MITI and the Japanese miracle

by Chalmers Johnson

  Despite the turmoil that swirled around the ministry during the 1970's, by the end of the decade its leaders had reason to be satisfied. Japan had more than fulfilled the long-range goal its bureaucrats had set for the country after the war; it had indeed caught up with Western Europe and North America. The lives of all Japanese had been

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  transformed from the poverty of the 1930's and the death and destruction of the 1940's to some of the highest levels of per capita income on earth. During the decade Japan's economy had also weathered two petroleum crises and emerged in stronger condition, despite the fact that Japan remained the most vulnerable of the world's economies to commercial interruptions.

  Acknowledgment of and respect for Japan's achievements were universal. The

  Times

  of London (July 21, 1980) declared that Japan had emerged as "the world's leading industrialized nation." MITI leaders were not complacent; they continued vigorously to shape Japan's industrial structure for the future. But the attainment of a per capita GNP approximately the same as that of the other advanced industrial democracies clearly marked the end of an era. The future problems of the Japanese economy now begin from an entirely new premise: Japan is one of the world's rich nations. This achievement has also generated major interest throughout the world in how Japan grew so fast and for such a long period of time, a subject of particular interest in the United States, which is increasingly concerned to revitalize its own economy. The question repeatedly asked by Japan's economic partners and competitors is What are the lessons to be learned from Japan's recent economic history?

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  Nine

  A Japanese Model?

  The history of the modern state has been one of continuous enlargement of the state's functions. From its traditional concern with defense, justice, and communications, it has expanded to encompass education; physical, mental, and moral health; birth control; consumer protection; ecological balance; the elimination of poverty; and, ultimately, in totalitarian social systems (as the term implies), the attempt to eliminate the distinction between state and society. In totalitarian systems the state tries to do everything. We began this book by distinguishing between the regulatory state and the developmental state, but these hardly exhaust the functions of the state in the late twentieth century. Today there are welfare states, religious states, equality states, defense states, revolutionary states, and so forth. All of this is a way of saying that the innumerable things a state does can be arranged in rough rank order according to its priorities, and that a state's first priority will define its essence. It is possible, of course, that these priorities will change, thereby changing the nature of the state, and that in some periods a confusion in priorities will cause different parts of the state to operate at cross-purposes.

  The effectiveness of the Japanese state in the economic realm is to be explained in the first instance by its priorities. For more than 50 years the Japanese state has given its first priority to economic development. This does not mean that the state has always been effective in achieving its priorities throughout this period, but the consistency and continuity of its top priority generated a learning process that made the state much more effective during the second half of the period than the first. Some of the Japanese state's policies for economic

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  development, such as the imperialism of the Pacific War, were disastrous, but that does not alter the fact that its priorities have been consistent. A state attempting to match the economic achievements of Japan must adopt the same priorities as Japan. It must first of all be a developmental stateand only then a regulatory state, a welfare state, an equality state, or whatever other kind of functional state a society may wish to adopt. This commitment to development does not, of course, guarantee any particular degree of success; it is merely prerequisite.

  Given that Japan's state priorities have been remarkably consistent during the middle of the twentieth century, one must quickly add that Japan's record in achieving its priorities has been mixed. This is not to question the great and lasting achievements of the Japanese economy after 1955. The nation's economic strength at the end of the 1970's and its collective wisdom concerning what is necessary to support 115 million people with few natural resources at a per capita GNP of around $9,000 to $10,000 1978 dollars suggest that Japan should be able to maintain its own population in the manner it has come to expect, and also to contribute to the welfare of others, for many decades to come. It is rather to stress that the high-growth system cannot be reduced to any particular device or institution, to the rate of saving, or the employment system, or the banking system; and that the high-growth system certainly was not the invention of any single person or party at a particular time. Japan's achievements were the result of a tortuous learning and adaptation process that in the present context began with the financial panic of 1927 and ended with the adjustments in the wake of the oil shock of 1973.

  The high-growth system, like the basic priorities of the state, was not so much a matter of choice for Japan as of necessity; it grew out of a series of economic crises that assailed the nation throughout the Showa * era. The most obvious of these, in addition to the financial panic of 1927 and the oil shock, include the invasion of Manchuria in 1931, the fascist attacks on capitalism during the 1930's, the war with China from 1937 to 1941, the Pacific War, the collapse of the economy in 1946, the Dodge Line of 1949, the postKorean War recession of 1954, the trade liberalization of the early 1960's, the recession of 1965, the capital liberalization of 196776, and the health and safety crises of the early 1970's. It is of course gratifying that Japan ultimately gained a powerful conception of how to achieve its priorities and then applied this conception with rigor and thoroughness. But it would be to reason in an ahistorical and ill-informed manner to fail to note that

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  Japan's high-growth system was the product of one of the most painful passages to modernity any nation has ever had to endure.

