UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

Japan's behavior in foreign resource investments in the post second world war period 1972

You don't seem to have a PDF reader installed, try download the pdf

Item Metadata

Download

Media
UBC_1972_A4_5 O93.pdf [ 6MB ]
Metadata
JSON: 1.0101629.json
JSON-LD: 1.0101629+ld.json
RDF/XML (Pretty): 1.0101629.xml
RDF/JSON: 1.0101629+rdf.json
Turtle: 1.0101629+rdf-turtle.txt
N-Triples: 1.0101629+rdf-ntriples.txt
Citation
1.0101629.ris

Full Text

JAPAN'S BEHAVIOR IN FOREIGN RESOURCE INVESTMENTS IN THE POST SECOND WORLD WAR PERIOD by IKUO OYAMA B.A., Aoyama Gakuin University, 1966 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Commerce and Business Administration We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September, 1972 In p r e sen t ing t h i s t h e s i s in p a r t i a l ' fu l f i lmeiit o f the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that 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 fo r reference and s tudy . I f u r t h e r agree t ha t permiss ion for e x t e n s i v e copying o f t h i s t h e s i s fo 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 r e p r e s e n t a t i v e s . I t i s understood that 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 ga in s h a l l not be a l lowed wi thout my w r i t t e n p e r m i s s i o n . Ikuo Oyama Department ofQommerce and Business Administration The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada Date September ? 9 . 197? i i ABSTRACT This thesis seeks to explore Japanese foreign investment c r i t e r i a i n resource industries, i n order to determine what factors may influence the Japanese investment behavior i n upstream investments. Japan's behavior f o r obtaining resources i s becoming increasingly important i n the world resource market because i t requires substantial amounts of raw materials. Five c r i t e r i a were hypothesized to analyze Japanese investment behavior i n resource industries i n the post- Second World War period. These c r i t e r i a may only be applicable to Japanese resource i n d u s t r i e s . Japanese foreign investments were under tight government control u n t i l the end of the 1960's, and very few sizable resource investments were undertaken. Although resource investments have been Increasing over the past few years, Japan's resource investments and investment p o l i c i e s are s t i l l i n t r a n s i t i o n . Based on the country's own c r i t e r i a and past behavior, an attempt was made to determine Japan's future behavior under the expected resources demand-supply conditions, expected economic conditions and p o l i t i c a l changes i n the world. I l l TABLE OP CONTENTS CHAPTER PAGE INTRODUCTION , Objectives of the Study- Organization of the Study Characteristics of Resource Industries Japanese Attitude f o r Resource Investments II JAPAN'S INVESTMENT MOTIVES Overview Inhibited Investment Upstream V a l i d i t y of Cost-Benefit Relationships Reasons f o r Investment Upstream (A) Stable Resources Plow Hypothesis (B) Low Supply Price Hypothesis (0) National Prestige Hypothesis (D) Increased Foreign Reserves Hypothesis (E) A s s i s t i n g the Development of LDO's Hypothesis III JAPAN'S INVESTMENT BEHAVIOR 32 Overview (I) F i r s t Period (1945 to 1 9 5 0 ) (II) Second Period ( 1 9 5 1 throughout the 1960's) Overview (A) Economic Policy Changes (B) Trading Companies and Their Behavior (0) Manufacturers and Their Behavior (D) Government and Its Behavior i v (III) Third Period (1970 to September, 1972) Overview (A) Trading Companies and Their Behavior (B) Manufacturers and Their Behavior (C) Government and Its Behavior Overview (A) Japan's Expected Reource Demand (B) Japan's Expected Behavior IV JAPAN'S EXPECTED FUTURE BEHAVIOR 77 V SUMMARY 88 BIBLIOGRAPHY 90 APPENDIXES 97 V LIST OP APPENDIXES PAGE A Japan's Import Structure f o r Selected Years 9 7 B Foreign Dependency of Major Resources f o r Selected Years 9 8 C Japan's Balance of Payments 99 D Monthly Foreign Reserves Balance 1 0 0 E Terms of Trade Between Developed and Less Developed Countries 101 F Net Flow of Financial Resources from Japan to LDC's and M u l t i l a t e r a l Agencies, 1966 - 1 9 7 0 1 0 2 G Resources Demand Index f o r Selected Years 1 0 3 H Estimated Supply and Demand i n Major Natural Resources 104 CHAPTER ONE INTRODUCTION Japan absorbs large amounts of foreign resources and i t s dependence on these resources i s considerable. The country's t o t a l imports increased from $2.4 b i l l i o n i n 1953, to #5.8 b i l l i o n i n 1961, |15 b i l l i o n i n 1969, $18.8 b i l l i o n In 1970 1, and of these amounts more than two-thirds comprise raw resources. Japan's dependency on foreign resources has been documented and data on t h i s aspect of Japan's economic status are presented i n Appendix B. Prom that appendix we observe that i t i s predicted that by 1975 more than 83$ of major resources, except lead, zinc and natural gas, w i l l have to be imported from other countries. Japan's resource obtaining methods i n the postwar period, judging from the results of today, were quite successful. Despite heavy foreign dependency, the needy raw materials were fed into the Japanese economy and Japan achieved Its economic goals. Objectives of the Study The paper w i l l study Japanese foreign investment 1 The data on imports came from Business JAPAN, November, 1971, and the data on import composition are contained i n Appendix A. 2 motives and behavior with respect to resource industries i n the post-World War II period. Five hypotheses are proposed to explain Japan's a c t i v i t i e s i n t h e i r economic, p o l i t i c a l and c u l t u r a l aspects. I t w i l l be argued that the cost- benefit considerations are only a part of the group of factors that the Japanese consider regarding investments i n resource i n d u s t r i e s . The postwar period i s divided into three sub-periods covering 1) from 1945 to 1950, i n which no for e i g n invest- ments were permitted, 2) from 1951 to around 1970, i n which open market resource purchases were the most common way Japanese firms acquired raw materials, and 3) from around 1970 to the present, September, 1972, i n which dire c t investments i n resource industries have rapidly been increased. An attempt w i l l be made to reach a p o s i t i o n regarding future behavior, based on past behavior and economic and p o l i t i c a l developments, both i n Japan and i n the rest of the world. Organization of the Study The study i s divided into three major parts: the proposition of hypotheses as devices to analyze behavior, an analysis of Japan's behavior i n resource Industries since the end of the war i n 1945, to date, and a pr e d i c t i o n f o r 3 the future based on the two previous parts. The f i r s t part i s discussed i n Chapter I I , the second part i n Chapter I I I , followed by the possible future i n Chapter IV. Chapter V summarizes the whole work. Characteristics of Resource Industries Investments i n resource industries can be divided into two aspects. One deals with actual development of resources, including the preliminary geological and geographical studies and mine valuation, f e a s i b i l i t y studies, and actual production of resources. I t requires a lengthy period i n preliminary studies and a substantial amount of c a p i t a l investments f o r actual development of resources. Sometimes i t requires investments i n i n f r a s t r u c t u r e s , such as r a i l r o a d s , roads, port f a c i l i t i e s , schools, hospitals and others. The other aspect Includes smelting, extraction and processing of natural resources produced domestically and purchased overseas. The former i s c a l l e d upstream resource i n d u s t r i e s , while the l a t t e r i s c a l l e d downstream. The general c h a r a c t e r i s t i c s of Japanese resource investments are that they are heavily concentrated down* ~ stream, and that huge quantities of resources produced by foreig n upstream have been purchased i n the open markets and fed into Japanese i n d u s t r i a l downstream. In t h i s study, 4 resource Investments indicate Japan's foreign investments upstream i n d u s t r i e s , Japanese Attitude f o r Resource Investments A fundamental Japanese resource p o l i c y was the p r e f e r e n t i a l use of domestic resources 2. Resources were purchased overseas to compensate f o r those not produced i n Japan, and f o r shortages. They were brought back to Japan as raw as possible. The reason f o r t h i s could be based on four s i t u a t i o n s . F i r s t , smelting industries and other processing f a c i l i t i e s are i n any case necessary i n Japan f o r f u l l u t i l i z a t i o n of domestic resources. Raw resources from abroad can be fed into these i n d u s t r i e s . Second, the scale of these industries must be enlarged to such proportions that they are competitive i n the world market. Third, any p r o f i t earned i n the course of resources processing i s earned by the Japanese. In addition, the development of raw matterial-saving technology not only increases the e f f i c i e n c y of resources, but also minimizes the drain on Japan's foreign reserves. And f i n a l l y , the quantity of ore purchased by the Japanese from any p a r t i c u l a r country has been too small to j u s t i f y s e t t i n g up smelting and concentration operations i n any foreign country. d Masami Tamaki,"Hitetsu Kinzoku Shigen Kaihatsu no S e i j i Keizaigaku ( P o l i t i c a l Economy i n Non-Ferrous Metal Resources Development), 1 1 K e l z a l Hyoron, Vol.20, No.5, May, 1971, P.44. 5 U n t i l quite recently, Japan did l i t t l e more than purchase resources i n the open market. This Included long- term purchase agreements and spot purchases. This approach to the a c q u i s i t i o n of resources required l i m i t e d or no c a p i t a l investment, and t h i s was suitable to Japanese indu s t r i e s , which had l i t t l e f i n a n c i a l c a p a b i l i t y and were under t i g h t government control concerning the use of foreign reserves. Only f o r the past few years have independent resource investments upstream by Japanese industries been promoted f o r the reasons to be discussed i n the next chapter. 6 CHAPTER TWO JAPAN'S INVESTMENT MOTIVES Overview There are three objectives i n t h i s Chapter. The f i r s t i s to c l a r i f y the reasons why Japan invested heavily downstream. The second i s to explain why cost-benefit relationships are poor c r i t e r i a to evaluate investment proposals. And the t h i r d i s to propose reasons f o r Japan's investment upstream, and to incorporate f i v e hypotheses to analyze Japan's past and expected future behavior i n the next chapters. Inhibited Investment Upstream Japan has a very li m i t e d amount of resources and had l i t t l e opportunity to experience sizable investments upstream. There are three reasons f o r Japan's investment downstream of resource i n d u s t r i e s . F i r s t , Japanese industries had to es t a b l i s h themselves out of the war destruction, and had to catch up to t h e i r Western counter- parts i n a short time. Their major source of financing has been debt financing, and investments upstream were obviously a les s a t t r a c t i v e a l t e r n a t i v e , because they require a lengthy lead time and a large amount of funds, 7 but with a very small p r o b a b i l i t y of success3. Japanese industries had not grown s u f f i c i e n t l y to undertake resource investments both f i n a n c i a l l y and technologically, comparing with t h e i r Western counterparts. Also, i t i s top p r i o r i t y f o r the Japanese management to avert r i s k y investments to protect i t s external repu$atiOB.^. Furthermore, Japan's needy resources were available i n the market. Therefore, management did not have to choose risk y resource investments. Second, Japanese resource industries did not have enough human resources to undertake investments i n d i f f e r e n t p o l i t i c a l , economic and c u l t u r a l environments. The recruitment of personnel i n Japan i s usually made d i r e c t l y from schools into i n d u s t r i e s , and they are trained within the i n d u s t r i e s . Since resources were readily a v a i l a b l e i n the market, there was l i t t l e incentive f o r resource industries to t r a i n personnel who were capable of managing foreign investments. Under these conditions, they put p r i o r i t y on competition with t h e i r Western firms downstream In the resource industry. Third, Japan's postwar i n t e r n a t i o n a l balance of 3 For instance, approximately 30 companies have been engaged i n o i l development. Only two of them have succeeded so f a r . Of. Nlhon Ke l z a l Shimbun. June 10, 1972. 4 J . Q. Harty, Management Decision i n the Japanese Factory,(trans. ed.), Diamond Publishing Co., Tokyo, 19bl, pp.bl-62. 8 payments was i n constant deficit u n t i l 1964 . In order to save hard currencies, Japan's foreign investments were s t r i c t l y regulated u n t i l 1969, and each investment had to be licensed by the Ministry of International Trade and Industry, and approved by the Ministry of Finance. Therefore, the government's tight foreign investment control restricted resource Investments, which require extensive amounts^af foreign currencies. Validity of Cost-Benefit Relationships An investment's incentives are the benefits which are expected to be brought to the investor. They can be of any type of subjective values, monetary or otherwise. In Japan, the investment c r i t e r i a may not necessarily be the same as those of other countries. Generally speaking, evaluation of investment proposals using cost-benefit relationships are less meaningful when applied to Japanese industries. Their c r i t e r i a are based frequently on nationalistic objectives rather than on the company's own policies, as pointed out i n Fortune: Traditionally, profits have been given a relatively low priority as goal of Japanese businessmen. What counted most for them—and for the professional managers who have 5 The balance of payments w i l l be explained extensively i n Hypothesis IV. 9 taken t h e i r plaee—was building up the business and "contributing to the national economy."" This i s the reason that Japanese industries coordinate business e f f o r t s to achieve t h e i r a c t i v i t i e s to promote the national economy. Reasons f o r Investments Upstream For various reasons, Japan's resource industries had increasingly been required to enter a c t i v e l y into upstream investments since the l a t t e r part of the 1960's. The most important fa c t o r was the expanded Japanese economic scale, which ranks t h i r d following the U.S. and the U.S.S.R. A large quantity of resources must be fed into Japan's economy. However, the purchases of huge amounts of resources i n the market are becoming increasingly d i f f i c u l t , and i t i s necessary that Japan have i t s own resource supply sources to ensure that i t w i l l have the required resources. Heavy foreign dependency f o r the supply of resources i s not only shameful to Japan, as one of the economic superstates, but may also endanger Japan's economic and p o l i t i c a l autonomy. The posession of i t s own supply sources upstream, however, w i l l bring about a secure resources flow and a desirable i n t e r n a t i o n a l reputation. 6 Robert Luber, "The Japanese Giant That Wouldn't Stay Dead," Fortune, Vol.LXX, No.5, November, 1964, p.274. 10 Japan's economic success increased expectations of other countries that Japan could share i n more responsi- b i l i t i e s i n i n t e r n a t i o n a l a f f a i r s , including those i n the economic and p o l i t i c a l spheres. Especially under the ex i s t i n g i n t e r n a t i o n a l monetary system, Japan's staggering foreig n reserves increase requires c e r t a i n measures to curb t h e i r accumulation. Resource investments are an i d e a l a l t e r n a t i v e , among others, to u t i l i z e reserves, unloading sizable amountsdfctfeem. A l l of these reasons are incorporated into f i v e hypotheses to analyze Japan's investment behavior. I: Stable Resources Flow Hypothesis Japanese industries had to Increase t h e i r production c a p a b i l i t i e s rapidly to meet s p e c i a l procurements created by the Korean War, i n a d d i t i o n to the postwar shortages f o r domestic consumption. Furthermore, the technological gap between Japan and the Western world was wide. In the brisk market conditions, the manufacturers had to increase t h e i r production c a p a b i l i t i e s with heavy c a p i t a l investment i n a short time to catch up to t h e i r Western counterparts. The most fundamental role of Japanese economic a c t i v i t y i s to convert raw materials through land, labor, management, technology and c a p i t a l processes into f i n i s h e d products. Fixed costs i n Japanese industry are d i f f e r e n t from, and 11 higher than, t h e i r Western counterparts and two reasons can be considered. F i r s t , Japanese employment customs are such that there are p r a c t i c a l l y no l a y - o f f s i n the l i f e - t i m e employ- ment system. Employment i s increased i n a n t i c i p a t i o n of increases i n operations and production, and those employed are b u i l t into the industry's personnel forces, which cannot be reduced i f and when the l e v e l of operations i s trimmed. Hence, increased labor costs do not have downward f l e x i b i l i t y as variable costs. This i n f l e x i b i l i t y requires industry to treat labor costs as f i x e d . Second, debt c a p i t a l financing has been a commonly and extensively used method? of financing purchases of technology and production equipment, and the debt s e r v i c i n g requirements are a s i g n i f i c a n t f i x e d annual claim on r e c e i p t s . Figure I i s presented to help show the necessity of a stable resources inflow. Since Japanese labor costs can be considered as a part of f i x e d costs, the marginal cost i n Japan i s smaller than i n foreign firms, which t r e a t them as variable costs. 