UBC Theses and Dissertations

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UBC Theses and Dissertations

A study on Japan's reaction to the 1973 oil crisis Yamakoshi, Atsushi 1986

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A STUDY ON JAPAN'S REACTION TO THE 1973 OIL CRISIS By ATSUSHI YAMAKOSHI B.A., Waseda University, 1981 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES (Department of Interdisciplinary Studies) (Commerce/Economics/Political Science) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA June 1986 (c) Atsushi Yamakoshi, 1986 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree a t the U n i v e r s i t y o f B r i t i s h Columbia, I agree t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and study. I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the head o f my department or by h i s or her r e p r e s e n t a t i v e s . I t i s understood t h a t copying or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be allowed without my w r i t t e n p e r m i s s i o n . Department O f I n t e r d i s c i p l i n a r y Studies The U n i v e r s i t y of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date June 1986 )E-6 (3/81) A b s t r a c t The o b j e c t o f t h i s d i s s e r t a t i o n i s t o i n v e s t i g a t e J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s i n o r d e r t o a n s w e r two m a j o r q u e s t i o n s . F i r s t , why a n d how was J a p a n a b l e t o r e c o v e r f r o m t h e 1973 o i l c r i s i s ? S e c o n d l y , what was d i s t i n c t i v e a b o u t J a p a n ' s r e a c t i o n t o t h e o i l c r i s i s a s c o m p a r e d w i t h t h e r e a c t i o n s o f o t h e r c o u n t r i e s ? C h a p t e r One p r o v i d e s a g e n e r a l r e v i e w o f t h e 1973 o i l c r i s i s . I t a l s o d i s c u s s e s t h e f o c u s a n d t h e b a s i c m e t h o d o l o g y o f t h i s d i s s e r t a t i o n . C h a p t e r Two e x a m i n e s t h e p o l i t i c a l a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e o i l c r i s i s . A t t h e b e g i n n i n g o f t h e 1 9 7 0 ' s , t h e J a p a n e s e p o l i t i c a l s c e n e was i n a s t a t e o f h i s t o r i c a l t r a n s i t i o n m a i n l y b e c a u s e t h e . o p i n i o n s o f J a p a n e s e p e o p l e were b e c o m i n g d i v e r s i f i e d a f t e r t h e a c c o m p l i s h m e n t o f e x t e n s i v e e c o n o m i c g r o w t h . The 1973 o i l c r i s i s r e f l e c t e d t h e d i f f e r e n c e s o f o p i n i o n i n t h e g o v e r n m e n t a n d t h e c o n f l i c t o f i n t e r e s t s among i n d u s t r i a l s e c t o r s . T h i s c h a p t e r p a y s s p e c i a l a t t e n t i o n t o J a p a n ' s b u r e a u c r a c y i n f a c i n g t h e o i l c r i s i s . C h a p t e r T h r e e d i s c u s s e s t h e e c o n o m i c a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e o i l c r i s i s . The o i l c r i s i s c r e a t e d g r e a t c o n f u s i o n w i t h i n t h e J a p a n e s e economy b e c a u s e i t o c c u r r e d a t t h e t i m e o f t h e i n f l a t i o n a r y s i t u a t i o n a f t e r t h e " N i x o n S h o c k " i n 1971. H o w e v e r , J a p a n r e c o v e r e d f r o m t h e c r i s i s by c h a n g i n g i t s i n d u s t r i a l s t r u c t u r e . The o i l c r i s i s e l u c i d a t e d t h e v u l n e r a b i l i t y , e f f i c i e n c y a n d f l e x i b i l i t y o f t h e i i J a p a n e s e economy. C h a p t e r F o u r d e a l s w i t h t h e b u s i n e s s a s p e c t s o f J a p a n ' s r e a c t i o n . J a p a n e s e b u s i n e s s l e a d e r s t r i e d t o i n f l u e n c e t h e d e c i s i o n - m a k i n g p r o c e s s o f t h e J a p a n e s e g o v e r n m e n t t h r o u g h t h e a c t i v i t i e s o f f o u r m a j o r b u s i n e s s o r g a n i z a t i o n s : K e i d a n r e n , N i s s h o , N i k k e i r e n and D o y u k a i . C o m p a n i e s made e f f o r t s t o r a t i o n a l i z e t h e i r p r o d u c t i o n p r o c e s s by d e c r e a s i n g i n t e r m e d i a t e i n p u t s . T h e s e r a t i o n a l i z a t i o n e f f o r t s d e c r e a s e d demand f o r t h e m a t e r i a l s p r o d u c e d by o i l - r e l i a n t i n d u s t r i e s a n d a c c e l e r a t e d t h e s t r u c t u r a l c h a n g e i n J a p a n e s e i n d u s t r y . The c o o p e r a t i v e r e l a t i o n s b e t w e e n t h e g o v e r n m e n t a n d b u s i n e s s and b e t w e e n management a n d l a b o u r m o d e r a t e d t h e f r i c t i o n c a u s e d by t h i s s t r u c t u r a l c h a n g e . C h a p t e r F i v e o f f e r s t h e m a j o r f i n d i n g s o f t h e p r e c e d i n g c h a p t e r s . B a s e d on t h o s e f i n d i n g s , i t c o n c l u d e s t h a t J a p a n ' s r e c o v e r y f r o m t h e 1973 o i l c r i s i s was a c c o m p l i s h e d by t h e v o l u n t a r y commitment o f v a r i o u s s o c i a l f a c t i o n s t o s o l v i n g t h e p r o b l e m s c a u s e d by t h e c r i s i s r a t h e r t h a n by t h e c o n s e n s u a l e f f o r t s l e d by t h e g o v e r n m e n t . T h i s v o l u n t a r y commitment i s r e c o g n i z e d a s t h e most d i s t i n c t i v e f e a t u r e i n t h e J a p a n e s e r e a c t i o n t o t h e o i l c r i s i s . T a b l e o f C o n t e n t s CHAPTER ONE THE NATURE OF THIS THESIS 1 1. WHAT WAS THE 1973 O I L C R I S I S ? 2 2. THE FOCUS OF THIS THESIS 6 3. TABLES 8 CHAPTER TWO THE P O L I T I C A L ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S 11 1. THE JAPANESE GOVERNMENT SYSTEM AND THE P O L I T I C A L SITUATION I N THE EARLY 1970'S 13 2. THE ACTIONS TAKEN BY THE GOVERNMENT FACING THE C R I S I S 19 3. THE CHARACTERISTICS OF THE JAPANESE P O L I T I C A L REACTION TO THE O I L C R I S I S 32 4. TABLES 39 CHAPTER THREE THE ECONOMIC ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S 42 1. THE JAPANESE ECONOMIC STRUCTURE 44 2. THE IMPACTS OF THE 1973 O I L C R I S I S AND JAPAN'S ECONOMIC REACTION 54 3. THE CHARACTERISTICS OF THE JAPANESE ECONOMIC REACTION TO THE O I L C R I S I S 67 4. TABLES 70 CHAPTER FOUR THE BUSINESS ASPECTS OF JAPAN'S REACTION TO THE 1973 O I L C R I S I S 85 1. THE P O L I T I C A L REACTION OF JAPANESE BUSINESS TO THE O I L C R I S I S 86 2. THE ECONOMIC REACTION OF JAPANESE BUSINESS TO THE O I L C R I S I S 94 3. THE CHARACTERISTICS OF THE JAPANESE BUSINESS REACTION TO THE O I L C R I S I S 98 4. TABLES 104 i v CHAPTER F I V E CONCLUSION 106 BIBLIOGRAPHY 113 APPENDIX A JAPANESE VIEW ON CANADA'S REACTION TO THE 1973 O I L C R I S I S 116 1. THE P O L I T I C A L ASPECTS 116 2. THE ECONOMIC ASPECTS 124 3. THE CHARACTERISTICS OF THE CANADIAN REACTION TO THE O I L C R I S I S 127 4. TABLES 132 v L i s t o f T a b l e s ( C h a p t e r One) 1- 1. S t r u c t u r e o f E n e r g y D e p e n d e n c e o f M a j o r I n d u s t r i a l C o u n t r i e s 8 1 - 2 . A B a s i c C o n c e p t 9 1- 3. Some A s p e c t s o f J a p a n ' s R e a c t i o n t o t h e 1973 O i l C r i s i s 10 ( C h a p t e r Two) 2- 1. The Number o f S e a t s i n t h e D i e t by J a p a n e s e P o l i t i c a l P a r t i e s 39 2- 2. M a j o r Members o f T a n a k a ' s C a b i n e t 40 2- 3. P r i m e M i n i s t e r s o f J a p a n ( 1 946-1 985) 41 ( C h a p t e r T h r e e ) 3- 1. E c o n o m i c G r o w t h R a t e s o f M a j o r C o u n t r i e s 70 3- 2. C o m p a r i s o n o f T a r g e t s s e t by t h e N a t i o n a l Income-D o u b l i n g P l a n a n d A c t u a l E c o n o m i c P e r f o r m a n c e 71 3- 3. H o u s e h o l d S a v i n g R a t e s o f M a j o r C o u n t r i e s 73 3- 4. The G r o w t h o f J a p a n e s e F o r e i g n T r a d e 74 3- 5. M a j o r J a p a n e s e T r a d e I t e m s 75 3- 6. The S h i f t i n t h e J a p a n e s e P o s t w a r I n d u s t r i a l S t r u c t u r e 76 3- 7. The S h i f t i n J a p a n e s e E n e r g y S u p p l y 77 3- 8. S m i t h s o n i a n R a t e s o f M a j o r C u r r e n c i e s 78 3- 9. U.S. I n t e r n a t i o n a l L i q u i d i t y P o s i t i o n 78 3-10. Change i n O i l P r i c e s 79 3-11. M a j o r J a p a n e s e E c o n o m i c I n d i c e s ( 1 9 7 2 - 1 9 7 5 ) 79 3-12. G r o w t h o f R e a l GNP i n S e v e n I n d u s t r i a l C o u n t r i e s a n d t h e OECD 80 3-13. W h o l e s a l e P r i c e I n d i c e s : I n t e r n a t i o n a l C o m p a r i s o n ..81 3-14. B a l a n c e o f I n t e r n a t i o n a l P a y m e n t s ." 82 v i 3-15. C u r r e n t B a l a n c e s o f OECD C o u n t r i e s 83 3- 16. T o t a l F o r e i g n E x c h a n g e R e s e r v e s o f M a j o r I n d u s t r i a l C o u n t r i e s a n d OPEC C o u n t r i e s 84 ( C h a p t e r F o u r ) 4- 1. C h a n g e s i n I n t e r m e d i a t e I n p u t s i n t h e P r o c e s s i n g I n d u s t r y 104 4- 2. P r o d u c t i v i t y I n c r e a s e i n t h e P r o c e s s i n g I n d u s t r y ..105 4- 3. The R a t i o o f B u s i n e s s E s t a b l i s h m e n t s I m p l e m e n t i n g Employment A d j u s t m e n t 105 ( A p p e n d i x ) A- 1. Some A s p e c t s o f t h e J a p a n e s e a n d C a n a d i a n R e a c t i o n s t o t h e 1973 O i l C r i s i s 132 A- 2. Consumer P r i c e I n d i c e s : I n t e r n a t i o n a l C o m p a r i s o n ..133 A- 3. C u r r e n t B a l a n c e s o f M a j o r I n d u s t r i a l C o u n t r i e s ....134 A- 4. C a n a d i a n M e r c h a n d i s e T r a d e 135 A- 5. C h a n g e s i n L a b o u r C o s t s a n d P r o f i t s p e r U n i t o f O u t p u t 136 A- 6. P r o d u c t i o n S h a r e s by S e c t o r s , S e l e c t e d Y e a r s 1870-1 974 137 A- 7. Employment S h a r e s by E c o n o m i c S e c t o r a n d I n d u s t r y .138 A- 8. F o r e i g n O w n e r s h i p C o n t r o l o f C a n a d i a n I n d u s t r y ....139 A- 9. E x p l o i t a b l e O i l R e s e r v e s i n Canada 140 A-10. P r o v i n c i a l S h a r e s i n t h e M a n u f a c t u r i n g S e c t o r ( 1 9 8 0 ) 141 A - 1 1 . The Top Ten I n d u s t r i a l s ( 1983) 142; v i i A c k n o w l e d g e m e n t s F i v e p e o p l e c o n t r i b u t e d s i g n i f i c a n t l y t o t h e c o m p l e t i o n o f t h i s d i s s e r t a t i o n . They a r e D r . I l a n B. V e r t i n s k y , D r . J . W. C. T o m l i n s o n , D r . M a l c o l m D. H. S m i t h , D r . P e t e r N. Nemetz a n d , i n p a r t i c u l a r , D r . T e r e n c e G. McGee. I w o u l d l i k e t o t h a n k them a l l . T h i s s t u d y was made p o s s i b l e by f i n a n c i a l s u p p o r t f r o m t h e I n s t i t u t e o f A s i a n R e s e a r c h o f UBC, t h e f e d e r a l g o v e r n m e n t o f C a n a d a , a n d t h e K e i d a n r e n . I t h a n k t h e s e o r g a n i z a t i o n s and a p p r e c i a t e D r . McGee's c o o p e r a t i o n i n o b t a i n i n g t h i s s u p p o r t . I w o u l d a l s o l i k e t o t h a n k D r . F r a n k C. L a n g d o n . S p e c i a l t h a n k s t o my K e i d a n r e n c o l l e a g u e s f o r h e l p i n g me c o m p l e t e my t w o - y e a r s t u d y a t UBC s u c c e s s f u l l y . F i n a l l y b u t most i m p o r t a n t l y I t h a n k my p a r e n t s f o r t h e i r e n c o u r a g e m e n t a n d s u p p o r t . v i i i CHAPTER ONE THE NATURE OF THIS THESIS The w o r l d economy i s c u r r e n t l y f a c i n g i n c r e a s e d p o l i t i c a l t e n s i o n among i n d u s t r i a l i z e d c o u n t r i e s , p a r t i c u l a r l y g i v e n g r o w i n g p r o t e c t i o n i s m i n t h e w o r l d t r a d e s y s t e m . I t may be a r g u e d t h a t J a p a n , t h e m a i n t a r g e t o f c r i t i c i s m by E u r o p e a n a n d N o r t h A m e r i c a n c o u n t r i e s b e c a u s e of i t s r a p i d l y i n c r e a s i n g e x p o r t s a n d i t s " c l o s e d " m a r k e t , i s b o t h t h e c a u s e and v i c t i m o f s u c h i n c r e a s e d t e n s i o n . 1 I t i s o f t e n a r g u e d t h a t p o l i t i c a l t e n s i o n s i n t h e w o r l d economy i n c r e a s e d m a i n l y b e c a u s e J a p a n r e c o v e r e d f r o m t h e two o i l c r i s e s i n t h e 1970's more s u c c e s s f u l l y t h a n o t h e r i n d u s t r i a l c o u n t r i e s . A c c o r d i n g t o t h i s a r g u m e n t , t h e c a u s e o f p o l i t i c a l t e n s i o n s s h o u l d be f o u n d i n t h e way J a p a n 1 T h e p o l i t i c a l t e n s i o n s u r r o u n d i n g J a p a n i s s y m b o l i z e d by t h e p h r a s e " t r a d e f r i c t i o n . " T h i s f r i c t i o n c a n be c l a s s i f i e d i n t o t h r e e m a j o r c a t e g o r i e s : J a p a n e s e e x p o r t s , t h e J a p a n e s e m a r k e t , a n d J a p a n e s e p o l i c y a n d e c o n o m i c s t r u c t u r e . T o p i c s c o n c e r n i n g J a p a n e s e e x p o r t s i n c l u d e t h e e x p o r t o f s u c h p r o d u c t s a s t e x t i l e s , s t e e l , c o l o u r TV s e t s , a u t o m o b i l e s , m a c h i n e t o o l s a n d e l e c t r o n i c s , a n d p o l i c y m e a s u r e s r e l a t e d t o J a p a n e s e e x p o r t s s u c h a s v o l u n t a r y e x p o r t r e s t r a i n t a n d l o c a l c o n t e n t p r o p o s a l s . T o p i c s c o n c e r n i n g t h e J a p a n e s e m a r k e t i n c l u d e t h e m a r k e t f o r s u c h p r o d u c t s a s t e l e c o m m u n i c a t i o n e q u i p m e n t , b e e f a n d o r a n g e s a s w e l l a s p o l i c y m e a s u r e s s u c h a s t a r i f f s a n d n o n - t a r i f f b a r r i e r s ( N T B ) . T o p i c s c o n c e r n i n g J a p a n e s e p o l i c y i n c l u d e a g r i c u l t u r a l p o l i c y , d e f e n s e p o l i c y , i n d u s t r i a l p o l i c y a n d t h e i n t e r n a t i o n a l i z a t i o n o f t h e y e n , a n d t h o s e c o n c e r n i n g t h e J a p a n e s e e c o n o m i c s t r u c t u r e i n c l u d e t h e d i s t r i b u t i o n s y s t e m a n d i n t r a - g r o u p t r a n s a c t i o n s . I n a d d i t i o n t o t h e s e t o p i c s , e v e n s u c h i s s u e s a s J a p a n e s e c u l t u r e a n d l a n g u a g e s o m e t i m e s become t h e t o p i c s o f t r a d e f r i c t i o n . 1 2 r e c o v e r e d f r o m t h e o i l c r i s e s a n d i n how t h e J a p a n e s e r e c o v e r y d i f f e r e d f r o m t h a t o f o t h e r i n d u s t r i a l c o u n t r i e s . The p u r p o s e o f t h i s t h e s i s i s t o i n v e s t i g a t e how J a p a n r e a c t e d t o t h e o i l c r i s i s o f 1973. The 1973 o i l c r i s i s i s c a l l e d " t h e f i r s t o i l c r i s i s " v i s - a - v i s " t h e s e c o n d o i l c r i s i s " i n 1979. T h i s t h e s i s d e a l s w i t h t h e 1973 o i l c r i s i s b e c a u s e i t h a d a g r e a t e r i m p a c t on J a p a n t h a n d i d t h e s e c o n d c r i s i s i n 1979. A c o u n t r y t e n d s t o show i t s s t r e n g t h s a n d w e a k n e s s e s when i t f a c e s a c r i s i s . I n t h i s r e s p e c t i t i s ho p e d t h a t a r e v i e w o f J a p a n ' s r e a c t i o n t o t h e o i l c r i s i s w i l l e l u c i d a t e t h e s t r e n g t h s a n d w e a k n e s s e s o f J a p a n , a n d p r o v i d e many i n s i g h t s i n t o t h e c u r r e n t a c t i o n s o f J a p a n i n t h e f a c e o f c o n t e m p o r a r y e c o n o m i c t r e n d s . 2 1. WHAT WAS THE 1973 O I L C R I S I S ? The 1973 o i l c r i s i s was t r i g g e r e d by t h e M i d d l e E a s t War b r e a k i n g o u t on O c t o b e r 6, 1 9 7 3 . 3 When t h e war b r o k e o u t , A r a b i a n o i l p r o d u c i n g c o u n t r i e s d e c i d e d t o use t h e i r o i l ( s o m e t i m e s d e s c r i b e d a s t h e " f o u r t h m i l i t a r y weapon"' 2 A s f o r J a p a n ' s e n e r g y s t r a t e g y i t s e l f t h r o u g h t h e f i r s t a n d s e c o n d o i l c r i s e s , s e e P. N. Nemetz, I . V e r t i n s k y a n d P. V e r t i n s k y , " J a p a n ' s E n e r g y S t r a t e g y a t t h e C r o s s r o a d s , " Pacific Affairs 57 ( W i n t e r 1 9 8 4 - 8 5 ) : 553-576. 3 T h e i n f o r m a t i o n on t h e h i s t o r i c a l i n c i d e n t s d i s c u s s e d i n t h i s s u b s e c t i o n i s b a s e d on t h a t o f Asahi Nenkan, 1974 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 4 ) . The t r a n s l a t i o n i n t o E n g l i s h was done by t h e a u t h o r . " T h i s p h r a s e i s u s e d i n ibid., p. 63. The o i l s t r a t e g y o f A r a b i a n o i l p r o d u c i n g c o u n t r i e s was an e f f e c t i v e weapon t o s u p p o r t t h e i r p o l i t i c a l g o a l s . F o r i n s t a n c e , J a p a n h a d t o d e c l a r e i t s s u p p o r t f o r A r a b i a n 3 a l o n g w i t h t h e army, t h e n a v y a n d t h e a i r f o r c e ) t o g a i n b a r g a i n i n g power a nd i m p l e m e n t o i l s t r a t e g i e s . On O c t o b e r 16, s i x P e r s i a n G u l f c o u n t r i e s , S a u d i A r a b i a , I r a n , I r a q , K u w a i t , Abu D h a b i a nd Q a t a r , h e l d a c o n f e r e n c e i n K u w a i t , a n d d e c i d e d t o r a i s e t h e o i l p r i c e by 2 1 % b e g i n n i n g t h e n e x t d a y . On t h e o t h e r h a n d , m i n i s t e r s o f OAPEC 5 h e l d a c o n f e r e n c e i n K u w a i t a n d d e c i d e d t o d e c r e a s e t h e i r o i l p r o d u c t i o n by 5% p e r month. They d e c l a r e d t h a t t h e d e c r e a s e i n t h e i r o i l p r o d u c t i o n w o u l d c o n t i n u e u n t i l t h e o c c u p a t i o n o f t h e A r a b i a n t e r r i t o r y by I s r a e l h a d e n d e d a n d t h e r i g h t s o f P a l e s t i n i a n s i n t h e M i d d l e E a s t h a d been r e s t o r e d . On O c t o b e r 18, L i b y a p r o p o s e d t o i m p l e m e n t an o i l embargo a g a i n s t t h e U n i t e d S t a t e s . F o l l o w i n g t h i s S a u d i A r a b i a a n d o t h e r P e r s i a n G u l f c o u n t r i e s j o i n e d i n t h e embargo. I n r e s p o n s e t o t h e o i l s t r a t e g y o f OPEC c o u n t r i e s , t h e m a j o r U.S. o i l c o m p a n i e s ( M a j o r s 6 ) d e c i d e d t o i n c r e a s e t h e i r " ( c o n t ' d ) c o u n t r i e s t o o b t a i n o i l s u p p l y f r o m A r a b i a n o i l p r o d u c i n g c o u n t r i e s . 5OAPEC ( O r g a n i z a t i o n o f A r a b P e t r o l e u m E x p o r t i n g C o u n t r i e s ) was e s t a b l i s h e d i n 1968. I t s members c o n s i s t o f t h r e e o r i g i n a l member c o u n t r i e s — K u w a i t , L i b y a a n d Sa,udi A r a b i a - - a n d e i g h t o t h e r c o u n t r i e s — Q a t a r , B a h r a i n , Abu D h a b i , A l g e r i a , I r a n , I r a q , S y r i a a n d E g y p t . The o i l e x p o r t i n g c o u n t r i e s e s t a b l i s h e d OPEC ( O r g a n i z a t i o n o f P e t r o l e u m E x p o r t i n g C o u n t r i e s ) i n 1960 f o l l o w i n g t h e p r o p o s a l o f I r a q . The OPEC members c o n s i s t o f f i v e o r i g i n a l member c o u n t r i e s — I r a q , I r a n , K u w a i t , S a u d i A r a b i a , a n d V e n e z u e l a — a n d e i g h t o t h e r c o u n t r i e s - - Q a t a r , I n d o n e s i a , L i b y a , U n i t e d A r a b E m i r a t e s , A l g e r i a , N i g e r i a , E q u a d o r a nd Gabon. W h i l e t h e m a i n p u r p o s e o f OPEC i s t o d i s c u s s t h e o i l s t r a t e g y o f o i l e x p o r t i n g c o u n t r i e s , t h a t o f OAPEC i s t o d i s c u s s b u s i n e s s o r i e n t e d i s s u e s . F o r i n s t a n c e , OAPEC d i s c u s s e s t h e e s t a b l i s h m e n t o f o i l t a n k e r f l e e t s o f A r a b i a n c o u n t r i e s a n d t h e i n d u s t r i a l i z a t i o n o f i t s member c o u n t r i e s . 6 T h e f o l l o w i n g c o m p a n i e s a r e u s u a l l y c a l l e d M a j o r s : E x x o n , G u l f O i l , S t a n d a r d O i l o f C a l i f o r n i a , T e x a c o , M o b i l , R o y a l D u t c h S h e l l , B r i t i s h P e t r o l e u m a n d Companie F r a n c a i s e P e t r o l e s ( C F P ) . 4 o i l p r i c e s . E x x o n and S h e l l a n n o u n c e d a 30% i n c r e a s e i n ' t h e i r o i l p r i c e s t o t h e i r c u s t o m e r s , i n c l u d i n g J a p a n . T h i s p o l i c y was f o l l o w e d by t h e o t h e r M a j o r s . I n a d d i t i o n t o t h e 70% o i l p r i c e i n c r e a s e , t h e A r a b N a t i o n a l O i l Company a n n o u n c e d t h a t i t w o u l d c u t i t s o i l s u p p l y t o A r a b i a O i l Co. L t d . i n J a p a n by 10% on O c t o b e r 24. I t became c l e a r i n t h e l i g h t o f t h i s a nnouncement t h a t J a p a n was c o n s i d e r e d an! u n f r i e n d l y c o u n t r y by A r a b c o u n t r i e s . On t h e f o l l o w i n g day t h e M a j o r s a n n o u n c e d t h a t t h e y w o u l d c u t t h e i r o i l e x p o r t s t o J a p a n by 10%. * A t a m e e t i n g on November 4 a n d 5, OAPEC c o u n t r i e s d e c i d e d t o d e c r e a s e o i l p r o d u c t i o n by 25% o f t h e i r p r o d u c t i o n l e v e l i n S e p t e m b e r , a n d f u r t h e r d e c r e a s e i t by 5% f r o m November t o December. As a r e s u l t o f t h e s e p o l i c i e s , t h e p r i c e o f o i l ( A r a b i a n l i g h t ) i n c r e a s e d f r o m US$3 p e r b a r r e l i n O c t o b e r 1973 t o more t h a n US$11 p e r b a r r e l i n J a n u a r y 1974. (See T a b l e 3-10 i n C h a p t e r T h r e e ) . T h e s e e v e n t s a r e u s u a l l y r e c o g n i z e d a s t h e 1973 o i l c r i s i s . V e r n o n e x p l a i n s t h e p r o c e s s o f t h e c r i s i s a s f o l l o w s : D u r i n g t h o s e f i f t e e n m o nth o f c r i s i s , a s e r i e s o f t r a n s f o r m a t i o n s o c c u r r e d w i t h r e g a r d t o how t h e c r i s i s was p e r c e i v e d . A t f i r s t , i n t h e two o r t h r e e m onths a f t e r O c t o b e r , 1973, t h e c r i s i s was g e n e r a l l y s e e n a s a t h r e a t t o t h e s e c u r i t y o f t h e o i l i m p o r t e r s ' s u p p l i e s . T h e n , a r o u n d t h e b e g i n n i n g o f 1974, a f t e r t h e p r i c e o f c r u d e o i l had moved v i o l e n t l y u p w a r d , t h e f o c u s o f c o n c e r n i n most c o u n t r i e s s h i f t e d t o t h e q u e s t i o n o f p r i c e . By m i d y e a r o f 1974, h o w e v e r , t h e c o n c e r n o v e r p r i c e h a d b een c o n v e r t e d i n t o a c o n c e r n o v e r t h e i n t e r n a t i o n a l m o n e t a r y m e c h a n i s m a s a w h o l e ; c o n s i d e r a b l e d o u b t a r o s e o v e r w h e t h e r i n s t i t u t i o n s e x i s t e d o r c o u l d be c r e a t e d t h a t w o u l d be c a p a b l e o f h a n d l i n g t h e 5 m a s s i v e s h i f t s i n f i n a n c i a l r e s o u r c e s t h a t w e re d e v e l o p i n g . 7 As f o r t h e i m p l i c a t i o n s o f t h e c r i s i s f o r i n t e r n a t i o n a l p o l i t i c s , t h e r e a r e s e v e r a l d i f f e r e n t v i e w s . F o r i n s t a n c e , P e n r o s e s e e s t h e 1973 o i l c r i s i s a s " t h e p r o g r e s s i v e i n t e r a c t i o n o f t h r e e s e p a r a t e h i s t o r i c a l d e v e l o p m e n t s . " 8 She e x p l a i n s t h e t h r e e d e v e l o p m e n t s a s f o l l o w s : The b a s i c h i s t o r i c a l d e v e l o p m e n t s w e r e , f i r s t , t h e r i s i n g b a r g a i n i n g power o f t h e g o v e r n m e n t s o f t h e o i l e x p o r t i n g c o u n t r i e s o f t h e M i d d l e E a s t v i s - a - v i s t h e i n t e r n a t i o n a l c o m p a n i e s t h a t h a d d i s c o v e r e d , d e v e l o p e d , a n d l o n g c o n t r o l l e d M i d d l e E a s t e r n o i l ; s e c o n d l y , t h e g r o w i n g d e p e n d e n c e o f t h e U n i t e d S t a t e s on M i d d l e E a s t e r n , a n d s p e c i f i c a l l y A r a b , o i l ; a n d t h i r d l y , t h e e s t a b l i s h m e n t a n d e x p a n s i o n o f I s r a e l i n P a l e s t i n e a g a i n s t t h e b i t t e r o p p o s i t i o n o f t h e A r a b c o u n t r i e s , b u t w i t h t h e s t r o n g s u p p o r t o f t h e U n i t e d S t a t e s . 9 T h e r e a r e some s c h o l a r s who see t h e c r i s i s a s a r e s u l t o f U.S. s t r a t e g y t o s t r e n g t h e n i t s s u p e r i o r i t y i n t h e f i e l d o f e n e r g y . 1 0 I t i s i m p o r t a n t a n d i n t e r e s t i n g t o i n v e s t i g a t e t h e i m p l i c a t i o n s o f t h e 1973 o i l c r i s i s f o r i n t e r n a t i o n a l p o l i t i c s a n d t o a s k s u c h q u e s t i o n s a s Who b r o u g h t a b o u t t h e c r i s i s a n d f o r what p u r p o s e ? H o w e v e r , i t i s n o t t h e p u r p o s e o f t h i s t h e s i s t o t r y t o a n s w e r q u e s t i o n s o f t h i s k i n d . W h a t e v e r t h e m a i n c a u s e s o f t h e 1973 o i l c r i s i s , i t i s 7Raymond V e r n o n , "An I n t e r p r e t a t i o n , " i n The Oil Crisis, e d . Raymond V e r n o n (New Y o r k & L o n d o n : W. W. N o r t o n & Company, 1 9 7 6 ) , p. 1. 8 E d i t h P e n r o s e , "The D e v e l o p m e n t o f C r i s i s , " i n ibid., p. 39. 9Ibid., p. 39. 1 0 0 n e o f t h e s e s c h o l a r s , T s u n e h i k o Yamada e x p l a i n s t h e o i l c r i s . i s i n h i s p a p e r " A m e r i c a no K o k u s a i S e k i y u S e n r y a k u no S h i n T e n k a i " i n Ni hon no Enerugi Mondai . e d . Y a s u z u m i Iwao ( T o k y o : J i j i T s u s h i n s h a , 1974) pp. 9 1 - 1 2 1 . 6 i m p o r t a n t t o a c k n o w l e d g e t h a t t h e c r i s i s b r o u g h t a b o u t g r e a t c o n f u s i o n i n most c o u n t r i e s o f t h e w o r l d . E x c e p t f o r t h e o i l p r o d u c i n g a n d r e t a i l i n g c o m p a n i e s who b e n e f i t e d f r o m t h e o i l p r i c e i n c r e a s e , most p e o p l e d i d n o t welcome t h e c r i s i s . The p u r p o s e o f t h i s t h e s i s i s t o i n v e s t i g a t e how J a p a n , t h e c o u n t r y w h i c h , b e c a u s e o f i t s h e a v y d e p e n d e n c e on i m p o r t e d o i l , seems t o have l e a s t w e l c o m ed t h e 1973 o i l c r i s i s , r e a c t e d t o i t . (See T a b l e 1 - 1 ) . 2. THE FOCUS OF THIS THESIS The 1973 o i l c r i s i s h a d v a r i o u s i m p a c t s on t h e w o r l d economy. I t s i m p a c t on e a c h c o u n t r y — a n d how e a c h c o u n t r y r e a c t e d — d i f f e r e d a c c o r d i n g t o t h e c o u n t r y ' s p a r t i c u l a r b a c k g r o u n d a n d s i t u a t i o n . F o r i n s t a n c e , t h e r e a r e o b v i o u s d i f f e r e n c e s b e t w e e n t h e J a p a n e s e a n d t h e C a n a d i a n r e a c t i o n . One d i f f e r e n c e i s b a s e d on a g e o g r a p h i c a l f a c t o r : C a nada h a s d o m e s t i c r e s o u r c e s o f o i l a n d J a p a n d o e s n o t . Some d i f f e r e n c e s a r e b a s e d on s o c i a l e l e m e n t s s u c h a s t h e p o l i t i c a l s y s t e m , t h e e c o n o m i c s t r u c t u r e , a n d p r e v a i l i n g b u s i n e s s a t t i t u d e s . T h e s e a r e t h e f o c u s o f t h i s t h e s i s . As i n d i c a t e d i n T a b l e 1-2 i t i s o f t e n a r g u e d t h a t t h e 1973 o i l c r i s i s f o r c e d J a p a n t o make n a t i o n - w i d e e f f o r t s w h i c h c o n t r i b u t e d t o i t s e c o n o m i c r e c o v e r y a n d i n c r e a s e d i n d u s t r i a l c o m p e t i t i v e n e s s . I t i s a l s o a r g u e d t h a t v a r i o u s g e o g r a p h i c a l d i s a d v a n t a g e s , i n c l u d i n g a l a c k o f n a t u r a l r e s o u r c e s , h a s f o r c e d J a p a n t o p u r s u e i n d u s t r i a l i z a t i o n . M o r e o v e r , i n 7 d r a s t i c a l l y c h a n g i n g i n t e r n a t i o n a l s i t u a t i o n s , i t may happen t h a t a c o u n t r y ' s a d v a n t a g e c a n , i n t h e l o n g r u n , t u r n o u t t o be a d i s a d v a n t a g e a nd v i c e v e r s a . T a b l e 1-3 s u m m a r i z e s some a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s , p a y i n g a t t e n t i o n t o t h e s i t u a t i o n a n d p o l i c y r e a c t i o n s b e f o r e a n d a f t e r t h e c r i s i s . F o l l o w i n g t h e c o n c e p t a n d a r g u m e n t s t a t e d a b o v e , J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s i s i n v e s t i g a t e d i n t h r e e c h a p t e r s . C h a p t e r Two d i s c u s s e s t h e p o l i t i c a l a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s . The r e a c t i o n s o f t h e J a p a n e s e g o v e r n m e n t a nd t h e D i e t a r e r e v i e w e d . C h a p t e r T h r e e d i s c u s s e s t h e e c o n o m i c a s p e c t s o f t h e r e a c t i o n . Some e c o n o m i c f i g u r e s a s w e l l a s m a j o r c h a n g e s i n J a p a n ' s e c o n o m i c s t r u c t u r e a r e r e v i e w e d . C h a p t e r F o u r d i s c u s s e s t h e r o l e o f J a p a n e s e b u s i n e s s i n t h e r e a c t i o n . The r o l e s o f m a j o r e c o n o m i c o r g a n i z a t i o n s a n d b u s i n e s s l e a d e r s a r e r e v i e w e d f r o m t h e p o l i t i c a l p e r s p e c t i v e . The management e f f o r t s o f c o m p a n i e s a r e r e v i e w e d f r o m t h e e c o n o m i c p e r s p e c t i v e . The v a r i o u s p o i n t s d i s c u s s e d i n t h e s e c h a p t e r s a r e s u m m a r i z e d t o s u p p o r t t h e c o n c l u s i o n i n C h a p t e r F i v e . I n a d d i t i o n , t h e r e i s an a p p e n d i x i n w h i c h a J a p a n e s e v i e w on C a n a d a ' s r e a c t i o n t o t h e 1973 o i l c r i s i s i s p r e s e n t e d . 8 3. TABLES TABLE 1-1 STRUCTURE OF ENERGY DEPENDENCE OF MAJOR INDUSTRIAL COUNTRIES - 1978, % -J A P . W.G. U.K. FRA. I T A . CAN. U.S. OECD -Dependence on O i l 73.5 54.7 64.1 59.9 70.3 39.7 48.9,53.4 f o r E n e r g y -Dependence on 99.8 96.6 43.4 99.0 98.5 12.9 45.7 65.9 I m p o r t s f o r O i l -Dependence on t h e 78.5 48.9 80.6 76.9 68.5 44.7 38.5 68.6 M i d d l e E a s t f o r O i l I m p o r t s 1 -Dependence on t h e 57.6 25.8 16.5 45.6 47.3 2.3 18.6 24.1 M i d d l e E a s t f o r E n e r g y S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai, Hokoku, 1980 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1980) p. 210; OECD, Energy Balance of OECD Count ri es , 1978. N o t e : 1 F i g u r e s i n 1977.. 1. J A P . = J a p a n , W.G.=West Germany, U . K . = U n i t e d K i n g d o m , F R A . = F r a n c e , I T A . = I t a l y , CAN.=Canada, U . S . = U n i t e d S t a t e s , OECD=The a v e r a g e o f OECD c o u n t r i e s . 9 TABLE 1-2 A BASIC CONCEPT IMPACT i P O L I T I C A L SYSTEM ECONOMIC STRUCTURE BUSINESS ATTITUDE i RESULT AN A P P L I C A T I O N TO JAPAN'S REACTION TO THE 1973 O I L C R I S I S O I L C R I S I S i P O L I T I C A L SYSTEM ECONOMIC STRUCTURE BUSINESS ATTITUDE i NATION-WIDE EFFORTS i THE COMPETITIVE POWER OF INDUSTRY INCREASED 10 TABLE 1-3 SOME ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S P O L I C I E S SITUATIONS S c a r c i t y i n D o m e s t i c E n e r g y R e s o u r c e s i D e p e n d e n c e on F o r e i g n S u p p l i e s O I L C R I S I S I H i g h e r V u l n e r a b i l i t y I n c r e a s e d C o m p e t i t i v e P o w e r * o f I n d u s t r y TRADE FR I C T I O N D e c r e a s e o f V u l n e r a b i l i t y by E f f i c i e n t Use o f I m p o r t e d R e s o u r c e s N a t i o n - w i d e E f f o r t s on - E n e r g y C o n s e r v a t i o n - D e v e l o p m e n t o f A l t e r n a t i v e E n e r g y S o u r c e s - I n c r e a s e o f P r o d u c t i v i t y J CHAPTER TWO THE P O L I T I C A L ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S The p u r p o s e o f t h i s c h a p t e r i s t o r e v i e w t h e p o l i t i c a l a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s . As n o t e d i n C h a p t e r One, i t i s s o m e t i m e s a r g u e d t h a t t h e e c o n o m i c f r i c t i o n b e t w e e n J a p a n a n d o t h e r i n d u s t r i a l i z e d c o u n t r i e s i s a r e s u l t o f J a p a n ' s r e l a t i v e s u c c e s s i n r e c o v e r i n g f r o m t h e o i l c r i s i s i n t h e 1 9 7 0 ' s . On t h e o t h e r h a n d , t h e s e c r e t o f J a p a n ' s e c o n o m i c s u c c e s s a f t e r W o r l d War I I h a s been e x p l a i n e d by some W e s t e r n s c h o l a r s u t i l i z i n g t h e c o n c e p t o f " J a p a n I n c . " 1 1 A c c o r d i n g t o t h i s c o n c e p t , t h e J a p a n e s e g o v e r n m e n t t a k e s t h e i n i t i a t i v e t o e s t a b l i s h n a t i o n a l g o a l s a n d t h e b u s i n e s s s e c t o r c o o p e r a t e s w i t h t h e g o v e r n m e n t i n a c c o m p l i s h i n g them. T h e r e a r e , h o w e v e r , many a r g u m e n t s a s t o w h e t h e r t h e g o v e r n m e n t h a s i n f a c t t a k e n s u c h a r o l e . 1 2 1 1 N o b u y o s h i N a m i k i p o i n t s o u t t h a t t h e 1973 o i l c r i s i s r e n d e r e d t h e u s a g e o f t h e c o n c e p t " J a p a n I n c . " " o u t - o f - d a t e " . N o b u y o s h i N a m i k i , ' " J a p a n , I n c . ' : R e a l i t y o r F a c a d e ? " i n P o l i t i c s and Economics in Contemporary Japan, e d . Hyoe M u r a k a m i & J o h a n n e s H i r s c h m e r ( T o k y o : The J a p a n C u l t u r e I n s t i t u t e , 1979) p. 111. 1 2 B e c a u s e o f t h e i n c r e a s e i n t h e t r a d e i m b a l a n c e b e t w e e n t h e U n i t e d S t a t e s a n d J a p a n , some A m e r i c a n s began c r i t i c i s i n g J a p a n e s e i n d u s t r i a l p o l i c y . F o r i n s t a n c e , a t t h e J a p a n - U . S . B u s i n e s s m e n ' s C o n f e r e n c e h e l d a t H a k o n e , J a p a n , i n J u l y 1982, U.S. d e l e g a t e s p o i n t e d o u t t h a t t h e J a p a n e s e g o v e r n m e n t s u p p o r t e d s e l e c t e d i n d u s t r i e s a n d p r o t e c t e d them a g a i n s t f o r e i g n c o m p e t i t i o n . The K e i d a n r e n , J a p a n F e d e r a t i p n o f E c o n o m i c O r g a n i z a t i o n s , r e s p o n d e d t o s u c h c r i t i c i s m by p r e s e n t i n g a p a p e r e n t i t l e d " F o r c e o f M a r k e t S t r o n g e r Than 11 12 The 1973 o i l c r i s i s was a major c h a l l e n g e t o the p o l i t i c a l and economic system under which Japan had accomplished s u b s t a n t i a l economic growth. In the process of responding to that c h a l l e n g e , the Japanese government showed what i t was a b l e to do under the e x i s t i n g p o l i t i c a l system. T h e r e f o r e , a review of Japan's r e a c t i o n to the c r i s i s sheds some l i g h t on the q u e s t i o n of how much the Japanese government a c t u a l l y c o n t r i b u t e d to the economic development of Japan. T h i s chapter c o n s i s t s of three s e c t i o n s . In the f i r s t s e c t i o n , the p o l i t i c a l s i t u a t i o n of Japan around the time of the c r i s i s i s reviewed. The b a s i c s t r u c t u r e of the Japanese government i s a l s o e x p l a i n e d . In the second s e c t i o n , the major a c t i o n s taken by the Cabinet and the D i e t are reviewed. In the t h i r d s e c t i o n , the c h a r a c t e r i s t i c s of the p o l i t i c a l a c t i o n s are i n v e s t i g a t e d . S p e c i a l a t t e n t i o n i s p a i d to the q u e s t i o n of how e f f e c t i v e l y the Japanese p o l i t i c a l system worked i n responding to the c r i s i s . 1 2 ( c o n t ' d ) Any 'Targeting' P o l i c y " , i n which the Keidanren p o i n t e d out t h a t some of the c r i t i c i s m s stemmed from a wrong p e r c e p t i o n of "Japan Inc." Keidanren, "Force of Market Stronger Than Any 'Targeting' P o l i c y " , KKC Brief No.8 (Tokyo: K e i z a i Koho Centre, June 1983). 1 1. THE JAPANESE GOVERNMENT SYSTEM AND THE P O L I T I C A L SITUATION I N THE EARLY 1970'S (1) The B a s i c S t r u c t u r e o f t h e G o v e r n m e n t 1 3 The g o v e r n m e n t o f J a p a n c o n s i s t s o f t h r e e i n d e p e n d e n t p o w e r s : l e g i s l a t i v e , a d m i n i s t r a t i v e a n d j u d i c i a r y . The l e g i s l a t i v e power i s r e p r e s e n t e d by t h e D i e t . The r o l e o f t h e D i e t i s d e f i n e d by t h e c o n s t i t u t i o n a s f o l l o w s : A r t i c l e 4 1 : The D i e t s h a l l be t h e h i g h e s t o r g a n o f s t a t e p o w e r , a n d s h a l l be t h e s o l e l a w - m a k i n g o r g a n o f t h e S t a t e . 1 f t The c o n s t i t u t i o n d e f i n e s t h e v a r i o u s p o w e r s o f t h e D i e t , w h i c h i n c l u d e t h e p o w e r s t o d e s i g n a t e t h e p r i m e m i n i s t e r , 1 5 t o p a s s l a w s , 1 6 t o a p p r o v e t h e b u d g e t , 1 7 t o a p p r o v e t r e a t i e s , 1 8 t o c o n d u c t t r i a l s o f impeachment a g a i n s t j u d g e s , 1 9 a n d t o amend t h e c o n s t i t u t i o n . 2 0 The a d m i n i s t r a t i v e power i s t h e r e s p o n s i b l i t y o f t h e C a b i n e t . The C a b i n e t c o n s i s t s o f t h e p r i m e m i n i s t e r a n d o t h e r m i n i s t e r s o f s t a t e a n d i s c o l l e c t i v e l y r e s p o n s i b l e t o t h e D i e t i n t h e e x e r c i s e o f i t s a d m i n i s t r a t i v e p o w e r . The f u n c t i o n s o f t h e C a b i n e t , 2 1 w h i c h a r e a l s o d e f i n e d by t h e 1 3 T h e d e s c r i p t i o n i n t h i s s u b s e c t i o n i s b a s e d on N i p p o n S t e e l C o r p o r a t i o n , Nippon The Land and Its People ( T o k y o : G a k u s e i s h a P u b l i s h i n g Co. L t d . , 1 9 8 2 ) , pp. 54 - 5 7 . 1 " T h e C o n s t i t u t i o n o f J a p a n ( P r o m u l g a t e d on November 3, 1 9 4 6 ) , A r t i c l e 41 The E n g l i s h v e r s i o n o f t h e C o n s t i t u t i o n i q u o t e d f r o m J a p a n , S e c r e t a r i a t , House o f R e p r e s e n t a t i v e s , The National Diet of Japan - The Constitution of Japan, The Diet Law, The Rules of the House of Representative ( T o k y o : S e c r e t a r i a t , House o f R e p r e s e n t a t i v e s , 1982) 1 5 T h e C o n s t i t u t i o n o f J a p a n , A r t i c l e 67, i b i d . , p. 17. 1 6 , A r t i c l e 59, i b i d . , p. 15. 1 7 , A r t i c l e 60, i b i d . , pp. 15-16. 1 8 , A r t i c l e 6 1 , i b i d . , p. 16. 1 9 , A r t i c l e 64, ibid. 2 0 , A r t i c l e 96, i b i d . , p. 23. 