Read The Enigma of Japanese Power Online
Authors: Karel van Wolferen
Tags: #Japan - Economic Policy - 1945-1989, #Japan - Politics and Government - 1945, #Japan, #Political Culture - Japan, #Political Culture, #Business & Economics, #International, #General, #Political Science, #International Relations, #Public Policy, #Economic Policy, #Social Science, #Anthropology, #Cultural, #Political culture—Japan, #Japan—Politics and government—1945–, #Japan—Economic policy—1945–
The Enigma of Japanese Power (53 page)
The one place relatively free from the deleterious effects of the incessant infighting among élite groups was Manchuria. Especially after the Japanese Kwantung Army had turned it into the puppet state of Manchukuo, this
de facto
colony was viewed by the military and the ‘reformists’ in the bureaucracy as the ideal setting for promoting industrial schemes, not for private profit but as an expression of the might of the empire. The Army had long been contemptuous of the large Japanese corporations, because they were interested more in profits than in working for the greater glory of the emperor. It therefore wanted to keep the
zaibatsu
out of Manchuria.
The brains behind the Manchurian Incident and other Kwantung Army operations over which Tokyo had lost all control was Colonel Ishiwara Kanji. Ishiwara, a brilliant strategist, was most closely identified with the concept of the ‘national defence state’, and had gained attention as lecturer at the War College with his ideas about ‘the final war’ (i.e. between Japan and the USA). He was the idol of romantic military activists. Reaching his most influential position as military economic planner in 1935, Ishiwara immediately began to draw up plans for the development of Manchuria to provide a base for war against the Soviet Union and for a ‘Showa restoration’ – a revolution led by the radical nationalists that would cleanse Japan of the élite groups that detracted from the ‘national essence’.
9
Neither aim was achieved; but it was Ishiwara, together with his friend and fellow planner of the Manchurian Incident, Miyazaki Masayoshi (who had lived in Russia during the Revolution and had revisited the country in the late 1920s to study economic planning), who sketched the basic economic plans that the Kwantung Army presented to the reform bureaucrats Kishi Nobusuke and Hoshino Naoki for refinement and implementation.
10
Initially, the South Manchurian Railway (Mantetsu) ran a gigantic economic empire. It was transferred into Japanese hands as a result of the Russo-Japanese War and had all along formed the vanguard of Japan’s industrial and commercial penetration of China. It was also the harbinger of Japan’s military-political aspirations in Asia, and as such led to the conflict with China that helped trigger the Manchurian Incident. Besides the railway, Mantetsu ran coal-mines, steel works, warehouses, electrical plants, light metal factories, banks, harbours, water transport and aircraft factories, representing some eighty companies in all. It also exploited Chinese labour on a gigantic scale.
Mantetsu found it difficult, however, to raise enough capital for the firms it wished to establish or expand. Thus in the key year of 1937, when all-out war with China made the full-scale exploitation of Manchuria essential, the military and reform bureaucrat planners drastically reorganised Mantetsu, separating its industrial activities from the railway and grouping them under the Manchukuo Heavy Industries Development Company. Half of the newly needed capital was to be provided by one of the so-called ‘new
zaibatsu
’, the Nissan combine.
Nissan (the parent firm of what has today become the Nissan Motor Company and the Hitachi conglomerate) was chosen because its leader, Ayukawa Gisuke,
11
a relative and political associate of Kishi Nobusuke, was not, in the eyes of the Army, driven by motives of mere personal gain. Ayukawa spent the next five years setting up Manchurian companies.
12
Here again we see the importance of
jinmyaku
. Personal relationships were crucial among the reform bureaucrats, between the bureaucrats and the military and between the military and the official government. Thus it was Kishi who convinced the military that his relative Ayukawa was their best choice, by arguing that he was somehow different from the money-grabbing
zaibatsu
families. In fact, Ayukawa himself owed his industrial position to family connections with leaders of the main conglomerates. A sister of his was married to the highest executive in the Mitsui empire, while three other sisters and various other marital ties related him to a stunning list of family names, representing the cream of the political and economic aristocracy. We will come back to Ayukawa later because he played an important, if not widely noticed, post-war role.