7 Debt financing provides several advantages: i n t e r e s t on debts i s tax deductible, equity financing takes time to r a i s e , and frequently t r y i n g to r a i s e c a p i t a l f o r each new investment i s too uncertain, e s p e c i a l l y when most of industry requires c a p i t a l equally desperately. 12 Figure I cost Vl=foreign firms V2=Japanese firms f1=fixed costs f o r for e i g n firms f1+f2=fixed costs for Japanese firms Q1 Q" quantity Assume that Japanese and foreign firms have the same production capacity, Q", and the same fac t o r costs, except f o r the high cost of c a p i t a l to the Japanese firm. OP and VI represent the foreign firm with lower c a p i t a l costs, t r e a t i n g labor costs as variable costs. OP* and V2 include labor costs and high c a p i t a l costs i n fixed costs. Since the marginal cost of the foreign firm i s higher than that of the Japanese, because of labor and c a p i t a l costs, the slope of V1 i s steeper than that of V2 8. The smaller o The cost functions f o r the foreign and Japanese firms are expressed by: where y1 = f + (L + M)x f = f i x e d costs, such as plant, y2 = f 1 + Mx equipment, etc. f*= f plus labor cost (L) and in t e r e s t above that of the foreign firm L = labor costs M = materials required f o r production 13 marginal cost of the Japanese firm indicates that i t has no downward f l e x i b i l i t y : i t requires high and f i x e d cash flow commitments f o r wage and debt s e r v i c i n g . To produce revenues to meet these requirements, i t i s important f o r a Japanese fir m to obtain raw materials to maintain i t s high l e v e l of operation. There are two a l t e r n a t i v e methods to obtain a stable natural resources flow: one i s to purchase resources i n the open market, and the other, to make a foreign investment upstream i n resource i n d u s t r i e s . These alternatives w i l l be examined. A stable Inflow of resources can be attained by purchasing them i n the open market under conditions of excess. An example i s crude o i l i n the 196o's, the supply c a p a b i l i t y of which greatly exceeded the demand^. The condition of oversupply prevailed throughout t h i s decade, simultaneously increasing o i l reserves from 116.5 b i l l i o n barrels i n 1960 to 526.8 b i l l i o n barrels i n 1969 1 0. Under y1 = foreign firms y2 = Japanese firms Then take the f i r s t derivative to obtain the slope of these functions. y1 1 = L + M; y2' = M. Therefore, the slope of y1 i s steeper than that of y2. 9 The world o i l production c a p a b i l i t y was 29 m i l l i o n barrels per day i n 1961. This amount was the estimated demand at the end of 1965, assuming the demand increased at a rate of 5% annually. Of. World O i l , Vol.153, No.3, August, 1961, pp.71-72. 10 , Vol.171, No.2, August, 1970, p.70 14 t h i s market condition, resources were readily a v a i l a b l e and supply s t a b i l i t y was maintained. However, the f u l f i l l m e n t of s t a b i l i t y of resources Inflow may be very d i f f i c u l t under c e r t a i n market conditions. The production of the world's key resources i s dominated by a few int e r n a t i o n a l enterprises. For example, 67% of o i l i s produced by seven companies, 7 1 $ of copper by ten companies, 67% of aluminum by s i x companies, and 85% of n i c k e l by only three companies 1 1 . Investments by the Japanese Is an al t e r n a t i v e toward a stable resources inflow, to subordination to the market and to o l i g o p o l i s t s . Two methods have been used. One i s investments i n the form of loans simultaneously concluding long-term purchase agreements of part or a l l of produced resources f o r a s p e c i f i e d period. This system i s mutually b e n e f i c i a l . The resource developing party can obtain financing and the guarantee of a market. The major advantage to the Japanese i s that Japan can obtain a stipu l a t e d quantity of resources f o r a s p e c i f i e d period. The other i s to make a direc t investment or es t a b l i s h a j o i n t venture with the l o c a l government or industries, or industries from a t h i r d country. A j o i n t venture may not only be a good device to avert such pressures as government 1 1 Takeshi Hirahara, "Shigen Gaiko no Tembo (Scope of Resources Diplomacy)," K e l z a l to Gaiko, No.590, July, 1970, pp.5-7 . 15 regulations, but i t may also f a c i l i t a t e entry into a country 1 . A d i r e c t investment reduces or eliminates the quantity of resources required to be purchased i n the market, and enables Japanese industry to obtain resources by backward integration. A d i r e c t investment w i l l require a lar g e r sum of c a p i t a l than w i l l financing the resource developing industry, but the t o t a l p r o f i t from the investment w i l l be increased by the amount saved i n obtaining resources otherwise, assuming the sales p r i c e of the f i n a l goods i s the same. Under t h i s condition, i t would be the same as i f the new investment yielded the same p r o f i t which the resource developer would have earned from s e l l i n g the resources. The resources supply schedule can e a s i l y be adjusted, depending e n t i r e l y on Japan's demand schedule. The possession of supply sources, therefore, reduces the eff e c t of changes i n external prices and a v a i l a b l e quantities. In short, t h i s hypothesis has proposed that a stable inflow of resources i s necessary f o r Japanese industry because of high and fix e d cash commitments. Investments are motivated by the search f o r s t a b i l i t y , and usually take two forms: loans, and dire c t investments f o r resources exploration, including establishment of j o i n t ventures. 12 Raymond Vernon, Manager i n the International Economy, Prentice H a l l , Englewood C l i f f , K.J., 19bb, pp.207-208. 16 II; Low Supply Price Hypothesis The cost structure of manufacturers i s determined by the aggregate costs of such production factors as land, labor, c a p i t a l , technology, and raw materials. An increase i n one of them, the others remaining constant, increases the t o t a l cost of production. In the Japanese economy, the r o y a l t i e s on technology s i g n i f i c a n t l y increased from a prewar 1$ to around 10$ of sales i n the postwar period 13. However, there i s no noticeable evidence of royalty f l u c t u a t i o n . Industries were i n v i t e d to b u i l d plants i n i n d u s t r i a l s i t e s developed by l o c a l governments, providing industries with favorable terms of purchase and better f a c i l i t i e s required for i n d u s t r i a l operations. Capital costs were r e l a t i v e l y stable throughout the years 14. Labor costs have been increasing i n Japan, especially i n the 1960's. The actual wage index increased from i t s base year of I960 (1960=100) approximately 10 points every two years u n t i l 1966, and i t has rapidly 13 Hiroshi Okumura, Galkoku Shlhon: Ninon n l Okeru Kodo to Riyon (Foreign Capital; Theory and Behavior In Japan). Oriental Economist Press. Tokyo. 1969. pp.tt3-94. 14 The, average i n t e r e s t rate on loans of a l l banks between 1956 and 1962 was from 8.00$ to 8.50$; since then up to 1971 i t has dropped to 7.50$ and 8.00$. Cf. Bureau of S t a t i s t i c s , O f f i c e of the Prime Minister, Monthly S t a t i s t i c s of Japan, July, 1971, p.114. 17 Increased since then, up to 164.6 i n 1968 1 5. The speed was accelerated i n the following years to 180.9 i n 1969, 196.6 1 f\ In 1970 . There are many causes for the rapid wage increases. In the annual spring labor offensive and semi- annual bonus negotiations, labor's demands for wage and bonus hikes have been intensified. This i s brought about, i n addition to increasing productivity, by decreases i n the birth rate and the high entrance rate into institutions of higher education, reducing new labor forces i n the expanding economy. The short supply to the excessive labor demand17 pushed up the youth wage level, bringing about an overall labor cost hike, since i n the seniority wage system of Japan, an increase i n a portion of the system requires simultaneous adjustments to the rest of the system. An increase i n the labor forces i s not expected i n the future. Under these circumstances, further labor shortages and cost hikes are expected. 1 5 Kelzal to Gaiko. No.581, October, 1970, p.7 8 . 1 6 Op c i t . , p.82. 17 The demand for secondary school graduates was 3 . 7 times greater than the supply i n 1 9 6 5 , and reached 4 .9 times more i n 1 9 6 9 . The rate of supplement personnel required i n industry dropped from 24.7^ i n 1965 to \9A% i n 1 9 6 9 . The demand for high school graduates increased from 3 . 5 times to 5 . 8 times, and the rate of supplement personnel dropped from 24.9^ to 15.5$ respectively during the same period. Of. Keizai to Gaiko, No.597, August, 1 9 7 0 , or labor statistics by Ministry of labor. 18 The f a s t increasing labor costs require industry to search f o r ways to p a r t i a l l y o f f s e t or slow down the increase i n t o t a l costs. The lower cost of natural resources i s an a l t e r n a t i v e , among others, including the development of labor- and raw material-saving technologies. Another reason i s that a s i g n i f i c a n t portion of the Japanese economy i s affected by resource p r i c e s . The costs of resources i n the i r o n , s t e e l and aluminum industries are 30% to 40$ of the t o t a l production costs, but they are 10% to more than 90% i n the o i l , n i c k e l , copper and uranium i n d u s t r i e s ! 8 . The obtaining of resources at lower prices i s c r u c i a l to the existence of the l a t t e r Industries to compete with t h e i r counterparts i n the i n t e r n a t i o n a l i z e d economic sphere. Japan's possession of resource supply sources eliminates o l i g o p o l i s t i c p r o f i t s Included i n the resource p r i c e s , assuming the technology and other mine conditions to be the same. The possession of a cheaper resource supply reduces the average cost of resources f o r thie industry, even when a portion of the resource must be purchased i n the open market. In investments, long-term purchase agreements with loans are undertaken with the expectation of buying resources at lower prices than i n the open market, i n return 1 8 Economist, Vol.48, No.42, October 6, 1970, p.17 19 f o r the financing of the resource development. Unless there are advantages i n p r i c e , s t a b i l i t y i n supply, or both, there i s no merit to undertaking t h i s form of investment. Direct investments upstream provide Japanese industries with control on supply p r i c e and quantity, depending on the magnitude of c a p i t a l invested. As shown i n the previous hypothesis, at a given sales p r i c e , the investment increases the aggregate p r o f i t of the manufac- turers by the amount of the developer's p r o f i t and i n t e r - mediate purchase agent's commission. I f the mine reserves are s u f f i c i e n t l y large, the long-run costs can be s t a b i l i z e d at low range by t o t a l control of the investments by the Japanese. In b r i e f , t h i s hypothesis proposed that lower resource prices are an a l t e r n a t i v e to p a r t i a l l y o f f s e t or slow down the cost increase because of the rapid r i s e i n labor costs. Investments w i l l be undertaken to obtain resources at low p r i c e s . I l l ; National Prestige Hypothesis Japan i s a country that has a very strong s o c i a l system which i d e n t i f i e s r e l a t i o n s with others by rank, such as superior-subordinate, senior-junior, rich-poor. Internationally, Japan i s concerned about i t s r e l a t i o n s 20 with other countries by the magnitude of i t s Gross National P r o d u c t ^ . Also, honor i s the constant goal of the Japanese 2 0. Respect from others i s e s s e n t i a l . Japan achieved a major success i n the GNP race i n 1968, earning #142 b i l l i o n to rank t h i r d following the U.S. and the U.S.S.R. This means that Japan has become an economic superstate and has the c a p a b i l i t y to undertake independent resource development upstream. However, Japan's major resources obtaining method had been purchases i n the open market. A demerit of this method became quite c l e a r i n the so-called " o i l war" i n 1970, which was a severe confrontation between the Organization of Petroleum Exporting Countries and major i n t e r n a t i o n a l o i l companies 2^ over the crude o i l tax h i k e 2 2 . Japan i s one of the major consumers 19 M. Kimura, "Keizai Taikoku no Genso (An I l l u s i o n of the Economic Superstate)," Keiz a i to Galko., No.584, January, 1971, pp.15-18. 2 0 Ruth Benedict, The Chrysanthemum and the Sword, Houghton M i t t l i n Co., Boston, 1946, p.171. 2 1 The former includes Saudi Arabia, Iraq, Kuwait, Iran, Venezuela, Qatar and Lebanon; the l a t t e r , Standard O i l New Jersey, Mobil O i l , Gulf, Texaco, Standard O i l C a l i f o r n i a , B r i t i s h Petroleum and Royal Dutch S h e l l . 2 2 O i l was considered to be a surplus resource. But the demand-supply conditions were gradually changing i n the l a t e 1960's as a r e s u l t of the increased energy demand throughout the world. This tendency increased when the U.S. and the U.S.S.R. changed t h e i r o i l p o l i c i e s . The U.S. i s expected to increase i t s o i l import quota to meet i t s demand, more than 520 m i l l i o n tons i n 1971 alone, while the U.S.S.R. i s expected to cut su b s t a n t i a l l y i t s o i l export to the free world from the current annual 100 m i l l i o n ton l e v e l . Of. 21 of Middle East o i l , importing approximately 20% of Middle East o i l production (88% of Japan's import) 2^, but i t could not rai s e any voice as a consumer i n o i l p rice negotiations. The OPEO won the o i l tax hike, and Japan was given the burden of the tax as the t o t a l price increase by the o i l companies. The impact of the o i l p r i c e hike on the Japanese economy w i l l be s i g n i f i c a n t , because 70.y% of the country's primary energy source i s dependent on o i l , more than 99.5$ of which i s imported from f o r e i g n countries 2 2*-, i t also a f f e c t s many other Industries, such as chemical, petro- chemical, i r o n , s t e e l , and so on. The re s u l t could be a sharp general price increase. The lesson of the o i l war was that heavy foreign dependency i n the supply of resources endangers Japan's economic a c t i v i t i e s . Now that Japan has become the t h i r d l a r g e s t economic power i n the world, i t i s shameful f o r Japan to depend heavily on others i n resource supply, and be d i r e c t l y vulnerable to external Influences. Yuichiro Noguchi, "Sekiyu Senso; Korega Nihon no Haiinda ( O i l War: These are the Causes of Japan's Defeat)," Chuo Koron, Vol.10, No.2, June, 1971, pp.202-212. 2 3 Ibid. 2 4 Nihon Keizai Shimbun, June 6, 1972. 22 Realizing that Japan's economic future depends greatly upon a stable inflow of resources, resource industries, government agencies, and mass-media increasingly emphasized autonomous resource development as the s o l u t i o n to f o r e i g n dependency 2^. The Ministry of International Trade and Industry emphasized autonomous investment i n resources by private i n d u s t r i e s , but i t urged that the government should provide industries with funds u n t i l the investment became s e l f - s u f f i c i e n t , and thus free p o t e n t i a l l y unsuccessful prospectors from r i s k 2 ^ . The argument f o r government subsidies i s that resource industries are dominated by a few large i n t e r n a t i o n a l enterprises and new entry by Japanese industries i s extremely d i f f i c u l t , both f i n a n c i a l l y and technologically. Therefore, the government can motivate resource industries to undertake investments as national projects without endangering t h e i r business and f i n a n c i a l a c t i v i t i e s . In short, t h i s hypothesis argues that the Japanese are highly concerned about t h e i r rank i n the in t e r n a t i o n a l economic sphere. They seek an appropriate p o s i t i o n and 2 5 Kenzo Ikusawa, "Ninon Keizai no Kukusaika to Shigen Mondai (Inte r n a t i o n a l i z a t i o n of the Japanese Economy and Resource Problem)," K e i z a i Hyoron, Vol . 2 0 , No.5, May, 1971, p.8. . ; 26 i b i d , p.9. 23 pattern of obtaining resources, f o r t h e i r honor and dignity i n comparison with others, In the magnitude of t h e i r GNP. Japan's entry into upstream resource industries eliminates i t s v u l n e r a b i l i t y to external resource supply conditions. Since Japanese resource industries are latecomers i n upstream industry, the government provides funds and r i s k absolvement to help them achieve successful entry. IV: Increased Foreign Reserves Hypothesis Japan abandoned i t s multiple exchange rate used i n foreign trade since 194?, and set the value of i t s currency i n 1949 to 360 yen to the d o l l a r . The Foreign Exchange Law was established i n 1949 as a device to support Japan's currency par value, to promote foreign trade and to improve i t s balance of payments p o s i t i o n . Japan's balance of payments s t r a i n continued u n t i l 1964, as shown i n Appendix G. Since then i t s balance of payments has been i n a steady surplus except f o r 1967, and foreign reserves have increased s t e a d i l y . But the government, regarding the balance of payments and increasing reserves as temporary, did not make serious considerations u n t i l spring, 1971 2^. Japan quickly formed an 8-point yen measure i n June, 27 Nihon Kelzai Shimbun, June 18, 1972. 24 1971 , to unload reserves and thus a l l e v i a t e pressure on the yen i n the staggering monthly reserve leap, as shown i n Appendix D. Before the r e s u l t s of these p o l i c i e s appeared, the U.S. took d r a s t i c measures i n August, 1971, toward int e r n a t i o n a l monetary realignment to improve i t s economic d i f f i c u l t i e s ? ^ . The imposition of a 10$ surtax was such a draconian measure to press Japan f o r revaluation of the yen and f o r trade concessions. In trade, among others, the U.S. demanded that Japan cut i t s t e x t i l e exports to the U.S., which account f o r only 2 to 3$ of the U.S. t e x t i l e market, threatening to use the Trade with the Enemy Act f o r quota Imposition, and also the p o s s i b i l i t y of delay of reversion 2 8 They Include reduction of Import r e s t r i c t i o n s , t a r i f f s , and other b a r r i e r s , c a p i t a l decontrol of invest- ments into Japan, p r e f e r e n t i a l treatment of imports from l e s s developed countries, and expansion of foreign economic cooperation. 