Chalmers Johnson - MITI and the Japanese miracle

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.

The chief mechanisms of the cooperative relationship are selective access to governmental or government-guaranteed financing, targeted tax breaks, government-supervised investment coordination in order to keep all participants profitable, the equitable allocation by the state of burdens during times of adversity (something the private cartel finds it very hard to do), governmental assistance in the commercialization and sale of products, and governmental assistance when an industry as a whole begins to decline.

This form of the government-business relationship is not peculiarly or uniquely Japanese; the Japanese have merely worked harder at perfecting it and have employed it in more sectors than other capitalist nations. The so-called military-industrial complex in the United States, to the extent that it identifies an economic relationship and is not merely a political epithet, refers to the same thing. If one were to extend the kinds of relationships that exist between the U.S. Department of Defense and such corporations as Boeing, Lockheed, North American Rockwell, and General Dynamics to other sectors of industry, and if one were also to give the government the power to choose the strategic sectors and to decide when they were to be phased out, then one would have a close American approximation of the postwar Japanese system. The relationship between government and business in the American national defense industriesincluding the unusual management and ownership arrangements for the nuclear weapons

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laboratories and the existence of such official agencies as the former Atomic Energy Commission and the National Aeronautics and Space Administrationis thought by Americans to be exceptional, whereas it was the norm for Japan's leading industrial sectors during high-speed growth. It is also perhaps significant that aviation, space vehicles, and atomic energy are all sectors in which the United States is preeminent, just as Japan is preeminent in steel production, ship-building, consumer electronics, rail transportation, synthetic fibers, watches, and cameras.

As noted earlier, the cooperative government-business relationship in the capitalist developmental state is very difficult to achieve and maintain. Even with such deeply entrenched social supports for cooperation as a shared outlook among government and industrial leaders because of common education (for instance, at Todai * Law) and an extensive cross-penetration of elites because of early retirement from government service and reemployment in big business, the Japanese have difficulty in keeping public-private cooperation on the tracks. Industry is quite willing to receive governmental assistance, but it does not like government orders (as the steel and automobile industries illustrate). Government is often frustrated by the excessive competition and preemptive investment of industries it is trying to foster (as the petrochemical and textile industries illustrate). Nonetheless, the Japanese have worked hard to create cooperative relationships and have developed numerous unusual institutions through which to pursue them. These include the official "deliberation councils" such as the Commerce and Industry Deliberation Council of 1927, the Cabinet Advisers Council of 1943, the Industrial Rationalization Council of 1949, and the Industrial Structure Council of 1964; MITI's vertical bureaus and the corresponding officially sanctioned trade associations for each industry; the temporary exchange of officials between the state and private enterprise (for example, the posting of young MITI officers to Keidanren headquarters); the formal "discussion groups" implemented in the wake of the failure of the Special Measures Law; and the practice of administrative guidance, in which government officials and representatives of banking and industry can coordinate their activities unconstrained by law and lawyers.