214
r
fragmented countries like the Netherlands. But because consensus is not always
readily reached by rivalrous groups, some central authority-the state-must act
to bring it about.
In Japan, the task of forging consensus or mediating private conflicts is facilitated enormously by the emphasis placed on wa (harmony). All individuals and
groups with a claim to authority invoke wa to buttress their capacity to take binding action. For the Japanese state, especially, the concept of wa provides an indispensable source of power. The state would have an infinitely harder time fulfilling
its oversight functioI].S.-if-the principle of wa did not carry such strong normative
'h
--thus hinges largely on the state's
har. mony-in terms of collective interests and national goals-amidst the cacoPho~y
of dissonant private interests. Consensus, the most common manifestation of Wai.
/ is the concrete means by which Japan reaches agreement within the private sector'
and between the private sector and government. As neutral mediator and as guardian of the public interest, the state is usually involved in coordinating the processes of consensus formation; and consensus, painstakingly arrived at, provi.deS
legitimation for st . WFVelltiofl ill the activities of the-markReconomy. -""---fn-t>nm''flf'ivi/1lgorous action, the Japanese state seldom brandishes the threat of legal sanctions to brin recalcitrant groups into line. The exercise of naked power is
conSl ered neither desirable nor effective, particularly as a frequently used instrument of governance. Rather, the state prefers to rely on its ability to (I) maintain
an aura of strict neutrality in relation to competing interest groups; (2) keep the
trust of groups with which it works; and (3) use persuasion and incentives to steer
the private sector in desired directions. The state's capacity to persuade the private
interests to take voluntaristic action-which, the state usually argues, lies in their
long-term, collective interests anyway-is the secret of its effectiveness. The
state's capacity to wield power emerges, in short, out of the structure of its working relationship with other groups in society, particularly private corporations. Its
power is far from absolute.
Perhaps Japan can be characterize~ as a "network," a "reJ~tional," or "societal~.§.tate in the sense that government power is intertwined with that of the private sectOr:"ltmnges on its capacity to work in concert with the private sector, with
each side making an effort to take into account the needs and objectives of the
other. Political power in Japan is thus exercised through a complex process of
public-private sector interaction, involving subtle give-and-take, not frontal confrontations which would result in the forcible imposition of one side's will on the
other.
In terms of the state's capacity to impose its will on society, the power of authoritarian states in Latin America and in parts of the Third World far exceeds that
of Japan. Indeed, throughout Japan's long history, the central government has almost never wielded absolute power. Even during the heyday of prewar military
rule, military cliques never had the absolute power of fascist regimes in Germany
or Spain.
If state power is defined solely in terms of confrontational clout, even the
American government might be considered stronger than its Japanese counterpart:
consider, for example, the many cases of U.S. government enforcement in the
®G
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Chalmers Johnson
Government Institutions and Policy Making
elff:~tiVe;~er
capacityt()·achie.~e
215
regulatory, antitrust, equal opportunity, and national security arenas (the last involving, for example, controls over the export of dual-purpose technology). Differences in the exercise of power by the American and Japanese governments can
be seen not only in the contrasts between America's arm's-length, legalistic style
and Japan's close-up, cooperative approach, but also in the frequency of, and reliance upon, confrontational coercion in the United States, as opposed to persuasion, painstaking negotiation, and mutual accommodation in Japan.
To be effective, the Japanese government must maintain close working rela-) ~'\
tions with the private sector, since mutual trust is the sine qua non of cooperation
I~
and compliance. This implies that the state, like a parent, has to have the best interests of the private sector at heart, even when it seeks to reconcile parochial private interests with collective goals. It must listen to the views of private companies, taking them fully into account when formulating public policies-but
without becoming merely the puppet of powerful private interests. For a "societal
state" like Japan's to assume a strongly pro-business posture is, therefore, hardly
surprising. This stance is perfectly in keeping with the way Japanese society is
structured, and the way political power is exercised.
