MITI and the Japanese miracle

Page 264

Imai as vice-minister, the recession began. At first it looked like a normal cyclical downswing caused by a balance of payments crunch and government controls on credit, a type of recession that Japan had experienced several times since the Korean War. However, on December 1, 1964, the Japan Special Steel Company declared that it was bankrupt and applied to the courts for relief under the Company Reorganization Law (Kaisha Saisei Ho *). On March 6, 1965, the Sanyo* Special Steel Company followed suit, announcing that it could not cover its debts of some ¥50 billion. This was the biggest bankruptcy that had yet occurred in postwar Japan. Two months later the Yamaichi Securities Company reported that it too was unable to meet its debts and was going under; it was saved only by a drastic, government-secured loan program. Finally, in June and July the government abandoned its sixteen-year policy of balanced budgets and began to issue bonds to cover deficit financing of counterrecession expenditures. Fiscal policy had finally replaced Japan's long reliance on monetary policy alone.

Under these circumstances analysts began to argue that this was not a "normal" recession but instead a "structural recession" caused by the "distortions" of high-speed growth. The structural recession thesis was associated above all with economists around Prime Minister Sato*, who replaced Ikeda in November 1964, and with MITI.

³¹

In retrospect it appears that the thesis was somewhat overstated and was motivated as much by Sato's* political need to find an issue to use against Ikeda as by any fundamental changes in the economy. The causes of the recession were, first, the uncertainty that followed liberalization, assumption of IMF article 8 status, and entry into the OECD; second, rising labor costs due to a drying up of the supply of young workers; third, the government's tight money policies; and fourth, continued overcapacity due to excessive, keiretsu-driven investment.

For all of their coolness to the Special Measures Law, political leaders such as MITI Minister Fukuda had feared that something like this would happen. During mid-1964 Fukuda provided Sahashi with one of his greatest satisfactions. On June 26, 1964, he told the cabinet that the motivations and purposes of the Special Measures Law had all been sound, that the idea of the "cooperation formula" contained in the bill was a good one, and that it should be adopted as a tool of general industrial policy even though the law had failed to pass. MITI, he said, was going to set up cooperation discussion groups for synthetic textiles (actually created on October 26, 1964) and petrochemicals (December 19, 1964), and would entertain the possibility of