2 9 The U.S. balance of payments was extremely deteriorated, as a r e s u l t of i n f l a t i o n a r y economic p o l i c i e s since the Kennedy Administration and the war i n Viet Nam. F i s c a l and monetary p o l i c i e s f o r the past years resulted i n s t a g f l a t i o n — i n f l a t i o n under stagnation. In addition, the U.S. gold reserves were decreasing near to $10 b i l l i o n . These were the urgent reasons why the U.S. took d r a s t i c measures. Of. Kiyoshi Tsuchiya, "Kiriage Fukyo ga Yatsute Kuru (The Upward Revaluation Depression i s Coming)," Bungel Shinjyu, Vol.49, No.13, October, 1971, pp.92-94. 25 of Okinawa to Japanese control-* . Bowing to the pressure, i n a d d i t i o n to some trade concessions, including those i n t e x t i l e s , Japan floated the yen, then revalued i t f o r the f i r s t time since 1949, 16.88$ upward to 308 yen to the d o l l a r , i n December, 1971. However, as shown i n Appendix D, by early 1972, Japan's reserves have not shown any sign of d e c r e a s i n g ^ . Facing t h i s s i t u a t i o n , the government reconstructed another 7-point yen measure i n June, 1972, to avert another upward currency revaluation, but the effectiveness of these measures i s regarded as being minimal^ 2. Time, October 25, 1971, p.43. The reversion of Okinawa to Japanese administrative control has been the pathetic wish of the Japanese. Japan's then prime minister Sato declared that he stakes his p o l i t i c a l l i f e on Okinawa reversion, adding "Without Okinawa reversion, there w i l l come no end to the Second World War." Of. Mainichl Shimbun, August 19, 1965. 31 Japan's reserves decreased s l i g h t l y f o r the f i r s t time since July, 1970, i n A p r i l , 1972. A major reason, according to the Ministry of Finance, i s that A p r i l i s usually the month with a slow increase i n exports. In addition, the government deposited #200 m i l l i o n i n exchange banks and made other exchange procedure changes. These measures, however, w i l l not solve the issue of increasing reserves unless a fundamental solution:: i s taken to normalize the balance of payments. Of. Asahi Shimbun, A p r i l 26, 1972. 3 2 These new measures were almost the same as those announced a year ago, except f o r the reduction of interests on personal savings by 0.5$ i n order to reduce general i n t e r e s t on bank loans. However, these patch-up measures are expected to be of l i t t l e value f o r curbing the reserves increase. Of. Ninon Keizai Shimbun, June 11, 1972. 26 Japan's foreign investments are an alternative, among others, such as export restrictions and taxes, to reduce i t s accumulating reserves. In resource industries, the government efforts to motivate resource investments went further than low interest development loans, as i t set up a $1 b i l l i o n fund to absolve unsuccessful prospectors of any risk33. The government i s also working out details for increasing foreign exchange reserves from $5 b i l l i o n to $9 b i l l i o n for making long-term loans for Japanese investments i n foreign countries^. Foreign investments, especially resource investments, require long lead times, and the effectiveness of various government investment promotion policies has not yet been established. In short, investments i n resource industries are an alternative, among others, to unload staggeringly accumulating foreign reserves, especially since 1971. The foreign reserves unloading policies, contrary to the past foreign excnange drain controls, were counter measures to avert pressure on the yen, and severe external demands for capital and trade liberalization. Japan was forced 33 Time, March 15, 1971, pp.60-61 34 Time, May 15, 1972, p.70. 27 to revalue i t s currency 16.88$ upward before i t s p o l i c i e s had a chance to work. The second unsuccessful phase of reserves unloading p o l i c i e s was established, but another currency revaluation i s imminent, unless Japan takes some s p e c i f i c measures to curb further reserves accumulation. V; A s s i s t i n g the Development of Less Developed Countrles Hypothesis The economic structure of the world can be divided into two groups: one i s the highly i n d u s t r i a l i z e d countries i n the Northern hemisphere, and the other i s the l e s s developed countries (LDC's)35 S U c h as Asia, A f r i c a and L a t i n American countries i n the Southern hemisphere. LDC's are characterized by t h e i r low per capita income, low educational l e v e l , low c a p i t a l formation, high rate of population engaged i n a g r i c u l t u r e , and high dependence on the export of primary p r o d u c t s ^ . The major d i f f i c u l t i e s b u i l t into the economy of LDC's can be improved by such government and private economic assistance from developed countries as: 35 LDC's cover 75$ of UN members, and 49$ of the t o t a l world.population, while they earn only l4$\of the t o t a l world GNP. MITI, Ke i z a i Kyoryoku no Genjo to Mondaiten (Current P o s i t i o n and.Problems of Economic Cooperation), Tokyo, 1970, p.5. " [ ] " 36 Raymond Vernon, Manager i n the International Economy. Prentice H a l l , Englewood C l i f f s , N.J., 19bti, pp.142-165. 28 1) capital assistance, such as grants, loans, investments and export credit over one year, to provide capital and exchange needs, 2) technological assistance to narrow technological gaps, and 3 ) trade expansion assistance, for example, by means of preferential treatment of imports from LD0 1s to help earn needy foreign exchange and to promote i n d u s t r i a l i z a t i o n ^ . The United Nations Conference on Trade and Development was established i n 1964 to improve economic relations between developed and less developed countries. Through the past meetings held i n 1964, 1968 and 1972, LDO's increasingly intensified their demands for preferential treatment of their exports, and for increased capital and technological aid. These are devices to promote industrialization to earn foreign exchanges, and to offset the worsening of LDC's terms of t r a d e 3 8 . 37 MITI, op c i t , p.5. 3 8 Appendix B shows the terms of trade of advanced countries and LDC's. Deterioration i n terms of trade Is brought about by price,increases of manufactured goods imported from advanced countries that rise faster than do the prices of their primary products. The competition of primary products i n the market tends to.reflect the competition among LDC's. Futhermore, the formulation of synthetic products.,and technological innovations for raw material saving slows down the Increase i n demand for their resources. 29 Economic assistance to LDC's i s explained as the r e s p o n s i b i l i t y of the developed nations f o r the peace and welfare of the world39. However, a i d has been used as a t o o l of p o l i t i c a l strategy rather than being a philanthropic act. f o r example, U.S. aid was used to achieve the country's p o l i t i c a l s trategies, such as an important measure of the compartmentalization of China, and to reduce domestic surplus goods, while a i d from the communist bloc was used as a vehicle of p o l i t i c a l propaganda 2* 0. Japan t r i p l e d I t s net amount of a i d since 1966, and increased the rate against the GNP, as shown i n Appendix P, seeking LDGs' well-being, and also three merits. Japan's so-called white paper on economic assistance, issued by the Ministry of International Trade and Industry, pointed out three merits and necessities of economic assistance f o r LDC's. They are: 1. to secure the inflow of Japan's necessary resources, 2. to promote Japan's exports and to strengthen the bases of the Japanese economy In the i n t e r n a t i o n a l 39 MITI, op c i t . 4° Shizuo Maruyama, Tonan Asia to Nippon (South- east Asia and Japan), Asia Economic Research Center, Tokyo, 1968, pp.12-13. 30 sphere, and 3. to e s t a b l i s h Japan's p o l i t i c a l ground i n Asia by contributing to Asian peace^l. Since the second and t h i r d issues are not related to a resource investment, only the f i r s t one w i l l be examined. Japan requires a huge volume of imported resources to support i t s enlarged economic a c t i v i t i e s . However, i t i s becoming increasingly d i f f i c u l t to obtain resources i n advanced countries and from e x i s t i n g supply sources^" . Investments into resources holding LDC's d i v e r s i f y not only the supply sources but also the methods of obtaining resources by changing the conventional heavy purchases i n the market. Japan's investments not only supplement LDCs' exchange and c a p i t a l needs, but also help t h e i r economic development through the introduction of technology and increase i n exports. Japan's giving economic assistance i n the form of Investments, thus, i s not a l t r u i s t i c to the re c i p i e n t , nor does i t constitute plundering of resources by the Japanese. It seems to be mutually b e n e f i c i a l . Japanese investments w i l l become extremely e f f e c t i v e by combining with government aid, such as grants. ^' KCTI, op c i t 42 Ibid. 31 Government a i d can be used f o r improvement of in f r a s t r u c t u r e s , such as roads, r a i l r o a d s , and port and harbor f a c i l i t i e s where resource Investments are to be undertaken. This eliminates some of the investments that must be done by resource developing i n d u s t r i e s . In t h i s case, government ai d to LDC's works simultaneously as a subsidy to the Japanese investors. For these reasons, Japan's economic assistance paves an avenue to resource investments. In r e c a p i t u l a t i o n , t h i s hypothesis proposed that investments are being undertaken as a part of economic assistance to LDC's. Investments, as such, are f a r from being philanthropic, but bring benefits to Japan and LDC's a l i k e , because Japan can obtain resources while LDC's can undergo economic development. 32 CHAPTER THREE JAPAN'S INVESTMENT BEHAVIOR Overview The postwar period i s divided into three major periods to examine Japanese investment behavior. The f i r s t covers from immediately a f t e r the War to the beginning of the Korean War i n 1950, the second, 1951 throughout the 1960's, and the t h i r d , from around 1970 to September, 1972. The d i s t i n c t i o n between the second and t h i r d periods i s not d e f i n i t e , but i t i s generally agreed that Japan's new behavior toward independent investments began from the confrontation between the Organization of Petroleum Exporting Countries and major o i l companies^, ihe t h i r d period i s , of course, i n t r a n s i t i o n , and the nation's p o l i c i e s i n resource industries have not yet been d e f i n i t e l y established. Thus, Japan i s s t i l l i n search of future d i r e c t i o n . (I) F i r s t Period (1945 to 1950) This period i s characterized by the destruction of the 43 po r example, the then Foreign Minister Takeo Fukuda commented that Japan's new.measures f o r secured resources flow at a reasonable price were being studied, taking the lesson of the l a s t o i l war into consideration. Cf. Takeo Fukuda, "Shigen Mondai Tokushyu ni Yosete (Contributing to Special Issue on.Resource Problems)," Keizai to Gaiko, No.590, July, 1971, pp.2-3. 33 war economy and the following confusion, as new economic a c t i v i t i e s had not been established. The beginning of i n d u s t r i a l a c t i v i t i e s and the cessation of postwar I n f l a t i o n were the i n i t i a l problems to be dealt with. The government's reconstruction p o l i c i e s , emphasizing the production of i r o n and coal by f u l l y u t i l i z i n g domestic resources, were started i n the l a t t e r part of \9h6^* These p o l i c i e s were augmented from 1948 by the U.S. Economic R e h a b i l i t a t i o n i n Occupation Area Fund, which supplied Japan with i r o n , coal and other key reconstruction m a t e r i a l s 4 ^ , results of these reconstruction a c t i v i t i e s were clear i n the recovery of the mining and manufacturing index, which h i t a low of 12 i n the 1934-1936 average, reached 50 i n 1948, and returned to the prewar average i n 1950^6. The slowlng-down of i n f l a t i o n and rapid economic recovery enabled the replacement of multiple exchange rates, which were used i n trades started i n 1947 under government contro l . A single exchange rate of 360 yen to the d o l l a r was set In 1949. The s c a r c i t y of foreign exchange 4 4 Tasuzo Horie, Nihon K e i z a i s h i Dokuhon (Reading i n Japanese Economic History), Oriental Economist Press. Tokyo. 1068, p p . 2 5 6 - 2 5 8 . : 4 5 i b i d . 46 Economic Planning Agency, Economic White Paper. 1952, Tokyo, p.12. 34 necessitated s t r i c t government control to maintain t h i s rate. Exporting c a p a b i l i t i e s were low because of war damage, and import demands were high. During t h i s period, Imports were under t i g h t control and foreign exchange fo r importing necessary raw materials was allocated primarily to the manufacturers; trading companies represented manufacturers as purchasing agents, using the allocated f o r e i g n exchange^?. Direct government import control was replaced by the newly established Foreign Exchange Law i n 1949, which i s the exchange and trade control law. Foreign c a p i t a l investments by Japanese industries were not permitted during t h i s period. The reasons could have been i n s u f f i c i e n t i n d u s t r i a l c a p a b i l i t i e s and an extremely low l e v e l of f o r e i g n currencies reserves. In a d d i t i o n to resources supplied by the U.S. Economic Re h a b i l i t a t i o n i n Occupation Area Fund, read i l y a v a i l a b l e natural resources i n the world market did not require Japan to invest i n f o r e i g n countries f o r natural resources. A s i g n i f i c a n t p o l i t i c a l event which occured during t h i s period was the creation of the East-West confrontation, i n i t i a t e d by the "iron curtain" address made by S i r Winston C h u r c h i l l i n Missouri i n March, 1946; t h i s lead to 47 Katsutoshi Uchida, Shosha Hakusho (White Paper on Trading Companies), Kodansha, Tokyo, 1967,-'pp.68-69. 35 swift European economic reconstruction with Marshall Aid under the fear of communism48. The cold war affected decisions i n Japanese economic p o l i c i e s and l a t e r a c t i v i t i e s i n the following periods. In short, the Japanese economy started i t s a c t i v i t i e s f o r reconstruction from war destruction. Foreign invest- ment was not permitted; even i f i t should have been allowed, the industries had not the c a p a b i l i t i e s nor need f o r investment i n resource i n d u s t r i e s . Mining and manufacturing a c t i v i t i e s scraped through the war damage. During the r e h a b i l i t a t i o n stage, natural resources were supplied domestically, by the U.S., and by purchases i n the market. (II) Second Period (1959 throughout the 1Q60's) Overview This period i s characterized by various aspects. •Domestically, the Korean War brought about changes i n the U.S. occupation p o l i c i e s , e specially i n economic p o l i c i e s , as discussed i n the next section. Japan's reconstruction ^° Churchill formulated h i s strategy to use the U.S., setting the stage f o r the cold war, and used a l o g i c of absolutes: f r i e n d and enemy, good and e v i l . He must have used th i s p o l i c y f o r his objectives, but he himself a c t u a l l y did not believe i t at a l l . Cf. Masaharu Ito, "Kokusai Tsuka K i k i no Ura Omote (Inside and Out of the International Monetary C r i s e s ) , " Asahi Journal, Vol.14, No.1, January 7, 1972, pp.138-144. 36 was accelerated by an economic boom brought about by sp e c i a l procurements from the Korean War. These poured b i l l i o n s of dollars into the Japanese economy^, which established a basis f o r the great economic growth of the following decades. The annual economic growth between 1958 and 1965 averaged 9.4$; the pace was increased during the 1960's, when annual growth averaged 11.4$5°. The i n d u s t r i a l structure s h i f t e d rapidly from l i g h t industries to heavy and chemical industries i n the 1960's; the rate of the l a t t e r i n the manufacturing and mining industries reached 67.9$ i n 1965 and 70.2$ i n 1970 5 1. The export structure changed accordingly. The export rate of heavy and chemical i n d u s t r i a l products reached 62.0$ and 74.6$ i n the t o t a l value of exports of #8.5 b i l l i o n and #25 b i l l i o n , respectively, f o r the same year? 2. Foreign investments by the Japanese were permitted i n 1951 under t i g h t control f o r exchange reasons. Before the e f f e c ts of automatic investment approval of up to #200,000 appeared i n 1969, the t o t a l Japanese investments Four b i l l i o n d o l l a r s was received as . sp e c i a l procurements, which helped Japan's balance of payments and the building up of foreign exchange reserves. Of. J. Cohen, Japan's Postwar Economy. Indiana University Press, Bloomington, 1958, p.1b. 50 The Bank of Japan, Economic S t a t i s t i c s Monthly, No.302, May, 1972, p.8. 5 1 Mainichi Shimbun, June 19, 1972. 5 2 Ibid. 37 i n resource industries by March, 1969, was #599.7 m i l l i o n , of which 36.2$ was invested i n 1967 and 1968 53. Large scale import l i b e r a l i z a t i o n , Japan's move to become an International Monetary Fund, A r t i c l e VIII country, and the Kennedy Round was agreed upon during t h i s period, and a step-up i n a c a p i t a l decontrol was also carried out. Internationally, the U.S. balance of payment d e f i c i t continued almost throughout the period, and es p e c i a l l y the escalation of the war i n Indo-Ohina since 1965 aggravated i t s economy. Frequently monetary crise s were experienced among IMF member c o u n t r i e s ^ 4 . Another s i g n i f i c a n t event was the upsurging nationalism i n less developed countries. They i n t e n s i f i e d t h e i r demands f o r economic assistance and trade 53 The investment was #58.6 m i l l i o n i n 1967 and #158.7 m i l l i o n i n 1968. Of. MITI, K e i z a l Kyoryoku no Genjo to Mondaiten (The Current Condition and Problems of Economic Cooperation), Tokyo. 