MITI and the Japanese Miracle

MITI and the Japanese Miracle: the Growth of Industrial Policy, 1925-1975, by Chalmers Johnson
1982, 393 pp.

With this book, Chalmers Johnson invented the discipline of the political economy of development. If the field can be thought of as a genre, he invented its conventions: the close attention to specific individuals in specific positions with specific policies, the examination of those policies over time, then the tentative process of drawing conclusions of what sort of "model" these policies may suggest. This is a sort of blurring between economic history and economic theory, with quite a bit of organization, bureaucratic, and industrial policy analysis thrown in. Robert Wade's Governing the Market is probably still the outstanding book in the field, but Alice Amsden, Peter B. Evans, and Meredith Woo-Cumings have also produced substantial work. As a discipline, its purview is the specific, detailed role of the state in fostering economic development using historical case studies, often chosen from the newly industrialized states of East Asia.

Johnson's book was one of the first powerful polemics against the neoliberal "consensus" which emerged in the dark early years of the Reaganite hegemony. The (rather daft) assertion then was that East Asia in general and Japan in particular had industrialized rapidly due to their adherence to free market principles, their weak, hands-off governments, and their ability to "get the prices right." This of course was nonsense, and if its proponents were not so nakedly dishonest, the merest glance at the evidence would have immediately exposed them as imbeciles. Johnson's purpose in MITI and the Japanese Miracle is to prove that Japan was a "developmental state," in which the first priority of government was to foster economic development, and in which all the tools of state were directed towards that purpose. His choice of years is revealing: there is none of the common pre/post-war dichotomy here. He is very clear (and very persuasive) in driving home the continuity in personnel and societal goals between the pre-war and post-war periods. In a fit of admirable understatement, he refers to the Pacific War as an unsuccessful policy of using military force to foster Japan’s economic development, which might be a bit of a historical stretch, but from the narrow perspective of the economic bureaucracy is just about right. Amongst his interminable lists of people who staffed various offices and held various positions, a few names consistently reappear: Nobusuke Kishi, who served as Minister of Commerce and Industry during the entire war, then as Prime Minister in the late 1950’s and who was officially an unindicted class-A war criminal; Shigeru Yoshida, who finished the war in that ministry, then became Prime Minister, and Eisaku Sato, who was railway minister between 1924 and 1948, then was Prime Minister in the 1960’s. Most of the bureaucratic machinery that became MITI began as the Ministry of Commerce and Industry, then became the Ministry of Munitions during the war, without any substantial change in personnel or institutional practices. Johnson is quite clear that the same technocratic elite, all educated in law or economics at Tokyo Imperial University, have been running Japan almost without oversight or accountability, for fifty years.

Due to the extreme centralization of government during the late imperial period, the chapter covering the Ministry of Munitions during the war approaches an outright economic history, which makes it by far the most interesting substantive chapter. The vast expansion of military spending led to an insurmountable balance of payments deficit, which required restrictions on all other imports and a program of crash domestic industrialization, but with the expanding conquests on the Asian mainland being incorporated into the “Greater East Asia Co-Prosperity Sphere,” Japanese industry had no markets to sell to, and those markets they had captured no longer had foreign exchange to use. The outbreak of war in Europe virtually ended international trade, and in October of 1939, the Japanese government instituted fixed prices on consumer goods, rents, inputs, land, food, and labor, creating a totally false economy. This chapter goes quite quickly and is fascinating, and leaves the reader with the impression that the United States could have simply sat back for the entire war and watched Japan collapse under their poor understanding of the balance of payments.

A few key policies emerge as the core of Johnson’s view of the “developmental state,” and he kindly summarizes them in the conclusion for readers unwilling to slog through the unremitting details of the middle chapters. Johnson draws a distinction between countries in which capitalism developed first, and necessitated state action to organize, promote, and regulate it (in essentially the classic Polyani formulation) and countries which came late to development with an already-established state machinery that could be used to foster development. That process demands a sort of economic nationalism and singleness of purpose: a set of societal goals to be pursued at the expense of all others and of international arrangements. It also places the state in opposition to private economic interests, which tend to be conservative and want to protect their often inefficient or counter-productive predominance.

