On the New Economic Structure
Board of Planning
Modern war is the greatest consumer of goods and materials. As has been witnessed today, its demand for them is almost unlimited. This characteristic was already noticeable in the last World War. The total German output of steel in 1913, for instance, was approximately 17,000,000 tons, with a monthly average of 1,400,000 tons. In the last two years of the hostilities her munitions industry alone consumed that metal up to 1,000,000 tons per month. In Great Britain, on the other hand, the pre-war military consumption of wool, which represented less than 1 per cent of the civilian consumption, amounted, in 1917, to the volume corresponding to the total annual demand of the country—an increase nearly of a hundredfold. In all these cases, however, the increase of supply had not kept pace with that of demand since the very beginning of the War. In order to wage a successful war, therefore, it becomes imperative for a modern nation to curtail the general demand for goods in accordance with the wartime capacity to supply, and consequently to take such measures as to determine priority in supply on the basis of the demand for war materials and to carefully plan for the balancing of supply and demand. Such being the case, in modern war, bitter struggles for ensuring a sufficient supply of goods and materials, along with the armed conflict, will be carried out on the entire economic front; and for the gaining of the mastery of the enemy all conceivable means in all phases of economic activity will be employed by each warring nation. Nor is it to be wondered at, under these circumstances, that such a nation will make the utmost efforts in economic warfare, reorganizing its economic system on the basis of autarchy.
Expansion of Productive Capacity
The Japanese economic system is accordingly called upon today to maintain an unqualified superiority over any of the potential enemies in economic warfare as well as in the armed conflict, ensuring a sufficient supply of war materials without depending upon the resources of other countries. Hence there arises an urgent necessity of the expansion of productive capacity. However, in order to augment the capacity to produce for the immediate purpose of
national defence on the basis of the given resources, such a method as to make war industries more profitable than any other enterprise must be adopted. This method will necessarily result in the absorption of materials by the munitions industry, causing thereby an ill-balance in the suppy [sic] and demand of general civilian goods. Furthermore, in order to maintain predominance over other industries in the production of goods, the munitions industry must raise the prices of its goods ad infinitum over those of other goods. It is evident, therefore, that this method is an unfeasible one.
The other method is to control production, distribution and consumption in general. As a matter of fact, this method has been employed in Japan since the outbreak of the China Affair. Accordingly, national productive resources are classified into three categories: namely, those for the repletion of war materials, those for the expansion of the munitions industry and those for guaranteeing the people the minimum necessaries of life, thereby controlling the operation of national economy in all phases of production, distribution and consumption. It is regrettable, however, that the result of this measure seems to have fallen short of expectations. The failure has been attributed, to no small extent, to inefficiency in the control technique of bureaucracy, but its basic causes lie, in reality, in the defects of controlled economy itself.
These methods, founded upon the liberal principles in the liberal economic structure, have tried to direct, as occasions required, the operation of national economy to certain definite courses by the exercise of the legal as well as administrative powers. Therefore, private enterprises are carried on in accordance with their own purposes managing them with a view mainly to obtaining a maximum profit. There is no system of coordination or control among them, but free competition has reigned. In other words, these private enterprises have not been operated as units or coordinated parts of national economy. Consequently, control has tended in restricting economic freedom, to take the form of negative injunctions such as, "These goods must not be produced"; or "Do not use these materials beyond the quotas"—an endless series of "must-nots" and "do-nots." It implies that you may do anything unless otherwise specified. The search for the loop-holes in the "must-nots," has now become the chief concern in the economic operation. If standards of size and quality were set on certain commodities, these standardized commodities would immediately disappear, and non-standardized goods would take their place in the market. And if prices were fixed on certain commodities, they would speedily pass out of sight in the market, which, in turn,
would be flooded with non-controlled goods. Under these conditions, however, a smooth economic operation cannot be expected, particularly when there exists shortage both of labor and materials as is the case today. Inevitably, "must-nots" will increase their numbers until there will be left no freedom in the liberal economic system itself. The term "restrictive economy" expresses in a way the real situation.
