Chalmers Johnson - MITI and the Japanese miracle

jishu

tosei

*) in the form of treaty-like cartel agreements among enterprises to fix levels of production, establish prices, limit new entrants into an industry, and control marketing for a particular industry. The 1931 law took as its model the unions of medium and smaller enterprises of 1925; however, it strengthened government approval powers over such unions and extended them to big business.

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The result, as Eleanor Hadley puts it, was a "cordial oligopoly" in the large-scale advanced sectorsas contrasted with the "cutthroat oligopoly" of the post-World War II period.

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The law was drafted in the Control Committee of the TIRB, where civilian and zaibatsu representation was strong, and the committee itself constitutes an early instance of the government's providing the auspices for private enterprises to help themselves, something it did often in the 1950's and 1960's. Within the committee, the term "control" (

tosei

) generated a good deal of discussion. In retrospect one can see that the use of the term in the title of the law was probably unfortunate. Yoshino has often said that by "control" he and his colleagues meant the attempt to create "industrial order" and not bureaucratic supervision of industry. Although the MCI bureaucrats were aware that the army used the term in many different contexts, they specifically deny that their law had military implications or was influenced by the military in any way. Yoshino also argues that although the law authorized cartels, the purpose of the cartels was ''order," not indus-

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trial profits, and that therefore the law was in the public's interest and not simply a way of making life easier for the zaibatsu.

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Whatever he may have had in mind, however, the zaibatsu profited most from "control" and "industrial order."

The Important Industries Control Law was a relatively short statute of only ten articles. According to its terms, when two-thirds of the enterprises in a particular industry agreed to a cartel, MCI would examine its contents and, if it approved, then authorize (

ninka

) the cartel. The government could also change the terms or nullify the agreement. And it could force nonparticipants in the cartel agreement to abide by its terms if they did not do so voluntarily. As a result of an MCI-sponsored amendment to the law (introduced in the Diet during September 1932 and passed during 1933), the ministry obtained the powers to approve investments that would expand facilities by cartel members and to approve members' decisions to curtail production. Needless to say, all members of an industry were required to submit frequent reports on their investment plans and activities to the government. It is in this law that we find the origins of the government's licensing and approval authority and of the practice of "administrative guidance," which together became the heart of postwar industrial policy. To assuage skeptics in the Diet, the law had a five-year limitation written into it; on August 15, 1936, it was extended for another five years but it was superseded by the National General Mobilization Law before the second time period expired.

As a result of the law cartels were organized in some 26 designated "important industries," including silk thread, rayon, paper, cement, wheat flour, iron and steel, and coal. In industries suffering from excess capacity, such as cotton spinning, shipbuilding, and electrical machinery, it helped curtail competition and restore profitability. But Yoshino believes that the law did not actually work as he had intended it to. This was partly because only a month after it came into effect, the army seized all of Manchuria and the entire economy shifted to a war-preparatory footing. Even without this unforeseen development, however, the cartels seemed to work less in favor of "order" than in favor of strengthening and expanding the scope of zaibatsu operations (the

keiretsuka

of the economy, as the Japanese put it, or the structuring of the economy into conglomerates). In three industries, for examplepetroleum, newsprint, and cementMCI cartels promoted the interests of gasoline refiners over those of taxi companies, of the paper trusts over the newspapers, and of the cement industry over the lumber industry. All of the favored industries were areas of expanding zaibatsu strength.

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The zaibatsu had made it clear in the TIRB's Control Committee that they were less interested in cartels on the model of the industrial unions for medium and small enterprises than they were in easing competition through mergers and in the reduction of the number of competitors. Many mergers followed in the wake of the law: in May 1933 three companies merged to form Oji * Paper, in December the Sanwa Bank came into being as a result of a three-way merger, in January 1934 Yawata and five private companies united to become Japan Steel, in June Mitsubishi Heavy Industries appeared, and the following year Sumitomo Metals was created. Each of these cases fostered concentrations of economic power that came close to being monopolies rather than cartels. The zaibatsu believed that cartels did not allow for change and would prove unworkable over time. They would have preferred an individual industrial development law for each industry (for example, the Petroleum Industry Law of 1934 and the Automobile Manufacturing Law of 1936), that would also protect them from international competitors. As it turned out, this kind of law became more important than the original control law as the thirties progressed, but for reasons the zaibatsu did not foresee; the militarists wanted them, and even though they did not like working with the zaibatsu, they had no other choice.

At the time the control law was deliberated and enacted, Yoshino clearly stood for self-imposed control in industry and for government cooperation with private control agreements. However, the year 1931 ended up giving self-control a bad name, particularly insofar as it involved the zaibatsu, and this led to powerful demands for its opposite, namely, state control (

kokka

tosei

*). The reason was the "dollar-buying" scandal. On September 21, 1931, England announced that it was leaving the gold standard because of the depression. This should have signaled the failure of Inoue's policy; Japan could not maintain the gold standard if its main trading competitor did not also abide by it. However, the Japanese gold embargo was not reimposed until three months later, and in the interim the zaibatsu banks engaged in an orgy of dollar buying, using yen they knew were soon to be devalued. Mitsui alone is said to have made $50 million in international currency transactions. The speculation ended in December with the return to power of the Seiyukai* (the last political party regime until after 1945) and Takahashi's reversal of Inoue's policy.

The effect on Japanese public opinion of the zaibatsu's dollar buying during the height of the depression was one of outrage. Many groups concluded that the zaibatsu were so irredeemably avaricious they were quite prepared to debase their own country's currency in the

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name of profits. Right-wingers assassinated Dan Takuma, the chief executive officer of Mitsui, and he was succeeded by the Harvard-educated Ikeda Seihin, who became MCI minister in 1938. After taking over at Mitsui, Ikeda carried out a public

tenko

* (conversion to patriotism) on behalf of his company. One important reason Ikeda took this action was that the military and some members of the economic bureaucracy were beginning to think in terms not of working with the zaibatsu in cartels but of dominating themperhaps even nationalizing themthrough the exercise of state power.