1969. pp.128-130 and pp. 480-401-. R 4 J As a r e s u l t , major currencies were revalued. The French franc was devalued three times, 16.7$, 17.55$ and 11.1$, respectively, i n 1957, 1958 and 1969. The German mark was revalued upward twice, 5$ and 9.29$ i n 1961 and 1969. The B r i t i s h pound was devalued 14.3$ i n 1967. Of. Mainlchi Shimbun. June 24, 1972. The c o n v e r t i b i l i t y of the d o l l a r into gold was also i n question throughout the 196o's, and speculation over d o l l a r devaluation pushed the price of gold up to more than #40 per ounce as early as the f a l l of 1960. As a r e s u l t of frequent gold rushes, a dual gold p r i c e system was adopted i n 1968. Cf. Buntaro Tomizuka, "Shihairyoku Ushinatsuta K i j i k u : Doru (Dollar: the Loss of Control as the Key Currency)," Asahi Journal, Vol.13, No.28, July 30, 1971, pp.83-90. 38 concessions from developed countries i n the United Nations Conference on Trade and Development, which was established i n 1964 and met i n 1964, 1968 and 1972. The resu l t s from these UNCTAD meetings were increased economic aid from developed countries to LDC's of up to \% of the doner's GNP by 1975, and pro v i s i o n of p r e f e r e n t i a l treatment of imports from LDO's^^. some LDC's went further than that by expropriating and na t i o n a l i z i n g foreign owned resource industries operating i n t h e i r countries. Some examples are the expropriation of Union Emil i n the Congo i n 1966, and the n a t i o n a l i z a t i o n of copper mines i n Chile i n 1969^6. This tendency strengthened i n the 1970's. The supply conditions of resources i n the postwar markets were generally favorable to Japan, since i t could obtain resources comparatively ea s i l y at r e l a t i v e l y stable prices because of the increasingly successful resource developments throughout the w o r l d ^ . These domestic, i n t e r n a t i o n a l and resource supply conditions affected each s e c t o r — t r a d i n g companies, 55 Asahi Journal, Vol.14, No.18, May 5, 1972, pp.103- 104. Ikuro Suga, "Kinzoku Shigen o Meguru Shomondai (Problems i n Me t a l l i c Resources)," K e i z a i to Gaiko, No.590, July, 1971, p.60. 57 Yasuhiro Masamura, "Rinen n i Kakeru Nihon no Shigen Seisaku (Japanese Resource P o l i c i e s Without Doctorine)," Economist. Vol.48, No.42, October 6, 1970, pp.21-23. 39 manufacturers and the government—for t h e i r attitude and behavior f o r resource investments. (A) Economic P o l i c y Changes The objectives of the U.S.'s occupation p o l i c i e s underwent a complete change a f t e r the beginning of the East-West confrontation, which was followed by the Korean War. The o r i g i n a l p o l i c y of r e t a l i a t i o n and punishment against Japan's war crime at Pearl Harbor was replaced by the country's f a s t reconstruction to improve i t s p o s i t i o n as a strong anti-communist f r o n t i e r i n A s i an s . As a r e s u l t , recommendations f o r payments of war reparations and modernization of Japan's economic system by deconcentratlng industries were retroceded from the o r i g i n a l reformation plan. In reparation payments, the i n i t i a l Pauley Mission arr i v e d at the amount of £2,466 m i l l i o n i n 1939 yen^ 9, hut i n the f i n a l Johnston Committee recommendation, the amount was reduced to £662 m i l l i o n , leaving s u f f i c i e n t c a p a b i l i t i e s f o r Japan to implement i t s economic r e h a b i l i t a t i o n ^ 0 . 58 Kazuto Nagasu, Mihon Keizai Nyumon (Introduction to Japanese Economy), Kobunsha, Tokyo, 1965, p. 11b"; 59 The exchange rate was £4.112 to the d o l l a r . 6° J. Cohen, Japan's Economy i n War and Reconstruc- tions, University of Minnesota Press, Minneapolis, 1949, pp.419-425. The difference between the two decisions was about $450 m i l l i o n . 40 The o r i g i n a l economic modernization plan included zaibatsu dissolutions and elimination of excessive concentra- tions of i n d u s t r i e s . A f t e r the zaibatsu were dissolved, 3 2 5 companies were named to be divided into small companies. But the U.S. retreated from i t s o r i g i n a l objectives, and only 11 companies were ordered to be deconcentrated^ 1. Thus, a great part of the prewar i n d u s t r i a l structure was not only preserved, but also strengthened to meet the U.S. p o l i t i c a l s t r a t e g i e s . The h i s t o r i c a l pattern of i n d u s t r i a l a c t i v i t i e s In the Japanese economy was that the f i n a n c i a l c a p a b i l i t y of i n d u s t r i a l c a p i t a l was weak and tended to be controlled by commercial c a p i t a l throughout the development of capitalism 6 2 since 1 9 6 8 . The representative example of commercial c a p i t a l i s trading companies, and they were omnipotent i n the supply of resources and d i s t r i b u t i o n of goods of a f f i l i a t e d e n t e r p r i s e s ^ . Trading companies were s t i l l indispensable i n the supply of resources and channeling of goods i n postwar D l They were: Mitsubishi Heavy Industries, Japan Iron and Steel, O j i Paper Manufacturing, Mitsubishi Metal Mining, Mitsui Mining and Smelting, Ika Mining Industries, Dalnippon Brewery, Toyo Cannery, Teikoku T e x t i l e s , Hokkaido Dairy and Taiken Industries. Of. Hideo Akimoto, Keidanren, Sekkasha, Tokyo, 1 9 6 8 , p p . 9 6 - 9 7 . 6 2 I n d u s t r i a l c a p i t a l i s c a p i t a l employed f o r manu- factu r i n g goods, while commercial c a p i t a l i s that used f o r d i s t r i b u t i o n of goods. Trading companies are t y p i c a l examples pf the l a t t e r . Cf. Uchida, op-cit, pp. 1 9 - 2 1 . 6 3 Ibid., p p . 3 1 - 3 8 . 41 years, because they were ready-made sales forces, d i s t r i b u t o r s and supply agents i n remote foreign markets i n which manufacturers could not a f f o r d to e s t a b l i s h t h e i r own channels. For instance, almost a l l imports of raw materials f o r the i r o n and s t e e l industries were carried out by general t r a d e r s ^ . Thus, an analysis of trading companies and t h e i r behavior i n resources supply w i l l show the major trends and behavior i n the second period. (B) Trading; Companies and Their Behavior A trading company i s defined as a channel of d i s t r i b u t i o n operating extensively i n foreign t r a n s a c t i o n s ^ ; Although t h i s i s true i n major large trading companies, t h e i r domestic operations are about h a l f of t h e i r a c t i v i t i e s , so they are c a l l e d general merchants^. i n t h i s study, the trading companies under consideration are generally the top ten, out of 8,100 e x i s t i n g trading organizations, which play a key r o l e i n the Japanese economy, 64 i b i d . , pp.68-78. 6 5 Ibid. 66 p o r example, the c l a s s i f i c a t i o n of t h e i r a c t i v i t i e s i s : domestic, 57.1$^and foreign trade, 42.9$ of the t o t a l sales of the top 12 companies i n 1964. Of. Ibid. The figures are almost s i m i l a r : 55.9$ and 44.1$ respectively i n 1968, by the Oriental Economist, Vol.38, No.711, p.37. The former top 12 became 10 because of mergers. 42 and have dealt with 46.7$ of exports and 60.4$ of imports of the total value i n 1 9 6 0 , and 48.2$ and 6 3 . 1 $ , respectively, i n 1 9 6 8 6 7 . In Japan's postwar economy, the set-back of the U.S. industrial deconcentration plan may have preserved the group allegiance that prevailed within an industrial group i n the prewar period. This may have fac i l i t a t e d postwar moves toward a new type of industrial alliance based on financial and business relations, centering on the bank and the trading company. . . . the bank because capital has been i n desperately short supply, and the trading company because manufacturing firms hungry to expand export had to rely on i t for experience and knowledge i n far-flung markets and could not afford to build up their own marketing organizations68. Trading companies and banks were strong devices to weld industries into particular groups. For instance, the Mitsui group i s headed by Mitsui Bank and Mitsui & Co., and other industries closely connected range from mining 67 The low percentage i n exports i s due to such products as home electronics equipment and automobiles being exported by manufacturers for maintenance and servicing reasons. The top ten companies are: Mitsubishi Shoji, Mitsui & Oo., Marubeni-Iida, C. Itoh & Co., Nissho-Iwai, Sumitomo Shoji, Toyo Merika, Nichlmen, Kanematsu-Gosho, and Ataka & Oo. Of. "Trading House i n Japan," Oriental Economist, Vol.3 8 , No.7H, January, 1970, pp.37^30^ 68 Robert Luber, "The Japanese Giant That Wouldn't Stay Dead," Fortune. Vol.LXX, No.5, November,1964, p.272. 43 and manufacturing to warehouses and r e a l estate. Mitsubishi, Sumitomo and others have s i m i l a r connections with at l e a s t one of the top ten trading companies i n t h e i r group69 # In domestic a c t i v i t i e s , one of two important roles of trading companies i s to create credit and insure transactions between i n d u s t r i e s . Payments using promissory notes up to 10-months' sight are quite a common and neccesary business practice i n Japan, where the f i n a n c i a l c a p a b i l i t i e s of industries are limited, and most industries f a l l within the small to medium category? 0. Trading companies create c r e d i t by accepting notes of other industries and making payments with t h e i r high quality notes. Thus, trading companies smooth and ensure business transactions. Default r i s k s of these accepted promissory notes by trading companies are diluted i n t h e i r gigantic amount of sales, but once these notes should default, a l l losses must be Incurred by the trading companies? 1. This 69 Oriental Economist S t a t i s t i c s , August, 1966. f o r example, small to medium firms with employees of less than 300 accounted f o r 99.8$ of a l l enterprises, and 82.4$ of the t o t a l work forces i n 1963. Of. Kazuji Nagasu, Nihon K e i z a i My/umon (Introduction to Japanese Economy), Kobunsha, Tokyo, 1965, p.137. ^ The t o t a l gross income of Japan's top 500 mining and manufacturing industries i n 1965 was #39.6 b i l l i o n , while the top 12 trading companies' revenue amounted to #24.6 b i l l i o n . Mitsui & Oo. alone, f o r example, incurred default losses of #20 m i l l i o n between September, 1964, and March, 1965, when many Industries went bankrupt due to the recession. Of. Uchlda, op c i t . , pp.101-105 and pp.120-123. 44 mechanism gives trading companies important roles i n credit creation, and guarantees of transactions among industries through them. The other c a p a b i l i t y provided i s financing by trading companies, using the difference i n sights between promissory n o t e s 7 2 . Trading companies issue short sight notes f o r t h e i r purchases and accept longer sight notes f o r t h e i r sales; the time difference i s financed by a trading company. Trading companies can provide the above functions by t h e i r good c r e d i t i n banks supported by a tremendous amount of sales, and t h e i r c a p a b i l i t i e s to raise working c a p i t a l from banks, as they are at the core of an i n d u s t r i a l group. The rate of loans of the top 10 trading companies i n c i t y banks i n 1964 was 8.2^3. This indicates the importance of the trading companies i n Japan's economy, because banks can also extend t h e i r loans to small- and medium-sized companies, using trading companies as buffers to absorb insolvancy r i s k s . In foreign transactions, trading companies are ready- made sales forces, d i s t r i b u t o r s and supply agents with t h e i r experience i n f o r e i g n markets. Their a c t i v i t i e s are p r e c i s e l y expressed i n the following statement. 7 2 Ibid., pp.123-124. 7 3 Ibid., pp.103-105. 45 The major r o l e of trading companies Is channels of transactions of Dig businesses. Very few of Japan's top 500 mining and manufacturing industries operate without using them? 4. In the supply of resources, the quantity and price terms and conditions of Japan's needy resources flow was favorable, as previously mentioned. Therefore, there were no p a r t i c u l a r reasons f o r making investments i n resource industries to implement the goals of s t a b i l i t y and low resource prices as indispensable f a c t o r s . However, trading companies rapid l y increased t h e i r foreign invest- ments i n resources as an a l t e r n a t i v e to increase t h e i r p r o f i t a b i l i t y f o r s u r v i v a l . Several reasons are considered causes of t h e i r urgent search f o r s u r v i v a l . F i r s t , the devastating conditions of the post-Korean War and 1965 recessions h i t many trading companies which had expanded rapidly i n the booming Korean War economy. Trading companies which specialized i n t e x t i l e s and many medium- to small companies went bankrupt on both occasions?^.. These lessons urged trading companies, e s p e c i a l l y s p e c i a l i z e d i n p a r t i c u l a r commodities such as t e x t i l e s and s t e e l , to strengthen t h e i r business and f i n a n c i a l c a p a b i l i t i e s by becoming general 74 i b i d . , p.124. 7 5 This prompted the reorganization of trading companies to increase t h e i r strength by merger, group a l l i a n c e and a f f i l i a t i o n . Ibid., pp.68-78. 46 merchants by merger, take-over or a f f i l i a t i o n . Second, the changing Japanese export structure, now centering on heavy and chemical industries, requires strong f i n a n c i a l c a p a b i l i t i e s to provide export cre d i t by deferred payments to win i n export competition with others i n exporting vessels, plants and other machinery. In importing raw materials, the strength of trading companies was required to provide manufacturers with working c a p i t a l i n the form of postponing payments on imported resources 7^. Third, manufacturers are gradually taking over some of the functions previously given only to trading companies, by exporting d i r e c t l y to foreign buyers. This d i r e c t exporting consisted of 14.0$ of the t o t a l export value i n 1955. It increased rapidly to 25$ of the 1965 value; the export value expanded from #2.0 b i l l i o n to #8.5 b i l l i o n r e s p e c t i v e l y 7 ? . Fourth, i n domestic transactions, the so-called d i s t r i b u t i o n revolution changed the pattern of commodity d i s t r i b u t i o n , e s p e c i a l l y f o r consumer goods. The function of trading companies as d i s t r i b u t i o n channels had been gradually reduced by the rapid increase of s e l f - s e r v i c e and discount stores which eliminated or reduced the value 7 6 i b i d . 77 i b i d . , p.177 47 of middle men. One such store appeared i n Japan i n 1953. and staggeringly increased i n number to 5,327 by October, Their sales growth was spectacular: the top two of these stores increased t h e i r sales by 1,260-fold and 1,200-fold between 1957 and 1967 7 9. Last and most important, the p r o f i t of trading companies was diminished f o r the above reasons. In the big trading companies, with assets of more than 510 b i l l i o n (#28 m i l l i o n ) , which includes the top four, the net p r o f i t margin decreased from 2.9$ i n 1960 to 0.4$ i n 1964; the rest of the top ten from 1.4$ to 1.1$, r e s p e c t i v e l y ^ . Under these a d v e r s i t i e s , trading companies expanded t h e i r domestic a c t i v i t i e s i n the f i e l d s of supermarkets, housing development and many other areas. In foreig n a c t i v i t i e s , a resource investment was an alternative to various investments such as manufacturing, commerce and others. Investments In resources involve r i s k s and require substantial amount of funds. A resource investment by a single trading company may jeopardize i t s existence because of f i n a n c i a l burdens and the r i s k of f a i l u r e •° T o s h l i c h l Atsumi, Kourigyo Seicho no Hlmitsu (Secrets of Growth i n R e t a i l Industry), Kawade Shobo, Tokyo. 1967, p.41. 79 Ibid., p.17. 8 0 Uchida, op c i t . p.195. 48 i n discovery of resources. In the establishment of j o i n t ventures with l o c a l enterprises, host governments, Japanese industries or ones from t h i r d countries, trading companies reduce f i n a n c i a l burdens and spread r i s k s . In addition, a j o i n t venture with a host government and l o c a l industries provides protection from d i r e c t exposure to h o s t i l i t y which may a r i s e when nationalism should upsurge. Trading companies had en t h u s i a s t i c a l l y sought j o i n t operations with foreign and domestic partners i n the l a t t e r part of the 1960's. In resource investments, Mitsui & Oo., f o r example, established j o i n t ventures with American and Aus t r a l i a n industries to develop i r o n and coking coal mines i n A u s t r a l i a , and a copper mine with a U.S. industry i n Zambia^. Trading companies have also a c t i v e l y expanded t h e i r role as organizers and coordinators of large scale domestic investment groups. In thi s case, a few trading companies are often i n the same investment group. The major reason i s that Japanese major industries are gathered into several groups by f i n a n c i a l and i n d u s t r i a l a l l i a n c e . When industries from d i f f e r e n t groups should form an investment group, i t i s p r a c t i c a l l y impossible to go prevent the a c t i v i t i e s of t h e i r trading companies . 0 1 "Trading Firms i n Japan," Oriental Economist, Vol.3 8 , No.687, January, 1968, pp .62 -c in ® 2 "Sogo Shosha (General Merchant)," Economist, Vol.46, No.39, p.37. 