MITI and the Japanese miracle

by Chalmers Johnson

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  trons, Yoshino was one of Kishi's most important patrons, and Kishi was destined to become prime minister of Japan at the time of high-speed growth. Yoshino and Kishi together would establish Japan's first genuine industrial policy. The two younger men would also rise not just to the highest bureaucratic post in their service, vice-minister, but to the ministry's highest political post, minister of commerce and industry. But in 1924 none of them could have had the slightest suspicion of what was to come; all they were doing was arranging their rather untaxing bureaucratic lives to suit themselveshelping their friends, getting rid of people who irritated them, and taking advantage of a political change that did not affect them personally much at all.

  The break-up of the Ministry of Agriculture and Commerce had been long in coming. Petitions calling for a separate agriculture ministry had been introduced in the Diet every year since 1918; and after the "rice riots" of the same year the issue had assumed major political significance. Equally important, with the emergence of the governments based on political parties that followed the passing of most of the Meiji oligarchs, genuine pressure groups were beginning to have a profound effect on Japanese governmental policy. Although in essence agricultural interests and their political allies were kicking commerce out of the Ministry of Agriculture and Commerce, the leaders of commercial administration were quite pleased to see this happen, particularly since they were in a position to execute the details of the split. The situation was somewhat comparable to the division in 1913 in the United States of the old Department of Commerce and Labor into two separate departmentsat the insistence of the American Federation of Labor and not of business interests.

  1

  The old Japanese ministry that was being divided had itself developed out of a basic change in Meiji economic policy that took place in 1880. After a decade of direct governmental investment in mines, railroads, arsenals, and factories, the Meiji leaders had had to confront the unpleasant fact that the new government of Japan could not afford to continue what it had been doing. The side effects of its policies were inflation, trade deficits, corruption, and looming bankruptcy. Liberal economists of the time such as Taguchi Ukichi, who wrote for the

  Tokyo

  *

  keizai zasshi

  (Tokyo economic journal), urged the government to control inflation by selling off its state enterprises and turn instead to the sponsorship of private capitalism.

  Within the government the new minister of finance, Matsukata Masayoshi, agreed; and on November 5, 1880, he issued his famous "Outline Regulations for the Sale of Government-operated Facto-

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  ries."

  2

  Matsukata launched a deflationary policy quite comparable to that carried out seventy years later by Joseph Dodge and Ikeda Hayato, and with almost equally propitious results. As Arthur Tiedemann observes:

  By all measures what came to be known as the Matsukata deflation accomplished its objectives. After 1881 interest rates, wages, and prices all fell. By 1882 imports were down 6 percent and exports up 33 percent compared with 1880; there was an export surplus of ¥8.3 million. The cumulative trade surplus for 18821885 amounted to ¥28.2 million. By 1885, the paper currency had been reduced to ¥118.5 million and the paper-silver ratio stood at 1.05 to 1.00. The following year, in the midst of the greatest export prosperity Japan had ever enjoyed, the country went on the silver standard.

  3

  It must be understood that Matsukata's policy was not intended primarily as a new approach to economic development; it was instead a matter of hard necessityof the pressing need to bring imports and exports under control and to keep the government solvent. In its "hyper-balancing of revenues and expenditures," the government did not touch military expenditures, these being considered essential to the maintenance of Japan's independence.

  4

  As an alternative to the state investment that was no longer possible, the government began helping private entrepreneurs to accumulate capital and to invest it in ways that seemed to promote Japan's needs for military security and economic development. The government sold them its pilot plants, provided them with exclusive licenses and other privileges, and often provided them with part of their capital funds. Japan had few other choices open to it at the time (it did not regain control over its own tariffs until July 1911), and although it neither understood nor believed in laissez faire capitalism, the government's policies seemed to reassure foreigners that Japan was becoming "modern" (that is, like them). The beneficiaries of this new policy were the big merchant houses of Mitsui, Mitsubishi, Sumitomo, Yasuda, Furukawa, Okura*, and Asano, which later came to be known as the zaibatsu.

