Feb 182012
 

CANNOT IMAGINE A SUPERIOR CONTEXTUAL EXPLANATION OF THE RISE OF INDUSTRIAL JAPAN

The phrase ‘Japan Incorporated’ gained prominence in the 1960s and persists to this day. While many see Japan as an industrial behemoth with a diversified set of complex and heavy industries not many know how this came about. MITI And The Japanese Miracle: The Growth Of Industrial Policy, 1925-1975 is an insightful book on the topic with an in-depth focus on MITI, Japan’s famed and mystical Ministry Of International Trade And Industry. MITI practically conducted and coordinated Japan’s industrial policy from 1949 until 2001 when it was folded into the then newly-created the Ministry of Economy, Trade and Industry (METI).
Up until that time MITI was Japan’s blunt instrument of economic policy and industrial structure. It was both revered and feared by the industries and cartels it espoused and nurtured. Staffed by handpicked and elite bureaucrats, this prodigious promoter of Japan’s industry, productivity and exports was the official forum responsible for knitting the country’s moves in the economic arena from its perch in Tokyo. It is not explicitly mentioned in this book, but on occasion, MITI was also complicit in suppressing internal Japanese citizens’ dissent or protest against industry such as with the infamous Minamata Disease. MITI was also feared and disliked by foreign interests for its skillful shielding of Japanese economy from competition and penetration with the aid of both its own guidelines and associated laws.

MITI is “without doubt the greatest concentration of brain power in Japan” according to the book. That is a profound statement by Chalmers Johnson, the author and, now-deceased, Japan expert. I had read Johnson before – in his guise as a critic of the American empire – but picked up MITI And The Japanese Miracle in search of information and context on Japan’s development and industrial super-growth. The book delivered. The amount of information, history, context and analysis here is impressive. It is doubtful that any Japanese tome has as much information condensed about the famed ministry and its staff. With its appendices it sequences the ministers, vie-ministers, bureaucrats and actors in the ministry with astonishing detail. This book includes a contemporary history of Japan’s bureaucracy from the beginning of 20th century until 1980.

Beginning in 1949 MITI set out to enact a plan-oriented market economy system. The `Miracle’ covers the years 1925-1975 from a 1980 vantage point. In the process the author dispels a few myths about the rise of Japan. Exports were not the drivers of Japanese economy as many take as gospel. Exports as a percentage of GNP have typically been 50% of the economies of countries like Canada, UK or France. As such, the author argues that growth and success were children of the developmental school (i.e. state-related) economic growth.
As mentioned, the author ascribes to Japan the `plan-rational’ (versus US or UK’s `market-rational’ for example) term, a state which leads its industrial base. MITI’s economic bureaucracy was dominated by non-economists. Interestingly, in recent months, in response to their economic crises, Italy and Greece have cast aside politicians in favour of economists at the helm. This point is additionally interesting because in the `60s Japanese were, somewhat disparagingly, called “economic animals.” This is oddly untrue since these creatures of commerce were apparently subordinate to the bureaucracy.
Johnson notes about Japan that “Nationalism is an active element in economic affairs.” The state (i.e. MITI in this case) had been engaged in both the transfer of knowledge among enterprises and facilitating the sharing of best practice from one enterprise to another – of course when it determined that it was in the interest of the nation and the state. Imagine that in the wild capitalist West! The book amplifies, through facts supplemented with direct quotations that MITI believed that market power alone was insufficient for national progress and it went as far as seeking on occasion to shift industries and activities wholesale to newer ones. A prime example is how the government and bureaucracy successfully attempted to starve the traditional textile industry of Japan in favour of heavy industry. In post-war Japan of 1947 priority production and heavy industry won over its smaller brother. The policy accelerated once Japan was granted its independence under the San Francisco Peace Treaty of 1951. Much of it was even at the immediate expense of the civilian population. Additionally, the guidelines and policies entailing over-loaning to targeted heavy industries spawned a lessening reliance on capital markets. As a result, longer-term views (not quarterly revenue or annual metrics) were the prime objectives of the Japanese system. This is markedly different from the West where capital availability and stock market equity mean nearly everything.

