decided that he had exhausted his usefulness. He declared, however, that he would not take any of the three paths of amakudari normally followed by high-ranking officials in retirement. He did not want to enter private enterprise because the presence of an outsider only annoyed the long-service employees and interfered with their own chances for promotion. He did not want to enter politics because he was disillusioned with politicians. And he did not want to go to a government corporation, because there he would have to take orders from some vice-minister, and that did not suit him. Sahashi therefore spent the next six years doing economic research and writing a series
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of very useful and candid books. In 1972 he finally took a position as chairman of the Leisure Development Center, a MITI-sponsored association to promote the tourist and recreation industries. When I met him in 1974, he appeared the very model of an international tourist executive: ensconced in an office surrounded with tropical fish in tanks, recently returned from a visit to the South Pacific, and dressed in a white safari suit, he answered my questions frankly, and passionately defended his beloved MITI. He was not known to the press as 'Mr. MITI' (
*
*) for nothing.
The demobilization of the Japanese economy really only began during the early 1960's with trade and exchange liberalization; the statement in the 1956
, 'We are no longer living in the days of postwar reconstruction,' was about five years premature. Until trade liberalization was forced on it, Japan had operated a totally closed economy in which all of its contacts with the rest of the world were mediated and brokered in government offices. Trade liberalization beganit did not enda complicated process of opening the Japanese economy to the full range of commercial and competitive pressures that affect all of the world's market economies. Not until 1980, when the Foreign Capital Law of 1950 was finally abolished, could it be said that Japanese economic demobilization was more or less complete. Although the Japanese economy prospered enormously from the global trends toward trade and capital liberalization, the actual process of removing Japan's controls was a harrowing one for both Japan and its trading partners. The period from approximately 1960 to 1980 left scars, as we shall see in the next chapter, that twenty years later were still affecting the Japanese-American alliance.
In January 1981 the special commission of distinguished Japanese and American leadersthe 'wisemen'who had been appointed in May 1979 by Prime Minister Ohira* and President Carter to examine factors affecting the long-term economic relationship between the two countries, issued its report. Under the general subject 'Japan's Market: Open or Closed?' the wisemen discussed administrative guidance:
One of the most difficult aspects of the Japanese economic system for non-Japanese to understand is the nature of the government-business relationship. The more embracing set of consultations between the private and public sectors and less of an adversary relationship than in the United States lend substance in some American eyes to the concept of a 'Japan, Inc.' This image presents a very false and misleading impression of the Japanese economy. It is also very harmful to United StatesJapan economic relations because it cre-
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ates the false impression that Japan can manipulate exports and imports at will. Business does not meekly respond to government fiat nor is government the creature of business. Most Japanese, however, do acknowledge the existence of government reliance on administrative guidance, usually describing the informal means by which government attempts to influence business without resorting to legislative or regulatory measures as would be the case in the United States.
47
As this chapter has sought to show, administrative guidance became a salient feature of the Japanese government-business relationship only in the context of trade liberalization and MITI's failure to provide a new legal basis for its guidance activities. Until then the government's role in economic decision-making had been guaranteed by its management of the foreign exchange budget. After that budget was abolished, the government continued to play its traditional role just as alwaysbut without its old explicit power to compel compliance through control of an industry's or an enterprise's foreign trade.
The government's role in the economy, either before or after trade liberalization, has never been highly constrained by law. To be sure, the Japanese economic system rests on a legal foundationbut usually on short, very general laws, the Special Measures Law being a good example. The actual details are left to the interpretation of bureaucrats so that the effects can be narrowly targeted. And large areas of economic activity are covered by neither general laws nor detailed cabinet or ministerial orders, but are left to administrative guidance. The power of administrative guidance is rather like the grant of authority to a military commander or a ship captain to take responsibility for all matters within his jurisdiction. Administrative guidance is a perfectly logical extension of the capitalist developmental state, with its emphasis on effectiveness rather than legality.
The power of administrative guidance greatly enhances the ability of Japanese economic officials to respond to new situations rapidly and with flexibility, and it gives them sufficient scope to take initiative. The Japanese have unquestionably profited from the elimination of legal middlemen and the avoidance of an adversary relationship in public-private dealings. Needless to say, this cozy relationship between officials and entrepreneurs is open to abuseand, as we shall see in the next chapter, it has on occasion been abused. But given the general developmental imperatives of postwar Japan, the public has been willing to accept the trade-off between bureaucrats occasionally exceeding their mandate and quicker and more efficient economic administration. As the degree of trade and capital liberalization in-
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creased, administrative guidance declined, but it will never disappear completely from the Japanese scene, given the public's awareness of Japan's economic vulnerability and its acceptance of the need for governmental coordination of economic activities.
As the last of the old-style industrial-policy bureaucrats, Sahashi worked hard to mitigate the effects of liberalization and to continue high-speed growth as long as possible. Following his period in office, MITI encountered a storm of criticism of its activities, and the cooperative relationship between government and business began to crack under demands by the private sector for the restoration of self-control. However, shortly after the first 'oil shock' of 197374, MITI again found a call for its servicesto lead third-stage knowledge-intensive industrialization and to correct many abuses that had accompanied the renewal of self-control. The ministry also underwent an internal reform and redefinition of the qualities of a MITI official. Unlike Sahashi and his fellows of the older generation, the new MITI official was to be experienced in international affairs, adept at foreign languages, and as much at home with trade
