Chalmers Johnson - MITI and the Japanese miracle

46

During the autumn of 1946, when the subsidies finally ground to a halt, the economy virtually collapsed. Yamamoto Takayuki and Tokunaga Hisatsugu of MCI, together with Inaba Hidezo* of the ESB, put forward their famous thesis of a "March crisis"their prediction that by March of 1947 the Japanese economy would no longer be producing anything due to an exhaustion of stockpiles, a lack of imports, and an acute coal shortage. On November 5,1946, in order to forestall this, Prime Minister Yoshida established a personal brain trust known as the "Coal Committee" to tell him what to do. Its chairman was Arisawa Hiromi, and its members included Inaba Hidezo (formerly of the CPB), Okita* Saburo* (foreign minister in the Ohira* cabinet of 197980), Tsuru Shigeto (Harvard-trained economist and author in

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TABLE

11

Directors of the Economic Stabilization Board August 1946August 1952

Director and tenure

Remarks

Zen Keinosuke, 8/461/47

Former MAC-MCI bureaucrat.

Ishibashi Tanzan, 1/473/47

Concurrently finance minister.

Takase Sotaro *, 3/475/47

President, Tokyo Commercial University. MITI minister, 1950.

Wada Hiroo, 6/473/48

Former agriculture bureaucrat. Arrested in Cabinet Planning Board incident, 1941.

Kurusu Takeo, 3/4810/48

Arrested in Showa* Denko* scandal, 10/48.

Izumiyama Sanroku, 10/4812/48

Former Mitsui Bank official.

Shuto* Hideo, 12/482/49

Former agriculture bureaucrat. Former director, Department Four, Cabinet Planning Board (1942).

Aoki Takayoshi, 2/496/50

Former professor (economics), Nihon University.

Shuto Hideo, 6/508/52

See above.

1947 of Japan's first

Economic White Paper

), Sato* Naokuni (of MCI), Oshima* Kan'ichi (of the Finance Ministry), and several staff aides such as Kojima Keizo* (formerly of the CPB and at the time working in MCI's Coal Agency). This group invented "priority production" (

keisha seisan

). On January 31, 1947, in a cabinet reshuffle, Ishibashi Tanzan was asked to take on the post of director of the ESB in addition to serving as minister of finance, and he made priority production the central objective of the ESB (for a list of the ESB leaders, see Table 11).

Priority production was a scheme to concentrate all of the economy's assets in a few strategic sectors, regardless of the effects this might have on civilian consumption or inflation. In this respect it was quite similar to the revised materials mobilization plan of 1938. The Arisawa committee had recognized that the first objective had to be to increase coal production. Calculating from the 1946 production figure of 22.8 million tons, the committee had set a goal of 30 million tons for 1947. In order to try to achieve this, it had suggested that the coal industry get first priority on RFB loans and subsidies. Allocation of coal was an equally serious problem. Before the war 60 percent of coal output had been used by industry and only 40 percent for transportation, electricity generation, and other so-called civilian uses, but in 1946 these proportions were reversed. Demand for nonindustrial use had become so great that there was no possibility of reviving industry unless coal production was increased. The committee therefore earmarked 16 million of its targeted 30 million tons for industry, and the

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ESB was authorized to implement the Supply and Demand Law to achieve this distribution. Because the coal industry was a big steel user and steel production was itself dependent on coal, the committee designated steel as a second priority industry. It finally added fertilizer, which also uses coal, in order to try to expand food production.

Priority production was put into effect during the spring of 1947. Under Ishibashi's leadership and SCAP's orders that all ministerial planning functions be transferred to it, the ESB came to life. By May it had grown from a unit with 5 bureaus and 316 employees into a virtually new unit with a secretariat, 10 bureaus, 48 sections, and over 2,000 employees. MCI supplied the largest number of these new recruits. At the same time, the Diet enacted one law after another setting up the government corporations (kodan *) that under ESB orders purchased all major commodities from their producers at high prices and sold them to consumers at low prices, covering the difference with price subsidies from the general account budget. Table 12 summarizes the government's payments of subsidies and indemnities through the 1940's. It reveals that between 1946 and 1949 some 20 to 30 percent of all expenditures from the general account budget went to industry to cover operating costs and priority production.

SCAP liked the new economic institutions and the fact that the ESB had finally achieved authority (the Americans assumed that the real inspiration for the ESB was a comparable bureau they had set up in 1943 to supervise their own war economy), but SCAP still did not like the indifference to inflation of ESB Director Ishibashi.

47

It therefore purged him. Several observers on the scene at the time have suggested that Yoshida got rid of Ishibashi as a political rival by suggesting his name to General Whitney as an appropriate purgee, even though Ishibashi's prewar and wartime career as president of the

Oriental Economist

Publishing Company (Toyo* Keizai Shimposha*) had much less to do with the war effort than Yoshida's own activities. Whatever the case, Yoshida and Ishibashi became political enemies. Ishibashi did not return to the government until December 1954, when he became MITI minister in the Hatoyama cabinet and proceeded to dismantle the restraints placed on the ministry by Yoshida's Foreign Office appointments.

48

Shortly after Ishibashi's purge, the first Yoshida government fell and was replaced by the socialist cabinet of Katayama Tetsu. The Katayama cabinet continued and accelerated priority production, even though it no longer used that term since SCAP did not like it. The year from mid-1947 to mid-1948 was the high tide of priority production, during which the ESB, MCI, the Coal Agency, the kodan, and

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TABLE

12

Government Payments of Price Subsidies and Indemnities, 19401952

(Million yen)

Year

Total general account budget expenditures

Price subsidies (

kakaku

chosei

*

hi

)

Indemnities for losses (

sonshitsu

hosho

*

hi

)

1940

5,856

(100%)

17

(0.3%)

60

(1.0%)

1941

7,929

(100)

95

(1.2)

55

(0.7)

1942

8,271

(100)

305

(3.7)

240

(2.9)

1943

12,491

(100)

510

(4.1)

265

(2.1)

1944

19,872

(100)

1,266

(6.4)

567

(2.8)

1946

115,207

(100)

3,731

(3.2)

22,661

(20.0)

1947

205,841

(100)

28,178

(13.7)

8,566

(4.2)

1948

461,974

(100)

93,118

(20.2)

16,632

(3.6)

1949

699,448

(100)

179,284

(25.6)

31,838

(4.6)

1950

633,259

(100)

60,162