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Number 1 Shimbun

Mr. Smith Goes to Tokyo (Part III)

Mr. Smith Goes to Tokyo (Part III)
by Charles Smith


When Charles Smith arrived in Tokyo in 1973 as Financial Times bureau chief, he had no idea he would end up spending most of the rest of his life here. Reaching 80 and having been diagnosed with malignant lymphoma, he set about writing his memoirs. When he finished the project recently Charles – still an enthusiastic FCCJ member – consented to share with us some memories from a long and interesting career. The series began running in the April issue while he was still alive. On May 18 Charles died, at age 82, of respiratory failure. We are continuing to run installments. Here is the third.


Officials of what was then called the Ministry of International Trade and Industry could get on the wrong side of the law. I may have suggested in my last installment that MITI had answers for everything, but I remember one case from early in the post-oil crisis era in which Vice Minister Eimei Yamashita seemed to be lost for words. This involved the question of whether the allegedly infallible ministry had forced the 21-member oil refining industry to retract product price increases.

I later realized that I was seeing an institutional conflict between the (not quite) unchallenged leadership of blue ribbon bureaucrats whose power could be traced back to wartime Japan, on the one hand, and a single agency with postwar American roots, the Fair Trade Commission. The FTC, established in 1947, was a creation of the Occupation with a mission of policing the US-ordained 1945 Anti-Monopoly Act.

In May of 1974 the FTC accused the oil refiners of having violated the Anti-Monopoly Act six months earlier by conspiring to raise oil product prices. The companies, among them affiliates of American and European oil majors, mounted vigorous defenses. What was more serious was that, behind its assault on the companies, the FTC seemed be attacking MITI for its practice of giving extra-legal advice to industry on prices.

Without identifying him by name or title, I used a quote from Vice Minister Yamashita admitting that MITI had given administrative guidance to the refining industry to restrain price increases in 1973. But Yamashita argued that “advice” was different from price enforcement and was not something covered by the Anti-Monopoly Act. Nevertheless, lower down in the same FT story I had MITI confessing that its practice of advising private companies on prices “might need some overhauling.”

I came across the MITI-FTC interface just once more in my later reporting career. When researching the background to planned production cut in the petrochemicals industry in the 1980s, I learned that MITI officials planning the cuts had taken the trouble to join a petrochemicals export mission outside Japan so as to be able to break the law without confronting the FTC. Did MITI deserve points for ingenuity?

Incomes Policy, Japan

Alongside this example I can recall one case, in the months after the oil shock, in which things came badly unstuck – although this didn’t directly involve bureaucrats. It was a problem with what some western countries would probably call incomes policy. That wasn’t what it was called in Tokyo, because the Japanese authorities, unlike some hapless UK counterparts, knew better than to lose face by being seen trying to interfere directly in private sector pay levels.

During the 1970s the wages of permanent employees in a dozen major Japanese industries were settled once a year in the impressively named Shunki Toso (Shunto) or Spring Wage Struggle.

The way Shunto worked was that companies in one major industry, often the five big steel makers, agreed (apparently independently) on a percentage base-up for their workers as an example to the rest. The government looked on without comment, but the employers’ leaders, especially in steel, often included men who held top positions at Keizai Dantai Rengokai (Keidanren), the Federation of Employers’ Organisations. This was industry’s mouthpiece for exchanging views with Kasumigaseki bureaucrats and receiving guidance on a wide range of policy issues.

Over five years up to 1974 Shunto wage awards had climbed sharply every year, reflecting the growth of the economy and accelerating rates of inflation – but, most importantly, not overtaking gains in productivity. That year things were different. The base-up settlement for major industries came in at 32 per cent, more than double productivity gains and a whopping 13 per cent over the 1973 awards.

On the evening when I had to write about this disaster I remember walking the streets near my office in something close to a funk as I wondered what to write. How could such a thing have happened? Did it point toward the collapse of the admired Japan system for informally regulating nearly everything?

The story that I wrote later that night was a patched up job. It was headlined “Why Japan’s latest wage settlement has a European air.” But it had nothing to do with Europe. Producers, I later discovered, could actually afford the extravagant settlements because they had taken advantage of supply bottlenecks (not just in toilet paper) to gouge panicky consumers with sharply higher prices in the second half of 1973.

