Chalmers Johnson - MITI and the Japanese miracle

In addition, the Japanese have fostered social supports for cooperation. We have already mentioned two of themthe essentially bureaucratic education of both public and private managers and the extensive "old boy" networks. It should not be thought that these are the only social supports or that they are not duplicable in other societies. They would be very hard to duplicate in other societies, since

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they rest on long-entrenched practices, but they are not pure cultural givens. As this book has sought to show, there was more consensus and cooperation in Japan during the 1950's than during the 1930's, which suggests that the reasons for this difference are to be found in changed historical circumstances and political consciousness and not in something as relatively unchanging as cultural mores. Some other social supports for government-business cooperation include the virtual impotence of corporate stockholders because of the industrial financing system; a work force fragmented among labor aristocrats enjoying semilifetime employment, temporaries, small-scale subcontractors, and enterprise unions; a system of collecting private savings through the postal system, concentrating it in government accounts, and investing it in accordance with a separate, bureaucratically controlled budget (FILP); some 115 government corporations covering such high-risk areas as petroleum exploration, atomic power development, the phasing out of the mining industry, and computer software development (these corporations are the successors to the national policy companies of the 1930's, the eidan of the wartime era, and the kodan * of the occupation); and a distribution system that serves not only to retail goods but also to keep the unemployed, the elderly, and the infirm working, thereby weakening demands for a welfare state in Japan.

In Japan, as compared with the United States, one of the most powerful social supports for private managers' cooperation with the government is that Japanese managers enjoy freedom from being judged exclusively in terms of short-term financial performance. Just as the essential spirit of Japanese industrial policy after the late 1920's lay in the search for ways to replace competition with cooperation without a drastic loss in efficiency, the industrial rationalization campaigns sought criteria of good management other than short-term profitability. These included the maintenance of full employment, increased productivity, expansion of market share, cost reduction, and the management of long-term innovation.

Morita Akio, chairman of Sony Corporation, believes that the emphasis on profitability has been a major cause of American industrial decline. He asserts, "The annual bonus some American executives receive depends on annual profit, and the executive who knows his firm's production facilities should be modernized is not likely to make a decision to invest in new equipment if his own income and managerial ability are judged based only on annual profit."

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Morita believes that the incentive structure of postwar Japanese business has been geared to developmental goals, whereas the incentive structure

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of American business is geared to individual performance as revealed by quick profits. The result is not simply a lack of long-term planning in the United States but also exorbitant executive salaries, private corporate aircraft, palatial homes, and other major discrepancies between the rewards of labor and management. In postwar Japan the living standards of top executives and ordinary factory workers have differed only slightly (Morita observes that the American president of Sony's U.S. subsidiary makes more in corporate salary than Morita himself receives from Sony). On the other hand, it might be noted that managers in Japan have access to corporate entertainment funds of a size unparalleled in any other economy. The National Tax Agency calculated that during 1979 corporate social expenses amounted to some ¥2.9 trillion, or $13.8 billion, which meant that corporate executives were spending $38 million per day on drink, meals, golf fees, and gifts for their colleagues and customers.

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The point is that Japan's more flexible means of evaluating managers contributes to smoother labor-management relations than in some other countries and also avoids disincentives to cooperate with other enterprises and with the government. These Japanese practices came into being as a result of postwar conditions. According to Morita, "There is nothing in Japanese history to suggest that smooth labor-management relations came naturally"; prewar Japanese capitalism was "stark in its exploitation of labor." The postwar leveling of all Japanese incomes because of inflation and national adversity made possible the relative equality of rewards that existed during high-speed growth, as well as the emphasis on measures other than profitability for managerial performance. These social conditions are of considerable advantage to Japan in competing with countries such as the United States, but obviously they would be very difficult to transplant: although the salaries of American managers might be reduced, the institution of some other measure of performance than short-term profitability would require a revolution in the American system of allocating savings to industry through stock markets.

The priorities and social supports for cooperation among the Japanese might not be replicable in other societies, but it is easy to imagine that they might be matchedthat is, a different society might be able to manipulate its own social arrangements in ways comparable to those of postwar Japan in order to give top priority to economic development and to provide incentives for public-private cooperation. If this were the case, then such a society would need an abstract model of the Japanese high-growth system to use as a guide for its own concrete application. Specialists on modern Japan will differ as to the pre-

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cise elements and the weight to be attached to each element in such a model, but the following, based on the history of MITI, is my own estimation of the essential features of the Japanese developmental state. For purposes of this discussion, I stipulate that Japan's particular history would not have to be reexperienced, and that the social inputs of popular mobilization and the incentives to cooperate already exist in the society trying to emulate Japan (assumptions that are not necessarily realistic, as this study has sought to demonstrate).

The first element of the model is the existence of a small, inexpensive, but elite bureaucracy staffed by the best managerial talent available in the system. The quality of this bureaucracy should be measured not so much by the salaries it can command as by its excellence as demonstrated academically and competitively, preferably in the best schools of public policy and management. Part of the bureaucracy should be recruited from among engineers and technicians because of the nature of the tasks it is to perform, but the majority should be generalists in the formulation and implementation of public policy. They should be educated in law and economics, but it would be preferable if they were not professional lawyers or economists, since as a general rule professionals make poor organization men. The term that best describes what we are looking for here is not professionals, civil servants, or experts, but managers. They should be rotated frequently throughout the economic service and retire early, no later than age 55.

The duties of this bureaucracy would be, first, to identify and choose the industries to be developed (industrial structure policy); second, to identify and choose the best means of rapidly developing the chosen industries (industrial rationalization policy); and third, to supervise competition in the designated strategic sectors in order to guarantee their economic health and effectiveness. These duties would be performed using market-conforming methods of state intervention (see below).