13
Three methods of forced industrial development pioneered by the economic-control bureaucrats provided key lessons for Japan’s post-war economy: a method of financing and a method of guaranteeing market share, both of which we will look at in a moment; and the principle of economies of scale. The task of Ayukawa’s Manchukuo Heavy Industries Development Company was to establish one large manufacturing firm for each industrial sector. All these firms were then expected to develop their production capacity to the limit of their potential and at the cost of profits. They had, of course, no competitors in Manchuria.
Two years into the Pacific War, when Japan’s prospects were becoming dim, the relationship between Ayukawa’s Nissan combine and the Army-bureaucratic alliance soured, and by 1944 the failures of the Manchurian industrial experiment were more impressive than its successes.
14
The wartime economic bureaucrats never managed to accomplish what their laws, their CPB, their control associations, their Manchurian industrial arrangements and their numerous directives to the
zaibatsu
-dominated business world envisioned. Government agencies and other power groups got in each other’s way and worked at cross-purposes – a perennial Japanese problem – so that there was no efficient central control over Japan’s wartime economy. In the words of an American wartime observer:
By 1940 varying degrees of state control were effective over foreign exchange, import and export trade, capital investment, prices, the labor market, consumption industries and the electric power industry. Yet these measures fell considerably short of applying a thorough scheme of state regimentation to the basic industries and the great business monopolies. For the most part they were devised rather haphazardly, as special emergencies arose. In many cases the business interests succeeded in limiting either the statutory controls themselves or the extent of their application and enforcement.
15
Some of the bureaucrats associated with the New Order Movement had all along been pessimistic about their attempts at central economic control, and later blamed their military allies for pushing them into adopting unworkable policies.
16
Not until after the battle of Midway in 1942 could a start be made with full industrial mobilisation for war purposes, in the form of the ‘enterprise readjustment movement’. It involved the bureaucrats more deeply in the affairs of industrial firms than at any time since the early Meiji period, when the government had owned those firms. And it provided another precedent for post-war industrial planning. For, in the words of a more recent observer: ‘the wartime enterprise readjustment movement lies at the beginning of the path that leads to the Industrial Rationalisation Council of the 1950s and to the Industrial Structure Council of the 1960s and 1970s’.
17
What worked haphazardly during the war worked very well after the war when, thanks to SCAP, the power of the economic bureaucrats increased considerably. Indeed, the two arrangements that have most powerfully determined the nature of Japan’s post-war industrial growth are both inherited from wartime economic legislation: first, the financial relationships around which the
keiretsu
industrial groups and conglomerates emerged; and, second, the neo-mercantilist trade practices. These are the two great factors that have enabled post-war manufacturers to expand their production capacity virtually without risk, have allowed much control over domestic competition and have shielded Japanese industries from foreign competition.
The foundations of the wartime financial control structure were laid years before the outbreak of the Pacific War. It was the abandonment of the gold standard in 1931 that set the stage for a new monetary approach. First, Japan’s trade – hitherto relatively free – was curtailed by the Capital Outflow Prevention Law of 1932 and the Foreign Exchange Control Law of 1933. The bases for control were further consolidated by two pieces of legislation passed in 1937 against the background of an international balance-of-payments crisis and the launching of full-scale warfare by Japan’s Kwantung Army in China. One of them, the Temporary Measures Law Relating to Exports, Imports and Other Matters, gave the Ministry of Commerce and Industry the right to slow down or stop the import or export of anything it pleased, as well as control over the use of imported raw materials. The other, the Emergency Fund Adjustment Law, controlled lending for new industrial investment and gave the Ministry of Finance powers to divert money to military industries.
18
The first of these measures provided the basic model for the post-war Foreign Exchange and Foreign Trade Control Law, passed in 1949 – which has been called MITI’s single most powerful instrument for carrying out its industrial policy.
19
The second gave MOF officials the habit, persisted in ever since, of directly ‘guiding’ the banks.
