Ministry of International Trade and Industry

Pre-MITI Industrial Agencies

As a part of Western-style reforms after the Meiji Restoration, the Japanese government founded a Ministry of Agriculture and Commerce. Due to the surge in exports and economic activity of World War I in 1918, the Imperial Diet began to debate splitting the ministries so that they could more effectively control the economy. The long economic recession following the war eventually saw the Imperial Diet decide to split the two ministries into a Ministry of Agriculture and Forestry and a Ministry of Commerce and Industry, respectively in 1925.

MCI administered the Important Industries Control Act of 1931, which allowed Japanese industries to form cartels to fix export prices and efficiently organize among themselves. By the mid-1930s, MCI was one of the most powerful economic actors in the country, with the 1938 National General Mobilization Law giving them sweeping authorities to control resources, capital, wages, and labor. In 1943 in the midst of World War II, MCI transformed into the Munitions Ministry.

After the Japanese surrender in August 1945, the Munitions Ministry reorganized itself back into MCI to avoid scrutiny from the Americans. The ensuing allied occupation of Japan surprisingly saw little change come to the economic bureaucracy of MCI.

History

MITI was created with the split of the Ministry of Commerce and Industry in May 1949 and given the mission for coordinating international trade policy with other groups, such as the Bank of Japan, the Economic Planning Agency, and the various commerce-related cabinet ministries. At the time it was created, Japan was still recovering from the economic disaster of World War II. With inflation rising and productivity failing to keep up, the government sought a better mechanism for reviving the Japanese economy.

MITI has been responsible not only in the areas of exports and imports but also for all domestic industries and businesses not specifically covered by other ministries in the areas of investment in plant and equipment, pollution control, energy and power, some aspects of foreign economic assistance, and consumer complaints. This span has allowed MITI to integrate conflicting policies, such as those on pollution control and export competitiveness, to minimize damage to export industries.

MITI has served as an architect of industrial policy, an arbiter on industrial problems and disputes, and a regulator. A major objective of the ministry has been to strengthen the country's industrial base. It has not managed Japanese trade and industry along the lines of a centrally planned economy, but it has provided industries with administrative guidance and other direction, both formal and informal, on modernization, technology, investments in new plants and equipment, and domestic and foreign competition.

The close relationship between MITI and Japanese industry has led to foreign trade policy that often complements the ministry's efforts to strengthen domestic manufacturing interests. MITI facilitated the early development of nearly all major industries by providing protection from import competition, technological intelligence, help in licensing foreign technology, access to foreign exchange, and assistance in mergers.

These policies to promote domestic industry and to protect it from international competition were strongest in the 1950s and 1960s. As industry became stronger and as MITI lost some of its policy tools, such as control over allocation of foreign exchange, MITI's policies also changed. The success of Japanese exports and the tension it has caused in other countries led MITI to provide guidance on limiting exports of particular products to various countries. Starting in 1981, MITI presided over the establishment of voluntary restraints on automobile exports to the United States to allay criticism from American manufacturers and their unions.

MITI's Role in the Computing Industry

MITI was a key player in the building of Japan’s formidable computing industry, exercising its economic powers to facilitate foreign technology transfers and protect the infant industry. MITI was involved in technology transfer contracts from leading American firms like RCA and Western Electric to Japanese manufacturing firms in the early 1950s. These contracts had to be approved by MITI, which would artificially reduce competition to ensure that Japanese manufacturers would get good prices for the know-how. MITI officials famously laughed at Sony co-founder’s Masaru Ibuka’s proposal to approve a licensing agreement to produce Western Electric transistors in 1953. MITI eventually approved the license after Ibuka signed the contract behind their back.

In 1957, the Japanese government implemented the Extraordinary Measures Law for Promotion of the Electronics Industry which gave MITI the power to organize economic aid packages for the small industry at its own discretion. In 1959, IBM brought the first transistor based computers to market, which vastly outperformed anything which Japan could produce domestically. After convening a committee of top MITI officials, business executives, banks, and electronics firms in 1960, Japan decided that a domestic computing industry was essential. They immediately acted to grow the industry by raising tariffs and seeking foreign technology patents for domestic manufacturers.

To compete with the massive funding for computer research from the United States’ Department of Defense, MITI created the Fontac Project in 1962 and the Super High-Performance Computer Project in 1966 which organized multiple firms to share the costs of developing computers together. MITI also directed NTT, Japan’s state-owned telecommunications firm, to make contracts with Japanese electronics manufacturers at above-market rates giving the computer industry another large source of financial resources.

MITI also worked with industry to create the Japan Electronic Computer Company (JECC) in 1961. Funded by low-interest loans from the Japan Development Bank and jointly owned by the top six computer manufacturers, the company bought computers from Japanese manufacturers and rented them to end-users, making Japanese computers more financially attractive to firms. JECC was an informal policy tool of MITI. For example, JECC forced Japanese companies to compete on quality and technology advancement, as price was not an issue for the firm. MITI was able to artificially increase demand using the JECC. As firms got stronger throughout the 1970s, the computing industry’s reliance on JECC purchases waned as the industry became stronger and could compete directly with American firms on technology.

Debate over MITI's influence in the Japanese Technological Industry

There have been a number of scholarly texts presenting and discussing different perspectives on whether MITI helped or hindered the growth and development of the Japanese computing and semiconductor industry throughout the second half of the 20th century. Bernstein's review of the book Divided Sun by Scott Callon discusses how MITI's capabilities in implementing industrial policy and partnering with individual firms to influence Japan's technological industry gradually decrease throughout the 20th century, from its height in the 1950-60s to failing to lead research and development (R&D) projects in the 1980s.

In MITI's early days in the 1950s, MITI's technology import policies have had a great impact on individual Japanese firms as well as the Japanese government to catch up with the technological development of the Western countries. Even if MITI's technology import policies have been described by Lynn as being one of, if not the most restrictive sets of policies in the world, these policies have conferred multiple benefits but also multiple drawbacks for the development of Japan's technological industry. MITI's close management of Japanese firms' partnership with foreign firms has helped lower royalty payments that the Japanese firms were required to sign an agreement with an international partner. Because of MITI's presence, they are able to pool in different international agreements and send those that have higher royalty fees back to each individual firm for further renegotiation. MITI's presence further deters international firms from signing agreements that allow them substantial equity within the Japanese company, and prevents Japan from continuing to be independent of foreign technological industries.

A notable example of a foreign firm needing to compromise and make an exception for Japanese agreements was described by Lynn:

Dupont, for example, which had a strict policy of transferring process technologies only to firms in which it had more than 50% equity, and thus managerial control, was forced to break this policy in the case of Japan.

MITI also exerted influence over regulating the Japanese technological industry. Under its management, MITI has reduced unnecessary firm-wide competition that may overinflate the price of a technology, as well as blocking the possibility of any individual Japanese firm creating a monopoly on their specific agreement. MITI does this by forcing Japanese firms that are dependent on their grants to enter different licensing agreement to, after the agreement has been signed, further license it to any other Japanese firms that are interested in developing that product.

Agencies

Important MITI agencies include:

National Institute of Advanced Industrial Science and Technology (AIST)

Japan External Trade Organization (JETRO)

Japan Patent Office (JPO)

Administrative Vice-Ministers

Administrative Vice-Minister (事務次官, Jimu jikan) is the highest position in a ministry filled by a career bureaucrat rather than a political appointee.