49 Thus, i t i s more p r a c t i c a l to cooperate with other trading companies i n forming an investment group. Mitsui & Oo. cooperates with Marubeni-Iida i n Canada f o r coking coal development, f o r example^. To sum up, the function of trading companies i n both domestic and in t e r n a t i o n a l a c t i v i t i e s i s very important i n the Japanese economy. Some of the functions undertaken by them have been replaced by manufacturers and r e t a i l e r s . As a r e s u l t , t h e i r p r o f i t a b i l i t y was decreased s u b s t a n t i a l l y . Investments i n resources were sought as an a l t e r n a t i v e to curb t h e i r deteriorating f i n a n c i a l p o s i t i o n . They had increasingly invested i n resources by establishing j o i n t ventures and organizing investment groups. Although t h e i r investments were increased to Improve t h e i r p r o f i t a b i l i t y , the motivation was not s o l e l y a search f o r higher returns, but rather f o r s u r v i v a l and strengthening t h e i r f i n a n c i a l c a p a b i l i t i e s . (C) Manufacturers and Their Behavior Japanese manufacturers were s t i l l at a heavy disadvantage i n machinery and technology i n comparison with 8 3 Ibid 50 foreign competitors, although production c a p a b i l i t i e s were rapidly regained as a re s u l t of U.S. a i d and sp e c i a l procurements from the off-shore war i n Korea. Technological gaps existed i n many industries, such as heavy, chemical, ele c t r o n i c s , and others. Imports of machinery and technologies were the short cuts taken to f i l l the gaps, and the Japanese earnestly sought them i n foreign countries. The t o t a l number of technologies purchased between 1950 and ftii 1 9 6 5 amounted to 3 , 5 3 4 ; 2 , 5 1 1 between 1 9 6 0 and 1 9 6 5 alone . The a u a l i t y of Japanese industries and t h e i r structure had been changed completely by the end of the 1 9 6 0 ' s under aggressive government p o l i c i e s . The Ministry of International Trade and Industry p a t i e n t l y delayed the Import l i b e r a l i z a t i o n of promising industries, notwithstanding severe foreign c r i t i c i s m s , u n t i l they gained the i n t e r n a t i o n a l competitive power. Simultaneously, the MITI demanded industries to strengthen t h e i r i n d u s t r i a l c a p a b i l i t i e s under the threat of import l i b e r a l i z a t i o n and permission of fo r e i g n investments into Japan"5. Industries needed large c a p i t a l investments f o r aggressive purchases of fo r e i g n machinery and technology to eliminate gaps with t h e i r counterparts. As previously 8 ^ K. Miyagawa and M. Hirao, Shlhon Koryu to Kokusai Kinyu (Capital Flow and International Finance), Ginko Kenshusha, Tokyo, 1965, p p . 1 3 0 - 1 3 1 . 8 5 Mihon Keizai Shimbun, June 1 8 , 1 9 7 2 . 51 mentioned, the most common way of financing f o r these purchases was debt financing, and t h i s has been increasing throughout the 1960's. The average rate of equity i n t o t a l c a p i t a l of a l l industries dropped from 39.2$ i n the f i r s t h a l f of 1955, to 19.8$ for the same period i n 1969 8 6. Investments i n resource industries require not only large sums of funds, but also of personnel. Manufacturers were eager to meet the c r i t e r i a of catching up with t h e i r counterparts. E s p e c i a l l y i n view of the favorable terms under which resources were obtained i n the open market, there was l i t t l e urge to enter upstream resource in d u s t r i e s , r e c r u i t i n g personnel within industries; the stable flow hypothesis has l i t t l e motivated investments. Although labor costs jumped i n the l a t t e r part of the 1960's, manufacturers absorbed a part of labor cost hikes by achieving scale economy as a result of c a p i t a l investments i n plant expansion 8?; the low cost argument does not appear to have carried weight. < Morio Okazaki, "Tsuyomaru Kajoseisan Pukyo no K i k i (The Increasing C r i s i s of Depression by Overproduction)," Economist, Vol.48, No.42, October 6, 1970, pp.112-118. 87 j»or example, the MITI requirement f o r making an ethylene plant was the production capacity of 100,000 tons per year. But i t raised the minimum up to 300,000 tons per year i n 1966. Cf. Kan-ichi Kondo, "Kyodalka ga Maneita Hitsuzen Aku (Necessary E v i l Caused by Magnification)," Asahi Journal, Vol.14, No.22, June 2, 1971, p.22. 52 A s i g n i f i c a n t example of an independent resource investment was the establishment of the Arabian O i l Oo. i n 1958. This investment, however, was a mere acceptance of an investment i n v i t a t i o n from the Saudi Arabian govern- ment, which wanted to create a competitive power against major Western o i l companies 8 8. This investment, which was made i n an excessive o i l market, did not necessarily gain popularity. In short, the manufacturers' major concern was to become competitive with t h e i r Western counterparts by purchasing machinery and technology. They did not have enough f i n a n c i a l c a p a b i l i t i e s and human resources to under- take investments i n resources. These were available In the open market, and neither the s t a b i l i t y nor low cost hypotheses motivated Investments. Capital investments i n production f a c i l i t i e s were used to of f s e t a part of r i s i n g labor costs. Therefore, motivation toward actual investments was very l i m i t e d . 8 8 The c a p i t a l i z a t i o n was #28 m i l l i o n , with a paid up c a p i t a l of #10 m i l l i o n , although many large corporations joined the venture. The f i n a n c i a l c a p a b i l i t i e s of the company were too weak to compete with Western o i l companies. Cf. K a t s u j i Sugimura, "Wagakuni no Keizai Kyoryoku no Genjo to Tembo (Japan's Current Economic Cooperation and Outlook),'" K e i z a i Hyoron, September, 1961, pp.95^-96. 53 (J) Government and i t s Behavior Japan regained i t s national sovereignty, terminating postwar occupation, with the formation of a separate peace treaty with the free world, centering on the U.S., i n 1952. Because of t h i s treaty, Japan i s s t i l l t e c h n i c a l l y at a state of war with such countries as Russia, China and many other communist countries. However, by laborious methods of economy and p o l i t i c s separation, i t found a way to establish trade r e l a t i o n s with these countries. The growth of t h i s trade i s amazing^9. Japan retained close r e l a t i o n s with the U.S.— p o l i t i c a l l y and economically—throughout the postwar period. Japan i t s e l f benefited most by thi s close t i e , obtaining s p e c i a l procurements from the Korean war In the early part of this period, and from the war i n Indo-China i n the l a t t e r part, and obtaining a most promising export market i n the U.S., which constantly absorbed approximately one t h i r d of Japan's t o t a l export value. Trade between the U.S. and Japan increased from #993.6 m i l l i o n i n 1953 to #11.5 b i l l i o n 9 0 i n 1970^ . In these courses of development, Japan's single 8 ^ The trade between Japan and China i n both directions was #34.2 m i l l i o n i n 1953, increasing to #822.7 m i l l i o n i n 1970. Japan's exports to Russia i n 1953 were only #7,000 with imports of #2.1 m i l l i o n ; the trade i n both directions increased to #821.9 m i l l i o n i n 1970. Cf. Business JAPAN. November, 1971. 90 i b i d . 54 important objective was the enlargement of i t s Gross National Product91. For t h e i r own purposes, the Japanese were not w i l l i n g to involve themselves i n other than economic i n t e r e s t s , as pointed out by a career diplomat: The p r e v a i l i n g attitude since the war has been "Let's concentrate on rebuilding our own economy, and not become involved too much i n others 1 affairs,"92 The GNP grew by 9.4$ annually between 1953 and 1965, and by 11.4$ during the 1960's. In the GNP race, Japan ranked third, following only the U.S. and Russia. Around that time, the mass-media and the government started claiming that Japan had become an economic superstate. Heated discussion had been appearing i n the mass-media, but investment i n resources to promote national prestige was not noticed. The constant belance of payments s t r a i n improved i n the middle of the 1960's, as shown i n Appendix 0. The government regarded a surplus i n balance of payments and st e a d i l y increasing foreign reserves as temporary, and 9 1 Kazuto Nagasu, "Nanshin Sum Nihon Shihon Shugl (Japanese Capitalism Marching South)," Economist, Vol.49, No.8, March 2, 1971, p.12. . 92 Ichiro Kawasaki, Japan Unmasked, Charles E. Tuttle Co., Tokyo,. 1968, p.20"4\ 55 did not make any serious considerations u n t i l the 1970's93. Thus neither hypotheses—national prestige nor increased reserves—had s i g n i f i c a n t reasons to induce Japan's investment a c t i v i t i e s . Japan's method of obtaining natural resources throughout the period had been through purchases In the market, of materials i n as raw a state as possible, and bring them back to Japan so that a l l processes could be done i n Japan. Japan's economic assistance to LDC's has experienced changes. In the early period, Japan had very l i m i t e d economic c a p a b i l i t i e s , from which i t had to pay war reparations to neighboring Southeast Asian countries, except to China and to those others of s p l i t countries belonging to the communist b l o c k 9 4 . The reparations must surely have helped these r e c i p i e n t s , but they were war damage settlements, of very d i f f e r e n t nature to a i d . y D There were heated discussions f o r relaxation of control of Japan's foreign investments i n the middle of the 1960's, i n view of i t s stable foreign reserves l e v e l at around #2 b i l l i o n f o r the previous several years. The MITI was r e l a t i v e l y interested i n doing so, but the Ministry of Finance was reluctant because of a possible balance of payments d e f i c i t . I t was also explained that reserves were approximately 20% of Japan's t o t a l annual import at that time, and were s t i l l at a low l e v e l i n comparison with the 40$ to 50$ l e v e l i n Western countries. Of. Nihon Seisansei Honbu, Kokusai Shihon to Nihon Kigyo (International Capital and Japanese Enterprises). Tokyo, 19o7, pp.10-25. 9 4 Major war reparation payments were #550 m i l l i o n to the Philippines, #220 m i l l i o n to Indonesia,.#200 m i l l i o n to Burma and #39 m i l l i o n to South Viet Nam. Cf. Economist, Vol.45, No.44, October 24, 1967, p . 5 2 . 56 Japan's major government aids were yen loans and financing of exports to less developed c o u n t r i e s 9 ^ , ^he former started i n 1958, and the l a t t e r i n 1965 f o r the financing of plants and equipment exports using government funds. Thus, the main purpose of government economic assistance to LDC's was to protect Japan's export market i n LDC's by means of loans and deferred payments of Japan's exports. Investments i n resource industries, which require large sums of funds, were not promoted u n t i l toward the end of the 1960's. In the i n t e n s i f i e d demand from LDC's f o r more economic aid i n the l a t t e r part of the 1960's, invest- ment into LDC's were, among others, an alternative form of economic a i d . Private funds, including investments and export cre d i t over one year, increased rapidly, as shown i n Appendix P. Since the c l a s s i f i c a t i o n "other o f f i c i a l funds" includes investment financing by the government, the increase since 1967 i s s i g n i f i c a n t . E s p e c i a l l y i n invest- ment i n resources, as mentioned i n the overview, 36.2$ of the t o t a l investments of #599.7 m i l l i o n by March, 1969, (1968 f i s c a l year) was invested i n 1967 and 1968 alone, before the i n s t i t u t i o n of automatic investment approval of 95 Yoshiyuki Hagiwara, "Kiro n i Tatsu Tai Asia Kankei (Japan-Asia Relations at.a Turning Point)," Asahi Journal, Vol.13, Ho.39, October 15, 1971, pp.10-13. 57 up to #200,000 i n 1969. In t h i s , #58.6 m i l l i o n , 7.8$, was invested i n 1967, and #158.7 m i l l i o n , 28.4$, i n 1968. It i s not clear which i s the reason f o r increased resource investments—the government's LDC's assistance, or the trading companies' s,earch f o r higher p r o f i t a b i l i t y f o r s u r v i v a l , and also whether or not both of these are well harmonized. But considering that at least two thirds^-bf investments are made i n LDC's, i t might be considered that the LDC's assistance hypothesis has some value f o r inducing investments. In r e c a p i t u l a t i o n , the government held Japan's economic expansion as i t s major goal. The increased GNP created discussion f o r the investments, but the actual investments were not yet motivated only f o r national prestige reasons. Foreign reserves were being accumulated throughout the 1960's, but the government was cautious to use them as a r e s u l t of su f f e r i n g a long-term balance of payments s t r a i n i n postwar years. Economic assistance to LDC's was the device to expand Japan's exports by the middle of the 1960*s. But toward the end of the 1960*s, Japan's economic assistance to LDC's, i n the form of resource investments, was increased r a p i d l y . The reason ^° MITI, Keizai Kyoryoku no Genjo to Mondaiten (Current Position, and Problems of Economic Cooperation), Tokyo, 1970, p.135. [ \ 58 might have been that the government's policy to increase economic assistance to LDC's, under severe pressure from them, coincided with the urge f o r investments by trading companies, as an a l t e r n a t i v e f o r higher p r o f i t a b i l i t y . ( I l l ) Third Period (1970 to September, 1972) Overview This period covers the past two and a half years since the beginning of 1970. Although very short, i t had several important i n t e r n a l and external changes which d i r e c t l y affected Japan's economic, p o l i t i c a l and diplomatic p o l i c i e s . Japan's investment p o l i c i e s In resource industries experienced changes during t h i s short period i n the l i q u i d i n t e rnational p o l i t i c a l and economic sphere. I t i s too early to say whether the e x i s t i n g resource p o l i c i e s are stable, but they w i l l give c e r t a i n bases f o r a future outlook. In external influences, f i r s t , the U.S. suspension of conversion of i t s d o l l a r into gold i n monetary c r i s e s , and the imposition of the 10$ surtax f o r a l l U.S. imports, were undertaken i n August, 1971, under i t s chronic balance of payments s t r a i n . Japan was forced to revalue the yen 16.88$ upward i n the course of i n t e r n a t i o n a l monetary realignment, agreed upon i n December, 1971. In trade, Japan was forced 59 into concessions, especially i n t e x t i l e exports, i n which the U.S. gave an ultimatum to use the Trade with the Enemy Act to r e s t r i c t U.S. t e x t i l e imports, and hinted a possible delay of Okinawa reversion. Only h a l f a year a f t e r the world monetary agreement, the B r i t i s h pound faced another c r i s i s f o r possible devaluation. Although i t has not yet been devalued, the future of the pound and the int e r n a t i o n a l monetary system i t s e l f i s s t i l l uncertain. Second, Chinese premier Chou E n - l a i announced four p r i n c i p l e s with which to do business with Japanese companies i n A p r i l , 1970^7. Industries committed too much i n Taiwan and South Korea, Japanese defense contractors and enter- prises supply/ing the U.S. procurements for the war i n Indo- china, were completely excluded from China-Japan trade. Thus Japan's major industries that are c l o s e l y following government p o l i c i e s to support Taiwan, were excluded from China trades unless they were sworn to the "four p r i n c i p l e s . " This caused increasing uneasiness i n Japanese i n d u s t r i e s : they feared that they might be l e f t alone i n business when 97 Japanese companies cannot undergo any business transactions i f they p a r t i c i p a t e i n any of the following conditions: (a) manufacturers and trading companies that a s s i s t Taiwan's aggression to Mainland China, and that a s s i s t i n the invasion of North Korea, (b) industries that have invested heavily i n Taiwan and South Korea, (c) companies that cooperate i n U.S. aggression i n Indo-China, and (d) j o i n t ventures with U.S. companies and U.S. subsiduaries i n Japan. Of. J i y u Kokumin Sha, Gendai Yogo no Kiso Ohishikl (Fundamental Knowledge of Current Words), Tokyo, 1971, 0.1550. 60 China and Japan began moving toward rapproachment at a l a t e r date. Third, the U.S. changed i t s p o l i c y against China, from past Chinese compartmentalization to rapproachment i n July, 1971, by announcing the U.S. president's expected v i s i t to China by May, 1972. The U.S. president had summit talks with Chinese and Russian leaders i n February and May, 1972. Meanwhile China regained i t s seat i n the U.N., ousting Taiwan i n the f a l l of 1971. The results of these rapproach- ments appeared i n U.S. p a r t i c i p a t i o n i n the Canton Trade F a i r , f o r the f i r s t time, i n May, 1972 9®, and, as proposed, the o i l , natural gas and other mineral resource developments i n S i b e r i a between the Russian government and U.S. industries^!?, Fouth, the power of nationalism i n LDC's, which increased s u b s t a n t i a l l y i n the l a s t decade, i s s t i l l increasing and i t had a serious impact on resource consuming countries and t h e i r resource in d u s t r i e s . O i l , one of the major resources, i s a t y p i c a l example that was seriously affected by the growing nationalism of the OPEC. The organization won a s i g n i f i c a n t o i l tax h i k e 1 0 0 i n 1971, Newsweek, May 15, 1 9 7 2 , p.7 5 . 99 The l a t e s t proposals f o r two gas projects alone may require.# 1 0 to #14 b i l l i o n . There are also many other opportunities. Of.,Time, August 2 1 , 1 9 7 2 , p.57. 100 ike tax rose 3 5 ^ per b a r r e l (a 2 0 $ increase), and 2 . 5 $ f o r . i n f l a t i o n escalation w i l l be added annually f o r the next f i v e years. Of. Chuo Koron,Vol.10,No.2, 1971,pp203- 61 backed up by the ever-Increasing o i l demand i n the world, and the squeezed market conditions by the increased U.S. import quota, together with the decreased Russian sales i n the free w o r l d 1 0 1 . A f t e r the monetary realignment, the OPEC demanded another price hike to make up f o r the 8.6$ d o l l a r devaluation since the o i l price i s quoted i n d o l l a r s . In addition, t h e i r demand f o r more p a r t i c i p a t i o n i n ownership was increasing. In June, 1972, Iraq took ownership by n a t i o n a l i z i n g the Western-owned Iraq Petroleum C o . 