In the early 1940s the central organ for national mobilisation, the Cabinet Planning Board (CPB), tried to accomplish a more effective coordination of energies, resources and institutions as part of the ‘new economic order’. It planned therefore to combine the offices of minister of finance and governor of the Bank of Japan into a financial control association that would facilitate purging Japan’s financial institutions of the profit motive, which by then was seen as greatly detrimental to the purposes of the nation. Although complete implementation of this policy was hampered by endemic infighting among bureaux in the Ministry of Finance – as well as by friction between the ministry and the CPB and numerous personal quarrels
20
– a monetary control association established in May 1942 created the precedent for post-war central-bank control over the commercial banks.
21
Probably the most fateful of all wartime financial arrangements, however, was introduced only about a year and a half before the defeat. This was the so-called ‘system of financial institutions authorised to finance munitions companies’,
22
which was intended to increase the supplies that the military machine was devouring in much greater quantities than earlier planners had expected. A law was put into effect in December 1943, and in January of 1944 the government picked the first 150 ‘munitions companies’ to be matched with the ‘authorised financial institutions’ that were to provide them with an immediate, unimpeded supply of funds. By the end of February the system was in place.
23
The authorised institutions, mainly the large
zaibatsu
banks, were backed by groups of smaller banks and other financial institutions as well as the Bank of Japan, so that they never found themselves short of money.
24
By 1945 more than six hundred large companies were being funded in this manner, and received 97 per cent of their borrowings through the designated banks. The latter dominated 70–80 per cent of all lending in Japan.
25
The Ministry of Finance had the overall supervision, while the Ministry of Munitions allocated the funds.
26
This was the original model for the post-war
keiretsu
financing.
27
The extraordinarily close relations between Japanese firms and their ‘main bank’ date from the final months of the Second World War. Most large Japanese corporations are, as explained in Chapter 2, grouped together around one or another of the so-called city banks; and throughout most of the post-war period they have been unusually dependent on these banks. Whereas before the war the average rate of borrowed capital hovered around 30 to 40 per cent (which is comparable to post-war rates in Europe and the USA), from the late 1940s to the late 1970s major Japanese firms borrowed 80 per cent or more of their capital from the city banks with which they enjoy a
keiretsu
relationship.
Heavily overloaned as they were for most of the post-war years, the banks pumping funds into the
keiretsu
became increasingly dependent on the central bank. An economist at this institution has pointed out, in a comparison with the major Western industrial powers, that ‘Japan is the only country where the central bank is a net lender’, meaning that loans from and discounts with the central bank exceed deposits of commercial banks.
28
This phenomenon was common enough until mid-Meiji, but from the late 1910s until the financing of the Pacific War the big banks considered it shameful to be in debt to the central bank.
29
In the post-war period the Bank of Japan has fought heavily with the Ministry of Finance over jurisdiction, but has had to give in on major issues. This means that ultimately MOF bureaucrats have had and (despite reports to the contrary) still have tremendous power over the development of basic industries. Wartime arrangements were legally reinstated in 1947 with the Temporary Interest Rate Adjustment Law, which gave MOF bureaucrats a free hand to set interest rates on loans as well as on deposits. This ‘temporary law’ was still on the books in the late 1980s. The right to limit the range of activities of all financial institutions completes the range of instruments with which the MOF helps organise Japanese economic behaviour at home and abroad. Western assessments of government-private sector cooperation in Japan have focused too narrowly on how far the bureaucracy directly subsidises industry, thus asking the wrong question. The bureaucrats at the MOF and BOJ have been regulating the allocation of funds, which is the most effective control one can have over industry.
Besides the laws and institutions of the economic bureaucrats, the postwar legacy of wartime arrangements includes, as we have seen, various consciously shaped – or at least encouraged – supports within the wider social context that have helped to make industrial policy the grand success it has become. One essential prop is the enterprise unions, direct descendants of the Sangyo Hokokukai, the ‘industrial patriotic associations’ which ordered labour relations for the sake of the war effort (see Chapter 3). Post-war control has in most areas become very much more sophisticated; not only have its wartime origins been forgotten, but it is generally not even recognised for what it is. The information filter represented by the reporter club is a great deal more respectable than straight government censorship, and accomplishes what is probably a more effective kind of supervised standardisation of news and public awareness. As we have seen in Chapter 6, post-war control over the mass media has been largely privatised, with Dentsu as the primary coordinating agency.
