MITI and the Japanese miracle

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The "improved institutional arrangements" have already been discussed in this chapter. In addition to the two-tiered banking system, FILP, an elaborate trade promotion apparatus, high levels of competition among the bank groups, total control of foreign exchange, total screening of foreign capital, and a tax system that made Japan a businessman's paradise, there were all the other institutional arrangements mentioned in Chapter 1. These include a work force made docile by enterprise unionism, extensive subcontracting, "lifetime" employment, massive internal migration from farms to factories, freedom of managers from interference in their programs by corporate stockholders, a system of forced savings due to weak or nonexistent welfare commitments (further powered by government incentives to save through the postal system, which fed its accumulation of funds directly into Ministry of Finance accounts), and many other examples of ad hoc harnessing of seemingly unrelated social institutions to the high-growth system. And it should not be forgotten that the government actively promoted and popularized these innovations through such public-private forums as the Industrial Rationalization Council.

The most important "improved institutional arrangement" of them all was MITI. It has no precise counterpart in any other advanced industrial democracy to play its role as "pilot agency" or "economic general staff." Ironically, its effectiveness was improved by the loss of its absolute powers of state control following the expiration in 1952 of the Temporary Materials Supply and Demand Control Law. MITI did not lose all controlsit still exercised complete control over foreign trade and the introduction of foreign technologybut after 1952 it had to learn to employ indirect, market-conforming methods of intervention in the economy. This differentiated it from both the Ministry of Finance and the Ministry of Agriculture and Forestry, and promoted a form of true public-private cooperation in the industrial sector that preserved the advantages of both self-control and state control while mitigating their disadvantages.

The period 1952 to 1961 was the ministry's golden age. Using FILP, the Development Bank, the Industrial Rationalization Council, and several other powerful institutions, the Enterprises Bureau single-mindedly turned the Japanese industrial structure from light, labor-intensive industries to steel, ships, and automobiles, of which Japan is today the world's leading producer. To find comparable achievements by governmental bureaucracies in other nations, one would have to look to cases like the wartime Manhattan Project in the United States, or to NASA's sending a manned rocket to the moon. Although it is obvious that MITI could not have accomplished what it did with-