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Institute of Pacific Relations

Japan's Economy since Pearl Harbor: Part 1 Author(s): Andrew J. Grajdanzev Reviewed work(s): Source: Far Eastern Survey, Vol. 12, No. 12 (Jun. 14, 1943), pp. 119-123 Published by: Institute of Pacific Relations Stable URL: http://www.jstor.org/stable/3022395 . Accessed: 08/03/2012 11:36
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JAPAN'S Part I ANDREW The J.

ECONOMY

SINCE

PEARL

HARBOR:

GRAJDANZEV due to the rise of prices. figures are available?was In February 1942, the Japanese newspapers published Director of Mitsui a statement by Shoji Watanabe, Seimei (Mitsui Life Insurance Co.), which claimed had increased by ?23 billion and that production that "not a yen of this huge sum existed before." His comparison is no doubt with the year 1936, because

East are far distant from the United States and only part of the might of the United States could be and

year, her production of coal was less than 7% and of steel and machinery less than 5% of United States' production. It is true that such comparisons in themselves are misleading. Japan and the

present war in the Pacific would have been impossible without a major development of industry in Japan and fundamental changes in its structure. In 1929, Japan(1) was a great textile power; her industry was predominantly so-called light industry, specializing particularly in the production of textiles. In the same

in 1937 Japan launched her new six-year program of armaments and five-year plan for expansion of "pro? ductive power." In 1936 the gross value of produc? tion was ?12,258 million. Thus, if the statement by is accurate, the gross value of production Watanabe in 1941 was about ?35 billion. Judging by 1941 wholesale prices in the United States and Japan, an exchange ratio of four Japanese yen for one U.S. dollar(2)

can be diverted from the continental territory of the United States to the potential theaters of war. Yet the differences were so great that it would have been folly for Japan to start a war in that year. The ten years between the occupation of Manchuria and the Pacific war were used by Japan in securing her rear by wars in China; in the advance to the south, obtaining

die sources of raw materials; in expanding production facilities in Japan Proper. The results of this expansion can be seen from the follow? ing figures of the gross value of industrial in Japan: production

gross value States. Factors

appears reasonable. In terms of U.S. dollars, the gross value of the 1941 industrial production of Japan would thus be about ?9 billion, or about one-seventh of the of industrial production in the United

Favorable

to Japan

This represents a great improvement, but none too great for the task begun in December 1941. However, Percentages of total ^29 !938 1937 20.3 38.8 25.8 21.2 23.8 8.9

Textiles Metals

1929 2,998 690

Million yen *938 *937 4,242 3,985 3,488 4,687

Total

7,717

16,412

19,667

100.0

100.0

These statistics do not cover household industry or small enterprises with less than five workers or with? out any prime mover; these industries must have developed much less rapidly than those covered by the above table. A considerable part of this increase in the value not less than oneof industrial production?probably third of the figure for 1938, the last year for which (1) Japan Proper unless stated otherwise.

there are several factors which work in favor of the planners: (1) changes in the compositon of industrial production; (2) the possibility of Japan's the resources of most of Eastern Asia; (3) conusing Japanese of industry in Japan, a process expansion is heightened by (4) the long period needed which by the United States to organize an effective army and to make good the naval losses suffered at Pearl Harbor. The changes in the composition of Japan's industinued

Mr. GrajdanzeV is a member of the International Secretariat of the Institute of Pacific Relations. JUNE 14, 1943

(2) The approximate value of the yen in the restricted exchange market that existed before the war was 23.5 U.S. cents. 1 19

trial production are indicated in the table above. The textile industry, which held firstplace in 1929, dropped to second place in 1938; no doubt by 1941 it had dropped to fourth place, after metals, machinery and tools, and chemicals. Metals and machinery produc? tion, responsible for 17.7% of the total gross value of production in 1929, rose to 43.2% tinued to rise thereafter. Civilian Needs in 1938 and con-

ihe

amount

from debentures

and shares was raised Million yen 13,942 3>?97 824 17,863

as follows: Source Japan Manchuria China

Neglected But these figures do not tell the whole story. Civilian needs in metals, tools, and machines have been almost completely neglected and production today is limited to war demands. Civilians cannot buy even nails. In this way, the munitions industry between July 1937 and