44. Market Rationality vs. Plan Rationality
Chalmers Johnson
In this selection Chalmers Johnson, a political scientist at the University of California,
Berkeley, compares the operation of the United States economy, as an example of market
rationality, to the operation of the Japanese economy, as an example of plan rationality.
Johnson suggests that active government intervention and protection made possible the
change in industrial structure that occurred in Japan during the 1960's, which in turn
brought about Japan's "economic miracle." The essay is adapted from his study of the Ministry of International Trade and Industry (MITI) published in 1982.
Nowhere is the prevalent and peculiarly Western preference for binary modes
of thought more apparent than in the field of political economy. In modern times
Max Weber began the practice with his distinction between a "market economy"
and a "planned economy." Some recent analogues are Ralf Dahrendorf's distinction between "market rationality" and "plan rationality," Ronald Dore's distinction between "market-oriented systems" and "organization-oriented systems,"
and George A. Kelly's distinction between a "rule-governed state" and a
"purpose-governed state." I shall make use of several of these distinctions later,
but first I must stress that, for purposes of the present discussion, the right-hand
component of these pairs is not the Soviet-type command economy. Economies of
the Soviet type are not plan-rational but plan-ideological. In the Soviet Union and
From Chalmers Johnson, MITI and the Japanese Miracle: The Growth ofIndustrial Policy, 19251975 (Stanford, Calif.: Stanford University Press, 1982), pp. 18-31. By permission of the publisher.
216
Government Institutions and Policy Making
its dependencies and emulators, state ownership of the means of production, state
planning, and bureaucratic goal-setting are not rational means to a developmental
goal (even if they may once have been); they are fundamental values in themselves, not to be challenged by evidence of either inefficiency or ineffectiveness.
In the sense I am using the term here, Japan is plan-rational and the command
economies are not; in fact, the history of Japan since 1925 offers numerous illustrations of why the command economy is not plan-rational, a lesson the Japanese
learned well.
At the most basic level, the distj!!.~tiQrI b(:tween market and plan refers to differing conceptions of the functions.aftlle.state iii_~90nolllicaffairs..Tne: state as an
ins]tution-is-'as-otd1isorganized human society. Until approximately the nineteenth -century, states everywhere performed more or less the same functions,
functions that make large-scale social organization possible but that individuals or
families or villages cannot perform for themselves. These functions include defense, road building, water conservancy, the minting of coins, and the administration of justice. Following the Industrial Revolution, the state began to take on
new functions. In the states that were the first to industrialize, the state itself had
little to do with the new forms of economic activity, but toward the end of the nineteenth century the state took on r~!1itoEL~!:!!Sll~J!S in the interest of maintaining
competition, consumer protection, and so forth.
In states that were late to industrialize, the state itself led the industrialization
}drive; th..at is, it took oIrd~~el~m(mlaJfunctions. These two differing orientations
towarcrprivate economic activliieS---':the regulatory orientation and the developmental orientation-produced two different kinds of government-business relationships. The United States is a good example of a state in which the regulatory
orientation predominates; Japan is a good example of a state in which the developmental orientation predominates. A reguJatory,.or market-rational, state concerns~~s~lfw.iththeJQrmsand proce~ures-the ru!es,i,f you will-of economic
competition, but it does not concern itself with substantive matters. For example,
the United States government has many regulations concerning the antitrust implications of the size of firms, but it does not concern itself with which industries
ought to exist and which industries are no longer needed. The developmental or
plan-rational state, by contrast, has as its dominant feature precisely the setting of
such substantive social and economic goals.
