Dodge’s mission was to develop a plan to achieve economic self-sufficiency by promoting Japanese access to Asian markets. Even if it involved leaving the zaibatsu alone, placing strict curbs on labor unions, cutting the budget, and lowering the domestic standard of living, whatever it took to increase exports and tie Japan more closely with Asia, MacArthur would support. American aid now poured into industries previously restricted due to their military potential: steel, coal, iron, and ships. While this helped the big companies, the overall effect was to create a “stabilization depression,” whereby many small and medium-size enterprises went bankrupt.
Fortune magazine, speaking for the newly formed American Council for Japan, came out with its “Two Billion Dollar Failure in Japan” article in April 1949. It claimed that the supreme commander was “an impressive gold-laced figurehead” living in an “Alice in Wonderland state,” presiding over economic reforms that had been “massive failures.” MacArthur responded two months later with a six-thousand-word reply. He began by stating he had been given strict directives to follow,* and admitted that under his strict control Japan’s restricted economy had become “in effect a large concentration camp.” His hands were tied, he said: “Until a peace treaty was consummated Japan would remain in more or less degree in the strait jacket of an economic blockade.”
And how had Japan fared under an economic blockade? The issue, argued MacArthur, had to do with more than just the economy: It had to do with reforming the most militaristic country on earth and turning it into a democracy. On that “big picture” basis, he argued, the occupation was a success, perhaps not in everything but certainly in achieving its overriding priorities.
Then he went into specifics, refuting Fortune’s claims point by point. The two-billion-dollar figure was way off, he said, because much of it was for the pay and support of troops needed in a military occupation. That Japan depended “on the United States for better than three-fourths of its imports” was only to be expected since these imports were largely food and raw materials no longer available from Japan’s neighbors, against whom it had waged war. Equally misleading was the claim that the Japanese bureaucracy numbered more than three million people. Not so, said MacArthur. Only 839,500 people worked in the government administration. Another 714,578 worked for the telephone companies, the railroads, the tobacco monopoly, and other government-owned enterprises that in America were privately held. The remaining jobs were make-work, in keeping with government policy to accommodate the oversupply of labor (due to millions of repatriates arriving from abroad) by dividing the work and keeping people off the dole. It was fine for Fortune to argue that “recovery comes first,” but for such recovery to persist there must be political and social reform to eradicate the horrible exploitation workers had endured in the past. With labor and capital now in proper balance due to SCAP reforms, it was incumbent on Japanese exporters to “find their markets on a more truly competitive basis.” The days when Japan could flood the world with cheap Japanese goods, based on woefully underpaid labor, were over. Japan now must strive to move up the value-added scale in international trade.
The supreme commander had a personal reason for his hostility to the zaibatsu: They had flagrantly disobeyed the Potsdam Declaration. William Draper may have had no problem with this, but a military commander like MacArthur certainly did. Only recently had the truth come out, a violation so egregious it challenged a fundamental premise of MacArthur’s entire occupation: that the Japanese, despite their infamous attack on Pearl Harbor, could be trusted.
It was a scandal he had tried his best to downplay in his efforts to protect the emperor. He made no mention of it in his public rebuttal to Fortune—he could not—but the facts were explosive. When the war ended, the military had stashed away in caves and hidden warehouses huge amounts of military supplies of precious metals, light and heavy oils, blankets, clothing, storage batteries, aluminum, zinc, mercury, wire rope, alcohol, sugar, and paper. Also included were enormous quantities of diamonds and family jewelry donated for the war effort. Apparently what had been going on was that the War and Navy Ministries, under cabinet authorization, had secretly parceled out the goods to their friends in the police, local governments, zaibatsu, and gangster groups for their personal use and resale in the black market. When the “hoarded goods” scandal came to light in late 1947, it was estimated by a Japanese House of Representatives special committee that the value of the stolen goods was three hundred billion yen—50 percent more than the entire government budget for that year. One witness testified that the moment the government order was given, “Trucks, wagons, railroad cars, carts, bicycles and porters swarmed into the arsenals; documents were forged, altered or destroyed. Thousands of tons of finished products, food, textiles, raw materials and machinery were hauled away.” Observed World Report (later U.S. News & World Report): “Japan’s war stockpiles have been looted of raw materials worth billions of dollars.* . . . There are indications that these stockpiles held enough iron, steel, and aluminum to supply Japan’s peacetime economy for four years. Much of this has vanished. The zaibatsu companies, Japan’s family monopolies, obtained the largest share of the spoils.” The Japanese finance minister had the gall to admit: “Nobody knows where 100 billion yen worth of stuff has gone to.”