It is not clear from this table whether, for example, it is meant that by "amount raised in Manchuria," the both the population of Manchuria (including and the financial institutions supplied the Japanese)

December "seven or eight1941 was expanded fold" and the productive capacity of aircraft industry increased "more than ten times." These results con? vinced the Japanese militarists that after the occupa? tion of Southeast Asia they could do even better. The same Shoji Watanabe declared:

?3,097 billion. Such a sum would represent quite an achievement; ?3 billion is almost one-quarter of the of which is amount raised in Japan, the population more than twice as great as that of Manchuria which until recently was mainly an agricultural country. It is more likely that this figure means that Japanese companies operating in Manchuria raised this sum in

The future demands that Japan should increase in strength more than eight times that of her present status. Japan must be prepared for at least twenty more years of war. There is no need to fear that, for the success of the Imperial forces has assured that she will not sufferfrom the lack of necessary raw materials. Major General Kenryo Sato, Chief of the Military Affairs Section of the Army, was equally optimistic when, in the speech mentioned above, he said: America provoked Japan to war because of her mistaken belief that Japan had been economically exhausted by the China Affair.She is going to repeat the same mistake again. For Japanese investments in the industrial develop? ment of Japan, Manchuria, and Occupied China, the japan Times and Advertiser of March 10 and 18, 1942, gives the following data for 1937-1941: Year Million yen 1937 1938 *939 1940 1941 Total 2,063 3>978 7>257 8,282 7,821 29,401

debentures and shares, i.e., the figures indicate not the origin of the funds, but their destination. They show how great (relatively) is the new construction carried 011 in Manchuria

and the extent of the Japanese effort to create an industrial base on the continent for future

military operations. It should be pointed out that, while the first table gives the figures for the gross value of industrial pro? duction, the figures given for investments include not

only industry but also transportation and even agri? culture. These figures indicate that, in the last three new investments reached seven or years (1939-1941), a year, or about two billion dollars, eight billion yen a substantial large sums sum even by American standards. These represent savings?voluntary by the Japanese population pulsory?made income. National The Research Income following Division of Japan table gives the estimates of the of the Japan Economic Federation income of Japan. These estimates only and com-

from their

Discounting cases of double counting, the newspaper estimates the actual investments in this period at ?25 billion. The Weekly Bulletin, issued by the Board of Information, estimated that investments in "industrial from July 1937 to November development" 1941 were ?23 billion. The above-mentioned ?29.4 billion was raised in the following way: Source Million yen

for the national cliffer from those of other Japanese authorities by 7% to 10%. Million yen Year 1933 1934 1935 1936 1937 1938 1939 Out of a national income 12,064 i3?o45 14.865 16,320 20,476 22,518 24,519

29,401 120

for 1939 estimated at ?24.5 billion, some ?7.3 billion were invested in "in? dustrial development"; ?6 to ?7 billion were spent on the war and preparations for the future war; and ?2 to ?3 billion were spent on the Government FAR EASTERN SURVEY

apparatus.(3) There remained for civilian consumption not more than ?8 billion, or less than one-third of the total. In February 1942, the Minister of Finance, Okinobu Kaya, informed the Diet that he estimated the annual national Of this sum, ?15 billion income for 1942-43 at ?45 billion. would be spent for civilian billion for public financing; and

growth of real national income was slower than the official figures suggest. If all Japanese income remaining after the purchase of available commodities at established prices was used to purchase bonds (both corporate and Gov? ernment) and shares, the rise of prices would have been very much slower.(5) The Government vigorously promoted bond sales. In September 1942 it was stated