2 1 T h e f u n c t i o n o f t h e C a b i n e t i s d e f i n e d i n C h a p t e r F i v e o f 1 4 c o n s t i t u t i o n , i n c l u d e a d m i n i s t e r i n g l a w s , m a n a g i n g f o r e i g n a f f a i r s , c o n c l u d i n g t r e a t i e s , p r o p o s i n g t h e b u d g e t , a n d e n a c t i n g c a b i n e t o r d e r s . The f u n c t i o n s o f t h e C a b i n e t a r e d i v i d e d among m i n i s t e r s o f s t a t e h e a d i n g t w e l v e m i n i s t r i e s a n d m a j o r g o v e r n m e n t a l a g e n c i e s . The j u d i c i a r y c o n s i s t s o f t h e Supreme C o u r t a nd s u c h i n f e r i o r c o u r t s a s t h e h i g h c o u r t s , t h e d i s t r i c t c o u r t s , t h e f a m i l y c o u r t s , a n d t h e summary c o u r t s . A l l j u d g e s a r e i n d e p e n d e n t i n t h e e x e r c i s e o f t h e i r c o n s c i e n c e a n d a r e bound o n l y by t h e c o n s t i t u t i o n a n d t h e l a w s . The C h i e f J u d g e o f t h e Supreme C o u r t i s d e s i g n a t e d by t h e C a b i n e t a n d a p p r o v e d by t h e E m p e r o r . A l l o t h e r j u d g e s a r e a p p o i n t e d by t h e C a b i n e t . I t i s w i t h i n t h e power o f t h e c o u r t s t o r u l e on t h e c o n s t i t u t i o n a l i t y o f any and a l l l a w s a n d o r d e r s . (2) The P o l i t i c a l S i t u a t i o n of Japan i n the E a r l y 1970's A. The D i e t As shown i n T a b l e 2-1, u n t i l t h e e a r l y 1 9 7 0 ' s , t h e L i b e r a l D e m o c r a t i c P a r t y (LDP) h a d m a i n t a i n e d a s t a b l e m a j o r i t y u n d e r t h e s t r o n g l e a d e r s h i p o f P r i m e M i n i s t e r S a t o , who m a i n t a i n e d h i s p o s i t i o n f o r t h r e e t e r m s , f r o m 1964 t o 1972. The P r i m e M i n i s t e r r e a c h e d an a g r e e m e n t w i t h U.S. P r e s i d e n t N i x o n t o h a v e O k i n a w a r e t u r n e d f r o m t h e U n i t e d S t a t e s t o J a p a n , a n d i t was t h e s u c c e s s o f t h i s a g r e e m e n t t h a t c o n t r i b u t e d t o t h e i n c r e a s e i n t h e s e a t s o f t h e LDP i n 2 1 ( c o n t ' d ) t h e C o n s t i t u t i o n . Ibid., pp. 16-19. 15 t h e t h i r t y - s e c o n d e l e c t i o n o f t h e House o f R e p r e s e n t a t i v e s h e l d on December 2, 1 9 6 9 . 2 2 H o w e v e r , i t i s c l e a r f r o m t h e t a b l e t h a t t h e LDP's m a j o r i t y g r a d u a l l y d e c r e a s e d t o w a r d s t h e m i d d l e o f t h e 197 0 ' s . On t h e o t h e r h a n d , t h e s e a t s o f t h e J a p a n S o c i a l i s t P a r t y ( J S P ) a n d t h e J a p a n Communist P a r t y ( J C P ) g r a d u a l l y i n c r e a s e d . P r i m e M i n i s t e r T a n a k a , who s u c c e e d e d S a t o on J u l y 7, 1 9 7 2 2 3 d e c i d e d t o d i s s o l v e t h e House o f R e p r e s e n t a t i v e s on November 30, 1972. I n t h e f o l l o w i n g e l e c t i o n , t h e LDP, o c c u p y i n g o n l y 271 s e a t s , f e l l t o t h e l o w e s t number s i n c e t h e e s t a b l i s h m e n t o f t h e p a r t y i n 1955. On t h e o t h e r h a n d , t h e J C P i n c r e a s e d i t s s e a t s f r o m 14 t o 38. The J S P a l s o i n c r e a s e d i t s s e a t s f r o m 87 t o 118. T h i s r e s u l t r e f l e c t e d t h e a t t i t u d e o f v o t e r s who were t i r e d o f t h e l o n g d o m i n a n c e o f t h e LDP. As f a r a s t h e s i t u a t i o n o f t h e D i e t was c o n c e r n e d , t h e d o m i n a n c e o f t h e LDP h a d been weakened j u s t b e f o r e t h e 1973 o i l c r i s i s . I n o t h e r w o r d s , t h e s i t u a t i o n i n t h e D i e t p r o v i d e d t h e o p p o s i t i o n p a r t i e s w i t h a p o s i t i o n t o c r i t i c i z e t h e p o l i c i e s o f t h e C a b i n e t more e f f e c t i v e l y t h a n b e f o r e . B. The Cabinet As n o t e d i n t h e p r e v i o u s s u b s e c t i o n , t h e e a r l y 1970's was a t r a n s i t i o n a l p e r i o d i n J a p a n e s e p o l i t i c a l h i s t o r y . 22Asahi Nenkan, 1970 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 0 ) , p. 267. 2 3 T h e s i t u a t i o n o f T a n a k a ' s s u c c e s s i o n i s e x p l a i n e d i n S h i g e r u H a y a s h i & K i y o a k i T s u j i , e d . , Nippon Naikaku Shiroku, 6 v o l s . ( T o k y o : D a i - i c h i H o k i , 1 9 8 1 ) , 6:216-237. 16 P r i m e M i n i s t e r S a t o h a d m a i n t a i n e d h i s l e a d e r s h i p f o r s e v e n a n d a h a l f y e a r s , t h e l o n g e s t t e r m a f t e r W o r l d War I I . On J u l y 5, 1972, t h e e l e c t i o n t o c h o o s e S a t o ' s s u c c e s s o r a s p r e s i d e n t o f t h e LDP was c a r r i e d o u t i n t h e t w e n t y - s e v e n t h a d - h o c m e e t i n g o f t h e LDP. T h e r e were f o u r c a n d i d a t e s : O h i r a , 2 " F u k u d a , 2 5 M i k i , 2 6 a n d T a n a k a . 2 7 The r e s u l t o f t h e f i r s t e l e c t i o n was a s f o l l o w s : T a n a k a : 1 5 6 ; F u k u d a : 1 5 0 ; O h i r a : l 0 l ; M i k i : 6 9 I n t h e s e c o n d e l e c t i o n b e t w e e n o n l y T a n a k a a n d F u k u d a , 2 " M a s a y o s h i O h i r a was b o r n i n t o a m i d d l e c l a s s f a r m i n g f a m i l y i n Kagawa p r e f e c t u r e i n 1910. He g r a d u a t e d f r o m T o k y o U n i v e r s i t y o f Commerce a n d e n t e r e d t h e M i n i s t r y o f F i n a n c e i n 1936. He a c t e d a s s e c r e t a r y t o t h e M i n i s t e r s o f F i n a n c e , T s u s h i m a a n d I k e d a , a n d was e l e c t e d a member o f t h e D i e t i n 1952. He b e l o n g e d t o t h e m a i n s t r e a m o f t h e LDP f o l l o w i n g Y o s h i d a a n d I k e d a , a n d became t h e m a j o r s u p p o r t e r o f T a n a k a . A f t e r h o l d i n g m a j o r m i n i s t e r i a l p o s i t i o n s s u c h a s t h e M i n i s t e r o f F i n a n c e a n d t h e M i n i s t e r o f F o r e i g n A f f a i r s , he became p r i m e m i n i s t e r i n 1978. He d i e d i n t h e p o s i t i o n o f p r i m e m i n i s t e r i n 1980. Ibid., p. 4 5 1 . 2 5 T a k e o Fuk-uda was b o r n i n t o a r i c h f a m i l y i n Gumma p r e f e c t u r e i n 1905. A f t e r g r a d u a t i n g f r o m T o k y o U n i v e r s i t y he e n t e r e d t h e M i n i s t r y o f F i n a n c e i n 1929. He was an e l i t e b u r e a u c r a t a c t i n g a s D i r e c t o r G e n e r a l o f t h e B u d g e t B u r e a u o f t h e m i n i s t r y . He was e l e c t e d a member o f t h e D i e t i n 1952. He b e l o n g e d t o t h e K i s h i f a c t i o n . He h e l d i m p o r t a n t p o s t s s u c h a s S e c r e t a r y G e n e r a l o f t h e LDP, M i n i s t e r o f F i n a n c e a n d M i n i s t e r o f F o r e i g n A f f a i r s , a n d became p r i m e m i n i s t e r i n 1976. Ibid., p. 424. 2 6 T a k e o M i k i was b o r n i n t o a f a r m i n g f a m i l y i n T o k u s h i m a p r e f e c t u r e i n 1907. He g r a d u a t e d f r o m M e i j i U n i v e r s i t y . He went t o t h e U n i t e d S t a t e s t o s t u d y b e f o r e h i s g r a d u a t i o n f r o m u n i v e r s i t y . He was e l e c t e d a member o f t h e D i e t i n t h e y e a r o f h i s g r a d u a t i o n . A f t e r a c t i n g a s l e a d e r o f s e v e r a l p o l i t i c a l p a r t i e s , he became a member o f t h e LDP. He m a i n t a i n e d h i s p o s i t i o n i n d e p e n d e n t f r o m t h e m a i n s t r e a m o f t h e p a r t y . A f t e r h o l d i n g m a j o r m i n i s t e r i a l p o s i t i o n s he became p r i m e m i n i s t e r i n 1974. Ibid., pp. 36 5 - 3 6 6 . 2 7 K a k u e i T a n a k a was b o r n i n N i i g a t a p r e f e c t u r e i n 1918-A f t e r g r a d u a t i n g f r o m Chuo E n g i n e e r i n g S c h o o l , he e s t a b l i s h e d a c o n s t r u c t i o n company. He was e l e c t e d a member o f t h e D i e t i n 1947. A f t e r a c t i n g a s M i n i s t e r o f P o s t s a n d T e l e c o m m u n i c a t i o n s , S e c r e t a r y G e n e r a l o f t h e LDP, M i n i s t e r o f F i n a n c e a n d M i n i s t e r o f I n t e r n a t i o n a l T r a d e a n d I n d u s t r y , he became p r i m e m i n i s t e r i n 1972. Ibid., pp. 216- 2 2 8 . 17 Tanaka obtained 282 votes, and Fukuda obtained 190 vo t e s . As a r e s u l t , Tanaka became p r e s i d e n t of the LDP. On the f o l l o w i n g day he was des i g n a t e d as the prime m i n i s t e r of Japan. He was 54 years o l d , and the youngest prime m i n i s t e r in postwar Japanese p o l i t i c a l h i s t o r y . In a d d i t i o n to the f a c t that Tanaka was the youngest prime m i n i s t e r , he had other unique f e a t u r e s . There are two types of p o l i t i c i a n s i n the LDP: a party p o l i t i c i a n and a bureaucrat p o l i t i c i a n . 2 8 Tanaka was a p a r t y p o l i t i c i a n because he had no experience i n an e l i t e bureaucrat p o s i t i o n . He c o n t r a s t e d with the three prime m i n i s t e r s before him, K i s h i , Ikeda, and Sato. They were c a l l e d bureaucrat p o l i t i c i a n s because they had s t a r t e d t h e i r p u b l i c a c t i v i t i e s as e l i t e b u r e a u c r a t s . 2 9 Moreover, Tanaka d i d not 2 8 T h i s p o i n t i s e x p l a i n e d by Baerwald as f o l l o w s : "In Japanese p a r l a n c e , t h i s i s r e f e r r e d to as the d i v i s i o n between tojin (party men) and kanryo ( b u r e a u c r a t s ) . I f Hatoyama epitomized the tojin by having been r e - e l e c t e d t h i r t e e n times to the House of R e p r e s e n t a t i v e s , Yoshida was the archtype of the ex-bureaucrat who came to dominate the LDP i n the postwar p e r i o d . Indeed, n e a r l y a l l of the Prime M i n i s t e r s have been drawn from the l a t t e r ranks: Shidehara K i j u r o ( F o r e i g n M i n i s t r y ) 1945-46, Ashida H i t o s h i (Foreign M i n i s t r y ) 1948, Yoshida Shigeru ( F o r e i g n M i n i s t r y ) 1946-47, 1948-54, K i s h i Nobusuke (Commerce and Industry M i n i s t r y ) 1957-60, Ikeda Hayato (Finance M i n i s t r y ) 1960-64, Sato E i s a k u ( T r a n s p o r t a t i o n M i n i s t r y ) 1964-72. In t h i s context, the a c c e s s i o n of Tanaka Kakuei to the presi d e n c y of the LDP and Prime M i n i s t e r s h i p i n the summer of 1972 was a minor r e v o l u t i o n " (H. H. Baerwald, " P a r t i e s , F a c t i o n s , and the D i e t , " i n Politics and Economics in Contemporary Japan, ed. Hyoe Murakami & Johannes Hirschmeir' [Tokyo: Japan C u l t u r e I n s t i t u t e , 1979], P. 39). 2 9Nobusuke K i s h i was chosen by the Emperor to be M i n i s t e r of Industry and Commerce i n a prewar Ca b i n e t . The r e l a t i o n s h i p between p a r t y p o l i t i c i a n s and bureaucrats i s e x p l a i n e d by Watanabe with r e l a t i o n to f a c t i o n s i n the LDP. Tsuneo 18 g r a d u a t e f r o m a u n i v e r s i t y . I n J a p a n e s e s o c i e t y , where t h e s t a t u s o f a p e r s o n i s l a r g e l y a f f e c t e d by h i s l e v e l o f e d u c a t i o n , T a n a k a was a u n i q u e p r i m e m i n i s t e r . 3 0 B a s e d on t h e s e q u a l i t i e s , he o b t a i n e d t h e h i g h e s t p o p u l a r i t y o f any p r i m e m i n i s t e r i n p o s t w a r p o l i t i c a l h i s t o r y . I n f a c t , t h e p u b l i c o p i n i o n p o l l s h e l d i n A u g u s t 1972 showed t h a t 6 2 % o f t h e p e o p l e s u r v e y e d s u p p o r t e d P r i m e M i n i s t e r T a n a k a . M a j o r members o f t h e T a n a k a C a b i n e t a r e shown i n T a b l e 2-2. As shown i n t h e t a b l e , m a j o r p o s t s o f t h e C a b i n e t were o c c u p i e d by t h e f o l l o w i n g p e o p l e d u r i n g t h e o i l c r i s i s i n t h e l a t e 1973. P r i m e M i n i s t e r K a k u e i T a n a k a V i c e P r i m e M i n i s t e r T a k e o M i k i M i n i s t e r o f F i n a n c e T a k e o F u k u d a M i n i s t e r o f F o r e i g n A f f a i r s M a s a y o s h i O h i r a MITI M i n i s t e r Y a s u h i r o N a k a s o n e * M I T I : M i n i s t r y o f I n t e r n a t i o n a l T r a d e a n d I n d u s t r y . * F u k u d a s u c c e e d e d K i i c h i A i c h i on November 25, 1973. A l l t h e p o l i t i c i a n s l i s t e d h e r e became p r i m e m i n i s t e r s o f J a p a n i n t h e a b o v e o r d e r a l t h o u g h Zenko S u z u k i became p r i m e m i n i s t e r a f t e r O h i r a a n d b e f o r e N a k a s o n e . 3 1 I t c a n be s a i d t h a t t h e T a n a k a C a b i n e t c o n s i s t e d o f t h e most i n f l u e n t i a l l e a d e r s o f t h e LDP when i t f a c e d t h e 1973 o i l c r i s i s . A l t h o u g h i t was t r u e t h a t T a n a k a i n t e n d e d t o e s t a b l i s h a s t r o n g C a b i n e t t o o v e r c o m e t h e p o l i t i c a l a n d e c o n o m i c p r o b l e m s he f a c e d , i t was a l s o t r u e t h a t he was o b l i g e d t o 2 9 ( c o n t ' d ) W a t a n a b e , Habatsu, ( T o k y o : Kobundo, 1 9 5 8 ) . 3 0 H . H. B a e r w a l d u s e s t h e w o r d " r e v o l u t i o n " a s p r e v i o u s l y q u o t e d . 3 1 K i i c h i A i c h i d i e d on November 23 i n t h e p o s i t i o n o f M i n i s t e r o f F i n a n c e . Zenko S u z u k i became p r i m e m i n i s t e r a s O h i r a ' s s u c c e s s o r r a t h e r t h a n a s an i n f l u e n t i a l l e a d e r o f t h e LDP. S h i g e r u H a y a s h i & K i y o a k i T s u j i , op. c i t . , p. 458. 19 a p p o i n t m a j o r l e a d e r s o f t h e p a r t y a s m i n i s t e r s i n o r d e r t o b u i l d a c o n s e n s u s s i n c e e a c h l e a d e r h a d i n f l u e n c e t h r o u g h h i s f a c t i o n i n t h e p a r t y . 2. THE ACTIONS TAKEN BY THE GOVERNMENT FACING THE C R I S I S M a j o r a c t i o n s t a k e n by t h e g o v e r n m e n t , t h e a c t i o n s o f t h e C a b i n e t a n d t h e b u r e a u c r a c y a n d t h o s e o f t h e D i e t , a r e r e v i e w e d i n t h i s s e c t i o n . The a c t i o n s o f t h e g o v e r n m e n t a r e c l a s s i f i e d i n t o two a r e a s . One was t h e e x t e r n a l p o l i c y of J a p a n d e s i g n e d t o m a i n t a i n a s t a b l e o i l s u p p l y f r o m t h e M i d d l e E a s t . The a c t i o n s o f t h e C a b i n e t r e s u l t e d i n t h e d e c l a r a t i o n o f i t s s u p p o r t f o r A r a b i a n c o u n t r i e s on November 22, 1973. The o t h e r was t h e d o m e s t i c p o l i c y t o c o n t r o l t h e d o m e s t i c o i l s i t u a t i o n i n o r d e r t o d e a l w i t h t h e o i l s h o r t a g e . The D i e t p a s s e d two i m p o r t a n t l a w s . On t h i s s u b j e c t , t h e C a b i n e t a n d t h e b u r e a u c r a c y i m p l e m e n t e d s e v e r a l a d m i n i s t r a t i v e m e a s u r e s w h i c h were r e p l a c e d by t h e m e a s u r e s b a s e d on t h e two l a w s a f t e r t h e y were p a s s e d by t h e D i e t . F o l l o w i n g i s a more d e t a i l e d d i s c u s s i o n o f t h e s e a c t i o n s . (1) The A c t i o n s Taken by the Cabinet A. The E x t e r n a l P o l i c y The o i l c r i s i s i n 1973 f o r c e d t h e J a p a n e s e g o v e r n m e n t t o f a c e a d i f f i c u l t s i t u a t i o n i n w h i c h i t h a d t o accommodate 20 two d i f f e r i n g p r i o r i t i e s - - o n e p o l i t i c a l a n d t h e o t h e r e c o n o m i c . As f a r a s J a p a n e s e d i p l o m a c y was c o n c e r n e d , i t was c o n s i d e r e d v e r y i m p o r t a n t t o m a i n t a i n s t a b l e p o l i t i c a l r e l a t i o n s w i t h t h e U n i t e d S t a t e s . The M i n i s t r y o f F o r e i g n A f f a i r s was p a r t i c u l a r l y c o n c e r n e d a b o u t t h i s p o i n t when t h e o i l c r i s i s o c c u r r e d . S h i n s a k u H ogen, v i c e m i n i s t e r o f t h e M i n i s t r y o f F o r e i g n A f f a i r s , e x p r e s s e d h i s v i e w s a t a m e e t i n g of t h e m i n i s t r y a s f o l l o w s : I t i s i m p o r t a n t t o o b t a i n o i l , b u t we s h o u l d n o t f o r g e t t h e d i g n i t y o f J a p a n a s a n a t i o n . We s h o u l d n o t a s k f o r o i l p r o s t r a t i n g t h e d i g n i t y o f J a p a n a s a n a t i o n . We s h o u l d n o t a s k f o r o i l by p r o s t r a t i n g o u r s e l v e s on t h e g r o u n d . We h a v e t o e x a m i n e what i s most i m p o r t a n t . The o i l i n d u s t r y m i g h t be s h a k e n b e c a u s e i t d e p e n d s on o i l . H o w e v e r , i t i s n o t t h e c a s e w i t h t h e M i n i s t r y o f F o r e i g n A f f a i r s . We h a v e t o u n d e r s t a n d f i r s t where we p u r c h a s e o i l . E v e n t h o u g h we p u r c h a s e most o i l f r o m t h e M i d d l e E a s t , we do i t t h r o u g h O i l M a j o r s . J a p a n d e p e n d s on them f o r 60% o f i t s o i l i m p o r t s . They d e a l w i t h o i l n o t o n l y i n t h e M i d d l e E a s t b u t a l s o i n o t h e r r e g i o n s . We s h o u l d n o t i g n o r e t h e f u n c t i o n o f t h e M a j o r s . J a p a n e s e d i p l o m a t i c p o l i c y i s b a s e d on c o o p e r a t i v e r e l a t i o n s w i t h t h e U n i t e d S t a t e s . J a p a n e s e t r a d e c a n n o t e x i s t w i t h o u t t h e U n i t e d S t a t e s . I f we s u p p o r t A r a b i a n c o u n t r i e s by v i o l a t i n g p r o - U . S . p o l i c i e s , t h e s u p p l y o f o i l by t h e M a j o r s m i g h t be s t o p p e d , and J a p a n e s e e x p o r t s t o t h e U n i t e d S t a t e s m i g h t a l s o be damaged. S u c h r e s u l t s w o u l d h a v e a t r e m e n d o u s e f f e c t on J a p a n . I t i s i m p o r t a n t t o a d o p t t h e most r e a l i s t i c p o l i c y . D i p l o m a c y s h o u l d be j u s t t o a l l p a r t i e s c o n c e r n e d . R e s o l u t i o n 242 a d o p t e d by t h e S e c u r i t y C o u n c i l o f t h e U n i t e d N a t i o n s i s w e l l a c c o m m o d a t e d . 3 2 I t i s v e r y i m p o r t a n t t o e m p h a s i z e t h a t t h e r e s o l u t i o n i s v e r y r a t i o n a l a n d i t g o e s 3 2 T h e R e s o l u t i o n , w h i c h was a d o p t e d on J u n e 6, 1967, r e q u e s t e d b o t h A r a b i a n a n d I s r a e l i a r m i e s t o c e a s e f i r e . Asahi Nenkan 1976 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 6 ) , p. 95. 21 a l o n g w i t h J a p a n e s e n a t i o n a l p o l i c i e s . 3 3 On t h e o t h e r h a n d , t h e M i n i s t r y o f I n t e r n a t i o n a l T r a d e a n d I n d u s t r y ( M I T I ) , w h i c h was i n c h a r g e o f J a p a n e s e i n d u s t r i a l p o l i c y , t o o k a p r o - A r a b s t a n c e c o n s i d e r i n g t h e s i t u a t i o n o f J a p a n e s e i n d u s t r y . 3 4 On November 14, 1973, K o g o r o Uemura, C h a i r m a n o f t h e K e i d a n r e n , 3 5 a n d t h r e e o t h e r b u s i n e s s l e a d e r s v i s i t e d P r i m e M i n i s t e r T a n a k a who was g o i n g t o meet H e n r y K i s s i n g e r , U.S. S e c r e t a r y o f S t a t e , on t h e f o l l o w i n g d a y . The b u s i n e s s l e a d e r s s t a t e d t h e i r o p i n i o n s a s f o l l o w s : We came t o u n d e r s t a n d t h a t t h e M a j o r s w i l l n o t s u p p l y e n o u g h o i l t o J a p a n i f t h e s i t u a t i o n becomes more s e v e r e . Now t h e J a p a n e s e g o v e r n m e n t s h o u l d t a k e a p r o - A r a b d i p l o m a t i c s t a n c e i n o r d e r t o s t r e n g t h e n i t s c o o p e r a t i v e r e l a t i o n s w i t h A r a b c o u n t r i e s . I t w i l l be a go o d i d e a t o s e n d a s p e c i a l d e l e g a t e t o t h e A r a b c o u n t r i e s . 3 6 The b u s i n e s s l e a d e r s a l s o a s k e d t h e p r i m e m i n i s t e r t o 3 3 K u n i o Y a n a g i d a , Ohkami ga Yatte Ki ta Hi ( T o k y o : B u n g e i S h u n j u ) , pp. 65-66 (Summary t r a n s l a t i o n by t h e a u t h o r ) . 3"On November 20, 1973, MITI M i n i s t e r N a k a s o n e r e q u e s t e d r e p r e s e n t a t i v e s o f t h e M a j o r s i n J a p a n t o c o o p e r a t e w i t h J a p a n i n s u p p l y i n g o i l . The r e p r e s e n t a t i v e s p r o m i s e d t o t r a n s m i t t h e message f r o m N a k a s o n e t o t h e h e a d q u a t e r s o f e a c h company. Ni hon Keizai Shinbun, 21 November, 1973. 3 5 T h e K e i d a n r e n i s e x p l a i n e d i n C h a p t e r T h r e e . The F e d e r a t i o n h a d drawn t h e g o v e r n m e n t ' s a t t e n t i o n t o t h e r e s o u r c e i s s u e b e f o r e t h e 1973 o i l c r i s i s a s C a l d w e l l p o i n t s o u t . "More t h a n a y e a r b e f o r e t h e o i l s h o c k o f O c t o b e r 1973, t h e K e i d a n r e n e n e r g y c o m m i t t e e , u n d e r t h e l e a d e r s h i p o f S h o i c h i M a t s u n e , c a l l e d f o r a c o m p r e h e n s i v e r e v i s i o n o f J a p a n ' s e n e r g y p o l i c y . The 'Matsune P l a n ' c a l l e d f o r a more i n d e p e n d e n t f o r e i g n o i l p o l i c y , i n c l u d i n g e x p a n d e d p a r t i c i p a t i o n i n M i d d l e E a s t e c o n o m i c d e v e l o p m e n t p r o j e c t s " ( M . C a l d w e l l , "The Di l e m m a s o f J a p a n ' s O i l D e p e n d e n c y , " i n The Politics of Japan's Energy Strategy, e d . R o n a l d A. M o r s e [ B e r k e l e y : I n s t i t u t e o f E a s t A s i a n S t u d i e s , U n i v e r s i t y o f C a l i f o r n i a , B e r k e l e y , 1981 ] , p. 6 8 ) . 3 6 K u n i o Y a n a g i d a , op. c i t . , p. 78. 22 m o d e r a t e t h e a p p l i c a t i o n o f t h e A n t i - M o n o p o l y Law o f J a p a n c o n c e r n i n g c a r t e l s . 3 7 The m e e t i n g b e t w e e n K i s s i n g e r a n d T a n a k a on November 15 ha d a s t r o n g i m p a c t on t h e d e c i s i o n made by t h e J a p a n e s e g o v e r n m e n t on i t s b a s i c d i p l o m a t i c d i r e c t i o n . I t was r e p o r t e d t h a t K i s s i n g e r e x p l a i n e d t h a t , i f J a p a n a d o p t e d a p r o - A r a b p o l i c y , J e w i s h A m e r i c a n s w o u l d be i r r i t a t e d a n d t h e U.S . - J a p a n r e l a t i o n s h i p m i g h t be damaged. T a n a k a e x p l a i n e d t h a t t h e c u r r e n t s i t u a t i o n w o u l d c a u s e a d e c r e a s e i n t h e o i l s u p p l y t o J a p a n by 5% o r 6%, and J a p a n e s e e c o n o m i c g r o w t h w o u l d d e c r e a s e f r o m 10.7%, w h i c h h a d been e x p e c t e d , t o b e l o w 5%. T a n a k a a s k e d K i s s i n g e r w h e t h e r t h e U n i t e d S t a t e s c o u l d c o m p e n s a t e f o r t h e o i l s h o r t a g e i n J a p a n i f J a p a n f o l l o w e d t h e U.S. s t r a t e g y . K i s s i n g e r a n s w e r e d t h a t t h e U n i t e d S t a t e s w o u l d n o t make s u c h c o m p e n s a t i o n . T a n a k a r e p l i e d t h a t J a p a n c o u l d n o t h e l p a d o p t i n g p r o - A r a b p o l i c i e s . 3 8 The p r o - A r a b p o l i c y o f t h e T a n a k a C a b i n e t was f o r m a l l y a n n o u n c e d on November 22, 1973. The e s s e n c e o f t h e p o l i c y was a s f o l l o w s : 1. The J a p a n e s e g o v e r n m e n t h a s r e q u e s t e d t h e e s t a b l i s h m e n t o f a p e a c e f u l s i t u a t i o n i n t h e M i d d l e E a s t by f u l f i l l i n g R e s o l u t i o n 242 o f t h e S e c u r i t y C o u n c i l o f t h e U n i t e d N a t i o n s a n d s u p p o r t e d t h e R e s o l u t i o n o f t h e U n i t e d N a t i o n s G e n e r a l A s s e m b l y on th e a utonomy o f P a l e s t i n i a n s . 2. The J a p a n e s e g o v e r n m e n t s u p p o r t s t h e i d e a t h a t t h e f o l l o w i n g p r i n c i p l e s s h o u l d be f u l f i l l e d i n o r d e r t o s o l v e t h e c o n f - l i c t s i n t h e M i d d l e E a s t . (1) The o c c u p a t i o n o f l a n d by m i l i t a r y power s h a l l n o t be p e r m i t t e d . 3 7 I b i d . r p. 79. 3 e I b i d . , pp. 7 9 - 8 0 . 23 (2) The I s r a e l i army s h o u l d be w i t h d r a w n f r o m a l l t h e a r e a s i t o c c u p i e d d u r i n g t h e war i n 1967. (3) The p e a c e a n d o r d e r i n t h e t e r r i t o r y s h o u l d be g u a r a n t e e d . (4) The r i g h t s o f P a l e s t i n i a n s b a s e d on t h e C h a r t e r o f t h e U n i t e d N a t i o n s s h o u l d be g u a r a n t e e d . 3. The J a p a n e s e g o v e r n m e n t r e q u e s t s I s r a e l t o f o l l o w t h e p r i n c i p l e s s t a t e d a b o v e . The J a p a n e s e g o v e r n m e n t w i l l r e c o n s i d e r i t s I s r a e l i p o l i c y a c c o r d i n g t o any s e r i o u s c h a n g e i n t h e s i t u a t i o n . 3 9 F o l l o w i n g t h e a n n o u n c e m e n t , t h e g o v e r n m e n t d e c i d e d t o s e n d V i c e P r i m e M i n i s t e r M i k i t o s e v e r a l A r a b i a n c o u n t r i e s on December 1 0 . 4 0 On December 25, J a p a n was r e c o g n i z e d a s a f r i e n d l y n a t i o n a t t h e O i l M i n i s t e r s C o n f e r e n c e o f O A P E C . 4 1 The MITI M i n i s t e r , N a k a s o n e , v i s i t e d A r a b i a n a n d E u r o p e a n c o u n t r i e s f r o m J a n u a r y 7 t o 1 8 . 4 2 The m a i n t o p i c s o f N a k a s o n e ' s v i s i t w ere J a p a n ' s e c o n o m i c c o o p e r a t i o n w i t h M i d d l e E a s t c o u n t r i e s a n d o i l t r a n s a c t i o n s c a r r i e d o u t by t h e g o v e r n m e n t . 4 3 39Nihon Kei zai Shinbun, 22 November, e v e n i n g e d i t i o n , 1973 (Summary t r a n s l a t i o n by t h e a u t h o r ) . 4 0 T h e e i g h t c o u n t r i e s a r e t h e U n i t e d A r a b E m i r a t e s , S a u d i A r a b i a , E g y p t , K u w a i t , Q a t a r , S y r i a , I r a q a n d I r a n . Asahi Shinbun, 10 December, e v e n i n g e d i t i o n , 1973. 41Asahi Shinbun, 26 December, 1973. 4 2 N o t o n l y N a k a s o n e b u t a l s o o t h e r m i n i s t e r i a l l e v e l p o l i t i c i a n s v i s i t e d f o r e i g n c o u n t r i e s i n J a n u a r y 1974 a s f o l l o w s : P r i m e M i n i s t e r T a n a k a ( J a n . 7 - 1 7 , S o u t h E a s t A s i a ) V i c e P r i m e M i n i s t e r M i k i ( J a n . 7 - 1 4 , t h e U n i t e d S t a t e s ) F i n a n c e M i n i s t e r F u k u d a ( J a n . 1 4 - 1 9 , I t a l y ) F o r e i g n A f f a i r s M i n i s t e r O h i r a ( J a n . 2 - 6 , C h i n a ) K o s a k a ( S p e c i a l d e l e g a t e ) ( J a n . 1 5 - F e b . 2 , E i g h t A r a b i a n c o u n t r i e s ) K u n i o Y a n a g i d a , op. c i t . , pp. 25 7 - 2 5 8 . **Ibid., pp. 25 7 - 2 7 2 . 24 B. The Domestic Policy The d o m e s t i c p o l i c y i m p l e m e n t e d by t h e T a n a k a C a b i n e t c o n c e n t r a t e d on t h e s t a b i l i z a t i o n o f o i l s u p p l y a n d t h e c o n t r o l o f o i l demand. On November 16, 1973, t h e C a b i n e t e s t a b l i s h e d t h e U r g e n t P o l i c y C o m m i t t e e , a n d t h e p r i m e m i n i s t e r became c h a i r m a n o f t h e c o m m i t t e e . " * I n a d d i t i o n , t h e C a b i n e t c o m p l e t e d t h e " U r g e n t O i l P o l i c y T e x t " a t t h e m i n i s t e r i a l l e v e l m e e t i n g h e l d on t h e same d a y . The m a j o r p o i n t s o f t h e " U r g e n t O i l P o l i c y " a r e a s f o l l o w s : 1. B a s i c p r i n c i p l e s : The g o v e r n m e n t w i l l i m p l e m e n t an e n e r g y c o n s e r v a t i o n c a m p a i g n , a d m i n i s t r a t i v e g u i d a n c e , a n d u r g e n t l e g a l p r e p a r a t i o n t o make a n a t i o n - w i d e e f f o r t t o d e a l w i t h t h e c r i s i s t h r o u g h c o o p e r a t i o n among t h e g o v e r n m e n t , b u s i n e s s a n d i n d i v i d u a l s . The g o v e r n m e n t w i l l a l s o i m p l e m e n t p o l i c i e s t o r e d u c e a g g r e g a t e demand t o s e c u r e e n e r g y s u p p l y . 2. The i m p l e m e n t a t i o n o f a c o n s e r v a t i o n c a m p a i g n : C o n s i d e r i n g t h e f a c t t h a t o t h e r c o u n t r i e s h a v e a l r e a d y a d o p t e d e n e r g y c o n s e r v a t i o n m e a s u r e s , t h e g o v e r n m e n t w i l l make an a g r e e m e n t on i t s own o i l c o n s e r v a t i o n m e a s u r e s a n d w i l l u r g e b u s i n e s s a s w e l l a s i n d i v i d u a l s t o j o i n a n a t i o n - w i d e movement t o c o n s e r v e e n e r g y r e s o u r c e s , p a r t i c u l a r l y o i l . 3. The i m p l e m e n t a t i o n o f a d m i n i s t r a t i v e g u i d a n c e : (1) A d m i n i s t r a t i v e g u i d a n c e w i l l be i m p l e m e n t e d f r o m November 20. The c o n s e r v a t i o n r a t e o f o i l a n d e l e c t r i c i t y by c o m p a n i e s w i l l be 10%. (2) S p e c i a l g u i d e l i n e s w i l l be i m p l e m e n t e d f o r l a r g e - s c a l e u s e r s o f e l e c t r i c i t y who consume more t h a n 3,000kw. ""The f o l l o w i n g m i n i s t e r s became v i c e - c h a i r m e n o f t h e c o m m i t t e e a n d o t h e r m i n i s t e r s o f s t a t e became members o f t h e c o m m i t t e e . V i c e - C h a i rmen - S e c r e t a r y G e n e r a l o f C a b i n e t S e c r e t a r i a t - M i n i s t e r f o r I n t e r n a t i o n a l T r a d e a n d I n d u s t r y - M i n i s t e r f o r F i n a n c e - M i n i s t e r o f S t a t e f o r E c o n o m i c P l a n n i n g A g e n c y J a p a n , A g e n c y o f N a t u r a l R e s o u r c e a n d E n e r g y , Sekiyu Kiki to Jukyu Taisaku ( T o k y o : S e k i y u T s u s h i n s h a , 1 9 7 4 ) , pp. 22-24. 25 (3) The government w i l l pay s p e c i a l c o n s i d e r a t i o n to the supply of o i l to i n d i v i d u a l homes, the a g r i c u l t u r a l s e c t o r , the t r a n s p o r t a t i o n s e c t o r , h o s p i t a l s , and small and medium s i z e d companies. 4. The p r e p a r a t i o n of urgent laws: Urgent laws w i l l be proposed to the coming D i e t s e s s i o n . 5. The r e d u c t i o n of aggregate demand and the s t a b i l i z a t i o n of p r i c e s : The government w i l l strengthen the a p p l i c a t i o n of the law p r o h i b i t i n g supply c o n t r o l by companies. The government w i l l a l s o implement p o l i c i e s to reduce aggregate demand. 6. E f f o r t s to secure energy supply: The government w i l l make e f f o r t s to secure o i l supply and develop a l t e r n a t i v e energy s o u r c e s . " 5 The t e x t urged the government to implement a d m i n i s t r a t i v e g uidance" 6 as a means of d e c r e a s i n g the consumption of energy, i n c l u d i n g o i l , to s t a r t a nation-wide campaign f o r energy c o n s e r v a t i o n , and to prepare l e g i s l a t i v e arrangements to secure the s t a b i l i t y of n a t i o n a l l i f e and the n a t i o n a l economy. The t e x t a l s o urged the government to strengthen "5Ibid., pp. 20-22 (Summary t r a n s l a t i o n by the a u t h o r ) . " 6 " A d m i n i s t r a t i v e guidance" i s one of the key terms i n understanding the c h a r a c t e r i s t i c s of Japanese i n d u s t r i a l p o l i c y . The a d m i n i s t r a t i v e guidance noted i n t h i s s e c t i o n i s based on the d e c i s i o n of the Cabinet. A d m i n i s t r a t i v e guidance i n Japan i s g e n e r a l l y e x p l a i n e d as f o l l o w s : " E s s e n t i a l l y , a d m i n i s t r a t i v e guidance i n v o l v e s the use of i n f l u e n c e , a d v i c e , and persuasion to cause fi r m s or i n d i v i d u a l s to behave i n p a r t i c u l a r ways that the government b e l i e v e s are d e s i r a b l e . The per s u a s i o n of course i s exer t e d and the ad v i c e given by the p u b l i c o f f i c i a l s who may have the power t o p r o v i d e — o r w i t h h o l d — l o a n s , g r a n t s , s u b s i d i e s , l i c e n s e s , tax concessions, government c o n t r a c t s , permissions to import, f o r e i g n exchange, app r o v a l of c a r t e l arrangements, and other d e s i r a b l e (or un d e s i r a b l e ) outcomes, both now and over the i n d e f i n i t e f u t u r e " (Hugh T. P a t r i c k & Henry Rosovsky, Asia's New Giant [Washington: The Brookings I n s t i t u t i o n , 1976], pp. 236-237). 26 the p o l i c i e s of c o n t r o l l i n g aggregate demand and p r i c e s , and to adopt a l l p o s s i b l e means to maintain the o i l supply to Japan. On November 19, 1973, the meeting of v i c e m i n i s t e r s completed the "Text of A d m i n i s t r a t i v e Guidance f o r C o n s e r v a t i o n of O i l and E l e c t r i c i t y i n the P r i v a t e S e c t o r . " " 7 On the f o l l o w i n g day the government s t a r t e d c a r r y i n g out i t s a d m i n i s t r a t i v e guidance on the o i l consumption of l a r g e companies in such i n d u s t r i e s as s t e e l , automobiles, heavy and home e l e c t r i c a l a p p l i a n c e s , p e t r o c h e m i c a l s , a u t o - t i r e s , s y n t h e t i c f i b e r s , aluminum, non-ferrous metals (except f o r aluminum), p l a t e g l a s s , and pulp and p aper." 8 The government a l s o implemented i t s a d m i n i s t r a t i v e guidance on the e l e c t r i c i t y consumption of users who c o n t r a c t e d to use more than 3,000kw. On December 21 two o i l - r e l a t e d laws were passed by the D i e t . The laws were the Petroleum Supply and Demand N o r m a l i z a t i o n Law ( h e r e a f t e r the PSDN Law) and the Emergency Measures Law f o r the S t a b i l i z a t i o n of the People's 4 7 T h i s t e x t c o n s i s t s of the f o l l o w i n g items: 1. C o n s e r v a t i o n of g a s o l i n e by d e c r e a s i n g the usage of p r i v a t e c a r s 2. C o n s e r v a t i o n of o i l by d e c r e a s i n g the usage of commercial v e h i c l e s 3. C o n s e r v a t i o n of e l e c t r i c i t y by d e c r e a s i n g o f f i c e hours 4. C o n s e r v a t i o n of e l e c t r i c i t y by d e c r e a s i n g v a r i o u s usages such as t e l e v i s i o n s and commercial i l l u m i n a t i o n s . Japan, Agency of N a t u r a l Resources and Energy, op. c i t . , pp. 26-27. a 8 S u c h i n d u s t r i e s as aluminum and s y n t h e t i c f i b e r s were d e f i n e d as slump ridden i n d u s t r i e s by the law i n 1978. T h i s i s one aspect of the o i l c r i s i s which changed the i n d u s t r i a l s t r u c t u r e of Japan. Toshimasa T s u r u t a , Sengo Nihon no Sangyo Seisaku (Tokyo: Nihon K e i z a i Shinbunsha, 1982), pp. 253-255. 27 L i v e l i h o o d ( h e r e a f t e r t h e EM L a w ) . The PSDN Law, w h i c h was p r e p a r e d by M I T I , c o n t a i n e d a r t i c l e s d e s i g n e d t o s t a b i l i z e t h e s u p p l y a n d demand o f o i l by c o n t r o l l i n g a c t i v i t i e s o f o i l r e l a t e d i n d u s t r i e s . " 9 The EM Law, w h i c h was p r e p a r e d by t h e E c o n o m i c P l a n n i n g A g e n c y , c o n c e n t r a t e d on t h e s t a b i l i z a t i o n o f t h e p r i c e s o f b a s i c m a t e r i a l s i n c l u d i n g o i l . 5 0 On December 23, 1973, t h e P e o p l e ' s L i v e l i h o o d S t a b i l i z a t i o n C o m m i t t e e d e c i d e d on " U r g e n t P o l i c i e s f o r t h e P r e s e n t S i t u a t i o n . " 5 1 F o l l o w i n g t h e d e c i s i o n made by t h e c o m m i t t e e , t h e c o n s u m p t i o n o f o i l was t o be d e c r e a s e d by 2 0 % d u r i n g J a n u a r y 1974. On t h e o t h e r h a n d , t h e OAPEC O i l M i n i s t e r s C o n f e r e n c e d e c i d e d t o a b o l i s h t h e r e s t r i c t i o n o f o i l e x p o r t s t o J a p a n on December 25, a n d t h e o i l demand c o n t r o l was m o d e r a t e d . A t t h e m e e t i n g o f t h e P e o p l e ' s L i v e l i h o o d C o m m i t t e e on J a n u a r y 1 1, 1974, t h e c o n s e r v a t i o n r a t e was s e t a t 15% f r o m J a n u a r y 16. W i t h r e g a r d t o t h e c o n s e r v a t i o n o f o i l a n d e l e c t r i c i t y a f t e r F e b r u a r y , t h e a d m i n i s t r a t i v e g u i d a n c e was r e p l a c e d by t h e l e g a l p r o c e d u r e b a s e d on t h e PSDN Law. I n a d d i t i o n t o t h e a d m i n i s t r a t i v e g u i d a n c e a n d l e g a l a r r a n g e m e n t s , t h e g o v e r n m e n t e s t a b l i s h e d o t h e r g u i d e l i n e s i n c l u d i n g t h e c o n s e r v a t i o n o f g a s o l i n e by v o l u n t a r y r e s t r a i n t on d r i v i n g , t h e c o n s e r v a t i o n o f o i l by c o m m e r c i a l v e h i c l e s , a n d t h e c o n s e r v a t i o n o f e l e c t r i c i t y by s h o r t e n i n g " 9 E v e r y a r t i c l e o f t h e l a w i s e x p l a i n e d i n J a p a n , A g e n c y o f N a t u r a l R e s o u r c e s a n d E n e r g y , op. c i t . , pp. 9 1 - 1 9 7 . 5 0 I b i d . , p p . 2 6 8 - 3 1 5 . 5 Ubi d. , p p . 31-24. 28 o f f i c e h o u r s . 5 2 (2) The A c t i o n s Taken by the D i e t The s e v e n t y - s e c o n d o r d i n a r y s e s s i o n o f t h e D i e t began on December 1, 1973, a b o u t one a n d a h a l f m onths a f t e r t h e o i l c r i s i s o c c u r r e d . As n o t e d i n t h e p r e v i o u s s u b s e c t i o n , two o i l r e l a t e d l a w s were p a s s e d by t h e D i e t on December 2 1 . The p r o p o s a l o f t h e PSDN Law was e x p l a i n e d by t h e MITI m i n i s t e r a n d t h e MITI o f f i c i a l s on December 8. V a r i o u s p e o p l e c o n c e r n e d were i n v i t e d t o t h e h e a r i n g s h e l d f r o m December 12 t o 17, 1973. The p r o p o s a l was s u b s e q u e n t l y a d o p t e d by t h e House o f R e p r e s e n t a t i v e s w i t h a r e s o l u t i o n on December 1 7 . 5 3 The p r o p o s a l was e x p l a i n e d i n t h e House o f C o u n c i l l o r s on December 14. The h e a r i n g s were h e l d on December 18 f o l l o w e d by d i s c u s s i o n s s t a r t i n g on December 19. The p r o p o s a l was p a s s e d by t h e House o f C o u n c i l l o r s w i t h a r e s o l u t i o n on December 2 1 . 5 " B o t h l a w s were p r o m u l g a t e d a n d e n f o r c e d on December 22, 1973. The PSDN Law ha d t h r e e p u r p o s e s . 5 5 The f i r s t was t o s e c u r e t h e a p p r o p r i a t e s u p p l y l e v e l o f o i l . T h e r e f o r e , t h e l a w s e t o u t t h a t t h e MITI m i n i s t e r s h o u l d d e t e r m i n e t h e o i l 5 2 I b i d . , pp. 17-18. 