Chalmers Johnson - MITI and the Japanese miracle

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As a result of this shoving aside of financial administrators, the budget jumped from ¥2.3 billion in 1936 to ¥3 billion in 1937, with all of the increase going for munitions. Companies supplying the military engaged in tremendous speculative importing of materials. In order to overcome the serious balance of payments deficits that resulted, the military demanded that foreign trade be put on a war footing. They wanted to promote industries that earned foreign exchange and to restrict all imports they deemed unnecessary. To do these things, the military advocated combining the trade func-

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tions of the Finance, Foreign Affairs, and Commerce ministries into a new trade ministry.

The Foreign Office opposed this plan, but MCI supported it. Terao Susumu, one of the leaders of MCI's Trade Bureau since its creation in May 1930, recalls that in 1937 they were searching for something like MITIthe first agency in Japan to combine industrial administration with the supervision of foreign trade.

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The Foreign Ministry would not hear of it, however, and the idea had to be dropped. Instead, on July 14, 1937 (and wholly unrelated to the outbreak of war with China on July 7), MCI's Trade Bureau was elevated and transformed into a semidetached bureau with its own director-general and secretariat, and with military officers serving in it in policy-making roles. MCI's external Trade Bureau was the direct ancestor of the powerful Board of Trade (Boeki-cho*) of the occupation period, and MITI itself came into being in 1949 essentially as a merger of MCI and the Board of Trade.

In 1939 the army and MCI tried again for a trade ministry. This time every official of the Foreign Ministry's Trade Bureau handed in his resignation, and the foreign minister, Nomura Kichisaburo*, threatened to bring down the cabinet with his own resignation if the idea was not dropped. The Abe cabinet ultimately fell over the issue anyway. The chief MCI official who worked to establish a trade ministry in 1939 was Ueno Koshichi*, MITI vice-minister from 1957 to 1960, and he remembers the entire episode with great frustration.

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The Foreign Ministry and the trade and industry bureaucracy have fought unremittingly to the present day over the issue of who is to control foreign trade.

Although a trade ministry was not set up before the war, MCI became deeply involved in trade matters after the outbreak of the China Incident. When the China war expanded into the Pacific War, however, trade matters became concentrated almost exclusively in the new Greater East Asia Ministry, which absorbed the external Trade Bureau. The Greater East Asia Ministry was also violently opposed by the Foreign Ministry, and it was actually more of a colonial office for newly occupied areas than a foreign commerce bureaucracy. From 1942 until the creation of MITI, then, MCI had little to do with trade (although it retained its own small trade staff during 1942 and 1943 until the Ministry of Munitions wiped it out). In comparative terms, there is no question that MITI is a more effective industrial policy agency than MCI precisely because it combines control of trade and industry in one unit and plans for each in coordination with the other.

The cabinets that followed the army mutiny of 1936 were unpopu-

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lar with almost everyone, either because military influence over them was strong or because they had to compromise with private business interests. This led first to calls for a government of national unity and then to its formation under the leadership of Prince Konoe on June 4, 1937. In view of the imbalance in international payments and the need for the military to import at least some of what it wanted, the selection of the minister of finance in the new government was a major issue. Konoe named Kaya Okinori, who was not a reformist but a fiscally conservative Finance Ministry bureaucrat. Kaya in turn recommended Yoshino to be minister of commerce and industry on grounds that he needed to be backed up by that ministry if he were going to bring army spending demands under control. As it turned out, the coming of war in China a month after the Konoe government came into being upset all of these plans. Nonetheless, Yoshino returned from his position in the northeast to become minister of the organization he had left as vice-minister only a few months earlier. He was the first MCI-bred bureaucrat to become minister of commerce and industry. Interestingly enough, Yoshino's and Kishi's careers are similar in that both were fired as vice-minister and then returned as minister in less than a year.

On June 4, 1937, the day the new cabinet was sworn in, Finance Minister Kaya and MCI Minister Yoshino issued their famous joint statement of "three fundamental principles" of economic policy: production must be expanded, the country must live within the limits set by the international balance of payments, and the government must control economic activities in order to achieve coordination between the first two principles.

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The first principle was aimed at meeting military demands, the second was in response to the demands of business leaders, and the third put the whole country on notice that changes were needed in order to do what the military wanted and still avoid bankruptcy.

The intent behind the statement (to bring military spending under control) was clear enough in Japan, but it was misunderstood abroad as a declaration of aggression. American newspapers reported the Kaya-Yoshino statement as preparatory to a war with China, and in 1945 the International Military Tribunal for the Far East investigated Yoshino's radio speech on the three principles as possible evidence of his involvement in a war plot.

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Yoshino and Kaya were in favor of expanded productive capacity, but they also stood for fiscal integrity and joint public-private management, principles that clearly distinguished them from their immediate predecessors.

When fighting broke out in China, the initial view of the cabinet

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was that the conflict should be minimized to the greatest extent possible. This attitude prevailed until approximately the time of the battle for Hsüchow, which fell to the Japanese on May 18, 1938. However, some wartime controls began to appear almost at once. In addition to reinvoking and strengthening the price control ordinance of 1918, the Konoe government obtained passage on September 10, 1937, of three new laws. The first of these legalized enforcement of the Munitions Industries Mobilization Law of 1918, even though no war had been declared. The second was the Emergency Funds Regulation Law (Rinji Shikin Chosei * Ho*), which empowered the Ministry of Finance to direct public and private capital to munitions industries if it felt the normal flow of investment funds was too slow or inadequate. The full implications of this law were not spelled out at the time it was passed, but it inaugurated the Finance Ministry's administrative guidance of private banks, which has continued to the present day.

The third law is the most interesting. It was Yoshino's brainchild and probably his greatest accomplishment as minister. It bore the imposing title of Temporary Measures Law Relating to Exports, Imports, and Other Matters (Yushutsunyu-hin-to* ni kan suru Rinji Sochi ni kan suru Horitsu*, law number 92), and Yoshino and his associates have gleefully recounted how they chose this wording in order to confuse Diet members (specifically, through their use of legalese such as

kan suru

''relative to" twice in the title, and above all through their insertion of the suffix

to

* "et cetera") and how Yoshino dissembled and gave vague answers to questions in the Diet about the scope of the law.

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Under the terms of this law of only eight articles, the government was authorized to restrict or prohibit the import or export of any commodity and to control the manufacture, distribution, transfer, and consumption of all imported raw materials. It meant, as Nakamura emphasizes, a grant of discretionary power to MCI to control