?23 consumption; ?6 billion for industrial expansion. In his testimony before the Budget Committee on February 3, 1943, he estimated the national income for 1943-44 at ?50 billion. The figures he gave for 1942-43 were criticized by the magazine Diamond. It pointed out that in the Diet Session in 1939 the then Minister of Finance estimated the national it was added, Evidently, arrived at by including under the 1942-43 budget billion. at only ?25 billion. the ?45 billion figure was Government spending, which would amount income

by Finance Minister Kaya that the total amount of savings since July 1937 nac* reached ?56 billion; from April to June 1942, ?6,570 million; and the planned total for savings in 1942-43 was ?23 billion.((j) This last figure, one notices, corresponds to that given above "for public financing." But these borrowings did not stop the march of inflation. No doubt a considerable part of these savings are not real savings but only

(?25 billion), a part of Gov? ernment spending. Since expenditures on battleship construction are as much a part of the national spend? ing as expenditures sion is justified. income for food and clothing, such inclu-

However, not valid. In the figure for 1939-40 the Ministry of Finance also included

this criticism

to ?20 is by the Diamond

with banking credits to the corporations occupied armament production and construction.(7) In spite of and saving campaigns, the Govern? ment has been forced to use the printing press as indicated in the following table: increased NOTE ISSUE OF THE 18, 1937 14, 1940 19, 1941 BANK OF JAPAN Index 100 211 336 taxation

are correct, the national of Japan has increased from ?25 billion to ?45 billion between 1939-40 and 1942-43, or, on the average, by six to seven billion yen a year. For 1943-44, the increase Presumably impossible velopment. Inflation and the National Income

If these official estimates

December December December

Million yen 1,804 3,810 6,079

is expected to be only five billion yen. the authorities recognize that it would be to maintain the former tempo of de?

Within four years the amount of notes increased more than three times. During 1941 alone it increased by 59%. The war in the Pacific in 1942 has undoubtedly brought a sharper rise. Twelve "Control Associations"

For this same three-year period, the index number prices(4) stood in June 1939 at 148.9, and in April 1942 (the latest figure available) at 189.2, an increase of 27%. This would suggest that showing of wholesale

tion. Actually, however, a greater percentage may be due to inflation, for this increase was the result of the development of the armament industry, and the prices of everything used in munition and armament indus? tries ? metals, machinery, building materials ? were rising more rapidly than the general level of prices.

at least seven billion of the 20 billion yen increase in the national income for this period was due to infla?

purpose, the businessmen of Japan were organized into twelve "control associations." Each of these asso? ciations was to supervise within a given branch of industry the completion of the plans worked out by the Government. This arrangement, it was hoped, would combine the advantages of private initiative with those of Government well-known

Savings alone are not enough for the expansion of the armament industries. It is also necessary to direct that expansion into the proper channels. For this

Also, these industries were heavily subsidized by the Government to prevent an even higher rise of prices. Such subsidies would have to be deducted from the of national "increase" income. Actually, then, the (3) Exact figuresfor these expenses on war and administration are not available. (4) This index number was prepared by the Japanese Depart? ment of Commerce and Industrywith the year 1929 as 100. JUNE 14, 1943

direction. Kohei Goshi, a economist, wrote in Jilsugyo no Nippon (Business Japan) in May 1942: At a recent meeting of Army and Navy officials, the Minister of Commerce and Industry, the associations, etc, the policy of the Government of transferringthe industrial control of the Administrations to the control associations was clearly stated. These associations should bring harmony

(5) It would be impossible to avoid a price rise completely because of shrinking supplies and the use of inferior labor, poorer mines, etc. (6) Savings in 1940-41 were estimated by the governmentat ?12,817 billion and in 1941-42at ?16,020 million. C) Notice above the part the banks played in the supply of funds for "industrial development." 121

between existing cartels and the Administrations. These Administrations do not make Government administrative organs unnecessary; for only that part of administrative control of the Government Administrations will be transferred to the control associations which is really beyond the sphere of their activities. On the other hand, control associations are not merely an extension of cartels or syndicates. The control associa? tions are neither Government offices nor cartels, but are strongly tinged with a public color, and at the same time they have the potentialities of cartels. Some economists think that these public and private functions of the associations are not compatible, but they miss the new conception and function of these control associations. Article 4 of the Key Industries Associations Ordinance (promulgated before the start of this war) reads: "the control associations shall exer? cise synthesized control over the industries concerned and cooperate with the formulation and conduct of state plan? ning of the industries concerned for the sole purpose of developing the national economy to the highest efficiency." They were created because of the blind alley reached by the Government control machinery. Therefore the initiative and creative spirit of the private industries must form the core of the activities of the control associations, and while the control associations are quite different in nature from the existing cartels, the autonomous character of the exist? ing cartels should be strongly reflected in the control associations. Bureaucracy, Army and Business