Another way to make this distinction is to consider a state's priorities in eco"
) nomic p~licy. I~ the p~an-ra.t~on~l ~tate, the government w!ll give greatest prece-- denGe ,10 mdustrlal Rolrcy-tnat IS, to a concern forpromotmg the structure of domestic1ndustry that will enhance thenation's fnterna,ti9nal competitiveness. The
very existence of an industrial policy implies astrategiCQr goal-oriented approach
tOJ~.Qg}Y, On the other hand, the market-rational state usually will not even
have an ii1austrial policy (or, at any rate, will not recognize it as such). Instead,
both its domestic and foreign economic policy, including its trade policy, will
stress rules and reciprocal concessions (although perhaps influenced by some
goals that are not industrially specific, goals such as price stability or full employment). Its trade policy will normally be subordinate to general foreign policy,
(being used more often to cement political relationships than to obtain strictly eco\ nomic advantages.
These various distinctions are useful because they draw our attention to Japan's
Chalmers Johnson
217
a.Jle.~oP~ental"-'Planc\./((.-:;
emergence, following the Meiji Restoration of 1868, a.s
..\1
rational state whose economic orientation was keyed to mdustrlal polrcy. By con\ .
.
trast, the United States, from about the same peri~d, took the regulatory, market'~...... /
rational path keyed to foreign policy. In modern tImes',Japan has always put emphasis on an overarching, nationally supported goal f~r ItS e:~nomy rather~lin on
the particular procedures-that are to govern economic actlvlt~. Only. dun~g the
1970 'S did Japan begin to shift to a somewhat re¥ulatory, forelgn-pollcy onentation, just as America began to show early SIgns of a .new devel?pmental,
industrial-policy orientation. But the Japanese s~stem remaInS plan-ratIonal, and
the American system is still basically market-ratIonal.
This can be seen most clearly by looking at the differences between the two systems in terms of economic lln'!.P~iti~~L~~.w£>I1~ll2aldng .. In. Japan, the developmental, strategic quality of economic policy is reflected WIthIn t~e govern~ent In
the high position of the so-callede..£~nomic bl,l~eauc~ats-that IS, the offiCIals of
the Finance, International Trade and Industry, Agncultur~ and Fo!estry, Construction, and Transportation ministries, plus the Economic Planmng. Age~~y.
These official agencies attract the most talented grad~ates. of the bes.t ~m~erSltIeS
in the country, and the positions of higher-Ievel.officlals In the~e .m~mstnes have
been and still are the most prestigious in the SOCIety. Although It IS Influenced by
pressure groups and political claimants, t~e el~te bureaucracy of !apan makes
most major decisions, drafts virtually all legIslatIon, controls the natlo~al budget,
and is the source of all major policy innovations in the system. Equally Important,
upon their retirement, which is usually between the ages of. ~ty ~nd ~fty-five,
these bureaucrats move from the government to powerful posl~Ions In pn~ate enterprise, banking, the political world, and the n~merous pUbll: corpor~tIO~s-a
direction of elite mobility that is directly OppOSIte to that w~Ich prevaIls In t~e
)
).
United States. The existence ot<'l:p.<>",erful, talented,andpr~~tlgt:~.lll~e_1l:.<::~<>.nomlc
bureaucracy is a naturalcQrollaryofpTanrati6nality.· .....
,
In.tm!!}{,~Ftati()l1al systems such as the United .States, p~~lrc serv~ce ~oes n~t
norman)' attmcttEe mos!.£aPllP!eJalent, and natIOnal deCISIon makIng IS domInated by elected members of the professional class, who are usually lawyers,
rather than by the bureaucracy, The movement of elit~~ is not fr~m governm~nt t.o
the private sector but vice versa, usually through polrtlcal appoIntment, W~l(:h IS
much more extensive than in Japan. The real eqUIvalent of the Japanese Mmlstry
of International Trade and Industry (MIT!) in the United States is not the Department of Commerce but the Department of Defense, which by its very nat~re ~nd
functions shares MITI's strategic, goal-oriented outlook. In fact:, the p~Jo.ratlve
connotations in the United States of terms such as "Japan, Inc. are SImIlar to
those surrounding the domestic expression "military-industrial co~plex," referring to a close working relationship between government and busmess to solve
problems of national defense.
