MITI and the Japanese miracle

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wing of the old MAC (see Appendix B). However, the economic environment in which the new ministry worked was changing rapidly. The "rice riots" were only the first signs of serious imbalances in the Japanese economy, both in its internal structure and in its relations with other economies. The more important sign was the postwar recession that began in the spring of 1920 and lasted throughout the 1920's until the world depression of 1930, when it got worse. The stock exchange index (1913 = 100) fell from 254.1 in February 1920 to 112.6 in September, and the total value of all exports and imports shrank from ¥4.5 billion in 1919 to ¥2 billion in 1920.

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All sectors of the economy were hit hard, but the farming sector was hit the hardest. In the business and industrial sectors, the established zaibatsu banks and enterprises had greater financial resources than other enterprises, and their conglomerate structure dampened some of the shocks. The war-bred zaibatsu were hurt, but they were able to petition the government for special relief measures through their access to the politicians whom they financed. Small businessmen and tenant farmers were in serious trouble.

For MCI and the other economic bureaucracies the problems were conceptual. What was causing the recession to persist so long? Should anyone, including the government, do something about it? Why was the international balance of payments in chronic deficit? Why were corporate profits so low? What should be done? Numerous theories circulated. Japan was different from all other economies because of its "dual structure" (zaibatsu versus thousands of medium and smaller enterprises). Japan was experiencing an "overproduction crisis" because of the war boom. Japan was a victim of "destructive competition" because of the unrestricted growth in the numbers of banks and enterprises. And Japan was simply entering the "stage'' of "monopoly capitalism" as foretold by the German Marxists.

The government did not have the answers to these questions, nor did it have a single policy. It did undertake ad hoc relief measures in response to each of the "panics" that were occurring regularly, spending money recklessly to bail out failing enterprises (for example, in the case of steel, it purchased private steel firms that had been started up during the war to meet the so-called steel famine and that now faced steeply declining demand).

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The government's overall monetary policy was deflationary, but many of its particular policies fed the price inflation that was making many Japanese products uncompetitive on world markets.

The most notorious among these policies was the government's response to the catastrophic Kanto* earthquake of September 1923. In