MITI and the Japanese miracle

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MITI helped rebuild the trading companies by issuing laws that authorized tax write-offs for the costs of opening foreign branches and for contingency funds against bad debt trade contracts, and as early as 1953 the ministry's powerful Industrial Rationalization Council (discussed below) called for the "keiretsu-ization" of trading companies and manufacturers. This meant, in practice, that MITI would assign an enterprise to a trading company if it did not already have an affiliation. Through its licensing powers and ability to supply preferential financing, MITI ultimately winnowed about 2,800 trading companies that existed after the occupation down to around 20 big ones, each serving a bank keiretsu or a cartel of smaller producers.

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The bank groups were the successors to the old zaibatsu, and they came into being for the same reason that the old zaibatsu had been fostered in the Meiji erato concentrate scarce capital on key developmental projects. However, they differed from the old zaibatsu in that their internal organization was much more businesslike than the old family-centered empires, and they competed with each other much more vigorously.

This competition was ultimately caused by the nature of the banks' assets. As Abegglen and Rapp observe, "The financial risks associated with high debt levels are very much reduced in Japan by the fact that the central bank stands implicit guarantor of the debt positions of major Japanese companies."

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It was this elimination of risk that above everything else made competition mandatory. And the risks for bank managers were even further reduced by powerful Finance Ministry controls over all interest rates and dividend rates, over the scope of a bank's operations, and over permission to open new branches, which meant that a banker really had only one thing to concentrate oncompetition for the expansion of a bank's share of loans and depositors. Under these conditions city banks did everything in their power to discover and come to the aid of growth industries and growth enterprises. Most important, each bank group had to have its entry in each new industry fostered by MITI or face being frozen out of the truly riskless sectors.

The result of these pressures and incentives was the famous "one setism" of high-growth Japan, a term meaning that each bank group acquired or created within it a full complement of companies covering all the government-designated growth industries, regardless of whether it made business sense to do so. This competition became the bane of MITI's existence during the 1960's, when, for example, the ministry fostered four petrochemical companies but soon found that five more were building their own complexes as fast and on as big a