enterprises, and their conglomerate structure dampened some of the shocks. The war-bred zaibatsu were hurt, but they were able to petition the government for special relief measures through their access to the politicians whom they financed. Small businessmen and tenant farmers were in serious trouble.
For MCI and the other economic bureaucracies the problems were conceptual. What was causing the recession to persist so long? Should anyone, including the government, do something about it? Why was the international balance of payments in chronic deficit? Why were corporate profits so low? What should be done? Numerous theories circulated. Japan was different from all other economies because of its 'dual structure' (zaibatsu versus thousands of medium and smaller enterprises). Japan was experiencing an 'overproduction crisis' because of the war boom. Japan was a victim of 'destructive competition' because of the unrestricted growth in the numbers of banks and enterprises. And Japan was simply entering the 'stage'' of 'monopoly capitalism' as foretold by the German Marxists.
The government did not have the answers to these questions, nor did it have a single policy. It did undertake ad hoc relief measures in response to each of the 'panics' that were occurring regularly, spending money recklessly to bail out failing enterprises (for example, in the case of steel, it purchased private steel firms that had been started up during the war to meet the so-called steel famine and that now faced steeply declining demand).
24
The government's overall monetary policy was deflationary, but many of its particular policies fed the price inflation that was making many Japanese products uncompetitive on world markets.
The most notorious among these policies was the government's response to the catastrophic Kanto* earthquake of September 1923. In
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order to avert immediate financial collapse at the time of the earthquake, the government ordered all banks closed for a month. When they reopened, the Bank of Japan instructed the banks to refinance all debts that had fallen due in the interim, with the Bank of Japan itself guaranteeing them against losses from these transactions. The government implemented this policy through 'earthquake bills,' of which it discounted a staggering ?438 million. Included in this amount were many bad debts that had existed since the end-of-the-war recession. By the spring of 1927, some ?231 million of these bills had been redeemed, but the outstanding balance of ?207 million looked irrecoverable and also stood in the way of reconstructing the country's public finances on a sound basis. There was, however, considerable public sentiment against writing off this debt, which would amount to a major subsidy of big business while smaller firms and farmers were allowed to go bankrupt.
25
In this general milieu, one person within MCI stands out as beginning to have some interesting ideas for reenergizing the economy. He was Yoshino Shinji. Yoshino's legal training at Todai1* had not taught him much about the economy, but after he returned from San Francisco in 1915, he had some experiences that gave him a more than purely bureaucratic perspective. The first was a period of duty as a transferee to the Home Ministry, during which he worked as a factory inspector in Kobe. There he discovered the world of medium and smaller enterprises (
*
*), which during the 1920's and 1930's Japanese defined as manufacturing enterprises with from 5 to 30 employees (small) and from 30 to 100 employees (medium).
His second useful experience came as an official in the Temporary Industrial Investigation Bureau (Rinji Sangyo* Chosa* Kyoku) set up within MAC by the Terauchi government (February 1917) to study the effects of the war on the Japanese economy. The bureau was not intended to produce policy or take action, since the private sector led Japan's growth during World War I. But it was expected to compare Japan with other belligerent powers and to advise about possible social problems. Nothing ever came of the bureau's work, but Yoshino met there such famous figures as Kawai Eijiro* (18911944) and Morito Tatsuo (b. 1888), both Todai economists who were working in MAC as consultants. Kawai, in particular, a man who later was to die in prison during World War II as an opponent of militarism from a non- Marxist socialist position, had a significant influence on Yoshino. In the bureau they wrote papers on such subjects as economic planning, stockpiling for emergencies, industrial finance, and American customs duties. As a result of these activities, Yoshino committed himself un-
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equivocally to the industrial side of the ministry's commercial and industrial administration.
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During the early 1920's, while serving as a section chief in the Industrial Affairs Bureau, Yoshino became one of the first government officials to gain expert knowledge of the medium and smaller enterprises sector. He discovered that despite the strategic importance of the modern zaibatsu enterprises, medium and smaller factories employed the overwhelming majority of Japan's industrial workers. Even more important, the zaibatsu firms produced primarily for the domestic market, but the medium and smaller enterprises concentrated on production for export. With a few exceptions such as rayon, silk yarn, and cotton textiles, where large enterprises were also strong exporters, medium and smaller manufacturers of sundries such as bicycles, pottery, enamelware, canned goods, hats, silk textiles, and so forth were contributing from 50 to 65 percent of all of Japan's exports. And they were losing money doing it.
27
Yoshino and his colleagues in MAC concluded that there were too many small firms, an overabundance of cheap labor, and inadequate channels and information for marketing; the result was that the small business sector was dumping goods overseas. The small export firm not only did not earn much foreign exchange, it was often not even meeting its costs. Moreover, the big zaibatsu trading companies, which monopolized the marketing of these products, were exploiting the medium and smaller enterprises by supplying raw materials at high prices and taking consignments of finished products at low prices.
During 1925 the new ministry sponsored and the Diet unanimously passed two new laws that were a first effort to alleviate these conditions, the Exporters Association Law and the Major Export Industries Association Law. In them we see in embryonic form major instruments of policy that the Japanese government has employed to the present day, notably the 'recession' and 'rationalization' cartels, as they were to be called in the MITI era.
The Exporters Association Law created export unions (
) in particular product lines among the medium and smaller enterprises. It authorized these associations to accept products for export on consignment from members, and to control quantities, qualities, and prices of export goods. The Major Export Industries Association Law attempted to end cutthroat competition among such enterprises. It established industrial unions (
*
