Chalmers Johnson - MITI and the Japanese miracle

On December 21, 1931, as part of the Seiyukai's* housecleaning after taking over from the Minseito*, Yoshino Shinji was named vice-minister. He held the post until October 7, 1936. Although the TIRB had been associated with the Minseito party, the Seiyukai* retained it because of the positive appeal of its ideology and because Yoshino, who was thought to have Seiyukai sympathies even though he was publicly neutral, was now in charge of the ministry.

Within trade and industry circles the years 1931 to 1936 came to be known as the era of the Yoshino-Kishi line. This meant government promotion of heavy and chemical industrialization and a stress on industrial rationalization as the main objective of MCI policy. During his vice-ministership, Yoshino first promoted Kishi to the post of chief of the Industrial Policy Section (January 1932, the month after Yoshino took office), then chief of the Documents Section (December 1933), and finally chief of the Industrial Affairs Bureau (April 1935). Kishi was clearly on the "elite course," and he was expected to advance to the vice-ministership shortly after his mentor gave it up. Kishi did eventually become vice-minister, but a three-year Manchurian interlude intervened first. For although there was an orientation within the ministry that could be called a Yoshino-Kishi line, there were also differences between the two men. If Yoshino will always be identified with industrial "self-control," Kishi will always be identified with ''state control" of industry.

The first phase of modern Japanese industrial policy seems remote from the postwar economic miracle, but it is, in fact, directly relevant to it for several reasons. During the 1920's Japan faced economic problems comparable in kind and in severity to those of the early 1950's: the need to restore competitive ability in international trade, the need to reorganize industry in order to achieve economies of scale and to take advantage of new technological developments, and the need to increase the productivity of the labor force. During the period from

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the creation of MCI to the passage of the Important Industries Control Law in 1931, the Japanese invented and experimented with the first of their three characteristic approaches to industrial policy, approaches that have remained in their repertoire to the present day. The first approach was the attempt to replace competition with self-control of an industry by the enterprises already established in it. The institutional form of this approach, state-licensed cartels, remains big business's preferred form of industrial policy down to the present day. Its major weakness, the tendency of cartelization to lead to zaibatsu domination and monopoly, was already fully visible by 1931; and this weakness in turn elicited demands for the opposite of self-control, namely, state control, that dominated the rest of the 1930's.

Another theme of this early period was the search for criteria of managerial and enterprise performance other than short-term profitability. Via the industrial rationalization movement, which began in the late 1920's but reached its full flowering only during the 1950's, the Japanese began self-consciously to think about how to build into enterprises and whole industries incentives to promote labor peace, job security, capital formation, increased productivity, and the development of new products. Although the earliest efforts at rationalization were largely frustrated by zaibatsu power and interests, a concern with rationalizationthe attempt to gain a competitive edge through superior organization, labor peace, and cost cuttingis the most consistent and continuous feature of Japanese industrial policy throughout the Showa * era. The greatest achievement of the early days of MCI was to begin seriously to forge a government-business relationship that was oriented to cooperation and development and that took the position of the whole Japanese economy vis-à-vis competitive foreign economies as its primary frame of reference.

The ideas and institutional innovations of this early period are not merely some "heritage" that had to be transmitted from one generation to the next. The generation that was to lead industrial policy during the 1950's and 1960's was already on the scene during the late 1920's and early 1930's. One of the most startling facts about the history of Japanese industrial policy is that the managers of the postwar economic "miracle" were the same people who inaugurated industrial policy in the late 1920's and administered it during the 1930's and 1940's. Unlike other nations defeated in World War II or torn by revolution in the wake of World War II, Japan did not experience a radical discontinuity in its civilian bureaucratic and economic elites. Men such as Yoshino Shinji, Kishi Nobusuke, Shiina Etsusaburo*, Uemura

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Kogoro *, and Inayama Yoshihiro were active in the formulation and execution of industrial policy before, during, and after the war. Equally important, all of MITI's vice-ministers during the 1950's entered the bureaucracy between 1929 and 1934. Thus, in studying the early origins of industrial policy, we are also studying the formative years of the officials who applied it with such seemingly miraculous effect during the 1950's. Not surprisingly, the institutions and policies first discussed in the Temporary Industrial Rationality Bureau bear more than a passing resemblance to the institutions and policies of the later period of high-speed growth.

This theme of historical continuity also draws attention to the fact that industrial policy is rooted in Japanese political rationality and conscious institutional innovation, and not primarily or exclusively in Japanese culture, vestiges of feudalism, insularity, frugality, the primacy of the social group over the individual, or any other special characteristic of Japanese society.

Economic crisis gave birth to industrial policy. The long recession following World War I, capped by the panic of 1927, led to the creation of MCI and to the first attempts at industrial policy, just as the need for economic recovery from World War II, capped by the deflation panic of 1949, led to the creation of MITI and to the renewal of industrial policy. All of the political and bureaucratic problems of the developmental stateincluding conflict between the bureaucracy and the central political authorities, and conflict among elements of the bureaucracy itselfappeared in this early period, just as they would reappear during the 1960's and 1970's. That the Japanese solved (or suppressed) these problems more effectively during the postwar period than during the 1930's is greater testimony to their ability to profit from experience than to any fundamental change in the situation they faced.

During the late 1920's the Japanese began to build new forms of state intervention in the economy, forms that differ in critical ways from those of either the command economy or the regulatory state. These initial efforts were soon overwhelmed by recurring crisesand contained unforeseen consequences that dismayed their inventors. As a result, the leaders of industrial policy were led to attempt a different approach, direct state control of the economy, that carried them to disaster. The bitterness of the era of the Yoshino-Kishi line was more than enough to warn those who managed both the state and private enterprise after the war that catastrophes could occur if they did not transcend both self-control and state control in favor of gen-

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uine public-private cooperation. Nonetheless, it should not be thought that these painful early experiences were wholly negative. The prototype of industrial policy did not fly well, and the improved model crashed, but the suitably modified production version of the 1950's amazed the world by its performance. From this perspective the early years of industrial policy were a period of indispensable gestation in the evolution and perfection of a genuine Japanese institutional invention, the industrial policy of the developmental state.