1 0 2 This Iraqi action may cause further aspirations f o r more p a r t i c i p a t i o n and n a t i o n a l i z a t i o n of foreign-owned o i l properties to the OPEC. Also, t h i s trend may cause si m i l a r and immeasurable actions i n other resources. Domestically, many important a c t i v i t i e s were under- taken, many of them clo s e l y related with the above inte r n a t i o n a l a f f a i r s . F i r s t , the required resources f o r Japan's growth are increasing i n quantity, and i t s foreign dependency had also been increasing, as shown i n Appendix H. Second, the staggering increase of i t s f o r e i g n The demand increase f o r crude o i l i n the market, as a r e s u l t of these actions, i s estimated to be at least 420 m i l l i o n tons. Ibid. 102 The IPC i s owned primarily by B r i t i s h Petroleum Co., Royal Dutch-Shell, Compagnie Francaise des Petroles, Mobil O i l Corp. and Standard O i l Oo. of New Jersey. 62 reserves resulted i n the unexpected high 16.88$ upward yen revaluation i n December, 1971. It was hoped that i t would curb the increase of reserves and ease foreign pressures on Japan, but the reserves continued to increase throughout the period. Although the reserves decreased s l i g h t l y i n A p r i l , 1972, Japan s t i l l has more than $16 b i l l i o n , as shown i n Appendix D. In connection with the B r i t i s h pound c r i s i s , another upward yen revaluation has been discussed i n the mass-media since June, 1972. Under the circumstances, the government must face the re-evaluation of i t s p o l i c i e s , including Japan's investment p o l i c i e s , among others, to cope with t h i s s i t u a t i o n . Third, the unusually high nationwide concern about p o l l u t i o n has been at stake since 1970 1°3, and the reduction of p o l l u t i o n became a serious industry-wide problem. This problem not only a f f e c t s costs, because of the necessary use of new technology, and of d i f f e r e n t q u a l i t i e s of resources for p o l l u t i o n control, but also the demand- supply conditions of world resources suitable f o r p o l l u t i o n control. Fourth, the new prime minister was elected In June, 1972. He showed great inte r e s t i n normalizing Ohina-Japan r e l a t i o n s . A f t e r the el e c t i o n , the Chinese premier sent Ninon, Keizai Shimbun, June 15, 1972. 63 an i n v i t a t i o n to the new prime minister f o r normalization t a l k s . This has not yet been actualized, but w i l l have s i g n i f i c a n t impact i n various aspects. And f i f t h , a f t e r the humiliations the U.S. made Japan suffe r p o l i t i c a l l y and economically i n 1971, Japan i n i t i a t e d more independent action by sending economic missions to seek closer relations with Mongolia, North Korea, North Viet Nam and so o n 1 0 4 . Especially on the China issue, many industries expressed t h e i r fear of missing the Chinese band wagon, and increasingly sought business t i e s with China. By the middle of August, 1972, many major industries committed themselves into China, expecting results from i t s p o t e n t i a l . (A) Trading Companies and Their Behavior The r e s p o n s i b i l i t i e s of trading companies as central organizations of i n d u s t r i a l groups have been increased i n the current l i q u i d i n t e r n a l and external conditions Trading companies continued t h e i r zealous a c t i v i t i e s i n resource investments to obtain secured inflows of resources fo r Japanese i n d u s t r i e s . In June, 1972, the Japanese government decided to grant economic a i d , p r i n c i p a l l y i n the form of a loan, to Mongolia f o r the development of mineral resources i n that country. Of. Asahi Shimbun. June 20, 1972. 1 0 5 Ninon Keizai Shimbun, June 15, 1972. 64 It would be quite possible that large manufacturers themselves would invest i n resource industries, but i n r e a l i t y they depended on trading companies of t h e i r i n d u s t r i a l groups f o r t h e i r supply of resources. The implications would be that resource investments i n a f o r e i g n country involve s p e c i f i c business, economic, and p o l i t i c a l information, i n addition to complete and comprehensive mine information. The investment environment w i l l d i f f e r from country to country, and the search f o r f e a s i b l e mines requires comprehensive information-gathering through dependable sources. The establishment of information- gathering channels throughout the world by an industry requires huge sums of money and human resources. Trading companies have already established world-wide channels, and i t would be more a t t r a c t i v e , at least f o r the time being, f o r industry to use the trading companies' organization and scarce capitals f o r alternative investments, such as plants and equipment, to strengthen t h e i r competitive p o s i t i o n . Trading companies' behavior took several d i f f e r e n t forms. F i r s t , a trading company started resource develop- ments, such as timber, obtaining acreage. However, investments i n mineral and o i l resources by a single firm were not suitable because they required tremendous amounts 65 of c a p i t a l with high r i s k s . Second, trading companies sought partnerships i n the investing country, i n t h e i r own country and i n a t h i r d country. Third, the trading company of an i n d u s t r i a l group decided to make a large- scale j o i n t investment with i t s members 1°6. Fourth, many trading companies, manufacturers and others from d i f f e r e n t i n d u s t r i a l groups formed a large-scale investment syndicate f o r a large natural resource development p r o j e c t 1 0 ? . During t h i s period, a l l major trading companies made a c r u c i a l decision that w i l l a f f e c t t h e i r future investment a c t i v i t i e s i n resources: the acceptance of the Chinese "four p r i n c i p l e s " for business r e l a t i o n s . The main reason f o r the decision was that inappropriate behavior of a trading company as a part of the core of an i n d u s t r i a l group aggravates the o v e r a l l competitive power of the group. Thus, a trading company must behave f o r the benefit of i t s group. Mitsui & Co. and Mitsubishi Shoji remained i n IUO q>Yxe 30 companies of the Mitsubishi group agreed i n August, 1972, to es t a b l i s h the Mitsubishi O i l Development. The new project w i l l be e f f i c i e n t i n fund r a i s i n g , technology and Information gathering. Of. Nihon Keizai Shimbun, August 19, 1972. 1 0 ? One s i g n i f i c a n t example of a large-scale j o i n t investment i s the foundation of North Slope O i l i n February, 1970, a f t e r only three months preparation, using the f u l l power of the business and f i n a n c i a l worlds; i t includes 26 major companies from e l e c t r i c power, i r o n and s t e e l , o i l industries, and trading companies. Cf. Economist, Vol.48, No.42, October 10, 1970,pp.21-23. 66 invulnerable positions i n the l a n d - s l i d i n g movement of major industries toward China trade, but they f i n a l l y decided to j o i n the Chinese band wagon i n June, 1972 u . The main interests of these trading companies, as the centers of i n d u s t r i a l groups, were i n resources, such as o i l , natural gas, i r o n ore and non-ferrous m e t a l s 1 0 ^ . The effects of t h i s p o l i c y change w i l l take some time to develop. In b r i e f , trading companies s t i l l supplied resources to manufacturers. The investments were a c t i v e l y made by trading companies, forming j o i n t ventures, and organizing investment groups i n the same or d i f f e r e n t i n d u s t r i a l groups. A highlight of t h i s period was that even the greatest trading companies could not r e s i s t the p o t e n t i a l i t y involved i n China trade, which made them accept the Chinese conditions, thereby pushing ahead of the Japanese government's China p o l i c i e s . (B) Manufacturers and Their Behavior Japanese i n d u s t r i a l structure had been changed to being centered on heavy and chemical industries by the end of the l a s t period, as mentioned previously. At the same 1 0 8 Nihon K e i z a i Shimbun, June 15, 1972. 1°9 i b i d . 67 time, industries made c a p i t a l investments i n t h e i r plant expansion, based on the premisis that they would export a s i g n i f i c a n t portion of t h e i r o u t p u t 1 1 0 ; exporting has been b u i l t into the Japanese i n d u s t r i a l structure. Under t h i s i n d u s t r i a l structure, three major factors acted against i n d u s t r i e s . F i r s t , the labor shortage remained such throughout the period. For example, the re a l wage index for a l l manufacturing industries (1969=100) went up to 109.3 i n 1970, and 117.2 i n 1971 1 1 1. Second, industries are required to make investments to control p o l l u t i o n , which also affects the s e l e c t i o n of i n d u s t r i a l s i t e s , leading to a s c a r c i t y and high price of good s i t e s i n such a densely populated country. Japan's f i r s t o f f i c i a l Environmental White Paper estimates that l a s t year #2.7 b i l l i o n was spent by major corporations f o r research and p o l l u t i o n c o n t r o l 1 1 2 . But deaths caused by such p o l l u t i o n as methyl mercury, cadmium, sulphurous acid gas and others are u n o f f i c i a l l y estimated to be at about 1,000 1 13. i n many recent court battles, industries have been sentenced as l i a b l e to pay mi l l i o n s of dollars of compensation to victims. P o l l u t i o n control requires 1 I U Mainichi Shimbun, June 29, 1972. 1 1 1 S t a t i s t i c s Dept., The Bank of Japan, Economic S t a t i s t i c s of Japan, No.302, May, 1972, p.8. 112 Time, July 24, 1972, p.57. 1 1 3 Ibid. 68 investments i n various areas such as research, equipment and f a c i l i t i e s , new kinds of resources, and better q u a l i t i e s of resources. These extra costs increased costs of i n d u s t r i e s . Toho Zinc, one of ten lead, zinc and ni c k e l industries, which had not been making dividend payouts because of required investment i n p o l l u t i o n control, decided i n July, 1972, to retreat completely from a l l overseas copper resource investments as one measure to reconstruct and free i t s e l f from the business slump 1 1 4. Third, the upward currency revaluation had adverse effects on in d u s t r i e s . Products of heavy and chemical industries usually contain high added value. Thus, the benefits of resource prices, decreasing r e l a t i v e to Japanese currency, are li m i t e d , but the revaluation deteriorates the terms and conditions of the fi n i s h e d exported product. Export decline i s a hard blow to Japan's heavily export- oriented i n d u s t r i e s . Furthermore, import l i b e r a l i z a t i o n s and increased c a p i t a l investments by foreign investors into Japan w i l l increase competition among in d u s t r i e s . Japan's resource i n d u s t r i a l structure s t i l l remained centered on downstream, which Is smelting and concentration, although some resources investments were undertaken. 1 1 4 Nihon Keizai Shimbun, July 5, 1972. 69 This structure brings very l i m i t e d p r o f i t margins to Japanese resource industries because the added values, and hence the opportunity for p r o f i t , are low 1 15, Low p r o f i t a b i l i t y not only i n h i b i t s the opportunities f o r expansion of the indu s t r i e s , but also may be eradicated by monetary revaluation. Investments i n resource developments were undertaken during t h i s period f o r a secure stable resources flow and low p r i c e s . But i t became quite clear that the wall preventing Japan's entry into resource industries was too thick because of Japan's f a t e f u l i n f e r i o r competitive power, both f i n a n c i a l l y and technologically, to that of the exi s t i n g i n t e r n a t i o n a l resource companies 1 16. i n actual example, Indonesian O i l Development, founded j o i n t l y by 16 companies, including the Mitsui, Mitsubishi, Sumitomo groups and others, f i n a l l y succeeded i n boring f o r o i l at the end of 1970, 1 1 5 High p r o f i t i s usually realized i n upstream, except f o r bauxite and i r o n ore. For example, added values of copper and lead i n upstream were 71.4$ and 66.5$ i n 1969, while added values i n downstream were only 5.6$ and 15*1$, respectively, f o r the same year. Of. MITI, Shigen Mondal no Tembo,1971 (The Outlook i n Resource Industries, 1,971), Tokyo, 1971, p.44. 1 1 6 F i n a n c i a l l y , one major o i l company spent an annual average of #100 m i l l i o n f o r mine explorations, while the t o t a l of Japanese investments reaches t h i s amount, which frequently forces the Japanese to abandon projects because of f i n a n c i a l troubles. Technologically, the ca p a b i l i t y of a Japanese barge i s from 100 to 200 meters, while a major company can excavate from 3,000 to 4,000 meters. Therefore, the competition i n the resource industries i s i n money and technology. Of. Economist, Vol.49, No.25, June 22, 1971, pp.86-87. 70 but that success came just before i t retreated completely from the project. It sold out a half of the o r i g i n a l acreage f o r development that summer to offset expenses accumulated by that t i m e 1 1 ? . There are also other retreats from investments i n various parts of the world because of I n s u f f i c i e n t f i n a n c i a l and technological c a p a b i l i t i e s . In r e c a p i t u l a t i o n , i n t e r n a l and external conditions surrounding manufacturers had many adverse effects on them. Labor shortages, labor cost Increases, required p o l l u t i o n controls and compensation payments, requirements of new and quality resources and the yen revaluation a f f e c t s were factors Japanese industries had to face i n this period. Resource investments were undertaken to enter into upstream, but i t became decisive that Japanese resource industries cannot compete with the e x i s t i n g i n t e r n a t i o n a l resource i n d u s t r i e s . (0) Government and Its Behavior Japan's aspirations have had to face several econo- p o l i t i c a l tests i n the period since 1970. The f i r s t was the so-called o i l war, the confrontation between major o i l companies and the Organization of Petroleum Exporting Countries f o r a crude o i l tax hike. Under the disadvanta- geous p o s i t i o n i n the o i l confrontation, the government 1 1 7 Ibid. 71 campaigned to make indus t r i e s , f i n a n c i e r s , and the general public r e a l i z e that heavy foreign dependency makes Japan's economy very vulnerable, and that i t may enslave Japan to the existing resource supply structure. Japan's mass-media e f f i c i e n t l y carried out the campaign 1 1 8. By the end of the o i l war i n early 1971, extensive discussions were presented to industries, financiers and the general public through various mass-media. In addition to the campaign, the Ministry of International Trade and Industry issued i t s f i r s t o f f i c i a l white paper on "Prospect of Natural Resources Problems i n Japan" i n 1971 119. It analyzed the current and expected i n t e r n a l and external problems i n resource industries, and pointed out that a stable inflow of resources at a reasonable price w i l l become a more important issue than ever i n Japan's economic structure. As a proposed solution to resource problems, the report emphasized the need f o r Japan's 1 1 ^ Major newspapers and TV stations can e f f i c i e n t l y cover the Japanese. There are f i v e major national d a i l y papers: A s a h i ( c i r c u l a t i o n 6 m i l l i o n ) , Yomiuri(cir. 5.8 m i l l i o n ) , M a l n i c h i ( c i r . 4.7 m i l l i o n ) , Sankei ( c i r . 1.9 m i l l i o n ) , and Niho'n Keizai ( c i r . 1 . 4 m i l l i o n ) : the l a t e s t c i r c u l a t i o n figures from Time, July 17, 1972, pp.20-31 • NHK-TV(Japan Broadcasting Corp.) reaches 96$ of the population through i t s 2,000 ou t l e t s . TV Guide, May 1, 1971, pp.6-11. A major part of programming o f o t h e r private stations i s sent from key stations i n Tokyo. 119 For example, Trade and Industry of Japan, Vol.XXI, No.1, January, 1972, carries the f u l l report. 72 independent resource developments—Japan invests c a p i t a l and carries development—so that resources may be obtained independently at a reasonable p r i c e . However, i t was not clear i n the MITI's paper whether Japan's independent resource developments should be under- taken with a long-run outlook to help resource holding nations to reduce the ex i s t i n g o l i g o p o l i s t i c resource controls, or i f Japan i s to be b u i l t into the ex i s t i n g resources supply system as a new-comer, and increase i t s strength. Soon i t became clear that Japan should choose the l a t t e r , when some Japanese investors retreated from resource developments i n Indonesia, the richest resources deposit i n Asia, f o r such reasons as i n s u f f i c i e n t technology, too heavy a f i n a n c i a l burden f o r continuation of an investment, and others 120. Thus, the MITI recently repainted the wagon from the once bravely encouraged "independent development" to "international cooperative develop- ment "(namely cooperation with world o l i g o p o l i s t s ) . The independent development and cooperative develop- ment with resource holding nations should be undertaken I f there should be an opportunity 121. 120 Jyun Nishikawa, "Asia Bundan e Susumu Hichibei Shihon (Japanese and U.S. Capitals Moving Toward a S p l i t i n A s i a ) , " Asahi Journal, Vol.14, No.2, January 14, 1972, p.24. . 121 I b i d . 