Japan's War Economy

Erich Pauer

• Publisher: Routledge
• Year: 2002
• Print ISBN:
  9781138880948
• eBook ISBN:
  9781134733286
• Topic: Business
• Subtopic: Business General
• Index: Business

This book explores the substantial and dynamic innovations of the wartime era, identifying this period as the most influential for Japan's post-war economic structure. Erich Pauer and a team of leading Japanese and German scholars discuss important aspects of the Japanese wartime economy, including: * ideological background * the Japanese 'planned economy' * technical mobilization * women and the war economy * socio-economic change * food shortages, the black market and economic crime * national policy companies * financial reforms

1
THE JAPANESE WAR ECONOMY AS A ‘PLANNED ECONOMY’

Nakamura Takafusa

THE IDEALIZATION OF SOCIALIST SOCIETY

In the 1930s, many people were disillusioned with capitalist society and instead they idealized socialism. Britain and the United States had long been reluctant to accept Marxism, although the best minds of the 1930s finally broke away from this constraint. At Harvard University in the United States, there were two prominent Marxist economists: Paul Sweezy and Paul Baran. Maurice Dobb at Cambridge, England, also studied Marxist economics in earnest.

In both countries, Marxism appealed to some intellectuals, but never gained the support of the working classes. As a result, communist parties in both countries were unable to wield influence or political power, and they remained minor opposition parties.

In France and Germany, on the other hand, Marxist-inspired leftist parties, such as the Communist Party and the Social Democratic Party, were formidable. Many intellectuals took a political stand in favour of Marxism, whether or not they joined the Communist Party.

Lenin reasoned in his Imperialism as the Highest Stage of Capitalism (publ. 1916) that capitalist states would fight for overseas markets and would inevitably rush into imperialistic wars, while strengthening their monopolies and exploiting the working class at home. The First World War clearly illustrated this. While the United States profited from the war, the European powers were exhausted by it and lost the prosperity that they had once enjoyed. Then the worldwide depression began. The United States, Europe and Japan all faced an economic crisis, and all seemed to be on the verge of revolution and the fast-approaching transition to socialism. It seemed obvious that the capitalist system had lost all momentum for future development.

The Soviet Union, established as a result of the 1917 Revolution, went through great difficulties in the War—Communism period. This led Lenin to initiate the New Economic Policy (NEP), which allowed a temporary revival of capitalism. In 1928, Stalin launched the First Five-Year Plan to construct one-state socialism. Collectivization of agriculture and the construction of electric power stations effected a great leap forward for heavy industry. Despite the Great Depression, the Five-Year Plan achieved its targets one year earlier than expected, and was followed by the Second Five-Year Plan in 1932. The intellectuals believed that these achievements were tangible proof of socialism’s superiority over the capitalist system. In addition, there was little coverage of the dark side of Soviet socialism, including imposed kolkhoz formation, the large number of farmers sent to labour camps, and forced labour. Consequently, numerous intellectuals praised the Soviet system, including Sidney and Beatrice Webb (the former a socialist economist and cofounder of the London School of Economics), and the French writer André Gide.

Italian Fascists led by Mussolini, as well as the German Nazis, criticized the capitalist system and advocated centralized planning of the economy, at least in principle. This carried over to Japan in the form of criticism of capitalism and the free-market economy, coupled with an adoration of a planned economy among nationalists, military personnel and bureaucrats— even among those who opposed Marxism.

In Asia, young intellectuals, students and workers had leaned towards Marxism since the 1920s. Many university students were deeply moved by Marxist thought and read the complete works of Marx and Engels, though not all joined the Communist Party or were active in political or labour movements.

In the 1930s, Japan became the first country to publish translations of the complete works of Marx and Engels. Many Japanese students who had accepted Marxism in their college days went on to become government officials or regular salaried workers, and were absorbed into the political and economic system. Nevertheless, their Marxist sympathies remained quietly buried in their hearts. Social scientists studied Japanese capitalism using a Marxist analytical framework and presented their papers openly or in periphrastic terms. The most outstanding example was the debate on Japanese capitalism in the 1920s and 1930s between the Lectures Faction, which took the line of the Japanese Communist Party, and the Labour and Farmers’ Faction, which kept its distance from the Party.

