MITI and the Japanese miracle
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Japan offers a panoply of market-conforming methods of state intervention, including the creation of governmental financial institutions, whose influence is as much indicative as it is monetary; the extensive use, narrow targeting, and timely revision of tax incentives; the use of indicative plans to set goals and guidelines for the entire economy; the creation of numerous, formal, and continuously operating forums for exchanging views, reviewing policies, obtaining feedback, and resolving differences; the assignment of some governmental functions to various private and semiprivate associations (JETRO, Keidanren); an extensive reliance on public corporations, particularly of the mixed public-private variety, to implement policy in high-risk or otherwise refractory areas; the creation and use by the government of an unconsolidated "investment budget" separate from and not funded by the general account budget; the orientation of antitrust policy to developmental and international competitive goals rather than strictly to the maintenance of domestic competition; government-conducted or government-sponsored research and development (the computer industry); and the use of the government's licensing and approval authority to achieve developmental goals.
Perhaps the most important market-conforming method of intervention is administrative guidance. This power, which amounts to an allocation of discretionary and unsupervised authority to the bureaucracy, is obviously open to abuse, and may, if used improperly, result in damage to the market. But it is an essential power of the capitalist developmental state for one critical reason: it is necessary to avoid overly detailed laws that, by their very nature, are never detailed
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enough to cover all contingencies and yet, because of their detail, put a strait jacket on creative administration. One of the great strengths of Japanese industrial policy is its ability to deal with discrete complex situations without first having to find or enact a law that covers the situation. Highly detailed statutes serve the interests primarily of lawyers, not of development. The Japanese political economy is strikingly free of lawyers; many of the functions performed by lawyers in other societies are performed in Japan by bureaucrats using administrative guidance.
The Japanese of course rely on law, but on short and highly generalized laws. They then give concrete meaning to these laws through bureaucratically originated cabinet orders, ordinances, rules, and administrative guidance. All bureaucracies, the Japanese included, are inclined to abuse this rule-making authority (compare, for example, the chaos of rules churned out by the American Internal Revenue Service); but the answer to this problem seems to lie in finding better bureaucrats, not in eliminating their discretionary powers. In the case of flagrant bureaucratic abuse, the offended party may have to turn to the courtssomething that the Japanese began to do during the 1970's more than in the past (for example, in the pollution suits and in the FTC's resort to the courts in the Yawata-Fuji merger case and the black cartel case). Nonetheless, compared to the participants in other systems, the Japanese seek to avoid litigation, relying instead on tailor-made government solutions to concrete problems (as in the Maruzen Oil Company case), and thereby avoiding legal impact on sectors that do not need it. At its best Japanese administrative guidance is comparable to the discretionary authority entrusted to a diplomat negotiating an international agreement. Success depends upon his skill, good sense, and integrity, and not on a set of legal requirements that no matter how well crafted can never truly tell a negotiator what to do.
The fourth and final element of the model is a pilot organization like MITI. The problem here is to find the mix of powers needed by the pilot agency without either giving it control over so many sectors as to make it all-powerful or so few as to make it ineffective. MITI itself came into being through a fortuitous process of accretion. MCI originated from the separation of agricultural and commercial-industrial administration. It developed by adding industrial functions while shedding commercial ones, obtained a planning capability when the Cabinet Planning Board was merged with its General Affairs Bureau in MM, and gained complete control over energy only when coal, petroleum, and electric power administration were com-
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bined during the MM era. The war also provided the ministry with micro-level intervention powers through its Enterprises Bureau. MITI itself finally resulted from the union of MCI and the apparatus for controlling international trade (the BOT). MITI has never had jurisdiction over transportation, agriculture, construction, labor, or finance, although it has had a strong influence over them, particularly over finance, through such institutions as the Japan Development Bank. The fight over Sahashi's Special Measures Law revolved primarily around MITI's efforts to extend its jurisdiction to cover industrial finance.
It is obviously a controversial matter to define the scope of the pilot agency. MITI's experience suggests that the agency that controls industrial policy needs to combine at least planning, energy, domestic production, international trade, and a share of finance (particularly capital supply and tax policy). MITI's experience also suggests the need not to be doctrinaire; functions can and should be added and subtracted as necessary. The key characteristics of MITI are its small size (the smallest of any of the economic ministries), its indirect control of government funds (thereby freeing it of subservience to the Finance Ministry's Bureau of the Budget), its ''think tank" functions, its vertical bureaus for the implementation of industrial policy at the micro level, and its internal democracy. It has no precise equivalent in any other advanced industrial democracy.
