Chalmers Johnson - MITI and the Japanese miracle

Nihon

retto

*

kaizo

*

ron

(A plan to remodel the Japanese archipelago).

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The book was published in June 1972, just a month before the LDP convention at which Tanaka planned to contest the party presidency (and, thus, the prime ministership) with Fukuda Takeo. A rewritten and spruced up version of MITI's original plan, it sold more than a million copies and helped ensure Tanaka's victory. On July 7, 1972, Tanaka moved from MITI to the prime minister's office, and he named

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as MITI minister Nakasone Yasuhiro, another party politician, LDP faction leader, and last-minute ally of Tanaka's in the LDP election contest (the press suggested that a large sum of money had passed between them).

The installation of the Tanaka cabinet seemed to mark a real turning point in Japanese politics. In contrast to the consistent domination of the government by former bureaucrats, Tanaka offered a cabinet made up of younger party politicians, including men who had experience in telling the bureaucracy what they wanted done, had no compunctions about blaming the bureaucracy for policy mistakes, and were "activist" in a way that ministers had not been since Ikeda's time. They were, however, so activist on one frontspending public moneythat they contributed to a revival of bureaucratic government following the oil shock.

Tanaka accomplished many thingsabove all, the normalization of relations between Japan and China. But almost from the outset his administration led to serious inflationa period of what the public came to call "crazy prices." Tanaka's industrial relocation policy was not the primary cause, and many of his big construction projects were desperately needed in any case (even though some people charged that Tanaka's background as a construction industry tycoon gave him more than a political interest in them). The root cause of "crazy prices" was Japan's public finance system and the divided responsibility among politicians and bureaucrats for managing it. In this sense, crazy prices were as much a side effect of the high-speed growth era as overcrowding and pollution. By the end of Tanaka's rule the country was reviving terms not heard since the occupationeconomic control (keizai tosei *) and economic police (keizai keisatsu).

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The problem was excess liquidity. The Ministry of Finance had never believed that Japan could actually be forced to relinquish its trade advantage in an undervalued currency, and the value it set in late 1971 for the yen against the dollar still left the yen considerably undervalued (the yen was not allowed to float until after 1973). Many firms, however, were doing business on the basis of an internal, more highly valued exchange rate and pocketing the difference. As the

Mainichi

noted, "From about the middle of 1972, Japanese industries had been conducting trade at the rate of ¥270¥280 to the dollar, and by selling the earned dollars to the Bank of Japan at a rate of ¥301 to the dollar, they earned an extra ¥20 per dollar."

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In addition, the government-sponsored investment boom of the late 1960's had once again left industry with considerable overcapacity. As a result, investment slumped throughout the first half of the 1970's, and because of

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the danger of foreign protectionism the old relief valve of an export drive was also not as readily available as it had been ten years earlier. On March 31, 1970, the government even took the cosmetic step of changing the name of the old Supreme Export Council to the Trade Council. Continuing protectionism by Japan also caused problems in that the government prohibited importers from spending their cash on certain commodities, such as lumber, in order to protect domestic industries.

Into this economic milieu the Tanaka government pumped money as the government had never done before, both because of its industrial dispersal program and because it believed it had to pay off industries that claimed to have been damaged by capital liberalization, the "Nixon shocks," or the settlement of the textile dispute. MITI itself acknowledges an increase of ¥234 billion in the general account and investment budgets during the month following the Nixon shocks of 1971 (allegedly to save medium and smaller enterprises), and Tanaka cowed the Ministry of Finance's normally independent Budget Bureau into giving him everything he wanted. On Tanaka's orders Budget Bureau Director Aizawa Hideyuki increased the fiscal 1973 budget over the previous year by some 24.6 percent.

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As John Campbell argues, "The major real effect of [Tanaka's dispersal] plan seems to have been simply to provide a justification for high spending, allowing the Liberal Democrats and even the Ministry of Finance to throw a cloak of virtue and high purpose over a budget which, in the final analysis, was little more than the largest pork-barrel in the history of Japanese public finance."

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The resultant inflationary conditions resembled nothing so much as the price spiral during World War I that led up to the rice riots. Again, just as in 1917 the general trading companies were in the forefront of the speculative boom. Above all other enterprises, the trading companies had too much cash sitting idle and no place to spend it. They began investing in land, which caused real estate values to appreciate in an unprecedented manner. For example, Mitsubishi Trading Company purchased the old premises of the NHK broadcasting station in the heart of Tokyo for ¥6 million per square meter, several times higher than the officially valued price, which brought a wave of criticism down on the trading company's head. Still, it had the money, and real estate was the best hedge against inflation.

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Serious political problems developed when the general trading companies began to speculate in daily necessities and hold them off the market in anticipation of further price rises. Just as in 1917 the press and the public began to suspect that cornering a market (kai-

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shime) and holding goods off the market (urioshimi) were the root causes of the crazy prices. When during the second half of 1973 steel prices shot up, criticism began to focus on monopolies and cartels, which were supposed to be illegal but were known to be flourishing under the protection of MITI's administrative guidance. Many consumers' groups began to argue that the "private-sector industrial guidance model" boiled down to a "zaibatsu guidance model," the avoidance of which had been the original justification during the 1930's for turning industrial guidance over to the government.

On March 10, 1973, the new Price Regulation Section of the Economic Planning Agency introduced a draft law in the Diet entitled the "Temporary Measures Law Against the Kaishime and Urioshimi of Daily Life Commodities" (Seikatsu Kanren Busshi no Kaishime oyobi Urioshimi ni tai suru Rinji Sochi ni kan suru Horitsu *) to give the government new power to control prices. The debate over this law brought forth criticism of MITI and of big business every bit as devastating as that at the time of the "pollution Diet." The Diet passed and began to enforce the law (number 48) on July 6, well before the oil crisis complicated these problems.

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It was also right in the middle of the period of "crazy prices," and only three months before the first oil shock, that MITI unveiled its organizational "new look." Through a basic rewriting of the MITI establishment law (number 66 of July 25, 1973), Minister Nakasone and Vice-Minister Morozumi reshuffled the ministry in a way intended to placate its critics, allow it to deal with the new problems, and protect its proven capabilities. It was the first comprehensive revision of MITI's structure since 1952 and was known within the ministry as the "reform of the century."