MITI and the Japanese miracle

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it was the invasion of Manchuria in September 1931 and the assassination of Prime Minister Inukai on May 15, 1932, that brought industrial policy to life as an element of military mobilization. The events of the succeeding few years in both Japan and Manchuria made even more insistent the need for an economic general staff, a coordinating organ that could unite military requirements with civilian capabilities and adjust both. After the militarist assault on Inukai the throne turned to a nonparty government of national unity under Admiral Saito * Makoto (18581936, assassinated in the military coup of February 26, 1936). Takahashi Korekiyo continued as minister of finance, and Nakajima Kumakichi (18731960) of the Furukawa zaibatsu (Furukawa Electric, Yokohama Rubber, Fuji Electric, and others), Yoshino's closest civilian associate in the TIRB, became minister of commerce and industry. Since this was a nonparty cabinet and Nakajima and Yoshino were good friends, the old practice of the vice-minister offering his resignation to a new minister was abandoned.

As we saw in the last chapter, Takahashi reimposed the gold embargo in December 1931, an action that advanced the government's intrusion into the private economy well beyond that of the cartels authorized by the Control Law. In order to make the embargo effective, the government also passed the Capital Flight Prevention Law (Shihon Tohi* Boshi* Ho*, law number 17 of July 1, 1932); and when that proved to be ambiguous and therefore evadable, it passed the Foreign Exchange Control Law (Gaikoku Kawase Kanri Ho, law number 28 of March 29, 1933), which made all overseas transactions subject to the approval and licensing of the minister of finance. Although no one at the time could have imagined it, governmental control over the convertibility of yen lasted uninterruptedly until April 1, 1964, and over capital transfers until the capital liberalization policies of the late 1960's and early 1970's.

During 1932 Takahashi also launched his famous policy of deficit financing to overcome the depression (and thereby won the sobriquet that is now associated with his name, "the Keynes of Japan"). Military expenditures in the general account budget rose from 28 percent in 1930 to 43 percent in 1935, and the combined deficit of the years 1932 to 1936 reached an enormous ¥1.9 billion.

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Takahashi's cutting the yen free from gold also produced a steep decline in the foreign exchange value of the yen. The rate against the U.S. dollar fell from ¥100 = $49 in 1931 to ¥100 = $19 in 1932, and the consequent lowering of prices of Japanese goods overseas fueled a tremendous surge of exports, particularly to South and Southeast Asia, that was loudly denounced abroad as Japanese "dumping." The Ministry of Finance cov-