MITI and the Japanese miracle

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tence of wartime and occupation controls until very late in the postwar era, and the tremendous strengthening of competition that was an unintended consequence of the emergency measures for industrial financing adopted by the government during the "stabilization panic."

¹

Some of the elements of what became MITI's high-growth system derived from the government's selection of industries for "nurturing," perfection of measures to commercialize the products of these chosen industries, and development of means for regulating the cut-throat competition that the first two sets of policies generated. The tools in the hands of the economic bureaucrats included control over all foreign exchange and imports of technology, which gave them the power to choose industries for development; the ability to dispense preferential financing, tax breaks, and protection from foreign competition, which gave them the power to lower the costs of the chosen industries; and the authority to order the creation of cartels and bank-based industrial conglomerates (a new and rationalized version of the zaibatsu, now made totally dependent on government largesse), which gave them the power to supervise competition. This high-growth system was one of the most rational and productive industrial policies ever devised by any government, but its essential rationality was not perceived until after it had already started producing results unprecedented for Japan or any other industrialized economy.

The system began to be forged during the Dodge Line. Dodge's policies certainly ended inflation, but at the cost of almost shattering what little economic recovery had been achieved through priority production. The cutting off of government price subsidies and loans to industry from the Reconstruction Finance Bank (RFB) eliminated the main sources of capital in the system, and there simply were no alternative sources to fill the void, either from the internal savings of enterprises or from the new capital market that SCAP was trying to foster. Equally important, when governmental aid to designated sectors of priority production stopped and SCAP began to promote export industries, there was a radical reallocation of what little private capital was available. Funds for coal and electric power development declined drastically, while funds for the reestablished textile industry shot up.

²

SCAP was pleased by this development, since textiles earned foreign exchange, but Japanese bureaucrats saw an energy crisis looming. And even the policy of export promotion was seriously undermined by the devaluation on September 18, 1949, of the British pound. The pound was cut by 30.5 percent in terms of U.S. dollars, its value dropping from $4.03 to $2.80, a step that caused some 30 other