5 3 T h e R e s o l u t i o n a d o p t e d by t h e C o m m i t t e e o f I n d u s t r y a n d Commerce o f t h e House o f R e p r e s e n t a t i v e s m a i n l y r e q u e s t e d t h e g o v e r n m e n t t o i m p l e m e n t t h e l a w f a i r l y , t o r e p o r t t o t h e D i e t when t h e q u o t a s y s t e m was a d o p t e d , t o c o n s i d e r t h e d i s c u s s i o n o f t h e a d v i s o r y c o m m i t t e e , a nd t o r e s t r a i n o i l p r i c e i n c r e a s e s . Ibid., pp. 5 0 - 5 1 . 5 " T h e R e s o l u t i o n a d o p t e d by t h e C o m m i t t e e o f I n d u s t r y a n d Commerce o f t h e House o f C o u n c i l l o r s e m p h a s i z e d t h e i m p o r t a n c e o f i n t e r n a t i o n a l c o o p e r a t i o n t o u t i l i z e o i l r e s o u r c e s . Ibid., p. 54. S 5 I b i d . , pp. 49 - 5 0 . 29 s u p p l y t a r g e t , a n d o i l p r o d u c e r s a n d d e a l e r s s h o u l d r e p o r t t h e i r p r o d u c t i o n a n d s a l e s p l a n s t o M I T I . I f n e c e s s a r y , t h e MITI m i n i s t e r was a b l e t o s u g g e s t t h a t t h e y c h a n g e t h e i r p l a n s . 5 6 I n a d d i t i o n , t h e MITI m i n i s t e r was a b l e t o a s k l a r g e - s c a l e o i l d e a l e r s t o ke e p s t o c k s o r t o s e l l , a n d t o g u i d e t h e a s s o c i a t i o n o f p e t r o l e u m d e a l e r s t o s e c u r e t h e n a t i o n a l o i l s u p p l y . 5 7 The s e c o n d p u r p o s e was i n t e n d e d t o d e c r e a s e o i l c o n s u m p t i o n . I t was s p e c i f i e d t h a t t h e m i n i s t e r s c o n c e r n e d w o u l d c o n t r o l o i l c o n s u m p t i o n o f l a r g e - s c a l e c o n s u m e r s . 5 8 E v e n s m a l l - s c a l e c o n s u m e r s h a d t o f o l l o w t h e o i l c o n s e r v a t i o n t a r g e t s e t by MITI a c c o r d i n g t o t h e l a w . 5 9 The t h i r d p u r p o s e o f t h e l a w was t o a l l o w MITI t o im p l e m e n t t h e d i s t r i b u t i o n q u o t a s y s t e m o f o i l when i t was n e c e s s a r y . 6 0 S i n c e t h e PSDN Law h a d s e r i o u s i m p a c t s on t h e s u p p l y a n d demand o f o i l , p e o p l e f r o m t h e p a r t i e s c o n c e r n e d s t a t e d t h e i r o p i n i o n s a t t h e h e a r i n g s e s s i o n o f t h e D i e t f r o m December 12 t o 17. The f o l l o w i n g a r e some o f t h e o p i n i o n s s t a t e d a t t h e s e s s i o n . 6 1 The L P Gas i n d u s t r y h a s s u p p l i e d g a s t o 18 m i l l i o n h o u s e s a l l o v e r J a p a n e v e n i n t h e c o u n t r y s i d e s i n c e i t was e s t a b l i s e d 20 y e a r s a g o . . . . T h e r e a r e 47,000 d e a l e r s o f w h i c h 9 0 % a r e s m a l l s c a l e d e a l e r s . . . . We a r e a f r a i d t h a t , i f t h e d i s t r i b u t i o n q u o t a s y s t e m i s a d o p t e d , 9 0 % o f t h e 47,000 d e a l e r s w i l l f a c e t h e r i s k o f b a n k r u p t c y u n l e s s some t a x a t i o n a n d f i n a n c i a l b e n e f i t s a r e 5 6 T h e PSDN Law, A r t i c l e 6, ibid., pp. 219-227. 5 7 , A r t i c l e 10, ibid., pp. 2 2 2 - 2 2 3 . 5 8 , A r t i c l e 7, ibid., p. 2 2 1 . 5 9 , A r t i c l e 7, ibid., pp. 2 2 1 - 2 2 2 . 6 0 , A r t i c l e 12, ibid., p. 2 2 3 . 6 1 T h e s e a r e some o f t h e o p i n i o n s q u o t e d f r o m ibid., pp. 54-75 (Summary t r a n s l a t i o n by t h e a u t h o r ) . 30 p r o v i d e d . . . . We hope t h a t t h e g o v e r n m e n t w i l l e x p l a i n t o p e o p l e t h e p r e s e n t s i t u a t i o n so t h a t we c a n p e r s u a d e o u r c u s t o m e r s t o u s e LP Gas e f f i c i e n t l y f o r a l o n g t i m e ( U c h i d a , V i c e C h a i r m a n , F e d e r a t i o n o f L P Gas I n d u s t r y ) . We hope t h e D i e t w i l l p a y e n o u g h a t t e n t i o n t o t h e f a c t t h a t t h e a g r i c u l t u r a l s e c t o r i s e n g a g e d i n p r o d u c i n g f o o d s , w h i c h a r e b a s i c n e e d s t o u s , a n d t h a t t h e s e c t o r c o n s i s t s of v e r y s m a l l - s c a l e f a r m e r s ( K a s a h a r a , M a n a g i n g D i r e c t o r , F a r m e r s ' A s s o c i a t i o n ) . We hope t h a t t h e l a w w i l l be p a s s e d a s s o o n a s p o s s i b l e ( M a t s u m u r a , C h a i r m a n , N a t i o n a l O i l D e a l e r s ' A s s o c i a t i o n ) . S i n c e t h e p u r p o s e o f t h e l a w i s t o accommodate t h e s u p p l y a n d demand o f o i l u n d e r t h e o i l s h o r t a g e s i t u a t i o n , t h e g o v e r n m e n t s h o u l d c o n t r o l i t s demands t o d e c r e a s e a f t e r c o n s i d e r i n g t h e s u p p l i e r s ' s i t u a t i o n . T h e r e s h o u l d be b a l a n c e among p e t r o l e u m p r o d u c t s made f r o m c r u d e o i l . I n o r d e r t o i n c r e a s e t h e p r o d u c t i o n o f h e a t i n g o i l , we h a v e t o d e c r e a s e t h a t o f h e a v y o i l , f o r i n s t a n c e . . . . We hope t h e g o v e r n m e n t w i l l c o n s i d e r e c o n o m i c e f f i c i e n c y i n c a r r y i n g o u t any t y p e o f c o n t r o l ( M i t s u d a , C h a i r m a n , P e t r o l e u m A s s o c i a t i o n o f J a p a n ) . We u n d e r s t a n d t h e n e c e s s i t y o f t h e l a w . H o w e v e r , i t i s n o t a d e q u a t e t o c o n c e n t r a t e on c o n t r o l l i n g t h e c o n s u m p t i o n o f l a r g e u s e r s . As f a r a s t h e s t e e l i n d u s t r y i s c o n c e r n e d , a 10% d e c r e a s e i n o i l c o n s u m p t i o n l e a d s t o a 12% d e c r e a s e i n s t e e l p r o d u c t i o n , a n d a 20% d e c r e a s e i n o i l l e a d s t o a 30% d e c r e a s e i n s t e e l (Okumura, S e n i o r M a n a g i n g D i r e c t o r , A s s o c i a t i o n o f S t e e l I n d u s t r y ) . The f i r s t c a u s e o f a l a r g e o i l c o n s u m p t i o n i s t h e u s a g e o f m o t o r v e h i c l e s . I f we u s e t r a i n s i n s t e a d o f c a r s , l a r g e amounts o f o i l w i l l be c o n s e r v e d . The s e c o n d c a u s e i s t h e u s a g e o f c h e m i c a l s . F o r i n s t a n c e , we u s e much d e t e r g e n t w h i c h i s a l s o a c a u s e o f e n v i r o n m e n t a l p o l l u t i o n . T h e r e f o r e , t h e A g e n c y o f E n v i r o n m e n t s h o u l d p r o h i b i t t h e u s e o f c h e m i c a l d e t e r g e n t . The t h i r d c a u s e i s r e l a t e d t o c o n s u m p t i o n h a b i t s . We consume a l o t o f d u r a b l e c o n s u m p t i o n g o o d s . T h i s h a b i t c a u s e s an i n c r e a s e i n t h e c o n s u m p t i o n o f s t e e l a n d p l a s t i c s . I f we s u c c e e d i n t h e c o n s e r v a t i o n o f t h e s e p r o d u c t s , I t h i n k , we do n o t n e e d s t r i c t c o n t r o l s by t h e g o v e r n m e n t ( R i k i i s h i , P r o f e s s o r , H o s e i U n i v e r s i t y ) . We a r e u s i n g n a p h t h a a s a m a t e r i a l t o p r o d u c e p e o p l e ' s n e c e s s i t i e s . S i n c e some o t h e r i n d u s t r i e s 31 a r e c o n s u m i n g n a p h t h a a s f u e l , we hope t h a t t h e g o v e r n m e n t w i l l p u t p r i o r i t y on t h e u s e o f n a p h t h a a s a m a t e r i a l . We a l s o hope t h a t t h e g o v e r n m e n t w i l l b r i n g a b o u t a d e c r e a s e i n t h e c o n s u m p t i o n o f g a s o l i n e f o r l e i s u r e p u r p o s e s t o s e c u r e t h e u s e o f o i l f o r i n d u s t r i a l p u r p o s e s ( T o r i i , C h a i r m a n , J a p a n C h e m i c a l I n d u s t r y A s s o c i a t i o n ) . I t m i g h t be n e c e s s a r y t o i m p l e m e n t a s t r i c t c o n t r o l on o i l u n t i l t h e o i l s h o r t a g e p r o b l e m i s s o l v e d . . . . S i n c e t h e l a w d o e s n o t r e f e r t o t h e p r i c e o f o i l , we a r e a f r a i d t h a t c o n t r o l on t h e o i l s u p p l y may c a u s e t h e c a r t e l t o i n c r e a s e o i l p r i c e s ( H a r u n o , R e p r e s e n t a t i v e o f C o n s u m e r s ' A s s o c i a t i o n ) . T r a n s p o r t a t i o n by t r u c k s o f t e n c o n t i n u e s d u r i n g t h e n i g h t . T h e r e f o r e , e v e n t h o u g h MITI M i n i s t e r N a k a s o n e t o l d g a s o l i n e s e r v i c e s t a t i o n s n o t t o o p e r a t e a t n i g h t a n d on S u n d a y s a nd h o l i d a y s , we hope t h a t some s e r v i c e s t a t i o n s w i l l o p e r a t e a t n i g h t a n d on S u n d a y s a n d h o l i d a y s ( M u t o , S e n i o r M a n a g i n g D i r e c t o r , J a p a n T r u c k A s s o c i a t i o n ) . We hope t h a t t h e g o v e r n m e n t w i l l p a y s p e c i a l a t t e n t i o n t o t h e d o m e s t i c s e a l i n e s b e c a u s e t h e demand f o r t h e i r u s e i n c r e a s e s due t o t h e u r g e n t t r a n s p o r t a t i o n o f s t e e l a n d c o a l a s w e l l a s t h e d e c r e a s e i n t r a n s p o r t a t i o n by t r u c k s ( Y a m a s h i t a , C h a i r m a n , S h i p Owners' A s o c i a t i o n ) . T h e r e were d i f f e r e n c e s o f v i e w s among t h r e e m a j o r g r o u p s : o i l a n d gas s u p p l i e r s , o i l a n d g a s u s i n g c o m p a n i e s , an d g e n e r a l c o n s u m e r s . As was t h e c a s e w i t h t h e M a j o r s , t h e 1973 o i l c r i s i s p r o v i d e d J a p a n e s e o i l a n d g a s s u p p l i e r s w i t h a c h a n c e t o i n c r e a s e t h e i r p r o f i t s . The i n c r e a s e i n p r i c e s o f o i l a n d g a s was f a v o u r a b l e t o them i n t h a t t h e y c o u l d i n t u r n i n c r e a s e t h e p r i c e o f t h e i r p r o d u c t s . T h e r e f o r e , t h e o i l a n d g a s s u p p l i e r s m e n t i o n e d a b o v e b a s i c a l l y a g r e e d w i t h t h e c o n s u m p t i o n c o n t r o l by t h e g o v e r n m e n t a n d o n l y w o r r i e d a b o u t e x c e s s i v e i n t e r v e n t i o n by t h e g o v e r n m e n t . I n d e e d , some o i l s u p p l i e r s were c r i t i c i z e d by members o f t h e D i e t f o r t a k i n g a d v a n t a g e o f t h e o i l s h o r t a g e t o i n c r e a s e t h e i r 32 p r o f i t s . The c o n c e r n s e x p r e s s e d by t h e r e p r e s e n t a t i v e o f c o n s u m e r s w e r e r e l a t e d t o t h i s p o i n t . On t h e o t h e r h a n d , most o i l a n d g a s u s i n g c o m p a n i e s were i n t e r e s t e d i n m a i n t a i n i n g t h e i r s h a r e a n d o b t a i n i n g s p e c i a l t r e a t m e n t f r o m t h e g o v e r n m e n t . They a l s o a g r e e d w i t h t h e s u p p l y a n d demand c o n t r o l m e a s u r e s . S i n c e most o f t h e s e a s s o c i a t i o n s m a i n t a i n e d d a i l y c o m m u n i c a t i o n c h a n n e l s w i t h t h e b u r e a u c r a t s , t h e i r d e s i r e s were u s u a l l y d i s c u s s e d w i t h t h e r e l a t e d s e c t o r o f t h e g o v e r n m e n t b e f o r e h a n d . T h e r e f o r e , i t r a r e l y h a p p e n e d t h a t s u c h g r o u p s e x p r e s s e d s t r o n g o b j e c t i o n s a g a i n s t any p r o p o s a l made by t h e b u r e a u c r a t s i n t h e s e s s i o n o f t h e D i e t . The d i f f e r e n c e o f o p i n i o n s shown a b o v e r e f l e c t e d how much c o n f u s i o n t h e 1973 o i l c r i s i s c a u s e d i n J a p a n . 3. THE CHARACTERISTICS OF THE JAPANESE P O L I T I C A L REACTION TO  THE OIL C R I S I S (1) A T u r n i n g P o i n t i n J a p a n e s e P o l i t i c a l H i s t o r y The p e r i o d o f t h e f i r s t o i l c r i s i s was a t u r n i n g p o i n t i n J a p a n e s e p o l i t i c a l h i s t o r y . T h i s p o i n t was p a r t l y e x p l a i n e d by t h e f i r s t s e c t i o n o f t h i s c h a p t e r , i n w h i c h t h e r e a c t i o n o f t h e D i e t a n d t h e C a b i n e t d u r i n g t h e c r i s i s was r e v i e w e d . F i r s t , i n t h e D i e t , t h e m a j o r i t y o f t h e r u l i n g p a r t y , t h e L i b e r a l D e m o c r a t i c P a r t y ( L D P ) , was w eakened by 33 t h e r e s u l t o f t h e e l e c t i o n i n l a t e 1 9 7 2 . 6 2 I t s h o u l d be n o t e d t h a t t h e J a p a n e s e p o l i t i c a l s y s t e m s h i f t e d f r o m t h e t w o - p a r t y s y s t e m t o t h e m u l t i - p a r t y s y s t e m . 6 3 I n t h e t w o - p a r t y s y s t e m t h e LDP a s t h e r u l i n g p a r t y a n d t h e J a p a n S o c i a l i s t P a r t y ( J S P ) a s t h e m a i n o p p o s i t i o n p a r t y t o o k i n i t i a t i v e i n d e c i s i o n - m a k i n g i n t h e D i e t . I n t h e m u l t i - p a r t y s y s t e m , h o w e v e r , t h i r d p a r t i e s s u c h a s t h e K o m e i t o , t h e D e m o c r a t i c S o c i a l i s t P a r t y a n d t h e J a p a n Communist P a r t y i n c r e a s e d t h e i r p o l i t i c a l i n f l u e n c e i n t h e D i e t . S e c o n d l y , t h e r e was a l s o a c h a n g e i n t h e t e r m s o f p r i m e m i n i s t e r s b e f o r e t h e c r i s i s a n d a f t e r i t . As shown i n T a b l e 2-3, t h e t e r m s o f p r i m e m i n i s t e r s became s h o r t e r a f t e r t h e c r i s i s . F o r i n s t a n c e , t h e r e were f o u r p r i m e m i n i s t e r s i n t h e 1970's w h i l e t h e r e were o n l y two i n t h e 1 9 6 0 ' s . One r e a s o n f o r t h i s c h a n g e was t h e d i v e r s i f i c a t i o n o f power i n t h e LDP. S u c h p r i m e m i n i s t e r s a s Y o s h i d a , I k e d a a n d S a t o , who m a i n t a i n e d t h e i r p o s i t i o n s f o r more t h a n f o u r y e a r s , e s t a b l i s h e d t h e m a i n s t r e a m o f t h e LDP. A f t e r t h e r e s i g n a t i o n o f S a t o , h o w e v e r , t h e r e was c o m p e t i t i o n among l e a d e r s o f t h e p a r t y a s e x p l a i n e d p r e v i o u s l y . E v e n t h o u g h T a n a k a won t h e e l e c t i o n a n d became p r i m e m i n i s t e r , he h a d t o d e a l w i t h a n t i - T a n a k a g r o u p s f o r m e d by F u k u d a , M i k i a n d o t h e r c h i e f members o f t h e LDP. T h i s was t h e c a s e n o t o n l y w i t h T a n a k a b u t a l s o w i t h o t h e r p r i m e m i n i s t e r s l i k e M i k i a n d F u k u d a . 62Asahi Nenkan, 1973 ( T o k y o : A s a h i S h i n b u n s h a , 197.3), p. 244. 6 3 I b i d . , p. 244. 34 When e a c h o f them became p r i m e m i n i s t e r , t h o s e who w a n t e d t o s u c c e e d h i m o r g a n i z e d t h e movement t o a c c e l e r a t e t h e s u c c e s s i o n . As a r e s u l t , i t became d i f f i c u l t f o r a n y p r i m e m i n i s t e r t o m a i n t a i n h i s p o s i t i o n f o r more t h a n two y e a r s . 6 " I n a d d i t i o n t o c h a n g e s i n t h e s i t u a t i o n o f t h e D i e t a n d t h e l e a d e r s h i p o f t h e LDP, t h e r e was a c h a n g e i n m a j o r p o l i t i c a l i s s u e s w h i c h t h e g o v e r n m e n t h a d t o d e a l w i t h b e f o r e a n d a f t e r t h e c r i s i s . U n t i l t h e e a r l y 1 9 7 0 ' s , t h e g o v e r n m e n t h a d t o c o n c e r n i t s e l f w i t h p o l i t i c a l i s s u e s r e l a t e d t o W o r l d War I I . Among them, t h r e e i m p o r t a n t i s s u e s were t h e e x t e n s i o n o f t h e J a p a n - U . S . T r e a t y o f M u t u a l C o o p e r a t i o n a n d S e c u r i t y , t h e r e s t o r a t i o n o f O k i n a w a , a n d t h e r e s t o r a t i o n o f t h e J a p a n - C h i n a r e l a t i o n s h i p . The J a p a n - U . S . T r e a t y was amended a n d e x t e n d e d i n 1 9 7 0 . 6 5 O k i n a w a was r e t u r n e d t o J a p a n i n 1 9 7 2 . 6 6 The J a p a n - C h i n a r e l a t i o n s h i p was r e s t o r e d i n 1 9 7 2 . 6 7 The o i l c r i s i s a c c e l e r a t e d t h e i n f l a t i o n a r y t r e n d a n d s t i m u l a t e d t h e g o v e r n m e n t t o d e a l w i t h e c o n o m i c p r o b l e m s a s a h i g h p r i o r i t y . I t i s s u g g e s t e d t h a t t h e p o l i t i c a l p r i o r i t y s h i f t e d f r o m p o s t w a r p o l i t i c a l i s s u e s t o e c o n o m i c i s s u e s . 6 8 6 " S h i g e r u H a y a s h i & K i y o a k i T s u j i , op. c i t . , p p . 4 0 4 - 4 0 5 . 65Asahi Nenkan, 1971 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 1 ) , p. 256. 66Asahi Nenkan, 1973 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 3 ) , p p. 2 3 2 - 2 3 5 . 67Ibid., pp. 2 1 8 - 2 3 1 . 6 8 I n t h e b a c k g r o u n d o f t h i s s h i f t , t h e r e was a c h a n g e i n t h e b a l a n c e o f power b e t w e e n J a p a n a n d t h e U n i t e d S t a t e s . On t h e one h a n d , J a p a n became an i n d e p e n d e n t c o u n t r y n o t o n l y i n t h e p o l i t i c a l c o n t e x t b u t a l s o i n t h e e c o n o m i c c o n t e x t . On t h e o t h e r h a n d , t h e U n i t e d S t a t e s d e c r e a s e d i t s e c o n o m i c power i n r e l a t i v e t e r m s . T h i s p o i n t i s r e f e r r e d t o i n F r a n k 35 The J a p a n e s e g o v e r n m e n t t o o k s t r o n g i n i t i a t i v e i n s o l v i n g p o s t w a r p o l i t i c a l p r o b l e m s a n d i n p u r s u i n g h i g h e c o n o m i c g r o w t h u n t i l t h e e n d o f t h e 1 9 6 0 ' s . S i n c e t h e b e g i n n i n g o f t h e 19 7 0 ' s , h o w e v e r , t h e n a t i o n a l i n t e r e s t a s w e l l a s p o l i t i c a l power became d i v e r s i f i e d i n l o o k i n g f o r a new d i r e c t i o n f o r J a p a n . I n t h i s c o n t e x t , t h e o i l c r i s i s i n 1973 was a t u r n i n g p o i n t o f p o s t w a r J a p a n e s e p o l i t i c a l h i s t o r y . (2) The F u n c t i o n o f t h e B u r e a u c r a c y The J a p a n e s e p o l i t i c a l r e a c t i o n t o t h e o i l c r i s i s shows t h a t t h e c r i s i s o c c u r r e d a t a t u r n i n g p o i n t i n p o s t w a r J a p a n e s e p o l i t i c a l h i s t o r y . H o w e v e r , t h e i n f l u e n c e o f t h e b u r e a u c r a c y was m a i n t a i n e d t h r o u g h o u t t h i s h i s t o r y . The J a p a n e s e b u r e a u c r a c y i s o r g a n i z e d u n d e r t h e d i r e c t i o n o f t h e C a b i n e t . T h e r e a r e two t y p e s o f v i c e - m i n i s t e r s u n d e r t h e m i n i s t e r o f e a c h m i n i s t r y o r g o v e r n m e n t a l s e c t i o n . One i s a p a r l i a m e n t a r y v i c e - m i n i s t e r , a n d t h e o t h e r i s a p e r m a n e n t v i c e - m i n i s t e r . A p a r l i a m e n t a r y v i c e - m i n i s t e r i s a p p o i n t e d f r o m members o f t h e D i e t . 6 9 A pe r m a n e n t v i c e - m i n i s t e r i s a p p o i n t e d f r o m t h e b u r e a u c r a t s , a n d t h i s i s c o n s i d e r e d t h e h i g h e s t p o s i t i o n o f t h e 6 8 ( c o n t ' d ) C. L a n g d o n , Japan' s Foreign Policy ( V a n c o u v e r : U n i v e r s i t y o f B r i t i s h C o l u m b i a P r e s s , 1 9 7 3 ) , t r a n s l a t i o n ; S h i g e o F u k u d a , Sengo no Nihon Gaiko -(Tokyo: M i n e r u b a Shobo, 1 9 7 6 ) , p. 16. 6 9 T h e p o s i t i o n o f a p a r l i a m e n t a r y v i c e - m i n i s t e r i s c o n s i d e r e d t h e f i r s t s t e p t o b e c o m i n g an i n f l u e n t i a l p o l i t i c i a n . U s u a l l y a member o f t h e D i e t who i s e l e c t e d t h r e e t i m e s becomes a c a n d i d a t e f o r p a r l i a m e n t a r y v i c e - m i n i s t e r . T s u n e o W a t a n a b e , op. c i t . , p. 4 1 . 36 bureaucracy. An e l i t e bureaucrat i s u s u a l l y r e c r u i t e d j u s t a f t e r graduation from u n i v e r s i t y and promoted i n s i d e the bureaucracy f o r around t h i r t y f i v e y e a r s . As a r e s u l t , e l i t e b ureaucrats tend to have a sense of u n i t y , and even a m i n i s t e r cannot ignore the o p i n i o n of the permanent v i c e - m i n i s t e r who has a strong i n f l u e n c e on the bureaucrats of h i s m i n i s t r y . 7 0 In t h i s context, the o p i n i o n of Shinsaku Hogen, who expressed concern about adopting pro-Arab p o l i c i e s as the permanent v i c e - m i n i s t e r of the M i n i s t r y of For e i g n A f f a i r s , had an impact on the decision-making of the government. In the case of the M i n i s t r y of I n t e r n a t i o n a l Trade and Industry (MITI), the power and i n f l u e n c e of the bureaucracy has drawn s p e c i a l a t t e n t i o n from f o r e i g n e r s . 7 1 The MITI bureaucracy i n f l u e n c e d the decision-making process of the e x t e r n a l p o l i c y d u r i n g the o i l c r i s i s by emphasizing the importance of pro-Arab p o l i c i e s . As f a r as domestic p o l i c i e s were concerned, the Cabinet e s t a b l i s h e d a s p e c i a l committee and decided on s e v e r a l t e x t s as noted i n the pr e v i o u s s e c t i o n s . These p o l i c y measures were mainly d r a f t e d by bureaucrats and implemented by them. Moreover, i t i s important to p o i n t out that a law i s u s u a l l y prepared by bureaucrats and proposed by the m i n i s t e r i n Japan, while i t i s o f t e n prepared and proposed by members of the Senate and 7 0 I b i d . r pp. 62-64. 7 1 T h e h i s t o r y and r o l e of MITI i s e x p l a i n e d i n Chalmers A. Johnson, MITI and the Japanese Miracle: the growth of industrial policy 1925-1975 ( S t a n f o r d , C a l i f o r n i a : S t a n f o r d U n i v e r s i t y Press, 1982), t r a n s l a t i o n ; T o s h i h i k o Yano, Tsusansho to Ni honno Kiseki (Tokyo: TBS B u r i t a n i k a , 1982). 37 C o n g r e s s i n t h e U n i t e d S t a t e s . The b a s i c f u n c t i o n o f t h e b u r e a u c r a c y i s t o i m p l e m e n t p o l i c y m e a s u r e s a d o p t e d by t h e C a b i n e t . 7 2 T h e r e f o r e , t h e m i n i s t e r o f e a c h m i n i s t r y h a s t h e power o f m a n a g i n g b u r e a u c r a t s . H o w e v e r , b o t h t h e m i n i s t e r a n d t h e p a r l i a m e n t a r y v i c e - m i n i s t e r c h a n g e s o f r e q u e n t l y t h a t t h e y do n o t h a v e enough t i m e t o m a s t e r a l l t h e o p e r a t i o n s i n t h e i r m i n i s t r y . On t h e o t h e r h a n d , t h e p e r m a n e n t v i c e - m i n i s t e r i s w e l l a c q u a i n t e d w i t h t h e t a s k o f t h e m i n i s t r y . As a r e s u l t , a m i n i s t e r n e e d s t h e h e l p o f b u r e a u c r a t s , f o r i n s t a n c e , t o a n s w e r q u e s t i o n s r a i s e d i n t h e D i e t . E v e n t h o u g h t h e D i e t i s d e f i n e d t o be t h e s o l e l a w - m a k i n g body by t h e C o n s t i t u t i o n , 7 3 i t i s a l m o s t i m p o s s i b l e f o r a member o f t h e D i e t t o p r o p o s e a l a w w i t h o u t t h e h e l p o f b u r e a u c r a t s . 7 ' S i n c e t h e M e i j i R e s t o r a t i o n i n 1868, J a p a n h a s t r i e d t o c a t c h up w i t h W e s t e r n c o u n t r i e s . I n t h e p r o c e s s o f c a t c h i n g up, t h e J a p a n e s e n e e d e d an i n s t i t u t i o n a l power w h i c h c o u l d c o o r d i n a t e v a r i o u s i n t e r e s t s t o a c c o m p l i s h e c o n o m i c g r o w t h . The b u r e a u c r a c y a c t e d a s a c o o r d i n a t o r by u s i n g t h e i r r i g h t t o g r a n t p e r m i s s i o n on v a r i o u s i s s u e s . I n s p i t e o f t h e f a c t t h a t t h e d i s c r e t i o n a r y a u t h o r i t y g r a d u a l l y d e c r e a s e d a c c o r d i n g t o t h e d e v e l o p m e n t o f t h e J a p a n e s e economy a n d t h e l i b e r a l i z a t i o n o f t h e J a p a n e s e e c o n o m i c s y s t e m , t h e b u r e a c r a c y r e t a i n e d some r e s i d u a l a u t h o r i t y . I n s u c h a 7 2 T h e C o n s t i t u t i o n o f J a p a n , A r t i c l e 7 3 , J a p a n , S e c r e t a r i a t , H ouse o f R e p r e s e n t a t i v e s , op. c i t . , p. 18. 7 3 , A r t i c l e 4 1 , ibid., p. 12. 7 " T s u n e o W a t a n a b e , op. c i t . , pp. 62-64. 38 c r i t i c a l t i m e a s t h e 1973 o i l c r i s i s , t h e b u r e a u c r a c y was p r o v i d e d an o p p o r t u n i t y t o r e a c t i v a t e i t s i n f l u e n c e . The m a j o r c h a r a c t e r i s t i c o f J a p a n ' s p o l i t i c a l r e a c t i o n t o t h e 1973 o i l c r i s i s was t h a t t h e b u r e a u c r a c y assumed t h e r o l e o f c o o r d i n a t o r t o o v e r c o m e t h e c r i s i s . 39 4. TABLES TABLE 2-1 THE NUMBER OF SEATS I N THE DIET BY JAPANESE P O L I T I C A L PARTIES 1968 1970 1971- 1972 1 972 1 973 1974 1 2/27 1/1 4 12/31 4/28 1 2/22 1/26 1 2/27 HOUSE OF REP. - L i b e r a l 274 300 300 299 284 284 279 D e m o c r a t i c P a r t y (LDP) - J a p a n 1 37 90 90 90 118 1 18 1 17 S o c i a l i s t P a r t y ( J S P ) - J a p a n 4 1 4 1 4 14 39 39 39 Communist P a r t y ( J C P ) - K o m e i t o , 25 47 47 47 29 .29 30 N a t i o n a l Counc i l (NCK) - D e m o c r a t i c 31 32 30 30 20 20 20 S o c i a l i s t P a r t y (DSP) - I n d e p . 4 3 2 2 1 1 1 - V a c a n c y 1 1 0 8 9 0 0 5 TOTAL 486 486 491 491 491 491 491 HOUSE OF COU. -LDP 136 138 133 1 33 136 136 128 - J S P 64 63 65 65 62 62 62 -J C P 7 7 10 10 10 10 20 -NCK 24 24 23 23 23 23 24 -DSP 10 10 1 3 13 1 2 12 10 - N U N CLUB 4 4 4 4 4 4 4 - I n d e p . 4 1 3 3 2 2 4 - V a c a n c y 1 3 1 1 3 3 0 TOTAL 250 250 252 252 252 252 252 S o u r c e : Asahi Nenkan, 1969-1975 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 6 9 - 1 9 7 5 ) . N o t e : HOUSE OF REP.= HOUSE OF REPRESENTATIVES, HOUSE OF COU.= HOUSE OF COUNCILLORS, Indep.= I n d e p e n d e n t s . 40 TABLE 2-2 MAJOR MEMBERS OF TANAKA'S CABINET - P r i m e M i n i s t e r - F o r e i g n A f f a i r s M i n i s t e r - F i n a n c e M i n i s t e r -MITI M i n i s t e r - M i n i s t e r o f S t a t e ( V i c e P r i m e M i n i s t e r ) - M i n i s t e r o f S t a t e f o r E c o n o m i c P l a n n i n g A g e n c y - M i n i s t e r o f S t a t e f o r S c i e n c e a n d T e c h n o l o g y A g e n c y - S e c r e t a r y G e n e r a l C a b i n e t S e c r e t a r i a t F i r s t Term ('72.7.7-'72 T a n a k a ( T ) O h i r a ( O ) U e k i ( T ) N a k a s o n e ( N ) M i k i ( M ) A r i t a ( F ) N a k a s o n e ( N ) N i k a i d o ( T ) S e c o n d Term 12.22) ('72.12.22-'74.12.9) T a n a k a ( T ) O h i r a ( O ) K i m u r a ( I ) ('74.7.16-) A i c h i ( T ) T a n a k a ( T ) ('73.11.23-) F u k u d a ( F ) ('73.11.25-) O h i r a ( O ) ('74.7.16-) N a k a s o n e ( N ) K o s a k a ( O ) U c h i d a ( O ) (' 73.11.25-) K u r a n a r i ( N ) ('74.11.11-) M a e d a ( T ) M o r i s h i m a ( M ) ('73.11.25-) A d a c h i ( T ) ('74.11.11-) N i k a i d o ( T ) T a k e s h i t a ( T ) ('74.11.11-) S o u r c e : S h i g e r u H a y a s h i & K i y o a k i T s u j i , Ni hon Naikaku Shiroku, 6 v o l s . ( T o k y o : D a i - i c h i H o k i , 1 9 8 1 ) , V o l . 6. N o t e : 1. T = T a n a k a F a c t i o n , 0 = O h i r a F a c t i o n , N = N a k a s o n e F a c t i o n , M = M i k i F a c t i o n , F = F u k u d a F a c t i o n , I = I n d e p e n d e n t s . 2. V i c e P r i m e M i n i s t e r M i k i a l s o a c t e d a s S e c r e t a r y G e n e r a l o f E n v i r o n m e n t a l A g e n c y u n t i l J u l y 12, 1974. 4 1 TABLE 2-3 PRIME MINISTERS OF JAPAN ( 1 9 4 6 - 1 9 8 5 ) May 22, 1 946 Y o s h i d a , S h i g e r u May 22, 1947 K a t a y a m a , T e t s u M a r . 10, 1 948 A s h i d a , H i t o s h i O c t . 15, 1948 Y o s h i d a , S h i g e r u Dec . 10, 1954 H a t o y a m a , I c h i r o D e c . 23, 1956 I s h i b a s h i , T a n z a n F e b . 25, 1957 K i s h i , N o b u s u k e J u l y 19, 1960 I k e d a , H a y a t o Nov. 9, 1964 S a t o , E i s a k u J u l y 7, 1972 T a n a k a , K a k u e i D e c . 9, 1974 M i k i , T a k e o De c . 24, 1976 F u k u d a , T a k e o De c . 7, 1978 O h i r a , M a s a y o s h i J u l y 17, 1980 S u z u k i , Zenko Nov. 27, 1 982 N a k a s o n e , Y a s u h i r o S o u r c e : A k i r a Nakayama, e d . , Japan 1985 ( T o k y o : K e i z a i Koho C e n t r e , 1 9 8 5 ) ; Asahi Nenkan, 1984 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 8 5 ) . N o t e : The d a t e s a r e t h o s e o f i n i t i a l c a b i n e t f o r m a t i o n . CHAPTER THREE THE ECONOMIC ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S T h i s c h a p t e r w i l l e x a m i n e t h e e c o n o m i c a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s . As n o t e d i n C h a p t e r One, J a p a n ' s r e a c t i o n t o t h e c r i s i s c a n be e x a m i n e d f r o m t h e t h r e e p e r s p e c t i v e s o f p o l i t i c s , e c o n o m i c s a nd b u s i n e s s ; t h i s c h a p t e r w i l l c o n c e n t r a t e on t h e e c o n o m i c p o i n t o f v i e w . I t h a s a l r e a d y b e e n e x p l a i n e d t h a t t h e 1973 o i l c r i s i s was l o c a t e d a t a t u r n i n g p o i n t i n t h e p o s t w a r p o l i t i c a l h i s t o r y o f J a p a n . T h i s c r i s i s was e q u a l l y i m p o r t a n t i n p o s t w a r e c o n o m i c h i s t o r y . J a p a n e s e e c o n o m i c h i s t o r y s i n c e t h e M e i j i R e s t o r a t i o n ( 1 8 6 8 ) i s u s u a l l y d i v i d e d i n t o t h r e e s t a g e s . The f i r s t s t a g e i s f r o m t h e 1860's t o t h e e a r l y 1 9 0 0 ' s . The s e c o n d s t a g e i s f r o m t h e e a r l y 1900's t o t h e end o f W o r l d War I I i n 1945. The t h i r d s t a g e i s f r o m t h e end o f t h e war t o t h e p r e s e n t . I n t h i s c l a s s i f i c a t i o n , t h e f i r s t s t a g e i s c h a r a c t e r i z e d by t h e d e v e l o p m e n t o f l i g h t i n d u s t r y , p r o d u c i n g s u c h goods a s c o t t o n a n d s i l k . The s e c o n d s t a g e i s c h a r a c t e r i z e d by t h e g r o w t h o f h e a v y i n d u s t r y , p r o d u c i n g s t e e l a n d s h i p s . The t h i r d s t a g e i s c h a r a c t e r i z e d by b o t h h e a v y a n d c h e m i c a l i n d u s t r i e s , p r o d u c i n g p e t r o c h e m i c a l s a n d o t h e r p r o d u c t s u s i n g p e t r o l e u m a s a m a t e r i a l o r f u e l . The h e a v y a n d c h e m i c a l i n d u s t r i e s d e v e l o p e d f o l l o w i n g t h e 42 43 " e n e r g y r e v o l u t i o n , " 7 5 s y m b o l i z e d by t h e s h i f t i n t h e m a j o r e n e r g y s o u r c e f r o m c o a l t o o i l a f t e r W o r l d War I I . I n d e e d , t h e e n e r g y r e v o l u t i o n c o n t r i b u t e d g r e a t l y t o t h e a c c o m p l i s h m e n t o f J a p a n ' s h i g h r a t e o f e c o n o m i c g r o w t h . The 1973 o i l c r i s i s s e v e r e l y weakened J a p a n ' s o i l - b a s e d e c o n o m i c s t r u c t u r e , a n d h e a v y i n d u s t r y , d e p e n d e n t on o i l , s u f f e r e d most s e v e r e l y d u r i n g t h e c r i s i s . I t t h u s became n e c e s s a r y f o r J a p a n e s e i n d u s t r y t o c h a n g e i t s s t r u c t u r e f r o m one t h a t was p e t r o l e u m - r e l i a n t t o one t h a t was e n e r g y - c o n s e r v i n g a nd k n o w l e d g e - i n t e n s i v e . T h i s a c c e l e r a t e d t h e g r o w t h o f t e r t i a r y i n d u s t r y . S i n c e t h e o i l c r i s i s c h a n g e d t h e w o r l d ' s e c o n o m i c c o n d i t i o n s , i t was n e c e s s a r y n o t o n l y f o r J a p a n b u t a l s o f o r o t h e r i n d u s t r i a l i z e d c o u n t r i e s t o a d j u s t t h e i r i n d u s t r i a l s t r u c t u r e s . I n t h i s r e s p e c t , i t i s s o m e t i m e s a r g u e d t h a t J a p a n s u c c e e d e d i n t h e a d j u s t m e n t p r o c e s s b e t t e r t h a n o t h e r i n d u s t r i a l i z e d c o u n t r i e s , a n d t h a t t h i s s u c c e s s c a u s e d e c o n o m i c f r i c t i o n b e t w e e n J a p a n a n d o t h e r c o u n t r i e s . 7 6 The p u r p o s e o f t h i s c h a p t e r i s t o e l u c i d a t e how J a p a n a d j u s t e d e c o n o m i c a l l y t o t h e 1973 o i l c r i s i s . 7 5 I n K a n i c h i Kondo & H i r o s h i O s a n a i , Sengo Sangyo Shi eno Shogen, 3 v o l s . ( T o k y o : M a i n i c h i S h i n b u n s h a , 1 9 7 8 ) , V o l . 3, t h e r e i s a s e c t i o n t i t l e d enerugii kakumei ( e n e r g y r e v o l u t i o n ) " i n w h i c h l e a d i n g J a p a n e s e s c h o l a r s a n d b u s i n e s s m e n d i s c u s s t h e p r o c e s s o f J a p a n ' s p o s t w a r e n e r g y d e v e l o p m e n t . 7 6 T h e d i f f e r e n c e b e t w e e n t h e e c o n o m i c p e r f o r m a n c e o f J a p a n a n d t h o s e o f o t h e r i n d u s t r i a l i z e d c o u n t r i e s i s a b a s i c c a u s e o f t h e r e c e n t t r e n d o f t h e y e n a p p r e c i a t i o n . 44 1. THE JAPANESE ECONOMIC STRUCTURE (1) J a p a n ' s P o s t w a r E c o n o m i c G r o w t h As shown i n T a b l e 3-1, t h e e c o n o m i c g r o w t h r a t e o f J a p a n d u r i n g t h e 1960's was v e r y h i g h . The N a t i o n a l Income D o u b l i n g P l a n o f I c h i r o Nakayama, e n a c t e d by t h e I k e d a g o v e r n m e n t i n November 1960, a c t e d a s t h e b a s i c p l a n f o r g r o w t h . A c t u a l p e r f o r m a n c e was g e n e r a l l y h i g h e r t h a n t h e t a r g e t s a s i n d i c a t e d i n T a b l e 3-2. K a n a m o r i l i s t s f o u r e l e m e n t s w h i c h c o n t r i b u t e d t o J a p a n ' s r a p i d e c o n o m i c g r o w t h . 7 7 1. H i g h s a v i n g s r a t i o : The h i g h s a v i n g s r a t e s u p p o r t e d i n c r e a s e d i n v e s t m e n t s a n d r a p i d e c o n o m i c g r o w t h . I f i n v e s t m e n t s h a d i n c r e a s e d w i t h o u t t h e h i g h s a v i n g s r a t e , t h e y w o u l d h a v e c a u s e d i n f l a t i o n a n d d e f i c i t i n t h e i n t e r n a t i o n a l b a l a n c e o f p a y m e n t s . I t was i m p o r t a n t t o i n c r e a s e t h e p r o f i t s h a r e n o t by u n e q u a l income d i s t r i b u t i o n b u t by i n c r e a s i n g t h e i n d i v i d u a l s a v i n g s r a t e . [ S e e T a b l e 3 - 3 ] . 2. T e c h n o l o g y i m p o r t s : T h e r e were a c c u m u l a t e d t e c h n o l o g i e s i n t h e p o s t w a r w e s t e r n w o r l d w h i c h J a p a n was a b l e t o i m p o r t a s a l a t e c omer. T h e r e was a l s o e n t r e p r e n e u r s h i p t o a d o p t new t e c h n o l o g i e s a n d t o e x p a n d i n v e s t m e n t s u n d e r t h e c o m p e t i t i v e b u s i n e s s s i t u a t i o n i n J a p a n . The h i g h q u a l i t y o f l a b o u r a l s o c o n t r i b u t e d t o t h e u s e o f new t e c h n o l o g i e s . 3. E x p o r t s : The i n c r e a s e i n t h e c o m p e t i t i v e power r e a l i z e d by t e c h n i c a l i n n o v a t i o n a n d c a p i t a l i n v e s t m e n t s c o n t r i b u t e d t o t h e i n c r e a s e i n J a p a n ' s e x p o r t s . The f r e e t r a d e s y s t e m a l s o h e l p e d J a p a n t o i n c r e a s e i t s e x p o r t s . 4. P o l i c y : G o v e r n m e n t p o l i c i e s a l s o c o n t r i b u t e d t o t h e g r o w t h . Zaibatsu d i s s o l u t i o n , 7 8 a g r i c u l t u r a l 7 7 H i s a o K a n a m o r i , Koza Nihon Keizai, 2 v o l s . ( T o k y o : Chuo K e i z a i s h a , 1 9 8 2 ) , 1:28-30. 7 B U c h i n o e x p l a i n s zaibatsu d i s s o l u t i o n a s f o l l o w s : "On November 2, 1945, t h e g o v e r n m e n t o r d e r e d t h e r e f o r m , 7 9 and l a b o u r r e l a t i o n s r e f o r m 8 0 e n c o u r a g e d 7 8 ( c o n t ' d ) f r e e z i n g o f t h e a s s e t s o f f i f t e e n o f t h e l a r g e s t zai bat su, i n c l u d i n g M i t s u i , M i t s u b i s h i , S u mitomo, a nd Y a s u d a . I n May 1946, t h e H o l d i n g C o m p a n i e s L i q u i d a t i o n C o m m i s s i o n was e s t a b l i s h e d a n d , i n S e p t e m b e r 1947, t h e c o m m i s s i o n o r d e r e d t h e d i s s o l u t i o n o f M i t s u i B u s s a n a n d M i t s u b i s h i S h o j i . D u r i n g t h e same p e r i o d , GHQ [ G e n e r a l Head Q u a r t e r s ] c a r r i e d o u t a p u r g e o f p u b l i c o f f i c i a l s who were c o n s i d e r e d m i l i t a r i s t s a n d o f i m p o r t a n t f i g u r e s i n t h e f i n a n c i a l w o r l d who were t h o u g h t t o hav e c o o p e r a t e d w i t h t h e m i l i t a r i s t s i n p u r s u i n g t h e war. The zai batsu were b r o k e n up i n t h i s way, by s e v e r i n g t h e i r h o l d i n g c o m p a n i e s , t h e c o r e o f zaibatsu c o n t r o l , a n d by p u r g i n g t h e i r l e a d e r s , i n c l u d i n g members o f f o u n d i n g f a m i l i e s " ( T a t s u r o U c h i n o , op. c i t . , p.2 2 ) . 7 9 U c h i n o e x p l a i n s a s f o l l o w s : " A n t i c i p a t i n g f o r m a l d i r e c t i v e s f r o m GHQ, t h e go v e r n m e n t t o o k t h e i n i t i a t i v e , a n d i n December 1945, p u s h e d t h r o u g h t h e D i e t a d r a f t p r o p o s a l t h a t w o u l d h a v e r a d i c a l l y r e v i s e d t h e w a r t i m e A g r i c u l t u r a l L a n d s A d j u s t m e n t Law ( e n a c t e d i n 1 9 3 8 ) . The r e v i s e d l a w w o u l d h a v e f o r c e d t h e s a l e o f a l l a g r i c u l t u r a l l a n d i n t h e p o s s e s s i o n o f r e s i d e n t l a n d h o l d e r s e x c e e d i n g f i v e h e c t a r e s , t h e n a t i o n a l a v e r a g e f o r i n d i v i d u a l l a n d h o l d i n g s . M o r e o v e r , a l l t e n a n t l a n d s were t o be s o l d a t low p r i c e s t o f o r m e r t e n a n t s w i t h t h e g o v e r n m e n t a c t i n g a s t h e i n t e r m e d i a r y " {Ibid., p. 2 0 ) . 