MITI and the Japanese miracle

).

⁴⁰

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 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 distinction between market and plan refers to differing conceptions of the functions of the state in economic affairs. The state as an institution is as old as organized human society. Until approximately the nineteenth century, states everywhere performed more or less the same functions that make large-scale social organization possible but that individuals or families or villages

Page 19

cannot perform for themselves. These functions included 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 those states that were the first to industrialize, the state itself had little to do with the new forms of economic activity but towards the end of the nineteenth century the state took on

regulatory

functions in the interest of maintaining competition, consumer protection, and so forth. As Henry Jacoby puts it, 'Once capitalism transformed the traditional way of life, factors such as the effectiveness of competition, freedom of movement, and the absence of any system of social security compelled the state to assume responsibility for the protection and welfare of the individual. Because each man was responsible for himself, and because that individualism became a social principle, the state remained as almost the only regulatory authority.'

⁴¹

In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on

developmental

functions. These two differing orientations toward private economic activities, 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, whereas Japan is a good example of a state in which the developmental orientation predominates. A regulatory, or market-rational, state concerns itself with the forms and proceduresthe rules, if you willof 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 what industries ought to exist and what 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 economic policy. In the plan-rational state, the government will give greatest precedence to industrial policy, that is, to a concern with the structure of domestic industry and with promoting the structure that enhances the nation's international competitiveness. The very existence of an industrial policy implies a strategic, or goal-oriented, approach to the economy. On the other hand, the market- rational state usually will not even have an industrial 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

Page 20

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 economic advantages.

These various distinctions are useful because they draw our attention to Japan's emergence, following the Meiji Restoration of 1868, as a developmental, plan-rational state whose economic orientation was keyed to industrial policy. By contrast, the United States from about the same period took the regulatory, market-rational path keyed to foreign policy. In modern times Japan has always put emphasis on an overarching, nationally supported goal for its economy rather than on the particular procedures that are to govern economic activity. The Meiji-era goal was the famous

fukokukyohei

* (rich country, strong military) of the late nineteenth and early twentieth centuries. This was followed during the 1930's and 1940's by the goals of depression recovery, war preparation, war production, and postwar recovery. From about 1955, and explicitly since the Income-doubling Plan of 1960, the goal has been high-speed growth, sometimes expressed as 'overtake Europe and America' (

Obei*

ni oikose

). Amaya lists the goals of the past century in detail:

shokusan

kogyo

* (increase industrial production),

fukoku-kyohei