Chalmers Johnson - MITI and the Japanese miracle

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-

Page 303

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.

53

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 depressed 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.

54

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.

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

Page 304

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?

Page 305

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

Page 306

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.