  The relations that developed between the Meiji government and the private investors were not formal or official but, rather, personal and unofficial. They usually took the form of direct contacts between one or another of the oligarchs and an entrepreneur with access to him. Inoue Kaoru's services from within the government to Mitsui, for example, have been well documented.

  5

  Common clan origins and strategic marriages cemented many of these relations, and bribery and payoffs were not unknown. This working relationship between government and business needed a legal cover, however. In order to formalize and supervise the sale of government property, and also to

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  unify all of the government's various economic activities, two of the Meiji oligarchs, Ito * Hirobumi and Okuma* Shigenobu, memorialized the throne on the desirability of a new economic ministry. This memorial was accepted and led to the creation on April 7, 1881, of the Ministry of Agriculture and Commerce.

  6

  Attending to agriculture was certainly the most important activity of the new ministry. As Horie notes, Japan had one "God-sent" product in the form of raw silk, without which it might never have brought its trade deficit under control.

  7

  In addition to the supervision and promotion of agriculture, the new ministry was charged with the administration of all laws and orders relating to commerce, industry, technology, fishing, hunting, merchant shipping, inventions, trademarks, weights and measures, land reclamation, animal husbandry and veterinary affairs, forests, and the postal service. It combined functions that had been divided since the Restoration among the ministries of Finance, Civil Affairs, Industrial Affairs, and Home Affairs.

  In 1885, with the success of the Matsukata reforms and the reorganization of the government into a cabinet system, MAC gave up its powers over shipping and the postal service to the new Ministry of Communications (Teishin-sho*). However, with the abolition at the same time of the old Ministry of Industrial Affairs (Kobu-sho*), it assumed control over mining. Between 1885 and the end of the century MAC's internal structure underwent several changes that finally resulted in the configuration that would last with minor variations until its dissolution: a ministerial Secretariat, six internal bureausAgricultural Affairs (Nomu* Kyoku), Commercial Affairs (Shomu* Kyoku), Industrial Affairs (Komu* Kyoku), Forestry (Sanrin Kyoku), Fisheries (Suisan Kyoku), and Mining (Kozan* Kyoku)and one semidetached bureau, the Patent Bureau (Tokkyo Kyoku), with its own secretariat.

  At the end of the century MAC acquired one more very important function, management of the government-owned-and-operated Yawata steel works. In 1896, during the ninth Imperial Diet, Prime Minister Ito Hirobumi and Minister Enomoto Takeaki of MAC successfully proposed a bill for the expenditure of about ¥4 million to build an iron and steel plant. First priority for its products was to go to armaments, but any surplus could be offered for general sale. It was built in Fukuoka prefecture at Yawata village, and thus was located both in the northern Kyushu coal fields and on the Japan Sea for easy access to iron ore from China. As a result of Japan's victory in the first Sino-Japanese War of 189495, iron ore from China was readily available, and it was of higher quality than that mined domestically. Pro-

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  duction at Yawata began in t
he autumn of 1901 and immediately accounted for 53 percent of the nation's production of pig iron and 82 percent of its rolled steel. It had no serious domestic rivals until 1911 and 1912, when the privately owned Kobe Steel Company and Nippon Kokan * Company (Japan Steel Pipe) were founded.

  MAC's sponsorship and operation of the Yawata works produced an identification between the ministry and big steel that has lasted to the present day. Long after the post-World War II Allied occupation had denationalized the steel industry, the Japanese public continued to believe that MITI officials had a soft spot in their hearts for the newly created "private" Yawata Steel Company. The press regularly suggested that Yawata officials had an unfair influence over the government, and went as far as to nickname MITI the "Tokyo Office of the Yawata Steel Company."