This debate also influenced American thinking: a provisional English translation of the Lectures Faction’s theoretical guide, Yamada Moritaro’s Nihon shihon-shugi bunseki (An analysis of Japanese capitalism) (publ. 1934) is said to have been read by history students at Harvard, and this faction heavily influenced the writing of E.Herbert Norman (1940), a Canadian scholar and Harvard graduate (well-known for his book Japan’s Emergence as a Modern State).

Adam Smith, and before him Mandeville, argued that the price mechanism brought about the optimum allocation of resources, and this view has prevailed ever since. But despite this, more and more people (and not just Marxists) became critical of the capitalist economic system and believed some form of socialist planned economy to be superior. Some of them were even in a position to influence government decision-making. Among those in Japan who criticized the capitalist system and argued for economic controls and planning were—to give three examples from different groups (for details see Nakamura 1993:167–84) —Nakano Seigo, a nationalist politician, Kawai Yoshinari, a successful businessman and former bureaucrat, and Matsui Haruo, a government official.

One of Nakano’s major works advocating his idealistic populism and individualism is entitled Kokka kaizo keikaku koryo (General principles for a national reconstruction plan) (Nakano 1933). His ideology and policies were based on Kita Ikki’s Nihon kaizo hoan taiko (Outline plan for the reorganization of Japan) (Kita 1923). Kita (1883–1937) advocated revolutionary national socialistic reconstruction and the expansion of Japanese territory by military power. His book was admired as a bible among young nationalist groups in the 1920s and 1930s.

Kawai Yoshinari (born 1886) started his career in the Ministry of Agriculture and Commerce, and later became director of various companies. He published his ideas in a book entitled Kokka kaizo no genri oyobi sono jikko (Principles of national reconstruction and their implementation) (Kawai 1934).

Matsui Haruo, an official in the government National Resources Bureau (Shigen kyoku), wrote an influential book entitled Keizai sanbo honbu-ron (A treatise on an Economic Affairs General Staff Office). In 1933–4, a widelyread ten-volume collection of research papers (by authors who later became well-known, such as Arizawa Hiromi, Ryu Shintaro and Takahashi Kamekichi) on controlled economies in various countries was published by Kaizo-sha under the title Nihon tosei keizai zenshu (Collection of writings on the controlled economy).

Against this background, the Japanese public came to believe that central planning and a command economy would be inevitable in wartime. In sum, Japan in the 1930s was already intellectually and spiritually prepared for the planning and socialization of its economy.

THE BEGINNING OF DIRECT WARTIME CONTROLS

The Japanese economy of the 1930s was quite dependent on foreign sources of raw materials. In March 1932 Japan set up a puppet state in Manchuria and established control over two other provinces in northern China, thereby attempting to create a yen trading bloc consisting of Japan, Korea and Manchuria. This imperial expansion sought to develop for the Japanese economy sources of key commodities unavailable at home or in the existing colonies. These commodities included cotton, wool, timber, pulp, iron ore and other metals, unrefined sugar, salt for industrial use, and crude oil and petrochemicals.

Nevertheless, securing a stable resource base did not go as smoothly as the government had expected. Japan was able to secure steady sources of certain products only, such as salt from north China and coal and soya beans from Manchuria. Most key raw materials were still sourced from the sterling and dollar blocs. These imports were financed by foreign exchange earned from exports, notably light industry products and such textiles as cotton goods.

A balance-of-payments equilibrium existed in Japan in the early 1930s. Exports were increasing at an annual rate of 18 per cent, but if imports increased faster than this, a trade deficit would be unavoidable. At the time of the Russo-Japanese War in 1904–5, the Anglo-Japanese alliance enabled Japan to depend on credits from the London money market to cover its trade deficit. However, in the 1930s, Japan had no such friendly foreign market.

With the Army’s growing political influence after 1936, military expansion was promoted as national policy. The government’s Six-Year Plan, the Army’s 3-billion-yen Industrial Production Capacity Expansion Plan, and the Navy’s 770-million-yen Third Supplement Plan (which included funds for the superbattleships Yamato and Musashi) all took effect in 1937. Moreover, the Army called for the implementation of a Five-Year Plan for Key Industries (Juyo sangyo gokanen keikaku yoko) in 1937. This aimed to sharply increase heavy industry output, including steel, automobiles, aircraft, aluminium and coal liquefaction, which would serve as a basis for the production of munitions. Large-scale plant and equipment investment in these key industries was indispensable, making import expansion inevitable (Nakamura 1994:3–7, Nakamura 1995:77–83). However, the arms build-up programme prevented the cost of increased imports being met by more exports. In addition, raising military expenditure and investment in plant and equipment would ignite inflation. So the government’s economic policy had to achieve two incompatible goals: curbing the trade deficit and preventing inflation, while investing in large-scale plant and equipment.

