Chalmers Johnson - MITI and the Japanese miracle

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adding two new standards to those already in existence for determining what industries were appropriate for the new industrial structure. In addition to a high income elasticity of demand and a high growth rate of productivity, these were an "overcrowding and environmental standard" and a "labor content standard." These new standards meant that the ministry would try to phase out industries that contributed to overcrowding and pollution and replace them with high-technology, smokeless industries ranking very high on the value-added scale. The objective was what was termed a "knowledge-intensive industrial structure" (

chishiki

shuyaku-kata

*

sangyo

*

kozo

*), the main components of which would be machines controlled by integrated circuits, computers, robot development of ocean resources, office and communications machinery, high fashion (including furniture), and management services such as systems engineering, software, and industrial consulting. In order to implement and administer these policies, a complete reform of the ministry was also recommended, which Vice-Minister Morozumi (June 1971 to July 1973) undertook to carry out.

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If during the spring of 1971 the Industrial Structure Council's proposals seemed somewhat visionary and long range, before the summer was over most of the conditions on which they were predicated would be outdated. Two MITI ministers, Ohira* and Miyazawa (November 1968 to July 1971), had exhausted their usefulness in trying to solve the Japanese-American textile dispute. In July 1971 Prime Minister Sato* asked the LDP faction leader Tanaka Kakuei to take over and give it a try. Tanaka was a party politician but with a difference. Not only was he not a former high-ranking bureaucrat, he did not even have a university education. He was a self-made millionaire in the construction, railroad, and real estate businesses; and he had been a member of the Diet from his native Niigata prefecture since 1947, when he was first elected at the age of 29. Ten years later Kishi had appointed him postal minister, which made him one of the youngest cabinet members in Japan's history, and in 1962, when he was 44, Ikeda named him minister of finance (July 1962 to June 1965).

After performing well in that critical post, Tanaka went on to become secretary-general of the LDP, where he won Prime Minister Sato's* respect for his skill in managing two general election victories for the party (January 1967 and December 1969). At the Ministry of Finance and subsequently at MITI he became known as an activist minister, one who told bureaucrats what he wanted done, used them as his own personal brain trust, and often won their respect and loyalty because of his intelligence and generosity.

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He was well known

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for his unusually sharp memory, and the press nicknamed him the "computerized bulldozer." He also had a lot of money of his own, received more of it because of his powerful positions within the party and government, and spent it effectively to enlarge his faction in the Dietall of which ultimately led to his downfall.

Shortly after Tanaka took over at MITI, the "Nixon shocks" occurred. It is unclear to this day whether President Nixon and National Security Adviser Kissinger were retaliating against Prime Minister Sato * because of his failure to deliver on the textiles-for-Okinawa deal, or whether they simply overlooked Japan in the midst of their other troubles (Kissinger has acknowledged that it took him five years to gain some understanding of Japanese political processes).

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Nixon and Kissinger did feel that they had reason to be irritated with Japan: capital liberalization was proceeding at a snail's pace, demands that Japan revalue its obviously undervalued currency were consistently rebuffed, the Vietnam War was causing the American balance of payments to hemorrhage, the textile dispute simmered on, and the American press was becoming sharply critical of Japan (see, for instance, the

Time Magazine

of March 2, 1970, on Japan's "hothouse economy," and the

Business Week

of March 7, 1970, on "Japan, Inc.").

Whatever the case, in July 1971 the Nixon administration unveiled its basic shift in United States' policy toward the People's Republic of China without coordinating this démarche in any way with its leading East Asian ally; and on August 16, 1971, it suspended convertibility of the U.S. dollar into gold and put a 10 percent surcharge on imports into the American market. On August 28, 1971, the Bank of Japan cut the yen free from the exchange rate that Dodge had created in 1949; and on December 19, 1971, following conclusion of the Smithsonian agreement ending fixed exchange rates, revalued the yen upward by 16.88 percent to US$1 = ¥308. Even before these dramatic developments, Japanese analysts were publishing books on the "Japanese-American Economic War" and saying that "the age of Japanese-American cooperation will never return." This turned out to be vastly overstated, but no one knew that during 1971 and 1972.

Tanaka capitalized brilliantly on the Nixon shocks. He openly championed Japanese recognition of Pekinghis slogan was "Don't miss the boat to China"and this ruined Prime Minister Sato's* chances of continuing in office. It also effectively blocked Sato's intended successor from becoming prime minister: Fukuda Takeo had suffered the misfortune of being appointed Foreign Minister only a fortnight before the dramatic shift in Washington-Peking relations. (The Chinese communists indirectly helped Tanaka by launching a strident cam-

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paign against Sato *, claiming that he was attempting to revive Japanese militarism, and stating that they would not deal with him or anyone associated with him as Japanese prime minister.)

On October 15, 1971, Tanaka adroitly ended the textile dispute by giving the Nixon administration what it wanted while also coming up with a ¥200 billion "relief program" for the Japanese textile industry (including governmental purchase of surplus machines, compensation for losses in exports, and long-term low-interest loans for "production adjustment" and occupational change).

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Tanaka also offered the country new leadership on the overcrowding problem. Following the second Amaya thesis of 1969, the ministry had set some of its bright young officials to investigate the seriousness of that problem. They discovered that fully 73 percent of the nation's total industrial production was concentrated in a narrow belt along the east coast, and that some 33 million people lived within 30 miles of the three largest cities (Tokyo, Osaka, and Nagoya). This meant that 32 percent of the nation's population was living on 1 percent of the land area.

They also came up with such startling statistics as the fact that during rush hours Tokyo's traffic moved at only 5.6 miles per hour (2.5 m.p.h. along some routes), that the city had only 12 percent of its land area given over to roads (compared to 43 percent in Washington, D.C. or 23 percent in London), and that during the 1960's some 22 rural prefectures had suffered drastic declines in population (several communities in Tanaka's native Niigata prefecture were discovered to have all-female fire departments). To deal with these problems, MITI proposed a vast and very expensive program of industrial relocation, including building bullet-train networks all over the country, connecting Shikoku and Hokkaido to the main island through a system of monumental bridges and tunnels, and providing strong tax incentives to get industries to move out of the Tokyo-Kobe corridor.

The official in charge of these plans was Konaga Keiichi, who from October 1969 to July 1971 was chief of the Industrial Location Guidance Section in the Enterprises Bureau. When Tanaka became MITI minister in July 1971, he appointed Konaga his personal secretary, and Konaga was the ghost writer for Tanaka's best-selling book