Stuff!
That was not all. Also deceiving the Americans was the Japanese Central Bank. In the two weeks between the August 15, 1945, decision to surrender and the August 31 date when the occupation forces landed and took over the country, the government had flooded the country with yen, mostly to pay debts to the zaibatsu. Whereas on August 15 the volume of yen was 30 billion, on August 31 it was suddenly 42 billion—a 40 percent increase in two weeks. Such sleight-of-hand maneuvering by the government to help its friends was improper, undemocratic, and helped trigger the hyperinflation of the early years of the occupation.
MacArthur took particular exception to Fortune’s claim that “the zaibatsu, alone, of all major groups in Japan . . . were . . . against war with the U.S. . . . The U.S. Army and the young bureaucrats, ignorant of this history, got rid of two thousand managers.” Accusing MacArthur, a voracious reader of history, of not knowing his history was like waving a red cape before a bull. The supreme commander responded: “This statement is thoroughly refuted by the known facts, yet continues to crop up from one or another source, usually with a private ax to grind. There is a tendency to use the goal of economic recovery as a cover for special-interest pleading, sometimes insidiously persuasive to the uninformed.” Had not the zaibatsu executives “uncorked their champagne bottles and toasted the coming of a new ‘industrialists’ era’ ” the moment they learned the occupying power would be the United States, presumably offering leniency? Did not these men lack any guilt for all the airplanes, gunpowder, cannons, and battleships they had manufactured in the cause of war? What about all the money and stolen goods they had gotten after the fighting stopped?
Yet the purpose of the purge was not to punish, it was to bring in new leadership. “The purgees were not excluded from all economic activity”—just the companies they had headed (with disastrous results). Just as well to get rid of them.
The magazine and the general came down to the wire at the end, their differences unresolved. “All the great social reform measures of SCAP become empty words unless the economic problem is solved,” said Fortune. “Man still cannot live by reform alone; in Japan he must have rice too.” MacArthur found this simplistic. He responded by paraphrasing Fortune: “Even in Japan,” he said, “man cannot live by rice alone. He must have freedom.”
From 1946 to 1948 inflation was 1200 percent. Compared with the old 1930–34 level, Japanese industrial production was 32 percent in 1946, 41 percent in 1947, and 64 percent in 1948. The economy was improving, but still had a long ways to go. The Communists, seeing an opportunity to regain some of their lost power, jumped in and called the Dodge Plan the “road to fascism,” along with juicy language like “capitalist of
fensive . . . foreign monopolies . . . selling out of the country” and “semicolonial regime.” MacArthur backed Dodge 100 percent. To make sure the Communists got the message, in 1949–50 he instituted the so-called Red Purge, costing 20,997 alleged Communists and sympathizers their jobs. (This was on top of the 210,288 citizens who had already been purged for their ties to militarism.)
There wasn’t a whole lot the supreme commander could do about the zaibatsu, but one thing he could do was make sure they paid their taxes. Many of them paid nothing, indicative of the cozy relationships that existed between impoverished municipal tax collectors and wealthy corporations. In the last quarter of 1947, tax receipts were a third of what was due. The supreme commander decreed this to be totally unacceptable. To add muscle to the tax collection efforts, MacArthur ordered the U.S. Eighth Army troops throughout the country to go out on visits with the thirty thousand tax collectors. This show of force worked: Tax revenues escalated dramatically and helped slow down the currency inflation, thus providing much-needed monetary stability.