These four elements constitute only a model, and a sketchy one at that. There are obviously numerous social and political consequences of this structure, including normative and philosophical ones, that any society considering adopting it should ponder carefully. As has been said repeatedly, the Japanese did not so much adopt this system of political economy as inherit it. Among its various implications, one in particular should be mentioned; the capitalist developmental state generates a pattern of conflict that differs in many ways from that in other democracies.
Japan's is a system of bureaucratic rule. As S. N. Eisenstadt pointed out more than a generation ago, all known bureaucratic regimes generate two kinds of conflict: struggles within the bureaucracy, and struggles between the bureaucracy and the central political authorities.
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This case study of MITI offers numerous illustrations of each. Jurisdictional disputes among agencies over policy, appropriations, and priorities are the very lifeblood of the Japanese bureaucracy. MCI came into being in part because of a struggle between the agricultural and the industrial bureaucrats. During the 1930's MCI's reform bu-
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reaucrats allied themselves with the military against old-line ministries such as Finance and Foreign Affairs to advance their industrial development schemes. However, during the war MCI and MM civilians clashed constantly with the military bureaucrats. MITI was born of a struggle between the Foreign Affairs and industrial bureaucrats. High-speed growth saw MITI constantly pitted against the Fair Trade Commission and, to a lesser but probably more important extent, the Ministry of Finance. All the established ministries compete with each other to extend their influence over the smaller agencies (Economic Planning, Defense, Environment, and the others) and to place their transferees in positions of influence throughout the government.
This kind of conflict fulfills important functions for the developmental state; not least of all, it invigorates the bureaucracy, giving it a strong esprit de corps and providing competitive checks to complacency, bureaucratic rigidity, and arrogance. The greatest threat to a bureaucrat's security comes not from the political world or private-interest groups but from other bureaucrats. On the other hand, conflicts among bureaucrats can also cause slow decision-making, distortions in policy to accommodate competing bureaucratic interests, and avoidance of high-risk problems. There is no way to avoid these drawbacks entirely, and coordination (
chosei
*) of the bureaucracy is easily th
e most frustrating and time-consuming, yet critical, task of the leaders of the state.
The Japanese have developed several innovative practices to try to mitigate bureaucratic competition. One is to give the jobs of initial policy formation and coordination to younger, not-so-exposed officials, a tactic that leaves their seniors in the position of appearing only to approve policies coming from below. Senior officials can thus help make and coordinate decisions without being constrained by attributions of personal authorship. Another useful practice is the recruitment of ministers and other senior political leaders from among former senior bureaucrats, thereby giving powers of coordination to leaders with expert knowledge of the bureaucracy, "old boy" connections, and hierarchical relations with serving bureaucrats. (This practice can, of course, merely raise the bureaucratic infighting to a higher level, as occurred in the case of Yoshida versus MITI). Still another Japanese practice is the use of the budgetary process to effect coordination, which requires that budget-making be kept in bureaucratic hands and greatly elevates the influence of the Ministry of Finance. A fourth innovation is the use of bureaucratic proxies to try to effect coordination, as in the deliberation councils. Other practices of bu-
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reaucratic competition and coordination common to all state systems occur prominently in Japan, including leaks to and bureaucratic manipulation of the press, selective briefing of favored politicians, the maintenance of secrecy concerning the actual norms of bureaucratic life, and so forth.
The other kind of conflictthat between the bureaucracy and political authoritiesis equally common. The effective functioning of the developmental system requires a separation between reigning and ruling, but the separation itself is never formally acknowledged (it is ura, not omote; implicit, not explicit). As a result, boundary problems are inevitable, and serious conflict occurs when the political leaders believe the bureaucracy is exceeding its powers (as during the 1930's) or when the bureaucracy believes the politicians are exceeding theirs (as during the "Fukuda typhoon" or under the regime of Prime Minister Tanaka Kakuei). MITI's history reveals numerous examples of this type of conflict: the fight between MCI Minister Ogawa and Yoshino and Kishi; the fight between zaibatsu-connected ministers and the reform bureaucrats; the fight between MCI Minister Kobayashi and Kishi and the "reds" of the Cabinet Planning Board; the fight between Tojo * and Kishi during 1944 (although perhaps this is a better example of intrabureaucratic conflict); the fight between Yoshida and Shirasu on the one hand and the leaders of MCI on the other at the time of the creation of MITI; and the involvement of politicians in the Imai-Sahashi dispute.
Most of the practices used to mitigate struggles among bureaucrats are also suitable for mitigating struggles between bureaucrats and politicians. The norm is the attempt to avoid or to privatize conflict. This is often achieved by combining the perspectives of each side in one leader. Japan's most important postwar politiciansYoshida, Kishi, Ikeda, Sato*, Fukuda Takeo, and Ohira*were all former senior bureaucrats. Although it is natural that political leaders would be found among such an intrinsic elite as the Japanese higher bureaucracy, their utilization in postwar Japan has certainly contributed to the effective operation and coordination of the Japanese developmental state.