Interestingly, this was not a clear-cut decision in Japan. As conscious as the eventual decision was in the wake of World War II a robust discussion had ensued with some arguing for investment and organization for a small business economy. Between 1925 and 1975 Japan tried, what Takashima Setsuo the deputy director of MITI’s Enterprises Bureau described, the three methods of implementing industrial policy. These, as explained on page thirty, are `Kanryo Tosei’ bureaucratic control, `jishu chosei’ civilian self-coordination or `yudo gyosei’ which is administration through inducement. Between the early `50s and early `60s Japanese exports went from being dominated by textiles and fibres to machinery and metal products in only the span of 10 years. Such was the single-minded force of the endeavour. Chalmers’ information matches Professor Terutomo Ozawa’s premise that, despite mobilizing for full-scale war in the ’30s, Japan became an industrial nation in the ’50s and ’60s. Ozawa incidentally is a great read to complement Chalmers. I found some of Ozawa’s writings on the net and recommend it to add to one’s body of knowledge on the industrialization of Japan. Had that argument gone the other way the course of contemporary worldwide sociology might have been altered. As much as the effort was concentrated and all-composing it was not until the `60s that MITI and Japan fully realized that what they were doing was birthing of the industrial policy of a developmental state. The trifecta of elected government (including a LDP party government especially beholden to several sectors), expert bureaucracy and industrialists (which are often staffed from the former) is what gave rise to the rapid growth of Japan.

The evolution of MITI was not uneventful. MITI formed a kind of public/private cooperation that would intermix state with industry. But unhappily 20 years of strife, strike and violence had follow WWII. Nationalism and the wars of `40s and `50s, strikes, demonstrations, bombings and a domineering military all had a hand in shaping what was to be. This is an important context as many observers imagine Japan’s rise to economic prominence as an even and smooth evolution. The miracle of `50s, `60s and `70s were by-products of the Japanese resolve to right wrongs and change the country’s lot. Possibly the Japanese would not have been as resolved to force the nation into prosperity were it not for what had happened including the explosion of two atomic bombs. Chalmers also tracks the bureaucracy involved to the Samurai class and that profession’s sense of public service, albeit with the ingrained sense of elitism. At the same time, the bureaucracy was heavily influenced and coordinated by strategic industries which also fund the politicians. This is another variable touching and moving the trifecta. The demarcation point for the rise of deliberate industrial policy is pinpointed as the financial crisis of 1927. As such, for the Japanese economy the depression was the genesis to solutions. Inspired by Germany, where several Japanese bureaucrats had served, and its government cartels Japan opted for cooperation, and not competition, as a model. This lead to an economic growth predicated on lowered costs, but not necessarily increased profit. Recall that short-term profit and market capitalization were secondary to Japanese enterprises. One of the material underpinning of this was the 1931 Important Industries Control Law – incidentally an enduring law along with its successors like National General Mobilization Law – which included the following tenets:

1- Replacing competition with self-control
2- management and enterprise profitability beyond immediate performance
3- Government, State and enterprise cooperation
4- Considering the good of the nation versus foreign

The law legalized self-control and was the basis for some 26 MCI-sanctioned industrial cartels for their designated sectors.
This is structure that MITI inherited and began to organize and mould for its coveted industrial structure, which included reining in, what it deemed, excessive competition, coordination of investment and a public-private cooperation. In this endeavour it was abetted by the Japanese lifetime employment systems, enterprise unionism and the seniority wage system (nenko) all of which yielded greater labour commitment. This ‘system’ (In a 2002 paper Ozawa calls it “interdependent institutions” which included the Japanese placing different industries under the jurisdiction of different ministries in order to further complicate the domestic economic system) only functioned if it all worked together. Yet it bears repeated emphasis that it was not all measured and meticulously planned. Aside from the above-mentioned Japanese sociological imperative there was also 50 years of experimentation and adjustment to work through. The MITI-induced system reminds one of the differences between artificial medicine and supplements and natural goodness. Nature works better and is more effective every time because of the combination of its elements. It is the combination of components (say minerals and vitamins in the right proportion) that work wonders and not just the presence of one particle, such as Vitamin C alone.

