Japan: The Post-WW2 Rise, the 1980s Peak, and the Decline – A Simple Theory

by Mike Kimel

Japan: The Post-WW2 Rise, the 1980s Peak, and the Decline – A Simple Theory
Cross-posted at the Presimetrics blog.

A lot has been written about the disaster in Japan. I don’t have much I can add to that, except that like everyone else (or at least everyone civilized), I am so very sorry that it happened. (What is with the folks talking about Pearl Harbor? Seriously. What is that about?)

Still, in reading about the tragedy, I had a thought about Japanese economic history and I’d like to expand on it in this post. But I’d like to lead off by pointing out I am not an expert on Japan. That means y’all can feel free to correct me where I’m wrong, but it also means I started off by going to this website, which has some cool country studies. The website:

contains the on-line versions of books previously published in hard copy by the Federal Research Division of the Library of Congress as part of the Country Studies/Area Handbook Series sponsored by the U.S. Department of the Army between 1986 and 1998. Each study offers a comprehensive description and analysis of the country or region’s historical setting, geography, society, economy, political system, and foreign policy.

Let me start by quoting liberally from Japan country studym specifically the section on bureaucrats.

Although the United States occupation dismantled both the military and zaibatsu establishments, it did little, outside of abolishing the prewar Home Ministry, to challenge the power of the bureaucracy. There was considerable continuity–in institutions, operating style, and personnel– between the civil service before and after the occupation, partly because MacArthur’s staff ruled indirectly and depended largely on the cooperation of civil servants. A process of mutual co-optation occurred.

Next quote:

In trying to discover “who’s in charge here,” many analysts have pointed to the elite bureaucracy as the people who really govern Japan, although they composed only a tiny fraction of the country’s more than 1 million national government employees. Several hundred of the elite are employed at each national ministry or agency. Although entry into the elite through open examinations does not require a college degree, the majority of its members are alumni of Japan’s most prestigious universities. The University of Tokyo Law Faculty is the single most important source of elite bureaucrats. After graduation from college and, increasingly, some graduate-level study, applicants take a series of extremely difficult higher civil service examinations: in 1988, for example, 28,833 took the tests, but only 1,814, or 6.3 percent, were successful. Of those who were successful, only 721 were actually hired. Like the scholar-officials of imperial China, successful candidates were hardy survivors of a grueling education and testing process that necessarily began in early childhood and demanded total concentration. The typical young bureaucrat, who is in most cases male, is an intelligent, hardworking, and dedicated individual. Some bureaucrats lack imagination and, perhaps, compassion for people whose way of life is different from their own.

The public’s attitude toward the elite is ambivalent. The elite enjoy tremendous social prestige, but members are also resented. They live in a realm that is at least partly public yet far removed from the lives of ordinary people. Compared with politicians, they are generally viewed as honest. Involvement of top officials in scandals such as the Recruit affair, however, had, to some extent, tarnished their image.

Japan’s elite bureaucrats are insulated from direct political pressure because there are very few political appointments in the civil service. Cabinet ministers are usually career politicians, but they are moved in and out of their posts quite frequently (with an average tenure of under a year), and usually have little opportunity to develop a power base within a ministry or force their civil service subordinates to adopt reforms. Below the cabinet minister is the administrative vice minister. Administrative vice ministers and their subordinates are career civil servants whose appointments are determined in accordance with an internally established principle of seniority.

In a 1975 article, political scientist Chalmers Johnson quotes a retired vice minister of the Ministry of International Trade and Industry (MITI) who said that the Diet was merely “an extension of the bureaucracy.” The official claimed that “the bureaucracy drafts all the laws…. All the legislature does is to use its powers of investigation, which for about half the year keeps most of the senior officials cooped up in the Diet.”

And now the change…

Administrative reform policies in the 1980s imposed ceilings on civil service staff and spending that probably contributed to a deterioration of morale and working conditions.

Still another factor limiting bureaucratic power was the emergence of an affluent society. In the early postwar period, the scarcity of capital made it possible for the Ministry of Finance and MITI to exert considerable influence over the economy through control of the banking system. To a decreasing extent, this scarcity remained until the 1980s because most major companies had high debt-equity ratios and depended on the banks for infusions of capital. Their huge profits and increasing reliance on securities markets in the late 1980s, however, meant that the Ministry of Finance had less influence. The wealth, technical sophistication, and new confidence of the companies also made it difficult for MITI to exercise administrative guidance. The ministry could not restrain aggressive and often politically controversial purchases by Japanese corporate investors in the United States, such as Mitsubishi Estate’s October 1989 purchase of Rockefeller Center in New York City, which, along with the Sony Corporation’s acquisition of Columbia Pictures several weeks earlier, heated up trade friction between the two countries.