8 0 U c h i n o e x p l a i n s a s f o l l o w s : " L a b o r r e f o r m , t h e s e c o n d p i l l a r o f GHQ's e c o n o m i c d e m o c r a t i z a t i o n p r o g r a m , a l s o p r o c e e d e d r a p i d l y w i t h t h e e n a c t m e n t o f t h r e e b a s i c l a w s m o d e l e d on A m e r i c a n l a b o r l e g i s l a t i o n : t h e T r a d e U n i o n Law (December 22, 1 9 4 5 ) ; t h e L a b o r S t a n d a r d s Law ( A p r i l 7, 1 9 4 7 ) ; a n d t h e L a b o r R e l a t i o n a d j u s t m e n t Law (S e p t e m b e r 27, 1 9 4 7 ) . The T r a d e U n i o n Law e s t a b l i s h e d , f o r t h e f i r s t t i m e i n J a p a n ' s h i s t o r y , t h e f r e e d o m o f w o r k e r s t o o r g a n i z e t r a d e u n i o n s a n d t h e r i g h t o f a s s e m b l y . The L a b o r R e l a t i o n s A d j u s t m e n t Law e s t a b l i s h e d m e t h o d s a n d p r o c e d u r e s f o r d i s p u t e s e t t l e m e n t s a n d d e f i n e d l i m i t s on s t r i k e b e h a v i o r . The L a b o r S t a n d a r d s Law was a r e v o l u t i o n a r y a d v a n c e i n l e g i s l a t i o n p r o t e c t i n g w o r k e r s , w h i c h h a d l a g g e d b e h i n d i n J a p a n . I t c a l l e d f o r t h e e l i m i n a t i o n o f f e u d a l i s t i c w o r k i n g c o n d i t i o n s , p r o h i b i t e d f o r c e d l a b o r , e s t a b l i s h e d t h e p r i n c i p l e s o f t h e e i g h t - h o u r work day a n d h o l i d a y s y s t e m s , s e t l i m i t s on t h e employment o f women a n d m i n o r s , a n d p r o v i d e d f o r c o m p e n s a t i o n f o r w o r k - r e l a t e d i n j u r y . T o g e t h e r , t h e s e l a w s e s t a b l i s h e d t h e l e g i s l a t i v e f o u n d a t i o n f o r one o f 46 h i g h e n t r e p r e n e u r s h i p a n d a h i g h l y c o m p e t i t i v e m a r k e t . They a l s o c o n t r i b u t e d t o t h e e x p a n s i o n o f t h e d o m e s t i c m a r k e t and t h e e q u a l i z a t i o n o f n a t i o n a l i n c o m e . D e f e n c e e x p e n d i t u r e s were k e p t l o w a n d i n d u s t r i a l r e s o u r c e s were a l l o c a t e d t o p r o d u c t i v e i n v e s t m e n t s . I n a d d i t i o n , t h e N a t i o n a l Income D o u b l i n g P l a n e n c o u r a g e d J a p a n e s e p e o p l e t o work h a r d , a n d t r a d e l i b e r a l i z a t i o n p r e s s u r e s f r o m t h e l a t e 1950's u r g e d them t o p u r s u e an i n c r e a s e i n p r o d u c t i v i t y . T h e r e i s no q u e s t i o n t h a t e x t e r n a l t r a d e h a s been a v e r y i m p o r t a n t f a c t o r i n t h e e c o n o m i c d e v e l o p m e n t o f J a p a n s i n c e i t i s a c o u n t r y w h i c h i m p o r t s raw m a t e r i a l s a n d e x p o r t s p r o c e s s e d p r o d u c t s . I n d e e d , J a p a n ' s e x t e r n a l t r a d e e x p a n d e d by more t h a n 15% d u r i n g t h e 1960's a s shown i n T a b l e 3-2. T a b l e 3-4 shows more d e t a i l s a b o u t how J a p a n ' s e x t e r n a l t r a d e h a s i n c r e a s e d . S i n c e t h e l a t e 1960's J a p a n ' s t r a d e b a l a n c e showed a s u r p l u s e x c e p t f o r t h e p e r i o d o f t h e f i r s t a n d s e c o n d o i l c r i s e s . M a j o r t r a d e i t e m s i n T a b l e 3-5 i n d i c a t e t h e b a s i c s t r u c t u r e o f t h e J a p a n e s e economy. B o t h i n 1970 a n d 1971 t h e e x p o r t s o f i r o n a n d s t e e l p r o d u c t s e x c e e d e d t h e i m p o r t o f p e t r o l e u m . H o w e v e r , a f t e r 1972, t h e N i m p o r t o f p e t r o l e u m e x c e e d e d t h e e x p o r t s o f s t e e l a n d i r o n p r o d u c t s . M o r e o v e r , t h e i m p o r t o f p e t r o l e u m came t o e x c e e d t h e e x p o r t s o f m o t o r v e h i c l e s a n d s t e e l i n 1974. C o n s i d e r i n g t h e f a c t t h a t t h e v o l u m e o f o i l i m p o r t s o n l y i n c r e a s e d by 3 3 . 5 % f r o m 197 m i l l i o n l i t r e s i n 1970 t o 263 m i l l i o n l i t r e s i n 1975, t h e e f f e c t o f t h e o i l p r i c e i n c r e a s e on J a p a n ' s e x t e r n a l t r a d e was c l e a r l y o f m a j o r i m p o r t a n c e . 0 ( c o n t ' d ) t h e most p r o g r e s s i v e l a b o r r e l a t i o n s s y s t e m s i n t h e w o r l d " {Ibid., pp. 2 0 - 2 2 ) . 47 (2) O i l and t h e J a p a n e s e I n d u s t r i a l S t r u c t u r e T h r o u g h o u t t h e r a p i d e c o n o m i c g r o w t h p e r i o d , t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e c h a n g e d c o n s i d e r a b l y . T a b l e 3-6 shows how t h e s t r u c t u r e c h a n g e d f r o m 1960 t o 1977. F o l l o w i n g t h e g e n e r a l t r e n d o f i n d u s t r i a l i z a t i o n , t h e s e c o n d a r y and t e r t i a r y s e c t o r s i n c r e a s e d t h e i r s h a r e s b o t h i n r e a l p r o d u c t i o n and employment i n t h e l o n g t e r m . H owever, t h i s g r o w t h e x h i b i t e d some s p e c i a l c h a r a c t e r i s t i c s . F i r s t , t h e r e a l p r o d u c t i o n o f t h e a g r i c u l t u r a l , f o r e s t a n d f i s h e r y i n d u s t r i e s i n c r e a s e d s l i g h t l y f r o m 1973 t o 1977. T h i s i n c r e a s e was p o s s i b l e b e c a u s e p r o d u c t i v i t y i n c r e a s e d due t o i n d u s t r i a l i z a t i o n , i n c l u d i n g t h e u s e o f o i l a s a f u e l f o r a g r i c u l t u r a l p r o d u c t i o n . S e c o n d l y , t h e number o f e m p l o y e e s i n t h e i n d u s t r y d i d n o t d e c r e a s e v e r y much i n s p i t e o f t h e i n c r e a s e i n p r o d u c t i v i t y . T h i s was b e c a u s e t h e number o f f a r m e r s who h a d s e c o n d a r y o c c u p a t i o n s i n c r e a s e d . 8 1 T h i r d l y , ] t h e m a n u f a c t u r i n g i n d u s t r y ' s s h a r e o f t o t a l p r o d u c t i o n a n d employment d e c r e a s e d f r o m 1973 t o 1977. T h i s phenomenon r e f l e c t s t h e i m p a c t s o f t h e 1973 o i l c r i s i s . The o i l p r i c e i n c r e a s e a c c e l e r a t e d t h e s h i f t o f p r o d u c t i o n a n d employment f r o m o i l - c o n s u m i n g i n d u s t r y t o o i l - c o n s e r v i n g i n d u s t r y . The s h i f t i n t h e m a j o r e n e r g y s o u r c e s was e v e n more d r a s t i c . I n t h e p o s t w a r e c o n o m i c r e c o n s t r u c t i o n p r o c e s s o f J a p a n , c o a l f i r s t t o o k an i m p o r t a n t r o l e . The J a p a n e s e 8 1 0 f t o t a l f a r m e r s , t h e p e r c e n t a g e o f sengyo noka ( f a r m e r s w i t h income o n l y f r o m f a r m i n g ) d e c r e a s e d f r o m 3 4 . 3 % i n 1960 t o 13.4% i n 1980. On t h e o t h e r h a n d , dai nishu kengyo noka ( f a r m e r s w i t h more income f r o m o t h e r j o b s l i k e f a c t o r y work t h a n f r o m f a r m i n g ) i n c r e a s e d f r o m 3 2 . 1 % i n 1960 t o 6 5 . 1 % i n 1980. H i s a o K a n a m o r i , op. c i t . , p. 49. 48 g o v e r n m e n t a d o p t e d two m a j o r p o l i c i e s t o r e c o n s t r u c t t h e economy a f t e r t h e war. One was t h e e s t a b l i s h m e n t o f t h e R e c o n s t r u c t i o n Bank, a n d t h e o t h e r was t h e i m p l e m e n t a t i o n o f t h e P r i o r i t y P r o d u c t i o n C o n c e p t . U c h i n o e x p l a i n s t h e s e two p o l i c i e s a s f o l l o w s : E s s e n t i a l l y , t h e P r i o r i t y P r o d u c t i o n C o n c e p t was an a t t e m p t t o r e v e r s e t h e v i c i o u s c y c l e b e t w e e n t h e c o a l a nd s t e e l i n d u s t r i e s t h a t h a d l e d t o m a s s i v e b o t t l e n e c k s . A l l e c o n o m i c p o l i c i e s w o u l d c o n c e n t r a t e on i n c r e a s i n g c o a l p r o d u c t i o n ; t h e c o a l w o u l d t h e n be t h r o w n i n t o t h e s t e e l i n d u s t r y t o s t i m u l a t e s t e e l p r o d u c t i o n ; a n d s t e e l w o u l d t h e n be t h r o w n b a c k i n t o t h e c o a l i n d u s t r y . E x i s t i n g s h o r t a g e s o f c o a l i n t h e s e two i n d u s t r i e s w o u l d be f i l l e d by i m p o r t e d c r u d e o i l u n t i l i n c r e a s e s c o u l d be c h a n n e l e d g r a d u a l l y t o o t h e r b a s i c i n d u s t r i e s t o p r o m o t e o v e r a l l e c o n o m i c r e c o v e r y . To a c h i e v e t h i s , c o n t r o l l e d c o m m o d i t i e s were a l l o c a t e d on a p r i o r i t y b a s i s t o t h e c o a l a n d s t e e l i n d u s t r i e s , a n d t h e R e c o n s t r u c t i o n F i n a n c e Bank was e s t a b l i s h e d u n d e r t h e F i n a n c i a l I n s t i t u t i o n s C a p i t a l F i n a n c i n g R e g u l a t i o n t o c h a n n e l f u n d s i n t o t h e p r i o r i t y i n d u s t r i e s ( u n t i l 1947 t h e bank h a d e x i s t e d a s t h e I n d u s t r i a l Bank o f J a p a n w i t h i n t h e R e c o n s t r u c t i o n F i n a n c e D e p a r t m e n t ) . 8 2 I n t h e P r i o r i t y P r o d u c t i o n C o n c e p t , o i l was a s u b s t i t u t e f o r c o a l . H o w e v e r , a s shown i n T a b l e 3-7, t h e m a j o r e n e r g y s u p p l y s o u r c e s h i f t e d f r o m c o a l t o o i l . U n t i l t h e m i d d l e of. t h e 1950's t h e s h a r e o f c o a l i n t h e t o t a l e n e r g y s u p p l y was more t h a n 5 0 % . T h r e e - q u a r t e r s o f t h e t o t a l e n e r g y h a d been s u p p l i e d d o m e s t i c a l l y u n t i l t h e n . H owever, a f t e r t h a t d a t e t h e s h a r e o f o i l i n c r e a s e d . As l i t t l e o i l was p r o d u c e d i n J a p a n , t h e i m p o r t r a t i o i n t h e t o t a l e n e r g y s u p p l y i n c r e a s e d f r o m o n e - q u a r t e r t o more t h a n t h r e e - q u a r t e r s i n 15 y e a r s l e a d i n g t o t h e i n c r e a s e i n o i l i m p o r t s . T h i s s h i f t i n e n e r g y s u p p l y was c l o s e l y r e l a t e d t o J a p a n e s e p o s t w a r e c o n o m i c 8 2 T a t s u r o U c h i n o , op. c i t . , pp. 3 6 - 37. 49 d e v e l o p m e n t . (3) The E c o n o m i c S i t u a t i o n o f J a p a n J u s t B e f o r e t h e 1973 O i l C r i s i s C o n s i d e r i n g t h e c h a r a c t e r i s t i c s o f t h e J a p a n e s e economy and i t s i n d u s t r i a l s t r u c t u r e , i t c a n e a s i l y be i m a g i n e d t h a t J a p a n w o u l d s u f f e r s e r i o u s l y i f t h e p r i c e o f o i l was r a i s e d by more t h a n t h r e e t i m e s i n l e s s t h a n one y e a r . T h e r e was, h o w e v e r , a n o t h e r e l e m e n t i n e x p l a i n i n g t h e e c o n o m i c s i t u a t i o n o f J a p a n b e f o r e t h e c r i s i s . T h i s e l e m e n t was " N i x o n s h o c k " i n 1 9 7 1 8 3 . I t h a s a l r e a d y been p o i n t e d o u t t h a t J a p a n a c c o m p l i s h e d i t s e c o n o m i c g r o w t h p a r t l y t h r o u g h t h e e x p a n s i o n o f i t s e x t e r n a l t r a d e . The e x p a n s i o n o f t r a d e was c l o s e l y r e l a t e d t o t h e e x c h a n g e r a t e o f t h e y e n . T h e . e x c h a n g e r a t e o f t h e 8 3 A c c o r d i n g t o t h e e x p l a n a t i o n by U c h i n o , two i n c i d e n t s c o n s t i t u t e d t h e " N i x o n s h o c k : " "The f i r s t ' N i x o n s h o c k ' o c c u r r e d i n J u l y 1 9 71, when t h e N i x o n A d m i n i s t r a t i o n a n n o u n c e d i t s new C h i n a p o l i c y a n d N i x o n v i s i t e d B e i j i n g w i t h o u t c o o r d i n a t i n g t h i s m a j o r f o r e i g n p o l i c y s h i f t w i t h t h e J a p a n e s e g o v e r n m e n t . . . . The s e c o n d ' N i x o n s h o c k ' o c c u r r e d on A u g u s t 15, 1971, w i t h t h e announcement o f N i x o n ' s New E c o n o m i c P r o g r a m , a n d was d i r e c t l y r e l a t e d t o t h e U n i t e d S t a t e s - J a p a n f r i c t i o n a n d , more g e n e r a l l y , t o t h e d e e p e n i n g i n t e r n a t i o n a l c u r r e n c y c r i s i s " (Ibid., p. 1 8 3 ) . The e s s e n t i a l p o i n t s o f N i x o n ' s New E c o n o m i c P r o g r a m a r e s u m m a r i z e d a s f o l l o w s : " 1 . S u s p e n s i o n o f c o n v e r t i b i l i t y o f t h e U.S. d o l l a r i n t o g o l d a n d o t h e r c u r r e n c i e s ; 2. A 10 p e r c e n t s u r t a x on i m p o r t s ; 3. A 10 p e r c e n t r e d u c t i o n i n f o r e i g n a i d e x p e n d i t u r e ; 4. A n i n e t y - d a y f r e e z e on d o m e s t i c wages a n d p r i c e s ; 5. A t a x c u t d e s i g n e d t o s t i m u l a t e t h e d o m e s t i c economy" (Ibid., p. 1 8 4 ) . 50 y e n a g a i n s t t h e US d o l l a r was s e t a t 360 y e n / d o l l a r on A p r i l 2 5 , 1949. T h i s became t h e o f f i c i a l y e n e x c h a n g e r a t e on t h e e n t r y o f J a p a n i n t o t h e I n t e r n a t i o n a l M o n e t a r y Fund (IMF) i n A u g u s t 1952. S i n c e t h e n t h e J a p a n e s e economy h a s d e v e l o p e d , a n d t h e e x c h a n g e r a t e w h i c h h a d been c o n s i d e r e d o v e r v a l u e d a t t h e b e g i n n i n g came t o be c o n s i d e r e d u n d e r v a l u e d by t h e t i m e t h e " N i x o n s h o c k " t o o k p l a c e . I s h i m a r u e x p l a i n s t h e p r o c e s s a s f o l l o w s : 1 950-1955: Due t o t h e o v e r v a l u e d y e n a n d t h e d e c r e a s e i n p r o d u c t i o n f a c i l i t i e s by W o r l d War I I , t h e J a p a n e s e f o r e i g n t r a d e b a l a n c e d u r i n g t h i s p e r i o d was a n n u a l l y a 393 m i l l i o n d o l l a r d e f i c i t . The c u r r e n t b a l a n c e was a d j u s t e d by t h e s u r p l u s i n i n v i s i b l e t r a d e m a i n l y o w i n g t o s p e c i a l p r o c u r e m e n t s f o r t h e K o r e a n War. 1956-1960: The i n c r e a s e i n e x p o r t s s t a b i l i z e d t h e t r a d e b a l a n c e , b u t t h e c u r r e n t b a l a n c e d i d n o t i m p r o v e b e c a u s e o f t h e end o f t h e s p e c i a l p r o c u r e m e n t . The y e n was s t i l l a weak c u r r e n c y . 1 961-1964: The g r o w t h i n t h e J a p a n e s e p r o d u c t i o n f a c i l i t i e s s t r e n g t h e n e d t h e i n t e r n a t i o n a l c o m p e t i t i v e power o f J a p a n e s e e x p o r t s . H o w e v e r , s i n c e J a p a n e s e i m p o r t s a l s o i n c r e a s e d due t o t h e h i g h e c o n o m i c g r o w t h r a t e , t h e t r a d e b a l a n c e d i d n o t i m p r o v e . The y e n g r a d u a l l y s t r e n g t h e n e d . J a p a n became a member o f IMF a r t i c l e 8 n a t i o n s , 8 " a b o l i s h e d i t s i m p o r t r e s t r i c t i v e m e a s u r e s by means o f t h e f o r e i g n e x c h a n g e b u d g e t 8 5 and s t a r t e d i m p o r t 8 " A r t i c l e 8 o f t h e IMF c o d e o b l i g e s t h e member n a t i o n s t o a b o l i s h f o r e i g n e x c h a n g e c o n t r o l s on c u r r e n t t r a n s a c t i o n s a n d d i s c r i m i n a t o r y c u r r e n c y c o n t r o l s , a n d t o r e s t o r e t h e c o n v e r t i b i l i t y o f t h e n a t i o n a l c u r r e n c y owned by f o r e i g n c o u n t r i e s . A r t i c l e 14 p r o v i d e s t h o s e n a t i o n s w h i c h c a n n o t i m p l e m e n t t h e o b l i g a t i o n s i n A r t i c l e 8 w i t h e x e m p t i o n s f o r a t r a n s i t i o n a l p e r i o d . An A r t i c l e 14 n a t i o n , t h e r e f o r e , h a s t o c o n s u l t a n n u a l l y w i t h t h e IMF a u t h o r i t y on i t s p r o g r e s s a n d e f f o r t s i n i m p l e m e n t i n g t h e A r t i c l e 8 o b l i g a t i o n s . J a p a n , a s an A r t i c l e 14 n a t i o n , was s u g g e s t e d t o become an A r t i c l e 8 n a t i o n a t t h e 1962 c o n s u l t a t i o n . An IMF r e s o l u t i o n r e q u e s t e d t h a t J a p a n become an A r t i c l e 8 n a t i o n i n 1963 a n d J a p a n f i n a l l y became i t i n A p r i l 1964. 8 5 T h e f o r e i g n e x c h a n g e b u d g e t i s e x p l a i n e d a s f o l l o w s : "The f o r e i g n e x c h a n g e b u d g e t a n d t h e i m p o r t d e p o s i t 51 l i b e r a l i z a t i o n p o l i c i e s . 1 9 65-1967: The s u r p l u s t r e n d i n J a p a n ' s ' i n t e r n a t i o n a l t r a d e b a l a n c e s t a b i l i z e d i n 1965, a n d t h e y e n became s t r e n g t h e n e d . The t r a d e s u r p l u s d u r i n g t h i s p e r i o d a m o u n t e d t o 1,778 m i l l i o n d o l l a r s . 1 968-1970: The y e n became even s t r o n g e r a r o u n d 1968. The t r a d e s u r p l u s d u r i n g t h e p e r i o d was 3,406 m i l l i o n d o l l a r s . The i n t e r n a t i o n a l b a l a n c e was a 1,592 m i l l i o n d o l l a r s u r p l u s . 8 6 The y e n a p p r e c i a t e d f r o m 360 y e n / d o l l a r t o 308 y e n / d o l l a r a t t h e S m i t h s o n i a n C o n f e r e n c e i n December 1 9 7 1 . 8 7 J a p a n ' s t r a d e b a l a n c e o f t h e y e a r was 7,900 m i l l i o n 8 5 ( c o n t ' d ) scheme were u t i l i z e d t o g e t h e r t o b r i d g e t h e s h o r t a g e o f f o r e i g n e x c h a n g e e x i s t i n g a t t h e Y360 r a t e by c o n t r o l l i n g i m p o r t s . The b u d g e t c l a s s i f i e d i m p o r t a b l e g o o d s i n t o t h r e e c a t e g o r i e s : f u n d a l l o c a t i o n ( w h i c h became i m p o r t q u o t a s a f t e r 1 9 6 4 ) , a u t o m a t i c f u n d a l l o c a t i o n ( w h i c h became a u t o m a t i c i m p o r t q u o t a s ) , a n d a u t o m a t i c a p p r o v a l . The i m p o r t d e p o s i t scheme, w h i c h was i n o p e r a t i o n u n t i l 1969, r e q u i r e d d e p o s i t o f c o l l a t e r a l f o r i m p o r t s a t t h e t i m e p e r m i s s i o n t o i m p o r t was r e q u e s t e d ; t h e c o l l a t e r a l was f o r f e i t e d i f t h e i m p o r t a t i o n was n o t e x e c u t e d . The r a t e s o f c o l l a t e r a l were d i f f e r e n t i a t e d by c a t e g o r y o f goods (raw m a t e r i a l s , c o n s u m p t i o n g o o d s , c a p i t a l e q u i p m e n t , a n d so f o r t h ) . I n a d d i t i o n t o t h e p r i m e o b j e c t i v e o f l i m i t i n g i m p o r t s t o t h e a v a i l a b i l i t y o f f o r e i g n e x c h a n g e , t h e s e p o l i c i e s r e s t r a i n e d s p e c u l a t i o n i n i m p o r t e d c o m m o d i t i e s a n d d i s c r i m i n a t e d a g a i n s t t h e i m p o r t a t i o n o f c o n s u m p t i o n g o o d s . The i m p o r t d e p o s i t scheme a c t i n g t h r o u g h t h e c r e d i t s y s t e m a l s o r e i n f o r c e d an a n t i c y c l i c a l m o n e t a r y p o l i c y " (Hugh T. P a t r i c k & H e n r y R o s o v s k y , op. c i t . , p. 4 1 2 ) . 8 6 T h i s q u o t a t i o n i s a summary o f I s h i m a r u ' s e x p l a n a t i o n t r a n s l a t e d i n t o E n g l i s h by t h e a u t h o r . Y o s h i t o m i I s h i m a r u , Endaka to Nihon Keizai ( T o k y o : M a i n i c h i S h i n b u n s h a , 1 9 7 8 ) , pp. 7 1 - 7 3 . 8 7 A t t h e S m i t h s o n i a n C o n f e r e n c e h e l d f r o m December 17 t o 18, 1971, t h e f o l l o w i n g m a t t e r s were d e c i d e d : (1) The p r i c e o f g o l d was r a i s e d f r o m 35 U.S. d o l l a r s t o 38 d o l l a r s p e r o u n c e . Y e t t h e c o n v e r t i b i l i t y o f t h e U.S. d o l l a r i n t o g o l d was n o t r e s t o r e d . ( 2) The e x c h a n g e r a t e s o f m a j o r c u r r e n c i e s t o t h e U.S. d o l l a r were r a i s e d ( s e e T a b l e 3-8 a n d 3 - 9 ) . (3) The f l u c t u a t i o n r a n g e was e x p a n d e d t o 2.25%. 52 d o l l a r s i n s u r p l u s and t h e t o t a l b a l a n c e was 7,677 m i l l i o n d o l l a r s i n s u r p l u s . E v e n t h e S m i t h s o n i a n a g r e e m e n t was n o t a b l e t o k e e p t h e i n t e r n a t i o n a l c u r r e n c y s y s t e m s t a b l e . M a j o r i n d u s t r i a l i z e d c o u n t r i e s s h i f t e d one by one t o t h e f l o a t i n g e x c h a n g e r a t e s y s t e m . 8 8 The " d o l l a r d r a i n , " one o f t h e c a u s e s o f t h e c o l l a p s e o f t h e i n t e r n a t i o n a l m o n e t a r y s y s t e m a c c o m p a n i e d by t h e f o o d s h o r t a g e p r o b l e m , i n c r e a s e d i n f l a t i o n a r y p r e s s u r e s i n m a j o r i n d u s t r i a l i z e d c o u n t r i e s . 8 9 8 8 U c h i n o e x p l a i n s t h e p r o c e s s o f g o i n g i n t o t h e f l o a t i n g s y s t e m a s f o l l o w s : " . . . The U n i t e d K i n g d o m s h i f t e d t o t h e f l o a t i n g e x c h a n g e r a t e s y s t e m i n J u n e 1972 a n d d e v a l u e d t h e p o u n d , b u t t h i s h a d been n e c e s s i t a t e d by t h e p o u n d b e i n g o v e r v a l u e d a t t h e t i m e o f t h e a g r e e m e n t . . . . . . . F i n a l l y , on M a r c h 1 2 , ( 1 9 7 3 ) , West Germany a n n o u n c e d a 3 p e r c e n t u p w a r d r e v a l u a t i o n o f t h e mark, a n d t h e EC c o u n t r i e s ( w i t h t h e e x c e p t i o n s o f E n g l a n d , I r e l a n d , a n d I t a l y ) a n n o u n c e d a " j o i n t f l o a t i n g e x c h a n g e r a t e s y s t e m , " u n d e r w h i c h t h e y w o u l d m a i n t a i n f i x e d e x c h a n g e r a t e s b e t w e e n c o m m u n i t y members b u t w o u l d a l l o w t h e i r c u r r e n c i e s t o f l o a t a g a i n s t t h e d o l l a r . T h e s e moves s i g n a l e d t h e e n d o f t h e S m i t h s o n i a n A g r e e m e n t , o n l y f o u r t e e n m onths a f t e r t h e m e e t i n g o f t h e G r o u p o f t h e Ten i n W a s h i n g t o n . A f t e r J a p a n f l o a t e d t h e y e n i n F e b r u a r y 1973, i t s v a l u e i n c r e a s e d r a p i d l y a g a i n s t t h e d o l l a r , a n d t h e d o l l a r d r o p p e d b e l o w t h e Y280 l e v e l i n t h e s e c o n d h a l f o f J u l y " ( T a t s u r o U c h i n o , op. c i t . , pp. 193, 1 9 5 ) . 8 9 U c h i n o e x p l a i n s t h e f o o d s h o r t a g e p r o b l e m a s f o l l o w s : " S h o r t a g e a n d s u b s e q u e n t p r i c e i n c r e a s e s b e g a n t o a p p e a r i n t h e f a l l o f 1972. . . . The a b n o r m a l w e a t h e r c o n d i t i o n s a f f e c t e d s o y b e a n s , c o r n , s o r g h u m , c o f f e e , s u g a r , and raw c o t t o n . The most d r a s t i c i n c r e a s e s , h o w e v e r , were r e c o r d e d f o r s o y b e a n s a n d , f o r t h e J a p a n e s e p e o p l e , t h i s was p a r t i c u l a r l y a l a r m i n g . S o y b e a n s t r i p l e d i n p r i c e i n t h e s p a c e o f one y e a r , f r o m $3 p e r b u s h e l t o $ 1 1 . W i t h a v i c i o u s c y c l e b e t w e e n w o r l d w i d e s h o r t a g e s i n g r a i n s u p p l i e s a n d t h e s p r e a d o f s p e c u l a t i o n on i n t e r n a t i o n a l m a r k e t s , t h e N i x o n a d m i n i s t r a t i o n a n n o u n c e d a new s e t o f r e s t r i c t i o n s on g r a i n e x p o r t s a s a p a r t o f i t s a n t i - i n f l a t i o n p o l i c y , p r o h i b i t i n g s o y b e a n e x p o r t s t o J a p a n b e c a u s e o f s o a r i n g d o m e s t i c demand" 53 The y e n a p p r e c i a t i o n h a d many i m p a c t s on t h e J a p a n e s e economy. F i r s t , i n t h e y e n a p p r e c i a t i o n p r o c e s s t h e J a p a n e s e m o n e t a r y a u t h o r i t y , t h e Bank o f J a p a n , i n c r e a s e d m o n e t a r y l i q u i d i t y . The e x c e s s - l i q u i d i t y p r o b l e m l e d t o i n f l a t i o n a r y p r e s s u r e i n J a p a n . S e c o n d l y , t h e T a n a k a c a b i n e t , s u c c e e d i n g t h e S a t o c a b i n e t i n J u n e 1972, a d o p t e d e x p a n s i o n a r y e c o n o m i c p o l i c i e s i n o r d e r t o b a t t l e t h e d e f l a t i o n a r y e f f e c t s o f t h e yen a p p r e c i a t i o n . 9 0 T h i r d l y , some i n d u s t r i e s l o s t t h e i r i n t e r n a t i o n a l c o m p e t i t i v e power b e c a u s e o f t h e y e n a p p r e c i a t i o n . I t i s an i m p o r t a n t f a c t t h a t most i n d u s t r i a l i z e d c o u n t r i e s , i n c l u d i n g J a p a n , s u f f e r e d f r o m i n f l a t i o n a r y p r e s s u r e s b e f o r e t h e 1973 o i l c r i s i s . N e v e r t h e l e s s , t h e J a p a n e s e g o v e r n m e n t a d o p t e d e x p a n s i o n a r y e c o n o m i c p o l i c i e s . I t i s a l s o i m p o r t a n t t h a t t h e y e n a p p r e c i a t i o n i s r e c o g n i z e d a s t h e f i r s t c h a l l e n g e t o J a p a n e s e i n d u s t r y w h i l e t h e o i l c r i s i s i s r e c o g n i z e d a s t h e s e c o n d c h a l l e n g e . As p r e v i o u s l y s t a t e d , J a p a n ' s e c o n o m i c g o a l s were r e a l i z e d m a i n l y by t h e e x p a n s i o n o f f o r e i g n t r a d e . The e x c h a n g e r a t e o f t h e y e n was one o f t h e key e l e m e n t s w h i c h e n a b l e d J a p a n t o e x p a n d i t s t r a d e . J u s t a f t e r J a p a n h a d f a c e d a c h a n g e i n t h e e x c h a n g e r a t e , t h e c o u n t r y h a d t o f a c e a c h a n g e i n a n o t h e r key e l e m e n t , t h e p r i c e o f o i l . 8 9 ( c o n t ' d ) ( T a t s u r o U c h i n o , op. c i t . , p. 1 9 8 - 1 9 9 ) . 9 0 T h e T a n a k a c a b i n e t i n c r e a s e d t h e 1972 n a t i o n a l b u d g e t by 18.7% f r o m t h e 1971 l e v e l . 54 2. THE IMPACTS OF THE 1973 O I L C R I S I S AND JAPAN'S ECONOMIC  REACTION (1) The Impacts of the C r i s i s on the Japanese and World Economy A. The Impacts on the Japanese Economy As r e f e r r e d t o i n t h e p r e v i o u s s e c t i o n , t h e i n f l a t i o n a r y t r e n d i n J a p a n h a d been s t r e n g t h e n e d by t h e c h a n g e i n t h e i n t e r n a t i o n a l e c o n o m i c s i t u a t i o n s y m b o l i z e d by t h e " N i x o n s h o c k . " The d r a s t i c i n c r e a s e s i n o i l p r i c e s , w h i c h a r e shown i n T a b l e 3-10, i n f l u e n c e d t h e w h o l e s a l e p r i c e a n d c o n s u m e r p r i c e i n d i c e s a s shown i n T a b l e 3-11. A c c o r d i n g t o t h e E c o n o m i c P l a n n i n g A g e n c y (EPA) o f J a p a n , " t h e w h o l e s a l e p r i c e f r o m J a n u a r y t o M a r c h o f 1974 i n c r e a s e d by 3 5 . 4 % f r o m t h e same p e r i o d o f 1973. A r o u n d 4 0 % o f t h e i n c r e a s e i s e x p l a i n e d by t h e d o m e s t i c i m b a l a n c e b e t w e e n s u p p l y a n d demand, a n d 60% i s e x p l a i n e d by t h e i n c r e a s e i n t h e p r i c e o f p r i m a r y p r o d u c t s i n c l u d i n g o i l . " 9 1 I n December 1973 t h e J a p a n e s e g o v e r n m e n t f i n a l l y i m p l e m e n t e d an a g g r e g a t e demand r e d u c t i o n p o l i c y i n c l u d i n g t h e c o n s t r a i n t o f t h e 1974 b u d g e t a n d t h e i n c r e a s e o f t h e o f f i c i a l i n t e r e s t r a t e f r o m 7% t o 9%. As a r e s u l t , d e p r e s s i o n a r y p r e s s u r e i n c r e a s e d i n t h e i n f l a t i o n a r y c i r c u m s t a n c e . The o i l p r i c e i n c r e a s e a l s o c a u s e d a d e f i c i t i n J a p a n ' s i n t e r n a t i o n a l p a y m e n t s . The EPA p o i n t s o u t f i v e e l e m e n t s w h i c h c a u s e d t h e d e f i c i t i n i n t e r n a t i o n a l p a y m e n t s . They 9 1 J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Houkoku, 1974 ( T o k y o : M i n i s t r y o f F i n a n c e ) , p. 78 (Summary t r a n s l a t i o n by t h e a u t h o r ) . 55 were t h e s u p p l y / d e m a n d e l e m e n t , t h e o i l p r i c e e l e m e n t , t h e e x c h a n g e r a t e a d j u s t m e n t e l e m e n t , t h e s t r u c t u r a l e l e m e n t , a n d t h e s p e c i a l e l e m e n t . The EPA's e x p l a n a t i o n o f e a c h e l e m e n t i s s u m m a r i z e d a s f o l l o w s : 1. The s u p p l y / d e m a n d e l e m e n t : The e x p a n s i o n a r y e c o n o m i c s i t u a t i o n i n E u r o p e and t h e U n i t e d S t a t e s c a u s e d t h e w o r l d - w i d e i n f l a t i o n a r y t r e n d a n d i n c r e a s e i n t h e p r i c e o f p r i m a r y p r o d u c t s . The e x p a n s i o n a r y s i t u a t i o n c a u s e d t h e i n c r e a s e i n J a p a n ' s e x p o r t s t o E u r o p e a n d t h e U n i t e d S t a t e s . On t h e o t h e r h a n d , h o w e v e r , t h e i n c r e a s e i n t h e p r i c e o f p r i m a r y p r o d u c t s c a u s e d t h e i n c r e a s e i n t h e v a l u e o f J a p a n ' s i m p o r t s . The d e f i c i t i n J a p a n ' s i n t e r n a t i o n a l p a y m e n t s i s p a r t l y e x p l a i n e d by t h e f a c t t h a t t h e i n c r e a s e i n t h e v a l u e of i m p o r t s e x c e e d e d t h a t o f e x p o r t s . 2. The o i l p r i c e e l e m e n t : S i n c e t h e o i l p r i c e i n c r e a s e d d r a s t i c a l l y i n O c t o b e r a n d November 1973, t h e v a l u e o f J a p a n ' s i m p o r t e d o i l i n c r e a s e d f r o m t h e b e g i n n i n g o f 1974 d e s p i t e t h e d e c r e a s e i n t h e q u a n t i t y o f o i l i m p o r t e d . The p e r c e n t a g e o f o i l i m p o r t s i n J a p a n ' s t o t a l i m p o r t s by v a l u e was 15% w h e r e a s t h e p e r c e n t a g e s o f o t h e r i n d u s t r i a l c o u n t r i e s were 10% b e f o r e t h e o i l c r i s i s . The p e r c e n t a g e f o r J a p a n i n c r e a s e d t o 30% a f t e r t h e c r i s i s . 3. The e x c h a n g e r a t e a d j u s t m e n t e l e m e n t : The y e n a p p r e c i a t i o n s i n c e F e b r u a r y 1973 c a u s e d t h e i n c r e a s e i n t h e v a l u e o f J a p a n ' s e x p o r t s . H o wever, t h e y e n a p p r e c i a t i o n h a d a n e g a t i v e e f f e c t on t h e q u a n t i t y o f e x p o r t s . The d e f i c i t i n i n t e r n a t i o n a l p a y m e n t s i s p a r t l y e x p l a i n e d by t h e f a c t t h a t t h e l a t t e r e f f e c t o f t h e y e n a p p r e c i a t i o n e x c e e d e d t h e f o r m e r e f f e c t . 4. The s t r u c t u r a l e l e m e n t : The d e f i c i t i s p a r t l y e x p l a i n e d by s t r u c t u r a l c h a n g e i n J a p a n e s e e c o n o m i c a c t i v i t i e s . F o r i n s t a n c e , t h e i n c r e a s e i n o u t g o i n g f o r e i g n i n v e s t m e n t s c a u s e d t h e i n c r e a s e i n c a p i t a l o u t f l o w . 5. The s p e c i a l e l e m e n t : The d e f i c i t i s p a r t l y e x p l a i n e d by t h e s p e c i a l e l e m e n t . F o r i n s t a n c e , t h e n a t u r a l c l i m a t e c h a n g e i n 1972 c a u s e d t h e f o o d s h o r t a g e p r o b l e m a n d t h e i n c r e a s e i n t h e p r i c e o f p r i m a r y p r o d u c t s . 9 2 9 2 I b i d . , pp. 3 5 - 4 0 . 56 The e f f e c t s o f t h e o i l p r i c e i n c r e a s e on t h e J a p a n e s e economy r e s u l t e d i n f u r t h e r a c c e l e r a t i o n o f i n f l a t i o n a s w e l l a s e c o n o m i c r e c e s s i o n a n d t h e i n c r e a s e i n t h e d e f i c i t i n i n t e r n a t i o n a l p a y m e n t s . B. The Impacts on the World Economy I n o r d e r t o u n d e r s t a n d t h e i m p a c t of t h e c r i s i s on J a p a n , i t s i m p a c t s on t h e w o r l d economy a r e r e v i e w e d i n t h i s s e c t i o n . T h i s i s n o t o n l y b e c a u s e t h e i m p a c t s on e a c h c o u n t r y a r e i n t e r r e l a t e d b u t a l s o b e c a u s e t h e c o m p a r a t i v e a s s e s s m e n t o f t h e i m p a c t s on e a c h c o u n t r y shows t h e i m p l i c a t i o n o f t h e c r i s i s f o r J a p a n . Even t h o u g h J a p a n e x p e r i e n c e d a t e m p o r a r y n e g a t i v e e c o n o m i c g r o w t h b e c a u s e o f t h e 1973 o i l c r i s i s , t h e r e were some c o u n t r i e s whose e c o n o m i c g r o w t h r a t e s d i d n o t d e c r e a s e s o much. T a b l e 3-12 shows t h e g r o w t h i n r e a l GNP i n i n d u s t r i a l i z e d c o u n t r i e s . S u c h c o u n t r i e s a s C a n a d a , F r a n c e , Germany a n d I t a l y s u f f e r e d l e s s t h a n J a p a n f r o m t h e c r i s i s a s f a r a s t h e i r e c o n o m i c g r o w t h r a t e s were c o n c e r n e d . On t h e o t h e r h a n d , J a p a n , t h e U n i t e d S t a t e s a n d t h e U n i t e d K i n g d o m showed a s i m i l a r s h o r t - t e r m d e c l i n e i n t h e i r e c o n o m i c g r o w t h r a t e s . T a b l e 3-13 shows t h e w h o l e s a l e p r i c e i n d i c e s o f m a j o r i n d u s t r i a l c o u n t r i e s . The 1973 o i l c r i s i s r a i s e d t h e w h o l e s a l e p r i c e s o f a l l t h e m a j o r c o u n t r i e s . H o w e v e r , t h e w h o l e s a l e p r i c e i n d e x o f J a p a n s t o p p e d i t s r a p i d i n c r e a s e a f t e r t h e o i l c r i s i s w h e r e a s t h o s e o f most o t h e r c o u n t r i e s c o n t i n u e d t o i n c r e a s e . 57 As f a r a s t h e b a l a n c e o f i n t e r n a t i o n a l p a y m e n t s was c o n c e r n e d , h o w e v e r , t h e r e was a t r a n s f e r o f p u r c h a s i n g power f r o m t h e i n d u s t r i a l i z e d c o u n t r i e s t o OPEC c o u n t r i e s a s shown i n T a b l e 3-14. I n 1974, OPEC c o u n t r i e s showed a huge s u r p l u s i n t r a d e a n d c u r r e n t b a l a n c e s , w h i l e OECD c o u n t r i e s h a d d e f i c i t s i n b o t h i n d i c a t o r s . The d e f i c i t s o f OECD c o u n t r i e s i n t h e i r c u r r e n t b a l a n c e a r e shown i n T a b l e 3-15. M o r e o v e r , a s shown i n T a b l e 3-16, OPEC c o u n t r i e s r a p i d l y i n c r e a s e d t h e i r f o r e i g n e x c h a n g e r e s e r v e s . T h e s e r e s e r v e s i n c r e a s e d f r o m 10% o f t h e w o r l d t o t a l i n 1972 t o 30% i n 1974. As a r e s u l t , t h e o i l c r i s i s c a u s e d c h a n g e s i n t h e i n t e r n a t i o n a l e c o n o m i c o r d e r a n d new p r o b l e m s s u c h a s r e c y c l i n g o f o i l d o l l a r s . (2) Major Changes i n the Japanese Economic S i t u a t i o n As m e n t i o n e d i n t h e p r e v i o u s s e c t i o n s , t h e most i m p o r t a n t phenomenon c a u s e d by t h e 1973 o i l c r i s i s was i n f l a t i o n . The f i r s t t h i n g t o be d i s c u s s e d i n t h i s p a r t i s how t h e i n f l a t i o n c a u s e d by t h e c r i s i s was m o d e r a t e d d u r i n g 1974 a n d 1975. T a b l e 3-11 c o n t a i n s m a j o r e c o n o m i c i n d i c a t o r s d u r i n g t h e p e r i o d . An i m p o r t a n t r e l a t i o n s h i p t o n o t e i s t h a t t h e w h o l e s a l e p r i c e i n d e x d e c l i n e d s t e a d i l y w h i l e t h e c o n s u m e r p r i c e i n d e x s t a y e d h i g h . 58 I m p a c t s o f t h e i n f l a t i o n c a u s e d by t h e " N i x o n s h o c k " a n d a c c e l e r a t e d by t h e o i l c r i s i s c a n be a n a l y s e d i n t e r m s o f two t r e n d s . F i r s t , t h e i n f l a t i o n h e i g h t e n e d t h e p r o p e n s i t y t o s a v e a n d d e c r e a s e d c o n s u m p t i o n demand. S e c o n d l y , t h e i n f l a t i o n l e d t o a d e c r e a s e i n p l a n t a n d e q u i p m e n t i n v e s t m e n t s . The f i r s t t r e n d i s e x p l a i n e d by t h e E c o n o m i c P l a n n i n g A g e n c y a s f o l l o w s . 9 3 A c c o r d i n g t o c a l c u l a t i o n s by t h e EPA, t h e g r o w t h r a t e o f i n d i v i d u a l c o n s u m p t i o n e x p e n d i t u r e was o n l y 2.3% i n 1974, w h i c h was l o w e r t h a n t h e p r e v i o u s r e c o r d o f 4.8% i n 1954. The EPA p o i n t s o u t two r e a s o n s f o r t h e d e c r e a s e : a) t h e d e c r e a s e i n t h e g r o w t h r a t e o f r e a l i n c o m e , a n d b) t h e d e c r e a s e i n t h e p r o p e n s i t y t o consume. The g r o w t h r a t e o f r e a l income d e c l i n e d f r o m 5.3% i n 1972-73 t o 4.1% i n 1973-74 w h i l e t h a t o f n o m i n a l income r o s e f r o m 13.8% t o 26.8%. C o n c e r n i n g t h e p r o p e n s i t y t o consume, t h e g r o w t h r a t e o f r e a l c o n s u m p t i o n e x p e n d i t u r e s d e c l i n e d f r o m 4.3% i n 1972-73 t o 1.1% i n 1973-74, w h i l e t h a t o f r e a l d i s p o s a b l e income d e c l i n e d f r o m 5.3% t o 4.1%. The i n f l a t i o n d u r i n g a n d a f t e r t h e o i l c r i s i s e x e r t e d i m p a c t s n o t o n l y on t h e g r o w t h r a t e o f r e a l i n c o m e b u t a l s o on t h e p r o p e n s i t y t o consume. The r e l a t i o n s h i p b e t w e e n i n f l a t i o n a n d t h e p r o p e n s i t y t o s a v e i s r e l a t e d t o two f a c t o r s . F i r s t , t h e i n f l a t i o n d e c r e a s e d t h e r e a l v a l u e o f s a v i n g s a n d a c c o r d i n g l y i n d u c e d c o n s u m e r s t o i n c r e a s e t h e i r s a v i n g s t o c o m p e n s a t e f o r t h e d e c r e a s e o f r e a l v a l u e o f 9 3 J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Houkoku, 1975 ( T o k y o : M i n i s t r y o f F i n a n c e , 1 9 7 5 ) , pp. 35-44. 59 t h e i r s a v i n g s . S e c o n d l y , t h e u n c e r t a i n t y o f employment c a u s e d by t h e e c o n o m i c d e p r e s s i o n made p e o p l e r e f r a i n f r o m c o n s u m p t i o n . The s e c o n d t r e n d f o l l o w i n g t h e p o s t - " N i x o n s h o c k " i n f l a t i o n i s e x p l a i n e d a s f o l l o w s . 9 * The d e c r e a s e i n p l a n t a n d e q u i p m e n t i n v e s t m e n t was m a i n l y c a u s e d by t h e a g g r e g a t e demand r e d u c t i o n p o l i c y by means o f r e s t r i c t i n g f i s c a l s p e n d i n g , i n v e s t m e n t o u t l a y s o f c o m p a n i e s , a n d c o n s u m e r s ' s p e n d i n g . The EPA p o i n t s o u t t h r e e b a s i c e l e m e n t s i n t h e p r o c e s s o f d e c r e a s i n g p r i v a t e i n v e s t m e n t s . F i r s t , t h e d e c r e a s e i n c o n s u m p t i o n e x p e n d i t u r e c a u s e d t h e d e c r e a s e i n p r i v a t e i n v e s t m e n t s m a i n l y by t h e s e r v i c e i n d u s t r y . S e c o n d l y , t h e d e c r e a s e i n p r i v a t e i n v e s t m e n t s t h e m s e l v e s l e d t o a d e c r e a s e i n p r o d u c t i o n a n d i n v e s t m e n t by t h e i n d u s t r i e s p r o d u c i n g c a p i t a l g o o d s s u c h a s m a c h i n e s a n d n o n - f e r r o u s m e t a l s . ( S u c h i n d u s t r i e s a s s t e e l a n d c h e m i c a l s were n o t a f f e c t e d so much i n t h i s r e s p e c t b e c a u s e t h e y were o p e r a t i n g w i t h l o n g - t e r m i n v e s t m e n t p l a n s . ) T h i r d l y , t h e i n c r e a s e i n i n v e s t m e n t c o s t s l e d t o a d e c r e a s e i n p r i v a t e i n v e s t m e n t s . As a r e s u l t , p r i v a t e i n v e s t m e n t d e c r e a s e d i n r e s p o n s e t o t h e 1973 o i l c r i s i s . J a p a n ' s t r a d e b a l a n c e was a l s o i n f l u e n c e d by t h e r a p i d i n c r e a s e i n o i l p r i c e s . F o r i n s t a n c e , J a p a n ' s o i l p a y m e n t s i n 1974 i n c r e a s e d t o 13.7 b i l l i o n d o l l a r s o w i n g t o t h e o i l p r i c e i n c r e a s e . As a r e s u l t , t h e t r a d e b a l a n c e moved i n t o a d e f i c i t i n t h e J a n u a r y - M a r c h p e r i o d o f 1974. 