Horie spoke often to the group about the moves toward full currency convertibility among the European nations (achieved in December 1958) and of the creation of the European Common Market. He was well informed on the recent shift by Germany and England to "article 8 status" in the IMF, which required an end to restrictions on payments for current transactions and on the convertibility of currency held by nonresidents; and he said that Japan as a nation that had to trade to live could not lag far behind its trading partners and competitors. Upon becoming MITI minister in June 1959, Ikeda attended the committee meetings, where he was quoted as saying, "Mr. Horie knows what he's talking about in terms of global trends."
11
In December 1959, on the basis of the committee's deliberations and Imai's recommendation, Ikeda took his first liberalization decision: he freed raw cotton and wool imports from all governmental restrictions. This was a powerful precedent. In January 1960 the government established a Cabinet Council on the Advancement of Trade Liberalization (Boeki* Jiyuka* Sokushin Kakuryo* Kaigi) to prepare liberalization plans for other industries, and this in turn led on March 8, 1960, to a
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great debate at a MITI ministerial conference called to discuss liberalization. According to the report of Komatsu Yugoro *, Matsuo Taiichiro*, then director of the International Trade Bureau, was alone in speaking in favor of the policy. Imai did not have to speak; he was already identified with liberalizationa hero to some and a near traitor to others.
12
He had, however, clearly won the trust and confidence of the MITI minister, who was soon to become prime minister.
Imai himself has noted that liberalization was as much a political and administrative problem as an economic one. He favored it because of his personal dislike for the controlled economy, a dislike that grew out of the occupation. But he also saw liberalization as an opportunity to move Japan toward an industrial structure with fewer enterprises overall, but with more, proportionately, in high-technology industries, and in this his position and Sahashi's coincided. Within the ministry as a whole, however, young officials thought that liberalization would mean the end of their jobs, senior officials in the vertical bureaus were worried about the structural weaknesses of their industries, and politicians feared for their reelection. Ikeda persisted nonetheless. In June the outgoing Kishi cabinet adopted Ikeda's trade liberalization plan, which set the goal of an economy that would be 80 percent liberalized within three years.
The figure of 80 percent was to be calculated according to the commodities and products listed on the Brussels Customs Schedule. On this basis, the rate of import liberalization, which in April 1956 stood at 22 percent, had been raised by April 1960 to 41 percent. The plan's 80 percent liberalization was to be attained by fiscal 1963, the initial target for 1961 being set at 62 percent. The mere publication of these figures set off a complicated process of jockeying by each industry (and its MITI bureau) to have the lifting of its controls scheduled late rather than early. Shiroyama suggests in his novel that Ikeda actually began with cotton and wool because these industries were heavy contributors to his political rivals, although Imai never mentions this as a consideration.
13
It is hard to recapture today the crisis atmosphere that existed in Japanese industrial circles during 1961. The press prattled on endlessly about "the second coming of the black ships," "the defenselessness of the Japanese islands in the face of attack from huge foreign capitalist powers," and "the readying of the Japanese economy for a bloodstained battle between national capital and foreign capital."
14
Sahashi himself invoked the name of the National General Mobilization Law of 1938 and said that Japan again required a "national general mobilization'' in order to create an economic system that could with-
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stand the rigors of international competition.
15
As it turned out, the crisis was considerably overstatedfrom 1960 to 1965 exports more than doubled on a customs-clearance basis (from $4 billion to $8.7 billion), suggesting the existence of substantial international competitive strength in the economy. Nonetheless, the sense of crisis was real, and it may well have helped to motivate the economy's export performance.
The Ikeda government took many measures intended to relieve the widespread anxiety. In 1960 it created the Asian Economic Research Institute as a government organ concerned with the study of markets in underdeveloped countries, and in 1961 it set up the Overseas Economic Cooperation Fund to disburse foreign aid. Both agencies were promoted abroad as evidence of Japan's expanding contributions to allied foreign aid efforts, but domestically they were justified as export promotion agencies, since the aid Japan gave would be tied to purchases of Japanese plants and equipment. During 1960 the government also revised tariff rates and schedules to offer greater protection to liberalized industries, and it expanded the capital of the Export-Import Bank in order to finance more exports.
The most famous of the government's calmatives was Ikeda's Income-doubling Plan, formally adopted by the cabinet on December 27, 1960. The plan itself was wildly overfulfilled, and its chief importance in retrospect was the psychological effect it had in creating optimism about the future to counterbalance the pessimism about liberalization coming from the press and MITI. The Income-doubling Plan did, however, have one important bureaucratic consequence. Ikeda had assigned to the Economic Planning Agency the task of drafting the plan, and the publicity surrounding the EPA's efforts gave its so-called agency economiststhat is, career officials of the EPA rather than transferees from MITI or Financea chance to try to break free of MITI's dominance. The EPA sought to name one of its own officials, the prominent economist and future foreign minister Okita* Saburo*, to be vice-minister of the agency, rather than accept another senior MITI official. MITI successfully beat back this attempt, but in the process it had to make the EPA post a terminal position in the MITI chain of command; a MITI official sent to the EPA as vice-minister could no longer return to the ministry. As we shall see, this was important because it gave Sahashi the chance to eliminate two final rivals in his quest for the MITI vice-ministership by seeing to it that the MITI minister appointed them EPA vice-minister, where they would be out of the running for the big prize.