  It may be possible for another state to adopt Japan's priorities and its high-growth system without duplicating Japan's history, but the dangers of institutional abstraction are as great as the potential advantages. For one thing, it was the history of poverty and war in Japan that established and legitimized Japan's priorities among the people in the first place. The famous Japanese consensus, that is, the broad popular support and a willingness to work hard for economic development that have characterized the Japanese during the 1950's and 1960's, is not so much a cultural trait as a matter of hard experience and of the mobilization of a large majority of the population to support economic goals. The willingness of the Japanese to subordinate the desires of the individual to those of the group is markedly weakening as generations come on the scene who have no experience of poverty, war, and occupation. To date Japan has not faced the egalitarian problems of other states for the simple reason that all Japanese were made equally poor by the war and postwar inflation and because, for all practical purposes, it bans immigration into its social system.

  The priorities of the Japanese state derive first and foremost from an assessment of Japan's situational imperatives, and are in this sense a product not of culture or social organization or insularity but of rationality. These situational imperatives include late development, a lack of natural resources, a large population, the need to trade, and the constraints of the international balance of payments. It may be possible to borrow Japan's priorities and institutions, but the situational nationalism of its people during the 1950's and 1960's is something another people would have to develop, not borrow. During the 1920's and 1930's Japan tried to solve the economic problems it faced by handing over to the state the responsibility for economic development. It goes without saying that what the state did during the 1930's made the situation worse, not better, but the fact that there may have been preferable alternatives to the ones adopted does not detract from the rationality of the priorities. The same situational imp
eratives still exist in Japan today, even though they have been mitigated by overseas investment, trade surpluses, diversification of markets, and so forth. Nurturing the economy has been a major priority of the Japanese state because any other course of action implied dependency, poverty, and the possible breakdown of the social system. Regardless of the drastic changes of political regime that have occurred during

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  the course of the Showa * era, economic priorities have always been at or near the top of the state's agenda, and this is a constant that is unlikely to change.

  Perhaps surprisingly, in light of the determined efforts of the American occupiers to change Japanese economic institutions, a considerable degree of continuity also exists throughout the Showa era in the means adopted by the state to achieve economic development. The great discontinuity is of course in the discredited reliance on military force to achieve economic security via imperialism. This failed so disastrously that after 1945 it was totally repudiated. But this does not mean that the strictly economic development policies attempted during the militarist era were or should have been repudiated. Instead of being rejected, they came to form a repertoire of policy tools that could be used again after peace and independence had been attained. There is actually nothing surprising about this: just as the activism of the postwar American state had its roots in the New Deal and just as the totalism of the postwar Soviet state had its roots in the Stalinism of the First Five Year Plan, so the developmentalism of the postwar Japanese state had its roots in the economic initiatives of the 1930's. In this sense the experience of the 1930's and the 1940's was not by any means totally negative for postwar Japan; these were the years in which the managerial tools of the developmental state were first tested, some being rejected and others proving useful. Overcoming the depression required economic development, war preparation and war fighting required economic development, postwar reconstruction required economic development, and independence from U.S. aid required economic development. The means to achieve development for one cause ultimately proved to be equally good for the other causes.

  There are striking continuities among the state's various policy tools over the prewar and postwar years. Yoshino and Kishi discovered industrial rationalization during the late 1920's as a means to overcome the recession; their protégés Yamamoto, Tamaki, Hirai, Ishihara, Ueno, Tokunaga, Matsuo, Imai, and Sahashi applied it again during the 1950's and 1960's to achieve modern, competitive enterprises. During both periods the state attempted to replace competition with cooperation, while not totally losing the benefits of competition. Governmental control over the convertibility of currency lasted uninterruptedly from 1933 to 1964, and persisted even after that time in attenuated forms. The Petroleum Industry Law of 1934 is the precise model for the Petroleum Industry Law of 1962. The plans and planning style of the Cabinet Planning Board were carried over to the

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  Economic Stabilization Board and the Economic Planning Agency, particularly in their use of foreign exchange budgets to implement their plans. MITI's unique structural featuresits vertical bureaus for each strategic industry, its Enterprises Bureau, and its Secretariat (derived from the old General Affairs Bureau of MCI and the General Mobilization Bureau of MM)date from 1939, 1942, and 1943, respectively. They continued to exist in MITI down to 1973 unchanged in function and even, in some cases, in name. Administrative guidance has its roots in the Important Industries Control Law of 1931. Industrial policy itself was, of course, as much a part of the Japanese governmental lexicon in 1935 as it was in 1955.

