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65 5 JAPANESE CAPITALISM UNDER OCCUPATION Let us assume that an insular nation, which has an active trade with other nations and whose economic system may be conceived as in full development in our sense, is cut off from the outside world by an enemy fleet. Imports and exports alike are obstructed, the price and value system is shattered, obligations cannot be kept, the anchor chain of credit snaps . . . —Joseph Schumpeter, The Theory of Economic Development (1926) It was like a kind of experiment on a living body, the various processes of one economy returned to an extremely primitive point by the destruction of war; then developed into a modern economy; and all happening, both from the side of policy and from the side of the phenomena themselves, in a concentrated way. —Okita Saburo, in conversation with Arisawa Hiromi (1966) As a consequence of the war, energetic and material flows were constricted to famine levels. Sources of basic materials were cut off, and transportation and supply infrastructure was in a shambles. Essential foodstuffs and other materials that did continue to flow increasingly did so through illegal channels. At the same time, the circulation of money was amplified and speeded up, as if a great commercial boom needed to be financed. The contradictory movements of these two flows meant an immediate inflation of prices and set off a series of systemic transformations. Japanese industry was already in crisis by the time of Japan’s surrender on August 15, 1945. Production and distribution were choked off by competitive hoarding of scarce strategic materials, the near cutoff of inward shipments by the U.S. naval blockade, and air raid destruction. A panoply of state controls also made production look less and less capitalistic. Financial capital flowed mainly through a complicated administrative circuitry that combined de facto state funding for private industry with de facto forced loans from private industry to the state. After the surrender, business owners who had expected the procapitalist United States to deliver them from bureaucratic control were disappointed.1 66 CHAPTER 5 Instead, prolabor U.S. officials liberated their employees. By the end of September , Japanese business elites thus found themselves between a hammer and an anvil. From the base of the production hierarchy, workers collectively rejected the conditions under which they had been existing. The workers’ uprising began within days of the surrender, in the coal mines, the energetic fountainhead of the industrial economy. By November, hungry and now militant workers in various industries were subjecting business executives to public struggle meetings and setting up their own committees to take over control of production.2 Workers rushed to form unions, and newly reorganized Communist and Socialist groups took a lead in the organizing. Meanwhile, from “above the clouds,” in their stations in the new supergovernment that they placed atop the existing state hierarchy , U.S. occupation authorities rapidly dismantled police-state controls. They also identified big business as part of a military-industrial complex that had conducted and profited by Japan’s wars of aggression. Accordingly, they mandated the breakup of the zaibatsu big-business groups and began to purge from office the upper ranks of conservative business leadership and their politician allies. Shipyards and other industrial facilities were shut down and slated for removal as war reparations. Thus, the first U.S. policy initiative vis-à-vis Japanese industry undertook to dissolve Japanese capitalism as hitherto constituted. These circumstances added up to the most uncertain conditions in Japan’s modern industrial history. A program of new and capitalistically successful responses came out of this crisis. As for the “anchor chain of credit,” it did have to be let out considerably.3 But it did not snap. The economic policies of the U.S. occupation authorities during the first two and a half years of the occupation were an amalgam of activism and laissez-faire, of intense focus on some areas and tolerance of surprising Japanese government latitude in others. Japanese authorities compensated for their loss of control in areas targeted for reform by new initiatives elsewhere. Here, the ability to foresee new developmental possibilities under radically new environmental conditions was critical. In this respect, those who were most identified with the old order of things tended to be most at a loss. 5.1 Imagining Postwar Development Ouchi Hyoe later recalled the setting. “For about a year after the war,” he wrote, I often went to this burnt-out South Manchurian...

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