.
.
Another way to highlight the differences between plan ratronallty and .market
rationality is to look at some of.th.~:~~.Qe-offs. inv~lved .in ~ach a~proach. FI:St, the
most important evaluative standard 1Ort1arK.e!-r<l~Io~~t~Y:4§.4fici"ncy. B~t 10 plan \ , /
rationality, this takes lower precedence tfilUl.&~...f!!¥.~~.ss. Both ~mencans and
Japanese tend to get the meanings o.f ~f?cienc~ and e~ectlveness mIxed up. ~mericans often and understandably CrItICize theIr offiCIal bureaucracy for ItS 1Oefficiency, failing to note that efficiency is not a good evaluative standard for bureau-
2I8
Government Institutions and Policy Making
cracy. Effectiveness is the proper standard of evaluation of goal-oriented strategic
activities. On the other hand, Japanese continue to tolerate their wildly inefficient
and even inappropriate agricultural structure, at least in part because it is mildly
effective: it provides food that does not have to be impOfted:-- -j
)
Second, both types of systems are concerned withl"_:~xternalities," or what Milton Friedmll!lha~ called "neigh_borhgod effects"-an examplewould be such unpriced social costs of prodUction as pollution. In this instance, however, the planrational 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 jUdge(ro)i\\7~~!heL~e wins or loses. It would be good ifhe would
also employ an economy of violence-(De-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 between1hf<,Japanese and the American handling of pollution in the 1970'S.
! c/)--' ) ~ ..the plan-rational systemdepends upon the existence of a widely agreed(
~
upon set of ove!arcJ1jJ),g:g@iX~t!~~.s~<:~ety,suc!l_as high-speed&rowth. When
"---------- -'
such a consensus exists, the pian-ratIOnal system Wi11outpefform the marketrational system on the same benchmark, such as growth of the gross national
product (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, as during the "Nixon Shocks" of 1971 and
after the oil shock of 1973. Generally speaking, the great strength of the planrational 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.
,- "'-_ Fou~h,)n~_e.~<:,c!~~()J1_rnakin¥ is centere~ in diffe~ent bodies in the tW? systems-Ill an ehte bureaucracy III one _a~4m a parhamentary assembly III the
other-the process ofpuliC)ichiUigewlil be manifested in quite different ways. In
the-ptlin-raiiOnal systern,-cliiiiige~wlrr6emarkedDY inte!1£1 burea~£!a.ti(;9isputes,
faet~aljI}.tighting, and confli~Ll>~t~~I!Jillnistries. In the marKet-rational system,-c ange will be markeooy-sfienuolls parliamentary contests over new legislation and by election battles. Forexalllple;ihe shift in Japan during the late
1960'S and throughout the 1970'S from protectionism to liberalization was most
clearly signaled by factional infighting within MIT! between the "domestic faction" and the "international faction." The surest sign that the Japanese government was moving in a more open, free-trade direction was precisely the fact that
the key ministry in this sector came to be dominated by internationalistic bureaucrats. Americans are sometimes confused by Japanese economic policy because
r
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Chalmers Johnson
219
they pay too much attention to what politicians say and because they do not know
much about the bureaucracy, whereas Japanese have occasionally given too much
weight to the statements of American bureaucrats and have not paid enough attention to congressmen and their extensive staffs.