MITI did rebuild the old Zaibatsu (cartel) base under another name, but special space is given here to Administrative Guidance (page 266 and on) including not only a definition and consequence, but also the narration of how it was validated and tested by the courts – a rare occurrence in Japan for a law to be legally challenged. Administrative Guidance became especially important after the trade liberalization that was part forced on Japan and was part seen as a necessity to spur Japanese exports. Unsurprisingly, MITI was both used by the government and unilaterally combated to delay the trade liberalization demanded by OECD (Organisation for Economic Co-operation and Development an international economic organization of the industrial world). Japan at first kept some 30 industries protected whilst calling itself liberalized, which was somewhat eventually officially only completed in 1980. However, the old Japanese methods and management styles were not necessarily favourable now and Japan would fall into more difficult times for this reason, as well as the asset bubble of the late ’80s and The Plaza Accord. This last ‘Accord’ may be considered a betrayal of Japan by its own government.
All the achievements of Japan are even more impressive as amazingly the country has very little natural resources, which ironically is likely part of the reason why it set about to do what it did.

MCI (Ministry Of Commerce And Industry) became MM (Munitions Ministry) – to serve the military in the Pacific War – and became MCI again only to evolve into MITI in 1949. This new super economic ministry was assertive and successful, but due to its nature, would also later clash with the fair trade commission set up by SCAP (Supreme Commander of Allied Powers, the American authority ruling Japan following WWII), a tension the author describes as very beneficial to SCAP, as well as the Foreign and Finance ministries in Japan which saw MITI as an overreaching entity.

As deliberate and planned as it all seems Chalmers also devotes time and attention to the more doleful aspects of it all. It is not all business in industrial Japan. As one can see, family connections (keibatsu) and nepotism existed. These took the form of classmates working together, alumni of certain universities (especially Tokyo Law) hiring from the same, industry making room for MITI retires and the more traditional familial connections.
As a non-national reading Johnson’s book his probe into the world of MITI and Japanese economy is somewhat awe-inspiring. He has assembled an exhaustive genealogy of MITI and related bureaus, which entails so many names one marvels. One also notices that the names begin to blend into one another and that they are all male. That says something about the Japanese patriarchy. Readers should also be warned. The book contains many Japanese terms – a function of Johnson’s familiarity with the subject-matter – and one may find it necessary to use the Index to refer back to the first explanation of the meaning of the Japanese terms. Speaking of which, the bibliography and indices are unparalleled in referring back to source material.
As indicated, the book contains much insight not just on MITI and its particular methodology, but also on the wider economic and trade policies and its supporting structure in Japan.
Another measure of the success of MITI’s coordinated `mixed economy’ with state as an actor was how several countries adapted it to their own benefit. This type of plan-central model was emulated by Korea, Taiwan et al. On a tangent, Ozawa is also assertive that Japan was given leniency in liberalizing its system and opening up its industry and domestic economy to foreign competition by ‘virtue’ of the Americans’ desire to preserve it from socialist encroachment. In this way, the Korean War was advantageous to Japan. These Western fears bought the Japanese much time to gain industrial footing before gradually opening up following the death of the Soviet Union.
A major caveat, which the book understandably does not address as the focus here is MITI, yet is relevant, is exceptionalism that does exist among Japanese conglomerates. The author allows that for every Nissan or Mitsubishi working closely with MITI and being a part of the industrial structure, there is a Sony or Honda which showed little interaction with the Japanese government beyond what is normal anywhere. The Americans even endorsed and supported a war criminal, Nobosuke Kishi, as Prime Minister in 1957.
At some point in the late `60s and early `70s MITI lost its luster and currency in Japan. Its waning popularity was a function of scandals, some conflict and even its opposition to progressive law making. One such anti-progressive posture was its pushback against proposed laws to combat industrial pollution. It was somewhat restored when in 1973 and 1974 the Arab/Israeli war ensued, with the world falling into the grip of the Arab oil export embargoes. It, and its associated energy policies, allowed MITI to demonstrate its importance once again. Japan diversified its quest for oil to Iran and Mexico, and away from the Arabs, including the promise of and the construction of a large Petrochemical facility in Southern Iran in exchange for reliable oil supplies. Japan being Japan it had the benefit of little in the way of natural resources such as fuel or ores. The country was dependent on foreign energy.
Nonetheless, by 1980 Japan was one of the richest nations on the planet and began formulating its industrial and trade guidelines on that basis.

 

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