The Immediate Objective of the New Structure
In view of the above situation voices have been raised of late for the revision of excessive control. The measures referred to as "excessive control" have not been enforced unnecessarily; they have their raison d'être. It is not excessiveness of control but its shortcomings that should be condemned. The new economic structure, therefore, aims, first of all, at the lubrication and adjustment of wartime economy by revising the modus operandi of restrictive economy which has thus far caused, to a certain extent, a shrinkage in national economy and diminished its vitality. Furthermore, control by authority is liable to set up the controlling and the controlled in opposition to each other, thereby creating the tendency of distrust between the two parties and developing an undesirable situation of alienating the people from the government. Accordingly it has become very evident that the establishment of a new economic structure is a matter of urgent necessity. This task can be achieved only by the planned operation of the economic system, that is to say, by carrying out a comprehensive planned-economy.
As previously mentioned, in order to meet huge production requirements on the basis of the given productive capacity, namely, labour, materials and capital, it is inevitable that the order of their urgency should be determined, their scope be regulated, and productive resources be distributed in accordance with national purposes. And as such planned production is enforced, it will also become unavoidable that the distribution and consumption of materials should be planned. Thus a comprehensive programme for the operation of national economy will be established.
It is impossible to accomplish the objective, however, by leaving the private enterprises to manage their own affairs. They should be coordinated and unified as units of national economy. To this end two methods may be adopted: the first is State management or nationalization of industry. The establishment of a great number of government-controlled corporations,
as is seen today, is based upon this principle. However, nationalization of enterprises or management of private enterprises by government-controlled corporations is to repudiate private enterprises and the use of their experience and efficiency. Such repudiation is not only contradictory to the best utilization of the resources, both human and material, but also apt to diminish national productivity. This is not then the method to be adopted under the current emergency when there is urgent call for the closest cooperation between the Government and people and for the highly effective utilization of the resources.
The second is to coordinate and organize all enterprises as units of national economy, making such a structure the centre of economic operation. By so doing the State can exercise its unitary control over the enterprises for the accomplishment of national purposes. Through the working of the above structure the State can establish the most effective economic planning, enabling each individual enterprise to perform its assigned function. In other words, the private enterprises cease to operate according to their individual purposes. Such organization involving this method was decided upon at the recent meeting of the Cabinet Council as a new economic structure.
The Supreme Economic Council
Various thesis have been advanced by different private economic organizations regarding a new economic structure; but they are, on the whole, quite similar in character. The only difference between them and the Government plan relates to a central supervisory agency or the Supreme Economic Council. Since the Government has made clear that a supreme agency for controlling the entire industry shall be established as occasions demand, it recognizes the necessity of such a central organ. It is, however, not only difficult immediately to set up such a supervisory agency covering all industries, but also may hinder the smooth working of the new economic system. Consequently, the Government has provided that the organization not of one but of several supervisory agencies shall be established on the principle of priority, beginning with the basic industries. It is evident, therefore, that the Government is prepared, in the operation of national economy, to place itself in a position mainly to carry out the general supervision and guidance of industries through those agencies in such a way as to leave room for their own autonomous supervisory activities. Under the present administrative system, however, governmental control will very
likely result in such complexities as "wheels within wheels." To set up the Supreme Economic Council without reorganizing the administrative mechanism will certainly aggravate this tendency.
The present administrative system, built essentially upon economic liberalism, does not necessarily fit well for carrying out a comprehensive economic planning as contemplated. It is necessary, therefore, that the Government agencies in charge of economic activities, which function today in merely supervising and assisting private enterprises from outside, should be reorganized as an agency for definitely participating in the operation of planned economy, a complete reorganization which is made possible only through organizing governmental and private economic mechanisms into a unitary system. Without taking such steps, the establishment of the Supreme Council will only create various frictions. For this reason the Government has made clear that in keeping with the perfection of the new economic structure the administrative machinery shall be reorganized and its functions be redefined. Thus the creation of the Supreme Economic Council has been deferred.