Looked/at-hist,.orically, modern Japan began to be plan-rational and developmental
868. ,After about a decade and a half of experimefitalfol1"witfi-dired
state operatiorfof economic enterprises, it discovered the most obvious pitfalls of
plan rationality: corruption, bureaucratism, and ineffective monopolies. Japan
was and remained plan-rational, but it had no ideological commitment to state
ownership of the economy. Its main criterion was the rational one of effectiveness
in meeting the goals of development. Thus, Meiji Japan began to shift away from
state entrepreneurship to collaboration with privately owned enterprises, favoring
those enterprises that were capable of rapidly adopting new technologies and that
were committed to the national goals of economic development and military
strength. From this shift developed the collaborative relationship between the
government and big business in Japan. In the prewar era, this collaboration took
the form of close gove~lJlentaItiesto_th~?"_aikl!t.s.u(privatelyowned industrial empires). The government induced the zaibatsu to gQjntoare.!l.§.~wJ1~rejtJelt-devel:
opment was needed. For their part, the zaibatsu pioneered the commercialization
of modern technologies in Japan, and they achieved economies of scale in manufacturing and banking that were on a par with those of the rest of the industrial
world. There were many important results of this collaboration, including the development of a marked dualism between large, advanced enterprises and small,
backward enterprises. But perhaps the most important result was the introduction
of a needed measure of competition into the plan-rational system.
What difference does industrial policy make? It is very difficult to do costbenefit analyses oftIie-effecKofindustrial policy, not least because some of the
unintended effects may include bureaucratic red tape, oligopoly, a politically dangerous blurring of what is public and what is private, and corruption. Professional
quantitative economists seem to avoid the concept on grounds that they do not
need it to explain economic events.
I cannot prove that a particular Japanese industry would not or could not have
grown and developed at all without the government's industrial policy. What I believe can be shown are the differences between the course of development of a particular industry without governmental policies (its imaginary or "policy-off" trajectory) and its course of development with the aid of governmental policies (its
real or "policy-on" trajectory). It is possible to calculate quantitatively, if not retrospectively, how, for example, foreign currency quotas and controlled trade suppress potential domestic demand to the level of the supply capacity of an infant
domestic industry; how high tariffs suppress the price competitiveness of a foreign industry to the level of a domestic industry; how low purchasing power of
consumers is raised through targeted tax measures and consumer-credit schemes,
thereby allowing them to buy the products of new industries; how an industry borrows capital in excess of its borrowing capacity from governmental and government-guaranteed banks in order to expand production and bring down unit costs;
how efficiency is raised through the accelerated depreciation of specified new machinery investments; and how tax incentives for exports function to enlarge exter-
<fill
220
Government Institutions and Policy Making
Kozo Yamamura
nal markets at the point of domestic sales saturation. Kodama Fumio has calculated mathematically the gaps between the real trajectory and the policy-off
trajectory of the Japanese automobile industry during its infant, growing, and stable phases (the data are not yet available, of course, for a future declining phase).
His measures are also tools for analyzing the appropriateness and effectiveness of
the various governmental policies for the automobile industry during these
phases.
The controversy over industrial policy will not soon end, nor is it my intention
to resolve it here. The important point is that virtually all Japanese analysts, including those deeply hostile to MITI, believe that the government was the inspiration and the cause of the movement to heavy and chemical industries that took
place during the 1950'S, regardless of how one measures the costs and benefits of
(this movement.
.~{ This shift of"'~ind.u.sJ!:ial structure" was the operative mechanism of the ecoJ nomic miracle. ~id the ~ent.in general, or MIT! in particular, cause it to
. occur? Or,-.!2.,put It more carefully, did the government accelerate it and give it the
direction it took? Perhaps the best answer currently available is a comparative appraisal: three of the countries with which Japan can most profitably be compared
(France, Germany, and Italy) shared some or all of Japan's initial advantagese.g., flexible labor supplies, a very favorable (in fact, even more favorable) international environment, the possibility of rebuilding an industrial structure using
the most advanced techniques. Yet other conditions were very dissimilar. The
most crucial difference was perhaps in the field of economic policies. Japan's gov. .ent ex~rcised a much greater degree of both in.te~ention and protection than
d any of ItS Western European counterparts; and thiS brings Japan closer to the
xperience of another set of countries-the centrally planned economies.
I(
"".-J
~
.