Even before this period, there had been some legislation allowing government control over the economy. To take one example, in 1932 legislation was passed to prevent capital flight that weakened the yen (the Capital Evasion Prevention Law, Shihon tohi boshi-ho). Other examples were the Industry Acts for each industry introduced in 1934; these followed the lines laid down by the 1931 Major Industries Control Law (Juyo sangyo tosei-ho), the first law to impose economic controls before the War. Under the Industry Acts, the government provided subsidies and tax relief for key military-related industries, including oil, automobiles and aircraft, and it controlled production and investment in plant and equipment. However, the 1937 Five-Year Plan for Key Industries was the government’s first comprehensive set of controls over the free-market economy.

Increases in munitions production and investment in heavy industries resulted in a surge in imports, making a trade deficit inevitable. To avoid this, ‘non-urgent and unnecessary’ imports had to be restricted. In addition, the money supply had to be reduced drastically so that increases in government spending and investment would not cause runaway inflation. These two requirements led to the start of a planned economy. Had it not been for the widespread idealization of the Soviet-style or totalitarian planned economy, it would have been impossible for the government to initiate planning so decisively.

In September 1937, just after the outbreak of war with China, three wartime control laws were pushed through the Diet: the Law for the Application of the Armament Industry Mobilization Law (Gunju kogyo doin-ho no tekiyo ni kansuru horitsu) enacted a law passed in 1918; the Temporary Export and Import Commodities Measures Law (Yushutsu-nyu-hinra rinji sochi-ho) imposed controls on the production, processing, trading and distribution of commodities and raw materials related to imports and exports; and the Temporary Fund Control Law (Rinji shikin chosei-ho, described in the chapter by Okazaki in this volume) gave the government authority to control company establishment, capital increases, mergers, bond flotations and loans, in an effort to direct long-term funds into plant and equipment investment in key industries. The Temporary Fund Control Law thus prevented funds from flowing into industries producing ‘non-urgent and unnecessary’ goods. Both this and the Commodities Measures Law established only general principles, and their practical application was left to imperial and ministerial ordinances. As a result, extensive authority over economic activities was delegated to ministries, making it possible for the government to control commodities and investment funds without the Diet’s approval.

At the Army’s urging, the National Mobilization Law (Kokka sodoin-ho) was passed in March 1938, and authority for its legislation was also delegated to ministries. It imposed broad controls in such areas as wages, employment, industrial relations, funds of financial institutions and firms’ disposal of profits. Japan’s wartime economic controls were formulated by detailed regulations developed under this legal framework (Maeda 1964, Nakamura 1994:88–95).

Another legal foundation for wartime economic controls was the Materials Mobilization Plan (Busshi doin keikaku), drawn up in October 1937 by the newly established Planning Board (Kikaku-in). The plan allocated materials (iron, steel, copper, aluminium, gasoline, kerosene, light and heavy oil, cotton and wool) to the Army and Navy and to the private sector. The plan was drawn up initially for the October—December period of 1937, and then was revised annually from 1938 to 1940 and quarterly after 1941. Additionally, mobilization plans for trade, labour, fund controls, transportation and electric power were introduced from 1939 to 1940 (Nakamura and Hara 1970). These plans were similar in structure to those initiated by the Soviet Gosplan. The Resources Agency (Shigen kyoku), established in 1928, had secretly made careful studies on the Soviet plans.

When war with China broke out, the authorities explained that they had no alternative but to turn to direct economic controls, as they were under increasing pressure from the military to implement economic policies. Once controls were introduced, however, they obeyed a logic all of their own, and expanded rapidly.

The transition to a controlled economy progressed rapidly and smoothly as regular government business. The basic laws and systems remained without revision. Despite such decisive changes, the government claimed that the new laws and systems were temporary and essential to meet the war emergency, and that the changes would be eliminated at the end of the war.