9*Ibid., PP.44-50 60 H o w e v e r , J a p a n r e c o v e r e d f r o m t h e t r a d e d e f i c i t a n d a c t u a l l y e x p a n d e d i n t o a t r a d e s u r p l u s f r o m t h e A p r i l - J u n e p e r i o d o f 1974. A c c o r d i n g t o t h e EPA, t h e r e c o v e r y i s e x p l a i n e d by t h e f a c t t h a t t h e i n c r e a s e i n t h e v a l u e o f i m p o r t s was c o m p e n s a t e d f o r by t h e i n c r e a s e i n t h e v a l u e o f e x p o r t s a n d t h e d e c r e a s e i n t h e q u a n t i t y o f i m p o r t s . E v e n t h o u g h t h e i n c r e a s e i n i m p o r t v a l u e c o n t a i n e d p r i c e i n c r e a s e s o f n o t o n l y o i l b u t a l s o o t h e r i m p o r t e d g o o d s , t h e o i l p r i c e i n c r e a s e e x p l a i n e d t w o - t h i r d s o f t h e i n c r e a s e i n t h e t o t a l i m p o r t v a l u e f r o m t h e J a n u a r y - M a r c h p e r i o d t o t h e A p r i l - J u n e p e r i o d o f 1974. The peak o f t h e i n c r e a s e i n i m p o r t v a l u e s o c c u r r e d i n t h e O c t o b e r - D e c e m b e r p e r i o d o f 1974. The i n c r e a s e i n t h e i m p o r t v a l u e was m a i n l y o f f s e t by t h e i n c r e a s e i n e x p o r t p r i c e s u n t i l t h e J u l y - S e p t e m b e r p e r i o d o f 1974. A f t e r t h i s t h e i n f l u e n c e o f t h e d e c r e a s e i n t h e q u a n t i t y o f i m p o r t s became s t r o n g . From A p r i l 1975 t h e i n f l u e n c e o f t h e i n c r e a s e i n t h e q u a n t i t y o f e x p o r t s became s t r o n g . The e c o n o m i c r e c e s s i o n , s t a r t e d i n t h e J a n u a r y - M a r c h p e r i o d o f 1974, r e a c h e d i t s b o t t o m i n t h e J a n u a r y - M a r c h p e r i o d o f 1975. The J a p a n e s e economy s h i f t e d i n t o t h e r e c o v e r y p r o c e s s f r o m t h e s e c o n d q u a r t e r o f 1974. The r e c o v e r y was r e a l i z e d by t h e i n v e n t o r i e s a d j u s t m e n t on t h e p r i v a t e s i d e a n d t h e m o n e t a r y r e l a x a t i o n a n d g o v e r n m e n t s p e n d i n g e x p a n s i o n p o l i c y on t h e p u b l i c s i d e . 61 (3) M a j o r C h a n g e s i n J a p a n e s e I n d u s t r y I n d i s c u s s i n g m a j o r c h a n g e s i n J a p a n e s e i n d u s t r y , s p e c i a l a t t e n t i o n s h o u l d be p a i d t o t h e f o l l o w i n g p o i n t s . F i r s t , t h e r e were d i f f e r e n c e s b e t w e e n t h e r e a c t i o n o f t h e o i l s u p p l y i n g a n d c o n s u m i n g i n d u s t r i e s t o t h e 1973 o i l c r i s i s . S i n c e t h i s c h a p t e r m a i n l y r e v i e w s t h e p r o c e s s o f J a p a n ' s e c o n o m i c r e c o v e r y f r o m t h e c r i s i s , i t d i s c u s s e s t h e s i t u a t i o n o f o i l c o n s u m i n g i n d u s t r i e s w i t h r e s p e c t t o t h e i r e f f o r t s t o r e c o v e r f r o m t h e c r i s i s . S e c o n d l y , a g e n e r a l c h a n g e i n J a p a n e s e i n d u s t r y h a s a l r e a d y been d i s c u s s e d i n t h e p r e v i o u s s e c t i o n s . T h e r e f o r e , some u n i q u e a s p e c t s o f t h e ch a n g e a r e d i s c u s s e d i n t h i s s e c t i o n . As d i s c u s s e d i n p r e v i o u s s e c t i o n s , t h e i n f l u e n c e o f t h e c r i s i s on J a p a n e s e i n d u s t r y d i f f e r e d b e t w e e n i n d u s t r i a l s e c t o r s . J a p a n e s e i n d u s t r i a l s e c t o r s a r e c a t e g o r i z e d i n t o t h r e e g r o u p s . The f i r s t g r o u p i n c l u d e s t h e i n d u s t r i e s w h i c h s u f f e r e d most s e v e r e l y f r o m t h e c r i s i s a n d h a d t o f o c u s t h e i r e f f o r t s on d e c r e a s i n g p r o d u c t i o n c a p a c i t i e s o r c h a n g i n g t h e i r b a s i c s t r a t e g y . The s e c o n d g r o u p i n c l u d e s t h o s e t h a t s u f f e r e d s e v e r e l y , b u t managed t o o v e r c o m e t h e damage f r o m t h e c r i s i s by means o f p u b l i c a n d p r i v a t e p o l i c i e s . The t h i r d g r o u p i n c l u d e s t h o s e t h a t i n c r e a s e d t h e i r c o m p a r a t i v e a d v a n t a g e a n d grew b e c a u s e o f t h e c r i s i s . 62 A. D e p r e s s e d I n d u s t r i e s 9 5 P e t r o c h e m i c a l s : The p e t r o c h e m i c a l i n d u s t r y o f J a p a n , w h i c h e n j o y e d an e c o n o m i c boom b e c a u s e o f t h e o i l p r i c e i n c r e a s e c a u s e d by t h e c r i s i s , s t a r t e d t o s u f f e r f r o m e c o n o m i c d e p r e s s i o n f r o m t h e l a t t e r p a r t o f 1974. F o r i n s t a n c e , t h e p r o d u c t i o n o f e t h y l e n e , w h i c h was a b a s i c m a t e r i a l f o r t h e p e t r o c h e m i c a l i n d u s t r y , r e c o r d e d z e r o g r o w t h i n t h e p e r i o d f o r t h e f i r s t t i m e s i n c e i t s f i r s t p r o d u c t i o n i n J-apan i n 1958. I n a d d i t i o n , many schemes o f c a p i t a l i n v e s t m e n t a n d o v e r s e a s p r o j e c t s were c a n c e l l e d o r p o s t p o n e d . 9 6 Due t o i t s h e a v y d e p e n d e n c e on o i l , p e t r o c h e m i c a l s became one o f t h e s l u m p r i d d e n i n d u s t r i e s o f J a p a n . A l u m i n u m : A n o t h e r e x a m p l e o f a s l u m p r i d d e n i n d u s t r y was t h e a l u m i n u m i n d u s t r y . A f t e r t h e 1973 o i l c r i s i s t h e J a p a n e s e a l u m i n u m i n d u s t r y p r o p o s e d an i n c r e a s e o f a l u m i n u m p r i c e s t o t h e g o v e r n m e n t . T h e r e were two r e a s o n s f o r t h e p r i c e i n c r e a s e i n t h i s p r o p o s a l . The f i r s t was t h e p r i c e i n c r e a s e o f e l e c t r i c i t y c a u s e d by t h e o i l p r i c e i n c r e a s e . A n o t h e r was t h e d e c r e a s e i n t h e l e v e l o f o p e r a t i o n s c a u s e d by t h e r e d u c e d s u p p l y o f o i l . I n 1974 t h e p r o p o s a l was a c c e p t e d , b u t a t t h e same t i m e , t h e a l u m i n u m i n d u s t r y e x p e r i e n c e d a n e g a t i v e g r o w t h f o r t h e f i r s t t i m e . The 9 5 T h e c l a s s i f i c a t i o n h a s been d e c i d e d by t h e a u t h o r . The s i t u a t i o n o f e a c h i n d u s t r y i s b a s e d on t h e d e s c r i p t i o n i n Asashi Nenkan, 1975 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 5 ) , pp. 3 6 4 - 3 7 6 . 9 6 T h e p o s t p o n e d schemes i n c l u d e d o m e s t i c e t h y l e n e f a c t o r i e s w h i c h w e re a l r e a d y a p p r o v e d by M I T I . The p e t r o l e u m c o m p l e x t o be b u i l t i n T h a i l a n d by M i t s u b i s h i a n d M i t s u i was one o f schemes c a n c e l l e d . Ibid., pp. 3 7 4 - 3 7 5 . 6 3 a l u m i n u m i n d u s t r y , w h i c h i s d e p e n d e n t on o i l i n d i r e c t l y b u t h e a v i l y , became a s l u m p r i d d e n i n d u s t r y . S h i p b u i l d i n g : The s h i p b u i l d i n g i n d u s t r y was a l s o d e p r e s s e d by t h e o i l c r i s i s . The h i g h e s t r e c o r d i n l a u n c h i n g n e w l y c o n s t r u c t e d s h i p s o c c u r r e d i n 1974 when t h e t o t a l amount o f s h i p s l a u n c h e d was 17.5 m i l l i o n t o n s , a 11.6% i n c r e a s e o v e r t h e l e v e l i n 1973. The J a p a n e s e s h i p b u i l d i n g i n d u s t r y ' s s h a r e i n t h e w o r l d ' s t o t a l amount o f l a u n c h e d s h i p s was 5 2 . 1 % . On t h e o t h e r h a n d , h o w e v e r , t h e d e c r e a s e i n t h e t r a n s p o r t a t i o n o f o i l due t o t h e o i l c r i s i s a c c e l e r a t e d t h e o v e r - s u p p l y s i t u a t i o n i n t h e w o r l d t a n k e r m a r k e t . The c a t c h - u p by n e w l y i n d u s t r i a l i z e d c o u n t r i e s ( N I C s ) a l s o d e c r e a s e d t h e m a r k e t s h a r e o f t h e J a p a n e s e s h i p b u i l d i n g i n d u s t r y . As a r e s u l t , t h e amount o f r e c e i v e d o r d e r s f o r new s h i p s d e c r e a s e d f r o m 35.0 m i l l i o n t o n s i n 1973 t o 12.8 m i l l i o n t o n s i n 1974. Some l a r g e c o n t r a c t s were c a n c e l l e d . 9 7 B. Depressed but S u r v i v i n g or Revived I n d u s t r i e s S t e e l : The J a p a n e s e s t e e l i n d u s t r y a l s o s u f f e r e d f r o m t h e o i l c r i s i s b u t went t h r o u g h i t more s u c c e s s f u l l y t h a n t h e t h r e e i n d u s t r i e s m e n t i o n e d a b o v e . S e v e r a l e l e m e n t s c o n t r i b u t e d t o i t s r e l a t i v e s u c c e s s . The m a i n e l e m e n t was t h a t t h e s t e e l i n d u s t r y was a b l e t o p a s s t h e c o s t i m p a c t o f t h e c r i s i s on t h e i r own i n p u t s on t o t h e p r i c e s o f t h e i r 9 7 T h e c a n c e l l e d c o n t r a c t s i n c l u d e d one w i t h M i t s u i S h i p b u i l d i n g f o r a 136 t h o u s a n d t o n t a n k e r o r d e r e d by a L i b e r i a n s h i p - o w n e r . Ibid., p. 3 7 1 . 64 p r o d u c t s . The i n d u s t r y p r o p o s e d t o MITI t h a t t h e p r i c e o f s t e e l p r o d u c t s s h o u l d be r a i s e d , r a n g i n g f r o m 18% t o 24% f o r d i f f e r e n t p r o d u c t s . MITI a l l o w e d an a v e r a g e 16.9% p r i c e i n c r e a s e . T h i s f a c t shows t h a t t h e s t e e l m a r k e t a s w e l l a s t h e s t e e l i n d u s t r y were u n d e r p u b l i c c o n t r o l t o some e x t e n t . The c o n t r o l i n c l u d e d an a g r e e m e n t on t h e s u s p e n s i o n o f c a p i t a l i n v e s t m e n t s d u r i n g 1972 a n d 1973 t o a v o i d o v e r - p r o d u c t i o n i n t h e e c o n o m i c r e c e s s i o n c a u s e d by t h e " N i x o n s h o c k . " On t h e o t h e r h a n d , t h e v a l u e o f J a p a n e s e s t e e l e x p o r t s i n c r e a s e d f r o m 6.3 b i l l i o n i n 1973 t o 12.0 b i l l i o n i n 1974 due t o t h e w o r l d - w i d e s t e e l s h o r t a g e i n e a r l y 1974. T h i s was one e x a m p l e o f a c a s e w here p u b l i c i n t e r v e n t i o n m o d e r a t e d t h e i n f l u e n c e o f t h e o i l c r i s i s a nd t h e w o r l d m a r k e t s i t u a t i o n h e l p e d t h e i n d u s t r y t o r e c o v e r f r o m t h e c r i s i s . I n a d d i t i o n , t h e J a p a n e s e s t e e l i n d u s t r y i m p l e m e n t e d a s t r a t e g y o f i n c r e a s i n g o v e r s e a s i n v e s t m e n t s i n o r d e r t o make us e o f l o c a l n a t u r a l r e s o u r c e s a n d o i l d o l l a r s . 9 8 M a c h i n e t o o l s : The J a p a n e s e m a c h i n e t o o l i n d u s t r y was an e x a m p l e o f an i n d u s t r y w h i c h a d o p t e d t h e s t r a t e g y o f r e c o v e r i n g f r o m t h e c r i s i s by i n c r e a s i n g i t s e x p o r t s . The m a c h i n e t o o l i n d u s t r y m a i n l y s u f f e r e d f r o m t h e d e m a n d - s i d e e f f e c t o f t h e o i l c r i s i s t h r o u g h t h e d e c r e a s e i n t h e demand f o r m a c h i n e s . F o r i n s t a n c e , t h e c a n c e l l a t i o n o f c o n t r a c t s by s u c h i n d u s t r i e s a s t h e a u t o m o b i l e i n d u s t r y i n c r e a s e d t h e i n v e n t o r y o f m a c h i n e t o o l s t o 21,664 i t e m s , w h i c h was t w i c e 9 8 T h e i n v e s t m e n t s i n c l u d e N i p p o n S t e e l ' s i n A u s t r a l i a , and K a w a s a k i S t e e l ' s i n B r a z i l . Ibid., p. 364. 65 a s many a s t h e m o n t h l y l e v e l o f p r o d u c t i o n . As a r e s u l t , t h e r a t e o f o p e r a t i o n i n t h e i n d u s t r y d e c r e a s e d t o 60% o f i t s u s u a l l e v e l o f o p e r a t i o n . On t h e o t h e r h a n d , t h e e x p o r t r a t i o o f t o t a l o r d e r s i n c r e a s e d f r o m 2 8 . 2 % i n 1973 t o 3 4 . 0 % i n 1975. The J a p a n e s e m a c h i n e t o o l i n d u s t r y r e c o v e r e d f r o m t h e e c o n o m i c r e c e s s i o n i n t h e e a r l y 1970's a s b o t h s t e e l a n d a u t o m o b i l e i n d u s t r i e s r e c o v e r e d . I n t h e p r o c e s s o f r e c o v e r y t h e i n d u s t r y ' s e x p o r t r a t i o i n c r e a s e d t o 44.4% i n 1 9 7 8 . " C. Growing I n d u s t r i e s A u t o m o b i l e s : The J a p a n e s e a u t o m o b i l e i n d u s t r y was n o t an e x c e p t i o n t o t h e l i s t o f i n d u s t r i e s s u f f e r i n g f r o m t h e o i l c r i s i s . I t r e c o r d e d a n e g a t i v e g r o w t h i n 1974. B e s i d e s t h e i n c r e a s e i n t h e g a s o l i n e p r i c e , t h e r e was a l s o an i n c r e a s e i n a u t o m o b i l e - r e l a t e d t a x e s w h i c h d e c r e a s e d t h e d o m e s t i c demand f o r c a r s . H o w e v e r , d o m e s t i c demand s t a r t e d g r o w i n g a g a i n i n 1975 a s t h e r e s t r a i n t o f c o n s u m e r s d u r i n g t h e c r i s i s became m o d e r a t e d . M o r e o v e r , s i n c e s m a l l , e c o n o m i c a l J a p a n e s e c a r s became e v e n more p o p u l a r i n o v e r s e a s m a r k e t s , c a r e x p o r t s i n c r e a s e d f r o m 2.0 m i l l i o n i n 1973 t o 2.7 m i l l i o n i n 1975. The J a p a n e s e a u t o m o b i l e i n d u s t r y was an e x a m p l e an i n d u s t r y w h i c h e v e n t u a l l y b e n e f i t t e d g r e a t l y f r o m t h e o i l c r i s i s . E l e c t r o n i c s ; The J a p a n e s e e l e c t r o n i c s i n d u s t r y a l s o s u f f e r e d i n i t i a l l y f r o m t h e e c o n o m i c r e c e s s i o n c a u s e d by t h e o i l c r i s i s . F o r i n s t a n c e , t h e d e c r e a s e i n d o m e s t i c s a l e s a n d "Asahi Nenkan, 1980 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 8 5 ) , p. 346. 66 exports of TV s e t s due to consumer's i n i t i a l pessimism and r e s t r a i n t caused a 40% decrease i n the demand f o r e l e c t r o n i c p a r t s . As a r e s u l t , short-term p o l i c i e s such as f a c t o r y c l o s u r e and e a r l y retirement were i n t r o d u c e d i n many f i r m s . 1 0 0 However, s t a r t i n g i n 1975, the demand for c o l o u r TV s e t s i n c r e a s e d again both i n Japan and abroad, and the o p e r a t i o n s of major e l e c t r o n i c s companies expanded. In a d d i t i o n , the p r o d u c t i o n of t a b l e c a l c u l a t o r s i n c r e a s e d from 15 m i l l i o n i n 1974 to 32 m i l l i o n i n 1975. Micro-computers a l s o appeared i n the e l e c t r o n i c s market around 1975. In s p i t e of the setback of the o i l c r i s i s , the Japanese e l e c t r o n i c s i n d u s t r y , because of i t s s a l e s volumes and c o s t e f f i c i e n c i e s , became one of the i n d u s t r i e s i n which Japan enjoyed a comparative advantage. I t has a l r e a d y been p o i n t e d out i n the second s e c t i o n of t h i s chapter that there was a q u a n t i t a t i v e s h i f t from secondary to t e r t i a r y i n d u s t r y a f t e r the 1973 o i l c r i s i s . The examples i n t r o d u c e d above have shown that the s h i f t i n the Japanese i n d u s t r i a l s t r u c t u r e was r e l a t e d to the l e v e l of energy which each i n d u s t r y had used. Indeed, the o i l p r i c e i n c r e a s e f o r c e d both high energy and p e t r o c h e m i c a l m a t e r i a l i n d u s t r i e s and a l s o i n d u s t r i e s which used the products of those d i r e c t user i n d u s t r i e s to r a t i o n a l i z e t h e i r p r o d u c t i o n p r o c e s s e s . The e f f o r t s of the machine t o o l 1 0 0 M a t s u s h i t a E l e c t r i c sent 2,000 employees as a s s i s t a n t s to r e t a i l i n g shops. Sanyo and Sharp a l s o sent 370 and 65 employees r e s p e c t i v e l y . Asahi Nenkan, 1975 (Tokyo: Asahi Shinbunsha, 1975), p. 368. 67 i n d u s t r y t o d e c r e a s e t h e i r m a t e r i a l c o s t s l e d t o d e c r e a s e s i n t h e i r demand f o r i n p u t s . I n t u r n , t h e d i r e c t u s e r i n d u s t r i e s s u f f e r e d n o t o n l y f r o m t h e i n c r e a s e i n t h e i r p r o d u c t i o n c o s t s b u t a l s o f r o m t h e d e c r e a s e i n t h e demand f o r t h e i r p r o d u c t s . T h i s s h i f t i n t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e was a c c e l e r a t e d by t h e r e a c t i o n o f e a c h i n d u s t r y t o t h e 1973 o i l c r i s i s . 3. THE CHARACTERISTICS OF THE JAPANESE ECONOMIC REACTION TO  THE O I L C R I S I S I n i n v e s t i g a t i n g t h e c h a r a c t e r i s t i c s o f J a p a n ' s e c o n o m i c r e a c t i o n t o t h e 1973 o i l c r i s i s , two b a s i c e c o n o m i c e l e m e n t s c a n be d i s c e r n e d . One was t h e c o u n t r y ' s e c o n o m i c v u l n e r a b i l i t y a n d t h e o t h e r was i t s e c o n o m i c e f f i c i e n c y . As r e v i e w e d i n p r e v i o u s s e c t i o n s , J a p a n ' s h i g h d e p e n d e n c e on o i l , p a r t i c u l a r l y i m p o r t e d o i l , was a m a j o r c a u s e o f t h e c o u n t r y ' s e c o n o m i c v u l n e r a b i l i t y . T h i s p o i n t became c l e a r i n t h e 1973 o i l c r i s i s . W i t h i n J a p a n i t was g e n e r a l l y a r g u e d t h a t J a p a n s h o u l d d e c r e a s e i t s e c o n o m i c v u l n e r a b i l i t y . 1 0 1 The i m p a c t s o f t h e o i l c r i s i s w o u l d n o t have been so s e r i o u s i f J a p a n h a d s u c c e e d e d e a r l i e r i n d e c r e a s i n g i t s v u l n e r a b i l i t y . Many p e o p l e c r i t i c i z e d t h e p o l i c y o f h i g h 1 0 1 M o t o o K a j i , P r o f e s s o r o f T o k y o U n i v e r s i t y , a n d o i l s p e c i a l i s t s f r o m J a p a n e s e c o m p a n i e s p u b l i s h e d a r e p o r t i n 1969 i n w h i c h t h e y p o i n t e d o u t t h e v u l n e r a b i l i t y o f J a p a n due t o i t s h i g h d e p e n d e n c e on M i d d l e E a s t o i l a n d d i s c u s s e d l o n g t e r m s u p p l y / d e m a n d schemes on o i l i n t h e P a c i f i c r e g i o n ( s e e M o t o o K a j i , e d . , Asia Taiheiyo ni okeru Seki yu Jukyu no Kozo [ T o k y o : A s i a K e n k y u j o , 1 9 6 9 ] ) . 68 dependence on Middle East o i l as the cause of c o n f u s i o n when the 1973 o i l c r i s i s o c c u r r e d . Among them, people from the c o a l i n d u s t r y s t r o n g l y c r i t i c i z e d i t because that i n d u s t r y had become depressed due to the e a r l i e r r a p i d i n c r e a s e i n o i l imports. For i n s t a n c e , K i c h i t a r o Hagiwara, one of the business l e a d e r s i n the Japanese c o a l i n d u s t r y , s t a t e d : The most s e r i o u s mistake the government made was t h a t they thought the o i l supply from the Middle East would continue f o r e v e r . They had not r e c o g n i z e d t h a t Middle East o i l would not continue to be inexpensive u n t i l the 1973 o i l c r i s i s o c c u r r e d , whereas other i n d u s t r i a l i z e d c o u n t r i e s had a l r e a d y r e c o g n i z e d t h i s d a n g e r . " 1 0 2 At the same time, Hagiwara h i g h l y commended the p o l i c i e s of the U n i t e d Kingdom and West Germany i n m a i n t a i n i n g t h e i r c o a l i n d u s t r y as an a l t e r n a t i v e energy s o u r c e . 1 0 3 On the other hand, i t i s a l s o true that Japan accomplished i t s high r a t e of economic growth p a r t l y because of i t s u t i l i z a t i o n of the inexpensive supply of o'il from the Middle E a s t . For i n s t a n c e , Saburo O k i t a comments: The f a c t t h a t Japan i s importing a l a r g e amount of petroleum from the Middle East now does not present much of a handicap to other i n d u s t r i a l n a t i o n s . In the past, a l a c k of raw m a t e r i a l s i n the homeland was always regarded as a great disadvantage to the economy. But more r e c e n t l y the lack of raw m a t e r i a l s at home and the corresponding need to import m a t e r i a l s f r e e d t h i s country from the disadvantage of use of uneconomic raw m a t e r i a l s which c o u l d have been n e c e s s i t a t e d by the p r o t e c t i o n of domestic i n d u s t r i e s producing raw m a t e r i a l s . Thus, the l a c k of indigenous n a t u r a l resources has turned i n t o one of the f a v o r a b l e f a c t o r s s u p p o r t i n g r a p i d economic growth.. 1 0 4 1 0 2 K a n i c h i Kondo & H i r o s h i Osanai, op. c i t . , pp. 105-106 (Summary t r a n s l a t i o n by the a u t h o r ) . i ° 3 I b i d . , pp. 104-105. 1 0 < t S a b u r o O k i t a , Japan in the World Economy (Tokyo: The Japan Foundation, 1975), pp. 62-63. 69 I t was r e a s o n a b l e f o r H a g i w a r a , a s a p e r s o n i n v o l v e d i n t h e c o a l i n d u s t r y w h i c h s u f f e r e d f r o m t h e " e n e r g y r e v o l u t i o n , " t o c r i t i c i z e t h e g o v e r n m e n t e n e r g y p o l i c y . H o w e v e r , i t i s i m p o r t a n t t o n o t e t h a t J a p a n m i g h t w e l l h a v e been u n a b l e t o a c c o m p l i s h s u c h a h i g h r a t e o f e c o n o m i c g r o w t h i f i t h a d m a i n t a i n e d i t s c o a l i n d u s t r y a s t h e U n i t e d K i n g d o m and West Germany d i d . The J a p a n e s e economy d e v e l o p e d by i n c r e a s i n g i t s e c o n o m i c e f f i c i e n c y a t t h e r i s k o f i n c r e a s i n g i t s v u l n e r a b i l i t y t o s u p p l y d i s r u p t i o n s . I n summary, t h e r e f o r e , t h e e c o n o m i c i n f l u e n c e o f t h e 1973 o i l c r i s i s on J a p a n shows t h a t i t was n o t a l w a y s w i s e t o i n c r e a s e e c o n o m i c e f f i c i e n c y a t t h e r i s k o f i n c r e a s i n g e c o n o m i c v u l n e r a b i l i t y . H o w e v e r , J a p a n managed t o r e c o v e r f r o m t h e c r i s i s . The e x a m i n a t i o n o f t h e J a p a n e s e e c o n o m i c r e a c t i o n t o t h e o i l c r i s i s i n t h i s c h a p t e r s u g g e s t s t h a t t h e r e c o v e r y was made p o s s i b l e by t h e f l e x i b l e a n d r a p i d a d j u s t m e n t o f some p a r t s o f J a p a n e s e i n d u s t r y . F a c i n g t h e 1973 o i l c r i s i s , s u c h i n d u s t r i e s a s p e t r o c h e m i c a l s and s h i p b u i l d i n g , key i n d u s t r i e s i n t h e 1960's i n w h i c h t h e g o v e r n m e n t h a d i n t e r v e n e d , became d e p r e s s e d i n d u s t r i e s . On t h e o t h e r h a n d , t h e a u t o m o b i l e s i n d u s t r y , w h i c h h a d f o u g h t o f f g o v e r n m e n t i n t e r v e n t i o n , became a g r o w i n g i n d u s t r y . T h i s phenomenon i n d i c a t e d t h a t t h e m a r k e t m e c h a n i s m w o r k e d more e f f e c t i v e l y t h a n g o v e r n m e n t i n t e r v e n t i o n . I n d e e d , g o v e r n m e n t i n t e r v e n t i o n came t o f o c u s on r e d u c i n g t h e damage o f d e p r e s s e d i n d u s t r i e s a f t e r t h e o i l c r i s i s . 70 4. TABLES TABLE 3-1 ECONOMIC GROWTH RATES OF MAJOR COUNTRIES - a n n u a l r a t e , % -1950-1960 1960-1970 1970-1979 C a n a d a 4.6 5.2 4.4 U.S. 3.2 3.9 3.2 J a p a n C 52-) 8.0 11.2 5.4 F r a n c e 4.6 5.6 3.9 W.Germany 8.0 4.7 2.9 I t a l y C 51-) 5.5 5.7 3.0 U.K. C 52-) 3.1 2.8 2.2 S o u r c e : H i s a o K a n a m o r i , Koza Nihon Keizai, 2 v o l s . ( T o k y o : Chuo K e i z a i s h a ) , 1:24; OECD, National Account Statistics. 71 TABLE 3-2 COMPARISON OF TARGETS SET BY THE NATIONAL INCOME-DOUBLING PLAN AND ACTUAL ECONOMIC PERFORMANCE N a t i o n a l Income D o u b l i n g P l a n T a r g e t T a r g e t e d - T o t a l P o p u l a t i o n ( 1 0 , 0 0 0 ) - P e r s o n s E m p l o y e d ( 1 0 , 0 0 0 ) - E m p l o y e e s ( 1 0 , 0 0 0 ) -GNP (1958 p r i c e s , 100 m i l l i o n y e n ) - G r o s s N a t i o n a l Income (1958 p r i c e s , 100 m i l l i o n y e n ) - P e r C a p i t a Income (1958 p r i c e s , y e n ) - P e r s o n a l C o n s u m p t i o n E x p e n d i t u r e s (1958 p r i c e s , 100 m i l l i o n y e n ) - P e r C a p i t a P e r s o n a l C o n s u m p t i o n E x p e n d i t u r e s (1958 p r i c e s , y e n ) - S t r u c t u r a l C omponents o f N a t i o n a l Income (%) ( P r i m a r y I n d u s t r y ) ( S e c o n d a r y I n d u s t r y ) ( T e r t i a r y I n d u s t r y ) - M i n i n g a n d M a n u f a c t u r i n g P r o d u c t i o n L e v e l s f o r 1 970 10,222 4,869 3,235 260,000 213,232 208,601 151,166 147,883 431 .7 G r o w t h R a t e (%) 0.9 1 .2 4.1 8.8 7.8 6.9 7.6 6.7 10.1 38.6 51 .3 1 1 .9 A c t u a l P e r f o r m a n c e A c t u a l l e v e l s f o r 1970 10,372 5,094 3,306 405,812 328,516 317,678 203,863 204,079 539.4 A c t u a l G r o w t h R a t e (%) 1 .0 1 .5 4.3 11.6 11.5 10.4 10.3 9.4 7.4 38.5 54. 1 13.9 72 - A g r i c u l t u r a l , M a r i n e a n d F o r e s t r y P r o d u c t i o n - T o t a l Demand f o r E n e r g y ( u n i t = 1,000 t o n s o f c o a l ) - V a l u e o f E x p o r t s ( c o s t u m c l e a r i n g b a s i s , 100 m i l l i o n d o l l a r s ) - V a l u e o f 302,760 1 44.1 93.2 98.9 10.0 2.8 7.8 9.3 574,095 202.5 130.3 195.3 12.0 16.8 15.5 2.1 I m p o r t s ( c o s t u m c l e a r i n g b a s i s , 100 m i l l i o n d o l l a r s ) S o u r c e : T a t s u r o U c h i n o , Japan's Postwar Economy ( T o k y o : K o d a n s h a I n t e r n a t i o n a l L t d . , 1 9 8 3 ) , p. 112. N o t e s : 1. G r o w t h r a t e s a r e i n c o m p a r i s o n t o t h e a v e r a g e f o r 1956-58. 2. F i g u r e s a r e b a s e d on 1958 p r i c e s . 3. F o r a l l i n d i c e s 1958=100. 73 TABLE 3-3 HOUSEHOLD SAVING RATES OF MAJOR COUNTRIES % J A P . U.S. U.K. W.G. FRA. I T A . 1970 18.2 8.2 6.6 17.9 12.6 16.1 1971 18.0 8.3 4.7 17.0 13.5 23.4 1972 18.2 6.7 6.7 15.5 13.7 24.5 1973 20.9 8.9 8.1 14.0 14.2 23.9 1974 23.7 8.7 9.7 14.8 14.1 22.4 1975 22. 1 8.8 9.1 15.2 15.3 23.2 1976 22.4 7.1 8.1 13.4 12.9 22.9 1977 21.0 5.8 7.0 13.4 13.4 22.5 1978 20.6 5.4 9.0 13.3 14.4 23.7 1979 18.3 5.4 10.1 13.8 13.3 -1980 5.7 — — S o u r c e : H i s a o K a n a m o r i , Koza Ni hon K e i z a i , 2 v o l s . ( T o k y o : Chuo K e i z a i s h a , 1 9 8 2 ) , 1 :107. N o t e : JAP.=JAPAN, U.S=UNITED STATES, U.K.=UNITED KINGDOM, W.G.=WEST GERMANY, FRA.=FRANCE, ITA.=ITALY. 74 TABLE 3-4 THE GROWTH OF JAPANESE FOREIGN TRADE V a l u e ( m i l l i o n US d o l l a r s ) R a t i o t o t h e p r e v i o u s y e a r (%) E x p o r t s I m p o r t s B a l a n c e E x p o r t s I m p o r t s 1961 4,236 5,810 -1 ,575 — 104.5 129.4 1 962 4,916 5,637 -720 116.1. 97.. 0 1963 5,452 6,736 -1,284 110.9 119.5 196*4 6,673 7,938 -1,264 1 22.4 117.8 1965 8,452 8, 169 283 162.7 102.9 1966 9,776 9,523 254 1 15.7 116.6 1967 10,442 11,663 -1,222 106.8 122.5 1968 12,972 12,987 -16 1 24.2 111.4 1969 15,990 15,024 966 1 23.3 115.7 1970 19,318 18,881 437 1 20.8 125.7 1 971 24,019 19,772 4,3.07 1 24.3 1 04.4 1 972 28,591 23,470 5, 120 119.0 1 1 9.. 1 1973 36,930 38,314 -1 ,384 1 29.2 163.2 1974 55,536 62 , 1 1 0 -6,5.75 — 150.4 162. 1 1975 55,753 57,863 -2,110 1 00.4 93.2 S o u r c e : J a p a n T a r i f f A s s o c i a t i o n , Gai koku Boeki Gaikyo, J u l y 1 9 85. 75 TABLE 3-5 MAJOR JAPANESE TRADE ITEMS - m i l l i o n US d o l l a r s , ( s h a r e , %) -IMPORT T o t a l P e t r o l e u m , P e t r o l e u m C o a l c r u d e & p r o d u c t s p a r t l y d e f i n e d 1970 18,881 2,236(11 .8) 550( 2 .9) 1 ,010( 5. 3) 1971 19,712 3 . 0 4 8 ( 1 5 .5) 574( 2 .9) 1 ,005( 5. 1) 1972 23,471 3 , 9 2 3 ( 1 6 .7) 539( 2 .3) 1 ,078( 4. 6) 1973 38,314 6,000(15 .7) 726( 1 .9) 1 ,354( 3. 5) 1974 62,110 1 8 . 8 9 8 ( 3 0 .4) 2,263( 3 .6) 2,864( 4. 6) 1 975 57,863 1 9 , 6 4 3 ( 3 3 .9) 1 ,351( 2 .3) 3,454( 6. 0) 1976 64,799 2 1 T 1 8 5 ( 3 2 .7) 2,101( 3 .2) 3,560( 5. 5) 1 977 70,809 2 3 , 5 7 3 ( 3 3 .2) 2,217( 3 .1) 3,547( 5. 0) 1 978 79,343 2 3 , 4 3 3 ( 2 9 .5) 2,273( 2 .9) 3,077( 3. 9) 1979 103,032 3 3 , 4 7 1 ( 3 0 .2) 4,500( 4 .1) 3,549( 3. 2) EXPORT T o t a l M o t o r I r o n & s t e e l V e s s e l s v e h i c l e s p r o d u c t s 1970 19,318 1,337( 6.9) 2 , 8 4 4 ( 1 4 . 7 ) 1,410( 7.3) 1971 24,019 2,373( 9.9) 3 , 5 4 2 ( 1 4 . 7 ) 1,849( 7.7) 1972 28,591 2 , 0 2 9 ( 1 0 . 4 ) 3 , 6 1 0 ( 1 2 . 6 ) 2,399( 8.4) 1973 36,930 3,612( 9.8) 5 , 3 0 4 ( 1 4 . 4 ) 3 , 8 1 9 ( 1 0 . 3 ) 1974 55,536 5,227( 9.4) 1 0 , 7 5 8 ( 1 9 . 4 ) 5 , 6 0 0 ( 1 0 . 1 ) 1975 55,753 6 , 1 9 0 ( 1 1 . 1 ) 1 0 , 1 7 6 ( 1 8 . 3 ) 5 , 9 9 8 ( 1 0 . 8 ) 1976 67,225 8 , 9 0 3 ( 1 3 . 2 ) 1 0 , 4 8 5 ( 1 5 . 6 ) 7 , 0 4 9 ( 1 0 . 5 ) 1977 80,495 1 1 , 5 5 2 ( 1 4 . 4 ) 1 0 , 5 1 9 ( 1 3 . 1 ) 8 , 1 2 9 ( 1 0 . 1 ) 1978 97,543 1 5 , 5 3 1 ( 1 5 . 9 ) 1 1 , 8 5 5 ( 1 2 . 2 ) 7,172( 7.4) 1979 110,672 1 7 , 0 2 1 ( 1 6 . 5 ) 1 4 , 1 1 3 ( 1 3 . 7 ) 3,869( 3.8) S o u r c e : J a p a n T a r i f f A s s o c i a t i o n , Gaikoku Boeki Gai kyo, S e p t e m b e r 1978, A u g u s t 1981. 76 TABLE 3-6 THE SHIFT I N THE JAPANESE POSTWAR INDUSTRIAL STRUCTURE S h a r e (%) A n n u a l g r o w t h ( a v e r a g e ) (%) 1960 1973 1977 1973 1977 /1960 /1 973 N o m i n a l p r o d u c t i o n - A g r i c u l t u r e , f o r e s t r y 8.2 3.7 3.9 8.7 13.6 & f i s h e r y ( A F F ) - M i n i n g 1.0 0.5 0.4 10.0 7.0 - M a n u f a c t u r i n g 51.4 46.7 44.7 14.7 11.2 - C o n s t r u c t i o n 8.3 13.0 10.0 19.7 5.3 - S e r v i c e 27.2 32. 1 37.5 17.1 16.8 TOTAL 100.0 1 00.0 100.0 15.6 12.4 R e a l p r o d u c t i o n -AFF 10.5 3.4 3.6 1 .3 2.3 - M i n i n g 0.8 0.5 0.4 7.4 -3.2 - M a n u f a c t u r i n g 42.0 49.7 48.6 11.8 0.6 - C o n s t r u c t i o n 8.5 10.7 10.0 12.4 -0.6 - S e r v i c e 34.8 31 .9 33.8 9.6 2.6 -TOTAL 100.0 100.0 100.0 10.4 1.2 R e a l e x p o r t s -AFF 4.3 0.7 0.2 -2.3 -11.2 - M i n i n g 0.0 0.1 0.0 17.9 -1 .7 - M a n u f a c t u r i n g 75.1 79.8 84.4 13.4 17.2 - C o n s t r u c t i o n 0.4 0.0 0.0 - -- S e r v i c e 15.9 15.4 13.4 12.6 11.8 TOTAL 100.0 1 00.0 100.0 12.9 15.6 E m p l o y e e s -AFF 32.6 14.8 12.3 -4.4 -4.5 - M i n i n g 1 .2 0.3 0.2 -9.9 -2.6 - M a n u f a c t u r i n g 21 .8 26.9 25.7 3.2 -1.1 - C o n s t r u c t i o n 6.1 8.7 8.9 4.3 0.7 - S e r v i c e 38.2 49.3 52.8 3.6 1 .7 TOTAL 100.0 100.0 100.0 1 .6 0.0 S o u r c e : H i s a o K a n a m o r i , Koza Nihon Keizai, 2 v o l s . ( T o k y o : Chuo K e i z a i s h a , 1 9 8 2 ) , 1:48. 77 TABLE 3-7 THE SHIFT I N JAPANESE ENERGY SUPPLY C o a l P e t r o . 1900 6,733 523 ( 4 4 . 9 ) ( 3 . 5 ) <1.5> <43.2> 1910 14,176 767 ( 7 2 . 2 ) ( 3 . 9 ) <1.2> <46.0> 1920 26,922 770 ( 7 9 . 6 ) ( 2 . 3 ) <3.0> <34.7> 1930 31,001 3,023 ( 7 0 . 5 ) ( 6 . 8 ) <9.6> <85.0> 1940 60,175 6,379 ( 7 1 . 1 ) ( 7 . 5 ) <16.4> <92.6> 1950 35,170 4,316 ( 3 9 . 6 ) ( 7 . 3 ) <2.4> <89.1> 1955 40,195 16,145 ( 5 0 . 3 ) ( 2 0 . 1 ) <8.8> <96.3> 1960 56,428 50,528 ( 4 2 . 1 ) ( 3 7 . 7 ) <17.0> <98.3> 1965 64,916138,148 ( 2 7 . 4 ) ( 5 8 . 3 ) <30.0> <99.2> 1970 91,891313,944 ( 2 0 . 7 ) ( 7 0 . 8 ) <61.0> <99.6> 1975 88,300388,220 ( 1 6 . 7 ) ( 7 3 . 4 ) <78.5> <99.7> 1980 95,887370,964 ( 1 7 . 0 ) ( 6 5 . 8 ) <81.8> <99.8> - c o a l b a s i s , 1 , O O O t ( 1 t = 7 x 1 0 6 k c a l ) ( s h a r e , % ) , < i m p o r t r a t i o , LNG H y d r o A t o m i c 157 ( 0 . 8 ) 43 (0.1 ) 49 ( 0 . 1 ) 65 (0.1 ) 82 (0.1 ) 340 ( 0 . 4 ) 1 ,324 (1 . 0 ) 2,869 ( 1 . 2 ) 5,677 (1 . 3 ) <32.7> 12,780 ( 2 . 4 ) <71.4> 35,767 ( 6 . 3 ) <90.7> 1 , 1 55 ( 3 . 4 ) 4,865 ( 1 0 . 7 ) 8,554 ( 1 0 . 1 ) 13,298 ( 2 2 . 5 ) 16,976 ( 2 1 . 2 ) 20,469 ( 1 5 . 3 ) 26,759 ( 1 1 . 3 ) 28,029 1,603 ( 6 . 3 ) ( 0 . 4 ) 29,750 8,750 ( 5 . 6 ) ( 1 . 7 ) 32,231 28,907 ( 5 . 7 ) ( 5 . 1 ) %> -Wood TOTAL 7,749 15,005 ( 5 1 . 6 ) ( 1 0 0 . 0 ) <2.8> 4,526 19,624 ( 2 3 . 1 ) ( 1 0 0 . 0 ) <2.7> 4,953 33,841 ( 1 4 . 6 ) ( 1 0 0 . 0 ) <3. 2> 5,226 43,984 ( 1 1 . 9 ) ( 1 0 0 . 0 ) <12.6> 9,460 84,623 ( 1 1 . 2 ) ( 1 0 0 . 0 ) <18.7> 6,176 59,042 ( 1 0 . 5 ) ( 1 0 0 . 0 ) <7.9> 6,309 79,965 ( 7 . 9 ) ( 1 0 0 . 0 ) <24.0> 5,179133,928 ( 3 . 9 ) ( 1 0 0 . 0 ) <44.2> 3,853236,757 ( 1 . 6 ) ( 1 0 0 . 0 ) <66.1> 2,293445,441 ( 0 . 5 ) ( 1 0 0 . 0 ) <83.2> 1 ,430529,230 ( 0 . 3 ) ( 1 0 0 . 0 ) <88.0> 270564,026 ( 0 . 5 ) ( 1 0 0 . 0 ) <85.3> S o u r c e : H i s a o K a n a m o r i , Koza Nihon Keizai , 2 v o l s . ( T o k y o : Chuo K e i z a i s h a , 1 9 8 2 ) , 2:22-23. 78 TABLE 3-8 SMITHSONIAN RATES OF MAJOR CURRENCIES C u r r e n c y New r a t e O l d r a t e A p p r e c i a t i o n r a t e .(%) J a p a n Yen 308 360 16.88 W.Germany Mark 3.22 3.66 13.57 S w i t z e r l a n d S . F r a n c 3.84 4.08 6.36 F r a n c e F . F r a n c 5.12 5.55 8.57 U.K. Pound 2.60 2.40 8.57 (/pound) I t a l y L i r a 582 625 7.48 Canada C . D o l l a r f l o a t f l o a t -U.S. U S . D o l l a r 38 35 -7.89 (/one ou n c e g o l d ) S o u r c e : Y o s h i t o m i I s h i m a r u , Endaka to Ni hon Keizai ( T o k y o : M a i n i c h i S h i n b u n s h a , 1 9 7 8 ) , p. 20. TABLE 3-9 U.S. INTERNATIONAL L I Q U I D I T Y POSITION - b i l l i o n US d o l l a r s -G o l d a n d f o r e i g n I n t e r n a t i o n a l I n t e r n a t i o n a l c u r r e n c y d e b t c r e d i t r e s e r v e s 26.0 6.9 1.1 13.2 67.8 16.1 1 949 1971 S o u r c e : Y o s h i t o m i I s h i m a r u , Endaka to Ni hon Keizai ( T o k y o : M a i n i c h i S h i n b u n s h a , 1 9 7 8 ) , pp. 16-18. 79 TABLE 3-10 CHANGE IN O I L PRICES - A r a b i a n l i g h t , US d o l l a r s / b a r r e l 1970 1971 1972 Aug.31 F e b . 1 5 J a n . 2 0 1.800 2.180 2.479 1973 J a n . 1 A p r . 1 J u n . 1 J u l . 1 Aug. 1 O c t . 1 6 Nov. 1 Dec. 1 2.591 2.742 2.898 2.955 3.011 5.119 5.176 5.036 1974 J a n . 1 11.651 S o u r c e : J a p a n , A g e n c y o f N a t u r a l R e s o u r c e a n d E n e r g y , Sekiyu Kiki to Jukyu Taisaku ( T o k y o : S e k i y u T s u s h i n s h a , 1 9 7 4 ) , p. 3 4 1 . TABLE 3-11 MAJOR JAPANESE ECONOMIC INDICES ( 1 9 7 2 - 1 9 7 5 ) - b u d g e t y e a r , g r o w t h r a t e (%) -1 972 1973 1974 1975 N o m i n a l GNP 17.3 23.0 17.9 9.4 R e a l GNP 11.0 5.4 -0.6 3.1 P r o d u c t i o n o f m i n i n g & 10.8 14.8 -9.4 -3.6 m a n u f a c t u r i n g W h o l e s a l e p r i c e 3.2 22.6 23.4 2.1 Consumer p r i c e 5.2 16.1 21 .8 10.4 E x p o r t 19.4 32.3 47.3 -2.4 I m p o r t 25.2 77.2 39.3 -7.1 S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Hokoku, 1973-1976 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 3 - 1 9 7 6 ) . 80 TABLE 3-12 GROWTH OF REAL GNP I N SEVEN INDUSTRIAL COUNTRIES AND THE OECD (%) A v e r a g e From P r e v i o u s From P r e v i o u s H a l f -1959-60 Y e a r Y e a r t o 1973 1974 1971-72 1973 1974 I I I I I C a nada 5.0 6.8 4.5 4.5 5.6 2.5 F r a n c e 5.8 6.0 4.8 5.4 4.5 4.3 Germany 4.9 5.3 1 .0 0.5 2.0 0.0 I t a l y 5.5 6.0 4.8 9.4 4.9 a.o J a p a n 11.0 10.2 -3.3 2.8 -9.3 3.0 U.K. 3.1 5.3 -0.5 0.3 -3.4 5.0 U.S. 4.1 5.9 -1 .8 1.9 -3.4 -2.5 T o t a l o f 5.5 6.5 -0.3 2.6 -2.0 0.3 a b o v e c o u n t r i e s T o t a l OECD 5.4 6.3 0.3 3.0 -1.3 0.5 S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review, A p r i l I 9 7 5 ( 0 t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p. 9; OECD ( O r g a n i z a t i o n f o r E c o n o m i c C o o p e r a t i o n and D e v e l o p m e n t ) , Economic Outlook, December, 1974. N o t e : 1. F i g u r e s a r e s e a s o n a l l y a d j u s t e d a t a n n u a l r a t e s : e s t i m a t e s 2. F i g u r e s o f F r a n c e a n d t h e U . K . ( U n i t e d Kingdom) a r e b a s e d on GDP. 3. T o t a l f i g u r e s a r e c a l c u l a t e d u s i n g 1973 w e i g h t s a n d e x c h a n g e r a t e s . 81 TABLE 3-13 WHOLESALE PRI C E I N D I C E S : INTERNATIONAL COMPARISON - 1970=100 -1971 1972 1973 1974 1 975 1 976 1977 1978 J A P . 99.2 100.0 115.8 1 52.2 156.8 1 64.6 1 67.8 163.6 U.S. 103.2 107.9 122.7 145.9 158.4 165.7 1 75.9 189.7 CAN. 101.2 108.3 131.5 1 38. 1 153.7 161.6 1 74.3 190.3 U.K. 1 1 04.6 109.2 144.5 201 .9 232.6 295.4 338.7 336.3 I T A . 102.7 106.8 125.9 1 77.2 192.4 236.4 277.5 300.8 W.G. 2 104.3 107.0 114.1 129.4 135.5 1 40.8 1 44.5 146.3 FRA. 3 96.8 99.1 124.8 1 66.2 136.8 1 54.6 1 66.9 169.5 S o u r c e : Asahi Nenkan, 1981 (reference edition) ( T o k y o : A s a h i S h i n b u n s h a , 1 9 8 1 ) , Kokuren Toukei Geppo ( U n i t e d N a t i o n s , S e p t e m b e r , 1 9 8 0 ) . N o t e : 1 B a s i c m a t e r i a l s i n d u s t r i a l p r o d u c t s 3 M a t e r i a l s 1. J A P . = J a p a n , U . S . = U n i t e d S t a t e s , CAN.=Canada, U . K . = U n i t e d K i n g d o m , W.G.=West Germany, F R A . = F r a n c e . 82 TABLE 3-14 BALANCE OF INTERNATIONAL PAYMENTS - b i l l i o n US d o l l a r s -T r a d e S e r v i c e C u r r e n t C a p i t a l T o t a l b a l a n c e b a l a n c e b a l a n c e b a l a n c e I n d u s t r i a l 1972 7.2 4.6 . 11.8 -7.2 4.6 c o u n t r i e s -73 1 974 -28.5 5.0 -23.5 2.8 -20.7 1975 6.8 -0.8 6.0 -8.5 -2.5 OPEC 1 972 17.3 -13.2 4. 1 0.0 4.1 c o u n t r i e s -73 1 974 83.4 -13.4 70.0 -33.2 36.8 1975 58.5 -12.0 46.5 -36.3 10.2 Non o i l 1 972 -6.5 -2.5 -9.0 16.4 7.4 p r o d u c i n g -73 LDCs 1 974 -22.3 -5.5 -27.8 29.0 1.2 1975 -26.5 -11.5 -38.0 34.7 -3.3 S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Hokoku, 1976 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 6 ) , p. 76; I M F ( I n t e r n a t i o n a l M o n e t a r y F u n d ) , Annual Report '75; , IMF Survey; OECD, Economic Outlook No.18. N o t e : ' S e r v i c e ' i n c l u d e s p r i v a t e t r a n s f e r p a y m e n t s . 83 TABLE CURRENT BALANCES < 1973 1974 Whole By o i l I y e a r c o s t i n c r e a s e f r o m 1973 J a p a n -0.14 -13.00 -4.1 U.S. 0.51 -14.75 0.5 W.Germany 4.54 -6.25 5.4 F r a n c e -0.68 -6.25 -3.2 U.K. -3.11 -5.25 -4.7 I t a l y -2.42 -5.00 -4.6 T o t a l -1 .30 -50.50 -10.7 o f a b o v e c o u n t r i e s T o t a l 2.50 -59.00 -16.8 OECD -15 OECD COUNTRIES - b i l l i o n US d o l l a r s -1975 I I Whole J a n - M a r I y e a r -0.4 -4.5 0.4 0.5 -1 .8 -1 .2 1 .5 3.5 3.9 9.3- 2.3 4.5 -2.8 -6.0 -0.3 -1 .3 -4.5 -9.1 -0.7 -3.0 -3.3 -7.9 0.2 -1 .5 -9.0 -19.3 3.4 2.7 17.5 -34.3 -7.0 S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Kei zai Hokoku, 1975 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 5 ) , p. 65; OECD, Economic Outlook, December 1974; Bank o f E n g l a n d , Quarterly Bulletin, J u n e 1975. 84 TABLE 3-16 TOTAL FOREIGN EXCHANGE RESERVES OF MAJOR INDUSTRIAL COUNTRIES AND OPEC COUNTRIES - b i l l i o n US d o l l a r s -End o f Y e a r 1972 1 973 1974 T o t a l Of T o t a l Of T o t a l Of r e s e r v e s w h i c h r e s e r v e s w h i c h r e s e r v e s w h i c h f o r e i g n f o r e i g n f o r e i g n e x c h a n g e e x c h a n g e exchange I n d u s t r i a l c o u n t r i e s - B e l g i u m 3.9 1.1 5.1 2.0 5.3 2.2 -Canada 6.1 4.4 5.8 3.9 5.8 3.8 - F r a n c e 10.0 5.1 • 8.6 3.7 8.9 3.8 -W.Germany 23.8 17.2 33.1 25. 