The man who made Dentsu great, Yoshida Hideo, could do so because he possessed one of the greatest of post-war
jinmyaku
, linked to former reform bureaucrats and other Manchurian connections. During the war, Yoshida had given the economic bureaucrats the backstage help needed to control the systematisation of advertising fees and to merge 186 advertising agencies into twelve companies.
30
He also worked with Tsukamoto Makoto, a colonel in military intelligence in Shanghai who was involved in secret political manoeuvres and the suppression of an anti-Japanese movement in colonised China. Under the premiership of Tojo Hideki, Tsukamoto was appointed section chief of the military ‘thought police’,
31
and mediated between the wartime government and journalists. After the war, Yoshida made Tsukamoto a director of Dentsu. He also selected one of the leaders of the government’s propaganda outfit in Manchuria, Morisaki Minoru, to be president of Video Research, the company that monopolises TV ratings and is ideally placed to stop programmes on the alleged grounds of insufficient audiences.
32
Purged politicians, businessmen and journalists were brought together by Yoshida in a club that met once a month in the occupation years. His
jinmyaku
thus extended, he received permission to establish the first commercial radio station. Because broadcasters in Japan are at the mercy of the bureaucrats for licences, Yoshida’s connections in this area were invaluable. Dentsu’s office was nicknamed the Second Mantetsu Building because of the many former Mantetsu (Manchurian Railway) executives Yoshida hired. Manchurian bureaucrats and military officers were also ‘rehabilitated’ and trained by Yoshida for jobs either with Dentsu or in the new commercial radio and TV broadcasting companies. The famous reform bureaucrat Sakomizu Hisatsune, whom we met in Chapter 14, was given an office in the Dentsu building.
33
The administrators repaid Yoshida for his wartime and occupation period services by turning Dentsu into one of the great Japanese success stories. It more than doubled its sales between 1946 and 1947, quadrupled them the following year, again doubled the figure the year after and quadrupled them again between 1950 and 1955.
34
Since the early 1970s it has been the largest ‘advertising agency’ in the world. In 1971 Yoshida set up the Masukomi Kondankai (‘mass communication round table’), in which representatives of the business federations and the mass media discuss the danger of ‘bias’ in the media.
35
As we saw, Dentsu dominates commercial TV programming, and is to a large extent responsible for giving the LDP and the bureaucracy the desired
imeeji
(image).
Another product of Japan’s wartime economy, indispensable for the postwar ‘economic miracle’, is the subcontracting system, with its quasi-familial relationships between dependent enterprises and their patrons. The system came into its own after the Manchurian Incident, and spread rapidly during the war. As an emergency measure to increase production, manufacturers of military equipment had shifted from producing everything themselves to subcontracting the making of parts and other work to smaller firms.
36
Inefficient small businesses were reorganised and fitted into the war production system.
37
The 1937 law, mentioned above, giving Ministry of Finance bureaucrats a decisive voice in lending to industry also divided companies into three categories: military priority, essential and non-essential. Manufacturers of ‘non-essential’ commodities were ordered to switch to producing what the country required.
38
The control associations, some of whose leaders were to form the post-war business federations, were given the task of co-ordinating all this.
39
Big business, as we saw in Chapter 6, has continued to profit greatly from this hierarchical relationship. A number of associations, some ‘democratic’ and others fairly authoritarian, competed in representing the interests of the small and medium-sized companies in the early post-war phase, and during an economic downturn following the Korean War they tended to believe that their own cartelisation might ameliorate the negative effects of the tightening of the
keiretsu
and the cartels of large businesses. However, as we saw in Chapter 3, any Japanese organisation of significant size that is not ideologically well protected easily becomes prey to a stronger component of the System. Through ‘voluntary’ adjustments reflecting the desires of big business and mandated by government agencies, the administrators attained decisive control over the small firms.