The most important bureaucratic response to liberalization was
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MITI's invention of the concept of "industrial structure" and the creation on April 1, 1961, of the Industrial Structure Investigation Council (Sangyo * Kozo* Chosa* Kai). The concept was simply a shorthand term for comparisons of Japanese industries with those of North America and Western Europe in terms of their capitalization, export ratios, concentration, economies of scale, and other indicators of international competitive ability. Once such comparisons had been made, the concept was further used to assert that Japanese industries were fully capable of competing in the international commercial arenabut not as they were presently structured. The number of enterprises competing in each industry had to be reduced, the few that were to remain had to be enlarged, and the preemptive investment and excess productive capacity that the keiretsu system had generated had to be brought under control. Industrial structure became the key intellectual defense for the devices Sahashi later promoted as vice-ministermergers and investment-coordination cartels in important industries.
16
The Investigation Council perfected and legitimized the concept. Led by Ojima Arakazu, former MCI vice-minister and president of Yawata Steel, the council brought together all the top leaders of Japanese industry; and it produced one of the most searching analyses of any economy ever undertaken by a government.
17
When the council's charter expired in 1964, it was merged with the old Industrial Rationalization Council of 1949; and it continues to the present as MITI's main official channel for administrative guidance of industry, the Industrial Structure Council (Sangyo Kozo Shingikai).
The
original Industrial Structure Investigation Council was an outstanding example of MITI's employment of an ostensibly civilian commission to popularize and provide authority for its policies. The actual work of the council was done by MITI; the Enterprises Bureau was charged with writing reports and recommendations on such topics as industrial finance, labor, technology, and international economics, while the new Industrial Structure Investigation Office, which was attached to the Secretariat, investigated individual industries. The head of the office was Ojimi* Yoshihisa, the author of Ikeda's 1960 liberalization plan and himself a future MITI vice-minister.
The 50 members of the council strongly reflected MITI's "old boy" networks. In addition to its chairman, Ojima Arakazu, the membership included Ishihara Takeo, executive director of the Tokyo Electric Power Company; Ueno Koshichi*, executive director of the Kansai Electric Power Company; and Tokunaga Hisatsugu, executive director of Fuji Steelall of them recently retired MITI vice-ministersplus
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such old stalwarts from MCI, MM, and the Cabinet Planning Board as Uemura Kogoro *, Inaba Hidezo*, Kitano Shigeo, Inayama Yoshihiro, and several other former officials. The key subunit of the council, its Industrial Order Committee (Sangyo* Taisei Bukai), where Sahashi worked out his ideas for a new comprehensive control law, had only seven members. They included an ex-Agriculture bureaucrat, the president of the Development Bank, an
Asahi
editor, the executive director of Keidanren, the president of a private economic research institute, and a former MITI vice-minister (Tokunaga); the committee's chairman was the ubiquitous Arisawa Hiromi, the inventor of priority production during the occupation, a leader of the Industrial Rationalization Council, an authority on the coal industry, and MITI's most important academic adviser.
During July 1961 Sato* Eisaku succeeded Shiina Etsusaburo* as MITI minister, and Sahashi Shigeru succeeded Matsuo Kinzo* (who became vice-minister) as director of the Enterprises Bureau. When this occurred Imai Zen'ei was working in the difficult job of chief of the International Trade Bureau, where in conjunction with the MITI-controlled Coordination Bureau of the EPA he actually decided on the liberalization schedules for various industries. A year later, during July 1962, Imai was transferred to what was normally a preretirement position, director of the Patent Agency. Sahashi thus was left as the last major figure from the class of 1937 with an outstanding record in the mainstream of the ministry, industrial policy.
He still had one obstacle in his path to the vice-ministership, however. Matsuo Kinzo, the incumbent vice-minister, was from the class of 1934; but there were within the ministry two outstanding officials, one each from the classes of 1935 and 1936, who might be expected to take precedence over a member of the class of 1937. One of them, Koide Eiichi (1935), was out of the running because he was vice-minister of the EPA, the post that had been made a preretirement slot after the agency's economists' attempted coup. The other, Obori* Hiromu (1936), former chief of the Mining and Public Utilities bureaus and the current director of the Medium and Smaller Enterprises Agency, was Sahashi's problem. To get him out of the way, Matsuo and Sahashi suggested to Minister Sato that he appoint Obori as vice-minister of the EPA when Koide made his amakudari.