1 32.7 24.3 - I t a l y 6.1 2.2 6.4 2.2 6.9 3.2 - J a p a n 18.4 16.5 12.2 10.2 13.5 11.3 - N e t h e r l a n d s 4.8 1 .4 6.6 3.3 6.9 3.5 - S w i t z e r l a n d 7.5 4.3 8.1 4.6 9.0 5.4 -U.K. 5.7 4.1 6.5 4.7 6.9 4.9 -U.S. 13.2 0.2 14.4 0.1 16.1 0.1 TOTAL 99.5 56.5 106.8 59.8 112.0 62.5 P e r c e n t a g e - - 7.1 5.6 5.0 4.3 Change OPEC c o u n t r i e s - A l g e r i a 0.5 0.2 1 .2 0.8 1 .7 1 .4 - E c u a d o r 0.1 0.1 0.2 0.2 0.4 0.3 - I n d o n e s i a 0.6 0.5 0.8 0.8 1 .5 1 .4 - I r a n 1 .0 0.8 1 .2 1 .0 8.4 7.7 - I r a q 0.8 0.6 1 .6 1 .3 3.3 3.0 - K u w a i t 0.4 0.2 0.5 0.4 1 .4 0.9 - L i b y a 2.9 2.8 2.1 2.0 3.6 3.5 - N i g e r i a 0.4 0.3 0.6 0.5 5.6 5.5 -Oman 0.2 0.2 0.1 0.1 0.2 0.2 - Q a t a r - - - - - -- S a u d i 2.5 2.3 3.9 3.7 14.3 13.4 A r a b i a - U n i t e d A.E. - - - - - — - V e n e z u e l a 1 .7 1 . 1 2.4 1 .7 6.8 5.4 TOTAL 11.1 9.1 14.5 12.5 47.2 42.7 P e r c e n t a g e - - 30.6 37.3 225.5 241 .6 Change S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review, 1975 ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p. 17; IMF, International Financial S t a t i s t i c s , F e b r u a r y , 1975. CHAPTER FOUR THE BUSINESS ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL C R I S I S I n C h a p t e r Two t h e p o l i t i c a l a s p e c t s o f J a p a n ' s r e a c t i o n t o t h e 1973 o i l c r i s i s w e r e d i s c u s s e d a n d t h e r o l e o f t h e b u r e a u c r a c y was e m p h a s i z e d . I n C h a p t e r T h r e e t h e e c o n o m i c a s p e c t s were r e v i e w e d a n d t h e r e l a t i o n s h i p b e t w e e n e c o n o m i c e f f i c i e n c y a n d v u l n e r a b i l i t y i n v e s t i g a t e d . I n t h i s c h a p t e r t h e J a p a n e s e b u s i n e s s r e a c t i o n t o t h e c r i s i s i s d i s c u s s e d . As p o i n t e d o u t i n C h a p t e r Two, t h e r e were s t r o n g i n i t i a t i v e s t a k e n by t h e b u r e a u c r a c y a n d p o l i t i c i a n s i n r e s p o n d i n g t o t h e c r i s i s , b u t t h e s e i n i t i a t i v e s became s u c c e s s f u l o n l y when t h e b u s i n e s s s e c t o r a c c e p t e d them a n d c o o p e r a t e d w i t h o t h e r s e c t o r s . I t i s i m p o r t a n t t o remember t h a t most p o l i c y m e a s u r e s a d o p t e d by t h e g o v e r n m e n t were i m p l e m e n t e d i n t h e f o r m o f a d m i n i s t r a t i v e g u i d a n c e w h i c h h a d no l e g a l b i n d i n g c h a r a c t e r . T h e r e f o r e , t h e c o o p e r a t i o n o f t h e b u s i n e s s s e c t o r was e x p e c t e d i n i m p l e m e n t i n g most p o l i c y m e a s u r e s f o r t h e o i l c r i s i s . I n t h i s c h a p t e r , t h e r e a c t i o n o f J a p a n e s e b u s i n e s s i s r e v i e w e d f r o m two p e r s p e c t i v e s . From t h e p o l i t i c a l p e r s p e c t i v e , t h e r o l e t a k e n by m a j o r e c o n o m i c o r g a n i z a t i o n s a n d b u s i n e s s l e a d e r s i s i n v e s t i g a t e d . From t h e e c o n o m i c p e r s p e c t i v e , t h e management e f f o r t s u n d e r t a k e n i n 85 86 c o m p a n i e s a r e i n v e s t i g a t e d . 1. THE P O L I T I C A L REACTION OF JAPANESE BUSINESS TO THE OIL  C R I S I S ( l ) M a j o r J a p a n e s e B u s i n e s s O r g a n i z a t i o n s T h e r e a r e f o u r m a j o r b u s i n e s s o r g a n i z a t i o n s i n J a p a n w h i c h t a k e a r o l e i n e x p r e s s i n g t h e o p i n i o n s o f t h e b u s i n e s s s e c t o r . The K e i d a n r e n ( J a p a n F e d e r a t i o n o f E c o n o m i c O r g a n i z a t i o n s ) 1 0 5 , e s t a b l i s h e d i n 1946, i s t h e l e a d i n g e c o n o m i c o r g a n i z a t i o n . I t i s i n d e p e n d e n t f r o m t h e g o v e r n m e n t a n d s u p p o r t e d by more t h a n 115 a s s o c i a t i o n members a nd more t h a n 800 c o r p o r a t e members. B e c a u s e o f i t s w i d e c o v e r a g e a n d p o l i t i c a l i n f l u e n c e , t h e K e i d a n r e n i s s o m e t i m e s d e s c r i b e d a s t h e c e n t r e o f J a p a n e s e b u s i n e s s , a n d t h e c h a i r m a n o f 1 0 5 M c M i l l a n e x p l a i n s t h e o r g a n i z a t i o n a s f o l l o w s : " T h e r e i s no e q u i v a l e n t t o t h e K e i d a n r e n , a l t h o u g h F r a n c e ' s ' p a t r o n a t ' ( L a C o n f e d e r a t i o n G e n e r a l e du P a t r o n a t F r a n c a i s ) a n d B r i t a i n ' s C o n f e d e r a t i o n o f B r i t i s h I n d u s t r y , f o u n d e d i n 1965, come c l o s e s t i n t e r m s o f power a n d p r e s t i g e . H owever, t h e K e i d a n r e n o p e r a t e s w i t h a p a n e l o f 39 s t a n d i n g c o m m i t t e e s i n v o l v i n g t h e most s e n i o r e x e c u t i v e s o f m a j o r c o r p o r a t i o n s - c o m m i t t e e s w h i c h do d e t a i l e d r e s e a r c h on i s s u e s r a n g i n g f r o m s m a l l b u s i n e s s a n d t a x a t i o n t o t e c h n o l o g y a n d i n d u s t r i a l p o l i c y . T h i s work i n v o l v e s an e x t e n s i v e a n d c o n s t a n t p r o c e s s o f c o n s u l t a t i o n a c r o s s c o m p a n i e s , academe, o t h e r e c o n o m i c g r o u p s a n d , o f c o u r s e , g o v e r n m e n t . W h i l e t h e b a s i c i d e o l o g y o f t h e K e i d a n r e n i s e s s e n t i a l l y c o n s e r v a t i v e a n d f r e e e n t e r p r i s e , i t d e r i v e s much o f i t s s t r e n g t h f r o m i t s u n d e r s t a n d i n g n o t j u s t o f t h e p r i v a t e s e c t o r b u t t h e g o v e r n m e n t d e c i s i o n - m a k i n g a p p a r a t u s a n d J a p a n ' s r e l a t i v e e c o n o m i c a n d t e c h n o l o g i c a l s t a n d i n g a s c o m p a r e d t o c o m p e t i t o r s " ( C h a r l e s J . M c M i l l a n , The Japanese Industrial System [ B e r l i n & New Y o r k : W a l t e r de G r u y t e r , 1 9 8 5 ] , p. 5 7 ) . 87 Keidanren i s c a l l e d the prime m i n i s t e r of zai kai or Japanese business s o c i e t y . The Nissho (Japan Chamber of Commerce and I n d u s t r y ) 1 0 6 i s a c o n f e d e r a t i o n of l o c a l chambers of commerce and i n d u s t r y . I t evolved from the Tokyo Chamber of Commerce founded i n 1878 by s p e c i a l l e g i s l a t i o n with i n t e r e s t s i n r e g i o n a l economic problems i n c l u d i n g those of small and medium s c a l e "businesses. The N i k k e i r e n (Japan F e d e r a t i o n of Employers' A s s o c i a t i o n ) 1 0 7 i s a c o n f e d e r a t i o n of r e g i o n a l employers' a s s o c i a t i o n s and v a r i o u s trade a s s o c i a t i o n s . I t i s a s p e c i a l i z e d group concerned with the problems of wages, working c o n d i t i o n s and labour management r e l a t i o n s . The K e i z a i Doyukai (Japan Committee f o r Economic 1 0 6 M c M i l i a n e x p l a i n s the o r g a n i z a t i o n as f o l l o w s : "The JCCI has t r a d i t i o n a l l y represented s m a l l b u s i n e s s , but the o r g a n i z a t i o n f e l l on hard times a f t e r the War when the P r e s i d e n t , Fujiyama A i i c h i r o , became a v i c t i m of the Occupation's e x e c u t i v e purge. While r e i n s t a t e d i n 1950, Fujiyama was unable to b r i n g about a r e o r g a n i z a t i o n of the JCCI, and i t was not u n t i l a successor, Nagano Shigeo, took over as successor i n 1970 that the small business o r g a n i z a t i o n began to gather s t r e n g t h and gain i n f l u e n c e i n both business and government c i r c l e s " {Ibid., pp. 58-59). 1 0 7 M c M i l l a n e x p l a i n s as f o l l o w s : "In a d d i t i o n to the wage g u i d e l i n e f u n c t i o n , N i k k e i r e n conducted a p u b l i c r e l a t i o n s campaign a g a i n s t the l e f t l e a n i n g p r e s s , but i t i s not c l e a r that t h i s f u n c t i o n had much success when compared to the impact of r i s i n g p r o s p e r i t y and b e t t e r wages on the p u b l i c ' s a t t i t u d e towards s o c i a l i s m or f r e e e n t e r p r i s e . A more s u c c e s s f u l r o l e f o r N i k k e i r e n has been an e d u c a t i o n a l one: t r a i n i n g young e x e c u t i v e s through i t s own o f f i c e s and o f f e r i n g on the job t r a i n i n g f o r foremen f o r the 29,000 member companies and 54 i n d u s t r y a s s o c i a t i o n s " {Ibid., p. 58). 88 D e v e l o p m e n t ) 1 0 8 i s an o r g a n i z a t i o n f o r b u s i n e s s l e a d e r s who j o i n a s i n d i v i d u a l s . The m a i n p u r p o s e o f t h e o r g a n i z a t i o n i s t o p r o v i d e b u s i n e s s l e a d e r s w i t h a p l a c e t o meet a n d s p e a k o u t f r e e l y on v a r i o u s e c o n o m i c a n d s o c i a l i s s u e s . (2) The A c t i o n s T a k e n by J a p a n e s e B u s i n e s s L e a d e r s I n r e s p o n s e t o t h e 1973 o i l c r i s i s , t h e J a p a n e s e b u s i n e s s s e c t o r t r i e d t o r e a c h a c o n s e n s u s a n d t o i n f l u e n c e g o v e r n m e n t p o l i c i e s . I n December 1972, a l m o s t one y e a r b e f o r e t h e o i l c r i s i s , K e i d a n r e n made a s t a t e m e n t on J a p a n e s e e n e r g y p o l i c y . I n t h a t s t a t e m e n t t h e K e i d a n r e n i n s i s t e d on s t r e n g t h e n i n g t h e f u n c t i o n o f t h e J a p a n P e t r o l e u m D e v e l o p m e n t C o r p o r a t i o n a n d e m p h a s i z e d t h e i m p o r t a n c e o f d i r e c t o i l t r a n s a c t i o n s w i t h OPEC c o u n t r i e s . On November 14, 1973, one month a f t e r t h e c r i s i s , K o g o r o Uemura, C h a i r m a n o f t h e K e i d a n r e n , T o s h i o Doko, V i c e - C h a i m a n o f t h e K e i d a n r e n , S o i c h i M a t s u n e , C h a i r m a n o f t h e E n e r g y C o m m i t t e e o f t h e K e i d a n r e n , a n d H i r o k i I m a z a t o , P r e s i d e n t o f K a i g a i S e k i y u K a i h a t s u , v i s i t e d P r i m e M i n i s t e r T a n a k a a n d r e q u e s t e d t h a t he a d o p t p r o - A r a b p o l i c i e s . 1 0 9 On t h e f o l l o w i n g d a y , 1 0 8 M c M i l l a n e x p l a i n s a s f o l l o w s : " I t s most famous d e c l a r a t i o n was a p r i n c i p l e t h a t t h e b u s i n e s s o r g a n i z a t i o n c o n s i s t e d o f t h r e e e q u a l s t a k e h o l d e r s — m a n a g e m e n t , l a b o u r , a n d s h a r e h o l d e r s — a n d t h a t t h e supreme d e c i s i o n - m a k i n g body s h o u l d c o n s i s t o f a c o u n c i l r e p r e s e n t i n g t h e s e t h r e e g r o u p s . W h i l e t h i s d e c l a r a t i o n was w i d e l y d e n o u n c e d a n d l a t e r s h e l v e d , i t gave t h e o r g a n i z a t i o n a r e p u t a t i o n f o r c o n c i l i a t i o n i n m a n a g e m e n t - l a b o u r m a t t e r s , a r e p u t a t i o n i n c o n t r a s t t o t h e a n t i - l a b o u r , f i g h t i n g N i k k e i r e n " {Ibid., p. 5 8 ) . y09Ninon Keizai Shinbun, 15 November, 1973. 89 Kazutaka Kigawata and other Doyukai r e p r e s e n t a t i v e s had a meeting with Tomisaburo Hashimoto, D i r e c t o r General of the LDP, and other o f f i c i a l s of the p a r t y . At the meeting Doyukai r e p r e s e n t a t i v e s i n s i s t e d t h a t the government p r o c l a i m a s t a t e of emergency i n order to f a c i l i t a t e a nation-wide movement toward energy c o n s e r v a t i o n . 1 1 0 On November 18, Sohei Mizuno, P r e s i d e n t of A r a b i a O i l Co. L t d . , v i s i t e d T a i z o I s h i z a k a , Honorary Chairman of the Keidanren, and e x p l a i n e d the s e r i o u s s i t u a t i o n c o n cerning the Middle E a s t . F o l l o w i n g I s h i z a k a ' s suggestion Mizuno v i s i t e d the prime m i n i s t e r a f t e r the meeting to e x p l a i n the s i t u a t i o n . 1 1 1 In response to these approaches from the b u s i n e s s s e c t o r , the government decided to h o l d a meeting with r e p r e s e n t a t i v e s from major business o r g a n i z a t i o n s and energy r e l a t e d i n d u s t r i e s to request that they cooperate with the government i n d e a l i n g with the o i l c r i s i s . Through these a c t i o n s Japanese business l e a d e r s intended to i n f l u e n c e the decision-making processes of the Japanese government, and i n t h i s sense t h e i r a c t i o n s c o u l d be c a l l e d l o b b y i n g . However, these a c t i o n s were d i f f e r e n t from the l o b b y i n g a c t i v i t i e s i n the U n i t e d S t a t e s where l o b b y i s t s u s u a l l y represent the i n t e r e s t s of a company or an i n d u s t r i a l s e c t o r . In Japan business l e a d e r s represented the i n t e r e s t s of Japanese i n d u s t r y , and they t r i e d to p r o t e c t i t by m a i n t a i n i n g the development of the Japanese economy. 110Asahi Nenkan, 1974 (Tokyo: Asahi Shinbunsha), p. 393. 1 1 1 " S e k i y u K i k i n i T s u y o s h i n a k a t t a Z a i k a i no Maedareshiki Gaiko", Shukan Toyo Keizai, New S p r i n g E d i t i o n , 1974, p. 39. 90 On t h e o t h e r h a n d , f a c i n g t h e " o i l war" c a u s e d by t h e f o u r t h M i d d l e E a s t War, m a j o r o i l s u p p l i e r s a n d t h e i r c u s t o m e r s e x p r e s s e d t h e i r c o n c e r n s a b o u t t h e o i l s h o r t a g e s i t u a t i o n . E v e n t h o u g h some p e o p l e were r e l i e v e d when t h e war was s u s p e n d e d i n l a t e O c t o b e r , T a k e o T a k i g u c h i , P r e s i d e n t o f N i h o n O i l Co. L t d . , s a i d , " I t i s s t i l l d o u b t f u l w h e t h e r OAPEC w i l l s t o p t h e o i l embargo t o t h e U n i t e d S t a t e s a n d p r o d u c t i o n r e s t r a i n t s t r a t e g i e s . " 1 1 2 H i r o t a k a M i t s u d a , C h a i r m a n o f P e t r o l e u m A s s o c i a t i o n o f J a p a n , s a i d , " I t w i l l t a k e f r o m f o u r t o s i x months t o r e t u r n t o t h e n o r m a l s i t u a t i o n e v e n t h o u g h t h e war i s s u s p e n d e d . " 1 1 3 A t t h e same t i m e , most e l e c t r i c i t y c o m p a n i e s e x p l a i n e d t h e p r o s p e c t s o f r a i s i n g e l e c t r i c i t y r a t e s . K i y o s h i K a w a r a b a y a s h i , P r e s i d e n t o f K y u s h u E l e c t r i c Power Co. I n c . , s a i d , "We e x p e c t e d t h a t t h e p r i c e o f o i l w o u l d be a r o u n d f i v e d o l l a r s i n 1972 o r 1973, b u t we came t o know t h a t t h e p r i c e i n c r e a s e was much l a r g e r t h a n we e x p e c t e d . T h e r e f o r e , we ha v e t o d e c i d e t o i n c r e a s e e l e c t r i c i t y r a t e s s i n c e t h e r e i s no room f o r f u r t h e r r a t i o n a l i z a t i o n . " 1 1 1 1 T h e s e b u s i n e s s l e a d e r s i n t h e e n e r g y s e c t o r e x p l a i n e d t h e s e v e r e s i t u a t i o n t o o b t a i n u n d e r s t a n d i n g a n d s u p p o r t f r o m t h e p u b l i c . H owever, t h e comments o f t h e s e p e o p l e now a p p e a r t o ha v e been o v e r l y o p t i m i s t i c c o n s i d e r i n g t h e h i s t o r i c a l i n c i d e n t s w h i c h o c c u r r e d a f t e r t h a t t i m e . T h i s shows t h a t s p e c i a l i s t s u n d e r e s t i m a t e d t h e i n f l u e n c e o f t h e 1 1 2 " C h u t o S e n s o de D e n r y o k u Neage T s u y o m a r u " Shukan Toyo Keizai, 3 November, 1973, p. 40. 1 1 3 / 6 / r f . 1 1 < l / & / d . , p. 40. 91 1973 o i l c r i s i s . I n C h a p t e r Two, i t was p o i n t e d o u t t h a t e v e n i n t h e g o v e r n m e n t t h e r e were d i f f e r e n c e s o f o p i n i o n a b o u t how t o d e a l w i t h t h e o i l c r i s i s . S u c h d i f f e r e n c e s o f o p i n i o n a l s o e x i s t e d i n t h e b u s i n e s s s e c t o r . T h e r e was, f o r e x a m p l e , a g r o u p o f p e o p l e c a l l e d zaikai shi gen ha ( r e s o u r c e f a c t i o n ) . T h i s f a c t i o n i n c l u d e d S o h e i Nakayama, A d v i s e r o f J a p a n I n d u s t r i a l B a n k , I m a z a t o o f K a i g a i S e k i y u K a i h a t s u , M a t s u n e o f t h e K e i d a n r e n , Y o s h i h i k o M o r o z u m i , A d v i s e r o f M I T I , a n d Y o s h i h i t o S h i m a d a , P r e s i d e n t o f J a p a n P e t r o l e u m D e v e l o p m e n t C o r p o r a t i o n . T h e s e p e o p l e e m p h a s i z e d t h e i m p o r t a n c e o f n a t u r a l r e s o u r c e s a n d i n s i s t e d on m a k i n g t h e i r s t a b l e s u p p l y a p r i o r i t y . H o w e v e r , t h e r e was a l s o a g r o u p who were c o n c e r n e d w i t h c h a n g i n g t h e d i p l o m a t i c s t a n c e b a s e d on t h e s t r o n g t i e s w i t h t h e U n i t e d S t a t e s . B u n zo Kohno o f M i t s u b i s h i H eavy I n d u s t r y s a i d , " J a p a n w i l l l o s e i t s c r e d i b i l i t y i n d i p l o m a c y i f we c h a n g e o u r b a s i c d i p l o m a t i c s t a n c e t o s o l v e p r o b l e m s we p r e s e n t l y f a c e . S i n c e t h e U n i t e d S t a t e s m a i n t a i n s i t s p o w e r f u l o i l s t r a t e g y , J a p a n s h o u l d c o o p e r a t e w i t h t h e U n i t e d S t a t e s . " 1 1 5 T h i s g r o u p i n v o l v e d K i g a w a d a o f t h e K e i z a i D o y u k a i , S h i g e o Nagano, C h a i r m a n o f t h e N i s s h o , a n d Y o s h i z a n e I w a s a , V i c e - C h a i r m a n o f t h e K e i d a n r e n . I n s p i t e o f s u c h d i f f e r e n c e s o f o p i n i o n , t h e b u s i n e s s s e c t o r a c t i v e l y t r i e d t o r e a c h a c o n s e n s u s . The e s t a b l i s h m e n t o f t h e E n e r g y D e v e l o p m e n t C o m m i t t e e was one o f 1 1 5 t ? / 7 . c i t . , Shukan Toyo Keizai, New S p r i n g E d i t i o n , 1974, pp. 38-42 92 s u c h a t t e m p t . The c o m m i t t e e was f i n a l l y e s t a b l i s h e d u n d e r t h e c h a i r m a n s h i p o f Nakayama on November 2 1 , 1973, a n d began i t s a c t i v i t i e s by g a t h e r i n g e n e r g y - r e l a t e d i n f o r m a t i o n , d e v e l o p i n g n a t i o n a l p r o j e c t s a n d e x c h a n g i n g v i e w s w i t h t h e g o v e r n m e n t . A n o t h e r c o n c e r n o f t h e b u s i n e s s s e c t o r c e n t r e d on t h e o v e r - i n t e r v e n t i o n o f t h e g o v e r n m e n t i n t h e p r o c e s s o f r e c o v e r i n g f r o m t h e c r i s i s . F o r i n s t a n c e , S a n k e n ( S a n g y o M o n d a i K e n k y u K a i ) , a g r o u p o f b u s i n e s s m e n d i s c u s s i n g m a i n l y p o l i t i c a l i s s u e s , p r e s e n t e d i t s s t a t e m e n t t o t h e p u b l i c on November 2 1 . T h e r e were t h r e e m a j o r p o i n t s i n t h e s t a t e m e n t : 1. M a j o r o i l c o n s u m i n g i n d u s t r i e s s h o u l d s u p p o r t p o l i c y m e a s u r e s a d o p t e d by t h e g o v e r n m e n t a n d p r e p a r e h o r i z o n t a l l y c o o p e r a t i v e c o n d i t i o n s among t h e i n d u s t r i e s . 2. I n c a s e t h e r e e x i s t s a ny d o u b t o f v i o l a t i n g a n t i - m o n o p o l y l a w i n t h e p r o c e s s o f v o l u n t a r y a d j u s t m e n t i n t h e b u s i n e s s s e c t o r , t h e r e l a t e d m i n i s t r i e s s h o u l d d i s c u s s b e t t e r s o l u t i o n s . 3. The b u s i n e s s s e c t o r s h o u l d s h a r e s o c i a l r e s p o n s i b i l i t y t o s o l v e p r o b l e m s c a u s e d i n t h e p r o c e s s o f d e a l i n g w i t h t h e o i l s h o r t a g e p r o b l e m . 1 1 6 T h i s s t a t e m e n t i m p l i e d t h a t t h e b u s i n e s s s e c t o r s h o u l d t a k e a p o s i t i v e s t a n c e n o t o n l y t o c o o p e r a t e w i t h t h e g o v e r n m e n t b u t a l s o t o p r e v e n t o v e r - i n t e r v e n t i o n by t h e g o v e r n m e n t . I n f l a t i o n was a n o t h e r p r o b l e m t o w h i c h t h e b u s i n e s s s e c t o r h a d t o pay a t t e n t i o n . On O c t o b e r 1 t h e K e i d a n r e n a n n o u n c e d i t s b a s i c v i e w on t h e amendment o f t h e c o r p o r a t e l a w . I n i t s s t a t e m e n t t h e K e i d a n r e n i n s i s t e d t h a t t h e 1974 n a t i o n a l b u d g e t s h o u l d be e s t a b l i s h e d g i v i n g t o p p r i o r i t y t o t h e m o d e r a t i o n o f i n f l a t i o n . On December 10 K e i d a n r e n 116Asahi Nenkan, 1974 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 4 ) , p. 393 . 93 l e a d e r s h a d a m e e t i n g w i t h F i n a n c e M i n i s t e r F u k u d a who s u c c e e d e d A i c h i . A t t h e m e e t i n g K e i d a n r e n l e a d e r s i n s i s t e d on m o d e r a t i n g t h e a g g r e g a t e demand i n c r e a s e t o a r o u n d 20%. As an a p p r o a c h t o m o d e r a t i n g i n f l a t i o n , t h e b u s i n e s s s e c t o r a c t i v e l y d e a l t w i t h wage i s s u e s . (The N i k k e i r e n i s i n c h a r g e o f t h e s e i s s u e s a s e x p l a i n e d p r e v i o u s l y . ) On May 25, 1973, t h e N i k k e i r e n a l r e a d y p o i n t e d o u t t h a t t h e i n f l a t i o n a t t h e t i m e was a v i c i o u s one. T h i s v i e w was a g a i n s t t h a t o f t h e g o v e r n m e n t w h i c h i n s i s t e d t h a t t h e i n f l a t i o n was a t e m p o r a r y a d j u s t m e n t . B a s e d on t h i s v i e w , t h e N i k k e i r e n u r g e d management t o s t o p c o m m o d i t y p r i c e i n c r e a s e s a s much a s p o s s i b l e a n d r e q u e s t e d f o u r m a j o r l a b o u r u n i o n s n o t t o e x p e c t h i g h wage i n c r e a s e s . 1 1 7 The a c t i o n s t a k e n by J a p a n e s e b u s i n e s s c a n be s u m m a r i z e d a s f o l l o w s . F i r s t , t h e y r e p r e s e n t e d J a p a n e s e i n d u s t r y t o i n f l u e n c e t h e g o v e r n m e n t p o l i c i e s . S e c o n d l y , t h e y a c t e d t o b u i l d a c o n s e n s u s i n t h e b u s i n e s s s e c t o r . T h i r d l y , t h e y d e c l a r e d what t h e y h a d t o do f o r t h e J a p a n e s e economy t o p r e v e n t o v e r - i n t e r v e n t i o n by t h e g o v e r n m e n t . 94 2. THE ECONOMIC REACTION OF JAPANESE BUSINESS TO THE O I L  C R I S I S (1) The Reduction of Production The r o l e o f J a p a n e s e b u s i n e s s d i s c u s s e d i n t h e p r e v i o u s s e c t i o n i s m a i n l y c o n c e n t r a t e d on t h e p a r t i c i p a t i o n o f b u s i n e s s l e a d e r s i n t h e p o l i c y - m a k i n g p r o c e s s . A n o t h e r a s p e c t o f t h e r o l e t a k e n by t h e b u s i n e s s s e c t o r i n v o l v e s t h e e f f o r t s made by management a n d l a b o u r i n c o m p a n i e s t o r e c o v e r f r o m t h e 1973 o i l c r i s i s . I n 1974 J a p a n e s e b u s i n e s s g e n e r a l l y d e a l t w i t h t h e e c o n o m i c r e c e s s i o n , a c c o m p a n i e d by i n f l a t i o n a f t e r t h e o i l c r i s i s , by d e c r e a s i n g t h e i r p r o d u c t i o n . The E c o n o m i c P l a n n i n g A g e n c y (EPA) p o i n t s o u t t h r e e e l e m e n t s w h i c h e n a b l e d o r f o r c e d b u s i n e s s t o d e c r e a s e p r o d u c t i o n . 1 1 8 F i r s t , i n f l a t i o n made i t e a s i e r f o r c o m p a n i e s t o d e c r e a s e p r o d u c t i o n . I t i s g e n e r a l l y e x p e c t e d t h a t t h e p e r u n i t f i x e d c o s t w i l l i n c r e a s e i f a company d e c r e a s e s p r o d u c t i o n i n e c o n o m i c r e c e s s i o n . H o w e v e r , s i n c e t h e i n f l a t i o n a f t e r t h e c r i s i s c o n t r i b u t e d t o t h e d e c r e a s e i n b o t h f i n a n c i a l a n d d e p r e c i a t i o n c o s t s , t h e p e r u n i t f i x e d c o s t d i d n o t i n c r e a s e s o much. On t h e c o n t r a r y , v a r i a b l e c o s t s i n c l u d i n g t h e m a t e r i a l c o s t were e x p e c t e d t o i n c r e a s e i f p r o d u c t i o n i n c r e a s e d . T h r e r e f o r e , t h e d e c r e a s e i n p r o d u c t i o n was p o s s i b l e a n d i n e v i t a b l e . 1 1 B T h e s e t h r e e p o i n t s a r e e x p l a i n e d i n J a p a n , E c o n o m i c P l a n n i n g A g e n c y . Nenji Keizai Houkoku, 1975 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , pp. 8-11 (Summary t r a n s l a t i o n by t h e a u t h o r ) . 95 Secondly, the r e l a t i v e l y l a r g e amount of u n d i s t r i b u t e d p r o f i t s enabled companies to decrease t h e i r p r o d u c t i o n . The r a t e of i n t e r n a l r e s e r v e s to t o t a l c a p i t a l in the manufacturing s e c t o r i n c r e a s e d from 9% i n 1965 to 13% i n 1974 p a r t l y due to the expansion of stock caused by the i n f l a t i o n . Companies were able to maintain the r a t e of p r o f i t t o t o t a l s a l e s at the average of the p r e v i o u s 10 years by spending a p a r t of t h e i r i n t e r n a l r e s e r v e s . T h i r d l y , companies t r i e d to maintain the p r i c e l e v e l of t h e i r products, and so i t was necessary f o r them not to i n c r e a s e t h e i r p r o d u c t i o n . Even though t o t a l demand g r a d u a l l y i n c r e a s e d d u r i n g the January-March p e r i o d of 1974, companies maintained the low l e v e l of p r o d u c t i o n to s t a b i l i z e the p r i c e l e v e l . (2) Business Reactions i n the Changing I n d u s t r i a l S t r u c t u r e In the g e n e r a l t r e n d of reducing p r o d u c t i o n , the market mechanism worked w i t h i n the manufacturing s e c t o r . Tsuruta e x p l a i n s as f o l l o w s . 1 1 9 In the c o m p e t i t i v e market, p r o c e s s i n g companies were not a b l e to t r a n s f e r a l l the p r i c e i n c r e a s e i n m a t e r i a l s to the p r i c e of t h e i r p r o d u c t s . T h e r e f o r e , i t became necessary f o r them to recombine p r o d u c t i o n f a c t o r s such as c a p i t a l , labour, m a t e r i a l s and f u e l s to i n c r e a s e p r o d u c t i v i t y . As a r e s u l t , i n the 1 1 9 T h e f o l l o w i n g i s the author's summary t r a n s l a t i o n of T s u r u t a ' s e x p l a n a t i o n i n Toshimasa T s u r u t a , Sengo Nihon no Sangyo Seisaku (Tokyo: Nihon K e i z a i Shinbunsha, 1982), pp. 247-250. 96 p r o c e s s i n g c o m p a n i e s , t h e r a t i o o f i n t e r m e d i a t e i n p u t s i n t h e t o t a l p r o d u c t i o n f a c t o r i n p u t s d e c r e a s e d , a s shown i n T a b l e 4-1. The d e c r e a s e o f i n t e r m e d i a t e i n p u t s was made p o s s i b l e by i m p r o v i n g p r o d u c t i o n t e c h n o l o g i e s . S u c h t e c h n o l o g i e s i n c l u d e d r o b o t i c s a n d m a c h i n e t o o l s . As a r e s u l t , t h e l a b o u r p r o d u c t i v i t y o f t h e p r o c e s s i n g i n d u s t r y i n c r e a s e d a f t e r t h e 1973 o i l c r i s i s , a s shown i n T a b l e 4-2. On t h e o t h e r h a n d , t h e d e c r e a s e i n t h e c o s t o f i n t e r m e d i a t e i n p u t s a n d t h e i n c r e a s e i n p r o d u c t i v i t y i m p o s e d i m p a c t s on t h e raw m a t e r i a l i n d u s t r y a n d t h e l a b o u r m a r k e t . The m a t e r i a l i n d u s t r y s u f f e r e d f r o m t h e d e c r e a s e i n t h e demand f o r t h e i r p r o d u c t s . As p o i n t e d o u t i n C h a p t e r T h r e e , t h i s phenomenon a c c e l e r a t e d t h e c h a n g e i n t h e i n d u s t r i a l s t r u c t u r e . The i n c r e a s e i n l a b o u r p r o d u c t i v i t y c a u s e d c o n c e r n a b o u t u n e m p l o y m e n t . However, t h e unemployment r a t e i n J a p a n i n 1974 was 1.8% and l o w e r t h a n t h a t o f t h e U n i t e d S t a t e s ( 9 . 2 % ) , t h e U n i t e d K i n g d o m ( 3 . 4 % ) a n d West Germany ( 5 . 1 % ) . The E c o n o m i c P l a n n i n g A g e n c y p o i n t e d o u t t h r e e e l e m e n t s w h i c h e n a b l e d J a p a n t o k e e p i t s unemployment r a t e l o w e r t h a n o t h e r s . 1 2 0 F i r s t , s i n c e t h e l i f e t i m e employment s y s t e m was a d o p t e d a t l e a s t by l a r g e c o m p a n i e s i n J a p a n , t h e d e c r e a s e i n t h e l a b o u r f o r c e c a u s e d by t h e d e c r e a s e i n p r o d u c t i o n was a d j u s t e d f i r s t by t h e r e s t r i c t i o n o f o v e r t i m e work a n d 1 2 0 J a p a n , E c o n o m i c P l a n n i n g A g e n c y . Nenji Keizai Hokoku ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 5 ) , p p . 12-14. 97 s a l a r y c u t s , 1 2 1 a n d t h e n by t h e c o n t r o l o f m a r g i n a l employment a n d s u s p e n s i o n o f new r e c r u i t m e n t . 1 2 2 Though 74% o f c o m p a n i e s were r e p o r t e d t o ha v e i m p l e m e n t e d c e r t a i n k i n d s o f e mployment a d j u s t m e n t , o n l y 7% o f t h e c o m p a n i e s i m p l e m e n t e d s u g g e s t e d r e t i r e m e n t o r l a y - o f f . S e c o n d l y , t h e employment a d j u s t m e n t f u n d was a v a i l a b l e f o r c o m p a n i e s t o p r e v e n t l a y - o f f . The f u n d c o v e r e d h a l f o f t h e payment f o r t e m p o r a r y a b s e n t e e s . I t c o v e r e d t w o - t h i r d s o f i t f o r s m a l l a n d medium s c a l e c o m p a n i e s . I t i s r e p o r t e d t h a t 12,776 b u s i n e s s e s t a b l i s h m e n t s u t i l i z e d t h i s f u n d . As a r e s u l t , 10.2 b i l l i o n y e n ( a b o u t 50 m i l l i o n US d o l l a r s ) was s p e n t t o s u p p o r t t e m p o r a r y a b s e n t e e s . T h i r d l y , t h e unemployment r a t e o f f e m a l e e m p l o y e e s d e c r e a s e d . S i n c e t h e j o b o p p o r t u n i t i e s f o r f e m a l e s d e c r e a s e d due t o t h e e c o n o m i c r e c e s s i o n , many f e m a l e w o r k e r s d e c i d e d t o s t a y a t home. T h o s e f e m a l e w o r k e r s who ga v e up g e t t i n g a j o b were n o t c a l c u l a t e d a s u n e m p l o y e d . J a p a n ' s r e c o v e r y f r o m t h e 1973 o i l c r i s i s was l a r g e l y due t o t h e e f f o r t s o f management a n d l a b o u r who r e d u c e d t h e f r i c t i o n c a u s e d by c h a n g e s i n t h e i n d u s t r i a l s t r u c t u r e . 1 2 3 1 2 1 4 3 . 4 % o f c o m p a n i e s i n t h e m a n u f a c t u r i n g s e c t o r were r e p o r t e d t o h a v e i m p l e m e n t e d t h e r e d u c t i o n o f o v e r t i m e work a n d 2 6 . 1 % o f them i m p l e m e n t e d a s a l a r y c u t s . Asahi Nenkan, 1976 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 6 ) , p. 5 3 3 . 1 2 2 T h e r a t i o o f l a b o u r demand t o l a b o u r s u p p l y d e c r e a s e d f r o m 1.92 i n November 1973 t o 0.96 i n O c t o b e r 1974 a n d 0.53 i n O c t o b e r 1975. Ibid. 1 2 3 I t i s s o m e t i m e s a r g u e d t h a t t h e J a p a n e s e management s y s t e m i s a p p l i e d o n l y t o l a r g e s c a l e c o m p a n i e s i n J a p a n ' s d u a l e c o n o m i c s t r u c t u r e a n d d o e s n o t e x p l a i n t h e p e r f o r m a n c e o f t h e J a p a n e s e economy. I n d e e d , i t i s s m a l l a n d medium s i z e d c o m p a n i e s w i t h o u t t h e l i f e t i m e employment s y s t e m w h i c h h a v e o f t e n a b s o r b e d t h e s h o c k o f e c o n o m i c c h a n g e s . The e c o n o m i c p e r f o r m a n c e o f J a p a n e s e i n d u s t r y m i g h t be 98 3. THE CHARACTERISTICS OF THE JAPANESE BUSINESS REACTION TO  THE O I L C R I S I S As a l r e a d y d i s c u s s e d , J a p a n e s e b u s i n e s s i n f l u e n c e d t h e p o l i t i c a l r e a c t i o n t o t h e 1973 o i l c r i s i s i n J a p a n t h r o u g h v a r i o u s a c t i o n s . On t h e o t h e r h a n d , t h e b u s i n e s s r e a c t i o n a c c e l e r a t e d t h e c h a n g e i n t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e w h i c h was r e c o g n i z e d a s t h e m a j o r e l e m e n t i n t h e J a p a n e s e e c o n o m i c r e a c t i o n t o t h e 1973 o i l c r i s i s . T h i s s e c t i o n i n v e s t i g a t e s t h e m a j o r c h a r a c t e r i s t i c s o f t h e r o l e t a k e n by J a p a n e s e b u s i n e s s b o t h i n m a c ro a n d m i c r o t e r m s . I n o r d e r t o u n d e r s t a n d t h e p o l i t i c a l i n f l u e n c e o f J a p a n e s e b u s i n e s s , i t i s i m p o r t a n t t o pay a t t e n t i o n t o t h e e x i s t e n c e o f zai kai i n J a p a n . M a s a y a M i y o s h i , S e n i o r M a n a g i n g D i r e c t o r o f K e i d a n r e n , e x p l a i n s zai kai a s f o l l o w s : 1. Zai kai e x i s t s i n no o t h e r c o u n t r y b e s i d e s J a p a n . 2. The l i t e r a l t r a n s l a t i o n o f zai kai i s " f i n a n c i a l c l i q u e " , b u t i t h a s a much b r o a d e r m e a n i n g ; " b u s i n e s s w o r l d ' s s t a t e s m e n " . 3. Zai kai i s n o t a c o h e r e n t g r o u p b u t a l o o s e g r o u p f o r t h e i n f o r m a l e l i t e c o o r d i n a t i o n . 4. Zai kai i s composed o f a few h u n d r e d b u s i n e s s power e l i t e s who o c c u p y t h e l e a d i n g r o l e s i n t h e f o u r m a j o r b u s i n e s s o r g a n i z a t i o n s . 5. E l d e r b u s i n e s s s t a t e s m e n who make up zai kai h a v e no c o u n t e r p a r t i n o t h e r c o u n t r i e s b e c a u s e o f t h e e x t r a o r d i n a r y amount o f t i m e t h e y d e v o t e t o p u b l i c l e a d e r s h i p n o t r e l a t e d t o t h e i r own c o m p a n i e s . 1 2 3 ( c o n t ' d ) a t t r i b u t e d t o t h e s e v e r e c o m p e t i t i o n among t h o s e s m a l l a n d medium s i z e d c o m p a n i e s . H o w e v e r , c o n c e r n i n g t h e 1973 o i l c r i s i s , l a r g e s c a l e c o m p a n i e s were i n v o l v e d more h e a v i l y i n employment a d j u s t m e n t t h a n s m a l l a n d medium s i z e d c o m p a n i e s , a s shown i n T a b l e 4-3. J a p a n ' s r e c o v e r y f r o m t h e o i l c r i s i s c a n n o t be e x p l a i n e d by one e l e m e n t , b u t t h e employment a d j u s t m e n t m e a s u r e s u n d e r t h e l i f e t i m e employment s y s t e m were d i s t i n c t i v e t o t h e J a p a n e s e r e c o v e r y . 99 a. For example, Mr. Inayama, Chairman of Keidanren and Honorary Chairman of Nippon S t e e l , spends 80-90% of h i s time at Keidanren. b. Most Vice-Chairmen of Keidanren spend 20-30% of t h e i r time at Keidanren and other business o r g a n i z a t i o n s . c. Many Committee Chairmen of Keidanren a l s o spend 20-30% of t h e i r time at Keidanren and other o r g a n i z a t i o n s . d. T h i s i s a stark c o n t r a s t to business l e a d e r s in other c o u n t r i e s who g e n e r a l l y devote l e s s than 10% of t h e i r time to p u b l i c l e a d e r s h i p which i s not r e l a t e d to t h e i r companies. 6. The background and l i f e s t y l e of zaikai-jin (zaikai people) i s not so d i f f e r e n t from the man-on-the-street. The vast m a j o r i t y are t e c h n o c r a t s , those who are from o r d i n a r y f a m i l i e s , those who have a modest l i f e s t y l e and s a l a r y , and those who are hardworking, sober, c o n s c i e n t i o u s and a c u t e l y aware of t h e i r p u b l i c l e a d e r s h i p r e s p o n s i b i l i t i e s . 7. The purpose of zaikai i s to represent the i n t e r e s t s of business v i s - a - v i s the government, the p u b l i c and i n the i n t e r n a t i o n a l arena. a. Zaikai represents great economic power and possesses c o n s i d e r a b l e p o l i t i c a l i n f l u e n c e (sometimes by means of p o l i t i c a l f u n d i n g ) . b. Zaikai deserves much of the c r e d i t f o r the post-war emergence of the Japanese economy. 8. Zaikai continues to be i n f l u e n t i a l because of i t s great accomplishments and because the Japanese people continue to have c o n f i d e n c e i n i t . a. Japanese people r e c o g n i z e that the business s e c t o r has been the primary engine of economic growth and has played a major r o l e i n shaping Japan's economy. b. Japanese people have confidence i n and great e x p e c t a t i o n s f o r zaikai because i t continues to be i n f l u e n t i a l i n harmoniously amalgamating popular o p i n i o n with p u b l i c o p i n i o n , and p u b l i c o p i n i o n with l e a d e r s h i p o p i n i o n . In so doing, zaikai i s i n s t r u m e n t a l i n a t t a i n i n g the g o a l s of a mature democratic s o c i e t y , which, to borrow from the French phrase, a r e : l i b e r t e , e q u a l i t e , and f r a t e r n i t e . 1 2 0 As shown i n Miyoshi's e x p l a n a t i o n of zaikai, the sense of s o c i a l r e s p o n s i b i l i t y i s emphasized i n the Japanese business s o c i e t y . For i n s t a n c e , on December 28, 1973, then 1 2 " T h i s summary i s quoted from M i y o s h i ' s speech d r a f t . 100 MITI M i n i s t e r N a k a s o n e r e q u e s t e d t h e r e p r e s e n t a t i v e s o f t h e f o u r m a j o r b u s i n e s s o r g a n i z a t i o n s t o i m p l e m e n t t h e i r s o c i a l r e s p o n s i b i l i t y t o r e s t r a i n t h e p r i c e i n c r e a s e . The b u s i n e s s , s i d e r e s p o n d e d t o t h i s r e q u e s t by e x p r e s s i n g t h a t i t was t h e s o c i a l r e s p o n s i b i l i t y o f t h e b u s i n e s s s e c t o r t o a b s o r b t h e p r i c e i n c r e a s e by a s much r a t i o n a l i z a t i o n e f f o r t a s p o s s i b l e . 1 2 5 The s e n s e o f s o c i a l r e s p o n s i b i l i t y i n J a p a n e s e b u s i n e s s i s r e l a t e d t o " t h e c o n c e p t o f " B u s i n e s s W o r l d ' s S t a t e s m e n " i n M i y o s h i ' s e x p l a n a t i o n . A n o t h e r u n i q u e c h a r a c t e r i s t i c o f t h e J a p a n e s e s o c i a l s y s t e m i s s e e n i n t h e g o v e r n m e n t - b u s i n e s s r e l a t i o n s h i p . A d m i n i s t r a t i v e g u i d a n c e , w h i c h was one o f t h e p o l i c y m e a s u r e s c a r r i e d o u t by t h e g o v e r n m e n t i n r e s p o n s e t o t h e 1973 o i l c r i s i s a s r e v i e w e d i n C h a p t e r Two, shows t h e u n i q u e r e l a t i o n s h i p b e t w e e n t h e g o v e r n m e n t a n d b u s i n e s s i n J a p a n . As P a t r i c k a n d R o s o v s k y e x p l a i n ( s e e n o t e 46, page 2 5 ) , many k i n d s o f p o t e n t i a l b e n e f i t s a n d c o s t s s u g g e s t e d by t h e g o v e r n m e n t i n d u c e b u s i n e s s t o obey a d m i n i s t r a t i v e g u i d a n c e . The power o f p r o v i d i n g b u s i n e s s w i t h b e n e f i t s o r i m p o s i n g c o s t s on i t i s d e r i v e d f r o m v a r i o u s k i n d s o f a u t h o r i t i e s p o s s e s s e d by t h e g o v e r n m e n t , s u c h a s t h e a u t h o r i t y t o g r a n t p e r m i s s i o n a n d c e r t i f i c a t i o n . T h e r e f o r e , i t i s i m p o r t a n t f o r a company t o m a i n t a i n a good r e l a t i o n s h i p w i t h t h e g o v e r n m e n t . To do t h i s , c o m p a n i e s o f t e n r e c r u i t r e t i r e d b u r e a u c r a t s , who work a s a c o m m u n i c a t i o n c h a n n e l b e t w e e n t h e company a n d t h e g o v e r n m e n t . }25Nihon Keizai Shinbun, 29 December, 1973. 