  8

  Certainly in 1970, at the time of the merger of the Yawata and Fuji steel companies into New Japan Steelmaking it the world's largest steel producer and recalling the old nationalized company of 1934no one in Japan thought MITI was either neutral or anything but pleased by the development. The trade and industry bureaucrats throughout this century have had a strong influence over Japan's steel industry, a relationship made all the more explicit by the Tokyo sales office of the Yawata works being located in the Ministry of Commerce and Industry building until 1934.

  The creation of Yawata was the single most important achievement of MAC, but the inspiration came from the oligarchs and the military. The daily life of the ministry was always dominated by agricultural affairs. This was only natural since Japan was still predominantly an agricultural country. As late as 1914 agriculture accounted for 45.1 percent of the total national product and fishing for another 5.1 percent, while mining contributed 5.1 percent and manufacturing 44.5 percent. Manufacturing was still concentrated overwhelmingly in such light industries as textiles and foodstuffs; heavy industrymetals, machines, chemicals, and fuelsdid not comprise more than half of all manufacturing until the 193337 period.

  9

  The ministry's internal organization reflected these proportions. From before World War I newcomers to the ministry had informally divided themselves into an agricultural career path (

  nomu

  *

  keito

  *) and a commercial and industrial career path (

  shoko

  *

  keito

  ), although they often switched back and forth between each other's bureaus. The arrival after the turn of the century of the first graduates of Tokyo University Law School strengthened this separation. Technical agronomists had dominated the agricultural wing of the ministry from its

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  early days, and law graduates felt at a disadvantage in competing with them in the agricultural career path. They therefore clustered in commercial and industrial administration.

  There was not much work for them to do there, however. Before World War I commercial affairs and industrial affairs were always subordinate to the Agricultural Affairs Bureau, and they were regularly combined into one Commercial and Industrial Bureau (Shoko * Kyoku) as an economy measure. They were finally separated into two bureaus only in May 1919. The chief commercial function of MAC was supervising the insurance companies, the stock and commodity exchanges, and the warehousing businessall sectors of the economy that the commercial wing of the ministry would lose to other agencies by the time of the Pacific War. Industrial administration was almost nonexistent. Since the Matsukata reforms, and particularly after the creation of the Diet and the end of the 189495 war with China, the government's overall policy toward industry and foreign trade had become a more or less orthodox version of laissez faire. Even when MAC tried to take some initiative in the industrial arena, its ties with industrial leaders were weak, except for the personal relations between the oligarchs and the zaibatsu, and industrialists commonly ignored what government bureaucrats had to say.

  10

  In any case the biggest industries were the cotton textile firms of Osaka, and they were fiercely independent and suspicious of Tokyo.

  When Yamamoto Tatsuo of the Mitsubishi zaibatsu became minister of MAC in 1913, he undertook to strengthen the commercial and industrial side of the administration. With a few notable exceptions, most of its officials still represented the lingering influence of Satsuma and Choshu* retainers in the state bureaucracy. The first vice-ministers from among government service examinees did not reach the top in any ministry until 1912. In retrospect Yamamoto's most important accomplishment was the recruiting of Yoshino Shinji. Yamamoto personally went to Todai* and explained to the law faculty that he wanted some bright young law graduates for the Ministry of Agriculture and Commerce. As a result, the school's advisers steered Yoshino to MAC rather than to the more prestigious Home Affairs or Finance ministries, which he had expected to join. Yoshino recalled that when he entered the ministry in 1913 there were only three or four officials in commercial administration who had law degrees.

  11

  Yamamoto was proud of Yoshino and took good care of him. Ten months after Yoshino had joined the ministry, Yamamoto delegated him as the resident Japanese representative to the San Francisco International Exposition of 1915. It was a superb opportunity for a young

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  man to study abroad and to widen his horizons. Yoshino stayed in San Francisco for a year and a half, auditing courses in labor economics at Berkeley (he specifically recalls Professor Ira Cross), traveling around the country, and receiving an overseas salary of ¥245 per month compared with the ¥45 he would have been paid in Tokyo.