Despite protests from Koide, Obori himself, many other officials in the ministry, and even Chief Cabinet Secretary Ohira* Masayoshi (a future prime-minister and himself no stranger to bureaucratic infighting from his years in the Ministry of Finance), Sato went ahead with
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Obori's * appointment to the EPA. The path ahead now seemed clear for Sahashi, but the involvement of powerful politicians in the internal affairs of the ministry would, like the
Sakura Maru
affair, come at a price for both the ministry and Sahashi. Sato's* motives were to try to secure MITI as a base of operations for his own political drive to succeed Ikeda as prime ministermuch as Ikeda himself had done with Finance and Kono* Ichiro* with Agriculture. Moreover, rumors had circulated that Sahashi was thinking of running for the Diet after his own retirement, and Sato* wanted to make sure that if elected he would join the Sato factiona point not lost on two other faction leaders, Ikeda and Ono* Bamboku.
18
Meanwhile, Sahashi's great achievement as chief of the Enterprises Bureau was the conception and advocacy of the Special Measures Law for the Promotion of Designated Industries (Tokutei Sangyo* Rinji Shinko* Sochi Hoan*, cabinet submission number 151 of 1963). This bill ultimately died in the Diet because it became simply too controversial for any politician to touch, but the debate over it crystalized all the key issues that had surfaced in the Japanese economy after postwar reconstruction, and it paved the way for the informal implementation of the bill's provisions during the late 1960's through administrative guidance. The Special Measures Law was without question the single most important piece of proposed economic legislation since the early years of the occupation.
19
Its genesis, the furor surrounding it, and its final demise involved liberalization policy, jurisdictional disputes between MITI and the Ministry of Finance, the Antimonopoly Law, a debate over "excess competition" in the Japanese economy, factional politics in the LDP, and a battle inside MITI over the vice-ministershipin short, the whole range of issues that go to make up Japanese industrial policy.
The basic problem addressed by the Special Measures Law was not liberalization itself, although the foreign demands for liberalization provided an excellent cover to avoid saying too publicly what the problem really was. Sahashi was less enthusiastic about liberalization than Imai, but he too recognized that it was an inevitableeven a desirabledevelopment if Japan was to continue to expand its overseas markets and economic growth. The basic problem was virtually the same as that confronted by Yoshino Shinji during the late 1920's and early 1930'stoo many protected enterprises in too many small factories engaged in too vigorous and economically unproductive competition. Liberalization was going to expose this situation to international commercial pressure, which would thoroughly disrupt
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the Japanese economy, possibly see a good part of it pass into foreign ownership, and very likely leave MITI without any continuing function.
20
For Sahashi the essence of the problem was to find some way to bring the financial and investment decisions of enterprises into the framework of control and nurturing (ikusei) that MITI had developed. The Ministry of Finance (which controlled the banks) and the Fair Trade Commission (which administered the Antimonopoly Law) were sure to object to any encroachment on their territory. And the intervening decades notwithstanding, the answer to these structural problems seemed, mutatis mutandis, to be the same one Yoshino and Kishi had discovered during the 1930'scartels, enforced mergers, pressure on medium and smaller enterprises, converting some businesses to other lines of activity, something like the old "enterprise readjustment" movement but under a different name. Sahashi's new terms for these old activities were public-private cooperation (
kanmin
kyocho
*); consolidation of the industrial order (
sangyo
*
taisei seibi
); and structural finance (
taisei
kin'yu
*), meaning government loans and tax breaks to encourage mergers.
A much more difficult problem was how to do it. The old debates between state control and laissez faire were still quite familiar to the seniors of the industrial world, and they were agreed that they did not like state control. In order to try to deal with such objections, Takashima Setsuo, Sahashi's deputy director of the Enterprises Bureau (June 1962 to October 1963), published a skillfully argued article in the May 1963 issue of the journal
Keizai
hyoron
* (Economic review). He patiently dissected the weaknesses of "bureaucratic control"he did not find many, but he acknowledged that people did not like it. And he discussed "self-coordi
nation""It does not achieve the results desired by the people." And then he introduced MITI's proposed resolution of the dichotomy, "administration by inducement.'' In Takashima's view, although this leaves to the government the determination of the direction industry is to take, it avoids the worst problems of policy implementation.
21
As a practical matter, administration by inducement came to mean committees of cooperating bureaucrats, industrialists, and financiers that would set investment rates, promote mergers, discourage new firms from entering given industries, and in general try to build an industrial structure on a par with those of the United States and West Germany, the two prime external reference economies.
To draft a law encompassing these goals and methods, Sahashi brought together in the Enterprises Bureau an extremely talented
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group of MITI officers. Shortly after taking over as bureau chief, he sent a personal letter to Morozumi Yoshihiko, who was then working in the Japanese Embassy in Paris (June 1956 to August 1961), telling him that liberalization was inevitable, that a new industrial policy to deal with it was mandatory, and asking him to join the Enterprises Bureau. Morozumi represented a new breed of officer in the ministry, men who combined overseas service, primarily in continental Europe rather than in the Anglo-American countries, with industrial policy expertise. Many of them, including Morozumi, became vice-ministers during the 1970's. They were the authorities within the ministry on the Common Market, on the so-called invasion of Europe by American capital, and on such ideas for industrial development as the French concept of
MITI and the Japanese miracle Page 40