Chalmers Johnson - MITI and the Japanese miracle

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Three

The Rise of Industrial Policy

Old trade and industry bureaucrats, looking back on their extraordinary history, like to note that the number 14 has figured prominently in their karma. The Ministry of Agriculture and Commerce (MAC; Noshomu-sho *) was created in the fourteenth year of Meiji, or 1881; the Ministry of Commerce and Industry (MCI; Shoko-sho*) was created in the fourteenth year of Taisho*, or 1925; and the organization of MCI into vertical bureaus, one for each strategic industry, was introduced in the fourteenth year of Showa*, or 1939.

During December 1924, on the eve of the second of these landmark dates, three men sat working in the temporary quarters of MAC in the offices of the Japanese Chamber of Commerce and Industry in Otemachi*, Tokyo. Their regular offices had been leveled by the earthquake of 1923. The highly political and bureaucratic task they were attending to, and even the fact that these three men were in charge of it, had as much to do with karma as with any policies or intentions of their own. They were dividing the old Ministry of Agriculture and Commerce into two new ministriesAgriculture and Forestry (Norin-sho*) and Commerce and Industry. The three men were Shijo* Takafusa (18761936), then vice-minister of agriculture and commerce; Yoshino Shinji (18881971), chief of the Documents Section (Bunsho-kacho*); and Kishi Nobusuke (b. 1896), a young official in the Documents Section who had entered the ministry only four years earlier after graduating at the head of his class at Tokyo University's Law School.

These were three very different men, but each would have a significant impact on Japan, particularly through the influence he would have on his juniors. Shijo was one of Yoshino's most important pa-

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trons, Yoshino was one of Kishi's most important patrons, and Kishi was destined to become prime minister of Japan at the time of high-speed growth. Yoshino and Kishi together would establish Japan's first genuine industrial policy. The two younger men would also rise not just to the highest bureaucratic post in their service, vice-minister, but to the ministry's highest political post, minister of commerce and industry. But in 1924 none of them could have had the slightest suspicion of what was to come; all they were doing was arranging their rather untaxing bureaucratic lives to suit themselveshelping their friends, getting rid of people who irritated them, and taking advantage of a political change that did not affect them personally much at all.

The break-up of the Ministry of Agriculture and Commerce had been long in coming. Petitions calling for a separate agriculture ministry had been introduced in the Diet every year since 1918; and after the "rice riots" of the same year the issue had assumed major political significance. Equally important, with the emergence of the governments based on political parties that followed the passing of most of the Meiji oligarchs, genuine pressure groups were beginning to have a profound effect on Japanese governmental policy. Although in essence agricultural interests and their political allies were kicking commerce out of the Ministry of Agriculture and Commerce, the leaders of commercial administration were quite pleased to see this happen, particularly since they were in a position to execute the details of the split. The situation was somewhat comparable to the division in 1913 in the United States of the old Department of Commerce and Labor into two separate departmentsat the insistence of the American Federation of Labor and not of business interests.

1

The old Japanese ministry that was being divided had itself developed out of a basic change in Meiji economic policy that took place in 1880. After a decade of direct governmental investment in mines, railroads, arsenals, and factories, the Meiji leaders had had to confront the unpleasant fact that the new government of Japan could not afford to continue what it had been doing. The side effects of its policies were inflation, trade deficits, corruption, and looming bankruptcy. Liberal economists of the time such as Taguchi Ukichi, who wrote for the

Tokyo

*

keizai zasshi

(Tokyo economic journal), urged the government to control inflation by selling off its state enterprises and turn instead to the sponsorship of private capitalism.

Within the government the new minister of finance, Matsukata Masayoshi, agreed; and on November 5, 1880, he issued his famous "Outline Regulations for the Sale of Government-operated Facto-

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ries."

2

Matsukata launched a deflationary policy quite comparable to that carried out seventy years later by Joseph Dodge and Ikeda Hayato, and with almost equally propitious results. As Arthur Tiedemann observes:

By all measures what came to be known as the Matsukata deflation accomplished its objectives. After 1881 interest rates, wages, and prices all fell. By 1882 imports were down 6 percent and exports up 33 percent compared with 1880; there was an export surplus of ¥8.3 million. The cumulative trade surplus for 18821885 amounted to ¥28.2 million. By 1885, the paper currency had been reduced to ¥118.5 million and the paper-silver ratio stood at 1.05 to 1.00. The following year, in the midst of the greatest export prosperity Japan had ever enjoyed, the country went on the silver standard.

3

It must be understood that Matsukata's policy was not intended primarily as a new approach to economic development; it was instead a matter of hard necessityof the pressing need to bring imports and exports under control and to keep the government solvent. In its "hyper-balancing of revenues and expenditures," the government did not touch military expenditures, these being considered essential to the maintenance of Japan's independence.

4

As an alternative to the state investment that was no longer possible, the government began helping private entrepreneurs to accumulate capital and to invest it in ways that seemed to promote Japan's needs for military security and economic development. The government sold them its pilot plants, provided them with exclusive licenses and other privileges, and often provided them with part of their capital funds. Japan had few other choices open to it at the time (it did not regain control over its own tariffs until July 1911), and although it neither understood nor believed in laissez faire capitalism, the government's policies seemed to reassure foreigners that Japan was becoming "modern" (that is, like them). The beneficiaries of this new policy were the big merchant houses of Mitsui, Mitsubishi, Sumitomo, Yasuda, Furukawa, Okura*, and Asano, which later came to be known as the zaibatsu.

The relations that developed between the Meiji government and the private investors were not formal or official but, rather, personal and unofficial. They usually took the form of direct contacts between one or another of the oligarchs and an entrepreneur with access to him. Inoue Kaoru's services from within the government to Mitsui, for example, have been well documented.

5

Common clan origins and strategic marriages cemented many of these relations, and bribery and payoffs were not unknown. This working relationship between government and business needed a legal cover, however. In order to formalize and supervise the sale of government property, and also to

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unify all of the government's various economic activities, two of the Meiji oligarchs, Ito * Hirobumi and Okuma* Shigenobu, memorialized the throne on the desirability of a new economic ministry. This memorial was accepted and led to the creation on April 7, 1881, of the Ministry of Agriculture and Commerce.