The oil industry, probably the biggest short term gainer from crude shortages, had paid what, according to my story, were “secret” bonuses to its management level staff in January.

It sounded like, but wasn’t, the dawn of supremacy for organized labor. A year later the Shunto awards came in at around 15 per cent, still above price rises but below the growth rate of productivity. The bureaucrat-employer combine seemed to have restored order. But perhaps they didn’t do it alone.

This time, I believed, politicians had indirectly involved themselves because they had locked the economy into its worst recession for 20 years through interest rate increases and restrictions on bank lending imposed via the Bank of Japan. This was almost the first time that I had seen politicians helping bureaucrats out of a seriously awkward patch by manipulating the economy for political ends.

Of course the Ministry of Finance was involved. But the initiative lay with Takeo Fukuda, at the Economic Planning Agency, who had become the patron saint (my phrase) of post-oil shock austerity. As I’ve previously mentioned, Fukuda was one of the Liberal Democratic Party’s top faction leaders.

Some time in 1976 I scored a minor hit with the FT foreign desk in London by admitting belatedly that Japan wasn’t always run by a two-way partnership (see the second entry in this series). I suggested it could also be viewed as a game of Scissors, Paper and Stone among bureaucrats, business people and politicians.

The idea was that bureaucrats influenced companies in ways already described, but politicians had an edge over bureaucrats because they enacted the laws that the men in the ministries needed to do their jobs. The third side of the triangle was that business exercised control over politicians by providing much of the cash needed for one (always the same) party to win elections, and for individual MPs to manage their constituencies.

At the top of the system corporate money went directly to the ruling party to pay for election campaigns. At the bottom the flow was via factions and was indirect. Individual MPs struggled for survival in multi-seat constituencies where the sharpest conflicts were between members of different LDP factions, not between the LDP and opposition parties. What counted in these fights was an MP’s ability to help voters with anything from job offers to patronizing baseball clubs.

It cost a lot. MPs had government salaries, but travel costs to and from Tokyo mounted up. Constituency MPs eked out money from factions by selling to companies expensive party tickets.

When I first became aware of how the ruling LDP ran its affairs it seemed to me to be not so much a party as an ad hoc system for distributing favours at various levels – money and jobs to individual voters at the constituency level and chunks of power and privilege to factional bosses at the top.

The LDP itself had its origins in ad hoc-ism It had been created in 1955 through a merger of the Nihon Minshuto (Japan Democratic Party), led by Ichiro Hatoyama, and the Jiyuto (Liberal Party), led by Shigeru Yoshida. The main purpose for the merger was to block the road to power of the still powerful forces of socialism and communism. The LDP is said to have been born with financial help from the US Central Intelligence Agency. But when CIA funding dried up in the early 1970s the party survived and flourished, while leftwing groups retreated to the fringe.

In later years the Liberal Democrats’ hold on power occasionally seemed to be threatened, and once it lapsed altogether. But the party survived, or struggled back to office, through its ability to co-opt others. By the time I reached Tokyo in 1973 the Komeito or Spirit of Fairness Party – the offshoot of a Buddhist sect, aggressively radical at the outset – had become a tame junior member in a series of LDP-led coalitions.

By then there were two keys to what seemed to have become a permanent LDP hold on power. One was wheeling and dealing with the opposition. The other – paradoxically – was the faction fighting that in those days seemed to be a permanent feature of life in the LDP. Factional battles drew headlines while the real tensions in Japanese society often found expression behind closed doors.

You could call this Japanese-style democracy, but the effect was to keep one party semi-permanently in power.

In 1955 when the LDP was created two of Japan’s closest neighbors, Taiwan and South Korea, were being run by authoritarian single-party governments that grossly lacked democratic credentials. It was only thanks to East Asian politeness that they sometimes were not called dictatorships. By the late 1980s both countries had reached a point where two or more parties were competing for power in what seemed to be democratic elections. Meanwhile, in Japan, the LDP reigned in (almost) solitary glory.

Japan’s political system had come to seem like a fly in amber: the spirit of democracy permanently trapped by the realities of power.


Published in: June 2018

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