As he had with reparations, MacArthur demonstrated foresight in addressing foreign trade, the most pressing ingredient for a Japanese economic recovery. Just two years after the surrender, he had been talking in public about the need for a “co-prosperity sphere” for the Far East, with Japanese factories processing the raw materials of the less developed Asian nations. Unlike Washington, MacArthur never put great hopes on, or had much interest in, China. While the impending collapse of the Chiang Kai-shek regime in China had Washington on tenterhooks, and President Truman was urging Joseph Dodge to assess “the economic situation in Japan and its relation to what has been happening in China,” MacArthur was relatively nonplussed, convinced that a Communist victory would have no bearing on Japanese Communism. “A nuisance factor,” he called the China takeover, a view that certainly raised eyebrows. Eventually both Dean Acheson and George Kennan would agree that MacArthur was right. The only way to have a peaceful Japan friendly to the United States, said Acheson, would be for Japan to develop strong economic relations with the non-Communist Far East. While it was hoped that Japan and the United States could develop a strong trading relationship, the prospects looked bleak: What could Japan export? Japanese productivity was so low that only the cheapest items could find a market. Said John Foster Dulles in a scornful tone: “The Japanese couldn’t make anything Americans would buy” . . . except maybe “paper napkins.”
In the meantime Joseph Dodge continued his budget reforms. Unlike many economic advisors who advocate slashing expenditures or imposing high tax rates, Dodge stayed away from extremes and relied on basic fiscal discipline (pruning the budget, eliminating overambitious infrastructure projects, getting rid of surplus government workers, applying more effective collection of taxes, and paring down the national debt). The result was a near-miracle, where a government with lopsided financial outlays became fiscally responsible and transparent. For the fiscal year April 1949–April 1950, the budget finally generated a surplus. Borrowing MacArthur’s flair for hyperbole, Dodge announced in his report to Congress, “In no other nation has so much been accomplished with so little.” On MacArthur’s recommendation the Department of the Army in 1950 awarded Dodge the Exceptional Civilian Service Medal.
Following MacArthur’s orders to boost international trade, SCAP concluded some twenty trade agreements with South American, European, African, and Middle Eastern countries. Efforts to obtain most-favored-nation treaties for Japan were unsuccessful, however, largely because of the shortage of hard currency. It would not be until the Korean War that the Japanese economy would get the shot in the arm it desperately needed. Just as World War II pulled the United States out of the Depression, what eventually got Japan’s motor going was the massive inflow of U.S. military dollars into Japan during the Korean War: $2.3 billion. “A gift from the gods,” said Shigeru Yoshida.
With the loss of China, America’s foreign policy came to rely on Japan as a strong ally. Regardless of what MacArthur’s enemy Kenneth Royall said, MacArthur succeeded in extending the borders of America’s defense perimeter to the other side of the Pacific. In January 1950 Secretary of State Dean Acheson, echoing MacArthur’s 1946 words that Japan should be “the westernmost outpost of our defenses,” announced that the defense of the United States included Japan, Okinawa, and the Philippines. The Pacific had become an American lake, and Japan would now be, in MacArthur’s words, America’s “unsinkable aircraft carrier in the Far East.”
In projecting American military power and enhancing America’s security, MacArthur’s occupation was a financial bargain. Compared with the cost of $100 billion for fighting in the Pacific theater, U.S. expenses in Japan during 1945–50 were $2 billion—all more than covered by Japanese reparations of $5 billion. Even adding the $2.3 billion contributed by the United States during the Korean War, the cost to the United States was still zero.
22
“The Greatest Piece of Diplomacy, Ever”
IN 1949, SITTING in on a staff meeting of the Economic and Scientific Section, MacArthur vented his frustration over the poor economy and the continued low state of Japanese morale. “What can we do to get the morale of the Japanese people back?” he asked.
Cappy Harada, a first lieutenant, chirped: “I think baseball would be a wonderful thing.”
