Chalmers Johnson - MITI and the Japanese miracle

25

In this general milieu, one person within MCI stands out as beginning to have some interesting ideas for reenergizing the economy. He was Yoshino Shinji. Yoshino's legal training at Todai1* had not taught him much about the economy, but after he returned from San Francisco in 1915, he had some experiences that gave him a more than purely bureaucratic perspective. The first was a period of duty as a transferee to the Home Ministry, during which he worked as a factory inspector in Kobe. There he discovered the world of medium and smaller enterprises (

chusho

*

kigyo

*), which during the 1920's and 1930's Japanese defined as manufacturing enterprises with from 5 to 30 employees (small) and from 30 to 100 employees (medium).

His second useful experience came as an official in the Temporary Industrial Investigation Bureau (Rinji Sangyo* Chosa* Kyoku) set up within MAC by the Terauchi government (February 1917) to study the effects of the war on the Japanese economy. The bureau was not intended to produce policy or take action, since the private sector led Japan's growth during World War I. But it was expected to compare Japan with other belligerent powers and to advise about possible social problems. Nothing ever came of the bureau's work, but Yoshino met there such famous figures as Kawai Eijiro* (18911944) and Morito Tatsuo (b. 1888), both Todai economists who were working in MAC as consultants. Kawai, in particular, a man who later was to die in prison during World War II as an opponent of militarism from a non-Marxist socialist position, had a significant influence on Yoshino. In the bureau they wrote papers on such subjects as economic planning, stockpiling for emergencies, industrial finance, and American customs duties. As a result of these activities, Yoshino committed himself un-

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equivocally to the industrial side of the ministry's commercial and industrial administration.

26

During the early 1920's, while serving as a section chief in the Industrial Affairs Bureau, Yoshino became one of the first government officials to gain expert knowledge of the medium and smaller enterprises sector. He discovered that despite the strategic importance of the modern zaibatsu enterprises, medium and smaller factories employed the overwhelming majority of Japan's industrial workers. Even more important, the zaibatsu firms produced primarily for the domestic market, but the medium and smaller enterprises concentrated on production for export. With a few exceptions such as rayon, silk yarn, and cotton textiles, where large enterprises were also strong exporters, medium and smaller manufacturers of sundries such as bicycles, pottery, enamelware, canned goods, hats, silk textiles, and so forth were contributing from 50 to 65 percent of all of Japan's exports. And they were losing money doing it.

27

Yoshino and his colleagues in MAC concluded that there were too many small firms, an overabundance of cheap labor, and inadequate channels and information for marketing; the result was that the small business sector was dumping goods overseas. The small export firm not only did not earn much foreign exchange, it was often not even meeting its costs. Moreover, the big zaibatsu trading companies, which monopolized the marketing of these products, were exploiting the medium and smaller enterprises by supplying raw materials at high prices and taking consignments of finished products at low prices.

During 1925 the new ministry sponsored and the Diet unanimously passed two new laws that were a first effort to alleviate these conditions, the Exporters Association Law and the Major Export Industries Association Law. In them we see in embryonic form major instruments of policy that the Japanese government has employed to the present day, notably the "recession" and "rationalization" cartels, as they were to be called in the MITI era.

The Exporters Association Law created export unions (

yushutsu kumiai

) in particular product lines among the medium and smaller enterprises. It authorized these associations to accept products for export on consignment from members, and to control quantities, qualities, and prices of export goods. The Major Export Industries Association Law attempted to end cutthroat competition among such enterprises. It established industrial unions (

kogyo

*

kumiai

), which differed from the export unions in being genuine cartels whose mem-

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bers agreed among themselves on the amounts each member could produce and sell.

There were several precedents for cartels in Japan. The Japan Paper Manufacturers Federation of 1880, the Japan Cotton Spinning Federation of 1882, and the Japan Fertilizer Manufacturers Federation of 1907 were the main trade associations with cartellike powers before World War I.

28

The Production Cooperatives Law of 1900 had authorized prefecturally supervised industrial unions (

sangyo

*

kumiai

), but despite their name, these were actually agricultural cooperatives, not industrial manufacturers.

29

They were also hampered by the fact that in 1917 MAC, in an attempt to control the wartime prices of food and clothing, had prohibited them from agreeing on prices or wages. The primary functions of the early cartels were inspection and grading of products. The Japanese were not unfamiliar with cartels, but those authorized in 1925 were new in that they sought to organize a part of the whole economy, not just particular industries.

The 1925 laws did not work too well. The industrial unions were more popular than the export unions, because MCI subsidized the industrial unions from the outset but only began to finance the exporters after the world depression. There were also frequent clashes between the two. In order to get the laws passed in the Diet, MCI had to agree that membership would not be compulsory in either of the unionsalthough the ministry was given authority to order nonmembers to conform to some of the terms of cartel agreements among members.

During 1925 MCI was not a powerful ministry compared with Home Affairs, Foreign Affairs, or Finance, and it was all but unknown to the general public. Its efforts to aid medium and smaller enterprises were thus merely a first, and rather experimental, step toward industrial policy. Both its commercial and industrial activities during the mid-1920's were focused on trying to relieve Japan's balance of payments deficits by stimulating trade. Yoshino established a committee in the ministry to promote the use of nationally manufactured goods, and he sought budget authorization to station MCI trade representatives abroad. He also asked that the Trade Section in the Commercial Bureau be upgraded to a bureau. The Ministry of Foreign Affairs blocked the idea of overseas commercial attachés from MCI as an infringement on its territory, and the Finance Ministry approved an MCI Trade Bureau in 1927 but did not provide funds for it until 1930, when the world depression made it seem more important.

30

One of the leading historians of trade and industrial policy comments, "No

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one remembers working very hard in the early years of MCI."

31

Even Nakahashi Tokugoro*, who became minister of MCI in April 1927 as part of the cabinet of General Tanaka Giichi, said on taking office, "As a government agency, MCI is not a place of exciting work."

32

But he was destined to help change that condition quite decisively.

Nakahashi became minister in the wake of the financial panic of 1927, which forced the resignation of the first Wakatsuki cabinet. This crisis was the culmination of all the panics that had afflicted the Japanese economy during the 1920's, and it constitutes the true dividing line between the "old testament" and the "new testament" of Japanese trade and industrial administration. It also marks the onset of the world depression for Japana period of economic stagnation and of radical attempts to find solutions to endemic problems that afflicted the rest of the world only three years later. On the significance of the 1927 panic, Nawa Taro* observes, ''MCI already existed as a body, but the financial panic brought it to life as an organization."