MITI and the Japanese miracle

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RFB, has written, ''The size of the RFB loans was foolhardy, but by the time the Dodge Line was promulgated, Japan's industrial facilities had been 80 percent restored." Moreover, according to Ikeda Hayato the RFB saw all but 2.9 percent of its loans repaid, although the RFB's successor, the Development Bank, puts the RFB's recovery rate at only 25 percent on plant and equipment loans and 78 percent on operating subsidies. Whatever the case, Ikeda concludes, "It is not right to deny the significant role that the RFB played in the recovery of Japan's postwar economy. . . . Loans were effective to a considerable degree. It is fair to say that the RFB accomplished its purposes."

⁵¹

Although no Japanese official doubts that the RFB inflation inflicted enormous hardships on the people and that it ultimately had to be stopped, priority production had an important effect on later bureaucratic attitudes as a precedent for bolder rather than more cautious, fiscally responsible courses of action. It also intensified the nationalistic attitudes of MITI officials, since the policy had been executed in the teeth of SCAP's disapproval.

⁵²

There can also be no question that the actual institutions of priority productionthe RFB, the Supply and Demand Control Law, the ESB, and the Coal Agencywere recreations of Japan's wartime state apparatus for the economy. RFB financing was copied directly from the wartime policies of the Ministry of Finance and the Bank of Japan. The Supply and Demand Law was, if anything, stronger than any wartime law, since it gave the state control over all commodities, not just over trade. The ESB duplicated the CPB's functions and techniques, and employed many of its personnel. And the Coal Agency was the old Fuel Bureau, reborn without its seconded military officers. The creation of the ESB and the enactment of the Supply and Demand Law also forced the reorganization of MCI on November 9, 1946, into vertical bureaus for each industry, just as the creation of the CPB and its materials mobilization planning had done in 1939. As Jerome Cohen noted at the end of his study of the wartime economy, "The wartime control system with its vestiges of cartel domination was abolished, but the substitute allocation system had a very familiar appearance."

⁵³

The obvious flaw in priority production was its effect on inflation, but an equally serious problem was the fact that it was carried out in the hothouse atmosphere of a blockaded economy. As the indices of economic activity for 1949 and 1950 indicate (see Table 13), great progress had been made toward the restoration of prewar levelsexcept in one area, foreign trade. The raw materials of Japanese industry, particularly raw cotton for the textile industry, plus petroleum and