MITI and the Japanese miracle

by Chalmers Johnson

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  and more realistic "five-year plan for Japanese and Manchurian industry." The army's staff completed this plan in the summer of 1936 and presented it to the Japanese cabinet on May 29, 1937.

  24

  There has been a good deal of controversy about Kishi's role in this plan. After the war the Prosecution Section of the International Military Tribunal for the Far East summoned Shiina some eight times to its offices at Ichigaya to ask him about Kishi's part in formulating the plan. His reply was that the plan was already completed when Kishi arrived and that Kishi had been invited to Hsinking primarily to supervise its implementation. Shiina was certainly the man to ask, since he had been conducting industrial surveys in Manchuria since 1933, and, according to Kishi,

  he

  was the central figure in drafting the 1936 plan. On another occasion, however, Kishi indicated that he had had a major input into the plan while serving in an advisory capacity in Tokyo.

  25

  Whatever the case, when Kishi arrived, he insisted that Chief of Staff Itagaki Seishiro* of the Kwantung Army give him a free hand to implement the plan. Itagaki agreed, and army participation in Manchurian industrial affairs declined significantly.

  The plan was extremely ambitious. It set targets of 5 million tons of pig iron, 3.5 million tons of steel ingots, 2 million tons of finished steel products, 38 million tons of coal, 2.6 million kilowatts of electric power, 400,000 tons of wood pulp, and so forth.

  26

  In order to carry out this plan, Kishi invited the leader of the Nissan zaibatsu, Ayukawa Gisuke, to come to Manchuria to manage it. Ayukawa was acceptable to the army because he represented a "new zaibatsu"one of the concerns that had thrived as a result of the military expansion of the 1930's and that was made up of firms concentrated in comparatively high-technology industriesand because Ayukawa had many personal ties to Kishi and Yoshino (Yoshino, in fact, eventually joined Ayukawa's Manchurian firm after he was dropped as minister of commerce and industry in 1938). Also, Ayukawa's Nissan automobile firm was one of the two companies specially favored in the Automobile Manufacturing Industry Law of 1936 (discussed below). It was as a result of these plans and considerations that during the autumn of 1937 the Japan Industrial Corporation (Nissan) changed its name and incorporated in Manchukuo as the Manchurian Heavy Industries Corporation (Manshu* Jukogyo* K.K., abbreviated Mangyo*) with Ayukawa Gisuke as president.

  Ayukawa planned to raise some $250 million from United States sources. He believed that this, plus his own capital, would be enough to get started. As it turned out, the war with China erupted just as he arrived on the scene, and international financing never became avail-

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  able because of worldwide condemnation of Japan's conduct of the war. Nonetheless, Ayukawa worked at it for five years, setting up numerous satellite firms ("one company for one industry" was his and Kishi's model of industrial organization) and giving his staff of Japanese bureaucrats invaluable experience in industrial planning and operation.

  Kishi subsequently wrote that in Manchuria he "imbibed the ideas of industrial guidance," and Shiina contends that the experience of economic planning in Manchuria was as important for the later "materials mobilization plans" and their postwar equivalents as the work of the Cabinet Resources Bureau. The biggest Manchurian undertakings were the dams for hydroelectric power generation on the Sungari and Yalu rivers and the extensive land reclamation projects. Mangyo * built electrical transmission lines larger than any that had been constructed in Japan up to that time, and the Japanese aluminum industry, which requires large quantities of electric power, was first established in Manchuria.

  The nucleus of the Manchurian power structure was known in Hsinking by the acronym "the two

  kis

  and three

  sukes"

  (

  ni-ki sansuke

  ), a phrase that referred on the political side to Hoshino Nao

  ki

  (chief of the General Affairs Agency), and Tojo* Hide

  ki

  (chief of the Kwantung Army's military police and after 1937 chief of staff of the Kwantung Army); and on the economic side to Kishi Nobu

  suke

  (deputy chief of the Industrial Department and subsequently deputy chief of the General Affairs Agency), Ayukawa Gi

  suke

  (president of Mangyo), and Matsuoka

  Yosuke

  * (president of the SMRR). They all missed the political turmoil in Japan during the first years of the China Incident, but in 1939 and 1940 four of them returned to top positions in the Japanese government. Two of them, Tojo and Kishi, went on to become prime ministers.

