MITI and the Japanese miracle

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as MITI minister Nakasone Yasuhiro, another party politician, LDP faction leader, and last-minute ally of Tanaka's in the LDP election contest (the press suggested that a large sum of money had passed between them).

The installation of the Tanaka cabinet seemed to mark a real turning point in Japanese politics. In contrast to the consistent domination of the government by former bureaucrats, Tanaka offered a cabinet made up of younger party politicians, including men who had experience in telling the bureaucracy what they wanted done, had no compunctions about blaming the bureaucracy for policy mistakes, and were "activist" in a way that ministers had not been since Ikeda's time. They were, however, so activist on one frontspending public moneythat they contributed to a revival of bureaucratic government following the oil shock.

Tanaka accomplished many thingsabove all, the normalization of relations between Japan and China. But almost from the outset his administration led to serious inflationa period of what the public came to call "crazy prices." Tanaka's industrial relocation policy was not the primary cause, and many of his big construction projects were desperately needed in any case (even though some people charged that Tanaka's background as a construction industry tycoon gave him more than a political interest in them). The root cause of "crazy prices" was Japan's public finance system and the divided responsibility among politicians and bureaucrats for managing it. In this sense, crazy prices were as much a side effect of the high-speed growth era as overcrowding and pollution. By the end of Tanaka's rule the country was reviving terms not heard since the occupationeconomic control (keizai tosei *) and economic police (keizai keisatsu).

³⁴

The problem was excess liquidity. The Ministry of Finance had never believed that Japan could actually be forced to relinquish its trade advantage in an undervalued currency, and the value it set in late 1971 for the yen against the dollar still left the yen considerably undervalued (the yen was not allowed to float until after 1973). Many firms, however, were doing business on the basis of an internal, more highly valued exchange rate and pocketing the difference. As the

Mainichi

noted, "From about the middle of 1972, Japanese industries had been conducting trade at the rate of ¥270¥280 to the dollar, and by selling the earned dollars to the Bank of Japan at a rate of ¥301 to the dollar, they earned an extra ¥20 per dollar."

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In addition, the government-sponsored investment boom of the late 1960's had once again left industry with considerable overcapacity. As a result, investment slumped throughout the first half of the 1970's, and because of