73 The new p o l i c y w i l l give some s a t i s f a c t i o n to Japan i n Identifying i t s e l f as a participant i n resource developments, joining the in t e r n a t i o n a l resource enterprises, but i t may have some flaws. It i s uncertain whether Japan could be accepted into a feasi b l e investment project carried out by exis t i n g world resource i n d u s t r i e s . Even i f Japan could p a r t i c i p a t e , a small-scale p a r t i c i p a t i o n may not produce s u f f i c i e n t merits, i n terms of price and quantity s t a b i l i t y , as could be necessary to compensate f o r the business and f i n a n c i a l r i s k s that Japan might have to take. And Japan may be i n h i b i t e d from buying resources elsewhere, at better terms and conditions, than those agreed upon by the int e r n a t i o n a l resource enterprises, without jeopardizing business r e l a t i o n s with them 1 2 2. The speed of foreign reserves accumulation accelerated i n 1971, and increased the reserves from #4.4 b i l l i o n at the beginning of the year to $15.2 b i l l i o n 1 2 3 , at the end. This was i n spite of the U.S. imposition of an 1 " Iraq offered crude o i l to Japan at a lower price than that supplied by major o i l companies a f t e r the Iraqi government nationalized the Western-owned Iraq Petroleum Corp. i n June, 1972. But i t may be unwise f o r Japan to buy i t because of heavy dependence on major o i l companies that are threatening to take any possible l e g a l action against Iraq o i l buyers. Cf. Nihon Keizai Shimbun, June 14, 1972. 1 2 3 As a resu l t of increasing reserves, the Ministry of Finance increased the amount of automatic foreig n invest- ment approval to #1 m i l l i o n per investment i n September ^970. This control was l i f t e d i n 1971. Cf. JETRO, 1972 Kaigai Shi jo Hakusho (White Paper on the Foreign Market), Tokyo, 1972, p.2. 74 import surcharge and monetary crises throughout the year. The reserves are s t i l l being maintained around #16 b i l l i o n i n the f i r s t few months of 1972, even a f t e r the large-scale upward yen revaluation. Another B r i t i s h pound c r i s i s occurred i n June, 1972, only a h a l f year a f t e r the l a s t monetary realignment. Japan produced a 7-point yen measure to reduce i t s foreign reserves, but i t s v a l i d i t y i s expected to be minimal. The primary reason i s that almost a l l Japanese industries have been converted into export industries persuing in t e r n a t i o n a l competition as t h e i r ultimate objectives. In Japan's i n d u s t r i a l structure, into which exports are b u i l t , domestic economic recessions reduce imports, and both recessions and the upward yen revaluation create a harder export drive, as an alternative countermeasure to the revaluation and recessions. The effectiveness of Japan's current monetary p o l i c i e s f o r reducing export pressure i s l i m i t e d , unless Japan can make long-run adjustments i n i t s i n d u s t r i a l s t r u c t u r e 1 2 4 . Although resource developments are an al t e r n a t i v e to reducing reserves, among others, they s t i l l are not the best p o l i c y fo r unloading reserves. The amount of economic assistance to LDO's has been increased. The r a t i o against the GNP has also been 1 2 4 Malnichi Shimbun, June 29, 1972. 75 increased i n Japan's high, economic nominal growth average of 15.5$ a year, from 1965 to 1971 1 2 5. Although t h i s i s so, the rates of government grants and other a i d against the GN? are constantly decreasing since 1961, except for 1967. Since Japan decided to increase i t s economic aid up to 1$ of i t s GNP by 1975, other elements i n economic assistance must be increased to meet t h i s goal. Export financing over one year by Japan and yen loans are unfavorable to recipients under the current unstable in t e r n a t i o n a l monetary system. A country that has obtained yen loans, f o r example, must incur the loss created by the upward yen revaluation i n r e l a t i o n to t h e i r currency. Under the circumstances, investments into LDO's are alternatives to increase the amount of Japan's economic cooperation. Investments i n resource industries were an al t e r n a t i v e i n investments. They are suitable especially when the resource flow i s becoming more unstable i n the changing world resource demand-supply conditions. To sum up, the s t a b i l i t y of resource flow at a reasonable price became an important issue i n the Japanese economy. Japan decided to solve i t s resource problems by cooperating with exi s t i n g large international resource in d u s t r i e s . Foreign reserves increased staggeringly during 1 2 5 Economic S t a t i s t i c s Monthly, No.302, May, 1972, p.10. 76 this period, and continued to do so after a large-scale upward yen revaluation. Large-scale investments i n resources were a method to unload some reserves, alleviating pressure on the yen for another upward revaluation. Resource investments were also an alternative i n the proposed increase i n Japan's economic assistance to LDC's of up to \% of the GNP, especially when other elements of assistance are uncertain under the current unstable monetary system. CHAPTER POUR JAPAN'S EXPECTED FUTURE BEHAVIOR Overview Japan's postwar resource industries i n the t o t a l economic structure seemed to have reduced t h e i r r e l a t i v e importance i n the course of economic development, by the advancement of resources-saving technology and by an increase i n added values. However, resource problems may become r e s t r i c t i v e factors i n the Japanese economy i n the changing world resource market conditions. The o v e r a l l world demand f o r resources i s expected to increase staggeringly. It has been estimated that more of the earth's minerals were consumed during the past 50 years than during the preceeding history of men. It i s also estimated that twice the quantity w i l l be consumed during the next 50 years as i n the past 50 years126. Japan's demand fo r major resources for the 1970's, and the rate of foreign dependency i s expected to increase, as w i l l be examined i n the next section. The U.S. announced i t s long-range resources demand f o r the year 2000. Its current f a i r l y h i g h - s e l f - s u f f i c i e n c y rates are Maurice Mawby, "Minerals Extraction at 2000 AD and Management1s Requirements," Mining Magazine, V o l . 1 1 6 , No.6, June, 1 9 6 7 , p.405. 78 expected to decrease s u b s t a n t i a l l y 1 2 7 . As i s well-known, resources are unequally d i s t r i b u t e d i n the world and many resources holding countries are subject to increasing economic nationalism and p o l i t i c a l i n s t a b i l i t y . They i n t e n s i f i e d t h e i r demand both independently and j o i n t l y , forming transnational organizations, such as the OPEC, f o r more money f o r t h e i r irreplaceable treasures. They also demanded more p a r t i c i p a t i o n i n the e x i s t i n g foreign- owned resource industries i n t h e i r countries. For example, 60$ of the t o t a l world o i l deposits are i n the Middle E a s t 1 2 8 , which i s subject to p o l i t i c a l i n s t a b i l i t y and Arab nationalism. Under the circumstances, resource supply conditions are becoming increasingly t i g h t . To cope with t h i s , U.S. industries are aggressively seeking p a r t i c i p a t i o n i n o i l , natural gas and other me t a l l i c resource: developments i n Russia, es p e c i a l l y a f t e r the summit talks i n May, 1972. This w i l l provide U.S. industries with a quantity of resources and d i v e r s i f i c a t i o n of supply sources. China does not supply resources extensively f o r the time being, but i t s t i l l has p o t e n t i a l i t y . Resources from communist 1 2 7 The s e l f - s u f f i c i e n c y rates are estimated to decline from 72$ i n 1969 to 51$ i n 2000 i n copper, 69$ to 26$ i n iron, and 53$ to zero i n lead. Of. MITI, Shigen Mondai no Tembo, 1971 (Outlook of Resource Problems: 1971), Tokyo, 1971, p.165. 128 i b i d . , p.146. 79 countries, however, may be vulnerable to p o l i t i c a l elements in the liquid international p o l i t i c a l structure. Thus, resources problems w i l l increasingly be solved more efficiently in the context of p o l i t i c a l economy. (A) Japan's Expected Resource Demand Japan's Shigen Hakusho (White Paper on Resources), revealed i n October, 1971^29, says that the demand i n major resources has increased 10$ to 20$ annually for the past five years, which well exceeds the annual average growth rate of the GNP, 12.4$, for the same period. The paper pointed out that price and quantity instability has already become a reality i n constraining Japan's economy. The preliminary calculation, assuming an annual economic growth of 10$ plus, and industrial structure and technological development remains at the same rate as i n past years, indicates that Japan w i l l require to import 31$ of the world's trade of available major resources by the end of this decade: 39$ of raw materials and 24$ of f o s s i l fuels. It i s quite unrealistic to assume that Japan alone can obtain and use for i t s own economic purposes one third 1 2 9 The major part of this white paper i s carried i n the Hokkaido Shimbun, October 4, 1971. For the f u l l report, see Trade and Industry of Japan, Vol.XXI, No.1, 1972, pp.34-59": 8 0 of the resources avai l a b l e i n the world market, without any counter-actions from other countries. Its impact on the world's resource industries w i l l be s i g n i f i c a n t . Facing increasingly t i g h t resource supply conditions, i t i s es s e n t i a l f o r Japan to es t a b l i s h long-range resource p o l i c i e s , incorporating i t s economic and i n d u s t r i a l structures into the estimated world's resources demand- supply conditions. (B) Japan's Expected Behavior Japan's resource p o l i c i e s changed from independent resource developments to cooperative development with exis t i n g i n t e r n a t i o n a l resource enterprises, as explained i n the l a s t chapter. This means that Japan i s b u i l t - i n i n the existing resources supply structure, perhaps strengthening i t , and that confrontation with economic nationalism of resources producing countries may be i n t e n s i f i e d by a clash of i n t e r e s t s . Judging from the current tendency of r i s i n g nation- alism among resources holding countries, imposition of mandatory resources processing i n the o r i g i n a l country before export, stepplng-up of p a r t i c i p a t i o n , n a t i o n a l i z a t i o n and expropriation w i l l spur the expected future t i g h t resource supply conditions. This s i t u a t i o n may escalate 81 the current confrontation between host government and Investing industries to one between resources holding countries and nations of investing i n d u s t r i e s . In o i l , i t i s predicted that large o i l consuming countries w i l l step up struggles f o r o i l 1 3 0 . Under the expected extreme resource shortage, i t i s quite possible that many countries w i l l be tempted to use t h e i r national power to secure required resources. E x i s t i n g i n t e r n a t i o n a l resource enterprises could tempt t h e i r country into using t h e i r national strength, including t h e i r m i l i t a r y power. There i s no guarantee that Japan w i l l not be caught i n a trap to step up rearmament, including nuclear power, however small the p o s s i b i l i t y should be. A secured inflow of resources was the most important f a c t o r that carried Japan into the l a s t P a c i f i c War: . , . the difference i n natural resources was linked to the difference i n national power, and the right to aquire natural resources would be r e a l i z e d only a f t e r obtaining t e r r i t o r i a l rights . . . 131 Under the extremely tight resources market conditions, i t cannot be completely denied that the specter of m i l i t a r i s m 130 Nihon K e i z a i Shimbun, June 9, 1972. 131 Trade and Industry of Japan, Vol.XX, No.4, 1971, p.40. 82 w i l l not a t t r a c t Japan, desperate f o r resources plunders. Japan's m i l i t a r y power, o r i g i n a l l y organized as police reserves immediately a f t e r the breakout of the Korean War i n 1950, has gradually increased, and further expansion i s expected. This expected l a t e s t expansion i s based on a set of U.S. po l i c y changes shown i n the Guan Doctrine of July, 1969, i n which the U.S. declared i t . would reduce i t s m i l i t a r y involvement i n Asia, and emphasized the self-defense e f f o r t s by Asian countries 132. This was followed by the U.S.-Japan jo i n t communique i n November, 1969, declaring that the security of Korea and Taiwan i s esse n t i a l f o r the safety of Japan. Furthermore, the Nixon Doctrine was revealed i n February, 1970, requiring the U.S. to share the defense burden with i t s partners, making i t necessary f o r Japan to stop i t s free ride on U.S. nuclear defensive power. The U.S. requirement became e x p l i c i t , e specially when the U.S. Secretary of Defense v i s i t e d Japan i n July, 1971, f o r week-long discussions with Japanese government and m i l i t a r y o f f i c i a l s , concerning Japan's takeover of a greater share of the U.S.'s defense burden i n the P a c i f i c . 132 This paragraph Is based on a r t i c l e s i n the Documentary News of the Month, 1967 through 1972. 83 Japan's responses against these American pressures became clear i n two phases: the disclosure of the BoejL Hakusho (White Paper on Defense), and the formulation of a budget f o r the fourth 5-year defense program to be started i n the f i s c a l year of 1972. The white paper, a f i r s t i n Japan's history, issued i n October, 1970, c a r e f u l l y formulates the treatment of nuclear weapons. It argues that even though the government takes a negative p o l i c y toward posession, production and use of nuclear weapons, i t i s possible to have nuclear weapons under the present Constitution, i f t h e i r c a p a b i l i t i e s are within the l i m i t of minimum requirements f o r Japan's security and i f they should not give any- aggressive threat to other countries'! 33 . This statement contains serious shortcomings to r e s t r i c t i n g Japan's nuclear armament. F i r s t , "the minimum requirement" changes with the i n t e r p r e t a t i o n of the s i t u a t i o n . Second, the aggressive threats f e l t by others are not necessarily the same as those Japan f e e l s , and i t can be ignored as a groundless accusation against Japan. Last and most important, Japan's nuclear armament can be promoted without d i f f i c u l t y , simply by changing the current government p o l i c y . 1 3 3 Defense Department, Boei Hakusho (White Paper on Defense), Ministry of Finance Printing Office, Tokyo, 1970, p.36. 84 Neighboring countries reacted quickly against the white paper, expressing t h e i r unrest against Japan's possible nuclear armament and aggression as, f o r example, i l l u s t r a t e d i n a Korean newspaper, while Japan ruled them out as groundless accusations against Japan 1 34 # A more precise f a c t i s clear i n the proposed budget f o r Japan's fourth 5-year defense program to be started i n f i s c a l 1972, i n which #17-7 b i l l i o n w i l l be spent, nearly three times as much as the t h i r d 5-year defense program ended i n f i s c a l 1971, with an expected t o t a l spending of $7-02 b i l l i o n . This m i l i t a r y spending i s a substantial amount, i n comparison with the magnitude of the economy i n many neighboring countries. The facts could be a r e a l threat to those neighboring countries • 1 "55 which suffered Japan s aggression before World War II . 134 i t admits that a m i l i t a r y build up, including nuclear weapons, i s not widely accepted by the Japanese yet, but i t says: "judging from i t s hidden c a p a b i l i t y , neighboring countries cannot help becoming nervous against the r e v i v a l of Japanese militarism, and so condemn i t . Whether i t i s true or not, i t reminds us of the Japanese m i l i t a r y invasion before World War I I . " The Korea Daily, October 22, 1970. 135 japan's m i l i t a r y spending for f i s c a l 1970 was 7% of the t o t a l national budget, 0.8$ against i t s GNP. The magnitude of the spending, however, was almost as large as the t o t a l national budget of Thailand f o r the same year, and almost double that of the Phi l i p p i n e s . Cf. Toshitada Nakae, "Gunji Taikoku Nihon no Imeiji ( M i l i t a r y Superstate: Japan's Image)," Chuo Koron, Vol.9, No.4, Winter, 1970, p.153* 85 The above-mentioned behavior does not convince neighboring countries, even though Japan i n s i s t s that t h e i r expressed unrest are groundless accusations against Japan, and that Japan i s a peace-loving nation. Also, i t i s not u n r e a l i s t i c to them to assume that Japan may use i t s strength to obtain necessary resources when i t becomes desperate, as seen i n the course of history up to the l a s t war. Economically and diplomatically, Japan began to search f o r new p o l i c i e s , abandoning i t s vehement pro- Americanism a f t e r a series of humiliations from the U.S. during 1971J the U.S. president's announcement of a China v i s i t without consultation, instead of the b e l i e f of close U.S.-Japan relationships i n China p o l i c i e s , a 10% import surcharge aimed primarily at Japanese exports, the demand f o r t e x t i l e export l i m i t a t i o n s , using the threat of applying the Trade with Enemy Act, and the forced huge upward yen revaluation. The widening of the U.S.-Japanese c r e d i b i l i t y gap forced Japan to formulate more independent p o l i c i e s , s t a r t i n g i n economic and diplomatic areas. As a step toward promoting independent p o l i c i e s , Japan aggressively started negotiations with Russian leaders, coinciding with the U.S. president's China v i s i t i n 1972, on the long overdue peace treaty between the two countries, including the 86 t e r r i t o r i a l dispute over the islands north of Japan, and on the possible Japanese p a r t i c i p a t i o n i n the construction of a 4,163-mile trans-Siberian Pipeline from the Tryumen o i l f i e l d s to Nakhodka, a port on the Sea of Japan 136. The fast-dwindling c r e d i b i l i t y and dependability may urge Japan to re-examine pre-existing postulates, not only i n economic and diplomatic areas, but also i n the m i l i t a r y f i e l d , including the development of i t s own nuclear weapons, f o r the protection of Japan's national i n t e r e s t s , e specially i n Asia where Japan's int e r e s t s are concentrated. There i s no guarantee here that there i s no p r o b a b i l i t y of resurgent nationalism to promote the protection of national interests with power. This p r e c i p i t a t e s r e m i l i t a r i z a t i o n and constructs the road to a nuclear nation. Japan's d i r e c t i o n toward more independent p o l i c i e s urges i t to take c e r t a i n measures, and they make that country which i s blaming Japan f o r not having achieved i t s r e s p o n s i b i l i t y i n Asia as a superstate, to be the very f i r s t one to regret the r e s u l t s . In r e c a p i t u l a t i o n , the supply conditions of the world's resources w i l l become t i g h t e r , and may l i m i t 136 It i s reported that the Japanese finance minister decided on a #1 b i l l i o n loan f o r a Soviet- Japanese o i l development i n S i b e r i a . Cf. The Vancouver Sun, March 6, 1972. 