  In Japan during this period the movement toward industrial control took the form primarily of industry-specific development laws. The second such law (after the Petroleum Industry Law of 1934) was the Automobile Manufacturing Industry Law (passed May 29, 1936, and in effect July 11). It required that manufacturers of cars and trucks in Japan be licensed (

  kyoka

  ) by the governmenthence the term

  kyoka kaisha

  (a licensed company) for the few firms left in this sector. The government supplied half the capital of the licensees, and taxes and import duties were eliminated for five years. Only two companies were licensed, Toyota and Nissan, and by 1939 the law had put foreign car manufacturers in Japan (Ford and General Motors) out of business, as it was intended to do. One of Kishi's last acts during

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  1936, while still serving as chief of the Industrial Affairs Bureau and before departing for Manchuria, was to draft this law. Kakuma notes laconically that although the law itself was rescinded during the occupation, its terms remained in effect until the late 1960's.

  27

  The petroleum and automobile laws were the first of a series of laws designed to provide special governmental financing, taxes, and protective measures for individual industries, and the first that were defended in terms of national defense needs. Their importance cannot be overstated. They were resurrected during the 1950's and 1960's for different industries and for nonmilitary (but nonetheless national defense) objectives. They are a part of the prewar heritage most directly relevant to postwar industrial policy. Other laws passed during the late 1930's were the Artificial Petroleum Law (August 10, 1937), the Steel Industry Law (August 12, 1937), the Machine Tool Industry Law (March 30, 1938), the Aircraft Manufacturing Law (March 30, 1938), the Shipbuilding Industry Law (April 5, 1939), the Light Metals Manufacturing Industry Law (May 1, 1939), and the Important Machines Manufacturing Law (May 3, 1941).

  28

  These laws did much to promote the particular industries concerned, but politically they represented compromises between the state-control and the self-control persuasions. The business sector was still strong enough to withstand state and public pressure and to insist on private ownership and a large measure of private management, which is closer to the postwar pattern than some of the other measures enacted by the state-control group during the 1930's.

  One area in which the military first caused a major problem and then supported a solution well ahead of its time was in the control of foreign trade. The military's competitors here were not private businessmen but other bureaucrats. After the assassination of the minister of finance in February 1936, the officials of the Finance Ministry more or less gave up trying to resist military demands for budget increases. One scholar notes that from the Konoe cabinet of 1937 to the outbreak of the Pacific War, no Finance Ministry personnel participated in key decisions.

  29

  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.

  30

  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.

  31

  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.

  32

  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.

  33

  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.

  34

  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

  everything

  if it so chose.

  35

  The 1937 trade law is the clearest precedent for the Foreign Exchange and Foreign Trade Control Law of 1949, which was MITI's single most powerful instrument for carrying out its industrial policy during the period of high-speed growth and into the present (the 1949 law was rewritten but still retained on the books during 1980).

  Yoshino and MCI, who clearly had not thought through all the implications of this law, regarded it primarily as an emergency wartime measure. At the same time, however, other segments of the government were moving toward a planned and state-controlled economy. As MITI's semiofficial

  History of Comme
rcial and Industrial Policy

  (

  Shoko

  *

  seisaku shi

  ) notes, "In terms of wartime economic controls, the most

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  important administrative change after the outbreak of the China Incident took place outside MCI; this was the establishment on October 23, 1937, of the Cabinet Planning Board (Kikaku-in)."

  36

  On May 14, 1937, as a preparatory step toward planning and state control, the Hayashi cabinet had reorganized and strengthened the Cabinet Research Bureau of 1935 and renamed it the Cabinet Planning Agency (Kikaku-cho*). When the Konoe government took office in the following month, it decided to merge the military research unit of 1927 (the Resources Bureau) and the Planning Agency into a new and very powerful organ that would, in theory, command and coordinate the activities of the various ministries. This was the Cabinet Planning Board (CPB). It brought together military officers, detached reform bureaucrats, planners from Manchuria, and (unwittingly) some of the leading Marxist economists of the time into what was hailed as the "economic general staff." It is directly relevant to the history of MITI for several reasons. First, many MCI officials worked there (or, alternatively, many former CPB officials entered MCI after the war). Second, it was merged in 1943 with MCI to create the Ministry of Munitions. And third, it is the precedent for the postwar Economic Stabilization Board and Economic Planning Agency, both of which MITI has either strongly influenced or dominated. Most important, the CPB's method of planning necessitated the reorganization of MCI into industry-specific bureaus, and these were perpetuated in MITI until 1973.