MITI and the Japanese miracle

Page 269

a reasonable level. Inayama of Yawata had long held that avoidance of price fluctuations in the steel industry was in the national interest, both to ensure that the industry could schedule repayments on the loans for its huge investments and to avoid the ripple effect that price instability in steel had on the rest of the economy. From the era of priority production just after the war down to approximately 1960, MITI had exercised detailed control over investments in the steel industry through the plans of the Industrial Rationalization Council and through the policy use of the Foreign Capital Law. In 1960 Vice-Minister Matsuo (who went to Nippon Kokan * after his retirement) had proposed a steel industry law to establish an investment-coordination cartel as an exception to the Antimonopoly Law, but the industry had rejected it in favor of self-coordination, legalized by MITI's alleged supervision but actually carried out by the Japan Steel Federation. By 1965 this attempt at self-regulation had broken down, and overcapacity in the steel industry combined with the recession threatened to bankrupt some of the biggest firms in the nation.

The immediate issue was a MITI recommendation to reduce production (

kankoku

sotan

*) designed to prevent a collapse of steel prices. The ministry "recommended" (ordered) that for the second quarter of fiscal 1965 (July to September) each company cut its production by 10 percent based on its share of total output during the second half of fiscal 1964 (October 1964 to March 1965). All of the "big six," including Sumitomo, went along with this. Then, on November 9, 1965, MITI ordered that this reduction be continued into the third quarter (the trough of the recession hit in October). Sumitomo refused to accept this administrative guidance on the grounds that it was the only company among the big six that had met its MITI-assigned export quota for the first half of the fiscal year, and it charged that the biggest operators, Yawata, Fuji, and Nippon Kokan, had diverted some of the steel supposedly produced for export into the domestic market. Sumitomo argued that MITI's base for determining market shares failed to take account of export performance of the various companies and was biased against the newer, better-managed firms in the industrysuch as Sumitomo.

The president of Sumitomo Metals, Hyuga* Hosai*, was an old hand at this sort of thing. He had served Sumitomo continuously since his graduation from Todai* Law in 1931 and had gained experience in the governmental bureaucracy at first hand as secretary to Minister of Finance Ogura Masatsune (of Sumitomo) in the third Konoe cabinet (1941). During 1965 he was the leading figure in the Osaka branch of