MITI and the Japanese miracle

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tion to as high a degree as is compatible with its priorities. This is necessary to avoid the deadening hand of state control and the inevitable inefficiency, loss of incentives, corruption, and bureaucratism that it generates. It is probable that the market-conforming methods that actually work cannot be discovered a priori but will have to emerge from conflict between the managers of the state and the managers of the privately owned strategic industries. A cooperative relationship between the state and private enterprise is not a natural one: the state inevitably will go too far, and private enterprise inevitably will resent state interference in its decisions. When either the state or private enterprise becomes clearly dominant over the other, as occurred in Japan during the late 1940's (state dominance) and during the early 1970's (private-enterprise dominance), development will falter. One clear lesson from the Japanese case is that the state needs the market and private enterprise needs the state; once both sides recognized this, cooperation was possible and high-speed growth occurred.

Japan offers a panoply of market-conforming methods of state intervention, including the creation of governmental financial institutions, whose influence is as much indicative as it is monetary; the extensive use, narrow targeting, and timely revision of tax incentives; the use of indicative plans to set goals and guidelines for the entire economy; the creation of numerous, formal, and continuously operating forums for exchanging views, reviewing policies, obtaining feedback, and resolving differences; the assignment of some governmental functions to various private and semiprivate associations (JETRO, Keidanren); an extensive reliance on public corporations, particularly of the mixed public-private variety, to implement policy in high-risk or otherwise refractory areas; the creation and use by the government of an unconsolidated "investment budget" separate from and not funded by the general account budget; the orientation of antitrust policy to developmental and international competitive goals rather than strictly to the maintenance of domestic competition; government-conducted or government-sponsored research and development (the computer industry); and the use of the government's licensing and approval authority to achieve developmental goals.

Perhaps the most important market-conforming method of intervention is administrative guidance. This power, which amounts to an allocation of discretionary and unsupervised authority to the bureaucracy, is obviously open to abuse, and may, if used improperly, result in damage to the market. But it is an essential power of the capitalist developmental state for one critical reason: it is necessary to avoid overly detailed laws that, by their very nature, are never detailed