MITI and the Japanese miracle

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most important instrument of industrial guidance and control that MITI ever possessed. As Leon Hollerman put it from the perspective of 1979, "In liquidating the occupation by 'handing back' operational control to the Japanese, SCAP naively presided not only over the transfer of its own authority but also over the institutionalization of the most restrictive foreign trade and foreign exchange control system ever devised by a major free nation."

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In the next chapter we shall turn to what the officials of MITI did with these and other new powers.

Virtually all Japanese regard the defeat of 1945 as the most important watershed in modern Japanese history since the Meiji Restoration of 1868. However, from the point of view of the history of industrial policy, I believe that the 1940's are one continuous era: the period of the high tide of state control. Beginning with the policies of the Tojo* government and continuing with their acceleration by SCAP, the Japanese state came to dominate virtually all economic decisions, from those of zaibatsu enterprises to those of individual households. Tojo and his associates intended this outcome but were unable to achieve it completely; the Allied reformers did not intend it but promoted it anyway, first out of their commitment to making the government more responsible, and subsequently out of their commitment to Japanese economic recovery and growth as part of the renewed global resistance to totalitarianism. The prime political beneficiaries of these developments were the economic bureaucrats; the ultimate economic beneficiaries were the Japanese people.

The longer-range significance of the achievement of state control, however, was to reveal its weaknesses. The fundamental political problem of the state-guided high-growth system is that of the relationship between the state bureaucracy and privately owned businesses. If this relationship is overbalanced in favor of one side or the other, it will result in either the loss of the benefits of competition or the dilution of the state's priorities. State control refers to the attempt to separate management from ownership and to put management under state supervision. Whereas big business typically prefers self-imposed control, economic bureaucrats typically prefer state control. During the 1940's, when state control was achieved, its weaknessesthe growth of bureaucracy, irresponsible management, corruption, and lowered efficiencywere also fully manifested. The result was that just as the deficiencies of self-control under the Important Industries Control Law of 1931 led to the movement toward state control, the deficiencies of state control under the Ministry of Munitions and