MITI and the Japanese miracle

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propriate agricultural structure at least in part because it is mildly effective: it provides food that does not have to be imported.

Second, both types of systems are concerned with "externalities," or what Milton Friedman has called "neighborhood effects"an example would be the unpriced social costs of production such as pollution. In this instance, however, the plan-rational system has much greater difficulty than the market-rational system in identifying and shifting its sights to respond to effects external to the national goal. The position of the plan-rational system is like that of a military organization: a general is judged by whether he wins or loses. It would be good if he would also employ an economy of violence (be efficient), but that is not as important as results. Accordingly, Japan persisted with high-speed industrial growth long after the evidence of very serious environmental damage had become common knowledge. On the other hand, when the plan-rational system finally shifts its goals to give priority to a problem such as industrial pollution, it will commonly be more effective than the market-rational system, as can be seen in the comparison between the Japanese and American handling of pollution in the 1970's.

Third, the plan-rational system depends upon the existence of a widely agreed upon set of overarching goals for the society, such as high-speed growth. When such a consensus exists, the plan-rational system will outperform the market-rational system on the same benchmark, such as growth of GNP, as long as growth of GNP is the goal of the plan-rational system. But when a consensus does not exist, when there is confusion or conflict over the overarching goal in a plan-rational economy, it will appear to be quite adrift, incapable of coming to grips with basic problems and unable to place responsibility for failures. Japan has experienced this kind of drift when unexpected developments suddenly upset its consensus, such as during the "Nixon shocks" of 1971, or after the oil shock of 1973. Generally speaking, the great strength of the plan-rational system lies in its effectiveness in dealing with routine problems, whereas the great strength of the market-rational system lies in its effectiveness in dealing with critical problems. In the latter case, the emphasis on rules, procedures, and executive responsibility helps to promote action when problems of an unfamiliar or unknown magnitude arise.

Fourth, since decision-making is centered in different bodies in the two systemsin an elite bureaucracy in one and in a parliamentary assembly in the otherthe process of policy change will be manifested in quite different ways. In the plan-rational system, change will be marked by internal bureaucratic disputes, factional infighting,