THE STATE OF WARTIME ECONOMIC CONTROLS

After the autumn of 1937, several regulations expanding economic controls were introduced, all based on the Temporary Export and Import Commodities Measures, the Temporary Fund Control Law and the National Mobilization Law. All key raw materials were subject to controls. Strict controls were imposed on the production and consumption of commodities dependent on imports of steel, copper, aluminium, rubber, cotton and wool. It was not long before the consumption of such commodities by the private sector was almost prohibited (Maeda 1964). Under the Materials Mobilization Plan, the military was given priority in the allocation of such materials, in turn reducing private consumption. Naturally the controls on consumption led to excess demand and market shortages. To control inflation, the government instituted an official price control system. As a result, commodities for which official prices had been set disappeared from the market, raw materials were diverted to the production of non-rationed products, and the black market grew. In order to counter the black market, an economic police force was created. At first official prices were set for only key commodities, but later the number of goods affected numbered 480,000.

In 1939–40, full-scale controls over the labour market were put into effect. Based on the National Mobilization Law, the Personal Service Drafting Act (Kokumin choyo-rei) called for labour conscription. Workers in ‘non-urgent and unnecessary’ industries and engineers in specific areas were conscripted into service for military industries. The government assigned new graduates to jobs according to its own interests. To help control inflation, wage controls were introduced in 1940; wages were set in accordance with educational background, work experience and skills.

In April 1939, short-term funds for business transactions as well as funds for plant and equipment investment became subject to government control (Nihon Ginko 1970). Firms’ right to dispose of profits as they saw fit, which is a basis of a free-market economy, was also brought under control. At the Army’s insistence, the government placed a ceiling on dividend rates. Furthermore, as the shortage of daily necessities such as rice, soya sauce, miso (fermented bean paste), sugar, and rice wine (sake) became increasingly serious in 1939, a ration coupon system (kippu seido) was adopted in 1941–2.

Contrary to the Army’s expectations, the war with China was prolonged, with 700,000 men tied up in the occupied territory. The necessity of supplying increasing amounts of provisions resulted in the rapid expansion of economic controls. At the same time, however, both the Army and Navy allocated a considerable part of the Special Account for Temporary War Expenses, which had been intended for the war in China, to the production and storage of arms, ammunition, aircraft and warships in order to prepare for possible wars in the near future. Economic controls were introduced because an expansion in armaments was needed not only to continue to fight against China, but also to prepare for an expansion of the war (Hara 1976:217–68, Nakamura 1976:109–60).

THE ‘NEW ECONOMIC ORDER’: IDEOLOGY AND REALITY

Even before the war with China broke out, the army had urged planning for the expansion of munitions and heavy industry, to which the government acceded. The outbreak of the war saw a deterioration of Japan’s interna...

Table of contents

• COVER PAGE
• ROUTLEDGE STUDIES IN THE GROWTH ECONOMIES OF ASIA
• TITLE PAGE
• COPYRIGHT PAGE
• FIGURES
• TABLES
• CONTRIBUTORS
• PREFACE
• INTRODUCTION
• 1 THE JAPANESE WAR ECONOMY AS A ‘PLANNED ECONOMY’
• 2 THE IDEOLOGICAL BACKGROUND OF THE JAPANESE WAR ECONOMY: VISIONS OF THE ‘REFORMIST BUREAUCRATS’
• 3 JAPAN’S TECHNICAL MOBILIZATION IN THE SECOND WORLD WAR
• 4 WOMEN AND THE WAR ECONOMY IN JAPAN
• 5 A NEW ORDER FOR JAPANESE SOCIETY: PLANNED ECONOMY, NEIGHBOURHOOD ASSOCIATIONS AND FOOD DISTRIBUTION IN JAPANESE CITIES IN THE SECOND WORLD WAR
• 6 DRAWBACKS TO CONTROLS ON FOOD DISTRIBUTION: FOOD SHORTAGES, THE BLACK MARKET AND ECONOMIC CRIME
• 7 NATIONAL POLICY COMPANIES AND THEIR ROLE IN JAPAN’S WARTIME ECONOMY
• 8 WARTIME FINANCIAL REFORMS AND THE TRANSFORMATION OF THE JAPANESE FINANCIAL SYSTEM
• 9 THE TRANSFORMATION OF THE JAPANESE ECONOMY
• A SHORT BIBLIOGRAPHICAL NOTE: ON STUDIES CONCERNING JAPAN’S WAR ECONOMY