MacArthur stared at Harada, a roly-poly fellow, clearly no athlete. MacArthur, a varsity baseball player at West Point, was curious. “Why do you think baseball’s important?”
“Well, the Japanese people love baseball, and I think if we brought an American baseball team here, the Japanese people would love that, and it would really help bring the morale up.”
“So what are you waiting for?”
End of discussion. The general—a former president of the American Olympic Committee in 1928—had spoken.
That very afternoon MacArthur sent a cable to San Francisco, and two days later Harada was on a plane to California. MacArthur had secured a meeting for him with the San Francisco Seals, a team managed by Lefty O’Doul. Like Babe Ruth, O’Doul had started out in baseball as a pitcher, then switched to become an outfielder. In seven major league seasons he hit .349 and won the 1929 batting title with a .398 average (leaving Ruth in the dust at .345). In 1931 O’Doul visited Japan as a member of an American baseball team and became enamored of the country. He participated in repeat visits over the next three years, and arranged for a Japanese baseball team to tour the United States in 1935 and 1936. The highlight of these exchanges was a 1934 visit to Japan by the U.S. Major League All-Star Team. In one particular game, a seventeen-year-old pitching phenomenon named Eiji Sawamura, killed in the war in 1944, made a lasting impression on the Americans when he struck out four Hall of Fame players in a row, including Babe Ruth and Lou Gehrig, in a losing 1–0 game. The American manager, Connie Mack, tried to sign him on the spot; Sawamura declined. The following year, a Japanese team toured the United States, and once again Sawamura turned down an offer of American riches.*
Even American colleges went on baseball tours of Japan. Before World War II intervened, teams from Yale, Harvard, Stanford, the University of Chicago, and the state universities of California, Washington, Wisconsin, Indiana, and Illinois participated in baseball exchanges.
The greatest ambassador of American baseball, of course, was the Sultan of Swat, “Babu Rusu,” as the Japanese called him. When Ruth arrived in Japan in 1934, the emperor sent a private railway car to transport him from Yokohama to Tokyo. One man walked eighty miles to see him play in the first game. Ruth, marveled Ambassador Joseph Grew, was worth a hundred ambassadors. Some 75,000 Japanese fans came to the game in Osaka, and to commemorate that day and his towering home run, a bust of Babe Ruth was erected outside the stadium, where it still stood after World War II. That the Japanese never removed it or defaced it during the war spoke well for them as a people—all the more remarkable given how Imperial Army soldiers in the jungles of the South Pacific screamed the battl
e cry “To hell with Babe Ruth!” (probably the only English they ever knew). The War Department, recognizing Ruth’s celebrity, had made plans in 1945 to fly him to Guam and have him make radio speeches urging the Japanese to surrender before MacArthur launched his invasion. He would be their “Tokyo Rose,” the Japanese-American woman who had broadcast messages to American troops to surrender. It never happened, only because the atom bomb ended the war quickly. So great was Ruth’s popularity in Japan that on Babe Ruth Day at Yankee Stadium (April 27, 1947), his words were broadcast live to every ballpark in America—and to every ballpark in Japan.
With Ruth now dead and knowing there was little chance of getting a major league team to come to Japan, MacArthur thought of O’Doul as a potential goodwill ambassador of American baseball. Would he be interested? You bet, said O’Doul. Asked many years later why he was so enthusiastic, he explained: “So many of my friends in Japan got killed in the war. So many. Awful. Right after the war I went back. I wanted to, because I knew if we brought a baseball team over there it would help cement friendship between them and us.”
Twenty players, along with team officials and an umpire, flew to Japan for a monthlong visit. They arrived to a rousing reception: 100,000 people lined the streets of Tokyo, waving American flags. The next day they were invited to the American Embassy for lunch with the supreme commander. At the reception MacArthur spoke with each person individually. Recalled one player: “He made it a point to know something about all of us. I remember when he came to Al Lien he said, ‘Al Lien, my god, I see where you finally won twenty games.’ I said, ‘Good night, here’s a general taking care of the whole Pacific and he made it a point to know that Al Lien won twenty games.”
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