40
The major role in this campaign was played by the same Ayukawa who was chosen to organise Manchurian industry. Immediately after the war, Ayukawa worked on a scheme to re-educate returning soldiers and industrialise farming villages.
41
But the occupation authorities stripped him of all his positions and incarcerated him for two years in Sugamo Prison as a war criminal suspect (like Kishi, he was never brought to trial). Soon after, he became an LDP Upper House member, which he remained until his political career foundered on an electioneering scandal in 1959. It is as organiser of Chusho Kigyo Seiji Remmei (Chuseiren), the main owners’ federation of small and medium-sized industries, that the post-war economic bureaucrats are most in his debt.
Ayukawa had decided in prison that small and medium-sized firms would play the key role in post-war economic reconstruction.
42
Purchasing a commercial bank in 1952 to organise loans to small companies, he set to working out, together with Hoshino Naoki, the former group leader of the Finance Ministry reform bureaucrats in Manchuria, and Okada Ichiro of Mantetsu, details of what was to become Chuseiren. The rally to mark its formation was held in 1956, and a platform was announced that included plans for a law aiming to ‘create a grand unity of small and medium-sized corporations’.
43
Chuseiren’s goal was to sign up ten million members and to support candidates in elections. This provided Ayukawa with a nation-wide
koenkai
(support organisation) with which to get reelected to the Upper House. More important, it provided his old comrade-in-arms, Kishi, with the skeleton apparatus for top-level control of the subcontractors. If the other early post-war associations of subcontractors had not been undermined, they might have become a disturbing force, because several of them were clearly wary of exploitative relationships and hostile towards big business.
Through extravagant spending of his own money, Ayukawa managed to set up numerous local branches and collected some eight million signatures for the law that he had helped the bureaucrats to think up. This law envisaged stipulations making bargaining decisions binding if half of the small firms joined the subordinate association in their industrial field; if two-thirds joined it wanted the ‘right’ for the member association to ask for bureaucratic regulation of the activities of non-members; and if more than two-thirds joined it wanted the authorities to order non-members to become members. It also provided for exemption of the federation from anti-monopoly law stipulations. The Sohyo federation of labour unions was against the law, as were the Fair Trade Commission and the housewives’ association, but it passed the Diet in 1957 thanks to the personal mediation of Kishi Nobusuke.
44
Chuseiren was to play a big role in the realisation of yet another economic-control law. In the early 1960s Ikeda’s ‘income doubling plan’ required adjustments in the size and other characteristics of small and medium-sized firms so as to fit in with the industrial schemes then being worked out. MITI, hoping further to expand its power in this area, designed the Small and Medium-Sized Industry Foundation Law to encourage further development of the
keiretsu
corporate groupings. The Communist Party protested that the law would accelerate the increasing control of the large firms over most business areas. Another association of small and medium-sized firms fought against it, arguing that it was meant to develop only certain industrial sectors chosen by the government, and would strengthen bureaucratic control over the small and medium-sized companies. But Chuseiren campaigned vigorously, and the law, with some revisions, passed the Diet in 1963.
45
After Ayukawa’s death, Chuseiren was formally headed by Kishi Nobusuke. Then, when Kishi died in 1987, the ‘governorship’ of this major federation of small and medium-sized businesses went to 77-year-old Tanaka Tatsuo, a former Manchurian reform bureaucrat, CPB and Munitions Ministry official, post-war chief cabinet secretary, director-general of the Prime Minister’s Office, MITI minister, education minister and chief of the LDP’s executive council. He is also the eldest son of Tanaka Giichi, founder of the Imperial Military Reserve Association and the prime minister who in 1927 introduced new methods of social and economic control. Tanaka Tatsuo may not be among the most prominent political figures, but his becoming foremost representative of Japan’s exploited smaller industries shows that the administrators know how to keep the bridle in family hands.