22 I
In contrast, in the United States, where antitrust st~tutes are en~orc~d more vigorously, firms cannot seek refuge in times ~f rece~slon. In makmg mvestr,nents,
they cannot enjoy the reduced risks of coordmated I~vestment under the gmdance
of governmental agencies. Thus, the advantages gamed by Japanese firms ~an .be
substantial, in periods of both rapid and slower growth. In the former, c~paclty mcreases are achieved more quickly, because the effects of excess capaclty.caD: ~e
cushioned. Once an industry achieves higher productivity and larger capacity,. It IS
easier for it to retain its competitive ability and to improve itselffurther, espeCially
if the government also becomes increasingly involved.
.
.
Other international competitive advantages are even more obvl()~s: In~lmes of
recession, a Japanese industry protected b~'a cartel can rebound.m the m~erna­
tional market as soon MmarKeTcoiiditions iinptove. The same mdustry 10 the
United States may succumb by going bankrupt or being forced to r~~uce pro~u~­
tive capacity too rapidly to reenter the inter~ational market competitively. ThiS IS
precisely the advantage Ministry of I~ternatlOna~Trade and Ind~stry (MIT~) officials use to justify their procartel pohcy. In earlier years, they Justified gUldan.ce
cartels on the grounds that such cartels prevented the "loss of productive capacity
that is needed for international competition." This was bas~cally the ar~ument
MIT! officials used, for example, in successfully advocatmg the DeSignated
Recession Industries Stabilization Act of 1978.
. . '.
In the 1950'S, and even in the 1960'S, .such a policy ~~e.~.~~..!.l?)!!stlfy. The advantage enjoyed by the protected industnes helped the"Japanese economy to gro~,
benefiting many people. Today, however, we sh~uld ask why cartel~ are still
needed to protect some industries while..l~Pll!!~~(: I~dus~ryas a whol~ IS so successful in world markets. We should ask why Japan contm~es to permit such cartels, when, in effect, they provide subsidies from the n~tlOnal ~offers and consumers so that selected recession industries can compete mternatlOnally.
45. Procartel Policy: The Advantages
Kozo Yamamura
In this selection, which first appeared in 1982, University of Washington economist
Kozo Yamarnura outlines the advantages derived from Japan's tolerance of cartels. Yarnamura suggests that such government protection is no longer necessarytlJthe Japanese
economy.
Japan's lax antimonopoly policy has provided its industries with a relative advantage over American·and·otln:t·We-stern industries in international competition.
Many segments of Japanese export-oriented industries-for example, steel, shipbuilding, chemicals, and mCl,<:hmery-have.been shielded from the vagaries of the
market forces ~y sanctioned collusion~1
""'~--.:~" ='-""
From Kozo Yamamura, "Success That Soured: Administrative Guidance and Cartels in Japan," in
Kozo Yamamura, ed., Policy and Trade Issues ofthe Japanese Economy: American and Japanese Perspectives (Seattle: University ofWashington Press, 1982), pp. 100-101. By permission ofthe publiSher.
46. Japanese Industrial Policy: International
Repercussions
Kozo Yamamura
Economist Kozo Yarnarnura argues in this selection that Japanese governmenta.l policy
encourages coordinated export drives as a means of alleviating domestic economic problems. The essay is drawn from Policy and Trade Issues ofthe Japanese Economy (1982).
Ministry of International Trade and Industry (MIT!) policies have provided an
important justification for the export drive of Japanese fi~ms, as m~ny knowledgeable Japanese economists (and even businessmen) readtly recogmze. Yet one
From Kozo Yamamura, "Success That Soured: Administrative Guidance an.d Cartels in Japan," in
Kozo Yamamura, ed., Policy and Trade Issues of/he Japanese Economy: Amerl~a~ and Japanese. Perspectives (Seattle: University of Washington Press, 1982), pp. 99-100. By permiSSIOn of the publIsher.