This exercise in model building is not intended either to detract from Japanese achievements or to recommend the Japanese model to others. The history of MITI actually reveals a harder lesson than either of these; for all of Japan's alleged borrowing from abroad, the Japanese political genius rests in the identification and use of their own political assets. The development of MITI was a harrowing pro-
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cess, but its special characteristics and the environment in which it works arise from the special interaction of the Japanese state and society. The Japanese built on known strengths: their bureaucracy, their zaibatsu, their banking system, their homogeneous society, and the markets available to them. Such postwar reforms as the elimination of the military from political life, the rationalization of the zaibatsu, the strengthening of the Diet, and the equalization of social classes were all important, but the institutions of the Japanese developmental state are products of Japanese innovation and experience.
This suggests that other nations seeking to emulate Japan's achievements might be better advised to fabricate the institutions of their own developmental states from local materials. It might suggest, for example, that what a country like the United States needs is not what Japan has but, rather, less regulation and more incentives by the government for people to save, invest, work, and compete internationally. The Japanese learned to cooperate effectively with each other as a matter of national survival; the wars and economic miseries of the 1940's compelled them to maintain what were essentially wartime degrees of social and economic mobilization well into the 1960's. Lacking a comparable consensus on goals, the United States might be better advised to build on its own strengths and to unleash the private, competitive impulses of its citizens rather than add still another layer to its already burdensome regulatory bureaucracy.
Such an American policy may, however, be unrealistic for the longer term. Given the need for the United States to maintain the military balance among the nuclear powers; to reinvigorate its economy; to achieve coordination among its environmental, energy, welfare, educational, and productive policies; and to stop living off its capital; Americans should perhaps also be thinking seriously about their own "pilot agency." Above all the United States must learn to forecast and to coordinate the effects of its governmental policies. Agricultural policy has for too long been left outside any integrated economic strategy; commercial and economic representatives have for too long endured second-class status in the State Department's hierarchy; domestic regulatory actions have for too long been taken without a prior cost-benefit analysis of their economic impact; and a growing legal thicket has for too long replaced goal-oriented, strategic thought in economic affairs. These are some of the things that an economic pilot agency might tackle in the United States. It is not clear that the United States could ever free such an apparatus from the constraints imposed by congress, the courts, and special interest groups; but if economic
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mobilization becomes a national priority, then MITI will be an important institution to study and think about. As Peter Drucker has put it, "The exception, the comparatively rare service institution that achieves effectiveness, is more instructive than the great majority that achieves only 'programs.'"
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Appendix A
The Political and Administrative Leadership of the Trade and Industry Bureaucracy, 19251975
Ministers
Vice-ministers
I. MINISTRY OF COMMERCE AND INDUSTRY (Shoko-sho *), 19251943
First
Kato
*
Takaaki Cabinet, June 11, 1924August 2, 1925 (Coalition)
1. Takahashi Korekiyo, 4/1/254/17/25
(Seiyukai*)
1. Shijo* Takafusa, 4/1/254/10/29
2. Noda Utaro*, 4/18/258/2/25 (Seiyukai)
Second Kato Takaaki Cabinet, August 2, 1925January 30, 1926 (Kenseikai)
3. Kataoka Naoharu, 8/2/251/30/26
(Minseito*)
First Wakatsuki Cabinet, January 30, 1926April 20, 1927
(Minseito
*
)
Kataoka Naoharu, 1/30/269/14/26
4. Fujisawa Ikunosuke, 9/14/264/20/27
(Minseito)
Tanaka Giichi Cabinet, April 20, 1927July 2, 1929
(Seiyukai
*
)
5. Nakahashi Tokugoro*, 4/20/277/2/29
(Seiyukai)
2. Mitsui Yonematsu, 4/10/297/2/30
Hamaguchi Cabinet, July 2, 1929April 14, 1931 (Minseito)
6. Tawara Magoichi, 7/2/294/14/31
(Minseito)
3. Tajima Katsutaro*, 7/2/3012/21/31
Second Wakatsuki Cabin
et, April 14, 1931December 13, 1931 (Minseito)
7. Sakurauchi Yukio, 4/14/3112/13/31
(Minseito)
Inukai Cabinet, December 13, 1931May 26, 1932 (Seiyukai)
8. Maeda Yonezo*, 12/13/315/26/32
(Seiyukai)
4. Yoshino Shinji, 12/21/3110/7/36
(Adm.)