How the New System Will Work?
With regard to the question as to how the new economic system will work, the following account will explain it. When the State is in need of 10,000,000 tons of iron to be produced this year, the Government will notify the fact to the leaders of iron interests. Taking their recommendations into consideration, the Government will order the leaders to turn out the said amount of the metal, on the basis of the given labour and materials and of the specified qualities and prices. In this case, the said leaders are not only responsible to the State for the necessary production but also are vested with the power to decide the means of production and direct the enterprises for ensuring the required output. They will allot to each member producer the production quotas in accordance with the determined policy on condition that full play shall be given to production efficiency by coordinating the entire equipment, labour and materials. Producers, with these given quotas, are responsible to the leaders for the required amount, and on their own initiative and according to their abilities they are to choose the means and methods of production.
In this way the leaders of producers' groups will naturally have the power of supervision and leadership over the members of their groups and a voice in appointments and dismissals of those engaged in the enterprises concerned, as they are responsible to the Government
for the economic activities of each member producer. And the organization of these industrial groups is a machinery by which the Government will direct planned economy in conformity with the will and aims of the State. Further, throughout the entire process of organization and working of the system the principle of leadership must permeate, and from the leader of the highest group down to the lowest the leadership relation must be clarified. On this point the Government plan specifies that the economic groups shall be managed by the directors who are authorized by the Government upon the recommendation of their members, and that, in putting important policies and plans into practice, the economic groups of key industries shall direct the sub-structural groups and their members. Besides, the leaders of the groups are authorized to make inquiries into the operation of production, distribution and other activities, and to test the standards and qualities of the products, with a view to assuring the efficient working of their organizations.
In view of the above-mentioned functions of the groups, their legal status should be that of juristic persons. Since, however, they cannot be defined in terms of the existing laws relating to industrial and other associations, a new law must be enacted to legalize their status.
Basic Purpose of the New Structure
The basic objective of the new structure, as has been repeatedly stated, is to establish a system which will ensure the most effective utilization of the entire national strength. The modern economic system in Japan, due to its short history and to a scarcity of raw materials available for heavy industries, has been one centring on the industries related to such consumers' goods as textiles. The present world situation, however, calls for the immediate establishment of the heavy industry and expansion of productive capacity on the basis of self-sufficiency. Japan is accordingly required to reorganize her existing industrial setup which has been inadequate to meet the current national demand.
What is required first of all is to create a structure under which the combined strength of the given materials, labour and capital can be most effectively employed. This necessity has become particularly urgent since the conclusion of the Tripartite Pact in 1940. Nothing short of the realignment of the entire resources will be sufficient to meet the current crisis.
For effecting such a realignment, two methods may be thought
of. The one is the combination of enterprises and the other the organization of a cooperative type of production and management. What is adopted in the proposed new structure is the latter method relating to cooperative production and management.
Reorganization On the Cooperative Basis
A prerequisite for carrying out the second method is to organize national economy as a comprehensive cooperative system embracing all the enterprises as its units, which are grouped according to industries and their sub-divisions. This is no new idea. Such an all-embracing organization aiming at the establishment of the planned economic structure has already been explained. What needs to be emphasized, in this connection, however, is that each component unit must be organized as a body managed on a cooperative basis and that the groups of such bodies must also be managed on the same basis.
In this manner all enterprises can be managed most rationally and efficiently under a unified control. In the new structure, when necessary, productive operations may be concentrated upon certain enterprises having highly efficient and superior equipment, and in other circumstances part of the equipment may be operated, thereby eliminating waste in materials, labour and productive efforts and enhancing the productivity of the existing equipment. This is a decided advantage of the new system, and, therefore, this must be the system whereby the present emergency can be successfully met. Briefly, what is essential in the working of the new system is to establish the leadership principle founded upon the will of the State and at the same time to enable industrial enterprises and their groups to give full scope to their initiative and efficiency, with the consciousness that they are sharing in the responsibility of carrying out the national economic programme.