101 The zai kai a c t i v i t i e s c a n be i n t e r p r e t e d a s a n a c t i v e f o r m o f p a r t i c i p a t i o n by J a p a n e s e b u s i n e s s i n t h e i m p l e m e n t a t i o n o f g o v e r n m e n t p o l i c i e s . The a c c e p t a n c e o f a d m i n i s t r a t i v e g u i d a n c e , on t h e o t h e r h a n d , c a n be r e c o g n i z e d a s a p a s s i v e f o r m o f p a r t i c i p a t i o n . The c l o s e r e l a t i o n s h i p b e t w e e n t h e g o v e r n m e n t a nd b u s i n e s s s y m b o l i z e d by zai kai a c t i v i t i e s a n d a d m i n i s t r a t i v e g u i d a n c e c o n t r i b u t e d t o t h e f l e x i b l e r e a c t i o n o f J a p a n t o t h e 1973 o i l c r i s i s . H o w e v e r , t h e u n i q u e g o v e r n m e n t - b u s i n e s s r e l a t i o n s h i p d o e s n o t e x p l a i n t h e b a s i c f e a t u r e o f J a p a n ' s e c o n o m i c r e c o v e r y f r o m t h e c r i s i s . I n d e e d , t h a t f e a t u r e i s s t i l l e x p l a i n e d by t h e r a t i o n a l i z a t i o n e f f o r t s made by e a c h company and i n d u s t r y f o l l o w i n g t h e m a r k e t m e c h a n i s m . T h i s p o i n t i s r e l a t e d t o t h e q u e s t i o n o f how much t h e g o v e r n m e n t c o n t r i b u t e d t o J a p a n e s e e c o n o m i c p e r f o r m a n c e a f t e r t h e c r i s i s . T h e r e i s no d o u b t t h a t t h e J a p a n e s e g o v e r n m e n t t o o k a s t r o n g i n i t i a t i v e i n t h e e c o n o m i c r e c o v e r y p r o c e s s a f t e r W o r l d War I I . T h r o u g h t h e t r a d e a n d c a p i t a l l i b e r a l i z a t i o n movements i n t h e 1 9 6 0 ' s , h o w e v e r , t h e g o v e r n m e n t g r a d u a l l y l o s t i t s a d m i n i s t r a t i v e power w h i c h was m a i n l y e n f o r c e d by v a r i o u s k i n d s o f a p p r o v a l a u t h o r i t i e s . On t h e o t h e r h a n d , J a p a n e s e i n d u s t r y i n c r e a s e d i t s i n t e r n a t i o n a l c o m p e t i t i v e power a n d came t o w o r r y a b o u t o v e r - i n t e r v e n t i o n by t h e g o v e r n m e n t . 1 2 6 I n d e e d , t h e g o v e r n m e n t h a d no e f f e c t i v e m e a s u r e t o p r o t e c t J a p a n e s e i n d u s t r y f r o m t h e 1973 o i l 1 2 6 M I T I e m p h a s i z e d t h e i m p o r t a n c e o f t h e m a r k e t m e c h a n i s m i n e c o n o m i c a c t i v i t i e s i n t h e i r v i s i o n f o r t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e a n n o u n c e d i n 1974. 1 0 2 c r i s i s , a n d t h e s t r u c t u r a l c h a n g e i n J a p a n e s e i n d u s t r y was f a c i l i t a t e d by t h e m a r k e t f o r c e . I n t h i s s e n s e , t h e l a c k o f i n t e r v e n t i o n by t h e g o v e r n m e n t e n c o u r a g e d J a p a n e s e i n d u s t r y t o r e c o v e r f r o m t h e o i l c r i s i s . The u n i q u e r e l a t i o n s h i p b e t w e e n t h e g o v e r n m n t a n d b u s i n e s s i n J a p a n b r o u g h t a b o u t e f f e c t i v e d i v i s i o n o f l a b o u r b e t w e e n them. The J a p a n e s e management s y s t e m a l s o c o n t r i b u t e d t o t h e J a p a n e s e r e c o v e r y f r o m t h e o i l c r i s i s . T h e r e a r e t h r e e e l e m e n t s w h i c h a r e u s u a l l y p o i n t e d o u t a s m a j o r c h a r a c t e r i s t i c s o f t h e J a p a n e s e management s y s t e m . They a r e t h e l i f e t i m e employment s y s t e m , t h e s e n i o r i t y s y s t e m and e m p l o y e e s ' l o y a l t y t o t h e i r company. I t i s n o t d i f f i c u l t t o d e m o n s t r a t e t h a t t h e s e e l e m e n t s c o n t r i b u t e d t o J a p a n ' s r e c o v e r y f r o m t h e o i l c r i s i s . F o r i n s t a n c e , a s n o t e d i n C h a p t e r T h r e e , m a j o r J a p a n e s e e l e c t r o n i c s c o m p a n i e s s e n t some o f t h e i r f a c t o r y e m p l o y e e s t o t h e i r r e t a i l e r s . T h e s e e m p l o y e e s were s t i l l p a i d by t h e i r o r i g i n a l c o m p a n i e s , b u t t h i s p o l i c y was e f f e c t i v e i n i n c r e a s i n g s a l e s a n d s u s p e n d i n g p r o d u c t i o n . The t e m p o r a r y t r a n s f e r o f l a b o r was p o s s i b l e p a r t l y b e c a u s e e m p l o y e e s u n d e r s t o o d t h a t t h e y were e m p l o y e d u n d e r t h e l i f e t i m e employment a n d s e n i o r i t y s y s t e m . I t was e x p e c t e d t h a t t h e y c o u l d come b a c k t o t h e i r company when t h e e c o n o m i c s i t u a t i o n i m p r o v e d . S u c h a t t i t u d e s c a n be i n t e r p r e t e d a s an a s p e c t o f company l o y a l t y on t h e p a r t o f e m p l o y e e s . H o w e v e r , t h e l o y a l t y i s o n l y m a i n t a i n e d w i t h t h e e x p e c t a t i o n t h a t t h e y w i l l e v e n t u a l l y o b t a i n b e n e f i t s by m a i n t a i n i n g i t . The l a b o u r - m a n a g e m e n t s y s t e m i n J a p a n s h o u l d 1 03 be i n t e r p r e t e d a s m u t u a l l y b e n e f i c i a l t o management a n d l a b o u r . 1 2 7 B o t h t h e c o n c e p t o f s o c i a l r e s p o n s i b i l i t y o f b u s i n e s s a n d t h e u n i q u e r e l a t i o n s h i p b e t w e e n t h e g o v e r n m e n t a n d b u s i n e s s a r e a l s o t h e r e s u l t o f an e c o n o m i c s y s t e m b a s e d on t h e p a r t i c u l a r g e o g r a p h i c a l a nd h i s t o r i a c l c o n d i t i o n s o f J a p a n . G e o g r a p h i c a l l y , J a p a n i s an i s l a n d c o u n t r y w i t h a homogeneous p o p u l a t i o n o f more t h a n 100 m i l l i o n . H i s t o r i c a l l y , t h e J a p a n e s e p o p u l a t i o n r e m a i n e d n e a r l y homogeneous f o r more t h a n 1,000 y e a r s . As a r e s u l t , J a p a n e s e p e o p l e h a v e , s o m e t i m e s p o t e n t i a l l y , a s t r o n g n a t i o n a l i d e n t i t y w h i c h l e a d s t o a s t r o n g s e n s e o f n a t i o n a l u n i t y 1 2 8 a t a t i m e o f c r i s i s . 1 2 7 I n t h i s r e s p e c t , t h e a u t h o r d o e s n o t a g r e e w i t h t h e e x p l a n a t i o n t h a t J a p a n e s e e m p l o y e e s h a v e a s t r o n g e r s e n s e o f l o y a l t y t o t h e i r company t h a n W e s t e r n e r s do. J a p a n e s e e m p l o y e e s work h a r d f o r t h e i r company m a i n l y b e c a u s e t h e y b e l i e v e t h a t i t i s t h e b e s t ( o r t h e o n l y ) way t o i n c r e a s e t h e i r own b e n e f i t s . The d i f f e r e n c e i s s e e n i n t h e s y s t e m r a t h e r t h a n i n t h e i r s e n s e o f l o y a l t y . 1 2 8 T h e d e f e a t i n W o r l d War I I seemed t o s t r e n g t h e n t h e s e n s e o f n a t i o n a l u n i t y i n J a p a n b e c a u s e J a p a n e s e p e o p l e h a d t o work t o g e t h e r i n o r d e r t o r e c o n s t r u c t t h e J a p a n e s e economy. 1 04 4. TABLES TABLE 4-1 CHANGES IN INTERMEDIATE INPUTS I N THE PROCESSING INDUSTRY - b i l l i o n y e n , ( s h a r e , % ) , 1975 b a s i s -1970 1975 1978 N o m i n a l - T o t a l i n t e r m e d i a t e 15,884 25,725 37,471 i n p u t s ( 6 4 . 3 ) ( 6 3 . 1) (6 4 . 6 ) - V a l u e a d d e d 8,799 15,039 20,550 ( 3 5 . 6 ) ( 3 6 . 9 ) ( 3 5 . 4 ) - E m p l o y e r ' s i n c o m e 4,068 8,070 11,545 ( 1 6 . 5 ) ( 1 9 . 8 ) ( 1 9 . 9 ) -GDP 24,684 40,763 58,021 ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) R e a l - T o t a l i n d e r m e d i a t e 24,661 25,725 35,995 i n p u t s ( 7 5 . 9 ) ( 6 3 . 1) (6 1 . 4 ) - E m p l o y e r ' s income 9,309 8,070 8,943 ( 2 8 . 7 ) ( 1 9 . 8 ) ( 1 5 . 3 ) -GDP 32,479 40,763 58,489 ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) S o u r c e : T o s h i m a s a T s u r u t a , Sengo Ni hon no Sangyo Seisaku ( T o k y o : N i h o n K e i z a i S h i n b u n s h a , 1 9 8 2 ) , p . 2 4 8 . N o t e : 1. The p r o c e s s i n g i n d u s t r y i n c l u d e s g e n e r a l m a c h i n e r y , e l e c t r i c m a c h i n e r y , t r a n s p o r t a t i o n m a c h i n e r y a n d p r e c i s i o n m a c h i n e r y . 2. C o n c e r n i n g t h e d e t a i l s o f d e f l a t o r s , s ee ibid. 105 TABLE 4-2 PRODUCTIVITY INCREASE I N THE PROCESSING INDUSTRY - 1975 b a s i s -G.M. E.M. T.M. P.M. M.G. 1970 95.0 75.5 8 3 . 1 79.2 86.2 1975 100.0 100.0 100.0 100.0 100.0 1977 125.3 131.1 113.8 159.3 1 19.2 1978 139. 1 150.5 118.1 179.8 129.6 1979 162.6 168.0 129.3 .233.5 141 .7 1980 180.9 191.4 149.7 311.6 150.6 G r o w t h R a t e 1 970-75 4.7 32.5 20.3 26.3 16.0 1975-80 80.9 91 .4 49.7 211.6 50.6 S o u r c e : T o s h i m a s a T s u r u t a , Sengo Ni hon no Sangyo Seisaku ( T o k y o : N i h o n K e i z a i S h i n b u n s h a , 1 9 8 2 ) , p . 2 4 9 . N o t e : 1. G . M . = g e n e r a l m a c h i n e r y , E . M . = e l e c t r i c m a c h i n e r y , T . M . t r a n s p o r t a t i o n m a c h i n e r y , P . M . = p r e c i s i o n m a c h i n e r y , M . G . = m a n u f a c t u r i n g i n g e n e r a l . 2. L a b o u r p r o d u c t i v i t y = p r o d u c t i o n i n d e x / e m p l o y e e s . TABLE 4-3 THE RATIO OF BUSINESS ESTABLISHMENTS IMPLEMENTING EMPLOYMENT ADJUSTMENT - M a n u f a c t u r i n g , % -1 974 1975 I & I I I I I I V I I I I I I I V More t h a n 1,000 31 52 76 85 81 79 74 e m p l o y e e s 300-999 30 49 70 77 76 69 56 100-299 21 35 62 70 64 53 47 30 - 99 17 25 43 53 51 47 33 S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Hokoku, 1976 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 6 ) , p. 177. N o t e : I ; J a n u a r y - M a r c h , I I ; A p r i l - J u n e , I I I ; J u l y - S e p t e m b e r , I V ; O c t o b e r - D e c e m b e r . CHAPTER F I V E CONCLUSION The m a j o r c o n c l u s i o n s o f t h e p r e c e d i n g c h a p t e r s c a n be s u m m a r i z e d a s f o l l o w s . The J a p a n e s e p o l i t i c a l s y s t e m c o n s i s t s o f t h e D i e t , t h e C a b i n e t a n d t h e b u r e a u c r a c y . The J a p a n e s e p o l i t i c a l s y s t e m i t s e l f f a c e d a t r a n s i t i o n when t h e 1973 o i l c r i s i s o c c u r r e d , a n d t h a t t r a n s i t i o n was c h a r a c t e r i z e d by t h r e e t r e n d s . F i r s t , t h e p o l i t i c a l d o m i n a n c e o f t h e L i b e r a l D e m o c r a t i c P a r t y i n t h e D i e t became w e a k e n e d . S e c o n d l y , t h e f a c t i o n a l s t r u g g l e s i n s i d e t h e p a r t y made p r i m e m i n i s t e r s ' t e n u r e s i n t h e 1970's s h o r t e r t h a n b e f o r e . T h i r d l y , p r i o r i t i e s i n p o l i c y - m a k i n g s h i f t e d f r o m p o s t w a r p o l i t i c a l i s s u e s t o t h e e c o n o m i c i s s u e s a r i s i n g f r o m r a p i d e c o n o m i c g r o w t h . A l l t h e s e t r e n d s r e f l e c t e d t h e f a c t t h a t t h e i n t e r e s t s o f J a p a n e s e p e o p l e , w h i c h h a d p r e v i o u s l y been u n i f i e d i n p u r s u i n g e c o n o m i c g r o w t h , became d i v e r s i f i e d a f t e r a c c o m p l i s h i n g i t . A t t h e same t i m e , t h e i n f l u e n c e o f t h e J a p a n e s e economy on t h e w o r l d i n c r e a s e d . I t was i n t h e c o n t e x t o f t h i s p o l i t i c a l s i t u a t i o n t h a t t h e 1973 o i l c r i s i s o c c u r r e d , c a u s i n g c o n s i d e r a b l e c o n f u s i o n w i t h i n t h e J a p a n e s e p o l i t i c a l s c e n e . The c o n f u s i o n was e v i d e n t i n t h e d i f f e r i n g o p i n i o n s v o i c e d i n s i d e t h e g o v e r n m e n t a n d i n t h e c o n f l i c t o f i n t e r e s t s among i n d u s t r i a l 106 1 07 s e c t o r s . T h e s e f a c t s make i t i n a p p r o p r i a t e t o e x p l a i n t h e J a p a n e s e p o l i t i c a l s y s t e m by e m p h a s i z i n g i t s u n i f i e d c h a r a c t e r . I t i s i m p o r t a n t t o i n v e s t i g a t e t h e m e c h a n i s m w h i c h o p e r a t e d t o c o o r d i n a t e t h e c o n f l i c t o f i n t e r e s t s w h i c h a r o s e . I n t h a t c o o r d i n a t i o n m e c h a n i s m , t h e b u r e a u c r a c y t o o k an i m p o r t a n t r o l e . I t was t h e C a b i n e t s u p p o r t e d by t h e b u r e a u c r a c y w h i c h f i r s t r e a c t e d t o t h e 1973 o i l c r i s i s a n d i m p l e m e n t e d t h e u r g e n t p o l i c i e s t o o v e r c o m e i t . A f t e r t h e M e i j i R e s t o r a t i o n t h e b u r e a u c r a c y a ssumed t h e r o l e o f c o o r d i n a t o r i n o r d e r t o c a t c h up w i t h W e s t e r n c o u n t r i e s . B u r e a u c r a t s were p r o v i d e d v a r i o u s k i n d s o f r e g u l a t o r y a u t h o r i t y t h r o u g h l i c e n s i n g a n d a u t h o r i z a t i o n p r o c e d u r e s , and t h e p r i v a t e s e c t o r a c q u i r e d a k i n d o f c o n s t i t u t i o n a l c u s t o m o f o b e y i n g them. A f t e r W o r l d War I I t h e r i g h t s o f t h e g o v e r n m e n t t o g r a n t p e r m i s s i o n a n d c e r t i f i c a t i o n d e c r e a s e d w i t h t h e d e v e l o p m e n t o f t h e J a p a n e s e economy a n d t h e l i b e r a l i z a t i o n o f t h e J a p a n e s e p o l i t i c a l a n d e c o n o m i c s y s t e m . H o w e v e r , t h e c u s t o m o f o b e y i n g t h e b u r e a u c r a t s p e r s i s t e d . The i n f l u e n c e o f t h e b u r e a u c r a c y i n J a p a n i s e x p l a i n e d by t h r e e f a c t o r s . F i r s t , i n t h e b u r e a u c r a c y t h e r e i s a c o n t i n u i t y b a s e d on t h e l i f e t i m e employment s y s t e m . The b u r e a c r a t s m a i n t a i n t h e i r power i n s p i t e o f , o r b e c a u s e o f , t h e f r e q u e n t c h a n g e s i n t h e C a b i n e t . On t h e o t h e r h a n d , s e n i o r b u r e a u c r a t s a r e o f t e n r e c r u i t e d by o r g a n i z a t i o n s a n d c o m p a n i e s a r o u n d t h e i r r e t i r e m e n t a g e s . T h i s r e c r u i t m e n t i s c a l l e d amakudari ( l i t e r a l l y m e a n i n g " d e s c e n d i n g f r o m 108 h e a v e n " ) . The amakudari r e f l e c t s t h e i n f l u e n c e o f t h e b u r e a u c r a c y i n J a p a n . S e c o n d l y , t h e J a p a n e s e b u r e a u c r a c y o f t e n i m p l e m e n t s a d m i n i s t r a t i v e g u i d a n c e w h i c h i s n o t b a s e d on l a w . The i m p l e m e n t a t i o n o f a d m i n i s t r a t i v e g u i d a n c e a l s o r e f l e c t s t h e i n f l u e n c e o f t h e b u r e a u c r a c y a n d t h e s p e c i a l r e l a t i o n s h i p b e t w e e n t h e g o v e r n m e n t a n d b u s i n e s s i n J a p a n . T h i r d l y , t h e a b i l i t y t o d r a f t a l a w p r o v i d e s t h e b u r e a u c r a t s w i t h b a r g a i n i n g power n o t o n l y w i t h p o l i t i c i a n s b u t a l s o w i t h c o m p a n i e s a n d t h e p u b l i c . T h u s , u s i n g i t s s p e c i a l p o s i t i o n a n d i n f l u e n c e , t h e J a p a n e s e b u r e a u c r a c y c o n t r i b u t e d t o J a p a n ' s r e c o v e r y f r o m t h e 1973 o i l c r i s i s . The 1973 o i l c r i s i s h a d a g r e a t i m p a c t on t h e J a p a n e s e economy b e c a u s e i t o c c u r r e d d u r i n g t h e t i m e o f t h e i n f l a t i o n a r y s i t u a t i o n c a u s e d m a i n l y by t h e " N i x o n s h o c k " i n 1971. S i n c e t h e i n e x p e n s i v e s u p p l y o f o i l was one o f t h e b a s i c e l e m e n t s w h i c h e n a b l e d J a p a n t o a c c o m p l i s h e c o n o m i c g r o w t h , t h e o i l c r i s i s s hook t h e J a p a n e s e e c o n o m i c s t r u c t u r e a t i t s f o u n d a t i o n s . J a p a n o v e r c a m e t h e d i f f i c u l t i e s c a u s e d by t h e o i l c r i s i s by c h a n g i n g i t s i n d u s t r i a l s t r u c t u r e . The f o c u s o f t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e s h i f t e d f r o m h e a v y a n d c h e m i c a l i n d u s t r i e s t o t h e p r o c e s s i n g a n d k n o w l e d g e - i n t e n s i v e i n d u s t r i e s . Two phenomena were b e h i n d t h i s c h a n g e . One was t h e e f f o r t s o f c o m p a n i e s t o c o n s e r v e e n e r g y a n d d e v e l o p a l t e r n a t i v e e n e r g y s o u r c e s . T h e s e e f f o r t s i n c r e a s e d t h e p r o d u c t i v i t y o f J a p a n e s e i n d u s t r y . The o t h e r was t h e c h a n g e among i n d u s t r i a l s e c t o r s . F o r i n s t a n c e , t h e 109 raw m a t e r i a l i n d u s t r y s u f f e r e d f r o m t h e c r i s i s n o t o n l y f r o m t h e i n c r e a s e i n t h e o i l p r i c e b u t a l s o f r o m t h e d e c r e a s e i n t h e demand f o r t h e i r p r o d u c t s . The d e c r e a s e i n t h e demand f o r m a t e r i a l s was a r e s u l t o f t h e r a t i o n a l i z a t i o n e f f o r t s made by t h e p r o c e s s i n g i n d u s t r y . As a r e s u l t , most i n d u s t r i e s d e p e n d e n t on o i l u s e became d e p r e s s e d i n d u s t r i e s . I t i s i m p o r t a n t t o remember t h a t t h e r a t i o n a l i z a t i o n e f f o r t s o f c o m p a n i e s b a s e d on t h e m a r k e t m e c h a n i s m c a u s e d t h e c h a n g e i n t h e J a p a n e s e i n d u s t r i a l s t r u c t u r e t h r o u g h w h i c h J a p a n r e c o v e r e d f r o m t h e o i l c r i s i s . J a p a n ' s e c o n o m i c r e a c t i o n t o t h e 1973 o i l c r i s i s r e v e a l e d an i m p o r t a n t c h a r a c t e r i s t i c o f t h e J a p a n e s e economy. J a p a n e s e e c o n o m i c d e v e l o p m e n t was a c c o m p l i s h e d by ^ p u r s u i n g e c o n o m i c e f f i c i e n c y a t t h e r i s k o f e c o n o m i c v u l n e r a b i l i t y . F o r i n s t a n c e , t h e p o l i t i c a l d e c i s i o n t o r e p l a c e c o a l by o i l i n c r e a s e d e c o n o m i c e f f i c i e n c y b u t a l s o i n c r e a s e d e c o n o m i c v u l n e r a b i l i t y . I n c r e a s e d v u l n e r a b i l i t y i n c r e a s e d t h e i m p a c t o f t h e o i l c r i s i s on t h e J a p a n e s e economy. One e s s e n t i a l e l e m e n t w h i c h e n a b l e d J a p a n t o r e c o v e r f r o m t h e c r i s i s was e c o n o m i c f l e x i b i l i t y . F o r i n s t a n c e , management p u t up w i t h t h e d e c r e a s e i n t h e i r p r o f i t s a n d l a b o u r p u t up w i t h t h e d e c r e a s e i n t h e i r r e a l i n c ome f o r t h e s a k e o f l o n g t e r m b e n e f i t s i n t h e r a t i o n a l i z a t i o n p r o c e s s . T h e r e were two m a i n c h a r a c t e r i s t i c s o f J a p a n e s e b u s i n e s s r e a c t i o n s t o t h e o i l c r i s i s . One was t h e r e a c t i o n o f b u s i n e s s l e a d e r s t o i n f l u e n c e t h e p o l i t i c a l 110 d e c i s i o n - m a k i n g p r o c e s s o f J a p a n . The o t h e r was t h e r e a c t i o n o f e a c h company t o r a t i o n a l i z e i t s p r o d u c t i o n p r o c e s s . I t was t h e r a t i o n a l i z a t i o n e f f o r t s w h i c h m a i n l y c o n t r i b u t e d t o J a p a n ' s r e c o v e r y f r o m t h e c r i s i s . H o w e v e r , t h e e f f o r t s t o i n f l u e n c e p o l i t i c a l d e c i s i o n - m a k i n g a l s o c o n t r i b u t e d t o t h e r e c o v e r y by p r e p a r i n g an a p p r o p r i a t e e n v i r o n m e n t f o r b u s i n e s s a c t i v i t i e s . I t i s o f t e n p o i n t e d o u t t h a t t h e r e a r e c o o p e r a t i v e r e l a t i o n s b e t w e e n t h e g o v e r n m e n t a n d b u s i n e s s a n d b e t w e e n management a n d t h e l a b o r i n J a p a n . However, s u c h c o o p e r a t i v e r e l a t i o n s do n o t r e a l l y e x p l a i n t h e e c o n o m i c p e r f o r m a n c e o f J a p a n . The e s s e n c e o f t h e J a p a n e s e b u s i n e s s r e a c t i o n l a y i n t h e s e v e r e c o m p e t i t i o n among c o m p a n i e s a n d i n d u s t r i a l s e c t o r s b a s e d on t h e m a r k e t m e c h a n i s m . The f l e x i b i l i t y o f t h e J a p a n e s e economy p o i n t e d o u t i n C h a p t e r T h r e e was a r e s u l t t h i s s e v e r e c o m p e t i t i o n . S e v e r e c o m p e t i t i o n i s a phenomenon n o t o n l y i n J a p a n b u t a l s o i n o t h e r i n d u s t r i a l c o u n t r i e s . T h e r e f o r e , t h e u n i q u e f e a t u r e o f J a p a n e s e b u s i n e s s s h o u l d be f o u n d i n t h e w i l l i n g n e s s o f c o m p a n i e s t o c o o p e r a t e w i t h e a c h o t h e r when f a c e d w i t h a c r i s i s . T h i s c o o p e r a t i v e a t t i t u d e d o e s n o t mean h e l p i n g e a c h o t h e r e x c l u s i v e l y b u t p a y i n g a t t e n t i o n t o t h e s i t u a t i o n o f o t h e r s . F o r i n s t a n c e , t h e s o c i a l r e s p o n s i b i l i t y o f b i g b u s i n e s s e s was e m p h a s i z e d when t h e o i l c r i s i s o c c u r r e d . I t was c o n t r a r y t o t h e s e n s e o f s o c i a l r e s p o n s i b i l i t y t o p u r s u e i n d i v i d u a l b e n e f i t s by i g n o r i n g t h e damage done t o t h e s o c i e t y . The c o o p e r a t i v e " a t t i t u d e was 111 a l s o s e e n i n t h e l a b o u r - m a n a g e m e n t r e l a t i o n s h i p . S i n c e most l a b o u r u n i o n s were c o m p a n y - b a s e d u n i o n s i n J a p a n , t h e y d i d n o t make r e q u e s t s w h i c h w o u l d b a n k r u p t c o m p a n i e s . I n d e e d , t h e r e was a c o e x i s t e n c e o f s e v e r e c o m p e t i t i o n a n d a c o o p e r a t i v e a t t i t u d e i n t h e J a p a n e s e b u s i n e s s r e a c t i o n t o t h e c r i s i s . The m a j o r c o n c l u s i o n s o f t h i s t h e s i s a r e f o c u s e d on t h e a n s w e r s t o two q u e s t i o n s . W h i c h o f t h e two m a j o r c o m p o n e n t s o f t h e J a p a n e s e s y s t e m , g o v e r n m e n t l e a d e r s h i p o r t h e m a r k e t m e c h a n i s m , was a more i m p o r t a n t d e t e r m i n a n t o f t h e s u c c e s s f u l J a p a n e s e r e s o l u t i o n o f t h e p r o b l e m s c a u s e d by t h e 1973 o i l c r i s i s ? S e c o n d l y , what was d i s t i n c t i v e a b o u t t h e J a p a n e s e r e a c t i o n t o t h e o i l c r i s i s a s o p p o s e d t o t h a t o f o t h e r c o u n t r i e s ? I n f a c t t h e s e two q u e s t i o n s a r e i n t e r r e l a t e d . An a l m o s t u n i v e r s a l o u t s i d e v i e w o f t h e J a p a n e s e s y s t e m i s t h a t i t i s e s s e n t i a l l y c o n s e n s u a l , d r a w i n g t o g e t h e r t h e v a r i o u s s e c t o r s o f t h e s o c i e t y i n a s e r i e s o f i n s t i t u t i o n a l i n t e r f a c e s w h i c h a l l o w c o n s e n s u s t o be r e a c h e d . T h i s p r o c e s s i s h e l p e d by t h e s u p p o s e d h o m o g e n e i t y o f J a p a n e s e s o c i e t y . W h i l e t h i s s t u d y d o e s n o t d i s p r o v e t h i s v i e w p o i n t , i t a l s o shows t h a t t h e r e were many s h a r p l y o p p o s e d f a c t i o n s w i t h i n J a p a n a t t h e t i m e o f t h e o i l c r i s i s a n d v a r i o u s d i f f e r e n t o p i n i o n s a s t o how t h e c r i s i s s h o u l d be r e s o l v e d . The e a s i n g o f t h e c r i s i s i n t h e e n d seems t o h a v e r e s t e d more upon t h e commitment o f v a r i o u s f a c t i o n s t o f i n d i n g a s o l u t i o n r a t h e r t h a n on a c l e a r c o n s e n s u s 1 12 c o n c e r n i n g what a c t i o n s s h o u l d be t a k e n t o f i n d a s o l u t i o n . Thus t h e p r i v a t e s e c t o r v o l u n t a r i l y a g r e e d t o r e d u c t i o n i n e n e r g y u s e ; t h e g o v e r n m e n t u s e d a m o r a l a r g u m e n t w i t h b u s i n e s s a n d c o n s u m e r s t o p e r s u a d e them t o r e d u c e e n e r g y demand f o r o i l - b a s e d e n e r g y . The l a c k o f d i r e c t i n t e r v e n t i o n by t h e g o v e r n m e n t e v e n s t i m u l a t e d s t r u c t u r a l c h a n g e i n J a p a n e s e i n d u s t r y b e c a u s e t h e m a r k e t was a b l e t o d e t e r m i n e w h i c h i n d u s t r y c o u l d be a d a p t a b l e t o t h e c r i s i s . B u s i n e s s was r e s p o n s i b l e i n r e f r a i n i n g f r o m p u r s u i n g e x c e s s i v e p r o f i t s d u r i n g t h i s p e r i o d . T h i s t h e s i s s u g g e s t s t h a t t h e J a p a n e s e r e a c t i o n t o t h e o i l c r i s i s was d i s t i n c t i v e i n t h e way t h a t t h e v a r i o u s s e c t o r s o f J a p a n e s e s o c i e t y were w i l l i n g t o make a v o l u n t a r y commitment t o n a t i o n a l g o a l s w i t h o n l y l i m i t e d d i r e c t g o v e r n m e n t i n t e r v e n t i o n i n t h e m a r k e t m e c h a n i s m . U l t i m a t e l y t h e u n d e r s t a n d i n g o f t h e J a p a n e s e s y s t e m may i n v o l v e more r e s e a r c h i n t o t h i s q u e s t i o n o f t h e v o l u n t a r y commitment t o n a t i o n a l g o a l s a t a l l l e v e l s o f t h e s o c i e t y r a t h e r t h a n t h e i n v e s t i g a t i o n o f t h e c o n c e p t o f c o n s e n s u s . 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I n t h i s r e s p e c t , t h i s a p p e n d i x r e v i e w s some a s p e c t s o f C a n a d a ' s r e a c t i o n t o t h e o i l c r i s i s f o c u s i n g on t h e d i f f e r e n c e s b e t w e e n t h e J a p a n e s e r e a c t i o n ' a n d t h e C a n a d i a n r e a c t i o n . T a b l e A-1 c o m p a r e s some a s p e c t s o f C a n a d a ' s r e a c t i o n t o t h e c r i s i s t o t h o s e o f J a p a n ' s r e a c t i o n by a d d i n g t h e r e l a t e d i n f o r m a t i o n t o T a b l e 1-3 i n C h a p t e r One. I n t h e f o l l o w i n g s e c t i o n s C a n a d a ' s r e a c t i o n t o t h e 1973 o i l c r i s i s i s r e v i e w e d f r o m t h e p o l i t i c a l a n d t h e e c o n o m i c a s p e c t s . 1. THE P O L I T I C A L ASPECTS O i l i s no l e s s i m p o r t a n t f o r C a n a d a t h a n f o r J a p a n . I t i s an i m p o r t a n t i t e m f o r J a p a n b e c a u s e J a p a n i s l a c k i n g i n d o m e s t i c o i l r e s e r v e s . I t i s a l s o an i m p o r t a n t i t e m f o r C a n a d a b e c a u s e Canada p o s s e s s e s l a r g e d o m e s t i c r e s e r v e s . I n t h i s s e c t i o n t h e p o l i t i c a l a s p e c t s o f C a n a d a ' s r e a c t i o n t o t h e 1973 o i l c r i s i s a r e i n v e s t i g a t e d . I t i s n e c e s s a r y t o r e v i e w t h e h i s t o r i c a l d e v e l o p m e n t o f C a n a d i a n e n e r g y p o l i c y 1 16 1 17 a f t e r W o r l d War I I b e f o r e i n v e s t i g a t i n g t h e p o l i t i c a l a s p e c t s . C a n a d i a n e n e r g y p o l i c y b e f o r e t h e 1973 o i l c r i s i s c a n be d i v i d e d i n t o two s t a g e s . The f i r s t s t a g e s t a r t e d i n 1946 a n d e n d e d i n 1959. The s e c o n d s t a g e s t a r t e d i n 1959 a n d e n d e d i n 1973. I n 1946 a new o i l f i e l d was d i s c o v e r e d i n L e d u c , A l b e r t a , by I m p e r i a l O i l L t d . I t was t h e f i r s t i n c i d e n t i n t h e p o s t w a r d e v e l o p m e n t o f t h e o i l i n d u s t r y i n t h e w e s t e r n p r o v i n c e s . A m a j o r c h a r a c t e r i s t i c o f t h i s s t a g e was t h a t o i l t r a n s a c t i o n s i n C a n a d a were g e n e r a l l y b a s e d on t h e m a r k e t m e c h a n i s m . M o s t o f t h e o i l p r o d u c e d i n t h e w e s t e r n p r o v i n c e s was e x p o r t e d t o t h e U n i t e d S t a t e s a t t h e U.S. d o m e s t i c o i l p r i c e . On t h e o t h e r h a n d , t h e e a s t e r n p r o v i n c e s i m p o r t e d o i l f r o m f o r e i g n c o u n t r i e s s u c h a s V e n e z u e l a a t t h e i n t e r n a t i o n a l p r i c e b e c a u s e t h e U.S. d o m e s t i c p r i c e was h i g h e r t h a n t h e i n t e r n a t i o n a l p r i c e due t o t h e U.S. o i l i m p o r t q u o t a p o l i c y . S i n c e C a n a d i a n o i l was m o s t l y p r o d u c e d by s u b s i d i a r i e s o f U.S. o i l c o m p a n i e s , i t was r e a s o n a b l e f o r t h e U n i t e d S t a t e s t o t r e a t C a n a d i a n o i l a s " d o m e s t i c o i l " by l e t t i n g i t be an e x c e p t i o n t o t h e q u o t a s y s t e m . C a n a d i a n p e o p l e w e l c o m e d t h i s p o l i c y b e c a u s e t h e y n e e d e d c a p i t a l t o d e v e l o p t h e i r o i l r e s e r v e s w h i c h , t h e y b e l i e v e d , e x i s t e d b e y o n d t h e i r c o n c e r n f o r s c a r c i t y . T h i s s i t u a t i o n c o n t i n u e d u n t i l t h e end o f t h e 1 9 5 0 ' s . The R o y a l C o m m i s s i o n on C a n a d a ' s E c o n o m i c P r o s p e c t s d e s c r i b e d t h e C a n a d i a n e n e r g y s c e n e i n i t s f i n a l r e p o r t s a s f o l l o w s : Our r e s o u r c e s o f t h e s e f o s s i l f u e l s , a l t h o u g h v e r y l a r g e , a r e n o t o f c o u r s e i n e x h a u s t i b l e ; a n d i t may 118 be t h a t i n r e t r o s p e c t t h e p e r i o d w i l l seem l i t t l e more t h a n an i n t e r l u d e . B u t i t p r o m i s e s t o be a g r e a t f e a s t w h i l e i t l a s t s . 1 2 9 On t h e o t h e r h a n d , J o h n D a v i s a n a l y z e d t h e r e l a t i o n s h i p b e t w e e n e c o n o m i c g r o w t h a n d e n e r g y u s e i n " C a n a d i a n E n e r g y P r o s p e c t s " ( D a v i s R e p o r t ) w h i c h was p u b l i s h e d i n M a r c h , 1957 a s p a r t o f t h e a c t i v i t i e s o f t h e R o y a l C o m m i s s i o n on C a n a d a ' s E c o n o m i c P r o s p e c t s . The D a v i s R e p o r t drew t h e a t t e n t i o n o f C a n a d i a n p e o p l e t o t h e i r e n e r g y u s e . R e s p o n d i n g t o t h e i n c r e a s e d a t t e n t i o n , t h e g o v e r n m e n t e s t a b l i s h e d t h e R o y a l C o m m i s s i o n on E n e r g y i n O c t o b e r , 1957. The c o m m i s s i o n e m p h a s i z e d t h e i m p o r t a n c e o f m a r k e t i n g s t r a t e g i e s i n f u r t h e r d e v e l o p i n g t h e C a n a d i a n o i l i n d u s t r y . The c o m m i s s i o n s t a t e d : The h i s t o r y o f t h e i n d u s t r y i n Canada s i n c e t h e d i s c o v e r y o f t h e L e d u c f i e l d i n A l b e r t a i n 1947 shows t h a t some s e c t i o n s o f t h e i n d u s t r y h a v e d i r e c t e d g r e a t e r e f f o r t s t o w a r d s t h e f i n d i n g a n d p r o d u c t i o n o f o i l r a t h e r t h a n t o c o n s i d e r a t i o n s o f m a r k e t s . I t i s o n l y w i t h i n r e c e n t months t h a t w o r l d c o n d i t i o n s i n t h e i n d u s t r y h a v e e m p h a s i z e d t h e i m p o r t a n c e o f e x p a n d i n g m a r k e t s s i m u l t a n e o u s l y w i t h t h e p r o v i n g a n d d e v e l o p m e n t o f r e s e r v e s . 1 3 0 B a s e d on t h i s u n d e r s t a n d i n g , t h e c o m m i s s i o n recommended t h e e s t a b l i s h m e n t o f a N a t i o n a l E n e r g y B o a r d . The m a i n c h a r a c t e r o f t h e b o a r d was e x p l a i n e d a s f o l l o w s : The N a t i o n a l E n e r g y B o a r d , a s a p e r m a n e n t body o f t h e G o v e r n m e n t o f C a n a d a , p r o v i d e s a f o r u m where t h e i n d u s t r y c a n d i s c u s s i t s p r o b l e m s a t t h e C a n a d i a n g o v e r n m e n t l e v e l . What i s p e r h a p s o f more i m p o r t a n c e , t h i s B o a r d a s an a g e n t o f t h e Gover n m e n t c a n a n d s h o u l d k e e p i n c l o s e t o u c h a t a l l t i m e s w i t h t h e i n d u s t r y , i n a l l i t s p h a s e s , a n d w i t h i t s 1 2 9 C a n a d a , R o y a l C o m m i s s i o n on C a n a d a ' s E c o n o m i c P r o s p e c t s , Final Report, ( O t t a w a : Edmond C l o u t i e r C.M.G., O.A., D.S.P. Queen's P r i n t e r a n d C o n t r o l l e r o f S t a t i o n e r y , 1 9 5 8 ) , p. 127. 1 3 0 C a n a d a , R o y a l C o m m i s s i o n on E n e r g y , Second Report O t t a w a : Edmond C l o u t i e r C.M.G., O.A., D.S.P. Queen's P r i n t e r a n d C o n t r o l l e r o f S t a t i o n e r y , 1 9 5 9 ) , p p . 6-33 - 6-34. 119 p r o b l e m s , a s t h e s e h a v e a b e a r i n g upon t h e p r o s p e r i t y o f t h e C a n a d i a n economy a n d o f t h e i n d u s t r y i t s e l f . C o n s e q u e n t l y , we b e l i e v e t h a t t h e p r o b l e m s i n v o l v e d i n s u c h l i c e n s i n g p r o c e d u r e c a n an d s h o u l d be r e s o l v e d t h r o u g h d i s c u s s i o n s b e t w e e n t h a t B o a r d a n d t h e i n d u s t r y i t s e l f . 1 3 1 The c o m m i s s i o n a l s o s u g g e s t e d t h a t " C a n a d i a n c r u d e s h o u l d s u p p l y t h e M o n t r e a l r e f i n e r y a r e a . " 1 3 2 T h i s r e c o m m e n d a t i o n was f u r t h e r e x p l a i n e d a s f o l l o w s : I n o t h e r w o r d s , i n o u r o p i n i o n , i f i t s h o u l d become a d v i s a b l e t o move C a n a d i a n c r u d e . t o M o n t r e a l i n o r d e r t o m a i n t a i n a h e a l t h y o i l i n d u s t r y i n C a n a d a , t h e n a l i c e n s i n g s y s t e m i n v o l v i n g r e s t r i c t i o n s on t h e i m p o r t a t i o n o f o v e r s e a s o i l w o u l d be n e c e s s a r y . 1 3 3 C a n a d i a n e n e r g y p o l i c y e n t e r e d i n t o t h e s e c o n d s t a g e when t h e N a t i o n a l E n e r g y B o a r d (NEB) was e s t a b l i s h e d i n 1959. As a m a i n c h a r a c t e r i s t i c o f t h i s s t a g e , t h e g o v e r n m e n t i n t e r v e n t i o n i n t h e o i l m a r k e t t h r o u g h t h e NEB s t a r t e d . The NEB was g i v e n t h e r o l e s o f r e g u l a t i n g t h e c o n s t r u c t i o n a n d o p e r a t i o n o f i n t e r p r o v i n c i a l a n d i n t e r n a t i o n a l p i p e l i n e s , m o n i t o r i n g e n e r g y p r o d u c t i o n a n d a d v i s i n g t h e C a b i n e t on e n e r g y r e l a t e d i s s u e s , a n d l i c e n s i n g t r a d e i n o i l , g a s a n d e l e c t r i c i t y s u b j e c t t o t h e a p p r o v a l o f t h e C a b i n e t . I n 1961 t h e N a t i o n a l O i l P o l i c y was a n n o u n c e d . As a r e s u l t , t h e C a n a d i a n o i l m a r k e t was s e p a r a t e d i n t o two r e g i o n s . The r e g i o n w e s t o f t h e O t t a w a V a l l e y was r e s e r v e d f o r d o m e s t i c o i l , a n d t h e r e g i o n e a s t o f i t was open f o r i m p o r t e d o i l . U n d e r t h e N a t i o n a l O i l P o l i c y t h e i n f l u e n c e o f t h e U n i t e d S t a t e s became s t r o n g e r . C a n a d i a n e n e r g y p o l i c i e s p. 6-28. p. 6-29. 1 3 Ubid. , y 3 2 I b i d . * 3 3 I b i d . , 120 d u r i n g t h e 1960's were e v e n r e c o g n i z e d a s " e x t e n s i o n s o f A m e r i c a n m a n d a t o r y i m p o r t s y s t e m . " 1 3 " R e s e r v e d f o r C a n a d i a n o i l p r o d u c e d by U.S. c a p i t a l i n t h e w e s t e r n p r o v i n c e s , t h e r e g i o n w e s t o f t h e O t t a w a V a l l e y became a p a r t o f t h e U.S. o i l m a r k e t . From t h e l a t e 1960's t h e r e l a t i o n s h i p b e t w e e n C anada a n d t h e U n i t e d S t a t e s g r a d u a l l y c h a n g e d . On t h e C a n a d i a n s i d e t h e i n c r e a s e d e n e r g y c o n s u m p t i o n d u r i n g t h e ^ 6 0 ' s s t r e n g t h e n e d t h e e n e r g y s e c u r i t y c o n c e p t o f C a n a d i a n s . On t h e U.S. s i d e , e s p e c i a l l y a f t e r t h e A r a b - I s r a e l i War i n 1967, t h e U.S. g o v e r n m e n t became i n c r e a s i n g l y c o n c e r n e d o v e r o i l b o y c o t t s by A r a b c o u n t r i e s a n d t h e i r i n f l u e n c e on t h e U.S.-Canada e n e r g y t r a d e . The o i l b o y c o t t s w o u l d a l s o d e c r e a s e C a n a d i a n o i l i m p o r t s a n d C a n a d i a n o i l e x p o r t s t o t h e U n i t e d S t a t e s . As a r e s u l t , t h e U n i t e d S t a t e s e x p r e s s e d i t s d e s i r e f o r c o n t r a c t i n g a f o r m a l e n e r g y p a c t w i t h C a n a d a . F o r i n s t a n c e , t h e N i x o n g o v e r n m e n t c u t o i l i m p o r t s f r o m C a nada t o p r e s s Canada i n t o a l o n g t e r m e n e r g y a g r e e m e n t . 1 3 5 C a n a d i a n E n e r g y M i n i s t e r G r e e n e e m p h a s i z e d t h r e e p o i n t s i n r e s p o n d i n g t o t h e U.S. i m p o r t c u t : . . . C a n a d i a n p u b l i c o p i n i o n i s i n t e r p r e t i n g t h i s a s a p r e s s u r e p l a y , t o s q u e e z e Canada i n t o some f o r m o f e n e r g y d e a l w h i c h w o u l d n o t be t o t h e C a n a d i a n a d v a n t a g e . 1 3 6 . . . C a n a d i a n g a s w i l l be a v a i l a b l e t o s u p p l e m e n t U n i t e d S t a t e s s u p p l i e s o n l y i f o u r p e t r o l e u m i n d u s t r y a s a w h o l e r e c e i v e s t h e i n c e n t i v e s o f p r o g r e s s i v e g r o w t h a nd a s s u r e d s t a b i l i t y o f a c c e s s t o e x p o r t m a r k e t s f o r o i l a n d n a t u r a l gas 1 3 f t J a m e s L a x e r , Canada's Energy Crisis ( T o r o n t o : James L o r i m e r & Company P u b l i s h e r s , 1 9 7 5 ) , p. 7 1 . 1 3 5 / f c / r f . , p. 75. 1 3 6 / 6 / r f . 121 l i q u i d s . 1 3 7 . . . I t must be l e f t t o u s , t o C a n a d i a n s , t o e v a l u a t e t h e m a t t e r o f o i l s u p p l y s e c u r i t y i n e a s t e r n Canada a n d t o t a k e any a p p r o p r i a t e a c t i o n . 