The Ministry of International Trade and Industry (MITI) was one of the most powerful agencies of the Government of Japan. At the height of its influence, it effectively ran much of Japanese industrial policy, funding research and directing investment (Ito, 1997, p. 196). Today Japan has the second largest economy in the world and its growth is the envy of most of the world. After the Second World War, Japan underwent a recovery and then experienced a period of extremely high economic growth. In fact, Japanese economy increased fifty five fold in the post war period from 1946 to 1976 (Johnson, 1982, p. ). In the period of 1950 to 1973, the Japanese economy expanded by almost 10% a year (Alexander, 2008). However, Japan’s post-war economic recovery and growth has stimulated extensive discussion as to what was the source of the phenomenal growth. Because of the conception that Japan has a bureaucracy that dominates decision making, and the belief that the Ministry of International Trade and Industry (MITI) actually devised and directed the economic miracle. In particular, Chalmers Johnson (1982) stressed the role of the MITI and sparked a debate about Japan’s success as a developmental state.
Others were skeptical on the almost mythical power of foresight attributed to industrial policy of the MITI (Okimoto, 1989). This essay will evaluate the extent to which the Japanese Government main planning agency – MITI has contributed to Japan’s economic success. Further, some counterarguments will be discussed in this essay. Positive impact of MITI The Japanese economic bureaucracy, particularly MITI has been the leading player in the performance of the Japanese economy. In some studies, emphasis on the MITI is such that it is not simply a variable in the explanation of Japan’s ‘economic miracle’, it has become the explanation.
As Chalmers Johnson claimed that “it appeared on a superficial reading to give substance to the allegation of monolithic mobilization of the Japanese economy”. The main aim of this government-controlled agency is to protect new industries from foreign competition by using various policies to drive exports. They are and have been able to do this in particular by controlling exchange rates. The exchange rates were artificially kept low in order to encourage low-priced exports, therefore increasing demand that resulted in high industrial growth (Okabe, 1995) Facilitating technology imports
MITI served as an architect of industrial policy, an arbiter on industrial problems and disputes, and a regulator. A major objective of the ministry was to strengthen the country’s industrial base by providing industries with administrative guidance and other direction, both formal and informal, on modernization, technology, investments in new plants and equipment, as well as domestic and foreign competition. Formulating industrial policies The close relationship between MITI and Japanese industry has led to foreign trade policy in an effort to strengthen domestic manufacturing interests.
MITI facilitated the early development of nearly all major industries by providing protection from import competition, technological intelligence, help in licensing foreign technology, access to foreign exchange, and assistance in mergers. Integrate conflicting policies Furthermore, MITI was responsible not only in the areas of exports and imports but also for all domestic industries and businesses not specifically covered by other ministries in the areas of investment in plant and equipment, pollution control, energy and power, some aspects of foreign economic assistance, and consumer complaints.
This span has allowed MITI to integrate conflicting policies, such as those on pollution control and export competitiveness, to minimize damage to export industries. Discriminatory Tariffs MITI helped Japan achieve a high growth rate by selectively looking for tariffs and other industrial policies to favor particular industries. Tariff and non-tariff barriers against foreign product, though temporary, ensure a domestic market for producers.
MITI then favors cartels if competition within a particular sector becomes intense, which can be considered helpful in promotion industries to gain a comparative advantage, as the government actively determines which companies within a particular industry in their domestic market are funded by the government and are therefore finally able to compete globally. This ensures that industrial growth in newly developing industries can increase without external influences and can develop a comparative advantage before having to compete globally (e. g. conomies of scale through cartel formation). Negative impact of MITI On the other hand there are some arguments against the effectiveness of Japan’s industrial policy. Industrial policy faces the same knowledge problem as socialist planning: neither central planners nor anyone else can know the optimal industrial structure before the market produces it. Attempts at industrial planning are likely to hinder development by promoting incorrect industries. MITI was no exception. Moreover, the notion that industrial policy is primarily responsible for economic success in Japan is disputable.
While Japan’s Ministry of International Trade and Industry (MITI) does direct investment to certain sectors and industries, these investments do not always pay off. Steel and oil—two of the many industries that have received financial support from MITI—are largely viewed as a drag on the Japanese economy. Some of MITI’s past initiatives had they been successful, would have proved very foolish for Japan: MITI actively discouraged Honda from getting into the automobile business and Sony from getting into the consumer electronics business.
In the 1950s, MITI attempted to prevent a small firm from acquiring manufacturing rights from Western Electric to produce semiconductors. The firm persisted and was finally allowed to acquire the technology. That firm, Sony, went on to become a highly successful consumer electronics company. MITI also attempted to prevent firms in the auto industry from entering the export market and tried to force ten firms in this industry to merge into two: Nissan and Toyota.
These attempts failed, and automobile manufacturing went on to become one of Japan’s most successful industries. While striking examples exist of companies succeeding despite MITI’s discouragement evidence of successful promotion does not. Although some industries previously promoted by MITI are profitable today, that alone does not show them to be good investments. They might have evolved similarly without subsidy; and one cannot demonstrate that MITI’s favoring of particular industries was better for the economy than if industrial policy had not rigged the outcome.
Rigging the market process allows some companies to bid away resources that would have gone to other industries if the market had operated unencumbered (Powell, 2008). The industries discouraged by industrial policy would have better suit to Japan’s comparative advantage because they would have obtained their resources through the competitive process without the distorting influence of government. Despite MITI’s involvement, Japan’s institutional environment of relatively low government interference and high economic freedom allowed the nation to grow rapidly for a number of years.
As Savage-Morton (p. 35) argues that “the MITI regulation thesis is only a partial explanation for what occurred because the Japanese economy’s rapid economic growth was also achieved through reliance on the market mechanism”. Indeed, savings and investment were crucial to the growth process, and the technological innovations in the modernization of the Japanese, along with the process of catching up with the advanced nations, increased the overall capacity to which the economy could absorb the available capital (Savage-Morton, n. . , p. 35-48). Economy effect: MITI control of the economy was important in generating growth has stimulated some provocative research on Japan, but the argument has basic problems. One is methodological: most studies simply assert that a given policy led to desired economic outcomes, assuming that the promulgation of a regulation or law is the same as proof of its effectiveness. The Japanese economy has borne significant cost in the form of allocative inefficiency and diversion of competition into costly non-price forms.
Thus, policy failure is often shown to have occurred in the form of mistaken policies, these were further compounded by a lack of action to correct the fault, even when the course of action was decided. This would have cost resources, led to delays and produced inefficiencies. Regardless of why the economic results were good, it could be argued that without such flawed decisions it could have been better. (Savage-Morton, n. d. , p. 35-48). Conclusion:
In conclusion, MITI’s broader economic policies have affected the course of Japanese economic success and for this reason alone the importance of MITI cannot be denigrated. However, it would appear that there were a number of factors that contributed to the high speed growth in the Japanese economy. Rapid growth was achieved on the basis of the special system and behavioral style. Therefore, it is safe to say that it was not the MITI that manufactured the high economic growth; instead it was a combination of factors that contributed to the Japanese economic miracle.