  The efforts and the politics of people like Yamamoto were not particularly appreciated among the dominant agriculturalists within the ministry. Their orientation was physiocratic (

  nohonshugi

  *), and they felt a philosophical sympathy for the rural way of life, so they were not pleased by the rise of industrialism or by the growing influence of the zaibatsu. Soejima Sempachi, a commercial-track official who was nonetheless serving as chief of the Agricultural Policy Section at the time of the 1918 "rice riots," later charged that the whole Agricultural Affairs Bureau was sympathetic to the interests of landlords.

  12

  This was probably true, but it must be understood that agricultural bureaucrats also represented one wing of then current liberal opinion. To them the most serious social problem of the nation was rural poverty and tenancy, a problem to which they believed the government was insufficiently attentive, particularly in comparison to the privileges it extended to the zaibatsu.

  This social consciousness of the agricultural bureaucrats is sometimes called "Ishiguroism," after the great elder statesman of agricultural administration, Ishiguro Tadaatsu (18841960). From 1919 to 1925 Ishiguro was chief of the Agricultural Policy Section, Agricultural Affairs Bureau, in MAC. He became vice-minister of agriculture in 1934 and minister of agriculture in the second Konoe (194041) and Suzuki (1945) cabinets. He was famous for recruiting social activists to his ministry (for example, the post-World War II socialist politician Wada Hiroo), and for donating a part of his salary during the 1930's to aid tenant farmers. During the period of World War I he and his followers imbued the ministry with a sense of mission to protect the small tenant farmer, and the Ministry of Agriculture and Forestry that resulted from the break-up of MAC was regarded as the most "progressive" in the interwar government.

  13

  The dominance of the agricultural career path in MAC is also revealed by its personnel deployments. The ministry grew from 2,422 total employees in 1890 to 7,918 in 1920 and 8,362 at the time of the split, but of this final figure 5,879 went to the Ministry of Agriculture in 1925, and only 2,483 to MCI.

  14

  World War I affected Japan's economy and economic bureaucracy in many significant ways. The war boom itself was extraordinary. In 1914 Japan's total exports and imports combined amounted to about ¥1.2

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  billion, but by 1919 this figure had grown to abo
ut ¥4.5 billion, excluding income from marine transportation and insurance premiums. During the period 191518 exports exceeded imports by about ¥1.3 billion, and the Bank of Japan used the profits from these years to pay off all of Japan's foreign debts, to purchase foreign bonds, and to increase the country's gold reserves. At the end of 1918 specie holdings reached ¥1.6 billion, about four times the figure for 1913. Some of Japan's established businessmen became rich overnight; Mitsui Trading Company, for example, reported paid-in capital of ¥20 million in February 1918, and of ¥100 million a year later.

  15

  Many new firms were established, known at the time as

  senso

  *

  narikin

  (wartime nouveaux riches). The most famous of these was the new zaibatsu complex of Kaneko Naokichi, whose firms included Suzuki Trading, Kobe Steel, Harima Shipbuilding, Imperial Rayon (Teijin), Japan Flour Milling, Great Japan Celluloid, and Honen* Refining.

  16

  The Japanese chemical industry started up during the war almost from scratch after exports from Germany, particularly textile dyes, were cut off.

  The effect of the war boom on agriculture was equally profound but much less satisfactory. A significant rise in all price levels accompanied the growth of industry (see Table 7), but most important was the rise in demand for rice by the rapidly urbanizing industrial labor force. The government's policy at the outset of the boom was to allow prices to go up, hoping to increase production in that way. This was also what the politically influential landlords wanted. The landlords were organized into the Imperial Agricultural Association (Teikoku Nokai*), founded in 1910 as the successor to the Great Japan Agricultural Association (Dai Nihon Nokai) of 1881, which began as a quasi-official organization for landlords and was oriented toward rural improvements.