  Perhaps the greatest continuity is in terms of the people who executed the state's industrial policy. Yoshino, Kishi, Shiina, Uemura, and virtually all other leaders of politics, banking, industry, and economic administration were prominent in public life before, during, and after the war. The continuities between MCI and MITI are not only historical and organizational but also biographical. The late 1970's marked the end of an era, but the change above all was a change of generations: the top leaders of the bureaucracy were no longer men who had experienced service during wartime and the postwar occupation. The new officers of MITI during the 1980's will be young Japanese born during the 1960's, and their easy familiarity with peace and prosperity makes them different from all other Japanese born during the preceding years of the twentieth century.

  The wrenching changes that MITI was forced to undertake during the late 1970's were caused at least in part by the fact that the ideas of the people who had guided Japan's economy from approximately 1935 to 1965, the generation that is typified by Sahashi, were no longer adequate to the new problems facing the nation and the ministry. The old cadres had been first of all managers of heavy and chemical industrialization. But the 1970's and beyond demanded specialists in managing an already industrialized economy whose very weight gave it global responsibilities. It is to MITI's credit that it produced such leaders, and that they set out to engineer a new change of industrial structure, one that emphasized postindustrial "knowledge-intensive" industries. The greatest assurance of their likely success in such a difficult venture, however, was the fact that they had been reared in an organization that had already changed the industrial structure once before.

  The fundamental problem of the state-guided high-growth system is that of the relationship between the state bureaucracy and privately owned businesses. This problem erupted at the very outset of indus-

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  trial policy in the schemes of Yoshino's Temporary Industrial Rationality Bureau, and it persisted uninterruptedly down to the Mitsubishi revolt and to the Fair Trade Commission's attack on MITI's administrative guidance cartel for the petroleum-refining industry. It is a problem that will never disappear; it is inherent in the capitalist developmental state. Over the past 50 years Japan developed and attempted to implement three different solutions to this problemnamely, self-control, state control, and cooperation. None of them is perfect, but each is preferable to either pure laissez faire or state socialism as long as forced development remains the top priority of the state.

  Self-control means that the state licenses private enterprises to achieve developmental goals. The typical institution is the state-sponsored cartel, in which the state authorizes cartels in industries it designates as strategic but then leaves to the enterprises themselves the task of fashioning and operating the cartel. This was the approach adopted for the Important Industries Control Law of 1931, and for the steel industry from the public sales system of 1958 to the Sumitomo Metals Company incident of 1965. The primary advantage of this form of government-business relationship is that it affords the greatest degree of competition and private management in the developmental state system. Its greatest disadvantage is that it leads to control of an industry by the largest groups in it (as in zaibatsu domination), and to the likelihood of divergence between the interests of the big operators and the interests of the state (as, for example, in the wartime ''control associations"). This form of government-business relationship is the one typically preferred by big business.

  State control refers to the attempt to separate management from ownership and to put management under state supervision. It was typically the form of the relationship preferred by the "reform" (or "control") bureaucrats of the late 1930's and by the whole state bureaucracy during postwar reconstruction and the early stages of high-speed growth. Its principal advantage is that the state's priorities take precedence over those of private enterprise. Its primary disadvantages are that it inhibits competition, and therefore tolerates gross inefficiency in the economy, and that it fosters irresponsible management. The closest Japanese approximations to it occurred in Manchuria, in the prewar and wartime electric power generating industry, in the wartime munitions companies, in the postwar coal industry, and in the hundred or more public corporations of contemporary Japan. The inefficiencies of state control are commonly blamed for the poor performance of Japanese industry during the Pacific War.

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  The third form of the government-business relationship, that of public-private cooperation, is by far the most important. Although all three forms occurred throughout the entire 50 years of this study (depending primarily on variations in the political power of the state and private enterprise), the broad pattern of development since the late 1920's has been from self-coordination to its opposite, state control, and then to a synthesis of the two, cooperation. The chief advantage of this form is that it leaves ownership and management in private hands, thereby achieving higher levels of competition than under state control, while it affords the state much greater degrees of social goal-setting and influence over private decisions than under self-control. Its principal disadvantage is that it is very hard to achieve. It flourished in Japan during the 1950's and 1960's primarily because of the failure during the 1930's and 1940's of both of the other modes of the government-business relationship. During high-speed growth Japanese-style government-industrial cooperation came as close to squaring the circleto achieving social goal-setting without the disadvantages of socialismas any form of mixed economy among all the historical cases.