In order to bring about their development goals, the economic bureaucracy must have control of finance. In Japan, this took the form of savings incentives, creating a large pool of liquidity which was channeled directly into the Ministry of Finance. In both Japan and Taiwan, the state controlled the "commanding heights" of the financial sector, allowing if not active direction of financial funds, the ability to arrange preferential financial terms for businesses cooperating in their development plans. The bureaucracy also needs room to maneuver, and here both Wade and Johnson come across as far more authoritarian than their economic proclivities would suggest. Johnson ascribes much of Japan’s success to the arrangement by which the politicians serve only to rubber-stamp the plans of the bureaucracy and as a sort of buffer to distract, pacify, and nullify the demands of special interest groups. Meanwhile the bureaucrats, who are not subject to term limits or elections, go about their enlightened business of making, implementing, reviewing, and administering actual policies. When Johnson is arguing that the “special interests” to be resisted were powerful cartels, this sounds persuasive and desirable, but when the “special interests” are the poor, the sick, the homeless, the displaced, the unemployed, and the elderly, the idea of perpetual anti-democratic rule by “enlightened” bureaucrats sounds less persuasive. After the war, MITI (the Ministry of International Trade and Industry) even used their financial control to force firms to merge and cooperate, essentially forming strategic monopolies and cartels, which Johnson argues was vital to fostering Japan’s export boom. But it was purchased at the expense of the general public, who did indeed eventually gain some benefits from the overall increase in growth, but only as a residual of the vast wealth created by harnessing their labor-power to state-sponsored monopoly capital.

In the conclusion, Johnson sets out three alternative solutions to the central problem of the role of the state in development which can be derived from his study of the Japanese model. First, there is the policy of “self-control”: the state issues licenses to strategic cartels to achieve certain goals and leaves the methods for achieving them up to the cartels themselves. Plainly this is the favorite of private industry, and it is telling that this least intrusive option is still a stronger role for the state than anything seen in the United States or the United Kingdom. Second is the “state-control” option, in which management is separated from ownership and put under direct state supervision. This characterized the most extreme period of Japanese militarism and led to gross inefficiency and mismanagement. Though he deftly avoids any Hegelian philosophizing, the third option is a synthesis of the other two, realized by the material development of their internal contradictions: the “public-private cooperation” system. Under this model, ownership and management are still privately held, and the state still handles social goal-setting. The two meet through informal institutions and networks of common personnel, and the state uses “soft power” to influence private decisions. This power includes, but is not limited to selective access to government finance, targeted tax breaks, government-supported investment coordination, the use of government corporations in high-risk areas, government research and development support, equitable allocation of burden during recessions, and government marketing assistance. Naturally much of this necessitates a separate investment budget with discretionary and unsupervised bureaucratic authority. Of course this also requires a great deal of cross-penetration of elites, to the point where the economic bureaucracy elite and the private industry elite begin to look indistinguishable from one another. It is also necessary to judge economic performance not based on short-term profit (Johnson presciently notes that this habit in the United States is a recipe for disaster and probably retards our growth) but instead on maintaining full employment, increasing productivity, increasing market share, decreasing costs, and managing long-term innovation. There are numerous formal and continuous forums for the negotiation and discussion of these arrangements, and since both sets of elites went to the same university and since retired bureaucrats pass immediately into leading roles in industry, the cross-penetration is virtually complete

Johnson’s book is certainly the definitive work on the subject, but what it is not is readable. The long lists of Japanese names and Orwellian bureaucratic titles swiftly become taxing, and there is little if any sense of narrative momentum. An inset of photos would have helped the reader keep all these people straight, and some clear sense of their relative importance would allow the non-specialist to safely discount the numerous bureaucrats who appear once then vanish into the mists of Johnson’s footnotes. The central four or five chapters are long, unrelieved by charts, graphs, or diagrams, and downright boring, even by the standards of this reviewer, who voluntarily watches Tarkovsky films. Since Johnson restricts his focus just to MITI, this book is not the story of Japan’s economic miracle, nor an economic history of Japan, nor an explanation of post-war reconstruction. Instead, it is a painstaking history of a bureaucracy. Certainly the central chapters of this book are an invaluable tool for research, but they ought to either be studied closely and carefully or not at all.

The first and the last chapters, though, are required reading, and serve as a fascinating counterpoint to Robert Wade’s analysis of Taiwan’s development. However, what is curiously missing from this book is a dimension of class consciousness. This is particularly surprising considering that Chalmers Johnson went on to be a vocal and bitter critic of the Bush cartel, and authored an astringent trilogy of polemics in the Chomsky genre. Yet here he writes of the efficacy of pacifying popular unrest with meaningless concessions, of the role of elected officials being limited to that of a “safety valve” and “rubber stamp,” and that the state-organized consolidation of capital into monopolies and cartels is a critical component to development. Johnson’s book is a factually rich source, and a work of splendid scholarship. Now all it needs is a Marxist to base a book on it.