though it surely was, the wartime enterprise readjustment movement lies at the beginning of the path that leads to the Industrial Rationalization Council of the 1950's and to the Industrial Structure Council of the 1960's and 1970's.
As early as 1937 Professor Arisawa Hiromi, who in 1975 was one of the leaders of the Industrial Structure Council, had argued against the prevailing wisdom that medium and smaller enterprises were essential to Japan's export capability. Citing the work of the economist and Cabinet Planning Board official Minoguchi Tokijiro *, Arisawa contended that, contrary to MCI policy, fostering and protecting smaller enterprises was a mistake because they were of only incidental importance to Japan's long-term export prospects, although he did acknowledge that they provided work for a large proportion of Japan's labor force.
3
He would have preferred to see all of these small factories organized into large productive units, or at least made subcontractors of large enterprisesan idea that the zaibatsu found quite congenial. One important legacy of the enterprise readjustment movement is today's pattern of extensive subcontracting between large, well-financed final assemblers and innumerable small, poorly financed machine shops.
4
The problem of converting and closing small enterprises emerged concretely as a result of the failure of the first materials mobilization plan in mid-1938. The Cabinet Planning Board scrapped its original plan in part because it discovered that much of the country's imported materiel was being used not by large enterprises for creating munitions or exports but by medium and smaller enterprises that manufactured for domestic consumption. The CPB's revised plan radically cut imports for these types of businesses, which drove a large number of them into bankruptcy but also raised for the government the question of what to do with the workers who had been forced out of work. In September 1938 MCI took its first steps to come to grips with the problem by creating the Tengyo* Taisaku Bu (Industrial Conversion Policy Department).
The idea behind the department was that through a combination of
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subsidies and governmental pressure, the depressed medium and smaller enterprises could be shifted to production of munitions, production for export, or production of import substitutes. Officials of the department also used techniques learned in the rationalization movement to promote joint management and enterprise mergers for large numbers of firms. The workers who could not be easily reorganized were encouraged and paid to emigrate to Manchuria and China. The Unemployment Policy Department of the new Welfare Ministry also sponsored such emigration in order to help prevent social unrest among the unemployed.
In the reorganization of MCI on June 16, 1939, the Industrial Conversion Policy Department was renamed and continued as the Promotion Department (Shinko * Bu). It is not clear who thought of the term ''promotion' or what was meant by it, but the 'promotion department' was perpetuated in the MITI era as a component of the Medium and Smaller Enterprises Agency, created on August 2, 1948. MITI historians see in the reorganization of 1939 a fundamental change of function for the ministry; until then commercial and industrial policy had been carried out without reference to the scale of enterprises, but after 1939 policy was explicitly committed to the nurturing of largescale enterprises.
5
This function seems to underlie the meaning of 'promotion'namely, the promotion of the expansion of small businesses into larger ones.
The movement to convert small businesses to a war footing began slowly during late 1938 as an ad hoc response to the stretching out of the China Incident. The government did not agree on a basic policy for the Promotion Department until January 12, 1941, when MCI announced its 'General Plan for the Conversion and Closing of Medium and Smaller Enterprises.' Two years later the government would need to apply the policy to all enterprises, not just medium and smaller firms.
The first half of 1942 was a period of great euphoria for Japan's industrial planners. The 1942 materials mobilization plan was the most optimistic of all of them, and the Cabinet Planning Board even relaxed regulations over the use of petroleum, now that Dutch East Indies supplies were in Japanese hands. Shortly after the fall of Singapore the military expressed its appreciation to the economic bureaucrats for their efforts by supplying the CPB and MCI with large numbers of commemorative rubber balls made of Malayan rubber for distribution to the
* (children of the rising generation).
6
Kishi Nobusuke, at age 46 the youngest minister in Japan's modern history, was
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immensely popular with the public and received extravagant praise in the press, both for himself and for his ministry.
Still, Kishi had problems. The control associations for each industry were not working well. The theory behind thema compromise forced on the state-control bureaucrats because of the resistance of the business communitywas the integration of the public and private sectors (
).
7
The reality, however, was the perpetuation of the privately controlled cartels of the 1931 Important Industries Control Law, which the zaibatsu dominated. Hadley characterizes the control associations as 'cartels with a bit of government thrown in.'
8
The government's power over them was more or less limited to the issuing of licenses. The control associations themselves were busy making good profits, distributing market shares in ways that favored the zaibatsu leaders, and making side deals with the military, regardless of what MCI or the CPB said or did. Moreover, the military often undercut bureaucratic efforts at control by keeping critical materials out of channels and in its own arsenals because of interservice rivalries and military distrust of the cartels' civilian leadership.
Most analysts have blamed the zaibatsu for the 'spinelessness' of the control associations, but blame should be shared by the ministries. All of the economic ministries fought endless battles of jurisdiction over the designation of an industry as 'important' and over influence in its control associations. The first control association, and the model for all the others, came under MCI jurisdiction; this was the Steel Control Association, created April 26, 1941, with President Hirao Hachisaburo* of Japan Steel as the association's presidentor Fuhrer, as the reform bureaucrats liked to call him. However, the steel control association was not so much an MCI invention as an MCI discovery; it had been formed by the steelmakers themselves following the American embargo on selling scrap iron to Japan, and it was little more than a renamed Japan Steel Federation (Nihon Tekko* Rengokai*), the trade association of the industry. Between April 1941 and January 1942 MCI and the Communications Ministry fought over the setting up
