous metals, shipbuilding, and some petrochemicals) in order to allocate market shares to be scrapped and the number of employees to be retrained or pensioned. Based on the Temporary Measures Law for the Stabilization of Designated Depressed Industries (Tokutei Fukyo* Sangyo* Antei Rinji Sochi Ho*, of May 15, 1978), MITI established a ¥10 billion fund (¥8 billion from the Development Bank and ¥2 billion from industry) for paying firms to scrap excess facilities; and it also obtained an exception to the Antimonopoly Law (opposed by the FTC) for "investment-limiting cartels" and mergers whose purpose was to reduce excess capacity. It all seemed quite familiar.
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On the positive front, during the years after the oil shock the ministry converted most electric power generation from oil to liquefied natural gas, liquefied petroleum gas, or coal. It also increased nuclear power generation by some 58 percent as of 1980; it shifted about half of the nation's 43 blast furnaces from heavy oil to coke and tar (and planned to convert all of them); it cut oil imports by better than 10 percent from 1973 levels; it stockpiled more than a hundred days' supply of petroleum; it diversified sources of supply away from the Middle East (notably to Mexico); and it commissioned the fashion designer, Mori Hanae, to create an "energy conservation look" (
shoene
*
rukku
) for men during summertimea tieless, short-sleeved, safari suitin order to cut air-conditioning costs. During July 1979 MITI Minister Ezaki Masumi had himself photographed wearing one of the new suits and ordered MITI officials to shift to them; the Ministry of Finance, however, turned down the "energy conservation look" for its own officials as too undignified.