1 3 8 R e s p o n d i n g t o t h i s P r e s i d e n t N i x o n e m p h a s i z e d " C a n a d i a n i d e n t i t y " i n h i s s p e e c h d u r i n g h i s v i s i t t o O t t a w a i n 1972. H o w e v e r , a s f a r a s t h e g a s e x p o r t s a n d t h e o i l s u p p l y t o e a s t e r n Canada were c o n c e r n e d , t h e U n i t e d S t a t e s d i d n o t r e a l l y h a v e t o w o r r y a b o u t G r e e n e ' s s t a t e m e n t . I n Se p t e m b e r 1970, t h e C a n a d i a n g o v e r n m e n t a p p r o v e d t h e l a r g e s t g a s e x p o r t s t o t h e U n i t e d S t a t e s e v e n t h o u g h t h e o i l i m p o r t c u t by t h e U.S. g o v e r n m e n t was s t i l l c o n t i n u e d . I n J a n u a r y 1973, G r e e n e ' s s u c c e s s o r a s e n e r g y m i n i s t e r , D o n a l d M a c d o n a l d , a d m i t t e d t h a t he had been e n g a g e d i n s e c r e t n e g o t i a t i o n s w i t h t h e U n i t e d S t a t e s c o n c e r n i n g t h e o i l s u p p l y t o e a s t e r n C a n a d a . 1 3 9 C a n a d i a n c o n c e r n s f o r e n e r g y s e c u r i t y were e m b o d i e d i n "An E n e r g y P o l i c y f o r C a n a d a " p r e s e n t e d i n J u n e 1973. T h i s r e p o r t d i s c u s s e s f o u r c a s e s o f e n e r g y d e v e l o p m e n t w i t h r e q u i r e d c a p i t a l c o s t s . 1 " 0 However, t h e o i l c r i s i s o f l a t e 1973 h a d l a r g e i m p a c t s w h i c h went b e y o n d any o f t h e f o u r c a s e s d i s c u s s e d i n t h e r e p o r t . E v e n b e f o r e t h e c r i s i s , t h e g r a d u a l l y r i s i n g p r i c e o f o i l was d r a w i n g more a n d more a t t e n t i o n o f C a n a d i a n p e o p l e t o p r o b l e m o f how t h e i r d o m e s t i c o i l m i g h t b e s t be u s e d . * 3 7 I b i d . r p." 76. 1 3 B I b i d . 1 3 9 / f c / r f . , p. 77. 1 f l 0 C a n a d a , M i n i s t r y o f E n e r g y , M i n e s a n d R e s o u r c e s , An Energy Policy for Canada, Phase 1, V o l . 1: Analysis ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 3 ) , pp. 210-216. 122 U n d e r t h e B r i t i s h N o r t h A m e r i c a A c t , t h e p r o v i n c e s owned t h e n a t u r a l r e s o u r c e s w i t h i n t h e i r b o u n d a r i e s . On t h e o t h e r h a n d , t h e f e d e r a l g o v e r n m e n t c o n t r o l l e d commerce i n v o l v i n g i n t e r p r o v i n c i a l o r i n t e r n a t i o n a l t r a d e . F o l l o w i n g t h i s r u l e , t h e f e d e r a l g o v e r n m e n t i n s i s t e d on i t s j u r i s d i c t i o n o v e r C a n a d i a n o i l a c r o s s p r o v i n c i a l a n d i n t e r n a t i o n a l b o u n d a r i e s , a n d a n n o u n c e d c r u d e o i l e x p o r t c o n t r o l s t o b e g i n on M a r c h 1, 1973. T h o u g h t h e e x p o r t q u o t a s e t by t h e N a t i o n a l E n e r g y B o a r d was n o t so r e s t r i c t i v e m a i n l y b e c a u s e t h e o i l s u p p l y h a d a l r e a d y become t i g h t , t h e f e d e r a l g o v e r n m e n t s t e a d i l y s t r e n g t h e n e d t h i s s t a n c e a s o i l p r i c e s i n c r e a s e d . I n a d d i t i o n , i n S e p t e m b e r 1973, P r i m e M i n i s t e r T r u d e a u made an a n n o uncement i n w h i c h t h e N a t i o n a l O i l P o l i c y was s c r a p p e d . 1 a 1 H i s announcement c o n s i s t e d o f t h r e e p o i n t s : f r e e z i n g t h e o i l p r i c e i n C a n a d a u n t i l J a n u a r y 30, 1974; m o d e r a t i n g t h e i n f l u e n c e o f h i g h o i l p r i c e s i n t h e U.S. o i l m a r k e t ; a n d d i s c u s s i o n w i t h p r o v i n c e s and i n d u s t r i e s on p i p e l i n e s . On t h e one h a n d , t h e T r u d e a u g o v e r n m e n t i n t e n d e d t o k e e p t h e C a n a d i a n d o m e s t i c o i l p r i c e l o w e r t h a n t h e i n t e r n a t i o n a l o i l p r i c e . On t h e o t h e r h a n d , i t i m p o s e d t a x on o i l e x p o r t s a n d u s e d a p a r t o f t h e t a x r e v e n u e t o s u b s i d i z e d o m e s t i c m a n u f a c t u r e r s m a i n l y l o c a t e d i n O n t a r i o a n d Quebec. The w e s t e r n p r o v i n c e s a l s o i n t e n d e d t o u t i l i z e t h e i r o i l r e s e r v e s f o r t h e i r b e n e f i t s . I n F e b r u a r y 1973, P e t e r L o u g h e e d , P r e m i e r o f A l b e r t a , d e c l a r e d , " A l b e r t a c r u d e 1 " 1 James L a x e r , op. c i t . , pp. 8 4 - 8 5 . 123 b e l o n g s t o t h e p e o p l e o f A l b e r t a . " 1 * 2 He t r i e d t o d e s t r o y t h e f e d e r a l e x p o r t t a x p o l i c y by r a i s i n g p r o v i n c i a l r o y a l t i e s . 1 * 3 The B l a k e n e y g o v e r n m e n t o f S a s k a t c h e w a n d e c i d e d t o i n t r o d u c e a p r o v i n c i a l t a x on o i l c o m p a n i e s o p e r a t i n g i n t h e p r o v i n c e i n December 1973. The c o n f l i c t b e t w e e n t h e f e d e r a l g o v e r n m e n t a n d t h e w e s t e r n p r o v i n c e s was c h a r a c t e r i z e d by t h e s t r u g g l e f o r t h e w i n d f a l l p r o f i t s o f the. o i l c r i s i s . T h e r e were a l s o i m p o r t a n t h i s t o r i c a l a n d e c o n o m i c e l e m e n t s . I t was s o m e t i m e s p o i n t e d o u t t h a t O n t a r i o h a d h e l p e d d e v e l o p t h e A l b e r t a p e t r o l e u m i n d u s t r y by p a y i n g t h e h i g h e r o i l p r i c e d u r i n g t h e 1 9 6 0 ' s . 1 4 4 I n " O n t a r i o E n e r g y R e p o r t " p u b l i s h e d i n 1973, J o h n J . D e u t c h d e s c r i b e d t h e N a t i o n a l O i l P o l i c y a s f o l l o w s : The N a t i o n a l O i l P o l i c y was d e s i g n e d t o s t i m u l a t e w e s t e r n C a n a d i a n o i l p r o d u c t i o n a n d t o p r o m o t e C a n a d i a n d e v e l o p m e n t by m a x i m i z i n g t h e d o m e s t i c u s e o f C a n a d i a n o i l w h i l e a l l o w i n g i m p o r t s t o s e r v e t h a t p a r t o f e a s t e r n O n t a r i o i d e n t i f i e d w i t h t h e O t t a w a V a l l e y a n d t h e r e m a i n d e r o f e a s t e r n C a n a d a . P r i o r t o 1961, O n t a r i o ' s d o m e s t i c c r u d e o i l s u p p l y was augmente d by d e c r e a s i n g , b u t s t i l l a p p r e c i a b l e , q u a n t i t i e s o f l o w e r c o s t i m p o r t e d c r u d e o i l . 1 4 5 I t i s o b s e r v e d t h a t t h e O n t a r i o g o v e r n m e n t r e p r e s e n t e d t h e i n t e r e s t s o f m a n u f a c t u r e r s i n t h e p r o v i n c e w h i l e t h e A l b e r t a g o v e r n m e n t r e p r e s e n t e d t h a t o f o i l p r o d u c e r s i n t h e p r o v i n c e . I t i s ev e n more i m p o r t a n t t h a t m a j o r s e g m e n t s o f b o t h O n t a r i o ' s m a n u f a c t u r e r s a n d A l b e r t a ' s o i l p r o d u c e r s a r e " 2 I b i d . , p. 79. 1 4 3 L e s t e r A. S o b e l , e d . Energy Crisi s, Vol. 1 (1969-1973) (New Y o r k : F a c t s on F i l e , I n c . , 1 9 7 4 ) , p. 239. 1 4 4 J a m e s L a x e r , op. c i t . , p. 92. 1 4 5 C a n a d a , O n t a r i o , A d v i s o r y C o m m i t t e e on E n e r g y , Energy in Ontario, 2 v o l s . ( T o r o n t o : The G o v e r n m e n t o f O n t a r i o , ' 1 9 7 3 ) , p. 132. 124 owned by U.S. c a p i t a l . C a n a d a ' s p o l i t i c a l r e a c t i o n t o t h e o i l c r i s i s r e f l e c t e d n o t o n l y i t s g e o g r a p h i c a l b a c k g r o u n d b u t a l s o i t s e c o n o m i c b a c k g r o u n d . 2. THE ECONOMIC ASPECTS (1) Major Changes i n the Canadian Economy As f a r as b a s i c e c o n o m i c s t a t i s t i c s a r e c o n c e r n e d , t h e e c o n o m i c s i t u a t i o n o f Canada a r o u n d t h e 1973 o i l c r i s i s was b e t t e r t h a n t h a t o f J a p a n . As shown i n T a b l e 3-12 o f C h a p t e r T h r e e , C anada m a i n t a i n e d h i g h g r o w t h r a t e s a t l e a s t u n t i l t h e f i r s t h a l f o f 1974. On t h e c o n t r a r y , t h e g r o w t h r a t e o f J a p a n was c o n s i d e r a b l y d e c r e a s e d f r o m 11.0% i n 1971-72 t o - 3 . 3 % i n 1974. (How e v e r , t h e r a t e i n c r e a s e d t o 3.0% i n t h e s e c o n d h a l f o f 1 974.) The c o m p a r a t i v e l y g o o d c o n d i t i o n o f t h e C a n a d i a n economy i s a l s o i n d i c a t e d by t h e i n t e r n a t i o n a l c o m p a r i s o n o f consu m e r p r i c e i n d i c e s i n T a b l e A-2. The a v e r a g e a n n u a l r a t e o f c h a n g e f r o m 1973 t o 1974 was 10.9% f o r C a n a d a , w h i c h was t h e l o w e s t f i g u r e e x c e p t f o r t h a t o f Germany. The c u r r e n t a c c o u n t b a l a n c e s o f m a j o r i n d u s t r i a l c o u n t r i e s i n T a b l e A-3 f u r t h e r show t h a t Canada m a i n t a i n e d a c o m p a r a t i v e l y good e c o n o m i c s i t u a t i o n . T hough t h e c u r r e n t b a l a n c e s o f Canada i n 1974 was d e f i c i t , t h e amount o f t h e d e f i c i t was s t i l l s m a l l e r t h a n t h o s e o f t h e U n i t e d S t a t e s a n d J a p a n . 125 T h e r e a r e , h o w e v e r , s e v e r a l s t a t i s t i c s w h i c h i n d i c a t e e c o n o m i c p r o b l e m s i n C a n a d a . T a b l e A-4 shows t h e v o l u m e o f C a n a d i a n t r a d e . I n t h i s t a b l e i t i s c l e a r t h a t t h e i n c r e a s e r a t e o f i m p o r t s was h i g h e r t h a n t h a t o f e x p o r t s i n 1974 a n d 1975. As a r e s u l t , t h e b a l a n c e o f C a n a d a ' s m e r c h a n d i s e t r a d e was i n d e f i c i t i n 1975. The i n c r e a s e i n C a n a d a ' s i m p o r t s i s p a r t l y e x p l a i n e d by t h e e x p a n s i o n o f C a n a d a ' s d o m e s t i c demand. F o r i n s t a n c e , T a b l e A-5 shows t h a t b o t h l a b o u r i ncome a n d p r o f i t s p e r u n i t o f o u t p u t i n c r e a s e d f r o m 1973 t o 1974 d e s p i t e t h e d e c r e a s e i n r e a l GNP. On t h e one h a n d , t h e i n c r e a s e i n l a b o u r income a n d p r o f i t s c o n t r i b u t e d t o t h e e x p a n s i o n o f t h e d o m e s t i c demand. On t h e o t h e r h a n d , h o w e v e r , b o t h unemployment .and l a b o u r p r o d u c t i v i t y d e c r e a s e d a n d l a b o u r c o s t p e r u n i t o f o u t p u t i n c r e a s e d . T h e s e e l e m e n t s u s u a l l y d e c r e a s e t h e c o m p e t i t i v e power o f t h e i n d u s t r y . The 1973 o i l c r i s i s c o n t r i b u t e d t o t h e i n c r e a s e i n b o t h p r o f i t s a n d l a b o u r income o f C a n a d i a n p e o p l e . T h e r e f o r e , t h e r e was n o t s t r o n g p r e s s u r e on C a n a d i a n i n d u s t r y t o i n c r e a s e i t s p r o d u c t i v i t y . T h i s c o n t r a s t e d w i t h t h e J a p a n e s e c a s e i n w h i c h t h e o i l c r i s i s d e c r e a s e d p r o f i t s a n d l a b o u r i n come a n d J a p a n e s e i n d u s t r y h a d t o i n c r e a s e i t s p r o d u c t i v i t y t o o v e r c o m e t h e c r i s i s . I t i s i m p o r t a n t t o p o i n t o u t t h a t t h e a v a i l a b i l i t y o f o i l i n C a n a d a d i s c o u r a g e d t h e e f f o r t t o i n c r e a s e t h e p r o d u c t i v i t y a n d i n t h e l o n g r u n d e c r e a s e d t h e c o m p e t i t i v e power o f C a n a d i a n i n d u s t r y . 1 4 6 1 4 6 D o n a l d J . D a l y p o i n t e d o u t t h a t t h e i n c r e a s e i n p e r u n i t l a b o u r c o s t s i n Canada d e c r e a s e d t h e c o m p e t i t i v e power o f C a n a d i a n i n d u s t r y . See D o n a l d J . D a i l y , " C a nada's I n t e r n a t i o n a l C o m p e t i t i v e P ower" ( T h i s p a p e r was p r e p a r e d 126 (2) The B a s i c C h a r a c t e r i s t i c s of Canadian Industry The i n d u s t r i a l c o m p o s i t i o n o f Canada i s shown i n T a b l e A-6 a n d T a b l e 3-7. T a b l e A-6 shows t h e p r o d u c t i o n s h a r e s o f i n d u s t r i a l s e c t o r s . The s h a r e o f p r i m a r y i n d u s t r y g r a d u a l l y d e c r e a s e d a n d t h o s e o f s e c o n d a r y a n d t e r t i a r y i n d u s t r i e s g r a d u a l l y i n c r e a s e d . T h i s t r e n d i s more a p p a r e n t i n T a b l e A-7. The employment s h a r e o f p r i m a r y i n d u s t r y a n d s e c o n d a r y i n d u s t r y d e c r e a s e d , a nd o n l y t h a t o f t h e t e r t i a r y i n d u s t r y i n c r e a s e d . As f a r a s t h e e f f e c t s o f t h e o i l c r i s i s a r e c o n c e r n e d , i t i s i m p o r t a n t t o i n v e s t i g a t e t h e s i t u a t i o n o f p r i m a r y i n d u s t r y a s a s u p p l i e r o f o i l a nd g a s a n d s e c o n d a r y i n d u s t r y a s a c o n s u m e r o f them. Compared t o J a p a n e s e i n d u s t r y , C a n a d i a n i n d u s t r y h a s two m a j o r c h a r a c t e r i s t i c s : t h e h i g h r a t i o o f f o r e i g n o w n e r s h i p o f c o m p a n i e s and t h e i r g e o g r a p h i c a l l o c a t i o n . The f o r e i g n o w n e r s h i p a nd c o n t r o l o f C a n a d i a n i n d u s t r y i s s u m m a r i z e d i n T a b l e A-8. I n 1967, t h e f o r e i g n o w n e r s h i p a n d c o n t r o l i n t h e m a n u f a c t u r i n g s e c t o r were 52% a n d 57% r e s p e c t i v e l y . As shown i n t h e t a b l e most o f t h e f o r e i g n o w n e r s h i p a n d c o n t r o l were i n t h e h a n d s o f U.S. c o m p a n i e s . The f o r e i g n o w n e r s h i p a nd c o n t r o l were s t i l l h i g h e r i n t h e p e t r o l e u m a n d n a t u r a l gas s e c t o r . I n 1967, b o t h o f them were more t h a n 6 0 % . The o w n e r s h i p a n d c o n t r o l by t h e U n i t e d S t a t e s were more t h a n 50%. T h o u g h t h e f o r e i g n o w n e r s h i p d e c r e a s e d f r o m 6 2 % i n 1967 t o 5 9 % i n 1973, t h e f o r e i g n 1 4 6 ( c o n t ' d ) f o r N a t i o n a l E c o n o m i c C o n f e r e n c e h e l d i n O t t a w a f r o m M a r c h 22 t o 2 3 , 1985.) 127 c o n t r o l i n c r e a s e d f r o m 74% t o 7 9 % . The l o c a t i o n o f m a j o r i n d u s t r i e s i s shown i n t h e f o l l o w i n g t a b l e s . T a b l e A-9 shows t h e l o c a t i o n o f e x p l o i t a b l e o i l r e s e r v e s i n C a n a d a . A b o u t 80% i s l o c a t e d i n A l b e r t a a n d 14% i s l o c a t e d i n S a s k a t c h e w a n . On t h e o t h e r h a n d , T a b l e A-10 shows t h e s h a r e s o f p r o v i n c e s i n t h e m a n u f a c t u r i n g s e c t o r . More t h a n 7 5 % o f e m p l o y e e s e n g a g e d i n m a n u f a c t u r i n g w o r k e d i n O n t a r i o a n d Quebec w h i c h h a d 6 2 % o f C a n a d a ' s t o t a l p o p u l a t i o n . B o t h t h e p r o d u c t s h a r e a n d t h e v a l u e a d d e d s h a r e o f t h e s e p r o v i n c e s a c c o u n t f o r t h e same l e v e l . M o r e o v e r , T a b l e A—11 shows t h e t o p 10 i n d u s t r i a l s i n C a n a d a . Among them, two c o m p a n i e s were s u b s i d i a r i e s o f U.S. a u t o m o b i l e c o m p a n i e s i n O n t a r i o . F o u r o f t h e r e s t w e r e s u b s i d i a r i e s o f U.S. o i l c o m p a n i e s e x p l o r i n g m a i n l y i n w e s t e r n p r o v i n c e s . 3. THE CHARACTERISTICS OF THE CANADIAN REACTION TO THE OIL  C R I S I S T h e r e a r e t h r e e m a j o r d i f f e r e n c e s b e t w e e n t h e J a p a n e s e a n d t h e C a n a d i a n r e a c t i o n . F i r s t , u n d e r t h e c e n t r a l i z e d p o l i t i c a l s y s t e m t h e J a p a n e s e b u r e a u c r a c y i m p l e m e n t e d v a r i o u s p o l i c y m e a s u r e s t o r e c o v e r f r o m t h e c r i s i s . I n Canada t h e p o l i t i c a l power was d i v e r s i f i e d among t h e f e d e r a l a n d p r o v i n c i a l g o v e r n m e n t s . T h e r e f o r e , i t was d i f f i c u l t t o f i n d a s t r o n g b u r e a u c r a t i c power t h a t r e p r e s e n t e d t h e p u b l i c i n t e r e s t s o f C a n a d a . The p o l i t i c a l c o n f l i c t s b e t w e e n t h e f e d e r a l a n d p r o v i n c i a l 128 * g o v e r n m e n t s r e f l e c t e d t h a t e a c h g o v e r n m e n t w o r k e d f o r t h e i n t e r e s t s o f i t s s u p p o r t e r s r a t h e r t h a n t o c r e a t e a c o n s e n s u s among C a n a d i a n s . I n o t h e r w o r d s , i t seemed t o be l e s s e x p e c t e d i n Canada t h a n i n J a p a n t h a t t h e g o v e r n m e n t s h o u l d p r o t e c t t h e p u b l i c i n t e r e s t a g a i n s t i n d i v i d u a l i n t e r e s t s . S e c o n d l y , t h e 1973 o i l c r i s i s showed how v u l n e r a b l e t h e J a p a n e s e economy was, and J a p a n ' s r e a c t i o n t o t h e c r i s i s showed how f l e x i b l e t h e J a p a n e s e economy was. The C a n a d i a n economy was l e s s v u l n e r a b l e a s f a r a s t h e a v a i l a b i l i t y o f o i l was c o n c e r n e d . I n d e e d , C anada t o o k a d v a n t a g e o f t h e i n c r e a s e i n i n t e r n a t i o n a l o i l p r i c e s . The i n c r e a s e i n i n t e r n a t i o n a l o i l p r i c e s p r o v i d e d o i l p r o d u c i n g p r o v i n c e s w i t h a r e v e n u e i n c r e a s e a n d t h e f e d e r a l g o v e r n m e n t w i t h f u n d s t o s u b s i d i z e e a s t e r n m a n u f a c t u r e s . The 1973 o i l c r i s i s p r o v i d e d C a n a d i a n i n d u s t r y w i t h a c h a n c e t o i n c r e a s e p r o f i t a n d l a b o u r i ncome r a t h e r t h a n i n c r e a s e p r o d u c t i v i t y . As a r e s u l t , C a n a d i a n i n d u s t r y f a c e d a d e c r e a s e i n i t s c o m p e t i t i v e power when o t h e r i n d u s t r i a l c o u n t r i e s i n c l u d i n g J a p a n r e c o v e r e d f r o m t h e c r i s i s . T h i s e x a m p l e shows how a s h o r t t e r m b e n e f i t f o r i n d u s t r y damaged t h e i n d u s t r y i n t h e l o n g t e r m . T h i r d l y , J a p a n e s e b u s i n e s s p l a y e d an i m p o r t a n t r o l e i n J a p a n ' s r e a c t i o n t o t h e c r i s i s . J a p a n ' s r e c o v e r y f r o m t h e c r i s i s was l a r g e l y o w i n g t o t h e r a t i o n a l i z a t i o n e f f o r t s by J a p a n e s e c o m p a n i e s b a s e d on t h e m a r k e t m e c h a n i s m . On t h e o t h e r h a n d , t h e J a p a n e s e c o o p e r a t e d w i t h t h e g o v e r n m e n t i n 129 i n p l e m e n t i n g p o l i c y m e a s u r e s i n c l u d i n g a d m i n i s t r a t i v e g u i d a n c e . I t i s d i f f i c u l t t o i m a g i n e t h a t t h e J a p a n e s e m o d e l o f a d m i n i s t r a t i v e g u i d a n c e w o u l d work i n a c o u n t r y l i k e C a n a d a . F i r s t , C a n a d i a n b u s i n e s s d o e s n o t seem t o e x p e c t t h e g o v e r n m e n t t o t a k e on t h e r o l e o f t h e c e n t r a l c o o r d i n a t o r . S e c o n d l y , s i n c e a d m i n i s t r a t i v e g u i d a n c e i s u s u a l l y u s e d a s a means t o c o n t r o l b u s i n e s s a c t i v i t i e s f o r t h e l o n g e r t e r m b e n e f i t o f t h e i n d u s t r y o r t h e b r o a d e r b e n e f i t o f J a p a n , i t i s n o t e f f e c t i v e i n Canada where t h e s h o r t t e r m b e n e f i t o f t e n seems t o be more i m p o r t a n t t h a n t h e l o n g t e r m b e n e f i t . F i n a l l y , t h e C a n a d i a n r e a c t i o n c a n be c o m p a r e d t o t h e J a p a n e s e r e a c t i o n by c o n s i d e r i n g U.S. i n f l u e n c e . As s t a t e d i n C h a p t e r One, U.S. i n f l u e n c e was v e r y s t r o n g i n t h e p r o c e s s o f d e c i s i o n - m a k i n g i n J a p a n . The i n f l u e n c e was a p p a r e n t i n two a r e a s . F i r s t , most J a p a n e s e o i l c o m p a n i e s were s u b s i d i a r i e s o f U.S. o i l c o m p a n i e s . E v e n i n d e p e n d e n t J a p a n e s e o i l c o m p a n i e s were d e p e n d e n t on U.S. c o m p a n i e s f o r t h e o i l s u p p l y . F o r i n s t a n c e , t h e n MITI M i n i s t e r N a k a s o n e h a d t o a s k r e p r e s e n t a t i v e s of T o k y o o f f i c e s o f U.S. o i l c o m p a n i e s t o m a i n t a i n t h e i r o i l s u p p l y t o J a p a n . S e c o n d l y , J a p a n ' s f o r e i g n d i p l o m a c y had been b a s e d on a c l o s e r e l a t i o n s h i p w i t h t h e U n i t e d S t a t e s . S i n c e t h e a nnouncement o f A r a b c o u n t r i e s i n c l u d e d t h e o i l e x p o r t ban a g a i n s t t h e U n i t e d S t a t e s , i t was d i f f i c u l t f o r J a p a n t o t a k e p r o - A r a b s t a n c e . H o w e v e r , on t h e o t h e r h a n d , J a p a n w o u l d n ' t h a v e been a b l e t o s u r v i v e t h e o i l c r i s i s w i t h o u t t h e o i l s u p p l y f r o m t h e M i d d l e E a s t . I t was r e p o r t e d t h a t t h i s d i l e m m a was 130 e x p r e s s e d by t h e n P r i m e M i n i s t e r T a n a k a a t a m e e t i n g w i t h t h e n U.S. S t a t e S e c r e t a r y K i s s i n g e r . Compared w i t h t h e b a s i c p o s i t i o n o f J a p a n s t a t e d a b o v e , t h e C a n a d i a n p o s i t i o n was more c o m p l i c a t e d . S i n c e C a n a d a i m p o r t e d o i l f r o m V e n e z u e l a , one o f t h e OPEC c o u n t r i e s , C a n a d a was n o t a b l e t o i g n o r e t h e OPEC i n t e r e s t . F o r i n s t a n c e , E n e r g y M i n i s t e r D o n a l d M a c d o n a l d s a i d i n November 5, 1973 t h a t Canada m i g h t b a r some r e f i n e d p r o d u c t e x p o r t s i f r e q u e s t e d by t h e A r a b s . 1 * 7 H o w e v e r , most o f t h e C a n a d i a n p e t r o l e u m e x p o r t s t o t h e U n i t e d S t a t e s were o f c r u d e o i l . T h e r e f o r e , m a j o r a t t e n t i o n was p a i d t o t h e u s e o f w i n d f a l l p r o f i t s by m a i n t a i n i n g e x p o r t s t o t h e U n i t e d S t a t e s . U.S. i n f l u e n c e on C anada seemed t o be s t r o n g e r i n d e a l i n g w i t h C a n a d a ' s d o m e s t i c i s s u e s . I n t h e a r e a o f d o m e s t i c i s s u e s , t h e C a n a d i a n c a s e was c o n t r a s t e d t o t h e J a p a n e s e o n e . I n t h e c a s e o f J a p a n , m a j o r e f f o r t s were made t o d e c r e a s e o i l c o n s u m p t i o n . I n t h e s h o r t t e r m , t h e g o v e r n m e n t a n n o u n c e d g u i d e l i n e s t o d e c r e a s e t h e u s e o f e l e c t r i c i t y a n d g a s o l i n e . C o m p a n i e s were a l s o r e q u e s t e d t o c u t t h e i r o p e r a t i o n . I n t h e l o n g t e r m , t h e g o v e r n m e n t p o i n t e d o u t t h e i m p o r t a n c e o f e n e r g y c o n s e r v a t i o n a n d t h e d e v e l o p m e n t o f a l t e r n a t i v e e n e r g y s o u r c e s . M o r e o v e r , J a p a n e s e c o m p a n i e s i n c r e a s e d e n e r g y e f f i c i e n c y i n t h e i r p r o d u c t i o n p r o c e s s i n o r d e r t o s u r v i v e t h e s e v e r e e c o n o m i c s i t u a t i o n . F o r i n s t a n c e , a f t e r r e v i e w i n g J a p a n ' s e n e r g y p o l i c i e s t h r o u g h t h e f i r s t a n d s e c o n d o i l c r i s e s , P. Nemetz, 1 * 7 L e s t e r A. S o b e l , e d . op. c i t . , p. 239. 131 I . V e r t i n s k y a n d P. V e r t i n s k y c o n c l u d e d a s f o l l o w s : I t i s a l s o p r o b a b l e t h a t J a p a n w i l l c o n t i n u e i t s p r a g m a t i c r e s p e c t o f l o n g - t e r m i n t e r n a t i o n a l m a r k e t r e a l i t i e s a n d w i l l n o t m y o p i c a l l y e x p l o i t o p p o r t u n i t i e s f o r s h o r t - t e r m g a i n s t h a t g e n e r a t e h i g h , l o n g e r - t e r m c o s t s o f u n c e r t a i n t y . 1 " 8 T h e r e was a g e n e r a l c o n s e n s u s i n J a p a n t o d e c r e a s e J a p a n ' s d e p e n d e n c e on o i l . I n t h e c a s e o f C a n a d a , i t was more d i f f i c u l t t o b u i l d c o n s e n s u s . F i r s t , t h e w e s t e r n p r o v i n c e s , a s OPEC c o u n t r i e s , were b a s i c a l l y p l e a s e d w i t h t h e o i l p r i c e i n c r e a s e w h i l e t h e e a s t e r n p r o v i n c e s s u f f e r e d f r o m i t a s J a p a n d i d . (The e a s t e r n p r o v i n c e s o b t a i n e d s u b s i d i e s w h i c h J a p a n d i d n ' t . ) S e c o n d l y , b o t h m a n u f a c t u r i n g a n d o i l p r o d u c i n g c o m p a n i e s were m o s t l y c o n t r o l l e d by U.S. c a p i t a l . As a r e s u l t , i t became v e r y d i f f i c u l t t o b u i l d a c o n s e n s u s i n Canada a s a c o u n t r y a n d t o b u i l d l o n g t e r m i n d u s t r i a l s t r a t e g y on a n a t i o n a l b a s i s . Some a s p e c t s o f C a n a d i a n e c o n o m i c p r o b l e m s w h i c h h a v e become more s e r i o u s i n t h e i n c r e a s e d p o l i t i c a l a n d e c o n o m i c t e n s i o n i n t h e 1980's c a n be a t t r i b u t e d t o t h e l a c k o f c o n s e n s u s a n d n a t i o n a l e c o n o m i c s t r a t e g i e s . 1 " 8 P . N . N e m e t z , I . V e r t i n s k y a n d P. V e r t i n s k y , " J a p a n ' s E n e r g y S t r a t e g y a t t h e C r o s s r o a d s " , Pacific Affairs V o l . 5 7, No. 4 ( V a n c o u v e r : U n i v e r s i t y o f B r i t i s h C o l u m b i a , W i n t e r 1 9 8 4 - 8 5 ) , p. 576. 1 32 4. TABLES TABLE A-1 SOME ASPECTS OF THE JAPANESE AND CANADIAN REACTIONS TO THE 1973 O I L C R I S I S =JAPAN= =CANADA= P O L I C I E S SITUATIONS SITUATIONS P O L I C I E S D e c r e a s e o f * v u l n e r a b i l i t y by e f f i c i e n t u s e o f i m p o r t e d r e s o u r c e s N a t i o n - w i d e «— e f f o r t s on - E n e r g y c o n s e r v a t i o n - D e v e l o p m e n t o f a l t e r n a t i v e e n e r g y s o u r c e s - I n c r e a s e o f p r o d u c t i v i t y I => S c a r c i t y i n d o m e s t i c e n e r g y r e s o u r c e s i D e p e n d e n c e on f o r e i g n s u p p l i e s O I L ./ H i g h e r v u l n e r a b i l i t y I n c r e a s e d c o m p e t i t i v e power o f i n d u s t r y W e a l t h i n d o m e s t i c e n e r g y r e s o u r c e s i R e g i o n a l d i v e r g e n c e D e v e l o p m e n t o f d o m e s t i c o i l i n d u s t r y by N a t i o n a l O i l P o l i c y C R I S I S \ i S h i f t o f p o w e r - * F e d e r a l f r o m E a s t t o g o v e r n m e n t West a n d c o n f l i c t s b e t w e e n them i n t e r v e n t i o n by - E x p o r t c o n t r o l - T a x e s - S u b s i d i e s D e c r e a s e d «_ c o m p e t i t i v e power o f i n d u s t r y TRADE FRICTION 133 TABLE A-2 CONSUMER PRICE IN D I C E S : INTERNATIONAL COMPARISON - 1970=100, 1970 w e i g h t s -1973 1974 A.A. R.C. I I I I I I I V I I I I I I I V 1973 1974 CAN. 111. 9 1 1 4 .5117. 7 119 .8122. 7 126. 8130. 6 1 34. 2 7. 6 10. 9 U.S. 110. 7 1 1 3 .1115. 6 118 .3121. 6 125. 1 1 28. 9 1 32. 6 6. 2 1 1 . 0U.K. 1 22. 2 1 25 .2127. 7 131 .8137. 2 145. 3149. 4 156. 1 9. 2 16. 0 FRA. 1 15. 9 118 .2121. 1 124 .4129. 0 1 34. 31 38. 7 1 4 3 . 1 7. 3 13. 6 GER. 1 16. 0 •118 .2119. 3 121 .7124. 6 1 26. 6127. 8 1 29. 5 6. 9 7. 0 IT A . 117. 5 121 .3123. 6 127 .2133. 6 1 40. 81 50. 4 1 60. 0 10. 8 19. 1 J A P . 1 16. 9 1 22 .7126. 5 131 .9144. 1 1 50. 51 56. 1 1 62. 7 1 1 . 7 24. 4 S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review, A p r i l 1975, ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p. 10; OECD. OECD Main Economic Indicators. F e b r u a r y , 1975 N o t e : CAN.=Canada, U . S . = U n i t e d S t a t e s , U . K . = U n i t e d K i n g d o m , F R A . = F r a n c e , GER.=W.Germany, I T A . = I t a l y , J A P . = J a p a n , A.A.R.C.=Average a n n u a l r a t e o f c h a n g e . 134 TABLE A-3 CURRENT BALANCES OF MAJOR INDUSTRIAL COUNTRIES - OECD e s t i m a t e s s e a s o n a l l y a d j u s t e d , b i l l i o n US d o l l a r s -1 973 1974 Canada -0.43 -1 .50 U n i t e d S t a t e s 0.51 -3.25 J a p a n -0.14 -4.75 A u s t r a l i a - N e w Z e a l a n d 0.79 -3.20 B e l g i u m - L u x e m b e r g 1 .40 0.25 F r a n c e -0.68 -7.50 Germany 4.54 9.00 I t a l y -2.42 -8.30 N e t h e r l a n d s 1 .75 1 .50 Sweden 1.14 -0.70 S w i t z e r l a n d 0.28 0.00 U n i t e d K i n g d o m -3.11 -9.00 T o t a l OECD 2.50 -37.50 S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Rev iew, A p r i l , 1975, ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p . 13; OECD, OECD Economic Outlook, December, 1974. N o t e s : 1. The f i g u r e s o f B e l g i u m - L u x e m b o u r g a r e b a s e d on t h e e s t i m a t e by t h e s e c r e t a r i a t on a t r a n s a c t i o n b a s i s . 2. The f i g u r e s o f F r a n c e a r e b a s e d on t r a n s a c t i o n s w i t h a l l c o u n t r i e s . 135 Exp o r t s Imports Trade balance TABLE A-4 CANADIAN MERCHANDISE TRADE 1973 25,461 22,726 2,735 - m i l l i o n Canadian d o l l a r s -1974 1975 1976 32,591 30,893 1 ,698 33,347 33,986 -639 38,019 36,887 1 ,132 Source: Canada, M i n i s t r y of Finance, Economic Review, May 1977, (Ottawa: M i n i s t e r of Supply and S e r v i c e , 1977), p, 58; S t a t i s t i c s Canada, Quarterly Estimate of the Canadian Balance of International Payments, Cat. 67-001. 136 TABLE A-5 CHANGES I N LABOUR COSTS AND PROFITS PER UNIT OF OUTPUT - P e r c e n t a g e c h a n g e , y e a r - o v e r - y e a r -1972 1973 1974 R e a l GNP 5.8 6.8 3.7 Employment 3.1 5.2 4.3 L a b o u r p r o d u c t i v i t y 2.6 1 .5 -0.6 " L a b o u r i n c o m e " 11.0 12.5 16.8 L a b o u r i n c o m e p e r 7.6 7.0 12.0 e m p l o y e d p e r s o n L a b o u r c o s t p e r u n i t 4.9 5.4 12.6 o f o u t p u t P r o f i t s p e r u n i t o f 14.5 27.0 23.9 o u t p u t P r i c e d e f l a t o r - 4.6 6.2 11.2 T o t a l d o m e s t i c demand P r i c e d e f l a t o r - GNP 4.8 7.6 13.1 S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review, April, 1975 ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p. 53; S t a t i s t i c s C a n a d a , The Labour Force, Monthly, C a t . 7 1 - 0 0 1 ; , National Income and Expenditure Accounts, Q u a r t e r l y , C a t . 1 3-001. . 1 37 TABLE A-6 PRODUCTION SHARES BY SECTORS, SELECTED YEARS 1870-1974 - % o f G r o s s D o m e s t i c P r o d u c t a t F a c t o r C o s t -1870 1911 1926 1960 1970 1980 P r i m a r y 46.2 39.4 23.4 10.4 8.3 10.9 - A g r i c u l t u r e 34.3 30.8 18.1 4.9 3.3 3.3 - F o r e s t r y 9.9 4.6 1 .3 1 .3 0.8 0.9 - F i s h i n g & 1 . 1 1 .5 0.8 0.2 0.2 0.2 t r a p p i n g - M i n i n g , 0.9 2.5 3.2 4.0 4.0 6.5 q u a r r y i n g , o i l w e l l s S e c o n d a r y 22.6 29.7 38.7 44.8 41 .4 39.4 - M a n u f a c t u r i n g NA 18.8 21.7 26.4 23.3 21.6 - C o n s t r u c t i o n NA 10.3 4.1 6.0 6.3 5.8 - T r a n s p o r t a t i o n NA NA 12.9 9.6 8.9 8.5 & c o m m u n i c a t i o n - E l e c t r i c p o w e r , NA 0.6 2.8 2.9 3.5 g a s & w a t e r u t i l i t i e s T e r t i a r y 3 1 . 2 1 3 0 . 8 1 37.9 44.8 50.2 49.1 - W h o l e s a l e - NA NA 11.6 12.8 12.4 11.0 r e t a i l t r a d e - F i n a n c e , NA NA 10.0 10.6 11.3 10.6 i n s u r a n c e , r e a l e s t a t e - P u b l i c NA NA 3.4 6.9 7.3 7.5 a d m i n i s t r a t i o n , d e f e n c e - S e r v i c e NA NA 12.9 13.5 19.2 20.6 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 S o u r c e : C h i s t o p h e r G r e e n , Canadian Industrial Organiztion and Policy, 2nd e d . ( T o r o n t o : M c G r a w - h i l l R y e r s o n L i m i t e d , 1 9 8 5 ) , p. 4; M.C. U r q u h a r t a n d K.A.H. B u c k l e y , Historical Statistics of Canada ( C a m b r i d g e : M a c m i l l a n , 1 9 6 5 ) , S e r i e s E 4 6 - 4 5 , E 2 0 2 - 2 1 3 , E 214-44 f o r 1970, 1911, a n d 1926; s e c o n d e d i t i o n , 1983, s e r i e s F 56-75 f o r 1960 a n d 1970; S t a t i s t i c s C a n a d a , National Income and Expenditure Accounts, C a t . 31-201 ( O t t a w a : December 1 9 8 1 ) , T a b l e I I I , p. 97, f o r 1980. N o t e s : 1 1 n c l u d e s income g e n e r a t e d by t h e r a i l w a y a n d t e l e p h o n e i n d u s t r i e s . 138 TABLE A-7 EMPLOYMENT SHARES BY ECONOMIC SECTOR AND INDUSTRY - % -1947 1960 1970 1975 1980 1982 P r i m a r y 27.5 14.3 9.3 7.8 7.3 6.9 - A g r i c u l t u r e 24. 1 11.3 6.5 5.2 4.5 4.4 - F o r e s t r y 1 .2 1 . 1 0.9 0.9 0.7 0.6 - F i s h i n g & 0.7 0.4 0.3 0.3 0.3 0.3 t r a p p i n g - M i n i n g , 1 .5 1 .5 1 .6 1 .4 1 .8 1 .6 q u a r r y i n g , o i l w e l l s S e c o n d a r y 40.3 40.7 37.5 37.3 34.0 32.0 - M a n u f a c t u r i n g 26.7 24.9 22.7 22. 1 19.7 18.2 - C o n s t r u c t i o n 5.2 7.2 6.0 6.5 5.8 5.6 - T r a n s p o r t a t i o n 7.7 7.5 7.7 7.6 7.3 7.1 & c o m m u n i c a t i o n P u b l i c u t i l i t i e s 0.7 1 . 1 1 .1 1 . 1 1 .2 1 . 1 T e r t i a r y 32. 1 45.0 53.2 54.9 58.7 61.1 - T r a d e 12.3 16.2 16.7 17.2 17.2 17.4 ( w h o l e s a l e , r e t a i l ) - F i n a n c e , 2.7 3.8 4.6 4.9 5.7 5.7 i n s u r a n c e , r e a l e s t a t e - Community, 25.7 26. 1 28.9 30.8 b u s i n e s s , p e r s o n a l 17.1 25.0 s e r v i c e s ( i n c l . h e a l t h , e d u c a t i o n ) - P u b l i c 6.2 6.7 6.9 7.2 a d m i n i s t r a t i o n TOTAL 1 00.0 100.0 100.0 100.0 1 00.0 100.0 S o u r c e : C h r i s t p h e r G r e e n , Canadian Indust r i al Organization and Policy, 2nd e d . ( T o r o n t o : M c G r a w - h i l l R y e r s o n L i m i t e d , 1 9 8 5 ) , p. 6; M.C. U r q u h a r t a n d H. B u r k l e y , Hi storicai St at i s t i cs of Canada, S e r i e s C 130-151 f o r 1947, 1960; S t a t i s t i c s C a n a d a , The Labour Force, C a t . 71-001 f o r 1970, 1975, 1980 a n d 1982. 139 TABLE A-8 FOREIGN OWNERSHIP CONTROL OF CANADIAN INDUSTRY - % -19 67 19 67( U S ) 19 73 1977 1981 FO FC FO FC FO FC FC FC M a n u f a c t u r i n g 52 57 44 45 53 58 53 45 M i n i n g & 61 65 51 56 51 56 4 3 1 3 0 1 s m e l t i n g P e t r o l e u m & 62 74 51 60 58 75 74 49 n a t u r a l g a s R a i l w a y s 19 2 8 2 10 6 7 4 P u b l i c 19 5 18 5 u t i l i t i e s A l l s e c t o r s 35 35 29 28 34 33 30 25 S o u r c e : C h r i s t o p h e r G r e e n , Canadian Industrial Organization and Policy, 2nd e d . ( T o r o n t o : M c G r a w - h i l l R y e r s o n L i m i t e d , 1 9 8 5 ) , p. 35; Foreign Ownership and the Structure of Canadian Industry (Queen's P r i n t e r , 1 9 6 8 ) , p. 422; f o r 1926, 1948, 1963; Foreign Direct Investment in Canada ( G r a y - R e p o r t ) ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 2 ) , T a b l e 4, p . 2 0 , f o r 1967; S t a t i s t i c s C a n a d a , Corporations and Labour Union Return Act, Report for 1973; 1977; 1981; Cat. 61-210, s e l e c t e d t a b l e s . D a t a on f o r e i g n o w n e r s h i p , o f C a n a d i a n a s w e l l a s n o n - r e s i d e n t c o n t r o l l e d c o r p o r a t i o n s , was n o t p u b l i s h e d by CALURA i n 1977 a n d 1981. N o t e s : 1 D o e s n o t i n c l u d e s m e l t i n g . FO: F o r e i g n o w n e r s h i p r a t i o ; w h i c h i s d e f i n e d a s e q u i t y a n d d e b t c a p i t a l owned by n o n - r e s i d e n t s , a s a p e r c e n t o f t o t a l c a p i t a l i n i n d u s t r y . FC: F o r e i g n c o n t r o l r a t i o ; w h i c h i s d e f i n e d a s e q u i t y a n d d e b t c a p i t a l owned by r e s i d e n t s a n d n o n - r e s i d e n t s i n f i r m s whose v o t i n g s t o c k i s c o n t r o l l e d (50%+) by n o n - r e s i d e n t s , a s a p e r c e n t t o t a l c a p i t a l i n i n d u s t r y . 140 TABLE A-9 EXPLOITABLE O I L RESERVES I N CANADA -m i l l i o n b a r r e l ( s h a r e , %) -L i g h t o i l Heavy o i l T o t a l N o r t h w e s t T e r r i t o r i e s 33 .9 _ 33 .9 ( 0 . 9) - ( 0 . 7) B r i t i s h C o l u m b i a 151 .3 - 151 .3 ( 4 . 0) - ( 3 . 4) A l b e r t a 3,369 .6 262 .2 3,631 .8 ( 8 9 . 5) ( 3 5 . 5) ( 8 0 . 7) S a s k a t c h e w a n 159 .3 476 .2 635 .5 ( 4 . 2) ( 6 4 . 5) ( 1 4 . 1 ) M a n i t o b a 46 .3 - 46 .3 ( 1 . 2) - (1 . 0) O n t a r i o 3 .9 - 3 .9 ( 0 . 1) - ( 0 . 1) TOTAL 3,764 .3 738 .4 4,502 .7 ( 1 0 0 . 0) ( 1 0 0 . 0) ( 1 0 0 . 0) S o u r c e : J a p a n , M i n i s t r y o f F o r e i g n A f f a i r s , Zai ka Kannai Gaikyo ( T o k y o : M i n i s t r y o f F o r e i g n A f f a i r s , 1 9 8 3 ) , p. 229. 141 TABLE A-10 PROVINCIAL SHARES I N THE MANUFACTURING SECTOR ( 1 9 8 0 ) - m i l l i o n C a n a d i a n < d o l l a r s ( s h a r e , %) -E m p l o y e e s S h i p m e n t V a l u e V a l u e a d d e d a d d e d / e n p l o y e e N e w f o u n d l a n d 14,379 1 ,097 488 34 ( 1 . 1 ) ( 0 . 7 ) ( 0 . 7 ) P r i n c e E d w a r d I s l a n d 2,380 234 78 33 ( 0 . 2 ) (0.1 ) (0.1 ) Nova S c o t i a 29,001 3,454 1 , 1 95 41 ( 2 . 2 ) ( 2 . 1 ) ( 1 . 8 ) New B r u n s w i c k 25,155 3,561 1 ,080 43 ( 1 . 9 ) (-2.1) (1 . 6 ) Quebec 389,901 44,619 18,361 47 ( 2 9 . 0 ) ( 2 6 . 6 ) ( 2 7 . 8 ) O n t a r i o 6 48,765 82,171 32,247 50 ( 4 8 . 2 ) ( 4 8 . 9 ) ( 4 8 . 9 ) M a n i t o b a 43,027 4,364 1 ,770 41 ( 3 . 2 ) ( 2 . 6 ) ( 2 . 7 ) S a s k a c h e w a n 15,264 2, 107 788 52 ( 1 . 1 ) ( 1 . 3 ) ( 1 . 2 ) A l b e r t a 56,988 10,521 3,376 59 ( 4 . 2 ) ( 6 . 3 ) ( 5 . 1 ) B r i t i s h C o l u m b i a 120,961 15,893 6,567 54 ( 9 . 0 ) ( 9 . 5 ) ( 1 0 . 0 ) Yukon & N o r t h West 399 30 10 -T e r r i t o r i e s (-) (-) (-) (-) TOTAL 1 ,346,1 60 168,051 65,960 49 ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) ( 1 0 0 . 0 ) S o u r c e : J a p a n , M i n i s t r y o f F o r e i g n A f f a i r s , Zai ka Kokan Kannai Gai kyo ( T o k y o : M i n i s t r y o f F o r e i g n A f f a i r s , 1 9 8 3 ) , p. 256. 142 TABLE A-11 THE TOP TEN INDUSTRIALS (1983) Rank by S a l e s or Company (head F o r e i g n s a l e s o p e r a t i n g o f f i c e ) ownership revenue (%) ($•000) 1 13,805,450 General Motors of Canada Ltd-. (Oshawa, Ont.) 2 12,759,297 Canadian P a c i f i c L t d . (Montreal) 3 8,919,000 Imperial O i l L t d . (Montreal) 4 8,874,700 B e l l Canada E n t e r p r i s e Inc. (Montreal) 5 8,580,600 Ford Motor Co. of Canada ( O a k v i l l e , Ont.) 6 6,418,339 Alcan Aluminium L t d . (Montreal) 7 5,652,000 Texaco Canada Inc. (Toronto) 5,300,000 S h e l l Canada L t d . (Toronto) 9 5,078,000 Gulf Canada L t d . (Toronto) 10 4,625,100 Canadian N a t i o n a l Railway (Mtl.) 100 Major shar e h o l d e r s General Motors Corp. D e t r o i t Power Corp. of Canada 12% 70 Exxon Corp., New York Wide d i s t r i b u t i o n 90 Ford Motor Co. , Dearborn, Mich. Wide d i s t r i b u t i o n 90 Texaco Inc. 68%, Texaco I n t e r n a t i o n a l N.Y. 22% 79 S h e l l Investments L t d . Netherland / B r i t a i n 60 G u l f O i l Corp. P i t t s b u r g F e d e r a l government 100% Source: C h r i s t o p h e r Green, Canadian Industrial Organization and Policy, Second e d i t i o n , (Toronto: McGraw-hill Ryerson L i m i t e d , 1985) pp. 22-23; The Financial Post 500 (June 1 9 8 4 ) , pp. 7 0 , 7 1 , 7 4 . 

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