in the existing structure. The system of checks and should be done away balances and decentralization with; there should be no sectionalism; and a synthetic

and active leadership was to be enforced. illustrated by Goshi and two viewpoints These Minobe clearly reflect the struggle that has been going on inside Japan. The industrialists wanted to keep their cartels and syndicates under the name of "con?

and at the same time to preserve trol associations" their own autonomous control of production. But the planners, influenced by the Soviet example and pressed by the necessities of war, wanted sweeping changes toward centralization and an active control of industry by the planners Advantcsge themselves. to Business

status" by an Imperial ordinance stating that "official action by the control association is to be regarded as having the same effect as the official action of the Government Administrative Office." Thus, the asso? ciations were put in the same position as the Adminis?

The indications are that the businessmen have been getting the best of the struggle. On January 21, 1943, were granted "full official the control associations

There are today no labor unions in Japan and polit? ical parties have ceased to exist. Only three organized forces occupy the field: the bureaucratic machinery of the state, the armed forces, and the associations of and The first two of these, the bureaucracy businessmen. the armed forces, were to do the planning for industrial production, while the execution of these a kind plans was entrusted to the control associations, of self-government in industry. According to Kohei Goshi, these associations were somewhat different from the cartels, but how, he did not explain. Not all were satisfied with this arrangement. Yoji Minobe, Chief of the General Affairs Section of die Commerce and Industry Ministry, in the May 1942 issue of Kaizo, wrote that (1) The present economic administrative structure which is decentralized and founded on the old liberal economy should be revised so as to be suitable for synthetic economic which planning and its conduct. (2) The present structure exercises negative supervision over private industries only is not only unconstructive but is also unsuitable for the conduct of wartime economy. (3) The present narrow jurisdiction of local governments and their decentralization should be corrected so as to make them thoroughly coordinated and unified for the conduct of a syntheticand planned economy. (4) Consistency should be maintained between the economic administration in the homeland and the outlying territories in the conduct of industrial economy. Thus, in Minobe's 122 view, there was too much liberalism

trative Office. Later, on February 5, 1943, Chozaburo Mitani in the Parliament asked Lieutenant-General Suzuki, the Pres? ident of the Cabinet of the Planning Board, about the contradiction in business policy which allows "wellknown firms to be caught between die nation and capi? tal." The question as stated is not clear but it seems to voice the contradiction between the national interest in prosecuting a successful war and private interests in making profits. Suzuki's answer was:

Today we are in the midst of war. We are in circumstances which make it imperative that we win the war. Thus today, whether that [form] is God or the ocean, it is all the same. Based upon this ideal all industries must be managed. This cryptic answer may be interpreted to mean: if business interests will help us to win the war, let them have their profits! Priorities The for More Wars Japanese economy today is one of extreme scarcity; there are shortages every where. Under these conditions it is important to know which industries are getting first claim, i.e., what is the system of is getting priorities, and also within each industry who Suzuki. materials? The question was answered by In May 1942 he listed the following order of priorities to meet competing demands: the raw

(1) Adequate supply of war materials. (2) Security of supplying power and of the production required for replenishment of war materials. (3) Supply of materials absolutely necessary for the expansion of productivity, which is essen? tial for the successful prosecution of protracted warfare. (4) Stabilization of livelihood. FAR EASTERN SURVEY

The necessary shift from peacetime to wartime in? dustries brought many dislocations. The position of small enterprises became especially precarious because so many of them were in the export and domestic civilian market and also because tions are made