37 Japan's future economic a c t i v i t i e s . Japan's expected demands are s i g n i f i c a n t i n t h e i r magnitude, and the country w i l l have to face r e a l d i f f i c u l t i e s for obtaining enough resources. This trend w i l l enforce the resource problems not as economic issues, but as global-scale ec o n o - p o l i t i c a l issues, mixing them with economic, p o l i t i c a l and m i l i t a r y strengths. Japan's resource p o l i c i e s changed from vehement independent development to cooperative development with large i n t e r n a t i o n a l resource enterprises. It i s quite possible that the strengthening of the existing supply sources w i l l i n t e n s i f y the confrontation between resources producing and investing countries, which may create temptation f o r Japan to use i t s national strength, economically or m i l i t a r i l y . Under vehement pro-American p o l i c i e s , Japan has been increasing i t s m i l i t a r y power to share i n i t s r e s p o n s i b i l i - t i e s , but a series of p o l i t i c a l and economic humiliations forced Japan to take more independent p o l i c i e s , which may cause the nightmare of neighboring countries to come to r e a l i t y i n the r e m i l i t a r i z a t i o n of Japan. 88 CHAPTER FIVE SUMMARY In t h i s study, various problems existing In Japanese resource industries have been i d e n t i f i e d . Japan's resource industries were heavily concentrated i n downstream a c t i v i t i e s which depend greatly on the imported resources. Very few sizable investments i n upstream a c t i v i t i e s were undertaken by Japanese industries, u n t i l the end of the 1960's. The major reasons fo r t h i s were the government's investment control for exchange reasons, and in d u s t r i e s ' f i n a n c i a l and technological i n c a p a b i l i t i e s to carry out investments. Japan's major resource-obtaining method was purchasing i n the market, but the a c q u i s i t i o n of substantial amounts of resources by t h i s method i s becoming increasingly d i f f i c u l t because of i n t e r n a t i o n a l resource shortages and i n t e n s i f i e d economic nationalism i n resource holding countries. Resource investments have increased i n importance to the Japanese economy. Possible reasons for t h i s were presented i n f i v e hypotheses on Japan's foreign invest- ments i n resource i n d u s t r i e s . These hypotheses do not include p r o f i t c r i t e r i a , because the l a t t e r are of r e l a t i v e l y low p r i o r i t y i n Japanese investment objectives. 89 Japan's Investments experienced significant changes from total prohibition u n t i l 1950, to conditional permission until I960, to automatic approval up to #200,000 later i n 1969, up to #1 million in 1970, and to total liberalization in 1971. Resource investments have been increasing over the past few years. During this period, the government's investment promotion policies changed from i n i t i a l autonomous investment to cooperation with existing inter- national resource industries. Japan's full-scale resource investments are s t i l l at the primary stage, and i t s resource investment policies seem to be s t i l l i n transition. However, the impact of recent economic and p o l i t i c a l humiliations, due to U.S. actions, has made Japan seek more independent acti v i t i e s based on i t s own economic and p o l i t i c a l objectives. Japan's movement toward independent activities may reinforce increased militarism and rearmament there, and may also result in the realization of neighboring countries' nightmares. 90 BIBLIOGRAPHY Abegglen, James G., The Japanese Factory. The Free Press, Gltfncoe, 111., 1958. Aharon!, Y a i r i , The Foreign Investment Decision Process. D i v i s i o n of Research, Graduate School of Business, Harvard University, Boston, 1966. Behrman, Jack N., Some Patterns i n the Rise of the Multinational Enterprises, University of North Carolina at Chapel H i l l , 1968. Benedict, Ruth, The Chrysanthemum and the Sword, Houghton M i f f l i n Co;, Boston, 1^46. ~ " Cohen, J., Japan's Economy In War and Reconstructions, University of Minnesota Press, MineapoHs, 1949. Japan's Postwar Economy, Indiana University Press, Bloomington, 1958. Harty, J.Q., Management Decision i n the Japanese Factory (trans, ed.). Diamond Publishing Co.. Tokyo\ l 9 o i . Headberg, Haakan, The Japanese Challenge (trans; ed.), Kaigai Hyoron sna, Tokyo, 1970. " Hague, D. C., Managerial Economics; Analysis f o r Business Decisions,Longthamg Green and Co., Ltd., London, 1969. Jordan, David F. and H. E. Dougall, Investments (7th ed.). Prentice-Hall Inc., Englewood C l i f f s , N;J., I960. Kahn, Herman, The Emerging Japanese Superstate, Prentice- H a l l , Englewood C l i f f s , N.J., 1970. Klndleberger, G. P., International Economics (4th ed.). Richard 1 Irwin, Hbmewoodv 111., 1965. Kawasaki, Ichiro, Japan Unmasked, Charles E. Tuttle Co., Tokyo, 1968. Maddison, Angus, Economic Growth i n Japan and the U.S.S.R., W. W. Norton and Co., Inc., New York,1969. 91 Mao, James G., Quantitative Analysis of Financial Decisions. The MacMlllan Company. Toronto. 1969. Marriott, Hugh F., Money and Mines. The MacMlllan Co., New fork, 1925. T T T — Parkes, Ronald D., Examination and Valuation of Mineral Property (4th ed.), Addison-Wesley Pub. Co., Reading, Mass., 1957. Penrose, Edith T., The Theory of the Growth of the Firm. B a s i l Blackwell and Mott Ltd., London, 196B. Qulrin, G. David., The Oapltal_Expendlture Decision. Richard D. Irwin Inc, ,s Homewood 111., 1967. Robinson, Richard D., International Business P o l i c y . Holt.Rlnehart and Winston Inc., New York, 19o4. , International Management, Holt Rinehart and Winston Inc., New York, 1967. Scott, Anthony, Natural-*Resources; The Economics of Conservation. University of Toronto Press. 1955. Servan-Schreiber, J . J., The American Challenge, Atheneum, New York, 1968. ' "*"" ; TT- • Tatemoto, Masahiro, Japan's Strength of International Competitiveness. Kodansha, Tokyo,1966. Vernon, Raymond, Manager In the International Economy. Prentice-Hall, Englewood C l i f f , N.J.,1968. Wright, Robert, Investment Decision In Industry. Chapman and H a l l , London, 1964"7 A r t i c l e s H i r s h l e i f e r , Jack, "Risks, the Discount Rate, and Investment Decision," American Economic Review, Vol. LI, May 1961. "Japan, Inc.: Wining the Most Important Battle," Time, May 10, 1971. Luber, Robert, "The Japanese Giant That Wouldn't Stay Dead," Fortune, Vol. LXX, No.5, November 1964. 92 Mawby, Maurice, "Minerals Extraction at 2000 AD and Management's Requirements," Mining Magazine, Vol . 116, No.6, 1967. "Trading Firms i n Japan," Oriental Economist, Vol. 38, No. 687, January 196B. "Trading House i n Japan," Oriental Economist, Vol. 38, No. 711 t January 19701 Books i n Japanese Akimoto, Hideo, Keidanren. Sekkasha, Tokyo, 1968. Atsumi, T o s h l i c h i , Kourjgyo Seicho no Hlmitsu (Secret of Growth i n R e t a i l Industry), Kawade Shobo, Tokyo, 1967. Bank of Tokyo, The Overseas Investment Guidebook, Tokyo, 1970~I Ben Dasan, Isaiah, Nlhonjin to Yudayajin (The Japanese and the Jew), Kadokawa Shoten. Tokyo, 197*. Defense Department, Boel Hakusho (White Paper on Defense Ministry of Finance Pri n t i n g O f f i c e , Tokyo, 1970. Diamond Press ed., Ninon K e i z a i o Ketteisuru 50 no Polnto (50 Points that T B e c i d e Japanese Economy), Diamond Press, Tokyo, 1 9 0 9 . Economic Planning Agency, K e i z a i Hakusho (Economic White Paper), 1952 and 1960 - 1970, Tokyo. Horie, Yasuzo, Nihon K e l z a i s h l Dokuhon (Reading i n Japanese Economic History), Oriental Economist Press, Tokyo, 19bB. Japan Long-Term Credit Bank, Shin J i d a l n l Chosen Suru Nihon no Sangyo (Japanese Industries That Ohallen, New Era), Malnlchl Shimbun. Tokyo. 196b". Japan External Trade Organization, 1972 Kalgal Shi jo Hakusho; Wagakunl no Kalgal Toshl no Gen.lo (white Paper on the Foreign Market: The Current P o s i t i o n of Japan's Foreign Investments), Tokyo, 1972. 93 Jiyu Kokumin Sha, Gendal Yqgo no Klso Chlshikl jFundamental Knowledge of Current Words). Tokyo, Kawada, Tadashi, Asia no Chosen (Asian Challenge). Tokyo University Press, Tokyo, 1969. Maruyama, Shizuo, Tonan-Asla to Nippon (Southeast Asia and Japan), Asia Economic Research Center, Tokyo, i 9 6 0 . Ministry of International Trade and Industry, Shi gen Mondal no Tembo. 1971 (Outlook i n Resource Industries. 1971). Tokyo. 19?1. » Keizai Kyoryoku no Gen.jo to Mondalten (Current P o s i t i o n and Problems of Economic Cooperation), 1960 - 1970, Tokyo. Mitsubishi Economic Research Center, Galka 30 Oku Doru K e i z a i to Klgyo K e l e l (#3 B i l l i o n Foreign Reserves and Business Administration), Jitsugyo no Nippon Sha, Tokyo, 1969. Miyagawa, K. and M, Hirao, Shihon Koryu to Kokusai Kinvu (Capital Flow and International Finance), Glnko Kenshusha, Tokyo, 1965. Nagasu, Kazuji, Nihon Keizai Nyumon (Introduction to Japanese Economy^, Kobunsha, Tokyo, I960. Nakamura, Takafusa, Gendal no Nihon K e i z a i (Nowaday Japanese Economy). Tokyo University Press. Tokyo, 1960. Nakane, Ohie, Tate Shakai no Ningen Kankel (Human Relations i n V e r t i c a l Society). Kodansha. Tokyo, 1966. Nihon Seisansei Honbu, Kokusai Shihon to Nihon Klgyo (International Capital and Japanese Enterprises). Tokyo, 1 9 6 7 . : Okumura, Hiroshi, Galkoku Shihon; Nihon n l Okeru Kodo to Riron (Foreign Capital; Theory and Behavior l"n "Japan). Oriental Economist Press. Tokyo. 1969. 94 Uchlda, Katsutoshi, Shosha Hakusho (White Paper on Trading Companies). Kodansha, Tokyo, 1967. Yoshimura, Masaharu, Jiyuka to Nihon Keizai (Trade L i b e r a l i z a t i o n and Japanese Economy), Iwanami Shoten, Tokyo, 1961. A r t i c l e s i n Japanese Fukuda, Takeo, "Shigen Mondal Tokushyu n i Yosete (Contributing to Special Issue on Resource Problems)," K e i z a i to Gaiko, No.590, July, 1971. Hagiwara, Yoshiyukl, "Kiro n i Tatsu Tai Asia Kankei (Japan-As$a Relations at a Turning Point)," Asahl Journal, Vol. 13, No.39, October 15, 1971. Hirahara, Takeshi, "Shigen Gaiko no Tembo (Scope of Resource Diplomacy)," K e i z a i to Gaiko, No.590, July, 1970. Ikusawa, Kenzo, "Nihon Keizai no Kokusaika to Shigen Mondai (Int e r n a t i o n a l i z a t i o n of the Japanese Economy and Resource Problems)," Keizai Hyoron, Vol.20, No.5, May, 1971. Ito, Masaru, "Kokusai Tsuka K i k i no Ura Omote (Inside and Out of the International Monetary C r i s e s ) , " Asahi Journal, Vol.14, No.1, January 7, 1972. ~ Kikuchi, Takeo, "Nanshin Suru Nihon Shihon Shugi (Japanese Capitalism Marching South)," Economist, Vol.49, No.25, June 22, 1971. Kondo, Kan-ichi, "Kyodaika ga Maneita Hitsuzen Aku (Necessary E v i l Caused by Magnification," Asahl Journal, Vol.14, No.22, June 2, 1971. Masamura, Masahlro, "Rinen n i Kakeru Nihon no Shigen Seisaku (Japanese Resource Policy Without Doctrine)," Economist, Vol.48, No.42, October 10, 1970. Mlmura, M., "Keizai Taikoku no Genso (An I l l u s i o n of the Economic Superstate)," K e i z a i to Gaiko, No.584, January, 1971. 95 Nagasu, Kazuji, "Nanshin Suru Nihon Shihon Shugl(Japanese Capitalism Marching South)," Economist, Vol.49, No.8, March 2, 1971. Nakae, Toshitada, "Gunji Taikoku Nihon no Imeiji ( M i l i t a r y Superstate: Japan's Image)," Ohuo Koron (Management Issue), Vol.9, No.4, winter, 1970. Nlshikawa, Jyun, "Asia Bundan e Susumu Nichihei Shihon (Japanese and U.S. Capitals Moving Toward a S p l i t i n A s i a ) , " Asahl Journal, Vol.14, No.2, January 14, 1972. Noguchi, Yuichiro, "Sekiyu Senso: Korega Nihon no Haiinda ( O i l War: These are the Causes of Japan's Defeat)," Chuo Koron. Vol.10, No.2, June, 1971. Okazaki, Mario, "Tsuyomaru Kajo Seisan Fukyo no K i k i (The Increasing C r i s i s of Depression by Overproduction)," Economist, Vol.48, No.42, October 6, 1970. "Sogo Shosha (General Merchant)," Economist, Vol.46, No.39, 1968. Suga, Ikuro, "Kinzoku Shigen o Meguru Shomondai (Problems i n Metal Resources)," K e i z a i to Gaiko. No.590, July, 1971. Sugimura, K a t s u j i , "Wagakuni no K e i z a i Ky/oryoku no Genjp to Tembo (Japan's Current Economic Cooperation and Outlook)," K e i z a i Hyoron. September,1961. Tamikl, Masami, "Hitetsu Kinzoku Shigen Kaihatsu no S e i j i Keizaigaku ( P o l i t i c a l Economy i n Non-Perrous Metal Resources Development)," Keizai Hyoron, Vol20, No.5, May, 1971. Tomizuka, Buntaro, "Shihairyoku Ushinatsuta K i j i k u : Doru (Dollar: The Loss of Control as the Key Currency)," Asahl Journal. Vol.13, No.28, July 30, 1971. Tsuchlya, Kiyoshi, "Klriage Fukyo ga Yatsute Kuru (The Upward Revaluation Depression i s Coming," Bungei Shinjyu. Vol.49, No.13, October^ 1971. 96 Newspapers and Periodicals Asahi Shimbun Documentary News of the Month The Japan Times The Korea Dally Main!chi Shimbun Nihon Keizai Shimbun Sankel Shimbun The Vancouver Sun Boekl to Selsaku Business JAPAN Economic S t a t i s t i c s Monthly (The Bank of Japan) Economist Hoseki Keizai to Gaiko Mineral Yearbook Mining Magazine Monthly S t a t i s t i c s of Japan (Bureau of S t a t i s t i c s , Office of the Prime Minister) Newsweek Oriental Economist S t a t i s t i c s O riental Economist Time Trade and Industry of Japan World O i l 97 APPENDIX A JAPAN'S IMPORT STRUCTURE FOR SELECTED YEARS - 1935 1961 1969 Foodstuffs 23 12 14 Tex t i l e Materials 30 1 6 6 M e t a l l i c Materials 5 17 13 Other Raw Materials 14 15 17 F o s s i l Fuels 7 1 6 20 Chemical Products 4 6 5 Machinery 5 11 11 Others 12 8 13 Total 100$ 100$ 100$ Source: K e i z a i ftyoron, Vol.20, No.5, May, 1971. 98 APPENDIX B FOREIGN DEPENDENCY OF MAJOR RESOURCES FOR SELECTED YEARS 1963 1968 1975* Copper 59.6$ 73.4$ 82.9$ Lead 51.1 56.5 55.6 Zinc 32.6 53.8 61 .7 Aluminum 100 100 100 Nickel 100 100 100 Iron Ore 76.7 84.7 90.0 Coking Coal 46.9 71.9 85.9 Oil 98.8 99.5 99.7 Natural Gas 0 0 73.6 Uranium -.• 100 100 * Estimated demand. Source: Bank of Tokyo, The Overseas Investment Guidebook, Tokyo, 1970, p.15^ 99 APPENDIX 0 JAPAN'S BALANCE OP PAYMENTS (In Millions of Dollars) 1961 1962 1963 1964 1965 Current Balance -982 - 48 -780 -480 932 Trade Balance -558 401 -166 377 1,901 Overall Balance -952 237 -161 -129 405 Gold and Exchange Reserves 1,486 1,841 1,878 1,999 2,107 1966 1967 1968 1969 1970 Current Balance 1,254 -190 1,048 2,119 2,014 Trade Balance 2,275 1,160 2,529 3,699 4,019 Overall Balance 337 -571 1 ,102 2,283 1,374 Gold and Exchangf Reserves i 2,074 2,005 2,891 3,496 4,399 Source: Monthly Statistics of Japan, i960 - 1971, Bureau of Statistics, Office of the Prime Minister, Tokyo. 100 APPENDIX D MONTHLY FOREIGN RESERVES BALANCE (In M i l l i o n s of Dollars) Month 1970 1971 1972 Jan. $3,617 #4,532 #15,957 Feb. 3,630 4,868 16,478 Mar. 3,868 5,458 16,663 A p r i l 3,923 5,777 16,535 May- 3,901 6,916 June 3,769 7,599 July 3,508 7,927 August 3,527 12,514 Sept. 3,556 13,384 Oct. 3,778 14,098 Nov. 3,987 14,836 Dec. 4,399 15,235 Source: Documentary News of the Month, 1970 - 1972, 101 APPENDIX E TERMS OP TRADE* BETWEEN DEVELOPED AND LESS DEVELOPED COUNTRIES (1958 = 100) 1959 I960 1961 1962 1963 1964 Developed Countries 101 102 103 104 104 104 North America 102 102 104 105 103 102 Japan 106 107 105 104 102 98 Developing Countries 101 100 96 94 9 6 9 7 L a t i n America 97 9 6 9 4 91 99 104 A f r i c a 100 98 94 90 91 93 Asia 104 101 97 96 94 92 1965 1966 1967 1968 1 9 6 9 1970 Developed Countries 104 104 105 105 105 106 North America 104 105 106 107 107 106 Japan 95 95 98 99 104 106 Developing Countries 95 97 96 98 99 98 L a t i n America 101 104 101 101 107 107 A f r i c a 91 95 95 95 99 94 Asia 93 93 93 94 94 93 * Unit value index of export divided by unit value index of imports (excludes o i l ) . Source: United Nations Monthly B u l l e t i n of S t a t i s t i c s , July, 1960 - July 1971. 102 APPENDIX P NET PLOW OP FINANCIAL RESOURCES FROM JAPAN TO LDC'S AND MULTILATERAL AGENCIES 1966 - 1970 (In Millions of Dollars) 1966 1967 1968 1969 1970* O f f i c i a l Development Assistance #285.3 #385.3 1356.2 #435.6 #458.0 Other O f f i c i a l Funds** 198.9 215.5 322.1 375.5 693.6 Private Funds 140.9 196.8 371 .0 451.7 672.3 Total 625.1 797.5 1,049.3 1,262.1 1,824.0 Ratio Against GNP 0.62 0.67 0.74 0.76 0.93 * Estimate ** Include export credits over one year, direct investment finances and finances for international organizations. *** Include export credits over one year and direct investments. Source: Kuranosuke Saito, "Aid Expansion Continues to Gain," Business JAPAN. Vol.16, No.11, November,1971, p.81. 1 0 3 APPENDIX G RESOURCES DEMAND INDEX FOR SELECTED YEARS 1963 1968 1975* Average r i s e 1968-1975 Copper 100.0 186.9 353.5 9.6$ Lead 100.0 131.9 250.3 10.2 Zinc 100.0 191.5 393.3 10.8 Aluminum 100.0 260.6 706.3 15.3 Nickel 100.0 240.0 524.0 11.8 Iron Ore 100.0 224.8 476.9 11.3 Coking Coal 100.0 196.1 389.2 10.3 O i l 100.0 225.8 441.8 10.1 Natural Gas 100.0 117.8 446.0 20.9 * Estimated demand. Source: Bank of Tokyo, The Overseas Investment Guidebook. Tokyo, 1970, p.15. APPENDIX H ESTIMATED SUPPLY AND DEMAND IN MAJOR NATURAL RESOURCES F i s c a l 1970 F i s c a l 1975 Demand Dependence on Imports Demand Dependence on Imports a Copper 880 76$ 1,420 82$ b Lead 216 55 303 56 c Zinc 681 55 1,149 57 d Aluminum 885 100 2,000 100 e Nickel 91 100 150 100 f Iron Ore 111 88 200 91 g Coking Co; i l 59.2 79 106 83 h O i l 204.1 99.7 3,230 100 i Natural >: Gas 3,662 35 9,500 74 j Uranium 0.7 100 3.5 100 a - e = 1,000 tons, f and g = m i l l i o n tons, h = m i l l i o n k l l o l l t e r s , i = m i l l i o n cubic meters, and j = 1,000 short tons Source: Ministry of International Trade and Industry. Cf. Trade and Industry of Japan. Vol.XXI, No.1 ,

Cite

Citation Scheme:

    

Usage Statistics

Country Views Downloads
United States 5 3
China 1 23
City Views Downloads
Unknown 3 1
Ashburn 2 0
Beijing 1 0

{[{ mDataHeader[type] }]} {[{ month[type] }]} {[{ tData[type] }]}

Share

Share to:

Comment

Related Items