The whole issue of trade friction and foreign pressure tended to politicize the bureaucracy and promote unprecedented divisiveness in the late 1980s and early 1990s. During the Structural Impediments Initiative talks held by Japan and the United States in early 1990, basic changes in Japan’s economy were discussed: reforms of the distribution and pricing systems, improvement of the infrastructure, and elimination of official procedures that limited foreign participation in the economy. Although foreign pressure of this sort is resented by many Japanese as an intrusion on national sovereignty, it also provides an opportunity for certain ministries to make gains at the expense of others. There is hardly a bureaucratic jurisdiction in the economic sphere that is not in some sense affected.

Repeatedly, internationally minded political and bureaucratic elites found their market-opening reforms, designed to placate United States demands, sabotaged by other interests, especially agriculture. Such reactions intensified United States pressure, which in turn created a sense of crisis and a siege mentality within Japan. The “internationalization” of Japan’s society in other ways also divided the bureaucratic elite. MITI, the Ministry of Labor, and the Ministry of Justice had divergent views on how to respond to the influx of unskilled, usually South Asian and Southeast Asian, laborers into the labor-starved Japanese economy.

Now a bit from Japan’s Administrative Elite by B C Koh(see pages 259, 260):

A decline in elitism can be seen in a number of trends: (1) a strong showing of universities other than Todai and Kyodai in the higher civil-service examination, (2) a notable increase in the proportion of private-university graduates who enter the higher civil service, and (3) advancement of “noncareer” bureaucrats to elite administrative positions.

Although Todai and Kyodai have consistently maintained their positions as the first- and second-largest sources, respectively, of successful candidates in the higher civil-service examination throughout the postwar period, their combined share of the total has frequently fallen short of 50 percent. In the eighteen-year period from 1970 to 1987, for example, the two top universities’ share fell below the 50-percent mark eleven times (see table 9 in chapter 4). This means that the majority of successful candidates in the higher civil-service examination came from other institutions of higher learning in those years. In the 1980s, private universities surpassed the 10-percent mark for the first time, reaching 12.6 percent by 1986 and 13 percent in 1987. In the ten-year period from 1976 to 1985 the number of private-university graduates who passed the higher civil-service examination increased 3.5 times.[6]

If we examine the situation at the hiring stage, we find the same trend: a steady increase in the proportion of private-university graduates. Since 1980, private-university graduates who passed the higher civil-service examination had a greater probability of being hired than graduates of national universities. In 1983 and 1984, six in ten of the former, as compared with four in ten of the latter, were hired. In the ten-year period from 1976 to 1985, the number of private-university graduates who entered the higher civil service quadrupled.[7]

A slight decline in the elitist character of Japan’s higher civil service is suggested by a steady increase in the number of “noncareer” civil servants who advance to elite administrative positions. As we saw in chapter 4 (table 8), graduates of the intermediate civil-service examination began to appear in grade-1 positions (assistant bureau chief, division chief, and senior-level section chief) in increasing numbers since 1974; in 1981, a graduate of the lower examination attained grade 1 for the first time, and a small but growing number of others followed in his footsteps in subsequent years. By 1986, the National Personnel Authority disclosed that two in ten civil servants at the rank of section chief or its equivalent and above in the national government had not gone beyond junior colleges, implying that they were “noncareer” bureaucrats.

So… a decade before the end of Japan’s economic miracle, the fabled bureaucracy that drove Japan Inc. started to erode – more of its members started coming from lower quality, private universities, it stopped being held in as high esteem by the public, it lost its ability to impose its will on the economy, and to boot (or perhaps I should say on a related note), it started to adopt new policies and philosophies being pushed by the Reagan administration. How long do you think it takes for something like that to have a long-term, possibly irreversible effect on an economy that used to be the envy of the world?

As an aside… ever notice how countries that adopt policies favored by right wing or libertarian think-tanks tend to have a few very successful years (with much crowing by those think tanks) followed by disaster? Be it Japan, Argentina, Russia, much of Eastern Europe, Ireland, Iceland, etc., it does seem that there’s a pattern. Heck, that pattern even applies to the US. I think even some of the promoters of those policies are starting to see that pattern. Its to the point where a lot of folks in those circles are trying to convince the public that Singapore, a country where the government’s role in the economy is larger and more intrusive than in most other countries, is an example of a libertarian paradise.