In other words, first come all the supplies for the actual prosecution of the war; second, for tomorrow's war; third, for the long-term war; and fourth, what is left, for civilian consumption.

the present war will find the national economy con? trolled by fewer persons than in any other major country. (In ihe next issue of the Far Eastern Survey, this study will be concluded with an analysis of Japan's use of the labor power and resources now available to her.)

the control associa? of representatives of large corpoup rations who are not too concerned with the fate of small-scale enterprises. New Banking Aids

PACIFIC

MISCELLANY

VICHY DEALS WITH NANKING The Tokyo radio in a broadcast recorded by The Associated Press^1* reported the signing o? documents dealing with the "retrocession of exclusive French concessions" in China by Foreign Minister Chu Min-yi, representative of the Puppet Government, and the Vichy representative at Nanking. Tokyo interpeted this action as conclusive evi? dence that the French authorities are determined to collaborate in the establishment of a new order in East Asia. The Vichy representative is said to have signed over the French concessions in Tientsin, Hankow and Canton. PREPAR1NGFOR THE BURMA CAMPAIGN According to Tokyo, a bill has been passed to build a Burmese National Army ol 25,000 soldiers which will be under the command of a Japanese officer. INDIA According to Mr. Amery, Secretary of State for India, in the House of Commons, 14,898 persons were imprisoned in India following conviction in connection with the Con? gress Party rebellion, and 11,623 were detained for an indefmite period. The figures covered the position on March 15 and did not include the Northwest frontier provinces. DO GOOD CHILDREN NEED ERASERS? The Japanese Ministry of Commerce and Industry has decided to allot some of the rubber received from the southern regions for the production of erasers which will be distributed to the good children of the primary schools. LABOR MOBILIZATION According to a Japanese report in the Yomiuri Hochi Shimbun, 11,464 shops were closed in Tokyo alone up to the end of March as a result of the National Mobilization Law. Through the closing of these shops approximately 15,000 workers have been made available in Tokyo, of whom one-third are already employed in munitions factories. JAPAN DISCOVERS THE IPR The Japanese radio, commenting in English on the report of the Mont Tremblant Conference, pretends to have just discovered the existence of the Institute of Pacific Relations. It refers to the organization as "once quite well known and highly propagandizeel," and then by some remarkable development of thought states that it "hardly knew that the Institute as such even existed, let alone being aware that its meeting was being held." (i) New York Times, May 19, 1943. 123

The People's Rehabilitation Bank was established in the summer of 1941 to aid small manufacturers and traders March

their unused equipment. In by purchasing 1942 this bank was permitted to make tempo? rary loans to those in urgent need of funds pending the assessment of the value of idle equipment. This among step was taken to encourage amalgamations smaller new manufacturers and industrial structure."

traders "to complete the It is doubtful, however, whether this bank can do much to alleviate the plight of the small businessmen. Even with capital received

from their unused equipment, they still have the of shortages in both labor and raw materials. problem Many small businesses actually faced extinction, though developments tunities. Problems later have offered some new oppor-

of readjustment arose also for the large On March 1, 1942, a Wartime Financing enterprises. Bank was formed to advance funds (1) to important industrial corporations unable to obtain the necessary funds for expansion of their productive capacity from ordinary financial institutions; (2) to corporations which as a result of the changes in the industrial structure of the nation were obliged to leave part of their equipment idle or which were unable to com? plete the installation of new equipment already begun; (3) to companies obliged to hold stock of vital commodities in accordance with Government instructions: (4) in order to prevent undue rises or falls in stock exchange prices. Big Corporation This bank Mergers Encouraged

supplied by the Government and one-third by the Con? and certain other banks. cord Securities Corporation Further mergers were encouraged by the Government among big corporations, a policy which corresponded

was to absorb the "Concord Securities organized for the same purpose in the Corporation" summer of 1941. The initial capital of the bank was to be ?300 million, of which two-thirds was to be

to the prewar trend of business. Japanese newspapers have carried frequent news items on mergers of cor? porations of all kinds, including banks, newspapers, and shipping lines. It may well be that the end of JUNE 14, 1943

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