guidelines, the city capped the water and sewage lines he had built for the project with concrete. The contractor took the city to court, but the court upheld the city.
40
Generally speaking, few objections are possible when administrative guidance is couched in terms of the national interest. The press likes to cite the case of a city bank executive who called on the Ministry of Finance to protest that his bank could not absorb the full quota of government bonds assigned to it by administrative guidance. A Banking Bureau official replied, 'So you think
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your bank can survive even after Japan collapses? Go back and tell your president exactly what I said.'
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Sahashi was particularly adept at and inclined to use this kind of defense of his administrative guidance.
The problems of administrative guidance begin when it is suspected that a ministry is not neutral in an issue it is supposed to be arbitrating, or when it has been captured by the people it is supposed to be regulating, or when its administrative guidance is really only a governmental cloak (kakuremino) hiding an otherwise illegal cartel, or when the deliberation councils in which administrative guidance is carried out have been packed with people leaning in a certain direction. There is no ready relief from such malpractices when they are suspected. Several protests against administrative guidance on these grounds erupted during the 1970's, as we shall see in the next chapter.
During the recession of 1965 the main form of MITI's administrative guidance was investment coordination done in 'cooperative discussion groups.' Whatever businessmen or their representatives may have said in the Diet about MITI, Sahashi, or the Special Measures Law, in private they welcomed these cartels to stave off the consequences of their own preemptive investment and the weakening of demand during the recession. On January 29, 1965, the discussion group for petrochemicals decided that new ethylene-producing facilities for fiscal 1965 and 1966 should be limited to 350,000 tons, and that firms already established in the industry should be the only ones to develop such facilities. And on March 18, 1965, the synthetic textiles discussion group agreed on a formula for new acrylic fibers facilities that would keep output below 30 tons per day. In May 1965 MITI set up a paper pulp industry discussion group, and in November 1966, one for the ferroalloys industry. Other industries employed the specialized committees of the Industrial Structure Council for the same purpose, and the council ultimately replaced the discussion groups as the place where most industrialists and financiers got together to agree on how much each was going to invest in what kinds of plants and equipment.
Another important form of administrative guidance during this period was the promotion of mergers. Sometimes this meant nothing more than MITI's bringing the parties together and endorsing their union before the FTC. The biggest such merger was the reamalgamation on June 1, 1964, of the three companies that had come into being after SCAP broke up the old Mitsubishi Heavy Industries. However, sometimes more was needed to achieve a merger than mere verbal
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encouragement. During fiscal 1963 the Japan Development Bank set aside some ?3 billion (enlarged to ?6 billion during 1964) for 'structural credit' loans to large firms that merged. The government had long used easy financing to encourage mergers among medium and smaller enterprises; now it extended such funds to the automobile, petrochemical, and alloy steel industries. In the merger of the Nissan and Prince automobile companies, which was finally consummated on August 1, 1966, Nissan is alleged to have received a reward in the form of an $11.1 million loan from the JDB.
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The government justified this kind of largesse as part of its export promotion policies, since economies of scale lowered the prices of export products. As Holler-man notes, 'It is ironic that whereas zaibatsu dissolution was undertaken by the occupation authorities in the name of economic democracy, their reconstruction is now being pursued in Japan in the name of import liberalization.'
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Sahashi credits Minister Sakurauchi with bringing off the Nissan-Prince merger, but most observers believe that Sahashi himself did most of the work.
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These months of 'structural recession,' mergers, and administrative guidance led up to and conditioned Vice-Minister Sahashi's last hurrahthe fight he had with the Sumitomo Metals Company of Osaka because it refused to abide by his administrative guidance. Steel, in Inayama Yoshihiro's words, is the 'rice of industry,' and the steel industry has long been regarded by knowledgeable observers as the 'honor student' of the Japanese government-business relationship.
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During the mid-1960's, however, MITI was having some problems with its prize pupil. Because the Yawata works had been founded as a state enterprise (which in 1934 became the major participant in Japan Steel, a public corporation), four of the 'big six' steel companies (Yawata, Fuji, Nippon Kokan*, Kawasaki, Sumitomo, and Kobe) distrusted MITI's impartiality on the grounds that it had a soft spot in its heart for its ''true children,' Yawata and Fuji, the successors to Japan Steel after SCAP broke it up. Moreover, relations with the steel industry were delicate. All of the big six firms had high-ranking former MITI officials on their boards of directorsexcept for Sumitomo, which refused on principle to hire bureaucrats. But even so it was hard to give direct orders to the industry because so many of its executives were top leaders in business organizations such as Keidanren and Keizai Doyukai*.
There were two main problems in the administration of the steel industry: coordination of investment for new blast furnaces and converters, and coordination of production in order to maintain prices at
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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 (
